UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 12, 1998
NORWICH FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
34-0-17138 06-1226755
(Commission File Number) (IRS Employer
Identification No.)
4 Broadway, Norwich, Connecticut 06360
(Address of principal executive offices)
(860) 889-2621
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
This Current Report on Form 8-K reproduces the following
documents filed with the Federal Deposit Insurance Corporation by
People's Bank ("People's"), an entity which has agreed to acquire
Norwich Financial Corp.:
(1) Annual Report on Form F-2 for the year ended December 31,
1996;
(2) Quarterly Report on Form F-4 for the quarter ended March 31,
1997;
(3) Quarterly Report on Form F-4 for the quarter ended June 30,
1997;
(4) Quarterly Report on Form F-4 for the quarter ended September
30, 1997;
(5) Current Report on Form F-3 for the month of May, 1997;
(6) Current Report on Form F-3 for the month of September,
1997;
(7) People's Proxy Statement for the Annual Meeting of
Shareholders held on April 17, 1997; and
(8) The description of People's Common Stock contained in
Amendment No. 2 to People's Registration Statement on Form
F-1 dated December 30, 1997.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) The following Exhibits are filed herewith:
Exhibit
No. Description
- ------- -----------
99(1) Annual Report on Form F-2 for the year ended December 31,
1996;
99(2) Quarterly Report on Form F-4 for the quarter ended March
31, 1997;
99(3) Quarterly Report on Form F-4 for the quarter ended June 30,
1997;
99(4) Quarterly Report on Form F-4 for the quarter ended
September 30, 1997;
99(5) Current Report on Form F-3 for the month of May, 1997;
99(6) Current Report on Form F-3 for the month of September,
1997;
99(7) People's Proxy Statement for the Annual Meeting of
Shareholders held on April 17, 1997; and
<PAGE>
99(8) The description of People's Common Stock contained in
Amendment No. 2 to People's Registration Statement on Form
F-1 dated December 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NORWICH FINANCIAL CORP.
Dated: January 12, 1998 By /s/ Daniel R. Dennis, Jr.
-------------------------------
Daniel R. Dennis, Jr.
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
99(1) Annual Report on Form F-2 for the year ended December 31,
1996.
99(2) Quarterly Report on Form F-4 for the quarter ended March
31, 1997.
99(3) Quarterly Report on Form F-4 for the quarter ended June 30,
1997.
99(4) Quarterly Report on Form F-4 for the quarter ended
September 30, 1997.
99(5) Current Report on Form F-3 for the month of May, 1997.
99(6) Current Report on Form F-3 for the month of September,
1997.
99(7) People's Proxy Statement for the Annual Meeting of
Shareholders held on April 17, 1997.
99(8) The description of People's Common Stock contained in
Amendment No. 2 to People's Registration Statement on Form
F-1 dated December 30, 1997.
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
Fiscal Year Ended December 31, 1996
FDIC Certificate Number 27334
PEOPLE'S BANK
---------------------------------------
(Exact name of bank as specified in its charter)
Connecticut
-------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-1213065
--------------------------
(I.R.S. Employer Identification No.)
850 Main Street, Bridgeport, Connecticut
--------------------------------------------
(Address of principal office)
06604
-------------
(Zip Code)
Bank's telephone number, including area code: (203) 338-7171
Securities registered under section 12(b) of the Act:
Not applicable
Securities registered under section 12(g) of the Act:
Title of class: Common Stock, without par value
Indicate by check mark if the bank, as a "small business issuer"
as defined under 17 CFR 240.12b-2, is providing alternative
disclosures as permitted for small business issuers in this Form
F-2. [ ]
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 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
--- ---
The aggregate market value of voting stock held by non-affiliates
of the registrant, based upon the last reported sales price of
its common stock on February 18, 1997 on the National Association
of Securities Dealers Automated Quotation National Market System,
was $572,228,405.
Indicate the number of shares outstanding of each of the bank's
classes of common stock, as of the latest practicable date:
40,649,383 shares of common stock as of February 18, 1997
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Table of Contents
Page
----
Statement re: Documents Incorporated by Reference 1
Part I
Item 1 - Business 2
Item 2 - Properties 6
Item 3 - Legal Proceedings 7
Item 4 - Security Ownership of Certain Beneficial
Owners and Management 8
Part II
Item 5 - Market for the Bank's Common Stock
and Related Security Holder Matters 8
Item 6 - Selected Financial Data 9
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8 - Financial Statements and Supplementary Data 9
Part III
Item 9 - Directors and Principal Officers of the Bank 10
Item 10 - Management Compensation and Transactions 10
Part IV
Item 11 - Exhibits, Financial Statement Schedules,
and Reports on Form F-3 11
Signatures 15
<PAGE>
Documents Incorporated by Reference
Parts I and II:
Portions of People's Bank's Annual Report to Stockholders for the
year ended December 31, 1996 (Exhibit I) are incorporated by
reference into Parts I and II hereof.
Parts I and III:
Portions of People's Bank's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on April 17, 1997 are
incorporated by reference into Parts I and III hereof. The
definitive copy of such Proxy Statement is to be filed with the
FDIC on March 7, 1997.
<PAGE>
People's Bank
Form F-2
Part I
Item 1 - Business
General
- -------
People's Bank, a Connecticut capital stock savings bank, is the
largest independent bank in Connecticut with $7.6 billion in
total assets as of December 31, 1996. People's was organized in
1842 as a mutual savings bank and converted to stock form in
1988. People's is headquartered in Bridgeport, Connecticut.
People's offers a wide range of banking, fiduciary and other
financial services to develop total business relationships with
its corporate, individual and institutional customers. In
addition to traditional banking services of accepting deposits
and making loans, People's provides specialized services tailored
to specific markets, including personal, institutional and
employee benefit trust services, personal financial services,
customer access to mutual funds, cash management services,
certain international banking services and municipal banking and
finance services. People's primary market area is the state of
Connecticut, although it has a national credit card program and
in 1996 established a limited branch in the United Kingdom to
further expand its credit card business. People's also provides
its customers with access to a worldwide automated teller machine
network, 24-hour telephone banking services, PC banking services
and interactive video banking. At December 31, 1996, People's had
72 traditional branches and 21 supermarket branches located in
Fairfield, Hartford, New Haven, Litchfield and Tolland Counties.
Over the next two years, People's expects to open 24 additional
full service supermarket branches in Connecticut Stop & Shop
superstores.
People's has two major lines of business: consumer banking and
commercial banking. Within consumer banking, People's offers
products and services such as credit cards, residential mortgage
loans, home equity credit lines, other secured and unsecured
consumer loans, consumer demand deposit accounts, Pay-By-Phone
services, NOW accounts, savings and money market accounts,
certificates of deposit, individual retirement accounts, trust
and financial management services and savings bank life
insurance. People's also provides discount securities brokerage
services and mutual funds sales through its wholly owned
subsidiary, People's Securities, Inc. Within its commercial
banking line of business, People's offers products and services
such as secured and unsecured commercial loans, commercial demand
deposit accounts, asset-based lending services and cash
management services. In addition, People's extends commercial
real estate loans for income-producing properties primarily
located in Connecticut. Further discussion of People's business
and operations appears on pages 26 through 53 of the Annual
Report (attached to this Report as Exhibit I) and is herein
incorporated by reference.
2
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Supervision and Regulation
- --------------------------
As a state-chartered non-member savings bank, People's is subject
to direct supervision and regulation by the State of Connecticut
Department of Banking and the Federal Deposit Insurance
Corporation ("FDIC"). In addition, People's parent organization,
People's Mutual Holdings ("Holdings"), is a mutual bank holding
company subject to regulation by the Board of Governors of the
Federal Reserve System (the "FRB"). Consequently, People's is
subject to indirect regulation by the FRB. As a result, People's
is subject to periodic examinations, compliance with various
reporting requirements, limitations on the conduct of certain
non-banking activities and limitations as to investing powers.
Mutual Holding Company Structure
Effective January 1, 1995, the FDIC adopted final regulations
governing mutual-to-stock conversions, and mutual holding company
reorganizations, of state-chartered savings banks. The rules
impose certain substantive and procedural requirements on state
savings banks that propose to convert from mutual to stock form
and on mutual holding company reorganizations. The final
regulations require prior approval by the FDIC for newly
converting institutions whose holding companies wish to waive
dividends. The conversion regulations do not require prior FDIC
approval for dividend waivers by mutual holding companies, such
as Holdings, that were in existence prior to January 1, 1995.
During 1995 and 1996, several mutual holding companies undertook
"second step" conversions, pursuant to which the holding company
"demutualized" and the remaining entity was owned entirely by
public shareholders. In at least one of these "second step"
conversions, the FDIC required that the ownership percentage of
the public minority shareholders of the converting bank be
diluted to reflect the amount of cash dividends that had been
previously waived by the former mutual holding company. People's
is not able to predict whether the FDIC will impose similar
requirements for dilution of public minority shareholders in
connection with future "second step" conversions.
Neither People's, nor the Board of Trustees of Holdings, has
expressed any intention to undertake a "second step" conversion
in the future; indeed, it is unclear as to whether Connecticut
law provides for such a "second step" conversion.
3
<PAGE>
Federal Deposit Insurance Corporation
Improvement Act of 1991("FDICIA")
FDICIA was intended to reform the federal deposit insurance
system and improve the supervision and enforcement powers of the
banking agencies. Of particular importance to People's are the
provisions of FDICIA that provide that state-chartered banks and
their subsidiaries may engage (as principal) only in those
activities permitted to national banks and their subsidiaries.
While national banks are generally not permitted to invest in
equity securities, FDICIA contains an exception permitting the
continued investment by certain state-chartered banks in equity
securities listed on national securities exchanges and in shares
of companies registered under the Investment Company Act of 1940.
FDICIA requires, however, that such equity investments in the
future not exceed 100% of a bank's Tier 1 capital; moreover,
FDICIA allows the FDIC to further limit the amount of such equity
securities investment, based upon an institution's capital
position and overall financial condition. In 1993, the Regional
Director of the FDIC approved People's application to continue
such equity investments, provided that the total amount of such
investments does not exceed 100% of People's Tier 1 capital. The
approval further provided that, in the event People's intended to
invest in equity securities in excess of 25% of its Tier 1
capital, People's must give 10 days written notice to the FDIC.
As of December 31, 1996, the amount invested by People's in
permissible equity securities investments represented
approximately 36% of its Tier 1 capital. In March 1995, People's
received permission from the FDIC to invest up to 100% of Tier 1
capital in adjustable rate and money market preferred stock. The
FDIC requires 10 business days prior notice from People's if such
investments are expected to exceed 80% of Tier 1 capital. In
addition, investments in any one issuer may not exceed 15% of
People's Tier 1 capital, and People's must continue to meet, at a
minimum, the definition of an adequately capitalized institution.
At December 31, 1996, the amount invested by People's in
adjustable rate and money market preferred stock represented
approximately 42% of Tier 1 capital.
No similar statutory exception exists with respect to FDICIA's
prohibition on direct equity investments in real estate. Rather,
FDICIA requires that a state-chartered bank engaged in equity
investments in real estate prepare a plan of divestiture for such
real estate investments and complete such divestiture no later
than December 19, 1996. People's has disposed of all direct real
estate equity investments under the terms of approved plan of
divestiture, and the FDIC has approved the continued holding by
People's of certain indirect real estate investments through its
subsidiaries. People's does not expect that the divestiture of
its remaining indirect real estate equity investments will have a
material impact on its financial condition or operating results.
Another requirement of FDICIA affecting all federally insured
institutions is the prescription that the federal banking
agencies arrive at a uniform set of guidelines regarding real
estate lending practices. These guidelines require that
institutions adopt real estate lending policies, which, among
other things: contain limitations on maximum loan-to-value
ratios, by property type, in the underwriting of such real estate
loans; limit the total amount of real estate loans in excess of
such loan-to-value ratios to no more than 100% of Total capital;
require certain necessary documentation in the underwriting of
real estate loans; and mandate the annual review by the Board of
Directors of such real estate lending policies. The
implementation of these guidelines did not have a material impact
on People's real estate lending activities.
4
<PAGE>
Deposit Insurance
Deposits in People's are separately insured by the FDIC to the
applicable maximum limits. The annual assessment for FDIC
insurance is a percentage of the insured institution's total
amount of assessable deposits. Pursuant to FDICIA, the FDIC
adopted a regulation that bases an institution's deposit
insurance assessment rate partly upon whether the institution is
"well capitalized," "adequately capitalized," or "less than
adequately capitalized." Each insured depository institution is
also assigned to one of three "supervisory subgroups" based on
reviews by the institution's primary federal or state regulator,
statistical analyses of financial statements, and other
information relevant to gauging the risk posed by the
institution. Based on these capital and supervisory subgroups,
each institution is assigned an annual FDIC assessment rate. The
FDIC has authority to increase these rates to maintain the Bank
Insurance Fund ("BIF") at its designated reserve ratio, and may
raise the reserve ratios of the deposit insurance funds if
justified by circumstances raising a significant risk of
substantial future losses to the funds. Pursuant to the Deposit
Insurance Funds Act of 1996 (which was signed into law on
September 30, 1996), beginning on January 1, 1997 People's will
be required to pay an additional annual assessment, expected to
be approximately 0.013% of deposits, which will be used to pay
debt service on certain obligations issued by the Financing
Corporation in connection with funding operations of the Federal
Savings and Loan Insurance Corporation prior to the latter's
dissolution in 1989. After December 31, 1999, or possibly
earlier, this assessment is scheduled to increase to a rate that
is currently estimated to be approximately 0.024% of deposits.
5
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Market Area and Competition
- ---------------------------
People's primary market area is the state of Connecticut,
although if conducts a nationwide credit card business and, in
1996, established a limited purpose branch in the United Kingdom
to further expand the credit card business. People's experiences
competition for deposits and loans from commercial banks, savings
institutions, specialty credit card banks, commercial and
consumer finance companies, mortgage banking companies, insurance
companies, credit unions and a variety of other institutional
lenders and securities firms. The principal basis of competition
for deposits is the interest rate paid, convenient access to
services through traditional and non-traditional delivery
alternatives and the quality of service to its customers. The
principal basis of competition for loans is through the interest
rates and loan fees charged and by developing relationships based
on the efficiency, convenience and quality of services provided
to borrowers. People's principal basis of competition in the
credit card business is as a low fixed-rate provider of these
services.
As a result of federal legislation adopted in 1994, interstate
branching provisions will become effective on June 1, 1997.
Current law governing interstate banking generally allows banks
to merge across state lines to form a single institution.
Interstate merger transactions can be used to consolidate
existing multi-state operations or to acquire new branches. Banks
will be able to establish a new branch as an initial entry into a
state only if the state has authorized de novo branching. Banks
established outside of Connecticut will be allowed to establish
de novo branches in Connecticut unless Connecticut takes action
to opt out of this legislation before that time. These
developments will likely result in greater competition within the
Connecticut banking market from financial institutions previously
restricted from entering the market directly.
Personnel
- ---------
As of December 31, 1996, People's had 2,436 full-time and 590
part-time employees.
Item 2 - Properties
People's corporate headquarters is located at Bridgeport Center,
which is owned by People's and had a net book value of $93.5
million at December 31, 1996. People's occupies approximately 80%
of Bridgeport Center; all other available office space has been
leased to third parties. At December 31, 1996, People's also
conducted banking operations from its 72 traditional branches and
21 supermarket branches. People's branch network is mostly
concentrated in Fairfield County, where it has 48 offices.
People's also has 21 offices in Hartford County, 20 in New Haven
County, three in Tolland County, and one in Litchfield County.
People's owns 11 of its banking offices, which had an aggregate
net book value of $5.7 million at December 31, 1996. People's
remaining banking operations, including its United Kingdom credit
card business, are conducted in leased offices. Information
regarding People's operating leases for office space and related
rent expense appears on page 79 of the Annual Report (attached to
this Report as Exhibit I) and is herein incorporated by
reference.
6
<PAGE>
In addition to branch offices and Bridgeport Center, People's
owned five additional banking facilities with an aggregate net
book value of $20.3 million at December 31, 1996. These
facilities are used for various purposes, including the
headquarters for PSI.
Item 3 - Legal Proceedings
Silverberg. On November 29, 1990 (as amended), in the United
States District Court, District of Connecticut, Herbert
Silverberg, on behalf of himself and others similarly situated,
brought a lawsuit against People's and the following present and
former officers: David E. A. Carson, John L. Flannery, James P.
Biggs, Leonard N. Mainiero, Raymond P. Granville, Jeffrey L.
Coulson, and Joseph S. Kastrup. With the exception of Mr.
Kastrup, who resigned in August 1990, Mr. Flannery, who retired
in September 1991, Mr. Coulson, who resigned in December 1991,
and Mr. Mainiero, who retired in May 1994, the named officers
remain in their respective positions with People's. The complaint
as amended alleges that People's and the named officers violated
Federal securities laws and committed fraud by making allegedly
incomplete, misleading or false statements regarding People's
financial condition. The plaintiff alleges that he is a
shareholder of People's and seeks to have the lawsuit certified
as a class action representing all non-bank affiliated
shareholders. The plaintiff seeks unspecified compensatory and
punitive damages, interest and costs, including reasonable fees
for attorneys, accountants and other experts.
On September 16, 1991, People's filed a motion to dismiss the
amended complaint on the grounds that the amended complaint
failed to plead fraud with particularity as required by the
Federal Rules of Civil Procedure and also that it failed to state
a claim upon which relief could be granted. On April 7, 1992, the
United States District Court issued a ruling which denied
People's motion to dismiss the amended complaint. It should be
noted that, in making its ruling, the Court stated that it did
not intimate any views on the merits of the plaintiff's claims or
on their viability in the event of a motion for summary judgment
after conclusion of discovery. People's filed its answer to the
amended complaint on April 15, 1992.
On June 9, 1992, People's entered into a Stipulation with the
plaintiff agreeing to the entry of an Order providing for
conditional certification of a class pursuant to Rule 23(b)(3) of
the Federal Rules of Civil Procedure. The court issued an Order
pursuant to the Stipulation on June 15, 1992. Pursuant to the
Stipulation and the Order, this case was conditionally certified
to be maintained as a class action. The class consists of "all
persons who purchased equity securities of People's Bank from
July 6, 1988 to November 29, 1990, excluding the individual
defendants, members of their immediate family, their heirs,
successors and assigns, and any entity controlled by any of the
individual defendants, and People's Bank and any subsidiary or
affiliate of People's Bank..." In reaching the agreement to enter
into a Stipulation, the plaintiff expressly did not concede or
acknowledge that the wrongdoing alleged in the complaint as
amended terminated on November 29, 1990, and People's did not
concede or acknowledge that the claims in this action have any
merit.
Management believes that People's and the named officers have
meritorious defenses to the claims alleged by the plaintiff; the
matter is being contested vigorously. Management is not aware of
any similar proceeding or action being contemplated by any
governmental authorities.
7
<PAGE>
The Golden Hill Paugussett Tribe of Indians. On August 20, 1993 a
lawsuit was filed in the Bridgeport Superior Court by The Golden
Hill Paugussett Tribe of Indians (the "Tribe") against People's.
The Tribe alleges that it has exclusively owned, used and
occupied "since time immemorial" a certain parcel of land,
located in the City of Bridgeport, Connecticut (the "Property").
People's currently holds record title to the Property on which
Bridgeport Center, its headquarters office is built. The Tribe is
seeking (1) a determination by the Superior Court that it is the
sole and rightful owner of the Property, (2) the restoration of
possession of the Property and an award of rents and profits, and
(3) attorneys fees, costs of litigation, and such further relief
that the court deems just. At this time, People's does not
believe that the claim has merit and has referred the matter to
the title insurance company, which insures the Property, for
defense.
People's has in place a liability insurance policy held on behalf
of its directors and officers. The policy provides reimbursement
for adjudicated damages, settlements and defense expenses
incurred by its directors and officers arising out of any actual
or alleged negligent act, error, misstatement, misleading
statement, omission, or breach of duty by officers or directors
in the discharge of their duties solely in their capacities as
individuals occupying the position of director or officer of
People's. It is currently anticipated that all or a portion of
the claims made against the officers may be covered under this
policy, subject to the applicable deductibles.
In the opinion of management, People's financial condition will
not be affected materially as a result of the outcome of the
foregoing legal proceedings.
Item 4 - Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is included on pages 1
through 4 of the Proxy Statement and is herein incorporated by
reference.
Part II
Item 5 - Market for the Bank's Common Stock and Related Security
Holder Matters
The common stock of People's is traded on the NASDAQ National
Market System under the symbol PBCT. At January 31, 1997, there
were approximately 7,500 record holders of People's common stock.
Additional information required by this item is incorporated by
reference to pages 71 - 73 and 83 of the Annual Report (Exhibit
I).
8
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Item 6 - Selected Financial Data
The information required by this item appears on the inside front
cover of the Annual Report (attached to this Report as Exhibit I)
and is herein incorporated by reference.
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this item appears on pages 26 through
53 of the Annual Report (attached to this Report as Exhibit I)
and is herein incorporated by reference.
Statistical Information
- -----------------------
Certain statistical information appears in People's Annual Report
(attached to this Report as Exhibit I) and is herein incorporated
by reference, as follows:
Description of Statistical Information Annual Report Page(s)
- -------------------------------------- ---------------------
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differentials 28 - 30
Securities Portfolio 37
Loan Portfolio 39-47
Summary of Loan Loss Experience 31-32
Deposits 30, 47-48
Return on Equity and Assets 25
Borrowings 49
A discussion of the Impact of Inflation is filed as Exhibit II to
this Report, and is herein incorporated by reference.
Item 8 - Financial Statements and Supplementary Data
The information required by this item appears on pages 54 through
84 of the Annual Report (attached to this Report as Exhibit I)
and is herein incorporated by reference. Supplemental financial
statement schedules are filed as Exhibit VI to this Report, and
are herein incorporated by reference.
9
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Part III
Item 9 - Directors and Principal Officers of the Bank
Directors of the Bank
- ---------------------
The information required by this item appears on pages 5 through
9 of the Proxy Statement and is herein incorporated by reference.
Principal Officers of the Bank
- ------------------------------
The name, age, principal occupation and business experience for
at least the last five years of each principal officer who is not
a director of People's is set forth below as of February 18,
1997. For purposes of this discussion, "People's" includes the
present stock-form bank as well as its predecessor mutual-form
bank prior to its reorganization in 1988.
Edward H. Bucnis, age 58, has been an Executive Vice
President (Operations Division) of People's since 1985. Mr.
Bucnis has served in various capacities for People's since 1974.
Bryan J. Huebner, age 46, has been Executive Vice President
(Consumer Financial Services) since August 1996. Mr. Huebner has
served in various capacities for People's since 1975.
John A. Klein, age 47, has been an Executive Vice President
(Credit Card Services) of People's since February 1994. Mr. Klein
has served in various capacities for People's since 1971.
William T. Kosturko, age 48, has been an Executive Vice
President of People's since July 1994 and has been General
Counsel of People's since joining People's in October 1991.
George W. Morriss, age 49, has been Executive Vice President
and Chief Financial Officer of People's since September 1991. Mr.
Morriss has served in various capacities for People's since 1982.
Louis H. Ulizio, Jr., age 58, has been Executive Vice
President (Commercial Banking Division) of People's since October
1991.
Item 10 - Management Compensation and Transactions
The information required by this item appears on pages 9 through
23 of the Proxy Statement and is herein incorporated by
reference.
10
<PAGE>
Part IV
Item 11 - Exhibits, Financial Statement Schedules, and Reports
on Form F-3
(a)(1) The following financial statements of People's and the
independent auditors' report thereon are incorporated by
reference to pages 54 through 84 of the Annual Report
(which is attached hereto as Exhibit I):
Consolidated Statements of Condition as of December 31,
1996 and 1995
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) The following supplemental financial statement schedules
required to be filed by Item 8 of Form F-2 are filed as
part of this Report (and are attached hereto as Exhibit
VI):
Schedule IV - Bank Premises and Equipment
Schedule V - Investments in, Income from Dividends, and
Equity in Earnings or Losses of Subsidiaries
and Associated Companies
The following supplemental financial statement schedules
required to be filed by Item 8 of Form F-2 are incorporated
by reference to the Annual Report (which is attached hereto
as Exhibit I):
Schedule I - Securities (Annual Report - page 64)
Schedule VI - Allowance for Loan Losses (Annual Report
- pages 31-32)
The independent auditors' report on the foregoing schedules
is filed as part of Exhibit VI to this Report.
Schedule II (Loans to Officers, Directors, Principal
Security Holders, and Any Associates of the Foregoing
Persons) is not applicable.
Schedule III - (Loans) is filed as part of Exhibit IV
to this Report.
11
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(b) Exhibits
The following exhibits are filed with this Report or are
incorporated herein by reference. Each exhibit identified by an
asterisk constitutes a management contract or compensatory plan,
contract or arrangement.
Exhibit I Annual Report Furnished to Security Holders
for the Year Ended December 31, 1996
Exhibit II Impact of Inflation (filed as Exhibit II)
Supplemental Financial Statement Schedules Required to be filed
by Item 8:
Exhibit III Computation of Net Income Per Common Share
Exhibit IV Other Statistical Data
Exhibit V Wholly Owned Subsidiaries
Exhibit VI Schedule IV - Bank Premises and Equipment
Schedule V - Investments in, Income from
Dividends, and Equity in Earnings or Losses
of Subsidiaries and Associated Companies
Independent Auditors' Report on Supplemental
Financial Statement Schedules
Other Exhibits:
Exhibit VII Management's Report on the Effectiveness of
the Internal Control Structure over Financial
Reporting and Compliance with Designated Laws
and Regulations
Exhibit VIII Independent Accountants' Report on
Management's Assertion Regarding the Internal
Control Structure over Financial Reporting
Exhibit IX Directors, Officers and Trustees Liability
Insurance Policy (Omitted and filed
separately with the Federal Deposit Insurance
Corporation)
Exhibit X(i) Articles of Incorporation (incorporated by
reference to Exhibit X(i) to People's Annual
Report on Form F-2 for the fiscal year ended
December 31, 1995))
Exhibit X(ii) Bylaws, as amended (incorporated by reference
to Exhibit X(ii) to People's Annual Report on
Form F-2 for the fiscal year ended December
31, 1994)
12
<PAGE>
Exhibit XI Instruments Defining the Rights of Security
Holders (incorporated by reference as
Exhibits X(i) and X(ii))
* Exhibit XII(i) Executive Employment Agreement, dated January
1, 1985, between People's and David E.A.
Carson (incorporated by reference to Exhibit
4(ix) to People's Registration Statement on
Form F-1, dated June 23, 1988)
* Exhibit XII(ii) Supplemental Retirement Agreement, dated
March 12, 1992, between People's and Louis H.
Ulizio, Jr. (incorporated by reference to
Exhibit XII(ii) to People's Annual Report on
Form F-2 for the fiscal year ended December
31, 1994)
* Exhibit XIII(i) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and James
P. Biggs (incorporated by reference to
Exhibit XIII(i) to People's Annual Report on
Form F-2 for the fiscal year ended December
31, 1994)
* Exhibit XIII(ii) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and
Edward H. Bucnis (incorporated by reference
to Exhibit XIII(ii) to People's Annual Report
on Form F-2 for the fiscal year ended
December 31, 1994)
* Exhibit XIII(iii) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and John
A. Klein (incorporated by reference to
Exhibit XIII(iii) to People's Annual Report
on Form F-2 for the fiscal year ended
December 31, 1994)
* Exhibit XIII(iv) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and
William T. Kosturko (incorporated by
reference to Exhibit XIII(iv) to People's
Annual Report on Form F-2 for the fiscal year
ended December 31, 1994)
* Exhibit XIII(v) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and
George W. Morriss (incorporated by reference
to Exhibit XIII(v) to People's Annual Report
on Form F-2 for the fiscal year ended
December 31, 1994)
* Exhibit XIII(vi) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
February 17, 1994, between People's and Louis
H. Ulizio, Jr. (incorporated by reference to
Exhibit XIII(vi) to People's Annual Report on
Form F-2 for the fiscal year ended December
31, 1994)
13
<PAGE>
* Exhibit XIII(vii) Agreement for Compensation on Discharge
Subsequent to a Change in Control, dated
August 15, 1996, between People's and Bryan
J. Huebner (filed herewith)
* Exhibit XIV People's Bank 1988 Long-Term Incentive Plan
(incorporated by reference to Exhibit 5 to
People's Registration Statement on Form F-1,
dated June 23, 1988)
* Exhibit XV Short Term Incentive Plan for Key Employees
of People's Bank (filed herewith)
* Exhibit XVI 1997-1999 Performance Unit Plan (filed
herewith)
* Exhibit XVII The People's Bank Amended and Restated
Employees' Retirement Plan (incorporated by
reference to Exhibit XVII to People's Annual
Report on Form F-2 for the fiscal year ended
December 31, 1995)
* Exhibit XVIII The People's Bank Amended and Restated
Supplemental Retirement Plan (incorporated by
reference to Exhibit XVIII to People's Annual
Report on Form F-2 for the fiscal year ended
December 31, 1994)
* Exhibit XIX People's Bank 401(k) Employee Savings Plan
(incorporated by reference to Exhibit XIX to
People's Annual Report on Form F-2 for the
fiscal year ended December 31, 1994)
* Exhibit XX People's Bank Amended and Restated
Supplemental Savings Plan (incorporated by
reference to Exhibit XX to People's Annual
Report on Form F-2 for the fiscal year ended
December 31, 1994)
* Exhibit XXI The People's Bank Directors' Retirement Plan
(incorporated by reference to Exhibit XXI to
People's Annual Report on Form F-2 for the
fiscal year ended December 31, 1994)
* Exhibit XXII People's Bank Amended and Restated Deferred
Compensation Plan for Directors (incorporated
by reference to Exhibit X to People's Annual
Report on Form F-2 for the fiscal year ended
December 31, 1991)
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, People's has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
PEOPLE'S BANK
Date: February 20, 1997 By: /s/ David E. A. Carson
------------------------------
David E. A. Carson
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: February 20, 1997 By: /s/ David E. A. Carson
------------------------------
David E. A. Carson
President and
Chief Executive Officer
Date: February 20, 1997 By: /s/ George W. Morriss
------------------------------
George W. Morriss
Executive Vice President and
Chief Financial Officer
Date: February 20, 1997 By: /s/ Carlos R. Mello
------------------------------
Carlos R. Mello
Senior Vice President and
Comptroller
Date: February 20, 1997 By: /s/ James P. Biggs
------------------------------
James P. Biggs
Director
Date: February 20, 1997 By: /s/ George P. Carter
------------------------------
George P. Carter
Director
Date: February 20, 1997 By: /s/ Joseph E. Clancy
------------------------------
Joseph E. Clancy
Director
Date: February 20, 1997 By: /s/ George R. Dunbar
------------------------------
George R. Dunbar
Director
15
<PAGE>
Date: February 20, 1997 By: /s/ Norwick R. G. Goodspeed
------------------------------
Norwick R. G. Goodspeed
Director
Date: February 20, 1997 By: /s/ Eunice S. Groark
------------------------------
Eunice S. Groark
Director
Date: February 20, 1997 By: /s/ Samuel W. Hawley
------------------------------
Samuel W. Hawley
Director
Date: February 20, 1997 By: /s/ Betty Ruth Hollander
------------------------------
Betty Ruth Hollander
Director
Date: February 20, 1997 By:
------------------------------
Saul Kwartin
Director
Date: February 20, 1997 By: /s/ Jean M. LaVecchia
------------------------------
Jean M. LaVecchia
Director
Date: February 20, 1997 By: /s/ Jack E. McGregor
------------------------------
Jack E. McGregor
Director
Date: February 20, 1997 By: John F. Merchant
------------------------------
John F. Merchant
Director
Date: February 20, 1997 By: /s/ Wilmot F. Wheeler, Jr.
------------------------------
Wilmot F. Wheeler, Jr.
Director
16
<PAGE>
Exhibit I
Annual Report Furnished to Security Holders
for the Year Ended December 31, 1996
<PAGE>
people's bank
http: //www.peoples.com
1996 Annual Report
<PAGE>
[beginning of cover insert]
[Outside of cover insert:]
We're not
like any other
bank
people's bank
"We plan to be
a 21st Century
financial services
company with
a bank charter."
people's bank
Bridgeport Center
850 Main Street
Bridgeport
Connecticut 06604
http://www.peoples.com
[Inside of cover insert:]
innovating
challenging
empowering
educating
growing
People
We're not like any other bank. We're not a small local
bank. Nor are we a money center or regional bank. We are People's
Bank and we are different by design.
We're currently building from within, not through
acquisitions. We happen to believe that making our own
organization stronger is better than downsizing other people's
businesses. This adds value, at a much lower cost, for our
stockbuilders and communities.
[Photograph "Customers enjoy the convenience
of the TJX/Visa/People's Bank card while
shopping at Marshalls."]
We also know that money is a very personal thing, and, as a
result, our emphasis is on people. We offer our customers
innovative concepts, leading-edge technologies and spirited
personnel who have the power to make decisions. Simply put: We
marry the best technologies with the best people. New concepts
are embraced - not only because we thing they will be faster or
more efficient - but because they allow us to offer customers
something better.
This customer focus defines all our businesses. Whether a
customer is starting a business, investing for retirement, or
shopping for the best mortgage package or credit card value, our
goal is to earn a "wow" response.
Financial assets are important, but time is precious too.
It's not just when and where we provide services . . . but how
fast . . . and how well.
Less than a decade ago, customers preferred to bank in
traditional branches. Today more and more people are demanding
convenient technologies for their financial needs. These services
are changing, with new channels including supermarket offices,
personal computers, video banking and Internet access. But
delivery systems are only as good as the products and services
they offer, and the people behind them. We strive to offer the
best.
We plan to be a 21st Century financial services company
with a bank charter. To realize this, we must invest in
leadership, encourage innovation and embrace change. Our focus on
people is the difference. This commitment has made us the bank we
are today. It's our heritage. And our future.
/s/ David E.A. Carson
David E.A. Carson
President and CEO
People's Bank
[end of cover insert]
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Selected Consolidated Financial Data
Financial Highlights
As of and for the years ended December 31
(dollars in millions, except per share data)
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
Operating Data:
Net Income $ 80.1 $ 71.0 $ 70.1 $ 56.3 $ 7.0
Pre-tax income 101.1 114.0 64.9 41.6 7.6
Net Interest income 234.5 231.6 246.6 219.5 206.3
Provision for loan losses 51.1 39.9 50.9 56.0 96.5
Operating income 399.7 383.2 356.5 334.8 292.5
Fee-based revenues 148.8 140.1 108.6 92.1 70.7
Non-interest expense 259.0 229.8 237.4 240.0 205.5
- --------------------------------------------------------------------------------------
Selected Statistical Operating Data:
Net interest margin-managed
portfolio 4.18% 4.25% 4.40% 4.25% 4.00%
Net interest margin-owned
portfolio 3.70 3.92 4.28 4.19 4.00
Interest rate spread-managed
portfolio 3.65 3.75 4.05 3.97 3.78
Interest rate spread-owned
portfolio 3.11 3.37 3.91 3.91 3.78
Return on average assets 1 1.13 1.09 1.11 0.71 0.08
Return on average
stockholders'equity 1 13.8 14.0 15.6 10.8 1.4
Efficiency ratio-managed
portfolio 54.9 52.9 59.2 65.7 63.2
Efficiency ratio-owned
portfolio 63.8 58.2 61.1 66.1 63.2
- --------------------------------------------------------------------------------------
Financial Condition Data:
Total assets-managed portfolio $8,979 $8,062 $7,284 $ 6,600 $ 5,691
Total assets-owned portfolio 7,645 6,862 6,484 6,400 5,691
Loans, net-managed portfolio 6,523 5,578 5,084 4,514 4,188
Loans, net-owned portfolio 5,189 4,378 4,284 4,314 4,188
Securities, net 1,703 1,686 1,512 1,459 779
Deposits 5,245 4,836 4,654 4,721 4,934
Borrowings 1,695 1,392 1,297 1,193 399
Stockholders' equity 618 550 469 426 307
Total non-performing assets 101 95 124 250 343
Ratios:
Non-performing assets to
total assets 1.32% 1.38% 1.91% 3.90% 6.04%
Net loan charge-offs to
average loans 0.81 0.99 1.27 1.47 2.61
Allowance for loan losses
to total loans 1.66 1.68 1.78 1.82 1.97
Average stockholders' equity
to average assets 8.2 7.8 7.1 6.6 5.2
Stockholders' equity to
total assets 8.1 8.0 7.2 6.6 5.4
Tier 1 leverage capital 7.9 7.6 7.1 6.7 5.4
Tier 1 risk-based capital 10.0 10.9 10.1 9.5 7.4
Total risk-based capital 13.9 12.1 11.3 10.7 8.7
- --------------------------------------------------------------------------------------
Per Share Data:
Net income per common share:
Primary $ 1.98 $ 1.81 $ 1.89 $ 1.63 $ 0.22
Fully diluted 1.96 1.74 1.73 1.58 0.22
Common stock dividends paid 0.80 0.64 0.47 0.06 -
Common book value 15.24 13.83 11.90 10.90 9.40
Common stock price:
High 30-1/8 23-1/8 16-1/8 10 7-1/4
Low 18-1/2 11-3/8 8-3/8 5-1/2 1-3/4
Close 28-7/8 19 11-7/8 9 5-5/8
Total dividend payout ratio 2 17.1% 15.4% 13.6% 5.9% - %
- --------------------------------------------------------------------------------------
</TABLE>
1 Percentage is based on income before extraordinary credit
and cumulative effect of accounting changes. Based on net
income for 1994, 1993 and 1992, the return on average assets
was 1.11%, 0.97% and 0.12%, respectively, and the return on
average stockholders' equity was 15.6%, 14.7% and 2.3%,
respectively.
2 Reflects the waiver of common stock dividends paid on
substantially all of the shares owned by People's Mutual
Holdings, and includes cash dividends paid on noncumulative
convertible preferred stock issued in May 1993 and retired
in September 1996.
See the Glossary on page 24 for definitions of certain items
in this table.
<PAGE>
The Year in Review
Closing Stock Price Managed Efficiency Ratio
(dollars) (percent)
[Bar Graph] [Bar Graph]
Dividends Per Share Managed Credit Card
Receivables
(dollars) (in billions)
[Bar Graph] [Bar Graph]
Net Income Per Share Return on Equity
(dollars) (percent)
[Bar Graph] [Bar Graph]
<PAGE>
Table of Contents
2 Letter To Stockholders
5 Investing For The Future
11 Not Like Any Other Bank
12 Credit Card Cash In A Crunch
14 Hard Work And Hard Hats
16 Cash Counsel On The Web
18 Super Banking In A Market
20 Focusing On Connecticut
23 The Financial Report
Quotes from "Being Digital" By Nicholas P. Negroponte
courtesy of Alfred A. Knopf Inc., New York.
<PAGE>
Embracing The Future
"As the business world globalizes and
the Internet grows, we will start to see
a seamless digital workplace."
Being Digital
<PAGE>
At People's Bank, we are embracing
a fundamental transformation in
the financial services industry.
Dear Stockholder:
The typical bank today is
an anachronism. Surprising words,
perhaps, from a banker. But
People's is not a typical bank.
We are preparing for a future
where banks -- as we know them
-- may not exist.
Financial services are converging. Already, People's
provides consumer and commercial banking, credit cards,
insurance, securities and annuities. In the not-too-distant
future, financial services companies will not exist separately as
banks, or insurance companies, or investment firms. And
distribution channels are becoming digital. How we serve
customers and how they access us in this new electronic
environment are critical to this change.
To succeed in such a future, we need not only products that
meet customer needs, but systems to provide these services to
customers when, where and how they want them -- whether at home,
at work, in a supermarket or in a bank branch. That is what we
are building.
In 1996 we achieved record net income of $80.1 million, or
$1.96 per share, compared to $71.0 million, or $1.74 per share in
1995, and dividends have increased seven times in the past three
years. These results reflect our goal of steadily increasing
earnings, even as we substantially invest in the growth of
People's Bank.
[Graphic of building complex.]
In 1996 we made major investments in our delivery systems,
particularly 7-day-a-week banking in Super Stop & Shop stores. By
year end we had 21 of an anticipated 45 full-service supermarket
branches on line. This year we also launched a People's credit
card in the United Kingdom, transplanting the high-value/low-rate
concept that built our domestic credit card operation. And in the
United States, we created a separate credit card division to
further focus our efforts on this important business. We are
investing in other ways
2
<PAGE>
[Photograph of David E.A. Carson, President and CEO.]
By carefully focusing on our customers, in 1996 we:
- Completed 20 full-service branches in Super Stop & Shop
stores, New England's leading grocery chain.
- Were ranked the nation's 27th largest issuer of
MasterCard and Visa credit cards.
- Launched a credit card business in the United Kingdom.
- Launched a Municipal Banking and Finance Department.
- Remained the Connecticut leader in residential mortgage
originations.
- Gained approximately 25,000 checking accounts, increasing
average retail demand deposits by 19%.
- Increased average commercial checking account deposits by
14%.
- Increased assets under trust administration to more than
$1.3 billion.
- Signed up 25,000 customers for PC banking.
- Attained the highest profitability in our brokerage
subsidiary since it opened in 1983.
3
<PAGE>
[Two photographs of Executive Officers Group:
Ed Bucnis, Lou Ulizio, Bill Kosturko, Jim Biggs,
John Klein, Bryan Huebner and George Morriss.]
too. This year we created a Municipal Banking and Finance
Department. We also added two regional offices to our expanding
Trust and Financial Services Department. Building for the future,
of course, does not always offer an immediate payback. The
opportunities to grow the credit card business, to provide more
convenient banking services, to broaden Connecticut's municipal
banking and finance market, and to expand trust activities are
long-term programs. Building engines of growth takes years of
targeted effort. By investing now, we lay the groundwork. Our
retail and commercial customer base increased considerably in
1996, partly because we have a reputation for being reliable. We
listen to customer needs and ensure that they're met. Trust is
what it's all about.
Given the pace of change, our capital base also is ready
for the new competitive landscapes. In September of 1996, all
outstanding shares of our preferred stock were retired. In
November, we completed a public offering of $150 million of
subordinated notes, which enhanced our capital position. As a
result, we can make our own decisions about growth. The challenge
is to be on top of the market, to make decisions before other
people do and to make the right decisions. We are implementing
our third five-year information systems plan, which is keeping us
on the leading edge of technological advances.
At People's Bank we are investing for the future. We are
building shareholder value. We thank you, our shareholders, for
your support. As we move into a new era, structures are changing
and becoming less important. Services are paramount. Customer
needs drive the market. We are designing the financial services
company of the future -- when services will be without
boundaries.
/s/ David E.A. Carson
David E.A. Carson
January 16,1997
4
<PAGE>
Investing For The Future
"This will not occur overnight, but there
are signs of it happening faster in some
communities . . . . The likes of the financial or
academic communities . . . currently lead the
world in their global and on-line nature."
Being Digital
5
<PAGE>
Investing For The Future
We are in the midst of a major transition in banking. So rapidly
are opportunities arising,
that the biggest challenge for any organization is picking and
choosing
the best areas for growth. People's Bank is seizing these
opportunities very deliberately.
We are doing what we have always done -- exceeding customer
expectations. And we're
developing businesses we believe will add to our strength in the
21st Century.
Tomorrow's Growth Starts Today
- ------------------------------
We are placing tremendous emphasis on two opportunities.
One is growth of our credit card business. The other is our
Connecticut franchise as the financial services industry
continues to consolidate. By investing in these areas, we hope,
by the turn of the century, to increase our retail deposit base
by a third and potentially double our credit card portfolio.
Key initiatives in 1996 included the launch of People's
credit card in the United Kingdom and the opening of 20 branches
in Stop & Shop supermarkets. The latter is part of a
two-and-a-half-year program to open 45 branches in Super Stop &
Shop stores throughout Connecticut. Building retail deposits
through our Stop & Shop initiative is more cost-effective than
acquiring branches or smaller banks.
In August 1996, we created a separate division -- People's
Bank Credit Card Services -- to recognize the importance of this
business. We offer a low-rate card to credit worthy customers who
regularly carry balances. We believe our competitive advantage is
due not only to this low-rate/high-value positioning but also to
our emphasis on asset quality and low operating costs.
In addition, we filled a void left when super-regionals
acquired many Connecticut banks. We created a Municipal Banking
and Finance Department, becoming a competitive provider of
financial counsel and an array of deposit and investment
products. We also are broadening our Correspondent Banking
business, building new relationships in Connecticut and adjoining
states. We now are ready to meet financial services needs
throughout Connecticut, whether customers are individuals,
businesses or municipalities. We opened trust offices in New
Haven and Southport to meet trust, investment and estate planning
needs. And our 18 Personal Investment Centers continue to attract
customers to People's
6
<PAGE>
Securities, Inc., our brokerage subsidiary, which, in 1996, had
its most profitable year since its founding.
Time (Or Lack Thereof) Impacts Everyone
- ---------------------------------------
One reality is apparent. As the world speeds up, there is
less time for the relatively routine tasks of banking.
The Stop & Shop branches are a case in point. We are taking
our bank to the people. These 7-day-a-week branches are
increasing existing market share and expanding our market share
in other parts of the state -- eastern Connecticut, for example
- -- where we previously had little presence.
Supermarket Branches aren't traditional bank offices. They
cost far less to build, are smaller, faster-paced and offer the
excitement of a grocery store. To meet the challenge of banking
in this environment, we have invested in new technologies,
leveraged existing ones and thought long and hard about which
services customers need from people and which can be automated.
In each supermarket branch, there are automated teller
machines and direct lines to our Telephone Banking Call Center.
We also provide video banking, which connects customers
face-to-face with experts in investments, retirement planning,
mortgages and consumer banking. Business owners appreciate the
extended hours. And, always, there are People's Bankers --
friendly individuals, cross-trained to answer questions and
handle transactions of all types.
The knowledge gained from our supermarket branches is being
applied to our 72 traditional branches. We want customers to have
the most convenient service possible, no matter how and where
they bank with us.
Credit Card Remains A Growth Vehicle
- ------------------------------------
The credit card market is expected to grow at double-digit
rates over the next five years as credit cards gain even wider
use. We believe we have a significant opportunity to increase our
share of this expanding market through targeted direct marketing.
Our marketing efforts are conducted year-round, providing
continuous database testing and analysis. This approach increases
our response rates and helps us identify and retain our most
profitable customers, leveraging what we believe is the best
low-rate card in the nation.
Domestic Credit Card growth also comes from new affiliations
such as the one launched this year with the TJX Companies, Inc.,
parent company of T.J. Maxx and Marshalls stores. TJX attracts
customers seeking high quality at low cost. With more than 1,100
stores nationwide, this retailer offers us an unparalleled
opportunity to expand within a market that fits our niche.
7
<PAGE>
We took our credit card to the U.K. because we believe the
credit card market there bears a remarkable similarity to that in
the U.S. more than a decade ago. Currently, a limited number of
providers control a significant percentage of the marketplace,
charging average annual percentage rates in excess of 21%.
In the nine months since our low-rate card was launched,
our U.K. Credit Card reached $50 million in receivables. We hope
that, as awareness grows and consumers realize the value we're
providing, our card will experience similar success to what it
has enjoyed in the U.S.
Relationships Build Our Businesses
- ----------------------------------
The Connecticut economy continues to be buffered by shifts
in the defense, banking and insurance industries. But there are
signs of stability and growth, particularly in Fairfield County.
The People's Bank Business Barometer -- our proprietary economic
indicator for Connecticut -- hit a second consecutive record-high
reading for the fourth quarter of 1996. And Connecticut's economy
is forecast to expand moderately through the end of the decade,
according to The New England Economic Project, a regional
research group.
Municipal construction in the state is increasing. The
companies doing this construction need money to grow. And many
small-to-medium-size businesses and manufacturing plants are
quietly putting on additions.
Small business loans are important to People's Bank and to
the future of Connecticut. In 1996, the volume of loans under
$100,000 doubled over the previous year. We've created loan
programs with various community and nonprofit groups: the
Stamford and New Haven Business Development Loan programs, the
Urban League of Greater Hartford Loan Fund and the
Entrepreneurial Loan Fund. Our Women's Business Center, in its
second year of operation, continues to provide financing and
expertise to business owners.
And knowing that time is money, we're developing a more
advanced automated system that by the middle of 1997 will mean
business loans under $100,000 can be approved within 24 hours.
Our cash management services have experienced five strong
years of expansion. Growth also will come by providing additional
investment management services.
At People's Bank we believe in developing long-term
relationships, not single transactions. Our Commercial Banking
lenders work to develop a relationship with an entire company. We
strive not only to finance equipment, inventory, receivables and
buildings, but to provide the mortgages for employees, issue
credit cards for salespeople
8
<PAGE>
on the road and arrange 401(k) plans. We are, and we intend to
be, a full-service financial institution for businesses ranging
from the small contractor with tools and a pickup truck to
Fortune 1,000 companies.
Residential Lending Remains Leader
- ----------------------------------
Residential Mortgage lending has been a bedrock in our
heritage. Today, innovative Residential Mortgage programs, the
branch system and an efficient sales staff have kept us number
one in Connecticut market share for mortgage origination and
refinancing. We've achieved this by continually finding ways to
bring convenience, speed and competitive prices to our customers.
And we've enhanced our service by investing in technologies to
decrease the time it takes to get a mortgage from application to
closing. More than 90% of our customers, as measured by internal
surveys, say they would recommend a People's mortgage to a
friend.
Customers can go to any supermarket branch and obtain rate
and prequalification information through video banking. In 1997,
our mortgage originators will complete applications on laptop
computers in customers' homes. By mid-1997, customers will be
able to complete applications through our video banking centers.
Similarly, appraisers have used laptops and digital cameras for
several years now.
Consolidation is continuing in the residential mortgage
business. We see this as an opportunity. We are adding
residential mortgage originators and are now offering mortgages
in contiguous states -- Massachusetts, Rhode Island and New York
- --for additional opportunities in residential mortgage retail and
wholesale lending.
Customer Base is Growing
- ------------------------
Even as Connecticut's population has remained static, we
are building a larger Consumer Deposit base. In the last year or
so, many of our competitors have been busy completing
consolidations, closing branches and laying off employees.
Meanwhile, we've opened 21 supermarket offices, moved branches to
more strategic locations and boosted advertising and marketing.
Our efforts are paying off. In 1996, we added more than
25,000 retail checking accounts and saw average balances grow by
about 19%.
We plan to be even more aggressive. Our proprietary PC
Banking software, first introduced in 1995, has exceeded
expectations. More than 25,000 copies of the software were
distributed by year-end. And our MasterMoney card, introduced in
late 1995, now has approximately 40,000 account holders. In 1996,
these customers made 1.7 million purchases totaling $75 million.
And this card can be used worldwide. In the U.K.,
9
<PAGE>
for example, our employees regularly use the card for groceries
and retail purchases.
We're also continuing to attract record numbers of investors
to People's Securities. The Personal Investment Centers, coupled
with the value of our discount Brokerage Service, have always
been a draw. More recently, use of technologies -- such as video
banking, Wall Street by Fax (which provides 24-hour access to
research reports), and Voice Broker (an automated trading and
information system for active investors) -- has kept us on the
leading edge of brokerage services. In 1996 we opened
approximately 8,000 new brokerage accounts, bringing People's
Securities' customer base to nearly 100,000 investors.
As technologies permit and customers ask, we will expand
our Direct Banking options. In 1996, we introduced e.Plus
checking, a special package for customers who prefer electronic
banking. In 1997, we'll add online banking for Internet users.
And some type of "smart card" may be just around the corner.
Our Focus Is On The Customer
- ----------------------------
We are building the bank of the future. We're listening to
our customers and refining the way we deliver our products and
services.
We saw the response that a low-rate credit card generated in
the U.S. in the mid-1980s. Now we've taken a similar product and
offered it to consumers in the U.K.
We learned a lot from our traditional branches and from our
early ventures into supermarket banking. These lessons were
applied to the Super Stop & Shop branches.
We pioneered bill-paying-by-phone in 1974. Today, the 24-
hour Call Center that developed from this early idea is central
to almost all direct banking services.
In 1996 we celebrated 10 years of the quality process. Few
service companies can make this claim. Our commitment to quality,
service and meting customer needs is the foundation upon which we
grow.
We believe tomorrow's leaders will be the financial services
institutions that invest now in people, technology, marketing and
better delivery channels. We intend to remain in the forefront of
this revolution. It is the best way to gain, serve and retain
customers for People's Bank.
10
<PAGE>
Not Like Any Other Bank
"The harmonizing effect of being digital is
already apparent as previously partitioned
disciplines and enterprises find themselves
collaborating, not competing."
Being Digital
11
<PAGE>
Credit Card Cash In A Crunch
- ----------------------------
Snow mounted throughout the day on Saturday, December 9,
1996. Thick, gloppy wet stuff. Sixteen inches of it pretty much
imprisoned John J. Pac Jr.'s family at their home in Woodstock
Valley, Connecticut. Power lines were down. Trees blocked the
roads. The power company said they weren't likely to get to Pac's
remote location until at least Tuesday. "I'd finally had enough
and decided I was going to buy a generator. The only problem was
that the local place here doesn't take credit cards," says Pac.
"Where was I going to get nearly $1,600 in middle of a storm?"
Pac looked on the back of his People's Bank Visa card and called
the toll-free number. The customer service representative gave
him detailed instructions on how to get the needed cash from a
local bank branch using his credit card. By Monday evening, Pac
had the generator humming. Neighbors came over for dinner. He
told them about People's Bank and its credit card.
Customers have been telling their friends about People's
credit card service and value since the operation was launched in
1985. Today there are more than 1.8 million accounts in the
United States and in the United Kingdom, where the credit card
operation began in April 1996. Success was built on fine-tuned
database marketing, careful underwriting, selective partnering
(such as the new co-brand with the TJX Companies, Inc., parent of
T.J. Maxx and Marshalls) and the simple notion that credit card
customers want value, service and low rates. "I get offers for
low-rate cards all the time," says John Pac. "But money isn't
everything. Here is a situation where a bank offers low rates and
service, the values we all want today. The service representative
went out of her way. I felt that I had picked the right bank."
12
<PAGE>
[Photograph of People's [Photograph of Stamp]
Bank Credit Card]
Service and Value
[Under overleaf:]
[Photograph "From left to right"
Storeowner Brad Curtis and
and John J. Pac Jr.]
People's Credit Card:
- Managed portfolio of $2.7 billion
- Nation's 27th largest issuer of Visa
and MasterCards
- National reputation as value provider
of low-rate cards
- Launched low-rate card in United Kingdom
in 1996
13
<PAGE>
Hard Work And Hard Hats
David Shuda, veteran longshoreman, heads the world's only
worker-owned harbor operation. "We thought we were lost," says
Shuda, now president of Coastline Terminals, based at Bridgeport
and New Haven harbors. "Before a $10 million financial plan was
created by People's Bank, both terminal operations were bankrupt
and 250 jobs were threatened. Members of Local 1398 went
everywhere we could think of to get financing. People's was the
only bank willing to talk it over and get the state guarantees
needed to make this happen."
Six months later, the longshoremen and Logistec
Connecticut, the company they hired to manage the ports, are
seeking new ventures and considering port expansion. In New
Haven, workers annually handle 500,000 tons of metal and paper.
In Bridgeport, the banana import capital of the Northeast,
approximately 175,000 tons of produce are delivered each year.
Empty freighters are loaded with new trucks and giant rolls of
paper for the trip back to Central America. The longshoremen are
considering a proposal for recycled paper, and Logistec is
investing in wharf reconstruction.
"Our decision to help provide financing hinged on a desire
to save jobs, to rebuild a viable business in Bridgeport and New
Haven and to attract other businesses to Connecticut. But we also
believed the deal would work," says Lou Ulizio, executive vice
president, Commercial Banking. People's commitment to economic
growth in Connecticut reflects the belief that healthy
communities create a strong banking environment. Says Ulizio,
"The way Dave Shuda and his people are approaching port ownership
is justifying our faith in them."
14
<PAGE>
[Photograph of bunch [Photograph of
of bananas] Work Gloves]
Enterprise
[Under overleaf:]
[Photograph "Longshoremen
from left to right:
William J. O'Neill III,
William Miller,
David Shuda,
Joe Russo,
Thomas Estabrook."]
In 1996 People's:
- Increased average commercial checking deposits
by 14%
- Increased the commercial loan portfolio 11%
- Grew commercial-related fee-based revenues 16%
- Was the Connecticut Development Authority's most
active lender
- Continued our commitment to community-based
economic projects, including the $61 million
Bank on Bridgeport revitalization plan
15
<PAGE>
Cash Counsel On The Web
" I searched and found five Connecticut banks on the
Internet," says Russian immigrant Vladimir Korentski. "I expected
to get a reply from all the banks, but only People's Bank
answered." In Russia today, it is legal to take currency from the
country, provided the cash is for a non-trade operation. But it
is illegal for Russian residents to have accounts in foreign
banks. Korentski had a dilemma: He wanted to transfer funds, but
technically he would be a Russian resident until he passed
through United States Immigration. "I sold my Moscow apartment
and wanted to bring my money with me to Connecticut. It looked as
if I would have to leave Russia with tens of thousands in cash,
or, at best, travelers' checks--all of them in my pockets," says
Korentski.
"My Moscow bank suggested I transfer money without opening
an account and receive funds upon proper identification. The only
problem was I did not know a New Haven-area bank that could be a
recipient." The availability of People's on the Internet offered
a solution and helped the bank gain an enthusiastic new customer.
"Your representative provided me with the information I needed,
the routing number, suggested the right wording for the message
and was very helpful and friendly," Korentski wrote in a letter
to the bank. When he and his family moved to the New Haven area,
they opened checking and savings accounts, rented a safety
deposit box and began using PC banking -- all at People's. He
says, "I am recommending your bank to my friends back in Russia.
My Connecticut relatives are People's customers and value your
bank very highly. And after several months experience, I can only
agree: The non-Internet service at People's is excellent too."
16
<PAGE>
[Photograph of foreign [Photograph of
coin] Passport]
Rapid Response
[Under overleaf:]
[Photograph: "On the Internet:
Vladimir Korentski."]
People's Home Page:
- Averages contacts from 40 countries per month
- Offers: 24-hour e-mail, PC banking software and
applications for checking, special CDs, credit cards
and loans
- Launched in March 1995
- Includes: Connecticut events, local weather and
People's Bank news, products, services, investor
information and job opportunities
17
<PAGE>
Super Banking In A Market
Bread, milk, and some mutual funds? A mortgage application?
Perhaps a commercial checking account should be on this week's
shopping list. Ana Cordova-Goldring, president of Excel
Manufacturing in Bridgeport, thought she could make easy
comparisons in choosing a bank for her firm. She says the
People's Bank Business Plus package and the fact that People's
lenders understood her business needs were the most important
considerations. But after opening an account with People's, the
Stamford resident has added convenience to the list. Out for a
Sunday drive, she visited a Super Stop & Shop in Southington. "I
was absolutely surprised!" she says. "It was my first experience
banking on a Sunday. I talked to a bank officer, and I was able
to do three commercial transactions!" She also liked the safety
of making "in-store" deposits.
Although commercial business access is only a part of
supermarket banking services, Cordova-Goldring's story is typical
of customer stories relating to the one-year-old Stop & Shop
experience. Customers say they love the convenience of 7-day-a-
week banking. More than this, they say they are impressed with
the "People's Bankers" who staff these offices. These employees
are trained to assist with everything from checking and savings
accounts, to loan and mortgage applications. Augmenting their
expertise is People's leading-edge video banking at the
customer's fingertips. Providing direct visual and verbal contact
with experts at the Call Center, video banking offers information
on everything from retirement and college planning to complicated
loan processes. "Convenience is important when you are running a
business and you have a family," says Cordova-Goldring. "I really
can do my banking when, where and how I want."
18
<PAGE>
[Photograph of a computer [Photograph of groceries
terminal] in and around Stop & Shop bag]
Innovation
[Under overleaf:]
[Photograph: "From left to right:
Betty Kenney
Black Rock Office,
F. Anthony Fabrizio
People's Securities,
Ann Cordova-Goldring,
Excel Manufacturing
Bridgeport,
and Kristine Mahoney
Black Rock Office."]
In 1996 People's:
- Enhanced video banking including: checking,
savings, money market accounts; retirement and
college planning; long-term investments;
mortgage pre-qualification; personal, auto and
home equity loans; CD and IRA purchases
- Opened 20 full-service branches in Super Stop
& Shop stores
- Added $113 million in supermarket deposits
19
<PAGE>
Focusing On Connecticut
Ask the Town of Fairfield how People's new Municipal Banking
and Finance Department has performed in its first year. Not only
has People's been named financial advisor for the town, but the
bank now handles all banking and cash management services for
operations and payroll, including account reconciliation, direct
deposit and other transaction services, plus master trust. In
Bristol, the bank has developed a substantial depository
relationship and is acting as the city's financial advisor. In
Newtown, the bank was financial advisor on a $34 million school
financing, the largest municipal financing in Connecticut in
1996. While many regional banks have been forced to focus on
their consolidations, People's has increased its expertise and
its commitment to the state's towns and cities. The
municipalities have noticed.
In the space of seven months, Municipal Banking and Finance
has carved out financial advisory relationships with ten
communities, including: Bethel, Bristol, Danbury, Fairfield, New
Fairfield, Newtown, Redding, Wilton, Woodbridge and Westport.
Greenwich is on board with a payroll- and direct-deposit plan. And
Waterford awarded its depository relationship to People's in late
December. "That was a significant award for us," says Valerie
Arch, vice president, Municipal Banking and Finance. Arch says
bankwide involvement helped make People's the winner. She credits
the unique skills of various professionals from regional banking,
cash management, consumer and commercial banking. These resources
help her team develop creative solutions for municipal customers.
Fairfield First Selectman Paul Audley puts it a little
differently: "It is important for a bank to understand local
municipal needs and have the expertise available to meet a town's
unique requirements."
20
<PAGE>
Connecticut
[Photograph of cupola] [Photograph of flag]
Seizing Opportunities
[Under overleaf:]
[Photograph: "From left to right:
First Selectman Paul Audley and
Fiscal Officer John Leahy,
Town of Fairfield:
Valerie Arch and
Richard Christensen.
Municipal Banking and
Finance, People's Bank."]
In 1996 People's:
- Was advisor for 10% of the state's 1996 bond
and note issuance market, or $86 million of the
$861 million issued
- Increased account relationships 28% over 1995
- Provided financial advisory services for the
largest municipal debt offering in Connecticut
- Grew average municipal deposit balances by 109%
21
<PAGE>
Beyond Boundaries
"Being digital is different. We are not waiting
for any invention. It is here. It is now."
Being Digital
22
<PAGE>
Financial Contents
25 Executive Summary
26 Management's Discussion
And Analysis
54 Consolidated Statements
Of Condition
55 Consolidated Statements
Of Income
56 Consolidated Statements
Of Changes In Stockholders'
Equity
57 Consolidated Statements
Of Cash Flows
58 Notes to Consolidated
Financial Statements
84 Statement Of Management's
Responsibility
84 Independent Auditors'
Report
23
<PAGE>
Glossary
Book Value Per Common Share
- ---------------------------
The amount of common stockholders' equity represented by each
share of outstanding common stock. It is calculated by dividing
total common stockholders' equity by the number of shares of
common stock outstanding.
Core Deposits
- -------------
The total of demand, savings, NOW and money market deposits, and
time deposits of less than $100,000 (excluding brokered
certificates of deposit and municipal deposits).
Cost of Funds
- -------------
Average rate paid on interest-bearing liabilities.
Dividend Payout Ratio
- ---------------------
The ratio of common and preferred stock dividends paid to net
income.
Earning Assets
- --------------
The total of loans, securities and short-term investments.
Efficiency Ratio
- ----------------
For the owned portfolio, represents non-interest expense
(excluding loss on REO) divided by operating income. The
efficiency ratio for the managed portfolio is the same
calculation as for the owned portfolio, except that operating
income is adjusted to exclude credit losses reflected in credit
card securitization income.
Fee-Based Revenues
- ------------------
The total of credit card securitization income, credit card fees,
service charges on demand and NOW accounts, residential mortgage
loan servicing fees, net brokerage commissions, other banking
service charges and fees, trust fees and other loan fees.
Fully Diluted Net Income Per Common Share
- -----------------------------------------
Net income divided by the average number of common and
common-equivalent shares outstanding during the year, plus common
shares issuable upon assumed conversion of any outstanding
convertible preferred shares to common shares.
Fully Taxable Equivalent ("FTE") Basis
- --------------------------------------
Method of presentation in which interest on debt securities and
dividends on equity securities are adjusted to present the
earnings performance on a basis equivalent to yields earned on
fully taxable securities.
Interest-Bearing Liabilities
- ----------------------------
The total of interest-bearing deposits and borrowings.
Interest Rate Spread
- --------------------
The difference between the FTE yield on average earning assets
and the cost of funds.
LIBOR
- -----
London Interbank Offered Rate on eurodollar deposits traded
between banks.
Managed Portfolio
- -----------------
Owned portfolio plus off-balance-sheet securitized credit card
receivables sold to investors through the People's Bank Credit
Card Master Trust.
Net Interest Income
- -------------------
The difference between interest earned on assets and the interest
paid on liabilities, adjusted for the effect of off-balance-sheet
derivative financial instruments utilized to hedge interest rate
risk.
Net Interest Margin
- -------------------
Net interest income on a FTE basis divided by average earning
assets.
Non-Accrual Loans
- -----------------
Loans for which People's has stopped accruing interest, generally
because the borrower has become contractually past due by 90 days
or reasonable doubt exists regarding full and timely collection
of interest or principal.
Non-Performing Assets
- ---------------------
Non-accrual loans, restructured loans and REO.
Operating Income
- ----------------
The sum of FTE net interest income and non-interest income
(excluding net security gains, loss on real estate investments
and net gain on sale of other consumer loans).
Owned Portfolio
- ---------------
On-balance-sheet assets and liabilities.
Primary Net Income Per Common Share
- -----------------------------------
Net income applicable to common stock (after deducting dividends
on preferred stock) divided by the average number of common and
common-equivalent shares outstanding during the year.
Purchased Funds
- ---------------
The total of borrowings, time deposits of $100,000 or more,
brokered certificates of deposit and municipal deposits.
Real Estate Acquired in Settlement of Loans ("REO")
- ---------------------------------------------------
Properties acquired through foreclosure or deed-in-lieu of
foreclosure.
Restructured Loans
- ------------------
Loans with terms which have been modified as a result of a change
in the borrower's financial condition. Typically, interest rate
concessions are made or repayment schedules are lengthened.
Return on Average Assets
- ------------------------
Net income divided by average assets.
Return on Average Stockholders' Equity
- --------------------------------------
Net income divided by average stockholders' equity.
Risk-Adjusted Total Assets
- --------------------------
The sum of risk weighted on-balance-sheet assets and
off-balance-sheet credit equivalent amounts calculated in
accordance with federal regulatory guidelines.
Statement of Financial Accounting Standards ("SFAS")
- ----------------------------------------------------
Statements of accounting principles issued by the Financial
Accounting Standards Board ("FASB").
Tier 1 Capital
- --------------
The total of common stockholders' equity and convertible
preferred stock less certain intangible and other assets not
eligible for inclusion in capital.
Tier 1 and Total Risk-Based Capital Ratios
- ------------------------------------------
Measures of capital adequacy established by federal regulators,
calculated by dividing Tier 1 or Total capital by risk-weighted
total assets.
Tier 1 Leverage Capital Ratio
- -----------------------------
Tier 1 capital divided by average quarterly assets (other than
assets excluded from capital).
Total Capital
- -------------
The total of Tier 1 capital plus supplementary or Tier 2 capital
such as subordinated notes, certain other financial instruments
and a limited amount of the allowance for loan losses.
24
<PAGE>
Executive Summary
As of and for the years
ended December 31
(dollars in millions) 1996 1995 1994
- ----------------------------------------------------------------
Operating Data:
Net income $ 80.1 $ 71.0 $ 70.1
Net interest income 234.5 231.6 246.6
Provision for loan losses 51.1 39.9 50.9
Fee based revenues 148.8 140.1 108.6
Non-interest expense 259.0 229.8 237.4
Net interest margin-
managed portfolio 4.18% 4.25% 4.40%
Net interest margin-
owned portfolio 3.70 3.92 4.28
Return on average assets 1.13 1.09 1.11
Return on average stock-
holders' equity 13.8 14.0 15.6
Efficiency ratio-managed
portfolio 54.9 52.9 59.2
Efficiency ratio-owned
portfolio 63.8 58.2 61.1
- ----------------------------------------------------------------
Financial Condition Data:
Total assets-managed
portfolio $8,979 $8,062 $7,284
Total assets-owned
portfolio 7,645 6,862 6,484
Loans, net-managed
portfolio 6,523 5,578 5,084
Loans, net-owned
portfolio 5,189 4,378 4,284
Deposits 5,245 4,836 4,654
Borrowings 1,695 1,392 1,297
Stockholders' equity 618 550 469
Ratio of non-performing
assets to total assets 1.3% 1.4% 1.9%
- ----------------------------------------------------------------
Key Performance Indicators for 1996:
Results of Operations
o Record profits of $80.1 million.
o Managed net interest margin was relatively stable at
4.18% for 1996, compared to 4.25% for 1995, even with
the short-term impact associated with introductory
interest rates on new credit card accounts.
o 6% growth in fee-based revenues reflects increases in
fees associated with People's growing credit card
portfolio and demand deposit accounts.
o $6.0 million net gain realized on the sale of $119
million of home equity credit line balances in the
first quarter.
o Managed efficiency ratio equaled 54.9% for 1996,
compared to 52.9% for 1995.
o $29 million increase in non-interest expense,
reflecting the growing domestic credit card business
and investments in new initiatives such as supermarket
banking and the United Kingdom credit card operation.
o $13.3 million income tax benefit recognized in the
third quarter as a result of the passage of federal
legislation affecting thrift institutions' bad debt
reserves for tax purposes.
Financial Condition
o Managed total assets grew $917 million, or 11%;
on-balance-sheet (owned) assets grew $783 million, or
11%.
o $817.3 million, or 43%, growth in the managed credit
card portfolio.
o Ranked as the 27th largest VISA and MasterCard credit
card issuer in the United States.
o Entered the United Kingdom credit card market in
April; receivables grew to $50 million at the end of
1996.
o $12.6 million increase in the allowance for loan
losses primarily due to on-balance-sheet credit card
loan growth.
o Issued $150 million of 7.20% subordinated notes due
December 1, 2006 which contributed significantly to
the 180 basis point increase in the Total risk-based
capital ratio.
o Retired remaining noncumulative convertible preferred
stock in September.
o Opened 20 high-tech branches in Stop & Shop
superstores throughout Connecticut.
o 15% increase in demand deposits; 16% increase in time
deposits.
o 22% increase in borrowings.
o 12% growth in stockholders' equity.
25
People's Bank 1996 Annual Report
<PAGE>
Management's Discussion and Analysis
General
- -------
People's Bank ("People's"), a Connecticut stock savings bank, is
the largest independent bank in Connecticut with $7.6 billion in
total assets. People's was organized in 1842 as a mutual savings
bank and converted to stock form in 1988. People's is
headquartered in Bridgeport, Connecticut.
People's offers a wide range of banking, fiduciary and other
financial services to develop total business relationships with
its corporate, individual and municipal customers. In addition to
traditional banking services of accepting deposits and making
loans, People's provides specialized services tailored to
specific markets, including personal, institutional and employee
benefit trust services, personal financial services, customer
access to mutual funds, cash management services, certain
international banking services and municipal banking and finance
services.
People's lending activities consist of originating mortgage loans
secured by residential and commercial properties, and extending
secured and unsecured consumer and commercial loans. People's has
a nationwide credit card program and provides its customers with
access to a worldwide automated teller machine network, 24-
hour telephone banking services, PC banking services and
interactive video banking. Deposits are insured up to applicable
limits by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC"). People's primary regulators are
the FDIC and the State of Connecticut Department of Banking.
At December 31, 1996, People's had 72 traditional branches and 21
supermarket branches located in Fairfield, Hartford, New Haven,
Litchfield and Tolland Counties. Over the next fifteen months,
People's expects to open 24 additional full service supermarket
branches in Connecticut Stop & Shop superstores. In 1996,
People's established a limited branch in the United Kingdom to
expand its credit card business further.
People's results of operations are largely dependent upon net
interest income, although to a lesser extent than in prior years
as a result of growth in fee-based revenues. Interest and
dividend income on loans, securities and short-term investments
is a function of the average balances outstanding during the
period and the average yields earned. Interest expense on
deposits and borrowings is similarly a function of average
balances outstanding and the average rates paid. People's results
of operations are also affected by the provision for loan losses;
non-interest income, such as fee-based revenues and net security
gains; non-interest expense; and income taxes.
People's 1996 results reflect growth in the managed credit card
portfolio, expansion of product delivery channels to meet the
changing needs of its customers, as well as the establishment of
a limited branch in the United Kingdom. People's made these
investments to enhance future results, although costs associated
with these new initiatives have put near-term pressure on
People's financial performance.
People's business is subject to periodic fluctuations based on
national and local economic conditions. For example, since mid
1995, nationwide increases in consumer credit delinquencies and
bankruptcies have had a direct impact on People's credit card
business, contributing to increases in credit card delinquencies
and net charge-offs. People's financial results are particularly
dependent on economic conditions in Connecticut.
Connecticut continues to enjoy the highest per capita income in
the country and the state's unemployment rate has been
consistently below the national average. While there are tight
labor markets for skilled workers in some areas of the state, job
growth in Connecticut was 1.3% in 1996 compared to 2.2% for the
nation. The slower job growth in the state reflects continued
budget cutbacks in defense spending (which have adversely
affected the defense industry), structural changes in the finance
and insurance sectors and slow population growth.
26
People's Bank 1996 Annual Report
<PAGE>
Net Interest Income
- -------------------
Throughout this discussion, reference is made to People's net
interest income, interest rate spread and net interest margin in
terms of the "owned portfolio" and the "managed portfolio." The
owned portfolio encompasses on-balance-sheet earning assets and
interest-bearing liabilities. These amounts are combined with
off-balance-sheet securitized credit card receivables and the
related securities issued to determine "managed portfolio"
performance.
[Net Interest Income - Managed Portfolio
Years ended December 31 (in millions)
Bar Graph - 1992 through 1996
Owned Portfolio and Off-Balance-
Sheet Portfolio]
Net interest income on a managed portfolio basis increased $23.6
million, or 7.8%, to $327.8 million in 1996 compared to $304.2
million in 1995. This increase reflects an increase of $686.6
million, or 9.6%, in average managed earning assets and an
increase of $187.2 million, or 16.1%, in non-interest-bearing
sources of funds (stockholders' equity and demand deposits). The
$29.1 million increase in net interest income on a managed basis
in 1995 compared to 1994 reflects an increase of $904.5 million,
or 14.5%, in average managed earning assets and an increase of
$127.5 million, or 12.3%, in non-interest-bearing sources of
funds. The increases in managed earning assets reflect growth in
People's average managed credit card portfolio ($553.2 million in
1996 compared to 1995 and $484.1 million in 1995 compared to
1994). Growth in average demand deposits was $115.3 million in
1996 and $67.8 million in 1995. Net interest margin for the
managed portfolio was relatively stable during the three-year
period (4.18% in 1996, 4.25% in 1995 and 4.40% in 1994).
Net interest income and margin are affected by many factors,
including average balances; securitizations and sales of credit
card receivables; sales of other loans and securities; interest
rate fluctuations; product pricing; the relative mix and maturity
of earning assets and interest-bearing liabilities;
non-interest-bearing sources of funds; and asset quality.
[Net Interest Margin - Managed Portfolio
(percent by quarter)
Bar and Line Graph - 1994 through 1996
Owned Portfolio, Off-Balance-Sheet
Portfolio and 1 Year Treasury Bill Yield]
For the owned portfolio, net interest income increased $5.2
million, or 2.2%, to $242.1 million in 1996 compared to $236.9
million in 1995, after declining $11.4 million in 1995 compared
to 1994. Net interest margins were 3.70% in 1996, 3.92% in 1995
and 4.28% in 1994. The lower net interest margin for the owned
portfolio in 1996 compared to 1995 reflects the securitization
and sale of seasoned credit card accounts with fully indexed
interest rates and growth in on-balance-sheet credit card
receivables earning introductory rates. Reflecting the
substantial growth during 1996, a large portion of People's
on-balance-sheet credit card portfolio was priced at introductory
rates, which in the short-term places downward pressure on the
net interest margin. As these balances reprice upward, both net
interest income and net interest margin are favorably affected.
The decline in net interest margin in 1995 compared to 1994
reflects the narrowing of the interest rate spread (as the cost
of funds rose more than the yield on average earning assets) and
continued credit card securitizations through the issuance of
asset-backed certificates.
27
People's Bank 1996 Annual Report
<PAGE>
Volume and Rate Analysis
- ------------------------
The following table sets forth the extent to which changes in
interest rates and changes in the volume of average earning
assets and average interest-bearing liabilities have affected
People's FTE-basis interest and dividend income and interest
expense. For each category of earning assets and interest-bearing
liabilities, information is provided relating to change
attributable to changes in volume (changes in average balances
multiplied by the prior year average interest rate); changes in
rates (changes in average interest rates multiplied by the prior
year average balance); and the total change. Changes attributable
to both volume and rate have been allocated proportionately.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
-------------------------- -------------------------
(in millions) Volume Rate Total Volume Rate Total
- --------------------------------------------------------------------------------------------------
On-Balance-Sheet
Interest and dividend income:
Short-term investments $0.4 $(0.4) $ - $(0.7) $1.4 $0.7
Securities 3.8 (7.1) (3.3) (10.1) 7.2 17.3
Loans:
Residential mortgage 4.7 2.9 7.6 10.8 12.1 22.9
Commercial mortgage 2.9 (1.0) 1.9 4.2 5.9 10.1
Commercial 3.3 (2.5) 0.8 1.7 8.2 9.9
Credit Card 31.5 (5.5) 26.0 (16.7) (4.6) (21.3)
Other consumer (6.0) (0.5) (6.5) 3.1 2.7 5.8
- --------------------------------------------------------------------------------------------------
Total loans 36.4 (6.6) 29.8 3.1 24.3 27.4
- --------------------------------------------------------------------------------------------------
Total change in interest
and dividend income 40.6 (14.1) 26.5 12.5 32.9 45.4
- --------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Savings and NOW (0.2) 1.0 0.8 (1.5) 1.8 0.3
Money market 0.1 0.3 0.4 (2.7) 6.5 3.8
Time 10.2 5.0 15.2 7.1 21.1 28.2
- --------------------------------------------------------------------------------------------------
Total deposits 10.1 6.3 16.4 2.9 29.4 32.3
- --------------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan Bank
advances (1.5) (2.9) (4.4) 4.6 8.0 12.6
Repurchase agreements (1.2) (1.7) (2.9) (2.2) 9.6 7.4
Federal funds purchased 11.6 (0.5) 11.1 4.5 - 4.5
Subordinated notes 1.1 - 1.1 - - -
- --------------------------------------------------------------------------------------------------
Total borrowings 10.1 (5.1) 4.9 6.9 17.6 24.5
- --------------------------------------------------------------------------------------------------
Total change in interest
expense 20.1 1.2 21.3 9.8 47.0 56.8
- --------------------------------------------------------------------------------------------------
Change in net interest
income $20.5 $15.3 $5.2 $2.7 $(14.1) $(11.4)
============================================================
Off-Balance-Sheet
Securitizations
Securitized credit card
receivables $28.9 $(1.6) $27.3 $70.8 $14.2 $85.0
Related securities issued 11.4 (2.5) 8.9 40.4 4.1 44.5
- --------------------------------------------------------------------------------------------------
Change in net interest
income $17.5 $0.9 $18.4 $30.4 $10.1 40.5
============================================================
Total Managed Portfolio
Earning assets $69.5 $(15.7) $53.8 $83.3 $47.1 130.4
Interest-bearing liabilities 31.5 (1.3) 30.2 50.2 51.1 101.3
- --------------------------------------------------------------------------------------------------
Change in net interest
income $38.0 $(14.4) $23.6 $33.1 $(4.0) $29.1
============================================================
</TABLE>
Managed portfolio average earning assets increased $686.6 million
in 1996 compared to 1995, following an increase of $904.5 million
in 1995 compared to 1994. These increases reflect increases in
average managed credit card receivables of $553.2 million in 1996
compared to 1995, and $484.1 million in 1995 compared to 1994.
Owned portfolio average earnings assets increased $497.3 million
in 1996 compared to 1995, following an increase of $245.8 million
in 1995 compared to 1994. The increase in 1996 compared to 1995
reflects an increase of $363.9 million in average on-balance-sheet
credit card receivables. For 1995 compared to 1994, the increase
reflects increases of $172.2 million in the
28
People's Bank 1996 Annual Report
<PAGE>
average securities portfolio and $87.4 million in average
loans. Average loans for the periods presented reflect loan
originations, partially offset by the securitization and sale of
credit card receivables, residential mortgage loan sales,
continued principal repayments and charge-offs.
For 1996 compared to 1995, interest income on the managed
portfolio increased by $69.5 million due to an increase in
average earning assets and decreased by $15.7 million due to a
decrease in rates earned. For 1995 compared to 1994, the higher
volume of average earnings assets accounted for $83.3 million of
$130.4 million increase in interest income on the managed
portfolio, while $47.1 million was related to an increase in the
rates earned.
Average interest-bearing liabilities for the managed portfolio
increased $570.1 million in 1996 compared to 1995, following an
increase of $773.9 million in 1995 compared to 1994. For 1996
compared to 1995, interest expense on the managed portfolio
increased by $31.5 million due to an increase in average
interest-bearing liabilities and decreased by $1.3 million due to
a decrease in rates paid. During 1996, People's average deposits
increased $308.8 million, reflecting positive results generated
by the Super Stop & Shop and municipal banking initiatives;
average borrowings increased $187.3 million; and average
off-balance-sheet funding sources increased $189.3 million due to
continued credit card securitization activities.
For 1995 compared to 1994, higher interest rates paid on average
interest-bearing liabilities accounted for $5.11 million of the
$101.3 million increase in interest expense on the managed
portfolio, while $50.2 million was related to volume. The
increase in volume primarily reflects substantially higher
balances of asset-backed securities due to continued credit card
securitizations. The increase in rate reflects changes in the mix
of deposits, as depositors responded to volatile interest rates
by shifting from savings, money market and NOW products into
short-term time products. Growth in average managed earning
assets was also funded by average non-interest-bearing sources of
funds, such as demand deposits and stockholders' equity, which
increased $67.8 million and $59.7 million, respectively, in 1995
compared to 1994.
[Average Treasury Yield Curve
Years ended December 31
Line Graph - For 1994, 1995 and 1996]
Average Balance, Interest and Yield/Rate Analysis
- -------------------------------------------------
The table on the following page presents average balance sheets,
FTE-basis interest income and interest expense, and the
corresponding average yields earned and rates paid. The average
balances are principally daily averages and, for loans, include
both performing and non-performing balances. Interest income on
loans includes accretion (amortization) of net deferred loan fees
(costs), but does not include interest on loans for which
People's has ceased to accrue interest. This table also shows the
interest earned on off-balance-sheet credit card receivables, as
well as the interest paid on the related off-balance-sheet
securities.
29
People's Bank 1996 Annual Report
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Years ended December 31 Average Yield/ Average Yield/ Average Yield/
(dollars in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
On-Balance-Sheet
Earning assets 1:
Short-term investments $94.4 $5.4 5.68% $ 87.7 $ 5.4 6.13% $ 101.5 $ 4.7 4.62%
Securities 1,735.1 97.4 5.61 1,670.0 100.7 6.03 1,497.8 83.4 5.57
Loans:
Residential mortgage 2,202.9 164.0 7.44 2,139.6 156.4 7.31 1,984.6 133.5 6.72
Commercial mortgage 769.6 67.2 8.73 736.2 65.3 8.86 686.4 55.2 8.04
Commercial 560.3 52.2 9.32 525.8 51.4 9.78 505.8 41.5 8.20
Credit card 962.0 82.2 8.54 598.1 56.2 9.40 772.7 77.5 10.03
Other consumer 222.2 19.2 8.63 291.8 25.7 8.80 254.6 19.9 7.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 4,717.0 384.8 8.15 4,291.5 355.0 8.27 4,204.1 327.6 7.79
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,546.5 $487.6 7.45% 6,049.2 $461.1 7.62% 5,803.4 $415.7 7.16%
================= ================= =================
Other assets 546.7 476.7 497.0
- -------------------------------------- -------- --------
Total assets $7,093.2 $6,525.9 $6,300.4
======== ======== ========
Interest-bearing liabilities:
Deposits:
Savings and NOW $1,408.5 $33.2 2.36% $1,419.3 $ 32.4 2.28% $1,485.4 $32.1 2.16%
Money market 742.4 23.3 3.14 739.6 22.9 3.10 848.1 19.1 2.26
Time 2,056.1 106.0 5.15 1,854.6 90.8 4.90 1,677.5 62.6 3.73
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 4,207.0 162.5 3.86 4,013.5 146.1 3.64 4,011.0 113.8 2.84
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan
Bank advances 672.3 38.7 5.75 697.9 43.1 6.17 614.2 30.5 4.97
Repurchase agreements 460.2 27.4 5.96 479.3 30.3 6.32 526.8 22.9 4.36
Federal funds purchased 297.3 15.8 5.34 79.9 4.7 5.92 3.4 0.2 4.94
Subordinated notes 14.6 1.1 7.30 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total borrowings 1,444.4 83.0 5.75 1,257.1 78.1 6.21 1,144.4 53.6 4.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 5,651.4 $245.5 4.34% 5,270.6 $224.2 4.25% 5,155.4 $167.4 3.25%
================= ================= =================
Demand deposits 772.2 659.9 589.1
Other liabilities 89.5 90.2 107.4
- -------------------------------------- -------- --------
Total liabilities 6,513.1 6,017.7 5,851.9
Stockholder's equity 580.1 508.2 448.5
- -------------------------------------- -------- --------
Total liabilities and
stockholder's equity $7,093.2 $6,525.9 $6,300.4
======== ======== ========
Excess of earning assets
over interest-bearing
liabilities $ 895.1 $778.6 $648.0
======== ======== ========
Net interest income $242.1 $236.9 $248.3
====== ====== ======
Interest rate spread 3.11% 3.37% 3.91%
Net interest margin 3.70% 3.92% 4.28%
Off-Balance-Sheet
Securitized credit card
receivables $1,295.1 $163.2 12.60% $1,105.8 $135.9 12.29% $447.1 $50.9 11.39%
Related securities issued 1,295.1 77.5 5.99 1,105.8 68.6 6.21 447.1 24.1 5.39
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 2 $85.7 $67.3 $26.8
====== ====== ======
Managed Net Interest
Margin Analysis:
Earning assets $7,841.6 $650.8 8.30% $7,155.0 $597.0 8.34% $6,250.5 $466.6 7.47%
Interest-bearing liabilities 6,946.5 323.0 4.65 6,376.4 292.8 4.59 5,602.5 191.5 3.42
- ---------------------------------------------------------------------------------------------------------------------------------
Excess of earning assets
over interest-bearing
liabilities $895.1 $778.6 $648.0
======== ======== ========
Net interest income $327.8 $304.2 $275.1
====== ====== ======
Interest rate spread 3.65% 3.75% 4.05%
Net interest margin 4.18% 4.25% 4.40%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The FTE adjustment for 1996, 1995 and 1994 was $7.6 million,
$5.3 million and $1.7 million, respectively.
2 Net interest income associated with the off-balance-sheet
portfolio is included in "credit card securitization income"
in the consolidated statements of income.
30
People's Bank 1996 Annual Report
<PAGE>
Provision and Allowance for Loan Losses
- ---------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31
(dollars in millions) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------
Beginning allowance for
loan losses $ 75.0 $ 77.5 $ 80.00 $ 84.0 $ 98.5
Charge-offs:
Residential mortgage (9.7) (11.1) (28.9) (15.9) (16.7)
Commercial mortgage (6.2) (14.5) (7.8) (20.8) (35.7)
Commercial (2.5) (9.8) (8.9) (13.5) (45.8)
Credit card (owned portfolio) (28.9) (14.4) (15.6) (19.0) (20.8)
Other consumer (2.3) (1.9) (2.0) (3.6) (2.9)
- ---------------------------------------------------------------------------------------
Total charge-offs (49.6) (51.7) (63.2) (72.8) (121.9)
- ---------------------------------------------------------------------------------------
Recoveries:
Residential mortgage 1.0 0.7 0.6 0.5 0.5
Commercial mortgage 1.7 1.3 2.8 1.8 1.9
Commercial 4.4 5.1 3.5 6.8 4.9
Credit card (owned portfolio) 3.7 1.9 2.4 3.1 3.0
Other consumer 0.3 0.3 0.5 0.6 0.6
- ---------------------------------------------------------------------------------------
Total recoveries 11.1 9.3 9.8 12.8 10.9
- ---------------------------------------------------------------------------------------
Net charge-offs (38.5) (42.4) (53.4) (60.0) (111.0)
- ---------------------------------------------------------------------------------------
Provision for loan losses 51.1 39.9 50.9 56.0 96.5
- ---------------------------------------------------------------------------------------
Ending allowance for loan losses $ 87.6 $ 75.0 $ 77.5 $ 80.0 $ 84.0
==================================================
Allowance for loan losses as a
percentage of loans 1.66% 1.68% 1.78% 1.82% 1.97
Allowance for loan losses as
a percentage of non-
performing loans 92.86 83.92 73.47 39.79 30.66
Net charge-offs as a percentage
of average loans 1 0.81 0.99 1.27 1.47 2.61
- ---------------------------------------------------------------------------------------
</TABLE>
1 Net charge-offs include $1.8 million in 1996, $5.8 million
in 1995 and $17.7 million in 1994 associated with sales of
certain non-performing loans. Excluding these amounts, net
charge-offs as a percentage of average loans equaled 0.78%
for 1996, and 0.85% for both 1995 and 1994. See
"Non-Performing Assets" on page 46.
The provision for loan losses is based on management's ongoing
evaluation of the adequacy of the allowance for loan losses,
which is based on factors as People's historical loan loss
experience; a review of non-performing loans and related
collateral values; the possibility of loss in view of the
geographical and industry concentrations and other portfolio risk
characteristics; the present financial condition of borrowers;
and current economic conditions. It is implicit in lending
activities that credit losses will be experienced even in the
best economic conditions. While People's strives to minimize
credit losses, the amount of such losses will vary from period to
period depending on the above factors as affected by changing
economic conditions and the financial condition of borrowers.
While the allowance for loan losses is available to absorb losses
in the entire loan portfolio, its composition reflects an
allocation to People's five major loan categories.
Credit losses associated with credit card receivables securitized
and sold are not reflected in People's provision and allowance
for loan losses. Such credit losses are absorbed directly under
the contractual agreements of the People's Bank Credit Card
Master Trust (the "Trust"), thereby reducing credit card
securitization income rather than increasing the provision for
loan losses.
The allowance for loan losses was increased by $12.6 million to
$87.6 million at December 31, 1996 from $75.0 million at December
31, 1995. This increase reflects current loan growth in People's
on-balance-sheet portfolio, principally the credit card portfolio
which increased by $684.0 million, or 97.4%, during the year. The
increase in the credit card portfolio reflects the continued
growth of People's nationwide credit card business; scheduled
amortization of securitized receivables associated with the
Series 1993-1 and Series 1994-1 asset-backed certificates; and
new receivables associated with the introduction of People's
credit card in the United Kingdom in April 1996. These factors
were partially offset by an additional securitization and sale in
mid 1996. The allowance for loan losses equaled 1.66% of total
loans at December 31, 1996, compared to 1.68% of total loans at
December 31, 1995. See "Credit Card Lending" on page 42.
31
People's Bank 1996 Annual Report
<PAGE>
Net Charge-Offs by Type of Loan
- -------------------------------
Net Charge-Offs (Recoveries)
as a Percentage of Average Loans
Years ended December 31 ----------------------------------------
(dollars in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Residential mortgage 1 0.39% 0.49% 1.43% 0.75% 0.72%
Commercial mortgage 1 0.58 1.80 0.73 3.29 6.18
Commerical 1 (0.33) 0.90 1.08 1.48 8.60
Credit card (owned
portfolio) 2.61 2.09 1.71 2.22 3.52
Other consumer 0.94 0.55 0.59 1.10 0.48
- -----------------------------------------------------------------
Total owned portfolio 0.81% 0.99% 1.27% 1.47% 2.61%
========================================
1 See "Non-Performing Assets" on page 46 for a discussion of
sales of problem loans.
Net loan charge-offs decreased $3.9 million, or 9.2%, in 1996
compared to 1995, following a decrease of $11.0 million, or
20.6%, in 1995 compared to 1994. The decrease in 1996 compared to
1995 reflects decreases of $8.7 million in commercial mortgage
net charge-offs and $6.6 million in commercial loan net
charge-offs, partially offset by an increase of $12.7 million in
credit card net charge-offs. Commercial mortgage and commercial
lending net charge-offs in 1995 reflect sales of problem loans
during the year, while 1996 reflects net loan recoveries for
commercial lending.
The level of credit card net charge-offs is attributable to
losses in People's owned credit card portfolio. People's
on-balance-sheet credit card portfolio averaged $962.0 million
for 1996, compared to $598.1 million for 1995, an increase of
60.8%. For 1996 and 1995, credit card net charge-offs as a
percentage of average owned receivables equaled 2.61% and 2.09%,
respectively. The higher level of current year net charge-offs
reflects portfolio growth and the seasoning of People's credit
card portfolio, as well as the nationwide increases in consumer
credit delinquencies and bankruptcies. People's future loss
experience for credit cards will be dependent on the level of
growth in the on-balance-sheet portfolio as well as regional and
national economic conditions.
Allowance for Loan Losses Allocated by Type of Loan
- ---------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
Percent Percent Percent Percent Percent
As of December 31 of Loan of Loan of Loan of Loan of Loan
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio Amount Portfolio Amount Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
Residential mortgage $10.0 0.45% $10.0 0.46% $ 8.0 0.39% $10.5 0.50% $11.3 0.52%
Commercial mortgage 23.5 2.87 22.0 2.95 22.6 3.09 22.6 3.32 24.0 4.13
Commercial 25.0 4.23 28.0 5.24 32.0 6.00 32.0 6.25 36.3 7.72
Credit card 25.0 1.80 13.0 1.85 13.0 1.73 13.1 1.54 10.1 1.64
Other consumer 4.1 1.73 2.0 0.66 1.9 0.68 1.8 0.74 2.3 0.51
- ----------------------------------------------------------------------------------------------------------------------------------
Total allowance for
loan losses $87.6 1.66% $75.0 1.68% $77.5 1.78% $80.00 1.82% $84.0 1.97%
============================================================================================================
</TABLE>
32
People's Bank 1996 Annual Report
<PAGE>
Non-Interest Income
- -------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percentage
Increase (Decrease)
Year ended December 31 ----------------------
(dollars in millions) 1996 1995 1994 1996/1995 1995/1994
- ----------------------------------------------------------------------------------------------
Fee-based revenues:
Credit card securitization
income $66.1 $68.5 $32.0 (3.5)% 114.1%
Credit card fees 29.1 24.0 31.1 21.3 (22.8)
- ----------------------------------------------------------------------------------------------
Total credit card fee-based
revenues 95.2 92.5 63.1 2.9 46.6
Service charges on demand and
NOW accounts 27.6 24.8 23.3 11.3 6.4
Residential mortgage loan
servicing fees 6.2 6.0 6.4 3.3 (6.3)
Net brokerage commissions 7.4 5.5 5.0 34.5 10.0
Other fee-based revenues:
Other banking service charges
and fees 5.3 4.7 4.7 12.8 -
Other loan fees 4.1 4.0 3.7 2.5 8.1
Trust fees 3.0 2.6 2.4 15.4 8.3
- ----------------------------------------------------------------------------------------------
Total other fee-based revenues 12.4 11.3 10.8 9.7 4.6
- ----------------------------------------------------------------------------------------------
Total fee-based revenues 148.8 140.1 108.6 6.2 29.0
- ----------------------------------------------------------------------------------------------
Net security gains:
Debt securities available for
sale 1.9 - 0.2 - (100.0)
Equity securities available for
sale 13.3 7.6 4.6 75.0 65.2
- ----------------------------------------------------------------------------------------------
Total net security gains 15.2 7.6 4.8 100.0 58.3
- ----------------------------------------------------------------------------------------------
Net gains (losses) on sales of
residential mortgage loans
available for sale 5.4 4.0 (3.5) 35.0 214.3
Net gain on sale of other consumer
loans 6.0 - - - -
Loss on real estate investments (2.1) (1.8) (6.4) 16.7 (71.9)
Other income 3.4 2.2 54.5 54.5 (29.0)
- ----------------------------------------------------------------------------------------------
Total non-interest income $176.7 $152.1 $106.6 16.2% 42.7%
=========================================================
</TABLE>
The increase in fee-based revenues for 1996 compared to 1995 is
primarily due to increases in fees associated with People's
growing credit card portfolio and demand deposit accounts, and
higher net brokerage commissions. The improvement in 1995
compared to 1994 reflects a $29.4 million increase in credit card
fee-based revenues due to growth in People's managed credit card
portfolio and the impact of continued credit card securitizations
and sales.
Credit card securitization income is comprised of income received
from servicing securitized and sold credit card receivables and
residual income (or "excess spread revenue") after deducting
interest payments to investors, credit losses and other trust
expenses from finance charge collections. Credit card
securitization income may vary over time depending upon the level
of interest and fees charged on credit card accounts, the
interest rate environment and the credit performance of the
securitized receivables. Securitized and sold credit card
receivables averaged $1.3 billion in 1996, $1.1 billion in 1995
and $0.4 billion in 1994. Credit card securitization income
decreased $2.4 million in 1996 compared to 1995, following an
increase of $36.5 million in 1995 compared to 1994. The decrease
in 1996 compared to 1995 was primarily attributable to higher net
charge-offs in the off-balance-sheet credit card portfolio,
reflecting the seasoning of People's portfolio and nationwide
increases in consumer credit delinquencies and bankruptcies. The
increase in 1995 compared to 1994 reflects the $0.7 billion
increase in average credit card receivables securitized and sold.
See "Credit Card Lending" on page 42.
[Fee-Based Revenues
Years ended December 31 (in millions)
Bar Graph - 1992 through 1996
Credit Card Securitization Income and
Other Fee-Based Revenues]
33
People's Bank 1996 Annual Report
<PAGE>
Credit card fees, which include membership fees and other credit
card processing fees, are generated by average on-balance-sheet
credit card receivables. Average on-balance-sheet credit card
receivables totaled $962.0 million in 1996, $598.1 million in
1995 and $772.7 million in 1994. Credit card fees increased $5.1
million in 1996 compared to 1995, followed by a decrease of $7.1
million in 1995 compared to 1994. These changes reflect People's
securitization activities and continued growth of the
on-balance-sheet portfolio. See "Credit Card Lending" on page 42.
Service charges on demand and NOW accounts increased $2.8 million
in 1996 and $1.5 million in 1995 reflecting People's efforts to
garner new retail and commercial checking customers, including
the results generated by supermarket branches. Demand and NOW
accounts averaged $961.0 million, $847.9 million and $797.2
million in 1996, 1995 and 1994, respectively. See "Deposits" on
page 47.
Net brokerage commissions include fees charged by People's
Securities, Inc. ("PSI"). People's wholly owned brokerage
subsidiary, for buying and selling securities for customers
(including mutual funds), and fees for custodial services.
Services offered by PSI also include an investment advisory
newsletter specifically addressing the needs of discount
brokerage users, a 24-hour touch-tone telephone quotation
service, and interactive video services from People's supermarket
branches and certain of its traditional branches. The increases
in net brokerage commissions reflect growth in customer
transactions in response to the strong stock market during recent
years. Mutual fund sales totaled approximately $63 million, $44
million and $46 million in 1996, 1995 and 1994, respectively.
The higher net gains on sales of residential mortgage loans in
1996 compared to 1995, reflect an increase in the volume of
residential mortgage loans sold. In 1995 compared to 1994, the
increase in net gains reflects the lower long term interest rates
experienced in 1995 compared to the sharp increases in 1994
creating a more favorable environment for residential mortgage
lending. The net gains for 1996 and 1995 reflect the
capitalization of mortgage servicing assets of $4.6 million and
$2.8 million, respectively, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 122.
The lower levels of losses on real estate investments in 1996 and
1995, compared to 1994, reflect significant reductions in the
real estate investment portfolio and improved market conditions.
In February 1996, People's sold $119 million in home equity
credit line balances on a non-recourse basis and retained the
related servicing rights. This transaction, which was undertaken
in part due to the premium such assets commanded in the
marketplace, generated a net gain of $6.0 million.
Non-Interest Expense
- --------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percentage
Increase (Decrease)
Years ended December 31 ----------------------
(dollars in millions) 1996 1995 1994 1996/1995 1995/1994
- -------------------------------------------------------------------------------------------
Compensation and benefits $124.2 $110.9 $102.3 12.0% 8.4%
Occupancy and equipment 43.2 40.5 39.1 6.7 3.6
Professional and outside service
fees 28.5 22.2 18.5 28.4 20.0
Advertising and promotion 25.4 11.8 13.8 115.3 (14.5)
Loss on REO:
Provision for losses - 2.5 8.9 (100.0) (71.9)
Other expenses 4.3 4.3 10.6 - (59.4)
- -------------------------------------------------------------------------------------------
Total loss on REO 4.3 6.8 19.5 (36.8) (65.1)
- -------------------------------------------------------------------------------------------
Other non-interest expense:
Printing, postage, stationery
and supplies 11.3 10.8 9.0 4.6 20.0
Telephone 5.3 4.1 4.0 29.3 2.5
Federal deposit insurance
premiums - 5.4 11.9 (100.0) (54.6)
Other expense 16.8 17.3 19.3 (2.9) (10.4)
- -------------------------------------------------------------------------------------------
Total other non-interest
expense 33.4 37.6 44.2 (11.2) (14.9)
- -------------------------------------------------------------------------------------------
Total non-interest expense $259.0 $229.8 $237.4 12.7% (3.2)%
======================================================
Average number of full-time
equivalent employees 2,658 2,430 2,339 9.4% 3.9%
Efficiency ratio-managed portfolio 54.9% 52.9% 59.2% - -
Efficiency ratio-owned portfolio 63.8 58.2 61.1 - -
- -------------------------------------------------------------------------------------------
</TABLE>
34
People's Bank 1996 Annual Report
<PAGE>
One measure often used in the banking industry to assess the
level of non-interest expense is the efficiency ratio. The
efficiency ratio measures how much it costs to generate one
dollar of revenue. As expected, expenses related to People's
expanding businesses are putting near-term pressure on the
efficiency ratio because the initial costs precede the expected
growth in revenues. The higher expenses in 1996 reflect the
expansion of People's domestic credit card business and product
delivery channels, such as the start up of credit card operations
in the United Kingdom, the Stop & Shop supermarket banking
initiative and the expansion of regional trust and financial
management offices.
Increases in compensation and benefits primarily reflect normal
salary increases and staff additions to support People's growing
businesses and new initiatives.
[Managed Revenues per Employee
Years ended December 31 (in thousands)
Bar Graph - 1992 through 1996]
[Average Full-Time Equivalent Employees
Years ended December 31
Line and Bar Graph - 1992 through 1996
Average Number of Full-Time Equivalent
Employees and Managed Efficiency Ratio]
Increases in professional and outside service fees primarily
reflect third party volume-related costs associated with the data
processing, billing and customer correspondence of People's
expanded managed credit card portfolio in the United States and
the United Kingdom. Credit card-related professional and outside
service fees increased $4.5 million in 1996 compared to 1995, and
$2.7 million in 1995 compared to 1994.
The increase in advertising and promotion in 1996 compared to
1995, reflects higher advertising costs associated with People's
credit card and Stop & Shop supermarket banking initiatives. This
increase also reflects, although to a lesser extent, advertising
campaigns initiated to enhance awareness about other products and
services offered by People's, such as residential mortgage loans
and the People's Plus checking account package.
The decreases in loss on REO are due to the smaller portfolio of
properties owned and the relatively stable real estate market
conditions over the past two years.
The substantial reductions in federal deposit insurance premiums
in 1996 compared to 1995 and 1994 reflect actions taken in August
1995 whereby the FDIC significantly reduced the deposit insurance
premiums paid by most banks retroactive to June 1, 1995. Under
the revised rate structure, the best-rated institutions insured
by the BIF paid premiums of four cents per $100 of domestic
deposits, down from the previous rate of 23 cents per $100. Since
January 1, 1996, the best-rated institutions insured by the BIF
effectively have paid no deposit insurance premiums.
35
People's Bank 1996 Annual Report
<PAGE>
Income Taxes
- ------------
Expense (benefit) for the years
ended December 31
(in millions)
1996 1995 1994
- ----------------------------------------------------------
Federal income tax $17.1 $31.4 $(2.9)
State income tax 3.9 11.6 (2.0)
- ----------------------------------------------------------
Total $21.0 $43.0 $(4.9)
===============================
Income tax expense for 1996 reflects People's recognition of a
$13.3 million income tax benefit attributable to enacted changes
in the tax laws regarding pre-1988 tax bad debt reserves.
Pursuant to the changes enacted in August 1996, taxes associated
with the recapture of pre-1988 bad debt reserves would become
payable under more limited circumstances than under prior law;
taxes associated with all post-1987 bad debt reserves are now
payable over a six-year period; and the favorable treatment
historically afforded thrifts in deducting provisions for bad
debts (in excess of actual charge-offs) is eliminated beginning
in 1996.
People's previously established, and continues to maintain, a
deferred tax liability with respect to the portion of its post-
1987 reserves which have not yet been recaptured into taxable
income. Due to the tax law changes, however, People's no longer
anticipates having the pre-1988 reserves recaptured into taxable
income; accordingly, a previously established deferred tax
liability of $13.3 million was credited to earnings in the third
quarter of 1996. The tax law changes are not expected to have a
material impact on People's future earnings. See Note 8 to the
consolidated financial statements on page 70 for a further
discussion of the tax law changes and People's deferred tax
balances.
Adjusted to exclude the $13.3 million income tax benefit
discussed above, the effective tax rate equaled 33.9% for 1996,
compared to 37.7% for 1995. The lower effective tax rate reflects
an increase in tax preferred investments and the favorable
outcome of prior period tax claims.
During the first six months of 1994, People's net income was
bolstered by the utilization of previously unrecognized net
operating loss ("NOL") carryforwards and other deferred tax
assets to offset substantially all income tax expense in response
to positive trends in earnings, asset quality and capital
adequacy. People's recognized a $23.4 million net income tax
benefit during the second quarter of 1994 and has been fully
taxable since that time. Income tax expense totaling $18.2
million was recorded in the last six months of the year, at an
effective tax rate of approximately 40%.
People's net deferred tax asset was $21.5 million at December 31,
1996. Based on People's recent historical and anticipated future
pre-tax earnings, management believes it is more likely than not
that People's net deferred tax asset will be realized. FDIC
capital adequacy guidelines impose a limitation on the amount of
certain deferred tax assets that may be included in (that is, not
deducted from) Tier 1 capital for risk-based and leverage capital
purposes. This limitation had no effect on People's regulatory
capital at December 31, 1996.
36
People's Bank 1996 Annual Report
<PAGE>
Securities
- ----------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
----------------------- ----------------------- ---------------------
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
As of December 31 (in millions) Value Value Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------
Trading account securities $ 2.8 $ 2.8 $ - $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
Collateralized mortgage obligations
("CMOs") 385.2 379.4 499.2 494.4 741.3 686.6
United States Treasury and agency - - - - 28.4 27.1
State and municipal 62.9 63.5 27.6 28.1 15.1 14.5
Corporate and other 24.0 23.6 28.3 27.8 148.2 137.9
- -----------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 472.1 466.5 555.3 550.3 933.0 866.1
- -----------------------------------------------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
United States Treasury and agency 359.4 354.9 405.7 406.9 92.2 87.4
CMOs 126.8 125.2 194.6 192.4 94.2 84.2
State and municipal 14.2 14.2 39.6 39.7 5.4 5.3
Corporate and other 249.1 248.2 338.9 341.4 242.8 236.2
- -----------------------------------------------------------------------------------------------------------------------
Total debt securities 749.5 742.5 978.8 980.4 434.6 413.1
- -----------------------------------------------------------------------------------------------------------------------
Equity securities:
Money market preferred stocks 231.4 231.4 15.1 15.1 68.0 68.0
Common stocks 160.4 180.5 77.9 88.5 49.1 49.5
Federal Home Loan Bank stock 41.9 41.9 41.7 41.7 41.7 41.7
Other 31.2 31.3 5.8 5.3 8.0 6.7
- -----------------------------------------------------------------------------------------------------------------------
Total equity securities 464.9 485.1 140.5 150.6 166.8 165.9
- -----------------------------------------------------------------------------------------------------------------------
Total securities available for
sale 1,214.4 1,227.6 1,119.3 1,131.0 601.4 579.0
Net unrealized gain (loss) on
securities available for sale 13.2 - 11.7 - (22.4) -
- -----------------------------------------------------------------------------------------------------------------------
Total securities available for
sale, net 1,227.6 1,227.6 1,131.0 1,131.0 579.0 579.0
- -----------------------------------------------------------------------------------------------------------------------
Total securities $1,702.5 $ 1,696.9 $1,686.3 $ 1,681.3 $1,512.0 $ 1,445.1
=================================================================================
</TABLE>
[Securities Portfolio
As of December 31, 1996
Box Graph
CMOs (30%), Other Securities (9%), Corporate
and other (16%), Common Stocks (11%), Money
Market Preferred Stocks (13%) and United
States Treasury and Agency (21%)]
People's has historically maintained a significant securities
portfolio consisting of both debt and equity securities. At
December 31, 1996, People's securities portfolio totaled $1.7
billion. People's utilizes its investment portfolio for tax
planning, liquidity management, asset diversification and to
enhance returns on earning assets to the extent permitted by
regulatory capital requirements and applicable legal
restrictions.
People's classifies marketable equity securities and all debt
securities into three categories: trading account securities;
held to maturity securities (applicable only to debt securities);
and available for sale securities. Debt securities for which
People's has the positive intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost.
Available for sale securities and trading account securities are
carried at estimated fair value. Available for sale securities,
comprised of debt and equity securities, can be used as part of
People's asset/liability management strategy and
37
People's Bank 1996 Annual Report
<PAGE>
may be sold in response to, or in anticipation of, factors such as
changes in market interest rates, changes in security prepayment
rates, liquidity considerations and regulatory capital
requirements. Unrealized gains and losses on available for sale
securities are reported as a separate component of stockholders'
equity, net of the income tax effect. Management anticipates
fluctuations in stockholders' equity due to changes in the
estimated fair value of available for sale securities. Unrealized
gains and losses on trading account securities are recognized in
the consolidated statements of income.
At December 31, 1996, the net unrealized gain on the available for
sale portfolio totaled $13.2 million, compared to a net
unrealized gain of $11.7 million at year end 1995 and a net
unrealized loss of $22.4 million at year end 1994. The sustained
performance in 1996 reflects the continued strong equity market
and the moderately declining interest rate environment. The $34.1
million improvement in unrealized gains and losses during 1995
reflects interest rate volatility as the rapidly rising interest
rate environment in 1994 changed to a declining rate environment
in the last half of 1995. Management monitors the fair value of
People's assets and liabilities on a total balance sheet basis.
Changes in unrealized securities gains and losses were partially
offset by unrecognized changes in the value of other on- and
off-balance-sheet financial instruments. See "Risk Management" on
page 50.
People's primarily invests in debt securities rated in the four
highest categories assigned by a nationally-recognized rating
agency. Management conducts periodic analyses of the credit
quality and duration of People's debt securities portfolio. Based
on year end interest rates, the estimated average duration of the
debt securities portfolio was approximately 2.4 years at December
31, 1996. State and municipal bonds are held to reduce People's
effective tax rate. At December 31, 1996, 1995 and 1994, there
were no debt securities in arrears or in default with respect to
principal or interest payments.
Debt Securities Portfolio
As of December 31, 1996
(dollars in millions) Amount Rating Duration (Years)
- --------------------------------------------------------------------
CMOs $ 511 AAA 2.4
United States Treasury
and agency 355 AAA 2.5
State and municipal 77 AA- 2.3
Corporate and other 272 AA- 2.3
- --------------------------------------------------------------------
Total $ 1,215 AA+ 2.4
================
People's has historically maintained a liquid, diversified common
stock portfolio to enhance asset returns over time and to
diversify its investments. People's investments in common stocks
have provided, over the long term, above-average returns and
significant tax benefits. For the past 15 years, People's
investment in equity securities has provided a compounded
annualized return of 15.7%, compared to 16.6% for the S&P 500
over the same time period. People's invests in money market
preferred stocks for the tax benefits associated with the
corporate dividends received deduction.
[Common Stock Portfolio Diversification
(By Industry Sector) As of December 31, 1996
Box Graph
Energy Related (10%), Basic Industries
(5%), Transportation (2%), Other (8%),
Interest Rate Sensitive (20%), Capital
Goods (20%), Consumer Nondurables (35%)]
38
People's Bank 1996 Annual Report
<PAGE>
Lending Activities
- ------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
As of December 31 ------------------ ------------------ ------------------ ------------------ -------------------
(dollars in millions) Amount NPL's Amount NPL's Amount NPL's Amount NPL's Amount NPL's
- -------------------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Adjustable rate $1,964.2 $ 23.2 $1,845.8 $ 29.3 $1,741.2 $ 20.5 $1,472.0 $ 52.1 $1,413.4 $ 80.7
Fixed rate 278.3 7.0 319.7 6.0 326.6 3.8 633.1 14.8 739.8 18.1
- -------------------------------------------------------------------------------------------------------------------------------
Total 2,242.5 30.2 2,165.5 35.3 2,067.8 24.3 2,105.1 66.9 2,153.2 98.8
Commercial mortgage 819.1 28.3 745.5 20.4 730.5 34.6 680.1 72.6 581.1 88.7
Commercial 591.2 12.2 534.7 19.5 533.6 34.5 512.2 50.0 470.1 70.1
Credit card 1,386.6 21.6 702.6 10.6 751.1 7.7 851.4 8.3 616.0 8.5
Other consumer 237.6 2.1 304.8 3.6 278.9 4.4 244.7 3.2 451.5 7.8
- -------------------------------------------------------------------------------------------------------------------------------
Total loans $5,277.0 $ 94.4 $4,453.1 $ 89.4 $4,361.9 $105.5 $4.393.5 $201.0 $4,271.9 $273.9
=======================================================================================================
NPL's - Non-performing loans.
</TABLE>
[Total Loans - Managed Portfolio
As of December 31 (in billions)
Bar Graph - 1992 through 1996
Owned Portfolio and Off-Balance-Sheet
Portfolio]
People's lending activities consist of originating loans secured
by residential and commercial properties, and extending secured
and unsecured loans to consumers and businesses. As of December
31, 1996, 95% of People's loans (other than credit card loans)
were to businesses or individuals, or were secured by property,
located in Connecticut. Accordingly, People's financial condition
is especially subject to fluctuations in the economic conditions
prevailing in Connecticut, and is expected to continue to be
dependent on business conditions and on conditions in the
residential and commercial real estate markets in the state.
Residential Mortgage Lending
- ----------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
--------------------------------- ---------------------------------
NPL's NPL's
As of December 31 Total ------------------ Total ------------------
(dollars in millions) Portfolio Amount Percent Portfolio Amount Percent
- --------------------------------------------------------------------------------------------------------
Adjustable rate $1,964.2 $ 23.2 1.2% $1,845.8 $ 29.3 1.6%
Fixed rate 278.3 7.0 2.5 319.7 6.0 1.9
- --------------------------------------------------------------------------------------------------------
Total residential mortgage $2,242.5 $ 30.2 1.3% $2,165.5 $ 35.3 1.6%
======================================================================
</TABLE>
People's offers its customers a wide range of residential
mortgage loan products. These include conventional fixed rate
loans, jumbo fixed rate loans (loans with principal balances
greater than established Freddie Mac and Fannie Mae limits) and
adjustable rate loans, as well as Federal Housing Administration
("FHA") insured and Veterans Administration ("VA") guaranteed
loans. People's receives residential mortgage loan applications
primarily through its traditional and supermarket branches, loan
officers and the wholesale market. In 1996, retail and wholesale
originations totaled $664 million and $225 million, respectively,
compared to $588 million and $127 million, respectively, for
1995.
39
People's Bank 1996 Annual Report
<PAGE>
According to the Commercial Record Monthly Mortgage Report,
People's had the leading market share for Connecticut residential
mortgage loan originations in 1996, 1995 and 1994 with totals of
$889 million, $715 million and $793 million, respectively.
According to the year end Commercial Record Monthly Mortgage
Report, People's originated more residential mortgage loans in
Connecticut and in Fairfield County than any other financial
institution both by number and dollar volume. Approximately 98%
of the residential mortgage loans originated by People's during
1996 and approximately 97% of the dollar amount of loans in the
overall residential mortgage portfolio at December 31, 1996 were
secured by properties located in Connecticut.
[Residential Mortgage Originations
Years ended December 31 (in millions)
Bar Graph - 1992 through 1996
Retail and Wholesale]
[Residential Mortgage Activity
Years ended December 31 (in millions)
Bar Graph - 1992 through 1996
Originations, net of sales and Sales]
Residential mortgage loans are originated using standard
secondary market applications and appraisal forms. All loans are
subject to underwriting review and approval by various levels of
People's personnel, depending on the size of the loan. People's
ability to originate adjustable rate mortgage loans in lieu of
fixed rate products has varied in response to changes in market
interest rates and customer preferences. Originations in 1994
included significant refinancing activity early in the year, in
response to low market interest rates. Relatively higher interest
rates since mid 1994 have slowed refinancing activity. Adjustable
rate residential mortgage loans accounted for 73% of total
residential mortgage originations in 1996, compared to 67% in
1995 and 69% in 1994.
People's strategy is to sell all newly originated fixed rate
conforming, jumbo and FHA residential mortgage loans and to
occasionally sell adjustable rate residential mortgage loans in
the secondary market as conditions warrant. Most fixed rate and
adjustable rate residential mortgage loans are sold on a
servicing retained basis. Wholesale originations and jumbo
residential mortgage loans are sold on either a servicing
retained or released basis. Sales of residential mortgage loans
totaled $367 million in 1996, compared to $311 million in 1995
and $474 million in 1994. The principal balances of residential
mortgage loans serviced for others, which are not included in
People's consolidated statements of condition, totaled $2.2
billion, $2.0 billion and $1.9 billion at December 31, 1996, 1995
and 1994, respectively. At December 31, 1996, People's had
forward commitments to sell $34.7 million in residential mortgage
loans. These commitments will be funded from People's residential
mortgage loans available for sale, which totaled $9.4 million at
year end 1996, and from future loan originations.
Included in residential mortgage loans were construction loans
totaling $87.1 million and $74.7 million at December 31, 1996 and
1995, respectively.
40
People's Bank 1996 Annual Report
<PAGE>
Commercial Mortgage Lending
- ---------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
--------------------------------- ---------------------------------
As of December 31 NPL's NPL's
(dollars in millions) Total ------------------ Total ------------------
Property Type Portfolio Amount Percent Portfolio Amount Percent
- ---------------------------------------------------------------------------------------------------------
Office buildings $ 220.3 $ 3.8 1.7% $ 193.5 $ 4.0 2.1%
Retail stores and shopping
centers 150.9 19.9 13.2 139.0 2.5 1.8
Industrial and warehouses 116.3 0.7 0.6 90.7 1.3 1.4
Apartment buildings 110.6 3.0 2.7 108.6 7.0 6.4
Retail/office 67.2 0.2 0.3 73.2 2.0 2.7
Schools, churches and
convalescent homes 30.5 0.2 0.7 40.4 0.7 1.7
Condominiums 23.1 0.2 0.9 10.8 0.1 0.9
Other properties 100.2 0.3 0.3 89.3 2.8 3.1
- ---------------------------------------------------------------------------------------------------------
Total commercial mortgage $ 819.1 $ 28.3 3.5% $ 745.5 $ 20.4 2.7%
======================================================================
</TABLE>
Management monitors the commercial mortgage portfolio to limit
the concentration in any loan type or industry, or to any
individual borrower. At December 31, 1996, approximately 93% in
dollar amount of People's commercial mortgage loans were secured
by properties located in Connecticut. Included in commercial
mortgage loans were construction loans totaling $118.3 million
and $87.2 million at December 31, 1996 and 1995, respectively.
Commercial mortgage lending is affected by the successful
operation of the related income-producing real estate and,
accordingly, may be subject to adverse conditions in the real
estate market or in the economy. The commercial real estate
market in Connecticut has improved over the last two years
contributing to higher originations and fewer non-performing
loans, as collateral values within certain sectors of the market
stabilized and borrowers' ability to repay their loans generally
increased. The $7.9 million net increase in commercial mortgage
non-performing loans in 1996 reflects a $19.6 million loan
secured by a retail shopping center, which was classified as
non-performing during the year, partially offset by reductions in
other non-performing loans. See "Non-Performing Assets" on page
46.
[Commercial Mortgage Diversification
As of December 31, 1996
Box Graph
Retail Stores and Shopping Centers (18%),
Office Buildings (27%), Other Properties
(19%), Retail/Office (8%), Industrial and
Warehouses (14%) and Apartment Buildings
(14%)]
Commercial Lending
- ------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
-------------------------------- ---------------------------------
As of December 31 NPL's NPL's
(dollars in millions) Total ------------------ Total ------------------
Industry Portfolio Amount Percent Portfolio Amount Percent
- ---------------------------------------------------------------------------------------------------------
Service businesses $ 200.1 $ 2.1 1.0% $ 199.3 $ 5.7 2.9%
Manufacturing 140.9 1.2 0.9 121.6 3.0 2.5
Finance, insurance and
real estate 82.5 1.6 1.9 86.9 2.6 3.0
Wholesale distribution 63.6 0.8 1.3 41.0 2.6 6.3
Retail sales 33.2 0.5 1.5 34.3 0.7 2.0
Other 70.9 6.0 8.5 51.6 4.9 9.5
- ---------------------------------------------------------------------------------------------------------
Total commercial $ 591.2 $ 12.2 2.1% $ 534.7 $ 19.5 3.6%
======================================================================
</TABLE>
41
People's Bank 1996 Annual Report
<PAGE>
People's maintains a diversified commercial lending portfolio.
Products offered include short-term working capital credit
facilities, term financing, asset-based loans and cash management
services. In contrast to residential mortgage and consumer
lending, the borrower's ability to repay a commercial loan is
closely tied to the ongoing profitability and cash flow of the
borrower's business. Consequently, a commercial loan tends to be
more directly affected by changes in economic cycles that affect
businesses generally, and the borrower's business specifically.
The availability of adequate collateral is a factor in commercial
loan decisions, and loans are generally collateralized and/or
guaranteed by third parties. At December 31, 1996, approximately
90% of the commercial loan portfolio consisted of loans to
Connecticut-based businesses, and approximately 35% of the
portfolio was secured (in whole or in part) by real estate.
People's commercial non-performing loans decreased $7.3 million,
or 37.4%, from year end 1995, following a decrease of $15.0
million, or 43.5%, from the end of 1994. These decreases reflect
the favorable interest rate environment, improved economic
conditions in Connecticut and the resolution of problem loans.
[Commercial Lending Diversification
As of December 31, 1996
Box Graph
Service Businesses (34%), Manufacturing
(24%), Other (12%), Finance, Insurance
and Real Estate (14%), Retail Sales
(6%) and Wholesale Distribution (10%)]
Credit Card Lending
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1996
--------------------------------- ---------------------------------
NPL's NPL's
As of December 31 Total ------------------ Total ------------------
(dollars in millions) Portfolio Amount Percent Portfolio Amount Percent
- ---------------------------------------------------------------------------------------------------------
Owned portfolio $1,386.6 $ 21.6 1.6% $ 702.6 $ 10.6 1.5%
Securitized and sold portfolio 1,333.3 30.1 2.3 1,200.0 26.7 2.2
- ---------------------------------------------------------------------------------------------------------
Managed portfolio $2,719.9 $ 51.7 1.9% $1,902.6 $ 37.3 2.0%
======================================================================
</TABLE>
People's began its credit card program in 1985, by marketing a
low fixed interest rate credit card to highly creditworthy
individuals in its market area. As a result of the success of the
initial program, People's expanded the program nationally. The
Nilson Report ranked People's the 27th largest VISA and
MasterCard credit card issuer in the United States as of June 30,
1996, based on outstanding balances. People's further expanded
its credit card operation in 1996 by establishing a limited
branch in the United Kingdom, which had generated credit card
receivables of $49.5 million at December 31, 1996. The managed
credit card portfolio increased $817.3 million, or 43.0%, during
1996. The managed credit card portfolio accounted for 30.3% of
total managed assets at December 31, 1996, compared to 23.6% at
December 31, 1995.
People's offers credit cards with various finance charge and fee
combinations and other special features, including a balance
transfer option. In general, it is People's practice to identify
and solicit prospects using various modeling techniques. A
significant portion of all credit card applications are fully
underwritten upon receipt. People's has invested in sophisticated
information-based strategies for originating and managing credit
card accounts. People's uses these strategies to develop credit
risk models which management believes increase the credit quality
of new solicitations and facilitate active risk management of the
overall portfolio. Most of the growth in People's managed
portfolio in recent years is attributable to customers who,
attracted by People's low rates, have transferred balances from
competing credit card issuers, as well as higher balances from
purchases
42
People's Bank 1996 Annual Report
<PAGE>
and cash advances. New account solicitations are primarily
targeted at customers who are highly creditworthy and carry
balances on their credit cards. Future growth of People's overall
credit card portfolio is highly dependent upon economic
conditions, the success of marketing programs. information-based
strategies, competitors' strategies and the United Kingdom
initiative.
At December 31, 1996, approximately 12% of credit card loan
balances were to individuals and businesses located in
Connecticut, compared to 17% at December 31, 1995.
[Growth in Managed Credit Card Portfolio
As of December 31 (in billions)
Line Graph - 1992 through 1996]
Managed Credit Card Portfolio Delinquencies
- -------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
--------------------------- --------------------------- ---------------------------
As of December 31 Percent of Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Number of days delinquent:
31-60 days $ 32.2 1.2% $ 24.0 1.2% $ 14.2 0.9%
61-90 days 20.5 0.7 13.7 0.7 7.7 0.5
91 days and over 51.7 1.9 37.3 2.0 16.5 1.1
- -------------------------------------------------------------------------------------------------------------------------
Total $ 104.4 3.9% $ 75.0 3.9% $ 38.4 2.5%
=========================================================================================
Managed Credit Card Portfolio Net Charge-Offs
- ---------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
Percent of Percent of Percent of
As of December 31 Average Average Average
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Owned portfolio(1) $ 25.2 2.6% $ 12.5 2.1% $ 13.2 1.7%
Securitized and sold portfolio(2) 64.7 5.0 38.2 3.5 11.6 2.6
- ----------------------------------------------------------------------------------------------------------------------------
Managed portfolio $ 89.9 4.0% $ 50.7 3.0% $ 24.8 2.0%
==========================================================================================
(1) Net charge-offs are reflected in the provision and allowance
for loan losses.
(2) Net charge-offs are reflected in credit card securitization
income.
</TABLE>
Nationwide increases in consumer credit delinquencies and
personal bankruptcies have had a direct impact on People's credit
card business, resulting in increases in credit card
delinquencies and net charge-offs. The seasoning of People's
credit card portfolio has also contributed to the increase in
delinquencies and net charge-offs. While People's managed net
charge-off rate increased to 4.0% in 1996 from 3.0% in 1995, the
quarterly figures peaked in the second quarter of 1996 at 4.2%
and declined to 4.0% in the third quarter of 1996 and 3.8% in the
fourth quarter of 1996.
New credit card accounts generally exhibit rising delinquency and
losses after six months, which generally peak within
approximately 18 to 36 months from the date of origination.
Management believes that People's frequent and early contact with
delinquent customers, as well as active portfolio risk
management, have a significant impact on limiting delinquency
trends and managing net credit losses.
43
People's Bank 1996 Annual Report
<PAGE>
Credit Card Securitization Program
- ----------------------------------
People's has periodically securitized and sold credit card
receivables in the secondary market through the issuance of
asset-backed certificates, and management expects to continue to
do so as conditions warrant. Securitization of these receivables
provides support for People's credit card activities, diversifies
People's funding sources and enhances its capital ratios.
As a result of securitization activities, People's managed credit
card portfolio includes an on-balance-sheet portfolio
(unsecuritized loans and People's retained interest in the credit
card master trust) and off-balance-sheet securitized receivables
which have been sold. Since beginning its securitization program
in 1993, People's has securitized and sold credit card
receivables totaling $1.6 billion in the secondary market with
$1.3 billion outstanding at December 31, 1996. Scheduled
amortization of the $200 million Series 1993-1 asset backed
certificates was completed in December 1996 and amortization of
the $200 million Series 1994-1 began in September 1996. Total
amortization was $266.7 million during 1996. See "Liquidity" on
page 51.
The following table summarizes People's credit card
securitization transactions:
As of Decem-
ber 31, 1996 Expected Average
(dollars in Original Remaining Final Rate/
millions) Amount Amount Maturity Index
- ----------------------------------------------------------------------
Series
1993-1 $ 200 $ - Dec. 1996 4.80%
1994-1 200 133 Aug. 1997 5.10
1994-2 400 400 June 1998 One-month LIBOR
plus 0.16
1995-1 400 400 Nov. 2000 One-month LIBOR
plus 0.21
1996-1 400 400 Feb. 2002 One-month LIBOR
plus 0.16
- ----------------------------------------------------------------------
$ 1,600 $ 1,333
====================
Securitization transactions involve the transfer of a group of
credit card receivables from People's to the Trust. These
receivables arise from credit card accounts whose ownership is
retained by People's. Rights to new receivables and most fees
generated by these accounts are also transferred to the Trust.
The Trust issues two forms of certificates representing undivided
interests in the Trust - Investor Certificates and a Transferor
Certificate. Investor Certificates are sold by the Trust to
investors, generally through a public offering. People's, through
its wholly-owned special purpose subsidiary, People's Structured
Finance Corp., retains the Transferor Certificate. People's
continues to service the credit card accounts.
Interest is paid monthly to the Investor Certificate-holders
throughout the life of the security. During the revolving period
of the transaction, no principal payments are made to the
Investor Certificateholders. Cardholder payments received are
used to pay interest to the Investor Certificateholders and to
purchase new receivables generated by the accounts, so that the
principal amount of the Investor Certificates remains unchanged.
See "Risk Management" on page 50 for a discussion of interest
rate cap agreements utilized to support credit card
securitization activities.
Once the revolving period ends, a controlled amortization period
begins. During this period, which generally lasts 12 to 14
months, the Trust will use principal payments received from
cardholders to reduce the amount of outstanding Investor
Certificates. As these principal payments are made, the dollar
amount of People's ownership interest will increase while the
investor interest will decrease. Amortization may begin sooner
than scheduled, if the average annualized yield (generally
including interest income, annual fees, other credit card fees
less net charge-offs) for three consecutive months drops below a
minimum yield (generally equal to the sum of the certificate rate
payable to investors and contractual servicing fees) or certain
other events occur. Management does not anticipate that such early
amortization events will occur. See "Liquidity" on page 51 for
the scheduled amortization of People's credit card
securitizations.
Under current industry accounting practices, the securitization
of credit card receivables does not significantly affect net
income reported for each period. Due to the relatively short
average life of the revolving credit card receivables, no gain or
loss is recognized at the time of sale. Rather, servicing fees
and excess spread revenue (credit card interest and fees in
excess of interest paid to certificateholders, credit losses and
other trust expenses) are recognized as earned over the term
44
People's Bank 1996 Annual Report
<PAGE>
of the securitization and reported as "credit card securitization
income" in the consolidated statements of income. This reporting
practice reflects the change in People's involvement from that of
a lender to that of a loan servicer and residual interest holder.
For securitized and sold receivables, amounts that would have
been previously reported as net interest income, credit card fees
and provisions for loan losses (if such receivables had not been
securitized but remained on-balance-sheet) are instead combined
and reported as credit card securitization income. People's
credit card securitization income may vary over the term of the
transactions depending upon the level of interest and fees
charged on credit card accounts, the interest rate environment
and the credit performance of the securitized receivables.
However, People's exposure to losses on the securitized
receivables is contractually limited to future excess spread
revenue and to the cash collateral accounts established for the
benefit of investors, which totaled $37.3 million at December 31,
1996 and $34.0 million at December 31, 1995.
The following table illustrates the impact of credit card
securitization activities on People's operating results, capital
ratios and certain other financial information. Information shown
under the heading of "Excluding Impact of Securitization" is pro
forma information which would have been reported if the
securitization transactions had not occurred. The table
reconciles this pro forma information to the "As Reported"
information contained elsewhere in this annual report.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
--------------------------------------------- --------------------------------------------
As of and for the years Excluding Excluding
ended December 31 Impact of Impact of Impact of Impact of
(dollars in millions) Securitization Securitization As Reported Securitization Securitization As Reported
- ---------------------------------------------------------------------------------------------------------------------
Interest and dividend
income $ 643.2 $ (163.2) $ 480.0 $ 591.7 $ (135.9) $ 455.8
Interest expense (323.0) 77.5 (245.5) (292.8) 68.6 (224.2)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 320.2 (85.7) 234.5 298.9 (67.3) 231.6
Provision for loan losses (115.8) 64.7 (51.1) (78.1) 38.2 (39.9)
Credit card securitization
income - 66.1 66.1 - 68.5 68.5
Credit card fees 72.1 (43.0) 29.1 62.9 (38.9) 24.0
Other non-interest income 83.6 (2.1) 81.5 60.1 (0.5) 59.6
Non-interest expense (259.0) - (259.0) (229.8) - (229.8)
Income tax expense (21.0) - (21.0) (43.0) - (43.0)
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 80.1 $ - $ 80.1 $ 71.0 $ - $ 71.0
=========================================================================================
Tier 1 leverage capital
ratio 7.2% 0.7% 7.9% 7.0% 0.6% 7.6%
Risk-based capital ratios:
Tier 1 8.9 1.1 10.0 9.5 1.4 10.9
Total 12.2 1.7 13.9 10.7 1.4 12.1
Credit card securitization
income as a percentage
of average securitized
and sold portfolio - - 5.10% - - 6.19%
Net interest margin 4.18% (0.48)% 3.70% 4.25% (0.33)% 3.92%
Efficiency ratio 54.9 8.9 63.8 52.9 5.3 58.2
Total loans $ 6,522.7 $(1,333.3) $ 5,189.4 $ 5,578.1 $(1,200.0) $4,378.1
Total assets 8,978.5 (1,333.3) 7,645.2 8,061.8 (1,200.0) 6,861.8
Total average earning
assets 7,841.6 (1,295.1) 6,546.5 7,155.0 (1,105.8) 6,049.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
As discussed in Note 13 to the consolidated financial statements,
SFAS No. 125 establishes new accounting standards for transfers of
financial assets (including credit card securitizations and
sales), effective for transfers made on or after January 1, 1997.
Management believes that People's will continue to recognize
credit card securitizations as sales under SFAS No. 125. However,
SFAS No. 125 requires recognition of servicing assets and other
receivables arising from credit card securitizations at the time
of the initial transfer, which
45
People's Bank 1996 Annual Report
<PAGE>
could result in earlier recognition of certain components of
credit card securitization income. The actual impact on People's
will depend on the nature and extent of its future credit card
securitization activities which cannot be predicted with
certainty. However, based on currently outstanding
securitizations, management believes that the initial adoption of
SFAS No.125 will not have an adverse effect on People's 1997
consolidated financial statements.
Other Consumer Lending
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
------------------------------------- -------------------------------------
As of December 31 NPL's NPL's
-------------------- --------------------
(dollars in millions) Amount Amount Percent Amount Amount Percent
- -----------------------------------------------------------------------------------------------------------
Home equity credit lines $ 88.0 $ 1.4 1.6% $ 182.0 $ 2.6 1.4%
Second mortgages 87.9 0.2 0.2 58.5 0.6 1.0
Collateral 18.3 - - 20.3 - -
Other 43.4 0.5 1.2 44.0 0.4 0.9
- -----------------------------------------------------------------------------------------------------------
Total other consumer $ 237.6 $ 2.1 0.9% $ 304.8 $ 3.6 1.2%
=============================================================================
</TABLE>
People's is an active participant in the consumer credit market
in Connecticut, offering a full range of competitive products
such as home equity credit lines, collateral loans. second
mortgage loans, automobile loans and other forms of installment
and revolving credit loans.
In February 1996, People's sold $119 million in home equity
credit line balances on a non-recourse basis and retained the
related servicing rights. This transaction, which was undertaken
in part due to the premium such assets commanded in the
marketplace, generated a net gain of $6.0 million. At December
31, 1996 and 1995, all home equity credit lines were secured by
properties located in Connecticut.
Non-Performing Assets
- ---------------------
As of December 31 1996 1995 1994 1993 1992
(dollars in millions)
- --------------------------------------------------------------------
Non-accrual loans:
Residential mortgage $ 30.2 $ 35.3 $ 24.3 $ 66.9 $ 98.8
Commercial mortgage 25.8 16.2 28.9 49.1 81.1
Commercial 11.2 17.8 30.1 43.8 67.1
Credit card (owned
portfolio) 21.6 10.6 7.7 8.3 8.5
Other consumer 2.1 3.6 4.4 3.2 7.8
- --------------------------------------------------------------------
Total non-accrual
loans 90.9 83.5 95.4 171.3 263.3
- --------------------------------------------------------------------
Restructured loans:
Commercial mortgage 2.5 4.2 5.7 23.5 7.6
Commercial 1.0 1.7 4.4 6.2 3.0
- --------------------------------------------------------------------
Total restructured
loans 3.5 5.9 10.1 29.7 10.6
- --------------------------------------------------------------------
Total non-performing
loans 94.4 89.4 105.5 201.0 273.9
REO, net of allowance for
losses 6.9 5.4 18.2 48.8 69.5
- --------------------------------------------------------------------
Total non-performing
assets $101.3 $ 94.8 $123.7 $249.8 $343.4
==========================================
Non-performing loans as a
percentage of total loans 1.79% 2.01% 2.42% 4.57% 6.41%
Non-performing assets as a
percentage of total assets 1.32 1.38 1.91 3.90 6.04
Non-performing assets as a
percentage of stockholders'
equity and allowance for
loan losses 14.35 15.17 22.63 49.42 87.89
------------------------------------------
46
People's Bank 1996 Annual Report
<PAGE>
Loans are classified as non-accrual when they become 90 days past
due as to interest or principal payments, or earlier if the
ability of the borrower to meet the contractual payment terms is
in doubt. A loan remains on non-accrual status until the factors
that indicated doubtful collectibility no longer exist or until a
loan is determined to be uncollectible and is charged off against
the allowance for loan losses. The classification of a loan as
non-performing does not necessarily indicate that loan principal
and interest ultimately will not be collected. People's
historical experience suggests that a portion of assets so
classified will eventually be recovered. All non-performing loans
are in various stages of workout, settlement or foreclosure. When
loan workout efforts are exhausted and it is determined that the
borrower is unable to repay the obligation, People's will
complete foreclosure procedures. Restructured loans are those for
which concessions, including reduction of interest rates to
below-market levels, or deferral of interest or principal
payments, have been granted due to the borrowers' financial
condition.
If interest payments on non-accrual and restructured loans at
December 31, 1996, 1995 and 1994 had been made during the
respective years in accordance with the original loan agreements,
interest income of $10.2 million, $10.5 million and $10.4 million
would have been recognized on these loans, compared to interest
income actually recognized of $2.6 million, $3.8 million and $4.0
million. The foregone interest income associated with these loans
totaled $7.6 million in 1996, $6.7 million in 1995 and $6.4
million in 1994.
The increase in non-performing assets in 1996 compared to 1995
reflects increases of $7.4 million in non-accrual loans and $1.5
million in REO (net of allowance for losses), partially offset by
a $2.4 million decrease in restructured loans. The level of total
non-performing loans as of December 31, 1996 reflects an $11.0
million increase in non-performing owned credit card receivables
and a $19.6 million commercial mortgage loan (secured by a retail
shopping center) which was classified as non-performing during
the year. Management believes that this commercial mortgage loan
is adequately collateralized and that People's will not
experience any material loss as a result, and is in the process
of taking appropriate action to resolve this loan. Non-performing
loans at December 31, 1996 also reflect decreases in
non-performing residential mortgage and commercial loans of $5.1
million and $7.3 million, respectively.
The Connecticut economy, although showing signs of economic
vitality, continues to lag behind the national recovery. Real
estate values in many parts of the state have improved over the
last two years, although certain areas in the state continue to
experience economic difficulties. In addition, nationwide
increases in consumer credit delinquencies and personal
bankruptcies have had a direct impact on People's credit card
business, resulting in increases in managed credit card
delinquencies and net charge-offs during 1996 and the last six
months of 1995. See "Credit Card Lending" on page 42.
Management continues to evaluate selective sales of problem loans
to reduce the expenses and foregone income associated with
holding and managing these assets.
Information concerning completed sales of problem loans is
summarized in the following table:
Years ended December 31 1996 1995 1994
(in millions)
- -----------------------------------------------------------------
Amount sold by portfolio:
Residential mortgage $ 6.0 $ - $ 50.0
Commercial mortgage and
commercial lending - 36.5 -
Provision for loan losses 1.8 5.1 15.2
Net charge-offs 1.8 7.6 17.7
- -----------------------------------------------------------------
Deposits
- --------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
As of December 31 Weighted Weighted Weighted
(dollars in millions) Amount Average Rate Amount Average Rate Amount Average Rate
- -----------------------------------------------------------------------------------------------------------------------
Demand $ 930.2 -% $ 806.7 -% $ 687.1 -%
NOW 194.2 1.32 205.5 1.52 207.1 1.58
Savings 1,235.3 2.29 1,208.4 2.30 1,291.4 2.30
Money market 715.3 2.89 738.9 2.92 781.8 2.53
Time 2,170.2 5.12 1,876.6 5.22 1,686.4 4.10
- -----------------------------------------------------------------------------------------------------------------------
Total deposits $ 5,245.2 3.10% $ 4,836.1 3.11% $ 4,653.8 2.62%
=============================================================================================
</TABLE>
47
People's Bank 1996 Annual Report
<PAGE>
People's deposit growth reflects aggressive marketing campaigns
and the expansion of services and convenience offered by
alternative delivery systems. Other factors contributing to this
growth include People's commitment to develop total business
relationships with its corporate, individual and municipal
customers, as well as the effects of banking consolidations.
People's supermarket banking, and municipal banking and finance
initiatives are contributing to overall deposit growth. As of
December 31, 1996, 21 of the 45 planned supermarket branches are
open, with total deposits of $165 million of which $113 million
represents new deposits. Five of the earlier branches are each
currently handling over $10 million in deposits. Management
expects that deposit growth will continue as openings of these
branches continue through 1997.
In February 1996, People's established a Municipal Banking and
Finance Department to service the needs of municipalities within
the state of Connecticut. For 1996 and 1995, average municipal
deposits totaled $197.6 million and $94.3 million, respectively.
Demand deposits are an important source of fee income and
low-cost funding for People's. People's strategic focus on
growing demand deposits continued to generate positive results in
1996. The number of retail demand deposit accounts grew by
25,000, or 12%, in 1996, and by 67,000, or 37%, over the past
five years. The number of commercial demand accounts grew by
1,500, or 10%, in 1996, and by 5,500, or 47%, over the past five
years. At December 31, 1996 and 1995, retail, commercial and
other demand deposits totaled $930.2 million and $806.7 million,
respectively, an increase of 15%.
At December 31, 1996, deposits equaled 58.4% of total managed
assets, compared to 60.0% at December 31, 1995 and 63.9% at
December 31, 1994. As a percentage of total managed funding,
deposits equaled 59.0% at December 31, 1996, compared to 60.6% at
December 31, 1995 and 64.5% at December 31, 1994.
Time deposits of $100,000 or more totaled $292.9 million at
December 31, 1996, of which $168.3 million mature within three
months, $47.0 million mature after three months but within six
months, $45.1 million mature after six months but within one year
and $32.5 million mature after one year. Brokered certificates of
deposit totaled $100.8 million and $59.5 million at December 31,
1996 and 1995, respectively.
[Demand Deposits
As of December 31 (in millions)
Bar Graph - 1992 through 1996
Retail, Commercial and Other]
Deposits by County in Connecticut
- ---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
----------------------- ----------------------- -----------------------
As of December 31 Number of Number of Number of
(dollars in millions) Branches Amount Branches Amount Branches Amount
- -------------------------------------------------------- ------------------------- -------------------------
Counties in Connecticut(1):
Fairfield 48 $3,684.1 43 $3,488.3 43 $3,408.9
Hartford 21 622.3 19 551.7 18 499.2
New Haven 20 692.9 15 598.1 13 539.6
Other 4 100.4 4 106.6 4 107.7
Brokered certificates of deposit - 100.8 - 59.5 - 69.3
Mortgage escrow funds - 44.7 - 31.9 - 29.1
- -------------------------------------------------------- ------------------------- -------------------------
Total 93 $5,245.2 81 $4,836.1 78 $4,653.8
==================================================================================
(1) The allocation of deposits to the respective counties is
based on the location of the branch in which the deposits
are held, and as such, may not necessarily reflect the
address of the individual depositor.
</TABLE>
48
People's Bank 1996 Annual Report
<PAGE>
Borrowings
- ----------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
------------------------ ------------------------ ------------------------
As of December 31 Weighted Weighted Weighted
(dollars in millions) Amount Average Rate Amount Average Rate Amount Average Rate
- -------------------------------------------------------------------------------------------------------------------------
FHLB advances:
Fixed rate advances maturing:
Within 1 year $ 641.5 5.56% $ 447.0 6.30% $ 441.5 5.61%
After 1 year but within 2 years 113.0 5.54 9.5 6.44 140.1 6.65
After 2 years but within 3 years 12.0 6.05 40.1 5.01 4.5 6.80
After 3 years but within 5 years 3.5 6.06 3.5 6.06 42.1 5.00
After 5 years 66.8 6.36 57.4 6.26 - -
- -------------------------------------------------------------------------------------------------------------------------
Total fixed rate advances 836.8 5.63 557.5 6.20 628.2 5.81
- -------------------------------------------------------------------------------------------------------------------------
Variable rate advances maturing:
Within 1 year - - 10.0 5.74 106.5 5.93
After 1 year but within 2 years - - - - 10.0 6.24
- -------------------------------------------------------------------------------------------------------------------------
Total variable rate advances - - 10.0 5.74 116.5 5.96
- -------------------------------------------------------------------------------------------------------------------------
Total FHLB advances 836.8 5.63 567.5 6.20 744.7 5.83
- -------------------------------------------------------------------------------------------------------------------------
Repurchase agreements maturing:
Within 3 months 254.4 5.35 412.4 5.91 336.4 5.18
After 3 months but within
6 months 103.6 5.89 20.0 6.12 91.4 6.18
After 6 months but within 1 year 77.4 5.58 - - 121.6 5.99
After 1 year 17.3 5.64 153.2 5.81 - -
- -------------------------------------------------------------------------------------------------------------------------
Total repurchase agreements 452.7 5.52 585.6 5.89 549.4 5.53
- -------------------------------------------------------------------------------------------------------------------------
Federal funds purchased 257.1 6.68 239.2 5.99 3.0 6.00
Subordinated notes 148.0 7.20 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total borrowings $1,694.6 5.90% $1,392.3 6.03% $1,297.1 5.70%
==============================================================================
</TABLE>
At December 31, 1996, borrowings equaled 18.9% of total managed
assets, compared to 17.3% at December 31, 1995 and 17.8% at
December 31, 1994. As a percentage of total managed funding,
borrowings equaled 19.1% at December 31, 1996, compared to 17.5%
at December 31, 1995 and 18.0% at December 31, 1994.
A major source of borrowings has been advances from the FHLB of
Boston, which functions as a reserve bank providing credit for
member institutions within its assigned region. People's
outstanding FHLB advances represented 9.4% of total managed
funding and 9.3% of total managed assets at December 31, 1996
(7.1% and 7.0%, respectively, at December 31, 1995).
People's also uses repurchase agreements as a major source of
borrowings. These transactions involve the sale of securities to
broker/dealers under agreements to repurchase the identical
securities. Repurchase agreements with broker/dealers are limited
to primary dealers in government securities who have been
approved by People's Board of Directors. Repurchase agreements
represented 5.1% of total managed funding and 5.0% of total
managed assets at December 31, 1996 (7.3% for the respective
ratios at December 31, 1995). The repurchase agreements
outstanding at December 31, 1996 were collateralized by
securities with total carrying values of $465.5 million and fair
values of $461.7 million.
In November 1996, People's sold, in an underwritten public
offering, $150.0 million of 7.20% subordinated notes due December
1, 2006. Net offering proceeds were primarily used to fund asset
growth and repay other borrowings. The notes are unsecured
general obligations of People's with interest payable
semi-annually; are subordinated to the claims of depositors and
People's other creditors; and are not redeemable prior to
maturity. These notes provide long term funding and enhance
People's Total risk-based capital ratio. See "Capital" on page
52.
49
People's Bank 1996 Annual Report
<PAGE>
Risk Management
People's actively manages its interest rate risk to achieve a
balance between risk, earnings and capital. Interest rate risk
("IRR") is the potential exposure to earnings or capital that may
result due to changes in interest rates. The Asset and Liability
Committee ("ALCO") has primary responsibility for managing
People's IRR and reports to the Investment Committee of the Board
of Directors. To evaluate People's IRR profile, ALCO monitors
economic conditions, interest rates, yield curves, liquidity
levels and capital ratios. Management also reviews assumptions
for forecasted customer and competitor behavior, as well as the
expected repricing characteristics and cash flow projections for
assets, liabilities and off-balance-sheet financial instruments.
Actual conditions may vary significantly from People's
assumptions. People's believes that the best measurement tools to
estimate IRR are earnings simulations and economic value
sensitivity analysis.
Management evaluates the impact on "income at risk" using
computer simulations to project earnings under different interest
rate environments over a 24-month horizon. Income at risk is
defined as net interest income and credit card securitization
income, both of which are sensitive to changes in interest rates.
The earnings projections are based on assumptions regarding
balance sheet mix, growth and estimates of pricing levels for
People's products under multiple scenarios including changing the
level and the slope of the yield curve. People's calculates its
base case income at risk using current market rates. Policy
guidelines limit income at risk exposure to less than 5% of the
base case income at risk in the first year and to less than 9% in
the second year, based on a gradual 200 basis point increase or
decrease in interest rates.
While simulation identifies earnings exposure over a relatively
short-term horizon, net economic value ("NEV") measures risk from
a long-term economic perspective. The base case NEV is calculated
by estimating the net present value of all future cash flows from
existing assets, liabilities and off-balance-sheet items using
current interest rates. Policy guidelines limit NEV exposure to
an instantaneous 100 basis point increase or decrease in interest
rates to less than 7.5% of the base case NEV.
At December 31, 1996, People's was within its established IRR
policy guidelines for both income at risk and NEV.
People's uses off-balance-sheet derivative financial instruments,
such as interest rate swaps, corridors and futures contracts, as
a component of its IRR management. People's has written policy
guidelines, which have been approved by the Board of Directors
and ALCO, governing the use of these financial instruments,
including approved counterparties and risk limits, and internal
controls to ensure the appropriate separation of duties. Each of
People's counterparties at December 31, 1996 has an investment
grade credit rating from the major rating agencies and is
specifically approved for a maximum credit exposure. At December
31, 1996, People's net credit exposure on interest rate swaps and
corridors was $0.9 million. Off-balance-sheet financial
instruments are used for hedging and not for trading or
speculative purposes.
At December 31, 1996, the notional amounts of interest rate swaps
and corridors totaled $682.5 million and $425.0 million,
respectively. The swaps have a weighted average remaining term to
maturity of 27 months at December 31, 1996, with $150.0 million
maturing in 1997; $192.5 million maturing in 1998; $128.0 million
maturing in 1999; and $212.0 million maturing thereafter. The
corridors all mature in 1999 and have a weighted average
remaining term to maturity of 28 months at December 31, 1996. The
swaps and corridors had carrying values of $(0.32) million and
$0.16 million, respectively, which are included in other assets
in the consolidated statements of condition at December 31, 1996.
These contracts had estimated fair values of $(0.36) million and
$0.71 million, respectively, at that date.
The net effect of interest rate swaps and corridors was to
decrease net interest income by $5.6 million during 1996,
compared to $2.4 million for 1995 and $1.2 million for 1994.
These amounts reduced the interest rate spread by ten basis
points, five basis points and three basis points during 1996,
1995 and 1994, respectively.
In July 1996, People's sold eurodollar futures contracts with a
total notional amount of $3.4 billion to reduce the impact that
higher interest rates would have on the estimated fair value of a
portion of the available for sale debt securities portfolio.
Changes in the estimated fair value of the hedged portion of the
securities portfolio have been (and are expected to be)
substantially offset by gains or losses on the futures contracts.
During 1996, People's closed futures contracts with a total
notional amount of $0.7 billion. As of December 31, 1996,
People's had $2.7 billion in open futures contracts, with
expiration dates ranging from March 1997 to December 1998, that
create a hedge with risk-mitigating characteristics similar to a
$334 million pay-fixed interest rate swap. During 1996, deferred
futures losses of $0.8 million were recognized in income due to
amortization and other portfolio activity. Deferred futures
losses of $5.0 million ($2.9 million after taxes) are reflected
in stockholders' equity at December 31, 1996.
50
People's Bank 1996 Annual Report
<PAGE>
People's enters into foreign exchange forward contracts to hedge
its exposure to foreign currency exchange rate risk on credit
card receivables denominated in pounds sterling, generated by
People's United Kingdom branch. At December 31, 1996, People's
had contracts outstanding to sell pounds sterling, with a total
U.S. dollar notional amount of $56.0 million, which mature within
six months. Gains and losses on forward contracts in 1996
substantially offset the translation gains and losses on assets
and liabilities denominated in pounds sterling.
At December 31, 1996, Investor Certificates outstanding in
connection with People's credit card securitizations included
$1.2 billion of certificates with floating rates set at spreads
above one-month LIBOR. Interest payments to investors are funded
from the collections of receivables up to predetermined rate
limits. Any interest payments above these predetermined rates
will be paid by the counterparties to interest rate cap
agreements, entered into by the Trust, with notional principal
amounts equal to the outstanding certificate balances. Interest
rate cap agreements entered into by the Trust have a carrying
value of $10.1 million, which is included in other assets, and an
estimated fair value of $2.7 million at December 31, 1996.
See Note 11 to the consolidated financial statements on page 76
for a further discussion of off-balance-sheet derivative
financial instruments.
Liquidity
- ---------
Liquidity is defined as the ability to generate sufficient cash
flows to meet all present and future funding requirements.
Liquidity management addresses People's ability to fund new loans
and investments as opportunities arise, to meet customer deposit
withdrawals and to repay borrowings as they mature. People's
liquidity position is monitored daily by management. ALCO is
responsible for setting policy guidelines to ensure maintenance
of prudent levels of liquidity. The mix of the various deposit
products and borrowings utilized and the level of liquid assets
at any given time, reflect management's view of the most
efficient use of these sources of funds at that time.
Asset liquidity is provided by cash; short-term investments;
proceeds from sales, maturities and principal repayments of
securities; proceeds from principal collections and sales of
loans; and proceeds from credit card securitizations and sales.
In addition, securities may be utilized to collateralize
borrowings under repurchase agreements. The Consolidated
Statements of Cash Flows, on page 57, present data on cash
provided by and used in People's operating, investing and
financing activities. At December 31, 1996, People's liquid
assets included $146.7 million in short-term investments, $742.5
million in debt securities available for sale, and $443.2 million
in marketable equity securities. At December 31, 1996, People's
had pledged debt securities with a total carrying value of $529.6
million ($216.1 million available for sale and $313.5 million
held to maturity) as collateral to secure public deposits,
repurchase agreements and for other purposes.
[Diversified Managed Earning Asset Base
As of December 31, 1996 - $8.5 billion
Box Graph
Residential Mortgage (26%), Other
Consumer (3%), Securities (22%),
Commercial Banking (17%), Credit
Card* (32%)
* Includes $1.3 billion in off-balance-
sheet securitized credit card receivables.]
Liability liquidity is measured by People's ability to obtain
core deposits and purchased funds at cost effective rates, and in
diversified markets and maturities. Core deposits are the most
stable source of liquidity totaling $4.6 billion at December 31,
1996, compared to $4.4 billion at December 31, 1995 (representing
52% and 56% of total managed funding, respectively). Purchased
funds are routinely used to diversify People's funding mix, to
support asset growth and to compensate for reductions in core
deposits. People's purchased funds totaled $2.3 billion at
December 31, 1996, compared to $1.8 billion at December 31, 1995
(representing 26% and 22% of total managed funding,
respectively).
51
People's Bank 1996 Annual Report
<PAGE>
[Diversified Managed Funding Base
As of December 31, 1996 - $8.9 billion
Box Graph
Credit Card Securitizations (15%),
Core Deposits (52%), Stockholders'
Equity (7%) and Purchased Funds
(26%)]
People's securitizes and sells credit card receivables as an
additional method of diversifying its funding base. This is
accomplished primarily by the public issuance of asset-backed
certificates. As credit card receivables are securitized,
People's on-balance-sheet funding needs are reduced by the amount
of the loans securitized. Securitization provides funding for new
loans and the scheduled amortization of previously securitized
loans, as well as the opportunity to repay borrowings. At
December 31, 1996, outstanding securitized and sold credit card
receivables totaled $1.3 billion and provided approximately 15%
of People's total managed funding. In the event that People's is
unable to continue securitizing and selling credit card
receivables, its capital ratios and flexibility of funding
sources would be adversely affected.
People's credit card securitizations include a revolving period
and a repayment period. During the revolving period, finance
charge collections on securitized credit card receivables are
used to pay interest to the Investor Certificateholders and
principal collections are used to purchase new receivables.
During the repayment period, principal payments on the
securitized credit card receivables are paid to the Investor
Certificateholders, and People's funding requirements increase
accordingly, since new receivables are no longer purchased by the
Investor Certificateholders of that series, but are added to
People's on-balance-sheet credit card portfolio. People's plans
to fund the repayment of securitizations through normal business
operations and future credit card securitizations.
Scheduled Amortization of Credit Card Securitizations
For the year ending December 31 (in millions)
- ---------------------------------------------
1997 $ 377.6
1998 155.7
1999 108.6
2000 318.5
2001 324.8
2002 48.1
- ---------------------------------------------
Total $1,333.3
==========
People's may borrow from the FHLB of Boston subject to certain
limitations. Based on the level of qualifying collateral at
December 31, 1996, People's borrowing limit was approximately
$1.7 billion, with remaining borrowing capacity of approximately
$0.9 billion at that date. At December 31, 1996, People's had
outstanding commitments to originate loans totaling $224.5
million, and approved but unused lines of credit extended to
customers totaling $6.4 billion (including $5.9 billion for the
managed credit card portfolio). At December 31, 1996, outstanding
stand-by letters of credit totaled $26.6 million and outstanding
commercial letters of credit totaled $3.4 million.
The sources of liquidity discussed above are deemed by management
to be sufficient to fund outstanding loan commitments and to meet
People's other obligations.
Capital
- -------
People's stockholders' equity totaled $618.0 million at December
31, 1996, a $67.9 million increase compared to $550.1 million at
December 31, 1995. This increase primarily reflects net income of
$80.1 million for 1996 less dividends of $13.1 million on common
stock. As a percentage of total assets, stockholders' equity
equaled 8.1% at December 31, 1996, compared to 8.0% at December
31, 1995.
In November 1996, People's sold, in a public offering, $150.0
million of 7.20% subordinated notes due December 1, 2006. These
notes qualify as supplementary or Tier 2 capital under regulatory
capital guidelines, thereby enhancing People's Total risk-based
capital ratio.
People's Tier 1 leverage capital ratio was 7.9% at December 31,
1996, compared to the minimum ratio of 4.0% generally required by
FDIC regulations. People's risk-based capital ratios also exceed
the FDIC minimum requirements.
52
People's Bank 1996 Annual Report
<PAGE>
Following is a summary of People's risk-based capital:
FDIC Minimum
People's Requirements
As of December 31. 1996 ----------------- -----------------
(dollars in millions) Amount Ratio(1) Amount Ratio(1)
- -----------------------------------------------------------------
Tier 1 capital $569.2(2) 10.0% $226.9 4.0%
Total capital 788.3(3) 13.9 453.7 8.0
=======================================
(1) Based on People's risk-adjusted total assets, as defined, of
$5,671.3 million.
(2) Represents total stockholders' equity, excluding net
unrealized gains or losses on debt securities classified as
available for sale and net unrealized gains on equity
securities classified as available for sale, less certain
assets not recognuted in Tier 1 capital.
(3) Represents Tier 1 capital plus subordinated notes and the
allowance for loan losses up to 1.25% of risk-weighted total
assets.
People's regulatory capital ratios at December 31, 1996 exceeded
the FDIC's numeric criteria for classification as a "well
capitalized" institution. See Note 9 to the consolidated
financial statements on page 71 for additional information
concerning People's regulatory capital amounts and ratios.
People's will continue to enhance its capital position through
careful balance sheet management, continuing assessment of
securitization opportunities and retention of earnings. Depending
on prevailing market conditions, People's may raise additional
regulatory capital through the issuance of common or preferred
stock or qualifying debt securities; further restructure its
asset mix for risk-based capital purposes; or decrease its asset
size as a means of managing its regulatory capital adequacy.
[People's Capital Ratios
As of December 31, 1996 (percent)
Bar Graph
Leverage, Tier 1 Risk-Based and Total
Risk-Based for Minimum Capital Adequacy,
Well Capitalized Requirements and People's
Actual]
Holding Company Structure
- -------------------------
In 1988, People's became a capital stock savings bank as part of
a reorganization from its original form as a mutual savings bank.
That process also resulted in the formation of People's Mutual
Holdings ("Holdings"), a mutual-form bank holding company that is
subject to regulation by the Federal Reserve Board. At December
31, 1996, Holdings owned 24.3 million or approximately 59.9% of
People's common stock which is the only class of People's capital
stock now outstanding. By virtue of its ownership of a majority
of People's outstanding shares, Holdings is able to elect all of
the members of the Board of Directors of People's and will
generally be able to affect significantly the outcome of all
matters presented to the shareholders of People's for resolution
by vote.
Holdings differs in significant respects from an ordinary bank
holding company. Holdings is a corporation without shares of
capital stock, and Holdings' Articles of Incorporation require
its Board of Trustees to consider the impact of its actions on a
variety of constituencies. These include the depositors,
employees and debtholders of People's, and the well-being of the
communities in which People's conducts business.
The Board of Trustees of Holdings has historically considered the
interests of People's shareholders in making business decisions.
For example, since the inception of Holdings, the Board of
Trustees has consistently opted to waive Holdings' receipt of all
or a substantial portion of all dividends declared by People's
with respect to shares of common stock owned by Holdings. In
addition, in connection with People's issuance of convertible
preferred stock in 1993, Holdings made 1,000,000 shares of its
People's common stock available for use in satisfying a portion
of the conversion rights of preferred stockholders. This lessened
the dilution the other holders of People's common stock would
otherwise have experienced if People's issued shares of common
stock to satisfy all conversion rights.
Except for a comparatively minor amount used to fund its
operations, Holdings has waived the payment of cash dividends
during those periods since 1988 that People's has been able to
pay cash dividends to its shareholders. Through December 31,
1996, over $86 million of cash dividends have been waived by
Holdings. While management believes that Holdings will continue
to waive payment of cash dividends payable on the large majority
of shares of People's common stock owned by Holdings, there can
be no assurance that Holdings will continue to waive dividends to
the extent waived to date.
53
People's Bank 1996 Annual Report
<PAGE>
Consolidated Statements of Condition
As of December 31
(dollars in millions) 1996 1995
- --------------------------------------------------------------
Assets
Cash and due from banks (note 2) $ 196.2 $ 269.0
Short-term investments (note 2) 146.7 137.2
Securities (note 3):
Trading account securities,
at estimated fair value 2.8 -
Securities available for sale,
at estimated fair value
(amortized cost of $1,214.4 in
1996 and $1,119.3 in 1995) 1,227.6 1,131.0
Securities held to maturity, at
amortized cost (estimated fair
value of $466.5 in 1996 and
$550.3 in 1995) 472.1 555.3
- --------------------------------------------------------------
Total securities, net 1,702.5 1,686.3
- --------------------------------------------------------------
Loans, net (note 4):
Residential mortgage 2,242.5 2,165.5
Commercial mortgage 819.1 745.5
Commercial 591.2 534.7
Credit card 1,386.6 702.6
Other consumer 237.6 304.8
- --------------------------------------------------------------
Total loans 5,277.0 4,453.1
Less allowance for loan losses (87.6) (75.0)
- --------------------------------------------------------------
Total loans, net 5,189.4 4,378.1
- --------------------------------------------------------------
Premises and equipment, net 173.6 170.0
Other assets (note 5) 236.8 221.2
- --------------------------------------------------------------
Total assets $7,645.2 $6,861.8
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 6):
Demand $ 930.2 $ 806.7
NOW 194.2 205.5
Savings 1,235.3 1,208.4
Money market 715.3 738.9
Time 2,170.2 1,876.6
- --------------------------------------------------------------
Total deposits 5,245.2 4,836.1
- --------------------------------------------------------------
Borrowings (note 7):
FHLB advances 836.8 567.5
Repurchase agreements 452.7 585.6
Federal funds purchased 257.1 239.2
Subordinated notes 148.0 -
- --------------------------------------------------------------
Total borrowings 1,694.6 1,392.3
- --------------------------------------------------------------
Other liabilities 87.4 83.3
- --------------------------------------------------------------
Total liabilities 7,027.2 6,311.7
- --------------------------------------------------------------
Commitments and contingencies (note 11)
Stockholders' equity (notes 9 and 10):
Preferred stock (without par
value; 10,000,000 shares
authorized and 323,516 shares
issued and outstanding in 1995) - 16.2
Common stock (without par value;
60,000,000 shares authorized;
40,553,446 shares and 38,615,001
shares issued and outstanding in
1996 and 1995, respectively) 40.6 38.6
Additional paid-in capital 111.0 94.7
Retained earnings 465.8 399.3
Net unrealized gain on securities,
net of tax (note 3) 0.6 1.3
- ---------------------------------------------------------------
Total stockholders' equity 618.0 550.1
- ---------------------------------------------------------------
Total liabilities and
stockholders' equity $ 7,645.2 $ 6,861.8
- ---------------------------------------------------------------
See accompanying notes to consolidated financial statements.
54
People's Bank 1996 Annual Report
<PAGE>
Consolidated Statements of Income
Years ended December 31
(in millions, except per
share data) 1996 1995 1994
- ---------------------------------------------------------------
Interest and dividend income:
Residential mortgage $164.0 $156.4 $133.5
Commercial mortgage 67.0 65.3 55.2
Commercial 52.2 51.4 41.5
Credit card 82.2 56.2 77.5
Other consumer 19.2 25.7 19.9
- ---------------------------------------------------------------
Total interest on loans 384.6 355.0 327.6
Securities (note 3) 90.0 95.4 81.7
Short-term investments 5.4 5.4 4.7
- ---------------------------------------------------------------
Total interest and dividend
income 480.0 455.8 414.0
- ---------------------------------------------------------------
Interest expense:
Deposits 162.5 146.1 113.8
Borrowings (note 7) 83.0 78.1 53.6
- ---------------------------------------------------------------
Total interest expense 245.5 224.2 167.4
- ---------------------------------------------------------------
Net interest income 234.5 231.6 246.6
Provision for loan losses (note 4) 51.1 39.9 50.9
- ---------------------------------------------------------------
Net interest income after
provision for loan losses 183.4 191.7 195.7
- ---------------------------------------------------------------
Non-interest income:
Fee-based revenues:
Credit card securitization
income (note 4) 66.1 68.5 32.0
Credit card fees 29.1 24.0 31.1
Service charges on demand and
NOW accounts 27.6 24.8 23.3
Residential mortgage loan
servicing fees 6.2 6.0 6.4
Net brokerage commissions 7.4 5.5 5.0
Other 12.4 11.3 10.8
- ---------------------------------------------------------------
Total fee-based revenues 148.8 140.1 108.6
Net security gains (note 3) 15.2 7.6 4.8
Net gains (losses) on sales of
residential mortgage loans
available for sale (note 4) 5.4 4.0 (3.5)
Net gains on sale of other
consumer loans (note 4) 6.0 - -
Loss on real estate investments
(note 5) (2.1) (1.8) (6.4)
Other 3.4 2.2 3.1
- ---------------------------------------------------------------
Total non-interest income 176.7 152.1 106.6
- ---------------------------------------------------------------
Non-interest expense:
Compensation and benefits
(note 10) 124.2 110.9 102.3
Occupancy and equipment 43.2 40.5 39.1
Professional and outside
service fees 28.5 22.2 18.5
Advertising and promotion 25.4 11.8 13.8
Loss on real estate acquired
in settlement of loans (note 5) 4.3 6.8 19.5
Other 33.4 37.6 44.2
- ---------------------------------------------------------------
Total non-interest expense 259.0 229.8 237.4
- ---------------------------------------------------------------
Income before income taxes and
cumulative effect
of accounting change 101.1 114.0 64.9
Income tax expense
(benefit) (note 8) 21.0 43.0 (4.9)
- ---------------------------------------------------------------
Income before cumulative effect
of accounting change 80.1 71.0 69.8
Cumulative effect of change in
accounting for securities (note 3) - - 0.3
- ---------------------------------------------------------------
Net income $ 80.1 $ 71.0 $ 70.1
===========================
Net income applicable to
common stock $ 79.5 $ 68.8 $ 65.1
===========================
Net income per common share:
Primary $ 1.98 $ 1.81 $ 1.89
Fully diluted 1.96 1.74 1.73
===========================
Average common shares:
Primary 40.19 38.08 34.46
Fully diluted 40.94 40.78 40.56
===========================
See accompanying notes to consolidated financial statements
55
People's Bank 1996 Annual Report
<PAGE>
Consolidated Statements of Changes
in Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net
Unrealized Total
Additional Gain(Loss) Stock-
(in millions, except Preferred Common Paid-in Retained on holders'
per share data) Stock Stock Capital Earnings Securities Equity
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $69.0 $32.7 $45.1 $278.7 $ -- $425.5
Net income -- -- -- 70.1 -- 70.1
Conversions of preferred
stock (35.7) 3.8 31.9 -- -- --
Cash dividends on
preferred stock
($4.25 per share) -- -- -- (5.0) -- (5.0)
Cash dividends on
common stock
($0.47 per share) -- -- -- (4.6) -- (4.6)
Net unrealized gain (loss)
on securities available for
sale, net of tax:
As of January 1, 1994 -- -- -- -- 4.7 4.7
Net change during the year -- -- -- -- (15.8) (15.8)
Net unrealized loss on
securities transferred
from available for sale
to held to maturity, net
of tax -- -- -- -- (6.7) (6.7)
Other -- 0.1 0.7 -- -- 0.8
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 33.3 36.6 77.7 339.2 (17.8) 469.0
Net income -- -- -- 71.0 -- 71.0
Conversions of preferred
stock (17.1) 1.8 15.3 -- -- --
Cash dividends on preferred
stock ($4.25 per share) -- -- -- (2.2) -- (2.2)
Cash dividends on common
stock ($0.64 per share) -- -- -- (8.7) -- (8.7)
Change in net unrealized
gain (loss) on securities
available for sale, net of tax -- -- -- -- 16.6 16.6
Amortization of net unrealized
loss on securities transferred
in 1994 from available for sale
to held to maturity, net of tax -- -- -- -- 1.2 1.2
Net unrealized gain on securites
transferred in 1995 from held to
maturity to available for sale,
net of tax -- -- -- -- 1.3 1.3
Other -- 0.2 1.7 -- -- 1.9
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 16.2 38.6 94.7 399.3 1.3 550.1
Net income -- -- -- 80.1 -- 80.1
Conversions of preferred
stock (16.2) 1.7 14.5 -- -- --
Cash dividends on preferred
stock ($3.19 per share) -- -- -- (0.6) -- (0.6)
Cash dividends on common
stock ($0.80 per share) -- -- -- (13.1) -- (13.1)
Change in net unrealized
gain (loss) on securities
available for sale, net of tax -- -- -- -- (2.2) (2.2)
Amortization of net unrealized
loss on securities transferred
in 1994 from available for sale
to held to maturity, net of tax -- -- -- -- 1.5 1.5
Other -- 0.3 1.8 0.1 -- 2.2
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ -- $40.6 $111.0 $465.8 $ 0.6 $618.0
=========================================================================
See accompanying notes to consolidated fianancial statements.
</TABLE>
56
People's Bank 1996 Annual Report
<PAGE>
Consolidated Statements of Cash Flows
Years ended December 31
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------
Cash Flows from Operating
Activities:
Interest and dividends received $ 407.3 $ 445.8 $ 414.9
Non-interest cash receipts 163.5 148.9 103.2
Interest paid (242.4) (225.6) (161.5)
Compensation and benefits paid (123.0) (113.1) (102.8)
Other non-interest expenses paid (119.3) (99.6) (105.8)
Income taxes paid (6.5) (29.7) (7.3)
Proceeds from sales of trading
account securities 35.7 - 21.8
Purchases of trading account
securities (38.5) - (4.9)
- ---------------------------------------------------------------------
Net cash provided by operating
activities 139.8 126.7 157.6
- ---------------------------------------------------------------------
Cash Flows from Investing
Activities:
Proceeds from sales of
available for sale securities:
Debt securities 596.9 202.9 97.3
Equity securities 543.0 648.5 154.8
Purchases of available for
sale securities (1,329.1) (1,160.8) (451.9)
Purchases of held to maturity
securities (43.8) (28.9) (148.5)
Proceeds from principal repayments
of available for sale securities 97.6 68.8 80.4
Proceeds from principal repayments
of held to maturity securities 126.3 152.0 170.0
Loan originations, net of
principal collections (1,736.4) (837.4) (1,103.1)
Proceeds from sales of securi-
tized credit card receivables 400.0 400.0 600.0
Proceeds from other sales of loans 459.0 280.9 465.9
Other investing cash flows, net (23.4) (22.3) 0.5
- ---------------------------------------------------------------------
Net cash used in investing
activities (909.9) (296.3) (134.6)
- ---------------------------------------------------------------------
Cash Flows from Financing
Activities:
Net increase (decrease) in
deposits 409.1 182.3 (58.3)
Proceeds from Federal Home Loan
Bank advances 1,786.3 774.4 759.0
Repayments of Federal Home Loan
Bank advances (1,517.0) (951.6) (823.8)
Net (decrease) increase in
federal funds purchased
and repurchase agreements
with terms of three
months or less (140.1) 312.2 87.2
Proceeds from longer-term
repurchase agreements 309.1 592.2 493.8
Repayments of longer-term
repurchase agreements (284.0) (632.0) (411.8)
Net proceeds from issuance
of subordinated notes 148.0 - -
Cash dividends paid on common
and preferred stock (13.7) (10.9) (9.6)
Other financing cash flows, net 8.5 10.9 (15.4)
- ---------------------------------------------------------------------
Net cash provided by financing
activities 706.2 277.5 21.1
- ---------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (63.9) 107.9 44.1
Cash and cash equivalents at
beginning of year 394.0 286.1 242.0
- ---------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 330.1 $ 394.0 $ 286.1
==================================
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 80.1 $ 71.0 $ 70.1
Provision for loan losses 51.1 39.9 50.9
Provisions for losses on real
estate assets 1.8 3.4 13.0
Depreciation and amortization 17.2 18.3 16.8
Net change in income tax assets
and liabilities 10.2 (42.1) 20.3
Net security gains (15.2) (7.6) (4.8)
Net (increase) decrease in
trading account securities (2.8) - 16.8
Net gain on sale of other consumer
loans (6.0) - -
Other reconciling items, net 3.4 43.8 (25.5)
- ---------------------------------------------------------------------
Net cash provided by operating
activities $139.8 $ 126.7 $ 157.6
==================================
Supplemental Disclosure of
Non-Cash Investing Activities:
Real estate properties acquired
by foreclosure $ 18.9 $12.4 $15.9
Securities transferred from held
to maturity to available for sale - 253.2 -
Securities transferred from
available for sale to held to
maturity - - 132.6
==================================
See accompanying notes to consolidated financial statements.
57
People's Bank 1996 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
- --------------------------------------------------
People's Bank ("People's") is a state chartered stock savings
bank providing a wide range of banking, fiduciary and other
financial services to corporate, individual and institutional
customers. In addition to traditional banking services of
accepting deposits and making loans, People's provides various
specialized services tailored to specific markets. People's
primary market is the state of Connecticut, although it conducts
a nationwide credit card program and, in 1996, established a
limited purpose branch in the United Kingdom to expand the credit
card business further. People's financial results are particularly
dependent on economic conditions in Connecticut. Deposits are
insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"). People's primary regulators are
the FDIC and the State of Connecticut Department of Banking.
Basis of Financial Statement Presentation
- -----------------------------------------
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses.
Material estimates that are particularly susceptible to
significant near-term change include the allowances for losses on
loans and real estate assets, and the valuation allowance for
deferred tax assets.
The consolidated financial statements include the accounts of
People's and its wholly owned subsidiaries, including People's
Securities, Inc., a brokerage firm; People's Structured Finance
Corp., a special purpose finance subsidiary involved in People's
credit card securitization activities; and various companies
engaged in real estate activities. All significant intercompany
transactions and balances are eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
Cash Equivalents
- ----------------
For purposes of reporting cash flows, cash equivalents include
highly liquid instruments with an original maturity of three
months or less. These amounts are included in short-term
investments in the consolidated statements of condition.
Agreements to Resell or Repurchase Securities
- ---------------------------------------------
Purchases of securities under agreements to resell are accounted
for as short-term investments; sales of securities under
agreements to repurchase are accounted for as short-term
borrowings. These investments and borrowings are carried at the
amounts at which the identical securities will be subsequently
resold or repurchased as specified in the agreements.
Securities
- ----------
Marketable equity securities and debt securities are classified
as either trading account securities, held to maturity securities
(applicable only to debt securities) or available for sale
securities. Management determines the classification of
securities at the time of purchase and reevaluates this
classification periodically, although transfers between
classifications are infrequent.
Securities purchased for sale in the near term are classified as
trading account securities and carried at estimated fair value.
Unrealized gains and losses are included in non-interest income.
Debt securities for which People's has the positive intent and
ability to hold to maturity are classified as held to maturity
securities and carried at amortized cost. Premiums are amortized
and discounts are accreted to interest income using the interest
method over the remaining period to contractual maturity,
adjusted, in the case of collateralized mortgage obligations
("CMOs"), for actual prepayments.
All other securities are classified as available for sale and
carried at estimated fair value. Unrealized gains and losses are
reported as a separate component of stockholders' equity, net of
tax. Securities transferred from the available for sale category
are recorded in the held to maturity category at estimated fair
value at the transfer date. Unrealized gains (losses) at the
transfer date are reflected in stockholders' equity and, together
with the related premiums (discounts), are amortized to interest
income as yield adjustments.
Security transactions are recorded on the trade date. Realized
gains and losses are determined using the specific identification
method and included in non-interest income.
Management conducts a periodic review and evaluation of the
securities portfolio to determine if the decline in value of any
security appears to be other than temporary. If the decline is
deemed to be other than temporary, the security is written down
to a new cost basis and the resulting loss is reported in income.
Loans
- -----
Loans available for sale are carried at the lower of cost or
estimated fair value in the aggregate, with any adjustment for
unrealized losses included in non-interest income. All
58
People's Bank 1996 Annual Report
<PAGE>
other loans are carried at amortized cost less the allowance for
loan losses.
Effective January 1, 1995, People's prospectively adopted SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118. Under SFAS No. 114, a loan is considered
impaired when, based on current information and events, it is
probable that a creditor will be unable to collect principal or
interest due according to the contractual terms of the loan.
Impaired loans are measured and reported based on one of three
methods: the present value of expected future cash flows
discounted at the loan's effective interest rate; the loan's
observable market price; or the fair value of the collateral if
the loan is collateral dependent. If the measure is less than an
impaired loan's recorded investment, an impairment loss is
recognized as part of the allowance for loan losses. The adoption
of SFAS No. 114 did not affect People's overall allowance for loan
losses.
The allowance for loan losses is increased by provisions charged
to operations and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance
is based on People's historical loan loss experience; a review of
non-performing loans and related collateral values; the
possibility of loss in view of geographic and industry
concentrations and other portfolio risk characteristics; the
present financial condition of borrowers; and current economic
conditions. While management uses the best information available
to estimate loan losses (such as independent appraisals for
significant collateral properties), future adjustments to the
allowance may be necessary based on changes in economic
conditions, further information obtained regarding known problem
loans, the identification of additional problem loans and other
factors.
Credit losses associated with credit card receivables securitized
and sold are not reflected in People's provision and allowance for
loan losses. Such credit losses are absorbed directly under the
contractual agreements of the credit card trust, thereby reducing
credit card securitization income rather than increasing the
provision for loan losses.
Interest and Fees on Loans
- --------------------------
Interest on loans is accrued to income monthly based on
outstanding principal balances, except for past due interest in
excess of 90 days, which is credited to an allowance for
uncollected interest. In addition, when management considers the
collection of previously accrued but unpaid interest to be
doubtful, such interest is reversed by charging interest income
in the current period and crediting the allowance for uncollected
interest. Interest payments received on non-accrual loans
(including impaired loans under SFAS No. 114) are recognized as
income unless future collections are doubtful, in which case the
payments are applied as a reduction of principal. A loan remains
on non-accrual status until the factors that indicated doubtful
collectibility no longer exist or until a loan is determined to
he uncollectible and is charged off against the allowance for
loan losses.
Loan origination fees and certain direct loan origination costs
are deferred, and the net fee or cost is recognized in interest
income using the level yield method. Deferred amounts are
recognized for fixed rate loans over the contractual life of the
loans, adjusted in certain circumstances for estimated
prepayments based on People's historical experience. For
adjustable rate loans, deferred amounts are recognized over the
period of time required to adjust the contractual interest rate
to a yield approximating a market rate at origination date.
Credit card and home equity credit line membership fees, which
are not considered interest yield adjustments, are recognized on
a straight-line basis over the membership period. Deferred credit
card origination costs are amortized on a straight-line basis
over the initial membership period (usually one year).
Credit Card Securitizations and Sales
- -------------------------------------
Securitizations involve People's transfer of credit card
receivables to the People's Bank Credit Card Master Trust (the
"Trust"), followed by the issuance of securities to investors
representing undivided interests in the Trust. These transactions
are accounted for as sales for financial reporting purposes and,
accordingly, People's on-balance-sheet credit card portfolio is
reduced by the undivided interests sold to investors. Due to the
relatively short average life of the revolving credit card
receivables, no gain or loss is recognized at the time of sale.
Rather, servicing fees and excess spread revenue (credit card
interest and fees in excess of interest paid to
certificateholders, credit losses and other trust expenses) are
recognized as earned over the term of the securitization and
reported as "credit card securitization income" in the
consolidated statements of income. See Note 13 for a discussion
of SFAS No. 125 which establishes new accounting standards for
transfers of financial assets, including credit card
securitizations and sales, effective January 1, 1997.
Mortgage Servicing Rights
- -------------------------
Effective January 1, 1995, People's prospectively adopted SFAS
No. 122, "Accounting for Mortgage Servicing Rights," which
requires the recognition of servicing rights as an asset when
mortgage loans are sold or securitized with servicing retained.
SFAS No. 122 requires allocation of the cost of a mortgage loan
between the loan and the servicing right based on estimated
relative fair values. Fair values of mortgage servicing rights
are estimated using a discounted cash flow approach which
considers future servicing income and costs, current
59
People's Bank 1996 Annual Report
<PAGE>
market interest rates, and anticipated prepayment and default
rates. Capitalized mortgage servicing rights are amortized in
proportion to, and over the period of, estimated net servicing
income.
SFAS No. 122 requires that capitalized mortgage servicing rights
be evaluated for impairment, by comparing the asset's carrying
amount to its current estimated fair value. In making impairment
evaluations, mortgage servicing rights are stratified based on
one or more of the predominant risk characteristics of the
underlying loans. Impairment losses, if any, are recognized
through a valuation allowance for each impaired stratum.
Real Estate Assets
- ------------------
Real estate investments ("REI") are carried at the lower of cost
or estimated fair value less costs to sell. Any adjustments to
carrying value are recorded in an allowance for losses.
Real estate properties acquired through foreclosure or
deed-in-lieu of foreclosure ("REO") are recorded initially at
estimated fair value less costs to sell. Any write-down of the
recorded investment in the related loan is charged to the
allowance for loan losses. Thereafter, an allowance for REO
losses is established for any further declines in the property's
estimated fair value less costs to sell.
The allowances for losses on REI and REO are increased by
provisions charged to operations and are decreased by charge-offs
for net realized losses. Management's periodic evaluation of the
adequacy of each allowance is based on an analysis of individual
properties, as well as a general assessment of current real
estate market conditions. While management estimates real estate
losses using the best available information, such as independent
appraisals, future adjustments to the allowances may be necessary
based on changes in economic and real estate market conditions.
Holding costs and rental income on properties that are ready for
sale are included in current operations, while certain costs to
improve such properties are capitalized. Costs incurred to
complete properties under construction are capitalized.
Premises and Equipment
- ----------------------
Premises and equipment are carried at cost less accumulated
depreciation and amortization, except for land which is carried
at cost. Buildings, data processing and other equipment,
furniture and fixtures are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over
the shorter of the remaining lease term or estimated useful life
of the improvements.
Income Taxes
- ------------
Deferred taxes are recognized for the estimated future tax
effects attributable to "temporary differences" between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. A deferred tax liability is
recognized for all temporary differences that will result in
future taxable income. A deferred tax asset is recognized for all
temporary differences that will result in future tax deductions
and for all unused net operating loss ("NOL") and tax credit
carryforwards, subject to reduction of the asset by a valuation
allowance in certain circumstances. This valuation allowance is
recognized if, based on an analysis of available evidence,
management determines that it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
The valuation allowance is subject to ongoing adjustment based on
changes in circumstances that affect management's judgment about
the realizability of the deferred tax asset. Adjustments to
increase or decrease the valuation allowance are charged or
credited, respectively, to income tax expense.
Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the
years in which the temporary differences are expected to be
recovered or settled and the NOL carryforwards are expected to be
utilized. The effect on deferred tax assets and liabilities of a
change in tax laws or rates is recognized in income tax expense
in the period that includes the enactment date of the change.
Net Income Per Common Share
- ---------------------------
Primary net income per common share is calculated by dividing net
income applicable to common stock by the average number of common
and common-equivalent shares outstanding during the year. Fully
diluted net income per common share is calculated by dividing net
income by the average number of common and common-equivalent
shares outstanding during the year, plus the number of common
shares issuable upon the assumed conversion of any outstanding
convertible preferred shares. Common stock equivalents for both
primary and fully diluted net income per common share include
stock options, computed using the treasury stock method, when
such inclusion results in a significant dilution of the per share
data.
Foreign Currency Translation
- ----------------------------
United Kingdom branch assets and liabilities denominated in
pounds sterling are translated into United States dollars using
the current exchange rate at year end. Income and expense amounts
are translated using the average exchange rate for the period in
which the transaction occurred. Translation gains and losses are
reported in stockholders' equity, net of tax.
60
People's Bank 1996 Annual Report
<PAGE>
Risk Management Instruments
- ---------------------------
People's uses off-balance-sheet derivative financial instruments,
such as interest rate swaps, corridors and futures contracts, and
foreign exchange forward contracts, in its risk management
strategies. These instruments are used for hedging and not for
speculative or trading purposes.
Interest rate swaps and corridors are used in People's interest
rate risk management. Amounts currently receivable or payable
under these agreements are accrued as an adjustment to the
interest income or expense on the designated asset or liability.
Premiums paid for interest rate corridors are included in other
assets and are amortized over the term of the agreement as a
yield adjustment on the designated asset or liability.
Interest rate futures contracts are used to hedge price risk on a
portion of the portfolio of debt securities available for sale.
Gains and losses on the futures contracts are deferred and
reflected in stockholders' equity provided that there has been
high correlation between changes in the fair values of the
futures contracts and the hedged securities. Deferred gains and
losses on open futures contracts are recognized in income if high
correlation ceases. Deferred gains (losses) on closed futures
contracts are accounted for as discounts (premiums) on the
related securities.
Foreign exchange forward contracts are used to reduce People's
exposure to foreign currency exchange rate risk related to credit
card receivables denominated in pounds sterling. Premiums paid or
received are amortized over the term of the contracts. Gains and
losses on the forward contracts are deferred and reported in
stockholders' equity, net of tax, together with the related
foreign currency translation gains and losses.
Stock Options
- -------------
People's accounts for stock options in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly,
compensation expense is recognized only if the fair value of the
underlying stock at the grant date exceeds the exercise price of
the option. SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages entities to recognize the fair value of
all stock-based awards on the date of grant as expense over the
vesting period. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma disclosures of net income and net income per share as
if the fair-value-based method defined in SFAS No. 123 had been
applied to employee stock option grants made in 1995 and later
years. People's has elected to continue to apply the provisions
of APB Opinion No. 25.
Note 2. Cash and Short-Term Investments
- ---------------------------------------
Aggregate reserves (in the form of deposits with the Federal
Reserve Bank and vault cash) of $91.1 million and $82.1 million
were maintained to satisfy federal regulatory requirements at
December 31, 1996 and 1995, respectively.
At December 31, 1996, short-term investments consisted of $133.9
million in cash equivalents (securities purchased under resale
agreements of $75.0 million, commercial paper of $50.0 million,
certificates of deposit of $8.0 million and federal funds sold of
$0.9 million) and $12.8 million in money market mutual funds.
At December 31, 1995, short-term investments consisted of $125.0
million in certificates of deposit (cash equivalents) and $12.2
million in money market mutual funds.
People's engages in purchases of securities under resale
agreements only with primary dealers in government securities
that have been approved by the Board of Directors. Original
maturities of these agreements are generally less than 90 days.
The amounts advanced by People's in these transactions are
collateralized by the underlying securities which are held by the
counterparties during the transaction term.
Information concerning securities purchased under resale
agreements is presented below:
As of and for the years ended
December 31 (in millions) 1996 1995 1994
- ------------------------------------------------------------------
Carrying value of agreements at
year end $75.0 $ - $ -
Fair value of collateral
securities at year end 76.5 - -
Average outstanding during the
year 52.8 43.5 24.9
Maximum outstanding at any
month end 85.0 75.0` 65.0
- ------------------------------------------------------------------
61
People's Bank 1996 Annual Report
<PAGE>
Note 3. Securities
- ------------------
Gross Un- Gross Un- Estimated
As of December 31, 1996 Amortized realized realized Fair
(in millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------
Securities Available for Sale:
Debt securities:
United States Treasury
and agency $ 359.4 $ - $ (4.5) $ 354.9
CMOs 126.8 0.1 (1.7) 125.2
State and municipal 14.2 - - 14.2
Corporate and other 249.1 0.7 (1.6) 248.2
- ----------------------------------------------------------------------------
Total debt securities 749.5 0.8 (7.8) 742.5
- ----------------------------------------------------------------------------
Equity securities:
Common stocks 160.4 26.5 (6.4) 180.5
Money market preferred
stocks 231.4 - - 231.4
Federal Home Loan Bank
stock 41.9 - - 41.9
Other 31.2 0.4 (0.3) 31.3
- ----------------------------------------------------------------------------
Total equity securities 464.9 26.9 (6.7) 485.1
- ----------------------------------------------------------------------------
Total securities available
for sale $1,214.4 $27.7 $(14.5) $1,227.6
==========================================
Securities Held to Maturity:
CMOs $ 385.2 $ 0.5 $ (6.3) $ 379.4
State and municipal 62.9 0.6 - 63.5
Corporate and other 24.0 - (0.4) 23.6
- ----------------------------------------------------------------------------
Total securities held to
maturity $ 472.1 $ 1.1 $ (6.7) $466.5
==========================================
Gross Un- Gross Un- Estimated
As of December 31, 1995 Amortized realized realized Fair
(in millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------
Securities Available for Sale:
Debt securities:
United States Treasury
and agency $405.7 $1.6 $0.4 $406.9
CMOs 194.6 0.3 2.5 192.4
State and municipal 39.6 0.1 - 39.7
Corporate and other 388.9 3.3 0.8 341.4
- ----------------------------------------------------------------------------
Total debt securities 978.8 5.3 3.7 980.4
- ----------------------------------------------------------------------------
Equity securities:
Common stocks 77.9 14.0 3.4 88.5
Money market preferred
stocks 15.1 - - 15.1
Federal Home Loan Bank
stock 41.7 - - 41.7
Other 5.8 - 0.5 5.3
- ----------------------------------------------------------------------------
Total equity securities 140.5 14.0 3.9 150.6
- ----------------------------------------------------------------------------
Total securities available
forsale $1,119.3 $19.3 $7.6 $1,131.0
==========================================
Securities Held to Maturity:
CMOs $499.4 $1.9 $6.9 $494.4
State and municipal 27.6 0.5 - 28.1
Corporate and other 28.3 - 0.5 27.8
- ----------------------------------------------------------------------------
Total securities held to
maturity $555.3 $2.4 $7.4 $550.3
==========================================
62
People's Bank 1996 Annual Report
<PAGE>
At December 31, 1996, the net unrealized gain on the available
for sale portfolio (excluding related hedging activities
described in Note 11) totaled $13.2 million ($7.6 million after
taxes), compared to $11.7 million ($6.8 million after taxes) at
December 31, 1995. Changes in unrealized holding gains and losses
on available for sale securities resulted in pre-tax increases
(decreases) in stockholders' equity of $1.5 million, $34.1
million and $(21.9) million for 1996, 1995 and 1994,
respectively.
In November 1995, the FASB issued a special report on SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," which provided a one-time opportunity to reclassify
securities from the held to maturity category to the available
for sale category prior to year end 1995, without calling into
question the intent to hold other securities to maturity. In
December 1995, People's reclassified securities with an amortized
cost of $253.2 million and an estimated fair value of $255.6
million from the held to maturity category to the available for
sale category. The after-tax net unrealized gain of $1.3 million
was recorded as an increase to stockholders' equity.
In September 1994, People's transferred CMOs with an amortized
costs of $132.6 million and an estimated fair value of $120.4
million from the available for sale category to the held to
maturity category. This transfer was made in response to amended
regulatory policies concerning the classification of
"nonhigh-risk" mortgage-backed securities. The securities were
recorded in the held to maturity category at their estimated fair
value. The pre-tax net unrealized loss of $12.2 million and the
related discounts are being amortized as yield adjustments over
the lives of the securities. At December 31, 1996 and 1995, the
unamortized after-tax net unrealized loss of $4.1 million and
$5.5 million, respectively, is reflected as a reduction of
stockholders' equity.
Prior to People's adoption of SFAS No. 115, effective January 1,
1994, available for sale securities were carried at the lower of
amortized cost or estimated fair value in the aggregate, and any
net unrealized losses were recognized in income, SFAS No. 115
changed the accounting for available for sale securities and,
accordingly, net unrealized losses previously recognized in
income were reversed upon adoption. This reversal resulted in a
$0.3 million after-tax credit to earnings which is shown as the
cumulative effect of an accounting change in the 1994
consolidated statement of income.
People's CMOs had total carrying values of $510.4 million and
$691.8 million at December 31, 1996 and 1995, respectively. These
amounts consists of (i) securities issued or collateralized by
United States government - sponsored entities, such as Freddie Mac
and Fannie Mae, totaling $428.6 million in 1996 and $602.4
million in 1995, and (ii) privately-issued securities of $81.8
million in 1996 and $89.4 million in 1995.
At December 31, 1996, securities with a carrying value of $529.6
million were pledged or assigned as collateral to secure
repurchase agreements, public deposits and for other purposes.
Dividend income on equity securities totaled $13.2 million, $12.6
million and $6.5 million for 1996, 1995 and 1994, respectively.
Tax exempt interest income totaled $3.1 million, $1.9 million and
$0.3 million for 1996, 1995 and 1994, respectively.
63
People's Bank 1996 Annual Report
<PAGE>
The following is a summary of the amortized cost, estimated fair
value and fully taxable equivalent ("FTE") average yield of debt
securities. Information is shown by remaining period to
contractual maturity for categories other than CMOs:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Available for Sale Held to Maturity
---------------------------- -----------------------------
Estimated FTE Estimated FTE
As of December 31, 1996 Amortized Fair Average Amortized Fair Average
(dollars in millions) Cost Value Yield Cost Value Yield
- -------------------------------------------------------------------------------------------------
United States Treasury
and agency:
After 1 but within 5 years $331.3 $328.1 5.94% $ - $ - -%
After 5 but within 10 years 28.1 26.8 5.75 - - -
- -------------------------------------------------------------------------------------------------
359.4 354.9 5.93 - - -
- -------------------------------------------------------------------------------------------------
State and municipal:
Within 1 year 14.2 14.2 5.76 - - -
After 1 but within 5 years - - - 56.1 56.5 5.69
After 5 but within 10 years - - - 6.8 7.0 5.56
- -------------------------------------------------------------------------------------------------
14.2 14.2 5.76 62.9 63.5 5.68
- -------------------------------------------------------------------------------------------------
Corporate or other:
Within 1 year 34.5 34.8 5.77 0.5 0.5 7.68
After 1 but within 5 years 89.8 89.4 6.12 0.1 0.1 5.50
After 5 but within 10 years 41.9 41.4 7.04 - - -
After 10 years 82.9 82.6 6.44 23.4 23.0 6.02
- -------------------------------------------------------------------------------------------------
249.1 248.2 6.33 24.0 23.6 6.08
- -------------------------------------------------------------------------------------------------
Total:
Within 1 year 48.7 49.0 5.77 0.5 0.5 7.68
After 1 but within 5 years 421.1 417.5 5.98 56.2 56.6 5.69
After 5 but within 10 years 70.0 68.2 6.52 6.8 7.0 5.56
After 10 years 82.9 82.6 6.44 23.4 23.0 6.02
- -------------------------------------------------------------------------------------------------
622.7 617.3 6.09 86.9 87.1 5.79
CMOs 126.8 125.2 5.81 385.2 379.4 5.74
- -------------------------------------------------------------------------------------------------
Total debt securities $749.5 $742.5 6.04% $472.1 $466.5 5.75%
==============================================================
</TABLE>
There were no sales of held to maturity securities in 1996, 1995
and 1994. Net gains and losses on trading account securities were
insignificant for each of these periods. Sales of available for
sale securities resulted in the following realized gains and
losses:
Year ended December 31 (in millions) 1996 1995 1994
- --------------------------------------------------------------------
Debt securities:
Gains $2.6 $.06 $0.5
Losses (0.7) (0.6) (0.3)
- --------------------------------------------------------------------
Net gains 1.9 - 0.2
- --------------------------------------------------------------------
Equity securities:
Gains 16.6 13.1 12.4
Losses (3.3) (5.5) (7.8)
- --------------------------------------------------------------------
Net gains 13.3 7.6 4.6
- --------------------------------------------------------------------
Net security gains $15.2 $7.6 $4.8
Income tax expense related to net security gains was $6.4 million
in 1996, $3.2 million in 1995 and $2.0 million in 1994.
Note 4. Loans
- -------------
People's loan portfolio, other than credit cards, is
substantially concentrated within the state of Connecticut.
People's conducts a nationwide credit card program that was
further expanded by the establishment of a limited branch in the
United Kingdom in April 1996. Credit card receivables generated
from operations in the United Kingdom totaled $49.5 million at
December 31, 1996.
64
People's Bank 1996 Annual Report
<PAGE>
The following table summarizes the geographic distribution of
People's on-balance-sheet (owned) loan portfolio:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
As of December 31 ---------------------------------- ----------------------------------
(in millions) Connecticut Other Total Connecticut Other Total
- ------------------------------------------------------------------------------------------------------
Residential mortgage 1 $2,181.1 $61.4 $2,242.5 $2,112.9 $ 52.6 $2,165.5
- ------------------------------------------------------------------------------------------------------
Commercial mortgage 1:
Office buildings 205.0 15.3 220.3 153.1 40.4 193.5
Retail stores and
shopping centers 143.9 7.0 150.9 135.0 4.0 139.0
Industrial and warehouses 103.1 13.2 116.3 77.7 13.0 90.7
Apartment buildings 105.3 5.3 110.6 102.8 5.7 108.5
Other 201.7 19.3 221.0 196.9 16.9 213.8
- ------------------------------------------------------------------------------------------------------
Total commercial mortgage 759.0 60.1 819.1 665.5 80.0 745.5
- ------------------------------------------------------------------------------------------------------
Commercial:
Service businesses 181.9 18.2 200.1 185.5 13.5 199.3
Manufacturing 123.3 17.6 140.9 108.7 12.9 121.6
Finance, insurance and
real estate 70.7 11.8 82.5 77.1 9.8 86.9
Wholesale distribution 59.4 4.2 63.6 39.3 1.7 41.0
Retail sales 29.2 4.0 33.2 29.8 4.5 34.3
Other 66.1 4.8 70.9 46.4 5.2 51.6
- ------------------------------------------------------------------------------------------------------
Total commercial 530.6 60.6 591.2 487.1 47.6 534.7
- ------------------------------------------------------------------------------------------------------
Credit cards 154.7 1,231.9 1,386.6 119.4 583.2 702.6
Other consumer loans 233.2 4.4 237.6 303.7 1.1 304.8
- ------------------------------------------------------------------------------------------------------
Total loans 2 $3,858.6 $1,418.4 $5,277.0 $3,688.6 $764.5 $4.453.1
</TABLE>
1 Residential and commercial mortgage loans include
construction loans totaling $205.4 million and $161.9
million at December 31, 1996 and 1995, respectively, net of
the unadvanced portion of such loans totaling $106.7 million
and $101.5 million, respectively.
2 Net deferred loan costs (fees) reflected in total loans and
accounted for as interest yield adjustments were $6.4
million and $(2.7) million at December 31, 1996 and 1995,
respectively.
Asset Quality Information
- -------------------------
The following is a summary of activity in the allowance for loan
losses for the owned portfolio. Charge-offs and recoveries on
securitized and sold credit card receivables are reflected in
credit card securitization income.
Years ended December 31
(dollars in millions) 1996 1995 1994
- --------------------------------------------------------------
Beginning balance $ 75.0 $ 77.5 $ 80.0
Charge-offs:
Residential mortgage (9.7) (11.1) (28.9)
Commercial mortgage (6.2) (14.5) (7.8)
Commercial (2.5) (9.8) (8.9)
Credit card (28.9) (14.4) (15.6)
Other consumer (2.3) (1.9) (2.0)
- --------------------------------------------------------------
Total charge-offs (49.6) (51.7) (63.2)
- --------------------------------------------------------------
Recoveries:
Residential mortgage 1.0 0.7 0.6
Commercial mortgage 1.7 1.3 2.8
Commercial 4.4 5.1 3.5
Credit card 3.7 1.9 2.4
Other consumer 0.3 0.3 0.5
- --------------------------------------------------------------
Total recoveries 11.1 9.3 9.8
- --------------------------------------------------------------
Net charge-offs 1 (38.5) (42.4) (53.4)
- --------------------------------------------------------------
Provision for loan losses 51.1 39.9 50.9
- --------------------------------------------------------------
Ending balance $ 87.6 $ 75.0 $ 77.5
================================
1 Net charge-offs include $1.8 million in 1996, $5.8 million
in 1995 and $17.7 million in 1994 associated with sales of
certain non-performing loans.
65
People's Bank 1996 Annual Report
<PAGE>
The principal balances of non-accrual loans are summarized as
follows:
As of December 31 (in millions) 1996 1995 1994
- --------------------------------------------------------------
Residential mortgage $30.2 $35.3 $24.3
Commercial mortgage 25.8 16.2 28.9
Commercial 11.2 17.8 30.1
Credit card (owned portfolio) 21.6 10.6 7.7
Other consumer 2.1 3.6 4.4
- --------------------------------------------------------------
Total non-accrual loans $90.9 $83.5 $95.4
========================
SFAS No. 114 applies to loans that are individually evaluated for
collectibility in accordance with People's ongoing loan review
procedures (principally commercial mortgage and commercial
loans). Information concerning impaired loans, as defined by SFAS
No. 114, is presented below:
As of and for the years
ended December 31
(in millions) 1996 1995
- -----------------------------------------------------------------
Recorded investment in impaired
loans at end of year:
Non-accrual commercial mortgage
and commercial loans $37.0 $34.0
Restructured loans 1 3.5 5.9
Other 3.3 2.3
- -----------------------------------------------------------------
Total 2 $43.8 $42.2
========================
Average recorded investment in impaired
loans during the year $52.1 $50.5
========================
1 Represent currently performing commercial mortgage and
commercial loans for which concessions (such as reductions
of interest rates to below market levels) have been granted
due to the borrower's financial condition. At December 31,
1996, there were no outstanding commitments to lend
additional funds to borrowers with restructured loans.
2 Includes impaired loans of $32.4 million in 1996 and $24.4
million in 1995, for which an allowance for loan impairment
was not required under SFAS No. 114 primarily due to prior
charge-offs and the sufficiency of collateral values. The
remaining impaired loans of $11.4 million in 1996 and $17.8
million in 1995 had an allowance for loan impairment
measured under SFAS No. 114 of $2.5 million, for both years,
which is included in the overall allowance for loan losses.
Interest income recognized on impaired loans was $0.5 million for
1996 and $0.6 million for 1995, of which $0.3 million and $0.4
million, respectively, was recognized using a cash basis method
of accounting.
If interest payments on all non-accrual and restructured loans at
December 31, 1996, 1995 and 1994 had been made during the
respective years in accordance with the original loan agreements,
interest income of $10.2 million, $10.5 million and $10.4 million
would have been recognized on these loans, compared to interest
income actually recognized of $2.6 million, $3.8 million and $4.0
million.
Credit Card Securitizations and Sales
- -------------------------------------
People's periodically securitizes and sells credit card
receivables through the issuance of asset-backed certificates in
the secondary market. Securitization involves the transfer of a
group of credit card receivables from People's to the Trust.
These receivables arise form credit card accounts whose ownership
is retained by People's. Rights to new receivables and most fees
generated by these accounts are also transferred to the Trust.
The Trust issues two forms of certificates representing undivided
interest in the Trust - Investor Certificates and a Transferor
Certificate. Investor Certificates are sold by the Trust to
investor, generally through a public offering. People's, through
its wholly-owned special purpose subsidiary, People's Structured
Finance Corp., retains the Transferor Certificate and continues
to service the credit card accounts. People's owned credit card
portfolio at December 31, 1996 and 1995 includes a Transferor
Certificate of $840 million and $361 million, respectively.
At December 31, 1996 and 1995, outstanding Investor Certificates,
which are not included in the consolidated statements of
condition, totaled $1.3 billion and $1.2 billion, respectively.
People's securitizations include (1) a revolving period, during
which credit card principal payments are used to purchase new
receivables for the Trust and (ii) a repayment or controlled
"amortization" period, during which credit card principal
payments on Trust receivables are distributed to holders of the
Investor Certificates based on the terms of each asset-backed
certificate. People's funding requirements increase during the
repayment period since new receivables become
66
People's Bank 1996 Annual Report
<PAGE>
part of People's on-balance-sheet credit card portfolio.
Scheduled amortization amounts for People's outstanding Investor
Certificates at December 31, 1996 are $377.6 million in 1997,
$155.7 million in 1998, $108.6 million in 1999, $318.5 million in
2000, $324.8 million in 2001 and $48.1 million in 2002.
For securitized and sold receivables, amounts that would have
been reported as net interest income, credit card fees and
provisions for loan losses (if such receivables had not been
securitized but remained on-balance-sheet) are instead combined
and reported as credit card securitization income.
The components of credit card securitization income are as
follows:
Years ended December 31
(in millions) 1996 1995 1994
- ----------------------------------------------------------------
Interest on credit cards $163.2 $135.9 $50.9
Credit card fees and other 45.1 39.4 16.8
Interest on asset-backed
Investor Certificates (77.5) (68.6) (24.1)
Net credit card charge-offs (64.7) (38.2) (11.6)
Servicing fee paid (25.6) (22.1) (9.6)
- ----------------------------------------------------------------
Excess spread revenue 40.5 46.4 22.4
Servicing fee revenue 25.6 22.1 9.6
- ----------------------------------------------------------------
Credit card securitization income $ 66.1 $ 68.5 $32.0
Off-balance-sheet credit card receivables which were more than 90
days delinquent amounted to $30.1 million, $37.3 million and
$16.5 million at December 31, 1996, 1995 and 1994, respectively.
Other Secondary Market Activities
- ---------------------------------
Certain residential mortgage loans originated by People's are
sold without recourse in the secondary market. Net gains (losses)
on sales of residential mortgage loans available for sale totaled
$5.4 million, $4.0 million and $(3.5) million in 1996, 1995 and
1994, respectively. Residential mortgage loans at December 31,
1996 and 1995 included loans available for sale in the secondary
market with a carrying value of $9.4 million and $19.6 million,
respectively, which approximated their fair value.
The principal balances of residential mortgage loans serviced for
others, which are not included in the consolidated statements of
conditions, were $2.2 billion, $2.0 billion and $1.9 billion at
December 31, 1996, 1995 and 1994, respectively. Loan sales in
1996 and 1995 resulted in the recognition of mortgage servicing
assets of $4.6 million and $2.8 million, respectively, in
accordance with SFAS No. 122. At December 31, 1996 and 1995, the
unamortized cost of these servicing assets was $6.2 million and
$2.6 million, respectively, with no valuation allowance for
impairment required at those dates. The related servicing rights
had fair values which approximated these carrying values.
In February 1996, People's sold $119 million of home equity
credit line balances on a non-recourse basis and retained the
related servicing rights. This transaction resulted in a net gain
of $6.0 million, which is included in non-interest income.
Certain other home equity credit lines were sold in 1993. At
December 31, 1996, 1995 and 1994, the principal balances of home
equity credit lines serviced for others, which are not included
in the consolidated statements of condition, were $193.0 million,
$119.2 million and $143.9 million, respectively.
67
People's Bank 1996 Annual Report
<PAGE>
Note 5. Other Assets
- --------------------
As of December 31 (in millions) 1996 1995
- ----------------------------------------------------------------
Accrued interest receivable $ 35.6 $ 37.3
Cash collateral for securitized
credit card receivables (note 11) 37.3 34.0
Deferred tax asset (note 8) 21.5 11.3
REI, net of allowance for losses 9.6 12.1
REO, net allowance for losses 6.9 5.4
Other 125.9 121.1
- ----------------------------------------------------------------
Total other assets $ 236.8 $221.2
=====================
Activity in the allowances for losses on REI and REO is
summarized as follows:
1996 1995 1994
Years ended December 31 ------------ ------------ ------------
(in millions) REI REO REI REO REI REO
- -------------------------------------------------------------------------
Balance at beginning of year $30.7 $3.5 $30.8 $7.6 $36.0 $14.7
Provisions for losses 1.8 - 0.9 2.5 4.1 8.9
Net recoveries
(charge-offs) 0.2 (2.3) (1.0) (6.6) (9.3) (16.0)
- -------------------------------------------------------------------------
Balance at end of year $32.7 $1.2 $30.7 $3.5 $30.8 $7.6
===========================================
The provisions for losses are included in loss on real estate
investments and loss on real estate acquired in settlement of
loans, in the consolidated statements of income. The remaining
amounts reported in these captions consist of net operating
losses and other costs associated with ownership of REI and REO
properties.
Note 6. Deposits
- ----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
-------------------------- --------------------------
As of December 31 Amount Weighted Amount Weighted
(dollars in millions) Average Rate Average Rate
- ----------------------------------------------------------------------------------------
Demand $ 930.2 -% $ 806.7 -%
NOW 194.2 1.32 205.5 1.52
Savings 1,235.3 2.29 1,208.4 2.30
Money market 715.3 2.89 738.9 2.92
- ----------------------------------------------------------------------------------------
3,075.0 1.68 2,959.5 1.77
- ----------------------------------------------------------------------------------------
Time deposits maturing:
Within six months 1,113.6 4.94 950.6 5.00
After six months but
within 1 year 564.5 5.16 433.2 5.25
After 1 but within 2 years 293.8 5.40 315.7 5.63
After 2 but within 3 years 107.4 5.55 99.4 5.36
After 3 years 90.9 5.81 77.7 5.74
- ----------------------------------------------------------------------------------------
2,170,2 5.12 1,876.6 5.22
- ----------------------------------------------------------------------------------------
Total deposits $5,245.2 3.10% $4,836.1 3.11%
=======================================================
</TABLE>
Time deposits issued in amounts of $100,000 or more totaled
$292.9 million and $211.4 million at December 31, 1996 and 1995,
respectively.
68
People's Bank 1996 Annual Report
<PAGE>
Item 7. Borrowings
- -------------------
1996 1995
------------------ --------------------
Weighted Weighted
As of December 31 Average Average
(dollars in millions) Amount Rate Amount Rate
- ------------------------------------------------------------------------------
Federal Home Loan Bank advances:
Fixed rate advances maturing:
Within 1 year $ 641.5 5.56% $ 447.0 6.30%
After 1 but within 2 years 113.0 5.54 9.5 6.44
After 2 but within 3 years 12.0 6.05 40.1 5.01
After 3 but within 5 years 3.5 6.06 3.5 6.06
After 5 years 66.8 6.36 57.4 6.26
- ------------------------------------------------------------------------------
Total fixed rate advances 836.8 5.63 557.5 6.20
Variable rate advances
maturing within 1 year -- -- 10.0 5.74
- ------------------------------------------------------------------------------
Total Federal Home
Loan Bank advances 836.8 5.63 567.5 6.20
- ------------------------------------------------------------------------------
Repurchase agreements maturing:
Within 3 months 254.4 5.35 412.4 5.91
After 3 but within 6 months 103.6 5.89 20.0 6.12
After 6 months but
within 1 year 77.4 5.58 -- --
After 1 year 17.3 5.64 153.2 5.81
- ------------------------------------------------------------------------------
Total repurchase agreements 452.7 5.52 585.6 5.89
- ------------------------------------------------------------------------------
Federal funds purchased 257.1 6.68 239.2 5.99
Subordinated notes 148.0 7.20 -- --
- ------------------------------------------------------------------------------
Total borrowings $1,694.6 5.90% $1,392.3 6.03%
==============================================
People's may borrow funds from the FHLB of Boston subject to
certain limitations. Based on the level of qualifying collateral
available to secure advances at December 31, 1996, People's
borrowing limit was approximately $1.7 billion, with remaining
borrowing capacity of approximately $0.9 billion at that date.
Advances are secured by People's investment in FHLB stock and by
a blanket security agreement. This agreement requires People's to
maintain as collateral certain qualifying assets (principally
securities and single-family residential mortgage loans) not
otherwise pledged, with a total carrying value at least equal to
125% of the outstanding advances. People's satisfied this
collateral requirement at December 31, 1996 and 1995.
Advances with original fixed maturities greater than six months
may be prepaid at their face amounts plus a prepayment penalty.
Advances with original fixed maturities of six months or less, as
well as certain variable rate advances, may not be prepaid. As of
December 31, 1996, advances with original fixed maturities less
than six months totaled $369.5 million.
Repurchase agreements represent funds borrowed on a short-term
basis through the sale of securities to counterparties
(broker/dealers and government-sponsored entities) under
agreements to repurchase the identical securities. People's
accounts for these agreements as financing transactions;
accordingly, the transaction proceeds are recorded as borrowings
and the underlying securities continue to be carried in People's
securities portfolio. Repurchase agreements are collateralized by
the securities sold, which are controlled by the counterparties
during the transaction term.
Information concerning repurchase agreements is presented below:
As of and for the years
ended December 31
(in millions) 1996 1995 1994
- --------------------------------------------------------------
Collateral securities
at year end:
Carrying value $465.5 $611.7 $ 615.1
Estimated fair value 461.7 607.5 575.5
Average agreements out-
standing during the year 460.2 479.3 526.8
Maximum outstanding
at any month end 810.7 608.3 693.7
- --------------------------------------------------------------
69
People's Bank 1996 Annual Report
<PAGE>
In November 1996, People's sold, in a public offering, $150.0
million of 7.20% subordinated notes due December 1, 2006. The
notes are unsecured general obligations of People's with interest
payable semi-annually; are subordinated to the claims of
depositors and People's other creditors; and are not redeemable
prior to maturity. The notes qualify as supplementary (Tier 2)
capital for risk-based capital purposes. The carrying value of
the notes at December 31, 1996 is net of unamortized issuance
costs of $2.0 million.
Interest expense on borrowings consists of the following:
Years ended December 31
(in millions) 1996 1995 1994
- ----------------------------------------------------------------
FHLB advances $38.7 $43.1 $30.5
Repurchase agreements 27.4 30.3 22.9
Federal funds purchased 15.8 4.7 0.2
Subordinated notes 1.1 - -
- ----------------------------------------------------------------
Total interest expenses $83.0 $78.1 $53.6
===============================
Note 8. Income Taxes
- --------------------
Income tax expense (benefit) consists of the following
components:
Years ended December 31
(in millions) 1996 1995 1994
- ------------------------------------------------------------
Federal:
Current $25.5 $14.7 $ 2.1
Deferred (8.4) 16.7 (5.0)
- ------------------------------------------------------------
$17.1 $31.4 $(2.9)
================================
State:
Current $ 5.2 $ 0.4 $ 0.2
Deferred (1.3) 11.2 (2.2)
- ------------------------------------------------------------
$ 3.9 $11.6 $(2.0)
================================
Total:
Current $30.7 $15.1 $2.3
Deferred (9.7) 27.9 (7.2)
- ------------------------------------------------------------
$21.0 $43.0 $(4.9)
================================
The following is a reconciliation of expected income tax
expenses, computed at the federal statutory rate of 35%, to actual
income tax expenses (benefit):
Years ended December 31
(in millions) 1996 1995 1994
- -----------------------------------------------------------------
Expected income tax expense $35.4 $39.9 $22.8
State income taxes, net 4.4 7.6 4.8
Dividends received deduction (2.6) (2.4) (0.8)
Effect of change in a tax law
regarding pre-1988 bad
debt reserves (13.3) - -
Decrease in the valuation
allowance on deferred tax
assets (2.0) - (32.0)
Favorable resolution of prior
years' tax examination - (2.0) -
Other, net (0.9) (0.1) 0.3
- -----------------------------------------------------------------
Actual income tax expense
(benefit) $21.0 $43.0 $(4.9)
================================
Thrift institutions historically have been subject to special
provisions in the tax law regarding allowable tax bad debt
deductions and related reserves. Bad debt deductions were
determined based on loss experience or a percentage of taxable
income. Bad debt reserve balances represent allowable deductions
in excess of actual losses, and consist of a defined base-year
amount (accumulated through December 31, 1987) and additional
amount accumulated after that date. SFAS No. 109 requires
recognition of deferred tax liability with respect to such additional
70
People's Bank 1996 Annual Report
<PAGE>
amounts, as well as any portion of the pre-1988 reserves which
expected to become taxable (or "recaptured") in the foreseeable
future. Prior to the enactment of the changes in tax law
described below, People's maintained deferred tax liability for
the full amount of its bad debt reserves, including the pre-1988
reserves which it had expected to recapture as taxable income.
Tax law changes were enacted in August 1996 to eliminate the
percentage of taxable income method for tax years after 1995 and
to impose a requirement to recapture into taxable income (over
six-year period) all bad debt reserves accumulated after 1987.
Since People's previously recognized a deferred tax liability
with respect to these post-1987 reserves, its total income tax
expense for financial reporting purposes will not be affected by
the recapture requirement. The tax law changes also provide that
taxes associated with the recapture of pre-1988 bad debt reserves
would become payable under more limited circumstances than under
prior law. Under the tax laws, as amended, events that would
result in recapture of the pre-1988 bad debt reserves included
repurchases and other redemptions of People's stock and
distributions to shareholders in excess of specified amounts.
People's no longer anticipates having such reserves recaptured
into taxable income. Accordingly, the associated deferred tax
liability of $13.3 million was eliminated (with a corresponding
reduction in income tax expense) during the third quarter of
1996. People's pre-1988 bad debt reserves were $32.0 million at
December 31, 1996.
Income tax expenses for 1994 was reduced by a $32.0 million
decrease in the valuation allowance on People's deferred tax
assets, substantially all of which was recognized in the second
quarter of the year. The continuation of positive trends in
earnings, asset quality and capital adequacy caused management to
determine, at that time, that the future benefit from
substantially all of People's remaining unrecognized net
operating loss carryforwards and other deferred tax assets would
more likely than not be realized. Based on People's recent
historical and anticipated future pre-tax earnings, management
believes it is more likely than not that People's net deferred
tax asset at December 31, 1996 will be realized.
The tax effects of temporary differences and tax carryforwards
that give rise to People's deferred tax assets and liabilities
are as follows:
As of December 31 (in millions) 1996 1995
- ------------------------------------------------------------------
Deferred tax assets:
Allowances for losses on loans, REI and REO $51.6 $48.1
Allowance for uncollected interest on loans 25.6 22.7
Other deductible temporary differences 3.8 4.0
Tax credit carryforwards - 3.0
- ------------------------------------------------------------------
Total gross deferred tax assets 81.0 77.8
Less valuation allowance - 2.0
- ------------------------------------------------------------------
Deferred tax assets, net 81.0 75.8
- ------------------------------------------------------------------
Deferred tax liabilities:
Tax bad debt reserves:
Pre-1988 (base year) reserves - 13.3
Post-1987 reserves 28.1 23.1
Tax over book depreciation 9.8 8.2
Other taxable temporary differences 21.0 18.8
- ------------------------------------------------------------------
Total gross deferred tax liabilities 58.9 63.4
- ------------------------------------------------------------------
Net deferred tax asset 22.1 12.4
Net deferred taxes for temporary
differences reflected in stockholders' equity (0.6) (1.1)
- ------------------------------------------------------------------
Total net deferred tax asset
(included in other assets) $21.5 $11.3
=================
Note 9. Stockholders' Equity
- ----------------------------
Regulatory Capital Requirements
- -------------------------------
FDIC regulations require banks to maintain a minimum leverage
ratio of Tier 1 capital to total adjusted average assets of 4.0%,
and minimum ratios of Tier 1 and Total capital to risk-weighted
assets of 4.0% and 8.0%, respectively. Under its prompt corrective
action regulations, the FDIC is required to take certain
supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized bank. These actions
could have a direct material effort on a bank's financial
statements. The regulations establish a framework for the
classification
71
People's Bank 1996 Annual Report
<PAGE>
of banks into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Generally, a
bank is considered well capitalized if it has a leverage (Tier 1)
capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio
of at least 6.0% and a Total risk-based capital ratio of at least
10.0%.
The foregoing capital ratios are base in part on specific
quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject
to qualitative judgments by the FDIC about capital components,
risk weightings and other factors.
Management believes that, as of December 31, 1996, People's meets
all capital adequacy requirements to which it is subject.
Further, the most recent FDIC notification categorized People's
as a well-capitalized institution under the prompt corrective
action regulations. There have been no conditions or events
since that notification that management believes have changed
People's capital classification.
The following is a summary of People's capital amounts and ratios
as of December 31, 1996 and 1995, compared to the FDIC
requirements for (i) classification as a well-capitalized
institution and (ii) minimum capital adequacy:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FDIC Requirements
-----------------------------------------
For Classification Minimum
People's as Well-Capitalized Capital Adequacy
--------------- ------------------- ----------------
(dollars in millions) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------
December 31, 1996
- -----------------
Leverage capital $569.2 7.9% $361.5 5.0% $289.2 4.0%
Risk-based capital:
Tier 1 569.2 10.0 340.3 6.0 226.9 4.0
Total 788.3 13.9 567.1 10.0 453.7 8.0
December 31, 1995
- -----------------
Leverage capital $505.1 7.6% $331.9 5.0% $265.6 4.0%
Risk-based capital:
Tier 1 505.1 10.9 276.5 6.0 184.4 4.0
Total 562.2 12.1 460.9 10.0 368.7 8.0
- ----------------------------------------------------------------------------------------
</TABLE>
Common Stock Ownership and Dividends
- ------------------------------------
People's Mutual Holdings ("Holdings") is a mutual bank holding
company organized in connection with the 1988 stock offering and
reorganization of People's Bank. At December 31, 1996, Holdings
owned 24.3 million shares or 59.9% of the outstanding common
stock of People's. Cash dividends paid by People's in 1996, 1995
and 1994 reflect Holdings' waiver of dividends on substantially
all of its common shares.
Connecticut-chartered banks may only pay dividends (except stock
dividends) from "net profits", defined as the remainder of all
earnings from current operations. Without specific regulatory
approval, the total of all dividends declared by a bank in a
given calendar year cannot exceed the total of the bank's net
profits for that year, plus the bank's retained profits from the
preceding two years. This limitation did not affect the dividends
paid by People's on its common and preferred stock in 1996, 1995
or 1994.
Preferred Stock
- ---------------
In May 1993, People's issued 1,380,000 shares of 8.50%
noncumulative convertible preferred stock at $50 per share, for
net offering proceeds of $65.4 million. Each preferred share was
convertible into 6.06 shares of common stock. At the time of the
offering, Holdings transferred 1,000,000 shares of its People's
common stock into an escrow account in order to satisfy a portion
of the conversion rights and lessen the book value dilution the
other holders of People's common stock would otherwise experience
upon conversion of the preferred stock. Preferred stock
conversions resulted in the issuance of 7,362,763 additional
common shares by People's and the utilization of all of Holdings'
escrow shares.
The preferred stock issue was redeemable by People's after May
15, 1996, at its option, at $50 per share plus the accrued
dividend for the then-current quarterly dividend period. In
September 1996, People's retired its noncumulative convertible
preferred stock issue.
72
People's Bank 1996 Annual Report
<PAGE>
Common and Preferred Shares Outstanding
- ---------------------------------------
Changes in the number of common and preferred shares outstanding
are summarized as follows:
Common Preferred
Shares Shares
- ----------------------------------------------------------------
Outstanding at December 31, 1993 32,689,758 1,380,000
Conversions of preferred stock 3,810,672 (714,249)
Stock options exercised 88,750 -
Restricted stock grants 25,750 -
- ----------------------------------------------------------------
Outstanding at December 31, 1994 36,614,930 665,751
Conversions of preferred stock 1,825,871 (342,235)
Stock options exercised 149,700 -
Restricted stock grants 24,500 -
- ----------------------------------------------------------------
Outstanding at December 31, 1995 38,615,001 323,516
Conversions of preferred stock 1,726,220 (323,516)
Stock options exercised 195,175 -
Restricted stock grants 17,050 -
- ----------------------------------------------------------------
Outstanding at December 31, 1996 40,553,446 -
========================
Note 10. Employee Benefit Plans
- -------------------------------
Employee Pension Plans
- ----------------------
People's maintains a noncontributory defined benefit pension plan
which covers substantially all full-time employees who meet
certain age and length of service requirements. Benefits are
based upon the employee's years of accredited service and average
compensation for the five consecutive years that produce the
highest average. People's funding policy is to contribute the
amounts required by applicable regulations, although additional
amounts may be contributed from time to time. In addition,
People's maintains unfunded and non-qualified supplemental plans
to provide retirement benefits to certain senior officers.
The following is a reconciliation of the funded status of the
pension plans and the amount of prepaid (accrued) pension cost
included in the consolidated statements of condition:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
----------------------------- ----------------------------
Funded Unfunded Funded Unfunded
Supplemental Supplemental Supplemental Supplemental
As of December 31 (in millions) Plan Plans Plan Plans
- ---------------------------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefits $(47.6) $(4.9) $(44.8) $(4.2)
Non-vested benefits (2.6) (0.6) (2.2) (0.4)
- ---------------------------------------------------------------------------------------------------
Accumulated benefit obligations (50.2) (5.5) (47.0) (4.6)
Effect of project future
compensation levels (6.8) (1.2) (6.2) (0.8)
- ---------------------------------------------------------------------------------------------------
Projected benefit obligations
for services rendered to date (57.0) (6.7) (53.2) (5.4)
Plan assets, at fair value
(primarily debt and equity
securities, and money market
funds) 55.9 - 48.6 -
- ---------------------------------------------------------------------------------------------------
Excess of projected benefit
obligations over plan assets (1.1) (6.7) (4.6) (5.4)
Unrecognized prior service cost (0.9) 0.9 (1.3) 1.1
Unrecognized net loss from past
experience different from
that assumed and effects of
changes in assumptions 11.7 0.9 14.5 0.3
Unrecognized net transition
(asset) obligation (0.8) 0.1 (1.1) 0.1
Addition minimum liability - (0.9) - (0.8)
- ---------------------------------------------------------------------------------------------------
Total prepaid (accrued) pension
costs $ 8.9 $(5.7) $ 7.5 $(4.7)
===============================================================
</TABLE>
73
People's Bank 1996 Annual Report
<PAGE>
A discount rate of 7.75% and a rate of increase in future
compensation levels of 4.9% were used in determining the
actuarial present value of the projected benefit obligations at
December 31, 1996 (7.5% and 4.9%, respectively, at December 31,
1995). The rate of increase in future compensation levels is an
average based on a graded scale. The expected long-term rate of
return on plan assets was 10.0% in 1996, and 8.0% in 1995 and
1994.
The unrecognized net transition (asset) obligation is being
amortized to pension expense over 14-year and 19-year periods
for the funded and unfunded plans, respectively.
The components of the net pension expense were as follows:
Years ended December 31
(in millions) 1996 1995 1994
- --------------------------------------------------------------
Service cost - benefits earned
during the year $2.9 $ 2.1 $ 2.3
Interest cost on projected
benefit obligations 4.5 3.8 3.5
Actual (return) loss on plan
assets (5.8) (10.6) 2.4
Net amortization and deferral 1.9 6.7 (5.8)
- --------------------------------------------------------------
Net Pension expense $3.5 $ 2.0 $ 2.4
==========================
Funded plan $2.4 $ 1.1 $ 1.8
Unfunded supplemental plans 1.1 0.9 0.6
- --------------------------------------------------------------
Net pension expense $3.5 $ 2.0 $ 2.4
==========================
Directors' Retirement Plan
- --------------------------
In 1995, People's adopted an unfunded and nonqualified
directors' retirement plan. Under the plan, a member of People's
Board of Directors who has reached age 60 and completed five
years of service (excluding years of service as an employee) is
entitled to an annual benefit, commencing upon retirement from
the Board, in an amount equal to the basic annual retainer fee
then being paid. Benefits are payable for a maximum period equal
to the lesser of the director's years of service, ten years or
until the director's death. Retirement plan expense was $0.1
million for both 1996 and 1995. The accumulated benefit
obligations amounted to $0.4 million at both December 31, 1996 and
1995.
Other Postretirement Benefits
- -----------------------------
People's also maintains an unfunded plan which provided optional
medical, dental and life insurance benefits to retirees. People's
accrues the cost of these benefits over the years employees
provide service to the date of their eligibility of such
benefits. The transition obligation of future benefits is being
amortized to expense over a 20-year period from January 1, 1993,
the date People's prospectively adopted SFAS No. 106.
The following is a reconciliation of the postretirement benefit
obligations and the amount of accrued postretirement benefit
cost included in the consolidated statements of condition:
As of December 31 (in millions) 1996 1995
- ----------------------------------------------------------------
Actuarial present value of postretirement
benefit obligations:
Retirees $(5.7) $(6.0)
Fully-eligible employees (0.7) (0.6)
Other active participants (2.4) (2.3)
- ----------------------------------------------------------------
Accumulated postretirement benefit
obligations (unfunded) (8.8) (8.9)
Unrecognized net transition obligation 6.4 6.8
Unrecognized net gain (0.7) (0.1)
Unrecognized prior service cost 0.4 0.3
- ----------------------------------------------------------------
Total accrued postretirement benefit cost $(2.7) $(1.9)
==================
74
People's Bank 1996 Annual Report
<PAGE>
The discount rates used to determine the accumulated
postretirement benefit obligations were 7.75% in 1996 and 7.5% in
1995. The assumed health care cost trend rate used to measure the
accumulated postretirement benefit obligation at December 31,
1996 was 8.8% initially, declining gradually to 5.5% in 2005 and
thereafter. A one-percentage-point increased in the assumed health
care cost trend rate would have increased the 1996 postretirement
benefit expense by $0.1 million and would have increased the
accumulated postretirement benefit obligation at December 31,
1996 by $0.7 million.
The components of postretirement benefit expense were as follows:
Years ended December 31 (in millions) 1996 1995 1994
- ----------------------------------------------------------------
Service cost - benefits earned during
the year $0.3 $0.2 $0.2
Interest cost on accumulated
postretirement benefit obligations 0.7 0.6 0.5
Amortization of transition obligation 0.4 0.4 0.4
Other, net - 0.1 -
- ----------------------------------------------------------------
Net postretirement benefit expense $1.4 $1.3 $1.1
====================
Employee Savings Plan
- ---------------------
People's also sponsors an employee savings plan that qualifies as
a 401(k) plan under the Internal Revenue Code. Under the current
plan, employees may contribute up to 15% of their pre-tax
compensation, and People's makes a matching contribution equal to
100% of a participant's contributions up to 5% of pre-tax
compensation. People's may increase its matching contributions to
6% of pre-tax compensation, if certain bankwide performance
objectives are met. Participants vest immediately in their own
contributions and after one year in People's contributions.
Employee savings plan expense was $4.7 million, $4.4 million and
$3.9 million for 1996, 1995 and 1994, respectively.
Long-Term Incentive Plan
- ------------------------
People's 1988 Long-Term Incentive Plan (the "Incentive Plan")
provides for awards to officers and employees in the form of (i)
incentive stock options which afford tax benefits to recipients,
(ii) non-statutory stock options which do not afford tax benefits
to recipients but which may provide tax benefits to People's, and
(iii) stock appreciation rights, restricted stock and performance
units. No incentive stock options or stock appreciation rights
have been granted through December 31, 1996. The total number of
shares of People's common stock reserved for distribution under
the Incentive Plan is 1,332,500. At December 31, 1996, a total of
101,474 reserved shares remain available for future awards.
Non-statutory stock options have been granted at exercise prices
equal to the fair value of the common stock at the dates of
grant. Therefore, in accordance with the provisions of APB
Opinion No. 25 related to fixed stock options, no expense is
recognized for financial reporting purposes with respect to
options granted or exercised. Option expiration dates are fixed
at the date of grant, with maximum terms of ten years. Options
granted through 1992 vested ratably over four-year periods.
Options granted in 1993 and later years vest 50% after three
years and 100% after four years.
Stock option transactions are summarized as follows:
Weighted
Shares Subject Average
to Option Exercise Price
- -----------------------------------------------------------------
Options outstanding at
December 31, 1993 1,095,162 $ 6.63
Granted 11,750 11.25
Forfeited (49,912) 6.56
Exercised (88,750) 7.27
- -----------------------------------------------------------------
Options outstanding at
December 31, 1994 968,250 6.63
Granted 14,950 12.50
Forfeited (20,375) 6.67
Exercised (149,700) 5.95
- -----------------------------------------------------------------
Options outstanding at
December 31, 1995 813,125 6.87
Forfeited (4,050) 12.50
Exercised (195,175) 6.29
- -----------------------------------------------------------------
Options outstanding at
December 31, 1996 613,900 $ 7.01
===============================
75
People's Bank 1996 Annual Report
<PAGE>
Additional information concerning options outstanding and options
exercisable at December 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------------------------ ----------------------------
Weighted Average
--------------------------
Remaining Life Exercise Weighted Average
Exercise Price Range Number (in years) Price Number Exercise Price
- ---------------------------------------------------------------------------------------------
$ 2.50 - $ 4.49 5,000 5.0 $ 2.75 5,000 $2.75
4.50 - 6.49 40,200 5.0 5.12 40,200 5.12
6.50 - 8.49 508,350 6.0 6.88 276,925 6.91
8.50 - 10.49 37,700 1.5 8.50 37,700 8.50
10.50 - 12.50 22,650 7.5 11.85 -- --
- ---------------------------------------------------------------------------------------------
613,900 5.7 $ 7.01 359,825 $6.82
=======================================================================
</TABLE>
The weighted average fair value of options granted during 1995
was $3.02 per share at the grant date, estimated using the
Black-Scholes option-pricing model and the following assumptions:
dividend yield of 3.7%; expected volatility of 23%; risk-free
interest rate of 6.4%; and expected life of seven years.
Accounting for the 1995 option grant in accordance with the
fair-value-based method of SFAS No. 123 would have had an
insignificant effect on People's net income and net income per
common share for both 1995 and 1996.
Restricted stock awards for 142,250 common shares were
outstanding at December 31, 1996, which were primarily granted
prior to 1994. Employees become fully vested in these shares
after a three-year period, with no performance-based conditions
to such vesting. A total of 85,500 shares were vested at December
31, 1996.
Stock Price Appreciation Unit Plan
- ----------------------------------
People's 1995 Stock Price Appreciation Unit Plan (the "Unit
Plan") provides for the granting of up to 1,700,000 stock price
appreciation units to officers and employees. Under the Unit
Plan, participants are granted units which entitle the holder to
receive a cash payment upon exercise equal to the difference
between (i) the fair value of People's common stock at that time
and (ii) the base price of such units. The base price equals the
fair value of People's common stock at the grant date. Unit
grants totaled 316,500 in 1995 (base price of $12.50 per unit)
and 5,200 in 1996 (base price of $21.75 per unit). The weighted
average base price of the 317,000 units outstanding at December
31, 1996 was $12.65 per share. The units are exercisable 50%
after three years and 100% after four years, and expire, if
unexercised, after ten years. No units were exercisable at
December 31, 1996. Compensation expense of $1.8 million and $0.8
million was recognized for the Unit Plan in 1996 and 1995,
respectively.
Note 11. Off-Balance-Sheet Items and Contingent Liabilities
- ------------------------------------------------------------
Off-Balance-Sheet Financial Instruments
- ---------------------------------------
In the normal course of business, People's is a party to
financial instruments that involve, to varying degrees, elements
of credit and interest rate risk in addition to the amounts
recognized in the consolidated statements of condition. The
contractual amounts of these instruments reflect the extent of
People's involvement in particular classes of financial
instruments.
76
People's Bank 1996 Annual Report
<PAGE>
A summary of the contractual or notional amounts of People's
off-balance-sheet financial instruments follows:
As of December 31 (in millions) 1996 1995
- --------------------------------------------------------------------
Financial instruments whose contractual
amounts represent credit risk:
Loan origination commitments and
unadvanced lines of credit:
Residential mortgage $ 53.5 $ 46.2
Commercial mortgage 154.0 85.9
Commercial 291.1 222.9
Credit card (managed portfolio) 5,889.4 2,846.7
Other consumer 211.0 318.3
Stand-by letters of credit 26.6 22.7
Commercial letters of credit 3.4 3.6
Financial instruments whose contractual
or notional amounts exceed the amount of
credit risk:
Credit card loans securitized and sold
with limited recourse 1,333.3 1,200.0
Interest rate swaps 682.5 299.0
Interest rate corridors 425.0 900.0
Interest rate futures contracts
(swap-equivalent value of
$334 million) 2,675.0 --
Foreign exchange forward contracts 56.0 --
Forward commitments to sell
residential mortgage loans 34.7 47.9
Option contracts on equity securities 1.2 6.4
- --------------------------------------------------------------------
For the lending-related financial instruments listed in the
preceding table (such as origination commitments and lines of
credit), People's maximum potential exposure to credit loss
equals the contractual amount of the instruments. The contractual
amounts, however, do not necessarily represent future cash
requirements since certain of these instruments may expire
without being funded and others may not be fully drawn upon.
These instruments are subject to People's credit approval
process, including an evaluation of the customer's
creditworthiness and related collateral requirements. Commitments
generally have fixed expiration dates or other termination
clauses and may require the payment of a fee by the customer. The
geographic distribution of People's lending-related financial
instruments is similar to the distribution of its
on-balance-sheet loan portfolio, as described in note 4. People's
does not have a significant exposure to any individual customer
or counterparty.
Under a stand-by letter of credit, People's is obligated to
disburse funds to a designated third-party beneficiary in the
event that the customer fails to perform under the terms of the
agreement with the beneficiary. A commercial letter of credit is
normally a short-term instrument used to finance a commercial
contract for the shipment of goods from seller to buyer. The
letter of credit ensures prompt payment to the seller in
accordance with its terms. Although a commercial letter of credit
is contingent upon the satisfaction of specified conditions, it
becomes a current exposure if the customer defaults on the
underlying transaction.
For the other financial instruments listed in the preceding table
(such as limited recourse obligations, and interest rate swaps
and corridors), the contractual or notional amounts are
substantially greater than People's exposure to credit loss.
People's controls the credit risk of these instruments through
collateral, credit approvals, limits and monitoring procedures.
People's exposure to losses under the recourse provisions of its
credit card securitizations is contractually limited to future
excess spread revenue (or the residual income after deducting
payments to investors, credit losses and other trust expenses)
and to the amount of its cash collateral contribution which is
available to make payments to investors over the term of the
securitization. Other assets at December 31, 1996 and 1995
include cash collateral balances of $37.3 million and $34.0
million, respectively. It has not been necessary to make any
payments from People's cash collateral accounts through December
31, 1996.
People's off-balance-sheet derivative financial instruments are
used for risk management and not for trading purposes. Master
netting agreements for swaps, corridors and foreign exchange
forward contracts are arranged and collateral is obtained through
physical delivery of securities or cash to reduce People's
exposure to credit losses in the event of non-performance by the
counterparties to these transactions. People's also controls its
counterparty risk by entering into agreements only with
highly-rated counterparties which are specifically approved by
People's for a maximum credit exposure. People's net credit
exposure
77
People's Bank 1996 Annual Report
<PAGE>
on swaps, corridors and foreign exchange forward contracts,
representing the net positive fair values including the effect of
bi-lateral netting agreements, amounted to $0.9 million and $0.5
million at December 31, 1996 and 1995, respectively. The net
effect of interest rate swaps and corridors during 1996, 1995 and
1994 was to decrease net interest income by $5.6 million, $2.4
million and $1.2 million, respectively.
Under interest rate swaps, People's agrees with other parties to
exchange, at specified intervals, the difference between fixed
rate and floating rate interest amounts calculated by reference
to an agreed notional amount. People's entered into these
transactions to match more closely the repricing of its assets
and liabilities, and to reduce its exposure to increases in
interest rates and their effect on net interest income.
The following is a summary of People's outstanding interest rate
swap transactions. Carrying values (including in other assets)
and estimated fair values include accruals for interest receipts
and payments.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996 (dollars in millions)
- -----------------------------------------------------------------------------------------
Weighted Average Rates
Notional Weighted Average ----------------------
Year of Principal Remaining Term Pay Receive Carrying Estimated
Maturity Amount (in months) Fixed Floating Value Fair Value
- -----------------------------------------------------------------------------------------
1997 $150.0 8 5.86% 5.54% $(0.02) $(0.31)
1998 192.5 14 6.00 5.56 (0.03) (0.48)
1999 128.0 32 6.23 5.54 (0.09) (0.59)
2000 85.0 44 6.12 5.50 (0.09) 0.29
2001 122.0 50 6.05 5.52 (0.08) 0.95
2007 5.0 121 7.21 5.56 (0.01) (0.22)
- -----------------------------------------------------------------------------------------
$682.5 27 6.04% 5.54% $(0.32) $(0.36)
============================================================================
</TABLE>
Interest rate corridors grant the purchaser, for a premium, the
right to exercise an option. Options will be exercised if the
purchaser will realize an economic benefit by doing so. People's
entered into these transactions to match more closely the
repricing of its assets and liabilities, and to reduce its
exposure to potential increases in interest rates and their
effect on net interest income.
The following is a summary of People's outstanding interest rate
corridor transactions, all of which have maturity dates in 1999.
The carrying value, which consists of unamortized premiums and
accrued interest, is included in other assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996 (dollars in millions)
- -------------------------------------------------------------------------------------------------------
Weighted Average
Notional Weighted Average Strike Rates
Transaction Principal Remaining Term -------------------- Carrying Estimated
Purpose Amount in months) Long Short Value Fair Value
- -------------------------------------------------------------------------------------------------------
Reduce exposure to
increases in deposit
interest rates $275.0 29 5.50% 8.01% $ -- $0.59
Reduce risk of narrower
spreads between prime
rate and LIBOR 150.0 25 5.52 8.92 0.16 0.12
- -------------------------------------------------------------------------------------------------------
Total $425.0 28 5.51% 8.33% $ 0.16 $0.71
==========================================================================
</TABLE>
78
People's Bank 1996 Annual Report
<PAGE>
In July 1996, People's sold eurodollar futures contracts with a
total notional amount of $3.4 billion to reduce the impact that
higher interest rates would have on the estimated fair value of a
portion of the available for sale debt securities portfolio.
Changes in the estimated fair value of the hedged portion of the
securities portfolio have been (and are expected to be)
substantially offset by gains or losses on the futures contracts.
During 1996, People's closed futures contracts with a total
notional amount of $0.7 billion. As of December 31, 1996,
People's had $2.7 billion in open futures contracts, with
expiration dates ranging from March 1997 to December 1998, that
create a hedge with risk-mitigating characteristics similar to a
$334 million pay-fixed interest rate swap. During 1996, deferred
futures losses of $0.8 million were recognized in income due to
amortization and other portfolio activity. Deferred futures
losses of $5.0 million ($2.9 million after taxes) are reflected
in stockholders' equity at December 31, 1996.
Foreign exchange forward contracts are commitments to buy or sell
foreign currency on a future date at a contractual price.
People's uses these contracts to reduce its exposure to foreign
currency exchange rate risk on credit card receivables
denominated in pounds sterling. At December 31, 1996, People's
had contracts outstanding to sell pounds sterling, with a total
U.S. dollar notional amount of $56.0 million, which mature within
six months. Gross unrealized losses on these contracts were $2.8
million at December 31, 1996 and realized losses on closed
contracts were $1.7 million for 1996. These amounts substantially
offset the net translation gain on assets and liabilities
denominated in pounds sterling at December 31, 1996.
People's enters into forward commitments to sell residential
mortgage loans in order to reduce the market risk associated with
originating loans for sale in the secondary market. In order to
fulfill a forward commitment, People's delivers originated loans
at prices or yields specified by the contract. The risks
associated with such contracts arise from the possible inability
of counterparties to meet the contract terms or People's
inability to originate loans to fulfill these contracts.
Option contracts on equity securities are used to hedge a portion
of the market risk associated with this portfolio.
Off-balance-sheet financial instruments are also used in
connection with credit card securitizations, to reduce the
exposure to potential increases in interest rates and their
effect on People's credit card securitization income.
At December 31, 1996, Investor Certificates issued in these
securitizations include $1.2 billion of securities with floating
rates set at spreads above one-month LIBOR. Interest payments to
investors are funded from the collections of finance charge
receivables up to predetermined rate limits. Any interest
payments above these predetermined rates will be paid by the
counterparties to interest rate cap agreements, entered into by
the Trust, with notional principal amounts equal to the
outstanding certificate balances. At December 31, 1996, these
interest rate cap agreements had a carrying value of $10.1
million, which is included in other assets, and an estimated fair
value of $2.7 million.
Lease Commitments
- -----------------
At December 31, 1996, People's was obligated under various
noncancelable operating leases for office space which expire on
various dates through 2027. Certain leases contain renewal
options and provide for increased rentals based principally on
increases in the average consumer price index. The future minimum
payments under operating leases at December 31, 1996 were $7.4
million in 1997, $6.0 million in 1998, $5.3 million in 1999, $5.1
million in 2000, $4.6 million in 2001, and an aggregate of $8.8
million in 2002 and thereafter until the expiration of the
leases. Rent expense under operating leases was $8.1 million,
$6.8 million and $6.4 million for 1996, 1995 and 1994,
respectively.
Legal Proceedings
- -----------------
People's and certain present and former officers have been named
in a lawsuit commenced in 1990 in which the plaintiff alleges
that such parties violated federal securities laws and committed
fraud by making allegedly incomplete, misleading or false
statements regarding People's financial position. In 1992, the
federal district court denied the defendants' motion to dismiss
the case and certified the action as a class action. The lawsuit
remains at a preliminary stage and, accordingly, its ultimate
outcome is not presently determinable. Management believes the
named parties have meritorious defenses to the claims alleged by
the plaintiff and will contest the matter vigorously. At this
time, management does not believe the resolution of this matter
will have a material effect on People's financial condition.
In the normal course of business, People's is subject to various
other legal proceedings. Management has discussed the nature of
these legal proceedings with legal counsel. In the opinion of
management, People's financial condition will not be affected
materially as a result of the outcome of such legal proceedings.
79
People's Bank 1996 Annual Report
<PAGE>
Note 12. Fair Values of Financial Instruments
- ----------------------------------------------
The following is a summary of the carrying values and
estimated fair values of People's financial instruments:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
------------------------ ----------------------
Carrying Estimated Carrying Estimated
As of December 31 (in millions) Value Fair Value Value Fair Value
- --------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 196.2 $ 196.2 $ 269.0 $ 269.0
Short-term investments 146.7 146.7 137.2 137.2
Securities (a) 1,702.5 1,696.9 1,686.3 1,681.3
Loans, net 5,189.4 5,247.4 4,378.1 4,446.7
Accrued interest receivable 35.6 35.6 37.3 37.3
Financial liabilities:
Demand, NOW, savings and
money market deposits 3,075.0 3,075.0 2,959.5 2,959.5
Time deposits 2,170.2 2,203.7 1,876.6 1,884.4
FHLB advances 836.8 834.7 567.5 568.0
Repurchase agreements 452.7 452.8 585.6 586.7
Federal funds purchased 257.1 257.1 239.2 239.2
Subordinated notes 148.0 147.3 -- --
Accrued interest payable 11.4 11.4 8.6 8.6
Off-balance-sheet financial
instruments (b):
Interest rate swaps (0.3) (0.4) 0.1 (3.0)
Interest rate corridors 0.2 0.7 4.7 1.6
Interest rate futures contracts (c) (4.3) -- --
Foreign exchange forward contracts (c) (2.8) -- --
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Includes trading account securities of $2.8 million in 1996
(none in 1995). No other financial instruments set forth in
this table were held for trading purposes.
(b) See Note 11 for a further discussion of swaps, corridors,
futures and forwards. People's other off-balance-sheet
financial instruments, as described in Note 11, have
carrying values that primarily consist of deferred fee
income and other accruals, which were not significant. The
fair values of these other instruments approximated the
carrying values.
(c) As discussed in Note 11, futures and forwards are used to
hedge existing assets and liabilities for which gains and
losses are recognized in stockholders' equity. The estimated
fair values of the futures and forwards at December 31, 1996
represent losses on open contracts which have also been
recognized in stockholders' equity.
SFAS No. 107 requires disclosures about the fair values of
financial instruments for which it is practicable to estimate
fair value. Fair value is defined in SFAS No. 107 as the amount
at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale. Quoted market prices are used to estimate fair
values when those prices are available. However, active markets
do not exist for many types of financial instruments.
Consequently, fair values for these instruments must be estimated
by management using techniques such as discounted cash flow
analysis and comparison to similar instruments. These estimates
are highly subjective and require judgments regarding significant
matters such as the amount and timing of future cash flows and
the selection of discount rates that appropriately reflect market
and credit risks. Changes in these judgments often have a
material impact on the fair value estimates. In addition, since
these estimates are made as of a specific point in time, they are
susceptible to material near-term changes. Fair values disclosed
in accordance with SFAS No. 107 do not reflect any premium or
discount that could result from the sale of a large volume of a
particular financial instrument, nor do they reflect possible tax
ramifications or estimated transaction costs.
The following is a description of the principal valuation methods
used by People's to estimate the fair values of its financial
instruments:
Securities
- ----------
The fair values of securities were based principally on market
prices or dealer quotes. Certain fair values were estimated using
pricing models or were based on comparisons to market prices of
similar securities.
Loans
- -----
For valuation purposes, the loan portfolio was segregated into
its significant categories such as residential mortgage loans,
commercial mortgage loans, commercial loans, credit card loans
and other consumer loans. These categories were further analyzed,
where appropriate, into components based on significant financial
characteristics such as type of interest rate (fixed or adjustable)
and payment status (performing or non-performing). Fair values
80
People's Bank 1996 Annual Report
<PAGE>
were estimated for each component using a valuation method
selected by management.
The fair values of residential mortgage loans, performing
commercial mortgage and commercial loans, credit card loans and
other consumer loans were estimated by discounting the
anticipated cash flows from the respective portfolios. Estimates
of the timing and amount of these cash flows considered factors
such as future loan prepayments and credit losses. The discount
rates reflected current market rates for loans with similar terms
to borrowers of similar credit quality.
The fair values of non-performing commercial mortgage and
commercial loans were based on recent collateral appraisals or
management's analysis of estimated cash flows discounted at rates
commensurate with the credit risk involved.
The fair values of credit card loans and home equity lines of
credit were based on the outstanding loan balances, as required
by SFAS No. 107, and therefore do not reflect the value
associated with earnings from future loans to existing borrowers.
Management believes that the fair values of these customer
relationships have a substantial intangible value separate from
the loan balances currently outstanding.
Deposit Liabilities
- -------------------
In accordance with SFAS No. 107, the fair values of deposit
liabilities with no stated maturity (demand, NOW, savings and
money market accounts) are equal to the carrying amounts payable
on demand. The fair values of time deposits represent contractual
cash flows discounted using interest rates currently offered on
deposits with similar characteristics and remaining maturities.
As required by SFAS No. 107, these estimated fair values do not
include the intangible value of core deposit relationships which
comprise a significant portion of People's deposit base.
Management believes that People's core deposit relationships
provide a relatively stable, low-cost funding source which has a
substantial value separate from the deposit balances.
Federal Home Loan Bank Advances
- -------------------------------
The fair values of fixed rate advances represent contractual
repayments discounted using interest rates currently available on
advances with similar characteristics and remaining maturities.
Repurchase Agreements
- ---------------------
The fair values of short-term repurchase agreements approximate
carrying value. The fair values of repurchase agreements with a
remaining maturity of greater than three months represent
contractual repayments discounted using interest rates currently
available on borrowings with similar characteristics and
remaining maturities.
Subordinated Notes
- ------------------
The fair value of subordinated notes was based on dealer quotes.
Other Financial Assets and Liabilities
- --------------------------------------
Cash and due from banks, short-term investments, accrued interest
receivable and payable, and federal funds purchased have fair
values which approximate the respective carrying values because
the instruments are payable on demand or have short-term
maturities and present relatively low credit risk and interest
rate risk.
Off-Balance-Sheet Financial Instruments
- ---------------------------------------
The estimated fair values of swaps, corridors, futures and
forwards generally reflect the estimated amounts that People's
would receive or pay to terminate the contracts at the reporting
date, thereby taking into account the current unrealized gains
and losses on open contracts. Exchange prices or dealer quotes
are available on substantially all of these financial
instruments.
The estimated fair values of People's other off-balance-sheet
financial instruments approximate the respective carrying values.
These include (i) commitments to extend credit and unadvanced
lines of credit for which fair values were estimated based on an
analysis of the 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; (ii) commitments to sell residential mortgage loans
for which fair values were estimated based on current secondary
market prices available for commitments with similar terms; and
(iii) option contracts on equity securities for which fair values
were based upon quoted market prices.
81
People's Bank 1996 Annual Report
<PAGE>
Note 13. Accounting Standards
- ------------------------------
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Transactions within the scope of SFAS No. 125
include transfers of partial interests, servicing of financial
assets, securitizations, transfers of sales-type and direct
financing lease receivables, securities lending transactions,
repurchase agreements, loan participations, transfers of
receivables with recourse and extinguishments of liabilities.
SFAS No. 125 establishes an accounting framework for these
transactions based on consistent application of a financial
components approach that focuses on control. Under this approach,
an entity, subsequent to a transfer of financial assets, must (i)
recognize the financial and servicing assets it controls and the
liabilities it has incurred, (ii) derecognize financial assets
when control has been surrendered, and (iii) derecognize
liabilities when extinguished.
Standards for distinguishing transfers of financial assets that
are sales from those that are secured borrowings are provided in
SFAS No. 125. If the transferor has surrendered control over the
transferred assets, the transaction is accounted for as a sale.
Under SFAS No. 125, control is considered to have been
surrendered only if (i) the assets are isolated from the
transferor, (ii) the transferee has the right to pledge or
exchange the assets or is a qualifying special-purpose entity,
and (iii) the transferor does not maintain effective control over
the assets through an agreement to repurchase or redeem the
assets prior to maturity or to repurchase or redeem transferred
assets that are not readily obtainable. A transfer not meeting
the criteria for a sale must be accounted for as a secured
borrowing with the pledge of collateral.
SFAS No. 125 requires that servicing assets and other retained
interests in transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and the
retained interests, if any, based on their relative fair values
at the date of transfer.
Servicing assets and liabilities are subsequently amortized in
proportion to and over the period of estimated net servicing
income or loss and assessed for asset impairment, or increased
obligation, based on their fair value.
Other provisions of SFAS No. 125 include requirements that (i)
liabilities and derivatives incurred or obtained by transferors
as part of an asset transfer be measured initially at fair value
and (ii) loans and other assets that can be prepaid or otherwise
settled in such a way that the holder would not recover
substantially all of its recorded investment be subsequently
measured like debt securities classified as available for sale or
trading under SFAS No. 115.
SFAS No. 125 is generally effective for transactions occurring
after December 31, 1996 and is to be applied prospectively.
People's accounting policies which management believes will not
be affected by SFAS No. 125 include (i) accounting for mortgage
loan sales and the related servicing assets, (ii) accounting for
sales of securities under repurchase agreements as secured
borrowings, and (iii) accounting for transfers of securitized
credit card receivables as sales. Consistent with current
industry practice, People's recognizes excess spread revenue on
sold credit card receivables over the term of the securitization.
In certain circumstances, however, SFAS No. 125 requires
recognition of servicing assets and other receivables arising
from credit card securitizations at the time of the initial
transfer, which could result in earlier recognition of certain
components of credit card securitization income. The actual
impact on People's will depend on the nature and extent of its
future credit card securitization activities which cannot be
predicted with certainty. However, based on currently outstanding
securitizations, management believes that the initial adoption of
SFAS No. 125 will not have an adverse effect on People's 1997
consolidated financial statements.
82
People's Bank 1996 Annual Report
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Note 14. Selected Quarterly Financial Data (Unaudited)
- -------------------------------------------------------
1996 1995
(in millions, ---------------------------------- ---------------------------------
except per share data) First Second Third Fourth First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------
Interest and dividend income $117.3 $120.7 $116.8 $125.2 $115.0 $109.5 $114.6 $116.7
Interest expense (59.4) (61.6) (61.7) (62.8) (52.7) (53.8) (58.4) (59.3)
- -----------------------------------------------------------------------------------------------------------
Net interest income 57.9 59.1 55.1 62.4 62.3 55.7 56.2 57.4
- -----------------------------------------------------------------------------------------------------------
Provision for loan losses (8.7) (12.3) (17.5) (12.6) (9.9) (12.4) (7.6) (10.0)
- -----------------------------------------------------------------------------------------------------------
Fee-based revenues:
Credit card securitization income 16.5 13.9 18.1 17.6 13.1 21.0 17.4 17.0
Credit card fees 6.3 7.5 6.4 8.9 7.2 5.4 5.4 6.0
Service charges on demand and
NOW accounts 6.3 6.7 7.1 7.5 5.9 6.2 6.3 6.4
Other 6.3 6.7 6.4 6.6 5.5 5.7 5.8 5.8
- -----------------------------------------------------------------------------------------------------------
Total fee-based revenues 35.4 34.8 38.0 40.6 31.7 38.3 34.9 35.2
- -----------------------------------------------------------------------------------------------------------
Net security gains (losses) 3.1 4.3 2.8 5.0 (0.1) 3.4 3.3 1.0
Net gains on sales of residential
mortgages 1.0 0.8 2.7 0.9 0.1 0.5 2.3 1.1
Net gain on sale of other consumer
loans 6.0 -- -- -- -- -- -- --
Loss on REI (0.6) (0.5) (0.6) (0.4) (0.7) (0.8) (0.2) (0.1)
Other 0.3 1.6 0.8 0.7 0.6 0.3 0.7 0.6
- -----------------------------------------------------------------------------------------------------------
Net interest and non-interest
income 94.4 87.8 81.3 96.6 84.0 85.0 89.6 85.2
- -----------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits (30.0) (30.3) (32.1) (31.8) (27.1) (27.3) (28.4) (28.1)
Occupancy and equipment (9.8) (10.1) (11.7) (11.6) (9.9) (10.0) (10.3) (10.3)
Professional and outside
service fees (6.1) (5.5) (9.0) (7.9) (4.6) (5.5) (5.8) (6.3)
Advertising and promotion (4.9) (5.5) (7.8) (7.2) (2.2) (3.5) (3.0) (3.1)
Loss on REO (0.9) (1.3) (0.9) (1.2) (2.6) (0.9) (2.5) (0.8)
Other (9.2) (8.4) (8.8) (7.0) (11.1) (9.5) (8.1) (8.9)
- -----------------------------------------------------------------------------------------------------------
Total non-interest expense (60.9) (61.1) (70.3) (66.7) (57.5) (56.7) (58.1) (57.5)
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 33.5 26.7 11.0 29.9 26.5 28.3 31.5 27.7
Income tax (expense) benefit (12.7) (8.5) 9.5 (9.3) (10.8) (11.2) (12.0) (9.0)
- -----------------------------------------------------------------------------------------------------------
Net income $ 20.8 $ 18.2 $ 20.5 $ 20.6 $ 15.7 $ 17.1 $ 19.5 $ 18.7
=======================================================================
Net income applicable to
common stock $ 20.5 $ 18.1 $ 20.3 $ 20.6 $ 15.0 $ 16.5 $ 19.0 $ 18.3
=======================================================================
Net income per common share:
Primary $ 0.52 $ 0.45 $ 0.51 $ 0.50 $ 0.40 $ 0.44 $ 0.49 $ 0.47
Fully diluted 0.51 0.45 0.50 0.50 0.39 0.42 0.48 0.46
Average common shares:
Primary 39.51 39.96 40.44 40.99 37.20 37.67 38.49 39.06
Fully diluted 40.88 40.94 40.97 41.00 40.70 40.79 40.86 40.87
Common stock price:
High $22 1/4 $23 $25 1/2 $30 1/8 $15 1/8 $16 1/2 $21 1/2 $23 1/8
Low 18 1/2 19 5/8 20 1/4 23 7/8 11 3/8 14 1/4 16 1/8 18 1/2
Common stock dividends per share 0.18 0.20 0.20 0.22 0.14 0.16 0.16 0.18
Total dividend payout ratio 1 14.5% 18.8% 16.9% 18.4% 15.8% 16.0% 14.0% 16.0%
------------------------------------------------------------------------
</TABLE>
1 Reflects the waiver of common stock dividends on
substantially all of the common shares owned by Holdings, and
includes cash dividends paid on noncumulative convertible
preferred stock prior to its retirement in September 1996.
83
People's Bank 1996 Annual Report
<PAGE>
Statement of Management's Responsibility
Management is responsible for the preparation, content and
integrity of the consolidated financial statements and all other
information included in this annual report. The consolidated
financial statements and related footnotes are prepared in
accordance with generally accepted accounting principles applied
on a consistent basis. Management is also responsible for
compliance with laws and regulations relating to safety and
soundness as designated by the FDIC.
Management maintains a system of internal accounting control,
including an internal audit program, which provides reasonable
assurance that assets are safeguarded against loss from
unauthorized use or disposition, transactions are properly
authorized, and that accounting records are reliable for the
preparation of financial statements. The foundation of the system
of internal accounting controls rests upon careful selection and
training of personnel, segregation of responsibilities, and
application of formal policies and procedures that are consistent
with the highest standards of business conduct. The system of
internal accounting control is being continually modified and
improved in response to changes in business conditions and
operations.
The Board of Directors has an Audit Committee composed of four
outside directors. The Committee meets periodically with the
independent auditors, the internal auditors and management to
ensure that the system of internal accounting control is being
properly administered and that the financial data are being
properly reported. The Committee reviews the scope and timing of
internal audits, including recommendations made with respect to
the system of internal accounting control. The independent
auditors and the internal auditors have free access to the
Committee.
The consolidated financial statements as identified in the
accompanying Independent Auditors' Report have been audited by
KPMG Peat Marwick LLP, independent certified public accountants.
These audits were conducted in accordance with generally accepted
auditing standards, and included tests of the accounting records
and other auditing procedures considered necessary to formulate
an opinion on the consolidated financial statements.
/s/ David E.A. Carson /s/ George W. Morriss
David E.A. Carson George W. Morriss
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
- -----------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Stockholders of People's Bank:
We have audited the accompanying consolidated statements of
condition of People's Bank and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of
People's management. Our responsibility 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 audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of People's Bank and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
January 16, 1997
84
People's Bank 1996 Annual Report
<PAGE>
Officers
David E.A. Carson
President and CEO
James P. Biggs Ellen P. Davis
Executive Vice President Senior Vice President
Marketing and Regional Banking Commercial Banking
Edward H. Bucnis Brian F. Dreyer
Executive Vice President Senior Vice President
Operations and Commercial Banking
Information Services
Bryan Huebner Jay M. Forgotson
Executive Vice President Senior Vice President
Consumer Financial Services Credit Administration
John A. Klein Raymond P. Granville
Executive Vice President Senior Vice President
Credit Card Equity Strategist
William T. Kosturko Thomas E. Hylinski
Executive Vice President Senior Vice President
Legal/Government Affairs Residential Mortgage
Lending
George W. Morriss Barbara P. Johnson
Executive Vice President Senior Vice President
Chief Financial Officer New Haven Region Manager
Louis H. Ulizio, Jr. Michael J. Leone
Executive Vice President Senior Vice President
Commercial Banking Bridgeport Region Manager
Dennis J. Colwell Patricia E. Matteson
Senior Vice President Senior Vice President
Treasury and Investment Marketing
Robert R. D'Amore Carlos R. Mello
Senior Vice President Senior Vice President
Hartford Region Manager Comptroller
Parry E. Spahr
Senior Vice President
Stamford Region Manager
Ronald T. Urquhart
Senior Vice President
International Credit Card
Mark K. Vitelli Arthur C. McAdams III
Senior Vice President First Vice President
National Credit Card Business Information
Systems
Dorothea E. Brennan Humphrey T. Nichols II
First Vice President First Vice President
Risk/Profitability Management Trust and Financial
Management Services
Peter M. Brestovan Roger L. Perry
First Vice President First Vice President
Real Estate Services Trust and Financial
Management Services
Michael J. Cataldo Barbara J. Phillips
First Vice President First Vice President
Operations Services Human Resources
Walter S. Dusza, Jr. Robert V. Rodia
First Vice President President
Auditing People's Securities, Inc.
Carl M. Harris Susan D. Stanley
First Vice President First Vice President
Community Lending Corporate Counsel
Thomas A. Jagodzinski Kenneth L. Weinstein
First Vice President First Vice President
Technology and Communications Consumer Deposit Products
William C. Mack
First Vice President
Loan Servicing
Patricia A. Manion
First Vice President
Corporate Service/Telephone
Banking
85
<PAGE>
Directors and Trustees
[Photograph: "Left to Right,
Betty Ruth Hollander, James P.
Biggs, John F. Merchant and
Wilmot F. Wheeler, Jr."]
[Photograph: "Left to Right,
Jack E. McGregor, Eunice S. Groark,
George P. Carter, David E.A. Carson
and Jean M. LaVecchia."]
[Photograph: "Left to Right,
Joseph E. Clancy, Samuel W. Hawley,
George R. Dunbar and Norwick R.G.
Goodspeed. Not available for photo-
graph, Saul Kwartin."]
86
<PAGE>
Directors and Trustees
People's Bank Board of Directors
James P. Biggs Samuel W. Hawley
Executive Vice President Chairman of the Executive
People's Bank Committee
David E.A. Carson Betty Ruth Hollander
President and CEO Chairman and CEO
People's Bank Omega Technologies, Inc.
George P. Carter Saul Kwartin
President Of Counsel
Connecticut Foods, Inc. Wofsey, Rosen, Kweskin &
Kuriansky
Joseph E. Clancy
Chairman and CEO Jean M. LaVecchia
Bridgeport Machines, Inc. Senior Vice President -
SNET
Organization Development
George R. Dunbar
President Jack E. McGregor
Dunbar Associates and Former CEO, Aquarion
Retired President Company
Bryant Electric Division of Of Counsel,
Westinghouse Electric Corp. Cohen and Wolf, P.C.;
and Principal,
Norwick R.G. Goodspeed Bridgeport Waterfront
Chairman of the Board Investors, LLC.
People's Mutual Holdings
John F. Merchant
Eunice S. Groark Attorney
Attorney; Former Fellow
The Institute of Politics Wilmot F. Wheeler, Jr.
Kennedy School Chairman
Harvard University Jelliff Corp.
People's Mutual Holdings Board of Trustees
Jean A. Adnopoz Betty Ruth Hollander
Associate Clinical Professor Chairman and CEO
Yale School of Medicine Omega Technologies, Inc.
Robert B. Bruner Leonard N. Mainiero
President Retired Executive Vice
Mt. Sinai Hospital President
Foundation People's Bank
David E.A. Carson John F. Merchant
President and CEO Attorney
People's Bank
John G. Phelan
George P. Carter President
President Fletcher Thompson, Inc.
Connecticut Foods, Inc.
Glenda Copes Reed
Joseph E. Clancy Vice President
Chairman and CEO Corporate Real Estate
Bridgeport Machines, Inc. Aetna, Inc.
Robert L. Rosensweig
George R. Dunbar Of Counsel
President Shipman & Goodwin
Dunbar Associates and
Retired President Frederick J. Ross
Bryant Electric Division of Private Investor and
Westinghouse Electric Corp. Consultant
John L. Flannery James A. Thomas
Vice Chairman of the Board Associate Dean
Yale Law School
Norwick R.G. Goodspeed
Chairman of the Board Wilmot F. Wheeler, Jr.
Chairman
Samuel W. Hawley Jelliff Corp.
Chairman of the Executive
Committee
87
<PAGE>
Frequently Asked Questions By Investors
Credit cards are a large component of your business. How can you
compete with the "giants" of the industry?
People's entered the credit card business in 1985 as an issuer of
low fixed-rate credit cards. This basic business strategy hasn't
changed. To make the strategy work, we need to combine effective
marketing, efficient business operations and stringent risk
management. These practices are designed to keep operating costs
low and produce strong asset quality. We actively manage the risk
characteristics of our customer database through sophisticated
modeling techniques.
Through a combination of internal investments in technology and
partnerships with major vendors in the credit card industry, we
are one of the most efficient operations in the country. By using
this strategy, we are able to obtain "state of the art" without
the burden of development and maintenance costs.
Leveraging and developing our human resources are crucial to
making the formula work, marrying the best people with the best
technology. We have continuously improved our skills as targeted
marketers, which has led to significantly better response and
approval rates.
Why is a mid-sized bank from Connecticut establishing a credit
card operation in the United Kingdom?
In researching the credit card market in the United Kingdom, we
found a situation very similar to the United States when we
entered the business in 1985. There are a few large issuers who
presently dominate the market, charging average rates around 21%.
As in the U.S., we believe that our low fixed-rate strategy will
provide us with a competitive advantage in the U.K. market.
By exporting the competencies we have developed in the U.S. over
the past 12 years, we believe there is great opportunity in the
U.K. While we've only been in business a short time, we are
pleased with the early results. In fact, our U.K. portfolio is
larger than our U.S. portfolio was at the nine-month mark.
Why did you issue $150 million in subordinated notes during 1996?
While our current capital ratios significantly exceed the
well-capitalized minimums set by the regulators, we felt it made
sense to bolster our Tier 2 and Total risk-based capital position
given the continued growth in our assets.
With the attractiveness of market conditions for 10-year
subordinated notes during the year, this was a cost-effective
means to lengthen the maturity of our funding base and increase
our flexibility to better manage capital.
Why has People's been noticeably absent from the acquisition
arena?
People's has been actively analyzing acquisition opportunities
for several years now. The premiums commanded in the marketplace
have not met our internal benchmark for a return on investment of
at least 15%. Investors seem to be pleased with our discipline.
Given the internal growth we're generating and the market
opportunities created by industry consolidation in Connecticut,
we feel it's better to reinvest earnings in People's Bank. We
currently are investing in businesses that we believe will
provide above-average returns for the long term.
For example, we think our alliance with Stop & Shop is a far more
cost-effective way to build value. For a $10 million capital
investment to build branches in 45 superstores, we gain weekly
access to more than one million potential customers. We believe
this is a better use of capital than paying an 8 to 10% premium
to purchase additional deposits in our existing market area.
Why are People's expenses higher in 1996?
The market opportunities that exist today are rare, thanks to the
consolidation of the financial services sector. We currently are
investing in several initiatives for the future. Our credit card
operation followed a three-pronged strategy this year: continuing
expansion in the U.S.; establishing an operation in the U.K.; and
entering into a partnership with TJX Companies to offer credit
cards to T.J. Maxx and Marshalls customers.
88
<PAGE>
Other initiatives include: opening 45 Super Stop & Shop branches
throughout Connecticut; creating a municipal banking and finance
unit to serve the banking needs of Connecticut's towns and
cities; and opening several regional trust offices to complement
our existing presence.
While these investments place near-term pressure on expenses, our
managed efficiency ratio for 1996 equaled a respectable 55%. Over
the longer term, these investments should generate above-average
returns.
You're halfway through your implementation program for Stop &
Shop branches. Has it met your expectations?
We are very pleased with the progress of our supermarket banking
initiative. Our offices have been well-received by customers who
like the convenience of 7-day-a-week banking with extended hours.
At the end of 1996, 21 of the 45 planned branches were open and
handling $165 million in retail and commercial deposits. Several
of the branches have exceeded $10 million in new deposits, an
important milestone for new offices.
Why do you have a mutual holding company structure? Any plans to
fully convert the remaining shares of People's Bank stock?
People's Mutual Holdings was formed in 1988 as part of our
conversion from a mutual savings bank to a stock savings bank,
holding 78% of the shares initially offered. This structure was
chosen for two primary reasons. First, it allowed incremental
access to capital, which is easier to manage and makes financial
sense. Second, it helped preserve the bank's independence and
community focus. Holdings currently owns 60% of People's shares
outstanding, as a result of the full conversion of our
convertible preferred stock into common stock.
Presently there are no plans to change the current structure to a
100% publicly-owned company.
Stockholder Information
Stock Listing
People's Bank common stock is traded on the NASDAQ National
Market System under the trading symbol PBCT.
Financial Information
Rating agencies, portfolio managers, stock analysts and brokers
seeking financial and competitive analysis information about
People's Bank should contact Vincent J. Calabrese, vice
president, Investor Relations, at 203-338-4114, or
[email protected].
Shareholder Assistance
Requests for information about the bank, annual and quarterly
reports and other financial materials should be directed to
Corporate Communications and Shareholder Relations at
203-338-7228. Information also is available about shareholder
services, including dividend reinvestment, direct deposit of
dividends and the cash option programs. News media should contact
Jane S. Sharpe, vice president, Corporate Communications, at
203-338-3162, or [email protected].
Fax-On-Demand
Call 800-758-5804 at PR Newswire for the latest news
announcements by fax. The People's Bank code number is 113252.
Internet Address
Our Internet global computer address is: http://www.peoples.com.
Financial information and press releases are available on PR
Newswire at: http://www.prnewswire.com.
Annual Meeting
The Annual Meeting of stockholders will be at 10 a.m. Thursday,
April 17, 1997, in Bridgeport, Connecticut.
Transfer Agent
Please direct address changes and inquiries regarding stock
transfer and registration to: Customer Service at Chase Mellon
Shareholder Services, L.L.C., 85 Challenger Road, Overpeck
Centre, Ridgefield Park, NJ 07660. Or call 800-953-2592.
Eliminating Multiple Mailings
Our goal is to reduce the expense associated with mailing
financial reports to stockholders by receiving authorization to
mail only one per address. An authorization card is provided at
the back of this Annual Report. This authorization is strictly
voluntary.
http://www.peoples.com
<PAGE>
people's bank
People's Bank
850 Main Street
Bridgeport
Connecticut 06604
<PAGE>
[Tear-out Mailer]
Request to Eliminate Multiple Mailings
of the People's Bank Annual Report
If you receive multiple copies of the People's Bank Annual
Report and would like to help us reduce printing and mailing
costs, please return this card. This authorization is strictly
voluntary and will not affect dividend or proxy mailings.
Please provide below the names, addresses, and registration
(or use Social Security numbers) of accounts to be eliminated.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Request for People's Bank Information
We would be pleased to provide you with material about the bank
and its services. Please indicate any materials that you would
like mailed.
___ Credit Card Application
___ Stock Purchase and Dividend
Reinvestment Plan Information
___ Dividend Reinvestment
Enrollment Card
___ Other (Please Specify)
_______________________________________________________
_______________________________________________________
Name_____________________________________________________________
Address__________________________________________________________
_________________________________________________________________
City__________________________ State_________ Zip______________
Area Code and Telephone Number (___) ____________________________
<PAGE>
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 359 BRIDGEPORT, CT
POSTAGE WILL BE PAID BY ADDRESSEE
People's Bank
Bridgeport Center
Corporate Communications RC #634
P.O. Box 1580
Bridgeport CT 06601-9978
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 359 BRIDGEPORT, CT
POSTAGE WILL BE PAID BY ADDRESSEE
People's Bank
Bridgeport Center
Corporate Communications RC #634
P.O. Box 1580
Bridgeport CT 06601-9978
<PAGE>
Exhibit II
Impact of Inflation
The consolidated financial statements and other financial
information presented in the Annual Report (Exhibit I) have been
prepared in conformity with generally accepted accounting
principles, which require the measurement of financial position
and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or
in the same magnitude as the prices of goods and services.
<PAGE>
Exhibit III
Computation of Net Income Per Common Share
- ----------------------------------------------------------------------------
Years ended December 31
(dollars in millions, except per share data) 1996 1995 1994
- ----------------------------------------------------------------------------
Primary Earnings Per Share:
Net income applicable to common stock:
Net income $80.1 $71.0 $70.1
Dividends paid on preferred stock (0.6) (2.2) (5.0)
- ----------------------------------------------------------------------------
Net income applicable to common stock $79.5 $68.8 $65.1
=============================
Weighted average number of shares outstanding:
Weighted average number of common
shares outstanding 39.77 37.60 34.03
Dilutive effect of outstanding stock options 0.42 0.48 0.43
- ----------------------------------------------------------------------------
Total weighted average number
of shares outstanding 40.19 38.08 34.46
=============================
Primary earnings per share $1.98 $1.81 $1.89
=============================
Fully Diluted Earnings Per Share:
Net income $80.1 $71.0 $70.1
=============================
Weighted average number of shares outstanding:
Weighted average number of common
shares outstanding 39.77 37.60 34.03
Dilutive effect of outstanding
stock options 0.47 0.52 0.43
Shares issuable from assumed exercise of
convertible preferred stock 0.70 2.66 6.10
- ----------------------------------------------------------------------------
Total weighted average number
of shares outstanding 40.94 40.78 40.56
=============================
Fully diluted earnings per share $1.96 $1.74 $1.73
=============================
<PAGE>
Exhibit IV
Other Statistical Data
The following table sets forth the contractual maturity and
interest rate sensitivity of construction loans and commercial
loans in accordance with regulatory requirements:
- ----------------------------------------------------------------------
As of December 31, One Year One to Over
1996 (in millions) or Less Five Years Five Years Total
- ----------------------------------------------------------------------
Contractual maturity:
Construction loans:
Residential mortgage $83.8 $3.3 $- $87.1
Commercial mortgage 72.2 44.5 1.6 118.3
Commercial loans 357.0 135.2 99.0 591.2
- ----------------------------------------------------------------------
Total $513.0 $183.0 $100.6 $796.6
---------------------------------------------
Interest rate sensitivity:
Predetermined rates $8.7 $74.9 $74.7 $158.3
Variable rates 504.3 108.1 25.9 638.3
- ----------------------------------------------------------------------
Total $513.0 $183.0 $100.6 $796.6
---------------------------------------------
The following table sets forth information concerning borrowings:
- --------------------------------------------------------------------------
As of and for the years ended
December 31 (dollars in millions) 1996 1995 1994
- --------------------------------------------------------------------------
Repurchase agreements:
Balance at year end $452.7 $585.6 $549.4
Average outstanding during the year 460.2 479.3 526.8
Maximum outstanding at any month end 810.7 608.3 693.7
Average interest rate during the year 5.96% 6.32% 4.36%
Interest rate at year end 5.52 5.89 5.53
Federal funds purchased:
Balance at year end $257.1 $239.2 $3.0
Average outstanding during the year 297.3 79.9 3.4
Maximum outstanding at any month end 487.3 239.2 3.0
Average interest rate during the year 5.34% 5.92% 4.94%
Interest rate at year end 6.68 5.99 6.00
- --------------------------------------------------------------------------
<PAGE>
Exhibit V
Wholly Owned Subsidiaries
December 31, 1996
Name and Address of Each Jurisdiction
Member of the Affiliated Group of Incorporation Line of Business
- ------------------------------ ---------------- ----------------
People's Securities, Inc. Connecticut Securities Brokerage
815 Main Street
Bridgeport, Connecticut
The address of the following wholly owned subsidiaries is 850
Main Street, Bridgeport, Connecticut:
People's Structured Finance Corp. Connecticut Special Purpose
Finance Subsidiary
PBRE Connecticut, Inc. Connecticut Real Estate
Investments
PB Real Estate, Inc. Connecticut Real Estate
Investments
MSB Mortgage Company Florida Mortgage Lending
of Florida, Inc.
MSB Real Estate Corp. Connecticut Real Estate
Investments
Pow-Dan Corporation Connecticut Real Estate
Investments
Pow-Dan II Corporation Connecticut Real Estate
Investments
Caprice Properties, Inc. Florida Real Estate
(a wholly owned subsidiary of MSB Development
Real Estate Corp.)
CMSB Enterprises of Florida, Inc. Florida Real Estate
(a wholly owned subsidiary of MSB Development
Real Estate Corp.)
DelRay Properties, Inc. Florida Real Estate
(a wholly owned subsidiary of MSB Development
Real Estate Corp.)
Stonebridge Golf and Country Club Florida Real Estate
Partnership (a 50% subsidiary Investment
of CMSB Enterprises of Florida,
Inc. and a 50% subsidiary of
Caprice Properties, Inc.)
Wycliffe Golf & Country Club Florida Real Estate
Partnership (a 50% subsidiary Investment
of CMSB Enterprises of Florida,
Inc. and a 50% subsidiary of
Caprice Properties, Inc.)
1401 Farmington Avenue Joint Connecticut Real Estate
Venture (50% owned by MSB Real Development
Estate Corp. and 50% owned by
Pow-Dan Corporation)
1
<PAGE>
Name and Address of Each Jurisdiction
Member of the Affiliated Group of Incorporation Line of Business
- ------------------------------ ---------------- ----------------
South Village Association Connecticut Real Estate Development
(50% owned by MSB Real Estate
Corp. and 50% owned by Pow-Dan
Corporation)
Shelton Heights Joint Venture Connecticut Real Estate Investments
(a wholly owned subsidiary of
MSB Real Estate Corp.)
PB Real Estate #1, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #2, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #3, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #4, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #5, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #6, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #7, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #8, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #9, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #10, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Massachusetts, Inc. Massachusetts Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
2
<PAGE>
Name and Address of Each Jurisdiction
Member of the Affiliated Group of Incorporation Line of Business
- ------------------------------ ---------------- ----------------
6 North Street, Inc. New York Real Estate Investment
(a wholly owned subsidiary of
PB Real Estate, Inc.)
PB Real Estate #11, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PBRE Connecticut, Inc.)
PB Real Estate #12, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PBRE Connecticut, Inc.)
PB Real Estate #13, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PBRE Connecticut, Inc.)
PB Real Estate #14, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PBRE Connecticut, Inc.)
PB Real Estate #16, Inc. Connecticut Real Estate Investment
(a wholly owned subsidiary of
PBRE Connecticut, Inc.)
3
<PAGE>
Exhibit VI
Supplemental Financial Statement Schedules Required
to be Filed by Item 8
<PAGE>
SCHEDULE IV - Bank Premises and Equipment
Classification Amount
Accumulated at Which
Gross Depreciation Carried on
Book and Balance
As of December 31, 1996 (in millions) Value Amortization Sheet (1)
- ------------------------------------------------------------------------
Bank premises (including land
of $13.1) $162.5 $36.3 $126.2
Data processing and other equipment,
furniture and fixtures 121.0 79.4 41.6
Leasehold improvements 22.1 16.3 5.8
- -------------------------------------------------------------------------
$305.6 $132.0 $173.6
====================================
(1) Bank premises and equipment are carried at cost, less
accumulated depreciation and amortization, except for land
which is carried at cost. Buildings, data processing and
other equipment, furniture and fixtures are depreciated
using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized
using the straight-line method over the shorter of the
remaining lease term or estimated useful life of the
improvements.
1
<PAGE>
SCHEDULE V - Investments in, Income from Dividends,
and Equity in Earnings or Losses of
Subsidiaries and Associated Companies
As of December 31, 1996
(dollars in millions)
- ------------------------------------------------------------------------------
Bank's
Equity in proportionate
underlying share of
Percent net assets Amount earnings or
Name of of voting Total at balance of loss for
issuer stock owned investment sheet date dividends the period
- ------------------------------------------------------------------------------
Consolidated
subsidiaries:
- --------------
MSB Real Estate Corp.
and Subsidiaries 100% $(31.0) $(31.0) None $(1.7)
Pow-Dan Corporation 100% 0.6 0.6 None (0.1)
Pow-Dan II
Corporation 100% - - None 0.1
People's Securities,
Inc. 100% 14.7 14.7 None 2.2
MSB Mortgage Company
of Florida, Inc. 100% - - None -
PB Real Estate, Inc.
and Subsidiaries 100% - - None 0.3
PB Real Estate 1994,
Inc. and Subsidiaries 100% 2.8 2.8 None (0.6)
People's Structured
Finance Corp. 100% 982.0 982.0 None 53.5
Unconsolidated
subsidiaries:
- --------------
None
Associated
companies:
- ----------
The Affordable
Housing Fund for
Connecticut (1) 1.0 1.0 None -
(1) People's holds a 33% partnership interest in the Affordable
Housing Fund for Connecticut.
2
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
People's Bank:
Under date of January 16, 1997, we reported on the consolidated
statements of condition of People's Bank and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1996, as contained in the 1996 Annual Report to
Stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report
on Form F-2 for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules as
listed in Item 11 (a) (2) of Form F-2. These consolidated
financial statement schedules are the responsibility of People's
management. Our responsibility is to express an opinion on these
consolidated financial statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
January 16, 1997
3
<PAGE>
Exhibit VII
Management's Report on the Effectiveness of
the Internal Control Structure Over Financial Reporting
and Compliance with Designated Laws and Regulations
<PAGE>
Management Report
Financial Statements
- --------------------
People's Bank ("People's") is responsible for the preparation,
integrity and fair presentation of its published financial
statements as of December 31, 1996, and the year then ended. The
financial statements have been prepared in accordance with
generally accepted accounting principles, and include some
amounts which are based on judgments and estimates of management.
Internal Control Structure Over Financial Reporting
- ---------------------------------------------------
Management is responsible for establishing and maintaining an
effective internal control structure over financial reporting
presented in conformity with generally accepted accounting
principles and the Federal Financial Institutions Examination
Council instructions for Consolidated Reports of Condition and
Income (call report instructions). The structure contains
monitoring mechanisms, and actions are taken to correct
deficiencies identified.
There are inherent limitations in the effectiveness of any
internal control structure, including the possibility of human
error and the circumvention or overriding of controls.
Accordingly, even an effective internal control structure can
provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions,
the effectiveness of an internal control structure may vary over
time.
Management assessed People's internal control structure over
financial reporting presented in conformity with generally
accepted accounting principles and call report instructions as of
December 31, 1996. This assessment was based on criteria for
effective internal control over financial reporting described in
Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
this assessment, management believes that, as of December 31,
1996, People's maintained an effective internal control structure
over financial reporting presented in conformity with generally
accepted accounting principles and call report instructions.
Compliance With Laws And Regulations
- ------------------------------------
Management is also responsible for compliance with the Federal
and state laws and regulations concerning dividend restrictions
and Federal laws and regulations concerning loans to insiders
designated by the FDIC as safety and soundness laws and
regulations.
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Management assessed its compliance with the designated laws and
regulations relating to safety and soundness. Based on this
assessment, management believes that People's complied, in all
significant respects, with the designated laws and regulations
relating to safety and soundness for the year ended December 31,
1996.
/s/ David E. A. Carson /s/ George W. Morriss
- ------------------------- -------------------------
David E. A. Carson George W. Morriss
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
February 20, 1997
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Exhibit VIII
Independent Accountants' Report On
Management's Assertion Regarding the Internal
Control Structure Over Financial Reporting
<PAGE>
Independent Accountants' Report
The Board of Directors
People's Bank:
We have examined management's assertion that People's Bank
maintained an effective internal control structure over financial
reporting presented in conformity with generally accepted
accounting principles and the Federal Financial Institutions
Examination Council instructions for Consolidated Reports of
Condition and Income ("Call Report Instructions") as of December
31, 1996, included in the accompanying Management Report dated
February 20, 1997.
Our examination was made in accordance with standards established
by the American Institute of Certified Public Accountants and,
accordingly, included obtaining an understanding of the internal
control structure over financial reporting, testing and
evaluating the design and operating effectiveness of the internal
control structure, and such other procedures as we considered
necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control
structure, errors or irregularities may occur and not be
detected. Also, projections of any evaluation of the internal
control structure to future periods are subject to the risk that
the internal control structure may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management's assertion that People's Bank
maintained an effective internal control structure over financial
reporting presented in conformity with generally accepted
accounting principles and the Call Report Instructions as of
December 31, 1996 is fairly stated, in all material respects,
based upon criteria described in Internal Control -- Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
February 20, 1997
<PAGE>
Exhibit XIII(vii)
AGREEMENT FOR COMPENSATION
ON DISCHARGE
SUBSEQUENT TO A CHANGE IN CONTROL
Agreement made as of the 15th day of August, 1996 by and
between People's Bank (the "Bank") and Bryan J. Huebner, an
Officer of the Bank (the "Officer").
Purpose of Agreement
This Agreement does not constitute an employment agreement
and nothing herein shall prevent the discharge of the Officer for
any reason. The purpose of this Agreement is merely to provide
assurance that if there is a Change In Control of the Bank or any
successor and the Officer is discharged without cause as defined
herein, the Officer will be entitle to receive payments as set
forth below. This Agreement supersedes in its entirety any
agreement for compensation on discharge subsequent to a Change In
Control previously entered into by the Bank and the Officer.
Agreement
In consideration of the Officer's continuation of his
employment and the agreements contained herein, and intending to
be legally bound hereby, the Bank and the Officer agree as
follows:
Section 1. Definitions.
(a) Parent. The term "parent" of the Bank means People's
Mutual Holdings ("PMH"), a mutual holding company organized
pursuant to The Banking Law of Connecticut.
(b) Change in Control. The term "Change in Control" means
the occurrence of any of the following:
(i) The board of directors of the Bank or its parent shall
approve (A) a merger or consolidation (or series of mergers and
consolidations) of the Bank or its parent with any other
corporation other than (1) a merger or consolidation (or series
of mergers and consolidations) which would result in the voting
stock (as described in paragraph (ii) of this subsection) of the
Bank or its parent outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting stock of the surviving entity) more
than 80% of the combined voting power of the voting stock of the
Bank or its parent (or such surviving entity) outstanding
immediately after such merger or consolidation or (2) a merger or
consolidation effected to implement a recapitalization of the
Bank or its parent (or similar transaction) in which no "person"
(as defined in paragraph (ii) of this subsection) acquires more
than 20% of the combined voting power of the then outstanding
securities of the Bank or its parent, or (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of
1
<PAGE>
related transactions) of all, or substantially all, of the assets
of the Bank or its parent, or (C) the adoption of any plan or
proposal for the liquidation or dissolution of the Bank;
(ii) Any person (as such term is defined in Section 3(a)(9)
and Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), corporation, or other entity
(other than the Bank, its parent, or any benefit plan, including,
but not limited to, any employee stock ownership plan, sponsored
by the Bank, its parent, or any subsidiary) shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities
representing 20 percent or more of the combined voting power of
the then outstanding securities of the Bank or its parent
ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such Rule
13d-3 in the case of rights to acquire such securities); or
(iii) During any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the
entire board of directors of the Bank or its parent, and any new
director (excluding a director designated by a person who has
entered into an agreement with the Bank or its parent to effect a
transaction described in paragraph (i) or (ii) of this
subsection) whose election by the board or nomination for
election by the shareholders of the Bank or its parent was
approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, shall cease for any reason to constitute a
majority thereof.
(c) Annual Salary. The term "annual salary" means the
greater of (i) the Officer's base salary plus incentive
compensation received during the last full calendar year
immediately prior to any Change In Control of (ii) the Officer's
base salary plus incentive compensation received during the last
full calendar year prior to his discharge.
(d) Base Salary. The term "base salary" means the Officer's
salary, including any salary amounts for such year which the
Officer has elected to defer under the People's Bank Supplemental
Savings Plan (or predecessor plan) or to contribute pursuant to a
salary reduction agreement to a plan described in section 401(k)
or section 125 of the Code; and base salary shall exclude
incentive compensation, stock options, stock price appreciation
units and the value of benefits.
(d) Code. The term "Code" means the Internal Revenue Code of
1986, as the same may be amended from time to time.
Section 2. Terms of Agreement.
(a) This Agreement shall be effective as of August 15, 1996,
and shall continue in effect through February 14, 1999, subject
to the following provisions of this Section 2.
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<PAGE>
(b) In the event of a Change In Control of the Bank during
the period specified in Section 2(a), this Agreement shall be
effective for a period of three years from the date of such
Change in Control.
(c) Following its expiration, this Agreement may be renewed
only by a written agreement executed by the Officer and the Bank.
(d) This Agreement shall terminate (i) prior to any Change
In Control, on the Officer's ceasing to be a principal officer of
the Bank as a result of a transfer to any other position at the
Bank or separation from employment with the Bank for any reason;
or (ii) subsequent to a Change In Control, on the Officer's
separation from employment with the Bank under circumstances not
entitling the Officer to any benefits under this Agreement.
Section 3. The Bank's Payment Obligation.
(a) If during the term of this Agreement, (i) a Change In
Control of the Bank shall occur, and (ii) within three years
following such Change In Control, the Officer shall be discharged
from employment, the Bank shall pay to the Office a lump sum
severance payment in an amount equal to 2.99 times his annual
salary, unless the discharge is for cause as defined in Section
4(e). Such severance payment shall be made within 30 days after
the Officer's discharge. If the Officer dies after notice of
discharge and prior to payment hereunder, such payment shall be
made to his estate.
(b) In the event of any discharge resulting in a payment
obligation under subsection (a) of this Section, the Bank shall
arrange to provide the Officer with split dollar life and group
health insurance benefits substantially similar to those the
Officer was receiving immediately prior to such discharge. Such
benefits shall be provided for a 36-month period following the
Officer's discharge, except that prior to the expiration of such
36-month period such benefits shall be reduced to the extent the
Officer receives comparable coverage from a new employer, and the
Officer shall be required promptly to report such coverage to the
Bank.
(c) In addition to the retirement benefits to which the
Officer is entitled under the People's Bank Employee's Retirement
Plan, The People's Bank Enhanced Senior Pension Plan, and any
additional Supplemental Retirement Agreement in effect between
the Bank and the Officer, in the event of any discharge resulting
in a payment obligation under subsection (a) of this Section, the
Bank shall pay the Officer additional supplemental amounts equal
to the difference between the Officer's retirement benefits under
the foregoing plans and agreements and the retirement benefits
the Officer would have received under such plans and agreements
if (A) the Officer were 100% vested in all such retirement
benefits, and (B) the Officer were credited with an additional
three years of service under all such plans and agreements. The
supplemental amounts described in this subsection shall be
calculated in the same manner and paid at the same time and in
the same form (including survivor benefits, if applicable) as the
Officer's retirement benefit under The People's Bank Enhanced
Senior Pension Plan.
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Section 4. Discharge. For purposes of Section 3:
(a) the Officer shall be deemed discharged if (i) he is
discharged by the Bank or if (ii) the Officer elects to
discontinue his employment with the Bank for "good reason," as
defined in subsection (b).
(b) "Good reason" shall mean the occurrence of any of the
following events, without the Officer's express written consent,
following a Change In Control:
(i) Any adverse alteration in or diminution of the nature or
status of the Officer's responsibilities or conditions of
employment from those in effect immediately prior to such Change
In Control;
(ii) Any reduction in the Officer's base salary or change in
the method of computation of incentive compensation resulting in
a diminution of the Officer's incentive compensation other than
any reduction or change which is effected by the Bank in good
faith and in the reasonable exercise of its business judgment and
which is of general applicability to all officers of the Bank in
the case of reduction of base salary or to all Bank officers
receiving incentive compensation in the case of changes to the
method of incentive compensation;
(iii) A relocation which would result in the Officer's
location of employment following such Change In Control being 75
or more miles away from his or her location of employment prior
to the Change In Control;
(iv) The Bank's failure to pay the Officer any compensation
within 30 days of the date of such compensation is due;
(v) The Bank's discontinuance of any compensation plan in
which the Officer participated immediately before the Change In
Control, or discontinuance of the Officer's participation in any
such plan, if such plan is material to the Officer's total
compensation, excluding any (A) amendment or substitution of
plans which is effected by the Bank in good faith and in the
reasonable exercise of its business judgment and which is of
general applicability to all participants in such plans or (B)
amendment, substitution, or discontinuance of plans which is
effected by the Bank in order to comply with any state or federal
statute, regulation, or regulatory order;
(vi) The Bank's failure to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement,
as contemplated in Section 11(a) hereof.
(c) A separation from employment because of permanent
disability shall not be considered a discharge, but the Officer
shall receive the disability benefits available under the then
existing plans of the Bank or any successor.
(d) A sale of assets of the Bank or a merger of the Bank, in
each case where the successor (i) assumes and agrees to perform
this Agreement in accordance with Section 11(a)
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<PAGE>
and (ii) offers the Officer a position comparable to that the
Officer had with the Bank immediately prior to the sale or
merger, shall not be deemed a discharge. For purposes hereof, a
new position shall not be deemed comparable to the Officer's old
position if it involves the occurrence of any of the events
constituting good reason, as defined in subsection (b) of this
Section.
(e) A discharge is "for cause" only if occasioned by (i)
the Officer's willful failure substantially to perform his duties
with the Bank, which continues after the board of directors of
the Bank delivers to the Officer a written demand for performance
specifically identifying the manner in which the board believes
the Officer has failed to perform his duties; or (ii) the
Officer's willfully engaging in conduct which is demonstrably and
materially injurious to the Bank, monetarily or otherwise. For
purposes of this section, no act or failure to act by the Officer
shall be deemed "willful" unless done or omitted to be done not
in good faith and without reasonable belief that such action or
omission was in the best interest of the Bank. The Officer shall
not be deemed to be discharged for cause unless and until there
is delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the board, at a meeting of the board called and
held for such purpose (after reasonable notice to the Officer and
an opportunity for the Officer, together with his counsel, to be
heard before the board), finding that, in the good faith opinion
of the board, the Officer was guilty of the conduct set forth
above and specifying the particulars thereof in detail.
(f) A discharge of the Officer by the Bank or termination of
employment by the Officer for good reason shall be communicated
by written notice to the other party hereto. Such written notice
shall specify the provisions of this Agreement relied upon and
shall set forth any facts and circumstances pertinent thereto;
provided that, in the case of a discharge for cause, such written
notice shall be the copy of the board resolution described in
subsection (e). If, within fifteen days after the notice of
discharge or termination is given, the receiving party notifies
the other party in good faith that a dispute exists concerning
the discharge or termination, and if such party pursues the
resolution of such dispute with reasonable diligence, then the
Bank shall continue in effect the Officer's compensation and
benefits immediately prior to such discharge or termination until
the dispute is resolved, either by mutual written agreement of
the parties, or in accordance with the arbitration procedure set
forth in Section 10. If the resolution of the dispute results in
a determination that benefits are payable under Section 3, the
amount of the lump sum payment under Section 3(a) shall be offset
by the amount of the compensation paid during the dispute, and
the period of benefit continuation under Section 3(b) and the
period of additional service credit under Section 3(c) shall be
determined to be satisfied to the extent of such benefits and
credit provided to the Officer during the pendency of the
dispute.
Section 5. Limitation on Payment Obligation.
(a) Notwithstanding any other provision of this Agreement,
any "parachute payment" to be made to or for the benefit of the
Officer, whether pursuant to this Agreement
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<PAGE>
or otherwise, shall be modified to the extent necessary so that
the requirements of either subparagraph (i) or (ii) below are
satisfied:
(i) The aggregate "present value" of all "parachute
payments" payable to or for the benefit of the Officer, whether
pursuant to this Agreement or otherwise, shall be less than three
times the Officer's "base amount"; or
(ii) Each "parachute payment" to or for the benefit of the
Officer, whether pursuant to this Agreement or otherwise, shall
be in an amount which does not exceed the portion of the "base
amount" allocable to such "parachute payment" or, if greater, the
"reasonable compensation" allocable to such "parachute payment."
For the purposes of this limitation, (i) no "parachute
payment" the receipt of which the Officer shall have effectively
waived prior to the date which is fifteen (15) days following
termination of employment and prior to the earlier of the date of
constructive receipt and the date of payment thereof shall be
taken into account; and (ii) any reduction in the payments and
benefits pursuant to Section 3 shall be made in order of clauses
(a) through (c) except to the extent that such payments and
benefits are "reasonable compensation."
(b) Notwithstanding any other provision of this Agreement,
no "illegal parachute payments" shall be made to or for the
benefit of the Officer.
(c) For purposes of this Section:
(i) The term "base amount" shall have the meaning set forth
in section 280G(b)(3) of the Code;
(ii) The term "parachute payment" shall mean a payment
described in section 280G(b)(2)(A) and not excluded under section
280G(b)(4)(A) or Section 280G(b)(6) of the Code;
(iii) The term "illegal parachute payment" shall mean a
payment described in section 280G(b)(2)(B) of the Code;
(iv) "Present value" shall be determined in accordance with
section 280G(d)(4) of the Code;
(v) The term "reasonable compensation" shall mean reasonable
compensation for prior personal services as defined in section
280G(b)(4)(B) of the Code; and
(vi) The portion of the "base amount" and the amount of
"reasonable compensation" allocable to any "parachute payment"
shall be determined in accordance with section 280G(b)(3) and (4)
of the Code.
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(d) This Section shall be interpreted and applied to limit
the amounts otherwise payable to the Officer under this Agreement
or otherwise only to the extent required to avoid the imposition
of excise taxes on the Officer under section 4999 of the Code or
the disallowance of a deduction to the Bank under section 280G(a)
of the Code, except that the Officer shall be presumed to be a
disqualified individual for purposes of applying the limitations
set forth in subsection (a) above without regard to whether or
not the Officer meets the definition of disqualified individual
set forth in section 280G(c) of the Code. In the event that the
Bank and the Officer are unable to agree as to the application of
this Section, the Bank's independent auditors shall select
independent tax counsel to determine the amount of such limits.
Such selection of tax counsel shall be subject to the Officer's
consent, provided that the Officer shall not unreasonably
withhold his consent. The determination of such tax counsel under
this Section shall be final and binding upon the Bank and the
Officer.
(e) Notwithstanding any other provision of this Agreement,
the Bank shall not be obligated to make, and the Officer shall
have no right to receive, any payment, benefit or amount under
this Agreement which would violate any law, regulation or
regulatory order applicable to the Bank or its parent at the time
such payment, benefit or amount is due, including, without
limitation, Section 1828(k)(1) of Title 12 of the United States
Code and any regulation or order thereunder of the Federal
Deposit Insurance Corporation. In such event the provisions of
Section 14(b) below shall apply.
Section 6. The Bank's Right of Discharge. Subject to its
obligation to make the payments specified in Section 3, it is
expressly agreed that the Bank shall have the right to discharge
the Officer at any time and for any reason, or for no reason.
Section 7. Payment of Attorneys Fees, Interest and Cost. If
the Bank fails to make any payment required under Section 3, the
Officer shall be entitled to receive, in addition to the payments
hereunder, (i) interest on all such payments at the prime rate
announced by the Bank or its successor as of January 1 of the
calendar year in which the lump sum payment under Section 3(a) is
due, plus one percent per annum from the date such payments were
due; (ii) costs of any arbitration or legal proceeding; and (iii)
reasonable attorneys fees incurred by the Officer with respect to
the enforcement of this Agreement, including any attorneys fees
incurred under Section 5, whether or not any fees are contingent
in nature. In addition, the Bank shall pay reasonable attorneys
fees incurred by the Officer in connection with a tax audit or
proceeding involving the Internal Revenue Service or a state
taxing authority to the extent attributable to the Bank's
interpretation, or the interpretation of independent tax counsel
pursuant to Section 5, of the application of Code section 4999 to
any payment or benefit hereunder.
Section 8. Effect on other Contracts. Except as provided in
Section 5 and below, this Agreement shall not affect the
Officer's rights under any compensation, pension, benefit, stock
option, or incentive plans.
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(a) The lump sum severance payment described in Section 3(a)
shall be in lieu of any severance payments to which the Officer
would otherwise be entitled under any severance pay plan or
arrangement maintained by the Bank.
Section 9. No Mitigation. the Officer shall not be required
to mitigate the amount of any payments provided for by this
Agreement by seeking employment or otherwise, nor shall the
amount of any payment or benefit provided for in this Agreement
be reduced by any compensation or benefit earned by the Officer
after his discharge, except as provided in Section 3(b).
Section 10. Arbitration. Except as otherwise provided in
Section 5, any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration in Bridgeport, Connecticut, in accordance with Rules
of the American Arbitration Association then in effect. Judgment
may be entered on the arbitator's award in any court having
jurisdiction.
Section 11. Binding Effect.
(a) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to
all or substantially all of its business and/or assets to
expressly assume and agree to perform this Agreement.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective succesors,
assigns, heirs, executors, and administrators.
Section 12. Sole Remedy. In the event of the discharge of
the Officer under the circumstances giving rise to the payment
obligation described in Section 3, the payments and other
benefits provided for by this Agreement, by any stock option or
other agreement between the Bank and the Officer in effect at the
time, and by any other applicable plan of the Bank shall
constitute the entire obligation of the Bank to the Officer and
shall also constitute full settlement of any claim under law or
in equity that the Officer might otherwise assert against the
Bank or any of its employees on account of such discharge. In
order to effectuate the intent of this Section, the Officer
agrees to deliver an enforceable release of claims against the
Bank, at the time of receipt of the lump sum payment pursuant to
Section 3(a).
Section 13. Governing Law. The validity, interpretation, and
enforcement of this Agreement shall be governed by the laws of
the State of Connecticut.
Section 14. Severability.
(a) If any provision of this Agreement is declared void or
unenforceable for any reason, such provision shall be deemed
severed from this Agreement, which shall otherwise remain in full
force and effect.
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(b) If any provision of this Agreement is unenforceable
solely on account of Section 5(e) above, the lump sum payment
and/or an amount equal to the value of the unpaid benefits under
Section 3 shall be due and payable within 30 days of the first
date on which the Bank may legally make such payment. Interest
shall be paid on the amounts due in accordance with Section 7
above, unless prohibited by Section 5(e) above. The Bank agrees
to use its best efforts to receive the regulator(s)' permission
to make payments due under Section 3. The Bank's obligation to
make such application for permission to make such payments shall
continue for a period of six (6) years subsequent to the
discharge of the Officer.
Section 15. Entire Agreement. This writing represents the
entire agreement and understanding of the parties with respect to
the subject matter of the Agreement and it may not be altered or
amended except by an agreement in writing.
IN WITNESS WHEREOF the parties have executed this Agreement
effective as of the date written above.
Attest: /s/ Robert C. Clarkson /s/ Bryan J. Huebner
------------------------ ---------------------------------
Bryan J. Huebner
PEOPLE'S BANK
By: /s/ David E.A. Carson
------------------------------
David E.A. Carson, President
and Chief Executive Officer
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Exhibit XV
SHORT TERM INCENTIVE PLAN
FOR KEY EMPLOYEES OF
PEOPLE'S BANK
1997 PLAN GUIDELINES
The Human Resources Committee (the "Committee") of the Board of
Directors has approved the following Corporate Performance
Measures, Performance Targets, and Target Awards for the calendar
year ending December 31, 1997, for the Short Term Incentive Plan
(the "Plan") for Key Employees of People's Bank (the "Bank").
1. Role of the Human Resources Committee. The following Plan
details are guidelines which the Human Resources Committee
of the Board has approved and has the stated intention of
following. However, notwithstanding any other statement
contained herein, the Committee and the Board reserves the
authority to approve, modify, or disallow any payment under
this Plan.
2. Eligibility. All employees in Grade 8 and above, not in a
production or sales incentive plan, are eligible for
participation.
3. Bank Performance Measure. The following Bank Performance
Measure will be used for the calendar year 1997:
- Return on Equity - Net Income divided by average
Shareholders' Equity.
Note: The Net Income will be for the consolidated entity.
4. Individual Performance Measure. These are three to five
individual performance objectives that relate to the Bank's
strategic business objectives for the Plan Year.
5. Provision. To receive a payment under the Plan, the Bank's
capital ratios must meet or exceed regulatory requirements
and the Bank's ROE must meet or exceed threshold.
To receive a payment under the Plan, participants must
achieve a minimum of 70% of their Individual Performance
Objectives and receive a rating of "Meets Most" or higher
on their most recent performance evaluation.
6. Corporate Performance Targets. Any payment will be based on
People's 1997 ROE relative to the Performance Target. For
1997, the Performance Target ROE is 14.7%.
7. Pool Funding. Initial pool funding will be comprised of two
parts:
- Bank Portion
Funding of this part of the pool is the sum of
the target bank portion awards of all
participants.
- Individual Portion
Funding of this part of the pool is the sum of
the actual individual portion awards after the
determination of achievement of Individual
Performance Objectives.
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The combined Bank and Individual pool is then contingent upon
People's ROE performance according to the following scale.
People's %
1997 ROE Pool Funded
-------- -----------
Maximum 16.2% 150.0%
15.8% 130.0%
15.3% 115.0%
Target 14.7% 100.0%
14.2% 90.0%
13.7% 80.0%
Threshold 13.2% 70.0%
8. Target Incentive Awards. Each participant has been slotted
into tiers based upon responsiblities and/or duties. Target
Awards as a percentage of base salary vary by Tier as
follows:
Target
Incentive
Tier Amount
---- ------
I - President 50%
II - Executive Vice President 40%
III - Senior Vice President 30%
IV - First Vice President 20%
V - Vice President 15%
Awards are paid out based upon achievement of Bank and Individual
Objectives. Portions of each Participant's award are allocated
based upon Bank and Individual results as follows:
Allocation % Based on:
Bank Individual
Tier Results Results
---- ------- ------
I 100% 0%
II 80% 20%
III 20% 80%
IV 20% 80%
V 20% 80%
9. Example of Payment Calculation. The Bank results component
payment will be allocated to individuals based solely upon
Bank's performance:
Bank Results. The Bank portion of each Award (20%-100%) will
be paid out once Bank performance results are calculated.
The following general formula will be used to determine a
Participant's Bank portion of their Award:
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Example: Tier V Participant
Salary: $80,000
Target Award: $12,000 ($80,000 x 15%)
Bank Allocation %: 20%
Pool Funded %: 125% (% of Target)
Bank portion of award paid =
[Target Award] x [Bank Allocation %] x [% Pool Funded]
[$12,000] x [20%] x [125%] = $3,000
Individual Results. The individual results portion of the
Plan depends upon the achievement of Individual Performance
Objectives. The following general formula will be used to
determine a participant's individual award portion:
Individual portion of award paid =
Example: Tier V Participant
Salary: $80,000
Target Award: $12,000 ($80,000 x 15%)
Individual Allocation %: 80%
Individual Performance %: 90% (% of Target)
Pool Funded %: 125%
Individual portion of award paid =
[Target Award] x [Individual Allocation %] x [Individual
Performance Rating % (0% - 150%)] x [% Pool Funded].
[$12,000] x [80%] x [90%] x [125%] = $10,800
Note: The total award paid would be the sum of the Bank and
individual portions. In the above example, the total award
would be $13,300 ($3,000 + $10,800).
This individual component is funded by allocating the sum
of the actual individual portion awards of all participants
after determination of achievement of Individual
Performance Objectives. The funding is dependent on
attaining Threshold Bank results performance. In the event
the Bank results are less than Threshold, the Committee may
decide to fund all or a portion of the individual
component.
10. Terminations. If a participant terminates employment prior
to the payout date of the Plan Year for reasons of death,
retirement or disability, a pro-rata payout may be
recommended to the committee. If a participant terminates
employment for any other reason, any award for that year is
forfeited.
3
<PAGE>
11. Partial Year Participation. If an employee becomes a
participant after the beginning of a Plan year, he/she may
be eligible for a pro-rate award at the discretion of the
Committee. Any employee who first becomes eligible for
participation after the end of the third quarter will not be
eligible for an award in that Plan year.
4
<PAGE>
Exhibit XVI
1997 - 1999 Performance Unit Plan
People's Bank
The Human Resources Committee (The "Committee") of the Board of
Directors has approved the following Performance Measures,
Performance Targets, and Target Awards for the Three Year
Performance Period beginning January 1, 1997 and ending December
31, 1999 (hereafter referred to as the "Performance Period") for
the Long-Term Incentive Plan for Key Employees of People's Bank
(The "Plan").
1. Role of the Human Resources Committee. The following Plan
details are guidelines which the Human Resources Committee
of the Board has approved and has the stated intention of
following. However, notwithstanding any other statement
contained herein, the Committee and the Board reserves the
authority to approve, modify, or disallow any payment under
this Plan.
2. Eligibility: All employees in grade 10 and above.
3. Target Awards: Three year cumulative plan payout at the end
of the Performance Period, expressed as a percent of base
salary.
3-Year
cumulative
Tier Grade Title Target
---- ----- ----- ----------
I - Chief Exec. Officer 75%
II - Exec. Vice President 45%
III 12 Senior Vice President 25%
IV 10 & 11 First Vice President 20%
The actual number of performance units granted to
participants is calculated by dividing their target dollar
amount by the $30.00 target unit value illustrated in item
#5.
4. Performance Measures: The following performance measures
will be used for the Performance Period:
- ROE: 15% average ROE over the three year period; calculated
by adding each year's ending average equity, divided by
three, and adding each year's net income divided by three.
- Total Return to Shareholders: Compared to (a) the S & P 500
index, (b) the SNL New England Bank Index, and (c) the SNL
Thrift Index - Assets greater than $5 billion, equally
weighted, over the three year period.
5. - Target Unit Value: Set at $30.00
- Actual Value: Will be determined by the following
scale;
Page 1
<PAGE>
People's
Performance as a
% of the Target % Payout
--------------- --------
Maximum 115% 150%
Target 100% 100%
Threshold 85% 50%
Performance between threshold and target, and between target
and maximum, will be computed based upon a straight line
interpolation.
6. Example:
1) Target ROE 15.0%
People's Actual ROE 15.5%
People's Performance 103.3% of Target
Payout Interpolation 111.0%
2) Index TRS 50.0%
People's Actual 45.0%
People's Performance 90.0% of Target
Payout Interpolation 66.7%
ROE Value is $15 (1/2 of $30 Unit Value) x 111% = $16.65
TRS Value is $15 (1/2 of $30 Unit Value) x 66.7% = $10.00
Total Performance Unit Value is....................$26.65
Cumulative Plan Payout = Units granted x Unit Value
7. Provision: To receive a payout from the Performance Unit Plan,
the Bank must achieve the following:
A. Capital ratios must meet or exceed regulatory requirements
during the three year Performance period
B. A cumulative positive net income result at the end of the
three year Performance Period
8. Terminations: If a participant terminates employment prior to
the payout date of the Performance Period for reasons of death,
retirement or disability, a pro-rata payout of Performance Units
may be recommended to the committee at the time of the Plan
payout. If a participant terminates employment for any other
reason, any award for that Performance Period is forfeited.
9. Pro-Rata Participation: If an employee becomes eligible for
participation in the Plan during the Performance Period prior
to the end of the second year, a pro-rata Performance Unit
award may be earned. If an employee becomes an eligible
participant after the end of the second year, no award should
be earned.
Page 2
Exhibit 99(2)
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 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 Number 27334
PEOPLE'S BANK
-------------------------------------------
(Exact name of bank as specified in its charter)
850 Main Street, Bridgeport, Connecticut 06604
-----------------------------------------------
(Address of principal executive offices)
Connecticut
-------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-1213065
------------------------------------
(I.R.S. Employer Identification No.)
(203) 338-7171
------------------------------------------------
(Bank's telephone number, including area code)
Indicate by check mark if the bank, as a "small business issuer"
as defined under 17 CFR 240.12b-2, is providing alternative
disclosures as permitted for small business issuers in this
Form F-4. [ ]
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:
40,677,833 shares of common stock as of May 1, 1997
<PAGE>
Table of Contents
Page
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis 9
Part II - Other Information
Item 6 - Exhibits 21
Signatures 22
<PAGE>
People's Bank and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Condition
(Unaudited)
- -----------------------------------------------------------------------
Mar. 31, Dec. 31,
(dollars in millions) 1997 1996
- -----------------------------------------------------------------------
Assets
Cash and due from banks $220.4 $196.2
Short-term investments 131.1 146.7
Securities (Note 2):
Trading account securities,
at estimated fair value 1.1 2.8
Securities available for sale,
at estimated fair value
(amortized cost of $1,247.6
and $1,214.4 at the respective
dates) 1,248.4 1,227.6
Securities held to maturity,
at amortized cost (estimated
fair value of $445.5 and $466.5
at the respective dates) 454.6 472.1
- -----------------------------------------------------------------------
Total securities, net 1,704.1 1,702.5
- -----------------------------------------------------------------------
Loans, net (Note 3):
Residential mortgage 2,264.3 2,242.5
Commercial mortgage 825.3 819.1
Commercial 596.4 591.2
Credit card 1,174.3 1,386.6
Other consumer 238.8 237.6
- -----------------------------------------------------------------------
Total loans 5,099.1 5,277.0
Less allowance for loan losses (85.7) (87.6)
- -----------------------------------------------------------------------
Total loans, net 5,013.4 5,189.4
Premises and equipment, net 174.4 173.6
Other assets 294.7 236.8
- -----------------------------------------------------------------------
Total assets $7,538.1 $7,645.2
==============================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $877.0 $930.2
Savings, NOW and money market 2,193.3 2,144.8
Time 2,345.2 2,170.2
- -----------------------------------------------------------------------
Total deposits 5,415.5 5,245.2
- -----------------------------------------------------------------------
Borrowings:
Federal Home Loan Bank advances 710.8 836.8
Repurchase agreements 305.4 452.7
Federal funds purchased 224.2 257.1
Subordinated notes 148.1 148.0
- -----------------------------------------------------------------------
Total borrowings 1,388.5 1,694.6
- -----------------------------------------------------------------------
Other liabilities 100.0 87.4
- -----------------------------------------------------------------------
Total liabilities 6,904.0 7,027.2
- -----------------------------------------------------------------------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 1):
Common stock (without par value;
60,000,000 shares authorized;
40,677,833 shares and 40,553,446
shares issued and outstanding at
the respective dates) 40.7 40.6
Additional paid-in capital 113.8 111.0
Retained earnings 483.8 465.8
Net unrealized (loss) gain on
securities, net of tax (4.2) 0.6
- -----------------------------------------------------------------------
Total stockholders' equity 634.1 618.0
- -----------------------------------------------------------------------
Total liabilities and
stockholders' equity $7,538.1 $7,645.2
==============================
See accompanying notes to consolidated financial statements.
1
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Income
(Unaudited)
- -----------------------------------------------------------------------
Quarters Ended
-----------------------
Mar. 31, Mar. 31,
(in millions, except per share data) 1997 1996
- -----------------------------------------------------------------------
Interest and dividend income:
Residential mortgage $42.5 $40.2
Commercial mortgage 18.1 16.4
Commercial 13.5 12.4
Credit card 30.5 17.5
Other consumer 5.0 5.8
- -----------------------------------------------------------------------
Total interest on loans 109.6 92.3
Securities 21.4 23.6
Short-term investments 1.7 1.4
- -----------------------------------------------------------------------
Total interest and dividend income 132.7 117.3
- -----------------------------------------------------------------------
Interest expense:
Deposits 41.9 39.3
Borrowings 25.1 20.1
- -----------------------------------------------------------------------
Total interest expense 67.0 59.4
- -----------------------------------------------------------------------
Net interest income 65.7 57.9
Provision for loan losses 10.8 8.7
- -----------------------------------------------------------------------
Net interest income after provision for
loan losses 54.9 49.2
- -----------------------------------------------------------------------
Non-interest income:
Fee-based revenues:
Credit card securitization income (Note 4) 18.6 16.5
Credit card fees 9.4 6.3
Service charges on deposit accounts 7.4 6.3
Residential mortgage loan servicing fees 1.5 1.5
Net brokerage commissions 2.4 1.8
Other 3.2 3.0
- -----------------------------------------------------------------------
Total fee-based revenues 42.5 35.4
Net security gains 5.5 3.1
Net gains on sales of residential mortgage
loans available for sale 2.4 1.0
Net gain on sale of other consumer loans - 6.0
Loss on real estate investments (0.2) (0.6)
Other 1.3 0.3
- -----------------------------------------------------------------------
Total non-interest income 51.5 45.2
- -----------------------------------------------------------------------
Non-interest expense:
Compensation and benefits 34.1 30.0
Occupancy and equipment 11.7 9.8
Professional and outside service fees 7.5 6.1
Advertising and promotion 8.8 4.9
Loss on real estate acquired in settlement of loans 0.6 0.9
Other 8.9 9.2
- -----------------------------------------------------------------------
Total non-interest expense 71.6 60.9
- -----------------------------------------------------------------------
Income before income taxes 34.8 33.5
Income tax expense 12.8 12.7
- -----------------------------------------------------------------------
Net income $22.0 $20.8
================
Net income applicable to common stock $22.0 $20.5
================
Net income per common share (Notes 1 and 4):
Primary $0.54 $0.52
================
Fully diluted $0.54 $0.51
================
Average common shares:
Primary 41.02 39.51
================
Fully diluted 41.02 40.88
================
See accompanying notes to consolidated financial statements.
2
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
For the quarter ended Additional Net Unrealized Total
March 31, 1997 Preferred Common Paid-In Retained Gain (Loss) Stockholders'
(in millions) Stock Stock Capital Earnings on Securities Equity
- ----------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 $ - $40.6 $111.0 $465.8 $0.6 $618.0
Net income - - - 22.0 - 22.0
Cash dividends on
common stock ($0.22
per share) - - - (3.8) - (3.8)
Change in net
unrealized gain (loss)
on securities available
for sale, net of tax - - - - (5.1) (5.1)
Amortization of net
unrealized loss on
securities transferred
in 1994 from available
for sale to held to
maturity, net of tax - - - - 0.3 0.3
Other - 0.1 2.8 (0.2) - 2.7
- ----------------------------------------------------------------------------------------------------------------------
Balance at
March 31, 1997 $ - $40.7 $113.8 $483.8 ($4.2) $634.1
=========================================================================================
- ----------------------------------------------------------------------------------------------------------------------
For the quarter ended Additional Net Unrealized Total
March 31, 1996 Preferred Common Paid-In Retained Gain (Loss) Stockholders'
(in millions) Stock Stock Capital Earnings on Securities Equity
- ----------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 $16.2 $38.6 $94.7 $399.3 $1.3 $550.1
Net income - - - 20.8 - 20.8
Conversions of
preferred stock (4.2) 0.5 3.7 - - -
Cash dividends on
preferred stock
($1.06 per share) - - - (0.3) - (0.3)
Cash dividends
on common stock
($0.12 per share) - - - (2.7) - (2.7)
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax - - - - (4.2) (4.2)
Amortization of net
unrealized loss on
securities transferred
in 1994 from available
for sale to held to
maturity, net of tax - - - - 0.3 0.3
Other - 0.1 1.0 - - 1.1
- ----------------------------------------------------------------------------------------------------------------------
Balance at
March 31, 1996 $12.0 $39.2 $99.4 $417.1 ($2.6) $565.1
=========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
- ----------------------------------------------------------------
Quarters Ended
------------------
March March
31, 31,
(in millions) 1997 1996
- ----------------------------------------------------------------
Cash Flows from Operating Activities:
Interest and dividends received $125.1 $116.7
Interest paid (63.6) (59.6)
Income taxes paid (received) (4.0) 10.2
Purchases of trading account securities (50.3) (6.5)
Proceeds from sales of trading account
securities 51.7 -
Other operating cash flows, net (18.1) (11.7)
- ----------------------------------------------------------------
Net cash provided by operating activities 40.8 49.1
- ----------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sales of available for
sale securities
Debt securities 69.6 215.9
Equity securities 232.6 101.6
Purchases of available for sale securities (366.4) (462.1)
Purchases of held to maturity securities (13.5) (4.0)
Proceeds from principal repayments of
available for sale securities 28.5 27.2
Proceeds from principal repayments of
held to maturity securities 25.5 29.7
Loan originations, net of principal
collections (419.5) (301.2)
Proceeds from sales of securitized credit
card receivables 500.0 -
Proceeds from other sales of loans 87.6 191.5
Other investing cash flows, net (53.8) (10.6)
- ----------------------------------------------------------------
Net cash provided by (used in) investing
activities 90.6 (212.0)
- ----------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposits 170.3 74.6
Proceeds from Federal Home Loan Bank
advances 472.0 353.5
Payments on Federal Home Loan Bank advances (598.0) (242.8)
Net decrease in other borrowings (180.1) (146.2)
Cash dividends paid on common and
preferred stock (3.8) (3.0)
Other financing cash flows, net 11.5 26.6
- ----------------------------------------------------------------
Net cash (used in) provided by
financing activities (128.1) 62.7
- ----------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3.3 (100.2)
Cash and cash equivalents at beginning of
period 330.1 394.0
- ----------------------------------------------------------------
Cash and cash equivalents at end of period $333.4 $293.8
================
Supplemental Disclosure of Non-Cash
Investing Activities:
Real estate properties acquired by foreclosure $2.6 $3.5
================
See accompanying notes to consolidated financial statements.
4
<PAGE>
People's Bank and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited
consolidated financial statements of People's Bank and its
consolidated subsidiaries ("People's") have been prepared to
reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and results of
operations as of the dates and for the periods shown. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses.
Material estimates that are particularly susceptible to
significant near-term change include the allowance for loan
losses and the valuation allowance for deferred tax assets.
Certain information and footnote disclosures normally
included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have
been omitted or condensed. These statements should be read in
conjunction with People's 1996 Annual Report to Stockholders. The
results of operations for the quarter ended March 31, 1997 are
not necessarily indicative of the results of operations which may
be expected for the entire year.
Certain reclassifications have been made to prior period
amounts to conform to the current period presentation.
In April 1997, People's declared a three-for-two stock split
and increased the number of its authorized common shares to 100
million. On a pro forma basis, giving retroactive effect to the
stock split, People's net income and dividends per common share
would be as follows:
- --------------------------------------------------------
Quarters Ended
------------------------
Mar. 31, Mar. 31,
1997 1996
- ---------------------------------------------------------
Net income per common share:
Primary $0.36 $0.35
Fully diluted 0.36 0.34
Average common shares:
Primary 61.53 59.27
Fully diluted 61.53 61.32
Common stock dividends paid $0.15 $0.12
- ---------------------------------------------------------
5
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NOTE 2. SECURITIES
- -------------------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
--------------------------- --------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in millions) Value Value Value Value
- -------------------------------------------------------------------------------------------
Trading account
securities $1.1 $1.1 $2.8 $2.8
- -------------------------------------------------------------------------------------------
Securities held
to maturity:
Collateralized
mortgage obligations 362.2 353.5 385.2 379.4
State and municipal 70.8 71.0 62.9 63.5
Corporate and other 21.6 21.0 24.0 23.6
- -------------------------------------------------------------------------------------------
Total securities
held to maturity 454.6 445.5 472.1 466.5
- -------------------------------------------------------------------------------------------
Securities available
for sale:
Debt securities:
United States
Treasury and agency 351.9 343.6 359.4 354.9
Collateralized mortgage
obligations 166.8 162.9 126.8 125.2
State and municipal 14.4 14.4 14.2 14.2
Corporate and other 229.6 226.1 249.1 248.2
- -------------------------------------------------------------------------------------------
Total debt
securities 762.7 747.0 749.5 742.5
- -------------------------------------------------------------------------------------------
Equity securities:
Money market
preferred stocks 221.2 221.2 231.4 231.4
Common stocks 171.6 188.3 160.4 180.5
Federal Home Loan
Bank stock 41.8 41.8 41.9 41.9
Other 50.3 50.1 31.2 31.3
- -------------------------------------------------------------------------------------------
Total equity
securities 484.9 501.4 464.9 485.1
- -------------------------------------------------------------------------------------------
Total securities
available for sale 1,247.6 1,248.4 1,214.4 1,227.6
Net unrealized gain
on securities available
for sale 0.8 - 13.2 -
- -------------------------------------------------------------------------------------------
Total securities
available for sale 1,248.4 1,248.4 1,227.6 1,227.6
- -------------------------------------------------------------------------------------------
Total securities $1,704.1 $1,695.0 $1,702.5 $1,696.9
=============================================================
</TABLE>
At March 31, 1997, the net unrealized gain on the available for
sale portfolio (excluding related hedging activities) totaled
$0.8 million ($0.5 million after taxes), compared with $13.2
million ($7.6 million after taxes) at December 31, 1996. Deferred
losses on futures contracts utilized to hedge a portion of the
available for sale portfolio, which are reflected in
stockholders' equity, amounted to $1.8 million ($1.0 million
after taxes) at March 31, 1997 and $5.0 million ($2.9 million
after taxes) at December 31, 1996.
People's collateralized mortgage obligations ("CMOs") had
net carrying values of $525.1 million and $510.4 million at March
31, 1997 and December 31, 1996, respectively. These amounts
consisted of (i) securities issued or collateralized by United
States government-sponsored entities, such as Freddie Mac and
Fannie Mae, totaling $431.3 million and $428.6 million at March
31, 1997 and December 31, 1996, respectively, and (ii)
privately-issued securities of $93.8 million and $81.8 million,
respectively.
6
<PAGE>
People's Bank and Subsidiaries
NOTE 3. LOANS
- -----------------------------------------------------------------
March 31, Dec. 31,
(in millions) 1997 1996
- -----------------------------------------------------------------
Residential mortgage:
Adjustable rate $1,985.7 $1,964.2
Fixed rate 278.6 278.3
- -----------------------------------------------------------------
Total residential mortgage 2,264.3 2,242.5
- -----------------------------------------------------------------
Commercial mortgage:
Office buildings 217.4 220.3
Retail stores and shopping centers 157.2 150.9
Industrial and warehouses 118.4 116.3
Apartment buildings 110.6 110.6
Other 221.7 221.0
- -----------------------------------------------------------------
Total commercial mortgage 825.3 819.1
- -----------------------------------------------------------------
Commercial:
Service businesses 200.7 200.1
Manufacturing 143.3 140.9
Finance, insurance and real estate 81.2 82.5
Wholesale distribution 65.3 63.6
Retail sales 35.2 33.2
Other 70.7 70.9
- -----------------------------------------------------------------
Total commercial 596.4 591.2
- -----------------------------------------------------------------
Credit card 1,174.3 1,386.6
Other consumer 238.8 237.6
- -----------------------------------------------------------------
Total loans $5,099.1 $5,277.0
----------------------
NOTE 4. NEW ACCOUNTING STANDARDS
People's prospectively adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities", on January 1, 1997. Transactions within the scope
of SFAS No. 125 include transfers of partial interests, servicing
of financial assets, securitizations, transfers of sales-type and
direct financing lease receivables, securities lending
transactions, repurchase agreements, loan participations,
transfers of receivables with recourse and extinguishments of
liabilities. SFAS No. 125 establishes an accounting framework for
these transactions based on consistent application of a financial
components approach that focuses on control. If the transferor
has surrendered control over the transferred assets, the
transaction is accounted for as a sale. Under SFAS No. 125,
control is considered to have been surrendered only if (i) the
assets are isolated from the transferor, (ii) the transferee has
the right to pledge or exchange the assets or is a qualifying
special-purpose entity, and (iii) the transferor does not
maintain effective control over the assets through an agreement
to repurchase or redeem the assets prior to maturity or to
repurchase or redeem transferred assets that are not readily
obtainable. A transfer not meeting the criteria for a sale must
be accounted for as a secured borrowing with the pledge of
collateral.
Consistent with industry practice prior to SFAS No. 125,
People's recognized excess spread revenue on sold credit card
receivables over the term of the securitization. In certain
circumstances, however, SFAS No. 125 requires capitalization of
future excess spread revenue, which resulted in earlier
recognition by People's of certain components of credit card
securitization income in the first quarter of 1997. People's
adoption of SFAS No. 125 in the first quarter of 1997 resulted in
increases of $3.0 million in credit card securitization income
(capitalized future excess spread revenue, less amortization
thereof) and $1.8 million in net income. The adoption of SFAS No.
125 had no material effect on People's other activities within
the scope of the standard.
7
<PAGE>
People's Bank and Subsidiaries
The components of credit card securitization income are as
follows:
- -------------------------------------------------------------------
Quarters Ended
----------------------
Mar. 31, Mar. 31,
(in millions) 1997 1996
- --------------------------------------------------------------------
Interest on credit cards $42.7 $36.9
Credit card fees and other 11.2 11.6
Capitalized future excess spread revenue 3.4 -
Interest on asset-backed Investor Certificates (20.2) (17.5)
Net credit card charge-offs (18.1) (14.5)
Servicing fee paid (6.6) (5.8)
Amortization of capitalized excess spread
revenue (0.4) -
- --------------------------------------------------------------------
Excess spread revenue 12.0 10.7
Servicing fee revenue 6.6 5.8
- --------------------------------------------------------------------
Credit card securitization income $18.6 $16.5
====================
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" which requires presentation of
both basic earnings per share ("EPS") and diluted EPS by all
entities with complex capital structures. Basic EPS, which
replaces primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (such as
stock options) were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. As required, People's will adopt SFAS No.
128 in the quarter ending December 31, 1997 and will restate all
prior period EPS data to conform to the new accounting standard,
at that time.
NOTE 5. COMMITMENTS AND CONTINGENCIES
In the normal course of business, People's has various
outstanding commitments and contingent liabilities that have not
been reflected in the consolidated financial statements. In
addition, in the normal course of business, there are various
outstanding legal proceedings. Management has discussed the
nature of these legal proceedings with legal counsel. In the
opinion of management, People's financial position will not be
affected materially as a result of the outcome of such
commitments, contingent liabilities and legal proceedings.
8
<PAGE>
People's Bank and Subsidiaries
Item 2 - Management's Discussion and Analysis
Selected Consolidated Financial Data
- ---------------------------------------------------------------
Quarters Ended
----------------------------
Mar. Dec. Mar.
(dollars in millions, 31, 31, 31,
except per share data) 1997 1996 1996
- ---------------------------------------------------------------
Operating Data:
Net income $22.0 $20.6 $20.8
Net interest income 65.7 62.4 57.9
Provision for loan losses 10.8 12.6 8.7
Operating income 114.0 106.8 95.5
Fee-based revenues 42.5 40.6 35.4
Non-interest expense 71.6 66.7 60.9
- ---------------------------------------------------------------
Selected Statistical Data:
Net interest margin - managed
portfolio (1), (2) 4.24% 4.25% 4.17%
Net interest margin - owned
portfolio (1) 3.78 3.85 3.71
Interest rate spread - managed
portfolio (1), (2) 3.68 3.69 3.64
Interest rate spread - owned
portfolio (1) 3.15 3.23 3.13
Return on average assets (1) 1.14 1.13 1.21
Return on average stockholders'
equity (1) 14.0 13.6 14.9
Average stockholders' equity to
average assets 8.14 8.35 8.15
Net loan charge-offs to average
loans (1) 0.95 1.01 0.78
Non-interest expense to average
assets (1) 3.71 3.67 3.55
Efficiency ratio - managed portfolio 53.7 53.9 54.5
Efficiency ratio - owned portfolio 62.3 61.4 62.8
Net loan charge-offs $12.7 $12.6 $8.7
- ---------------------------------------------------------------
Per Share Data (3):
Net income per common share:
Primary $0.54 $0.50 $0.52
Fully diluted 0.54 0.50 0.51
Common stock dividends paid 0.22 0.22 0.18
Common book value 15.59 15.24 14.12
Common stock price:
High 36 1/2 30 1/8 22 1/4
Low 28 3/8 23 7/8 18 1/2
Close 32 1/2 28 7/8 21 1/2
Total dividend payout ratio (4) 17.3% 18.4% 14.5%
- ---------------------------------------------------------------
Financial Condition Data:
Total assets - managed portfolio (2) $9,321 $8,979 $8,066
Total assets - owned portfolio 7,538 7,645 6,916
Loans, net - managed portfolio (2) 6,796 6,523 5,623
Loans, net - owned portfolio 5,013 5,189 4,473
Securities, net 1,704 1,703 1,758
Deposits 5,415 5,245 4,911
Borrowings 1,389 1,695 1,357
Stockholders' equity 634 618 565
Non-performing assets 68 101 115
Non-performing assets to total assets 0.91% 1.32% 1.66%
Stockholders' equity to total assets 8.4 8.1 8.2
Tier 1 leverage capital ratio 8.2 7.9 7.7
Tier 1 risk-based capital ratio 10.6 10.0 10.7
Total risk-based capital ratio 14.3 13.9 12.0
- ---------------------------------------------------------------
(1) Annualized.
(2) Managed portfolio represents the owned portfolio plus
off-balance-sheet securitized credit card receivables.
(3) Represents historical data. See Exhibit II for certain pro
forma per share data reflecting the three-for-two stock
split declared in April 1997.
(4) All periods reflect the waiver of dividends on substantially
all of the common shares owned by People's Mutual Holdings.
The first quarter of 1996 includes cash dividends paid on
noncumulative convertible preferred stock retired in
September 1996.
9
<PAGE>
People's Bank and Subsidiaries
Executive Summary
Key Performance Indicators for First Quarter 1997 Compared With
First Quarter 1996
Results of Operations
- 6% growth in net income.
- Increase of $3.0 million in pre-tax income ($1.8 million
after-tax) due to a change in the method of accounting for
credit card securitizations upon adoption of SFAS No. 125.
- Managed net interest margin improved seven basis points to
4.24% from 4.17% a year ago, despite the short-term impact
associated with introductory interest rates on new credit
card accounts.
- All components of fee-based revenues increased, contributing
to 20% year-over-year growth.
- Managed efficiency ratio improved to 53.7% from 54.5% a year ago.
- $10.7 million, or 18%, increase in non-interest expense
driven by expansion of our growing U.S. credit card
business ($4.8 million), and by investments in new
initiatives such as supermarket banking ($2.3 million) and
United Kingdom credit card operations ($1.5 million).
Financial Condition
- Managed assets grew $1.3 billion, or 15.6%; on-balance-sheet
(owned) assets grew $622 million, or 9%.
- $922 million, or 45%, growth in the managed credit card
portfolio.
- Ranked as the 26th largest VISA and MasterCard credit card
issuer in the U.S.
- U.K. credit card receivables reached $69 million after 11 months
of operation.
- Non-performing assets declined $47 million, or 40%, primarily
due to the resolution of a $20 million commercial mortgage loan.
- Over half (26) of the planned 45 Stop & Shop superstore
branches throughout Connecticut are open and handling $262
million in deposits.
- 13% increase in non-interest-bearing deposits; 20% increase
in time deposits.
- Stockholders' equity grew by 12%.
10
<PAGE>
People's Bank and Subsidiaries
Net Interest Income
Throughout this discussion, reference is made to People's net
interest income, interest rate spread and net interest margin in
terms of the "owned portfolio" and the "managed portfolio". The
owned portfolio encompasses on-balance-sheet earning assets and
interest-bearing liabilities. These amounts are combined with
off-balance-sheet securitized credit card receivables and the
related securities issued to determine "managed portfolio"
performance.
Net interest income and margin are affected by many factors,
including average balances; securitizations and sales of credit
card receivables; sales of other loans and securities; interest
rate fluctuations; product pricing; the relative mix and maturity
of earning assets and interest-bearing liabilities;
non-interest-bearing sources of funds; and asset quality.
The increases in fully taxable equivalent ("FTE") basis net
interest income for the managed portfolio in the first quarter of
1997, compared to the first and fourth quarters of 1996 primarily
reflect increases of $871.2 million and $274.2 million,
respectively, in average managed credit card receivables. Also
contributing are increases of $194.4 million and $41.2 million,
respectively, in average non-interest-bearing sources of funds
(stockholders' equity and non-interest-bearing deposits). For the
owned portfolio, the increases in FTE basis net interest income
in the first quarter of 1997, compared to the first and fourth
quarters of 1996 reflect increases of $708.5 million and $320.0
million, respectively, in average credit card receivables.
Changes in Net Interest Income - FTE Basis
- ----------------------------------------------------------------------------
First First
Quarter Quarter
1997 1997
Compared Compared
to Fourth to First
Quarter Quarter
(in millions) 1996 1996
- ----------------------------------------------------------------------------
On-Balance-Sheet Owned Portfolio
Increase in the volume of average short-term
investments $0.4 $0.3
Increase (decrease) in the volume of average
securities 0.6 (1.2)
Increase in the volume of average:
Residential mortgage loans 0.7 1.7
Commercial mortgage loans 0.4 1.6
Commercial loans 0.1 1.3
Credit cards 6.7 14.8
Increase (decrease) in the volume of average
other consumer loans 0.2 (0.4)
Increase in the volume of average interest-
bearing deposits (1.7) (4.5)
Increase in the volume of average borrowings (4.0) (4.9)
Decrease in rates earned on average earning
assets (1.6) (1.4)
Increase in rates paid on average interest-
bearing liabilities 1.4 1.7
- -------------------------------------------------------------------------
Change in net interest income $3.2 $9.0
=================
Off-Balance-Sheet Securitizations
Increase in securitized credit card
receivables $0.2 $5.8
(Increase) decrease in related securities issued 0.8 (2.7)
- -------------------------------------------------------------------------
Change in net interest income $1.0 $3.1
=================
Total Managed Portfolio
Increase in earning assets $7.6 $22.4
Increase in interest-bearing liabilities (3.4) (10.3)
- -------------------------------------------------------------------------
Change in net interest income $4.2 $12.1
=================
11
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Balance, Interest and Yield/Rate Analysis
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, 1997 December 31, 1996 March 31, 1996
----------------------------- ---------------------------- ------------------------------
Quarters Ended Average Yield/ Average Yield/ Average Yield/
(dollars in millions) (1) Balance Interest Rate Balance Interest Rate Balance Interest Rate
On-Balance-Sheet
Earning assets: (2)
Short-term investments $124.4 $1.7 5.56% $97.2 $1.4 5.74% $99.5 $1.4 5.62%
Securities 1,674.7 23.5 5.62 1,633.3 22.6 5.53 1,762.5 24.5 5.56
Loans:
Residential
mortgage 2,255.9 42.5 7.54 2,216.2 41.9 7.55 2,164.2 40.2 7.44
Commercial
mortgage 822.9 18.1 8.84 802.5 17.5 8.71 749.6 16.4 8.78
Commercial 585.3 13.5 9.20 580.4 13.4 9.27 530.2 12.4 9.34
Credit card 1,471.3 30.5 8.28 1,151.3 25.8 8.96 762.8 17.5 9.17
Other consumer 239.3 5.0 8.41 230.8 4.8 8.36 257.7 5.8 8.88
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 5,374.7 109.6 8.16 4,981.2 103.4 8.30 4,464.5 92.3 8.27
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning
assets 7,173.8 $134.8 7.52% 6,711.7 $127.4 7.59% 6,326.5 $118.2 7.47%
=================== ================== ==================
Other assets 536.3 564.5 525.3
- -------------------------------------- -------- --------
Total assets $7,710.1 $7,276.2 $6,851.8
======== ======== ========
Interest-bearing
liabilities:
Deposits:
Savings, NOW and
money market $2,133.1 $12.8 2.40% $2,139.1 $13.4 2.49% $2,140.6 $14.2 2.67%
Time 2,295.8 29.1 5.08 2,160.8 28.0 5.18 1,938.1 25.1 5.17
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 4,428.9 41.9 3.79 4,299.9 41.4 3.85 4,078.7 39.3 3.85
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan
Bank advances 765.6 10.7 5.60 742.5 10.7 5.74 534.9 8.1 6.05
Repurchase agreements 450.2 7.0 6.23 391.1 6.1 6.23 608.7 8.7 5.74
Federal funds purchased 346.3 4.7 5.43 267.2 3.5 5.41 253.7 3.3 5.21
Subordinated notes 148.0 2.7 7.43 58.1 1.1 7.34
- ----------------------------------------------------------------------------------------------------------------------------------
Total borrowings 1,710.1 25.1 5.89 1,458.9 21.4 5.87 1,397.3 20.1 5.76
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 6,139.0 $67.0 4.37% 5,758.8 $62.8 4.36% 5,476.0 $59.4 4.34%
=================== ================= ==================
Non-interest-bearing
deposits 844.2 822.5 718.5
Other liabilities 99.7 87.2 98.8
- -------------------------------------- -------- --------
Total liabilities 7,082.9 6,668.5 6,293.3
Stockholders' equity 627.2 607.7 558.5
- -------------------------------------- -------- --------
Total liabilities
and stockholders'
equity $7,710.1 $7,276.2 $6,851.8
======== ======== ========
Excess of earning
assets over interest-
bearing liabilities $1,034.8 $952.9 $850.5
======== ======== ========
Net interest income $67.8 $64.6 $58.8
======== ======== ========
Interest rate spread 3.15% 3.23% 3.13%
Net interest margin 3.78% 3.85% 3.71%
Off-Balance-Sheet
Securitized credit
card receivables $1,336.5 $42.7 12.77% $1,382.3 $42.5 12.30% $1,173.8 $36.9 12.57%
Related securities
issued 1,336.5 20.2 6.03 1,382.3 21.0 6.09 1,173.8 17.5 5.97
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income (3) $22.5 $21.5 $19.4
======== ======== ========
Managed Net Interest
Margin Analysis
Earning assets $8,510.3 $177.5 8.35% $8,094.0 $169.9 8.39% $7,500.3 $155.1 8.27%
Interest-bearing
liabilities 7,475.5 87.2 4.67 7,141.1 83.8 4.70 6,649.8 76.9 4.63
- ----------------------------------------------------------------------------------------------------------------------------------
Excess of earning
assets over interest-
bearing liabilities $1,034.8 $952.9 $850.5
======== ======== ========
Net interest income $90.3 $86.1 $78.2
======== ======== ========
Interest rate spread 3.68% 3.69% 3.64%
Net interest margin 4.24% 4.25% 4.17%
(1) Average yields earned and rates paid are annualized.
(2) The FTE adjustment was $2.1 million, $2.2 million and $0.9
million for the respective periods.
(3) Net interest income associated with the off-balance-sheet
portfolio is included in "credit card securitization income"
in the consolidated statements of income.
</TABLE>
12
<PAGE>
People's Bank and Subsidiaries
Non-Interest Income
- ----------------------------------------------------------------------
Quarters Ended
---------------------------
March Dec. March
31, 31, 31,
(in millions) 1997 1996 1996
- ----------------------------------------------------------------------
Fee-based revenues:
Credit card securitization income $18.6 $17.6 $16.5
Credit card fees 9.4 8.9 6.3
- ----------------------------------------------------------------------
Total credit card fee-based revenues 28.0 26.5 22.8
Service charges on demand and NOW accounts 7.4 7.5 6.3
Residential mortgage loan servicing fees 1.5 1.6 1.5
Net brokerage commissions 2.4 1.9 1.8
Other fee-based revenues:
Other banking service charges and fees 1.4 1.4 1.3
Other loan fees 0.9 0.9 1.0
Trust fees 0.9 0.8 0.7
- ----------------------------------------------------------------------
Total other fee-based revenues 3.2 3.1 3.0
- ----------------------------------------------------------------------
Total fee-based revenues 42.5 40.6 35.4
- ----------------------------------------------------------------------
Net security gains (losses):
Trading account securities (0.6) (0.3) (0.1)
Debt securities available for sale 0.6 0.4 0.7
Equity securities available for sale 5.5 4.9 2.5
- ----------------------------------------------------------------------
Total net security gains 5.5 5.0 3.1
- ----------------------------------------------------------------------
Net gains on sales of residential mortgage
loans available for sale 2.4 l0.9 l1.0
Net gain on sale of other consumer loans - - 6.0
Loss on real estate investments (0.2) (0.4) (0.6)
Other income 1.3 0.7 0.3
- ----------------------------------------------------------------------
Total non-interest income $51.5 $46.8 $45.2
=======================
The increases in fee-based revenues for the first quarter of
1997, compared to the fourth and first quarters of 1996 are
generated primarily by People's growing credit card portfolio and
deposit accounts, and higher net brokerage commissions. The
increase in credit card securitization income also reflects
People's prospective adoption of, effective January 1, 1997, of
SFAS No. 125 as discussed in Note 4 to the consolidated financial
statements on page 7. The adoption of this new accounting
standard increased credit card securitization income by $3.0
million and net income by $1.8 million for the first quarter of
1997.
In February 1996, People's sold approximately $119 million
in home equity credit line balances on a non-recourse basis and
retained the related servicing rights. This transaction resulted
in a net gain of $6.0 million.
13
<PAGE>
People's Bank and Subsidiaries
Non-Interest Expense
- ----------------------------------------------------------------------
Quarters Ended
---------------------------
March Dec. March
31, 31, 31,
(in millions) 1997 1996 1996
- ----------------------------------------------------------------------
Compensation and benefits $34.1 $31.8 $30.0
Occupancy and equipment 11.7 11.6 9.8
Professional and outside service fees 7.5 7.9 6.1
Advertising and promotion 8.8 7.2 4.9
Loss on REO 0.6 1.2 0.9
Other non-interest expense:
Printing, postage, stationery and supplies 3.3 2.1 2.8
Telephone 1.3 1.4 1.1
Other expense 4.3 3.5 5.3
- ----------------------------------------------------------------------
Total other non-interest expense 8.9 7.0 9.2
- ----------------------------------------------------------------------
Total non-interest expense $71.6 $66.7 $60.9
=======================
Average number of full-time equivalent
employees 2,813 2,802 2,540
Efficiency ratio - managed portfolio,
annualized 53.7% 53.9% 54.5%
Efficiency ratio - owned portfolio,
annualized 62.3% 61.4% 62.8%
=======================
The increases in non-interest expense in the first quarter of
1997, compared to the fourth and first quarters of 1996, reflect
expansion of People's credit card business and the Super Stop &
Shop initiative. These increases also reflect increased
advertising to take advantage of continued consolidation in the
Connecticut banking market and increased incentive-based
compensation tied to People's stock performance and operating
results. The improvements in the managed efficiency ratio reflect
strong revenue growth, which is funding investments in new and
expanded business initiatives.
FINANCIAL CONDITION
General
Total managed assets increased $342.9 million to $9.32 billion at
March 31, 1997 from $8.98 billion at December 31, 1996 primarily
due to an increase of $237.7 million in managed credit card
receivables. Total assets decreased by $107.1 million to $7.54
billion at March 31, 1997 from $7.64 billion at December 31,
1996. This decrease is primarily due to a decrease of $177.9
million in total loans, including a decrease of $212.3 million in
owned credit card receivables. The decrease owned in credit card
receivables reflects the securitization and sale of $500 million
in credit card receivables in March 1997, partially offset by net
new originations.
People's liabilities decreased $123.2 million to $6.90
billion at March 31, 1997 from $7.03 billion at December 31,
1996, primarily due to a decrease of $306.1 million in
borrowings, partially offset by an increase of $170.3 million in
deposits. The decrease in borrowings reflects decreases of $126.0
million in Federal Home Loan Bank ("FHLB") of Boston advances,
$147.3 million in repurchase agreements and $32.9 million in
federal funds purchased. The decrease in borrowings reflects the
use of proceeds from the above-mentioned credit card
securitization and sale to repay short-term funding sources. The
increase in deposits primarily reflects an increase of $175.0
million in time deposits.
14
<PAGE>
People's Bank and Subsidiaries
At March 31, 1997, People's stockholders' equity totaled $634.1
million, a $16.1 million increase compared to $618.0 million at
December 31, 1996. This increase primarily reflects net income of
$22.0 million for the first quarter of 1997, less $3.8 million of
dividends paid on common stock. As a percentage of total assets,
stockholders' equity was 8.4% at March 31, 1997, compared to 8.1%
at December 31, 1996 and 8.2% at March 31, 1996.
Risk Management
People's off-balance-sheet derivative financial instruments are
used for risk management and not for trading purposes. Master
netting agreements for swaps, corridors and foreign exchange
forward contracts are arranged and collateral is obtained through
physical delivery of securities or cash to reduce People's
exposure to credit losses in the event of non-performance by the
counterparties to these transactions. People's also controls its
counterparty risk by entering into agreements only with
highly-rated counterparties which are specifically approved by
People's up to a maximum credit exposure. People's net credit
exposure on swaps, corridors and foreign exchange forward
contracts, representing the net positive fair values including
the effect of bi-lateral netting agreements, amounted to $7.3
million and $0.9 million at March 31, 1997 and December 31, 1996,
respectively.
At March 31, 1997, the notional amounts of interest rate
swaps and corridors totaled $732.5 million and $425.0 million,
respectively. The net effect of interest rate swaps and corridors
during the first quarter of 1997, the fourth quarter of 1996 and
the first quarter of 1996 was to decrease net interest income by
$0.8 million, $1.0 million and $1.3 million, respectively. These
amounts reduced the net interest margin by four basis points,
five basis points and eight basis points, respectively.
People's enters into eurodollar futures contracts to reduce
the impact that higher interest rates would have on the estimated
fair value of a portion of the available for sale debt securities
portfolio. At March 31, 1997, People's outstanding eurodollar
futures contracts had a total notional amount of $2.3 billion.
Changes in the estimated fair value of the hedged portion of the
securities portfolio have been (and are expected to be)
substantially offset by gains or losses on the futures contracts.
Deferred futures losses of $1.8 million ($1.0 million after
taxes) are reflected in stockholders' equity at March 31, 1997.
Foreign exchange forward contracts are commitments to buy or
sell foreign currency on a future date at a contractual price.
People's uses these contracts to reduce its exposure to foreign
currency exchange rate risk on credit card receivables
denominated in pounds sterling. At March 31, 1997, People's had
contracts outstanding to sell pounds sterling, with a total U.S.
dollar notional amount of $68.6 million, which mature within one
year. Gross unrealized losses on these contracts were $250
thousand at March 31, 1997 and realized losses on closed
contracts were $429 thousand for the first quarter of 1997. These
amounts substantially offset the net translation gain on assets
and liabilities denominated in pounds sterling for the first
quarter of 1997.
15
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Impact of Credit Card Securitizations (pro forma)
- ------------------------------------------------------------------------------------------
March 31, 1997 March 31, 1996
----------------------------- ------------------------------
Excluding Excluding
As of and for Impact of Impact of Impact of Impact of
the quarters ended Securi- Securi- As Securi- Securi- As
(dollars in millions) tization tization Reported tization tization Reported
- ------------------------------------------------------------------------------------------
Interest and dividend income $175.4 ($42.7) $132.7 $154.2 ($36.9) $117.3
Interest expense (87.2) 20.2 (67.0) (76.9) 17.5 (59.4)
- ------------------------------------------------------------------------------------------
Net interest income 88.2 (22.5) 65.7 77.3 (19.4) 57.9
Provision for loan losses (28.9) 18.1 (10.8) (23.2) 14.5 (8.7)
Credit card securitization
income (1) - 18.6 18.6 - 16.5 16.5
Credit card fees 20.1 (10.7) 9.4 17.5 (11.2) 6.3
Other non-interest income 24.0 (0.5) 23.5 22.8 (0.4) 22.4
Non-interest expense (71.6) - (71.6) (60.9) - (60.9)
Income tax expense (11.6) (1.2) (12.8) (12.7) - (12.7)
- ------------------------------------------------------------------------------------------
Net income (1) $20.2 $1.8 $22.0 $20.8 $ - $20.8
==============================================================
Tier 1 leverage capital
ratio 7.0% 1.2% 8.2% 7.1% 0.6% 7.7%
Risk-based capital ratios:
Tier 1 8.2% 2.4% 10.6% 9.5% 1.2% 10.7%
Total 11.2% 3.1% 14.3% 10.7% 1.3% 12.0%
Credit card securitization
income as a percentage
of average securitized
and sold portfolio - - (25.56%) - - 5.62%
Net interest margin (2) 4.24% (0.46%) 3.78% 4.17% (0.46%) 3.71%
Efficiency ratio 53.7% 8.6% 62.3% 54.5% 8.3% 62.8%
Total loans, net $6,796.7 ($1,783.3) $5,013.4 $5,622.7 ($1,150.0) $4,472.7
Total assets 9,321.4 (1,783.3) 7,538.1 8,066.3 (1,150.0) 6,916.3
Total average earning
assets 8,510.3 (1,336.5) 7,173.8 7,500.3 (1,173.8) 6,326.5
- ------------------------------------------------------------------------------------------
(1) The adoption of SFAS No. 125 in the first quarter of 1997
increased credit card securitization income by $3.0 million
and net income by $1.8 million. See Note 4 to the
consolidated financial statements.
(2) Annualized.
(3) Percentage for the first quarter of 1997 would have been
4.67% without the impact of SFAS No. 125.
</TABLE>
Since beginning its securitization program in 1993, People's has
securitized and sold credit card receivables totaling $2.1
billion in the capital market with $1.8 billion outstanding at
March 31, 1997. Securitization involves the transfer of a group
of credit card receivables from People's to the People's Bank
Credit Card Master Trust. These receivables arise from credit
card accounts whose ownership and servicing responsibilities are
retained by People's. In addition to transferring the existing
receivables, rights to new receivables and most fees generated by
these accounts are also transferred to the trust. The trust
issues two types of certificates representing undivided interests
in the trust. Investor Certificates are sold by the trust to
investors, generally through a public offering. People's, through
its wholly owned special purpose subsidiary, People's Structured
Finance Corp., retains the Transferor Certificate. See
"Liquidity" on page 19.
16
<PAGE>
People's Bank and Subsidiaries
For securitized and sold receivables, amounts that would have
been previously reported as net interest income, credit card fees
and provisions for loan losses (if such receivables had not been
sold but remained on-balance-sheet) are instead combined and
reported as credit card securitization income. People's credit
card securitization income may vary over the term of the
transactions depending upon the level of interest and fees
charged on credit card accounts, the interest rate environment
and the credit performance of the securitized receivables.
However, People's exposure to losses on the securitized
receivables is contractually limited to future excess spread
revenue and to collateral established for the benefit of
investors, which totaled $54.5 million at March 31, 1997.
Management intends to securitize and sell additional credit card
receivables in 1997, as conditions warrant. See "Non-Interest
Income" on page 13 and "Liquidity" on page 19.
Asset Quality
Non-Performing Assets
- --------------------------------------------------------------------
March Dec. March
31, 31, 31,
(in millions) 1997 1996 1996
- --------------------------------------------------------------------
Non-accrual loans:
Residential mortgage $31.0 $30.2 $35.2
Commercial mortgage 5.4 25.8 36.3
Commercial 10.8 11.2 15.4
Credit card (owned portfolio) 9.6 21.6 13.1
Other consumer 2.5 2.1 3.5
- --------------------------------------------------------------------
Total non-accrual loans 59.3 90.9 103.5
- --------------------------------------------------------------------
Restructured loans:
Commercial mortgage 2.1 2.5 2.9
Commercial 0.8 1.0 1.4
- --------------------------------------------------------------------
Total restructured loans 2.9 3.5 4.3
- --------------------------------------------------------------------
Total non-performing loans 62.2 94.4 107.8
REO, net 6.1 6.9 6.8
- --------------------------------------------------------------------
Total non-performing assets $68.3 $101.3 $114.6
---------------------------
- -----------------------------------------------------------------------
| Non-performing loans as a percentage of |
| tota1 loans 1.22% 1.79% 2.37% |
| Non-performing assets as a percentage |
| of total assets 0.91% 1.32% 1.66% |
| Non-performing assets as a percentage |
| of stockholders' equity |
| and allowance for loan losses 9.49% 14.35% 17.90% |
| Allowance for loan losses as a |
| percentage of non-performing loans 137.78% 92.86% 69.62% |
| Allowance for loan losses as a |
| percentage of loans 1.68% 1.66% 1.65% |
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
| Managed credit card non-performing loans $54.9 $51.7 $40.4 |
| Managed credit card non-performing loans |
| as a percentage of total managed |
| credit cards 1.86% 1.90% 1.98% |
- -----------------------------------------------------------------------
Non-performing assets decreased 33% to $68.3 million at March 31,
1997 from $101.3 million at December 31, 1996, and decreased 40%
from $114.6 million at March 31, 1996. These decreases reflect
the resolution of a $20 million commercial mortgage loan
(associated with a retail shopping center) during the current
quarter. This loan was originally placed on non-accrual status in
the first quarter of 1996. There was no charge-off associated
with this loan. The decrease in total non-performing assets at
March 31, 1997 compared to year end 1996 also reflects lower
non-accrual credit card loans (owned portfolio) due to the
securitization and sale of $500 million of credit card
receivables in March 1997.
17
<PAGE>
People's Bank and Subsidiaries
Net Loan Charge-Offs (Recoveries)
- ----------------------------------------------------------------
Quarters Ended
------------------------
Mar. Dec. Mar.
31, 31, 31,
(in millions) 1997 1996 1996
- ----------------------------------------------------------------
Residential mortgage $2.1 $1.4 $2.9
Commercial mortgage 1.1 0.8 0.9
Commercial (0.8) 0.5 (0.5)
Credit card (owned portfolio) 10.0 9.4 4.9
Other consumer 0.3 0.5 0.5
- ----------------------------------------------------------------
Total $12.7 $12.6 $8.7
=======================
The provision for loan losses is based on management's ongoing
evaluation of the adequacy of the allowance for loan losses,
which is based on factors such as People's historical loan loss
experience; a review of non-performing loans and related
collateral values; the possibility of loss in view of the
geographic and industry concentrations and other portfolio risk
characteristics; the present financial condition of borrowers;
and current economic conditions. It is implicit in lending
activities that credit losses will be experienced even in the
best economic conditions. While People's strives to minimize
credit losses, the amount of such losses will vary from period to
period depending on the above factors as affected by changing
economic conditions and the financial condition of borrowers.
Credit losses associated with credit card receivables
securitized and sold are not included in People's provision and
allowance for loan losses. Such credit losses are absorbed
directly under the contractual agreements of the People's Bank
Credit Card Master Trust, thereby reducing credit card
securitization income rather than increasing the provision for
loan losses.
Net charge-offs were substantially unchanged in the first
quarter of 1997 compared to the fourth quarter of 1996, and
increased $4.0 million compared to the first quarter of 1996. The
increase in the first quarter of 1997 compared to a year ago
primarily reflects an increase of $5.1 million in charge-offs on
People's on-balance-sheet credit card portfolio, which grew by
$288.8 million, or 33%, since March 31, 1996. People's
on-balance-sheet credit card portfolio averaged $1,471.3 million,
$1,151.3 million and $762.8 million for the first quarter of
1997, fourth quarter of 1996 and first quarter of 1996,
respectively.
On a managed basis (including securitized credit card
receivables), annualized net charge-offs as a percentage of
average credit card receivables equaled 4.01% for the first
quarter of 1997, 3.83% for the fourth quarter of 1996 and 4.00%
for the first quarter of 1996. New credit card receivables
generally exhibit rising delinquencies and losses after six
months, which generally peak within approximately 18 to 36
months. Management believes that People's frequent and early
contact with delinquent customers, as well as active portfolio
risk management, has a significant impact on limiting delinquency
trends and net credit losses.
18
<PAGE>
People's Bank and Subsidiaries
Managed Credit Card Portfolio Net Charge-Offs
- ------------------------------------------------------------------------------
Quarters Ended
---------------------------------------------------------
Mar. 31, 1997 Dec. 31, 1996 Mar. 31, 1996
------------------ ------------------- ------------------
Annualized Annualized Annualized
Percent of Percent of Percent of
(dollars in Average Average Average
millions) Amount Portfolio Amount Portfolio Amount Portfolio
- ------------------------------------------------------------------------------
Owned portfolio (1) $10.0 2.71% $9.4 3.25% $4.9 2.56%
Securitized and
sold portfo1io (2) 8.1 5.43 14.9 4.32 14.5 4.93
- ------------------------------------------------------------------------------
Managed portfolio $28.1 4.01% $24.3 3.83% $19.4 4.00%
=======================================================
(1) Net charge-offs reduce the allowance for loan losses.
(2) Net charge-offs reduce credit card securitization income.
Managed Credit Card Portfolio Delinquencies
- ---------------------------------------------------------------------
Mar. 31, 1997 Dec. 31, 1996 Mar. 31, 1996
--------------- ----------------- ----------------
Percent Percent Percent
of of of
(dollars in Port- Port- Port-
millions) Amount folio Amount folio Amount folio
- ---------------------------------------------------------------------
Number of days
delinquent:
31-60 days $30.1 1.0% $32.2 1.2% $25.2 1.2%
61-90 days 20.1 0.7 20.5 0.7 16.7 0.8
91 or more days 54.9 1.9 51.7 1.9 40.4 2.0
- ---------------------------------------------------------------------
Total $105.1 3.6% $104.4 3.9% $82.3 4.0%
==================================================
Liquidity
Asset liquidity is provided by cash; short-term investments;
proceeds on sales, maturities and principal repayments of
securities; proceeds from principal collections and sales of
loans; and proceeds from credit card securitizations and sales.
In addition, securities may be utilized to collateralize
borrowings under repurchase agreements. The Consolidated
Statements of Cash Flows, on page 4, present data on cash
provided by and used in People's operating, investing and
financing activities. At March 31, 1997, People's liquid assets
included $131.1 million in short-term investments, $747.0 million
in debt securities available for sale, and $459.6 million in
marketable equity securities available for sale. At March 31,
1997, People's had pledged debt securities with a total carrying
value of $346.3 million ($132.5 million available for sale and
$213.8 million held to maturity) as collateral to secure public
deposits, repurchase agreements and for other purposes as
required by law.
Liability liquidity is measured by People's ability to obtain
core deposits and purchased funds at cost effective rates, and in
diversified markets and maturities. Core deposits are the most
stable source of liquidity totaling $4.5 billion at March 31,
1997, compared to $4.6 billion at December 31, 1996 (representing
49% and 51% of total managed assets at the respective dates).
Purchased funds are routinely used to diversify People's funding
mix, to support asset growth and to compensate for reductions in
core deposits. People's purchased funds totaled $2.3 billion at
March 31, 1997 and December 31, 1996 (representing 24% and 26% of
total managed assets at the respective dates).
19
<PAGE>
People's Bank and Subsidiaries
People's securitizes and sells credit card receivables as an
additional method of diversifying its funding base. This is
accomplished primarily by the public issuance of asset-backed
certificates. As credit card receivables are securitized,
People's on-balance-sheet funding needs are reduced by the amount
of the loans securitized. Securitization provides funding for new
loans and the scheduled amortization of earlier securitizations,
as well as the opportunity to repay borrowings. Outstanding
securitized and sold credit card receivables totaled $1.8 billion
at March 31, 1997, compared to $1.3 billion at December 31, 1996
(representing 19% and 15% of total managed assets at the
respective dates). In the event that People's is unable to
continue securitizing and selling credit card receivables, its
capital ratios and flexibility of funding sources would be
adversely affected. See "Impact of Credit Card Securitizations"
on page 16.
People's credit card securitizations include a revolving
period and a repayment period. During the revolving period,
finance charge collections on securitized credit card receivables
are used to pay interest to the Investor Certificateholders and
principal collections are used to purchase new receivables.
During the repayment period, principal payments on the
securitized credit card receivables are paid to the Investor
Certificateholders, and People's funding requirements increase
accordingly, since new receivables are no longer purchased by the
Investor Certificateholders of that series, but are added to
People's on-balance-sheet credit card portfolio. People's plans
to fund the repayment of securitizations through normal business
operations and future credit card securitizations.
People's may borrow from the FHLB of Boston subject to certain
limitations. Based on the level of qualifying collateral at March
31, 1997, People's borrowing limit was approximately $1.8
billion, with remaining borrowing capacity of approximately $1.1
billion at that date. At March 31, 1997, People's had outstanding
commitments to originate loans totaling $253 million, and
approved but unused lines of credit extended to customers
totaling $7.7 billion (including $7.2 billion for the managed
credit card portfolio). At March 31, 1997, outstanding stand-by
letters of credit totaled $27.4 million and outstanding
commercial letters of credit totaled $3.3 million.
The sources of liquidity discussed above are deemed by
management to be sufficient to fund outstanding loan commitments
and to meet People's other obligations.
Capital
At March 31, 1997, People's Tier 1 leverage capital ratio was
8.2%, compared to the minimum ratio of 4.0% generally required by
FDIC regulations. People's is also subject to the FDIC's
risk-based capital regulations, which require minimum ratios of
Tier 1 capital and Total capital to risk-weighted assets of 4.0%
and 8.0%, respectively. People's satisfied these requirements at
March 31, 1997 with ratios of 10.6% and 14.3%, respectively.
People's regulatory capital ratios at March 31, 1997 exceed the
FDIC's numeric criteria for classification as a "well
capitalized" bank.
20
<PAGE>
People's Bank and Subsidiaries
Risk-Based Capital
- -----------------------------------------------------------------------------
As of March 31, 1997 People's FDIC Minimum Requirements
--------------------- ---------------------------
(dollars in millions) Amount Ratio (1) Amount Ratio (1)
- -----------------------------------------------------------------------------
Tier 1 capital $637.5(2) 10.6% $240.8 4.0%
Total capital 861.0(3) 14.3% 481.5 8.0%
- -----------------------------------------------------------------------------
(1) Based on People's risk-adjusted total assets, as defined, of
$6,019.2 million.
(2) Represents total stockholders' equity, excluding net
unrealized gains or losses on debt securities classified as
available for sale and net unrealized gains on equity
securities classified as available for sale, less certain
assets not recognized in Tier 1 capital.
(3) Represents Tier 1 capital plus the allowance for loan losses
up to 1.25% of risk-adjusted total assets.
At March 31, 1997, People's Mutual Holdings ("Holdings") owned
24.3 million shares, representing 59.7% of the outstanding common
stock of People's. Holdings is a mutual bank holding company
organized in connection with the 1988 stock offering and
reorganization of People's Bank.
In April 1997, People's declared a cash dividend of $0.25
per common share payable on May 15, 1997 to stockholders of
record on May 1, 1997. Holdings elected to waive receipt of
dividends on 96% of its shares, resulting in dividend payments to
People's common stockholders of $4.3 million on approximately
17.3 million shares.
Part II - Other Information
Item 6 - Exhibits
(a) Exhibit I Computation of Earnings Per Share
Exhibit II Pro Forma Effect of Stock Split
21
<PAGE>
People's Bank and Subsidiaries
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934,
People's has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
People's Bank
Date: May 13, 1997 By: /s/ David E.A. Carson
--------------------------
David E.A. Carson
President and
Chief Executive Officer
Date: May 13, 1997 By: /s/ George W. Morriss
--------------------------
George W. Morriss
Executive Vice President
and Chief Financial Officer
22
<PAGE>
People's Bank and Subsidiaries
Exhibit I
Computation of Earnings Per Share
Quarters Ended
-------------------
March 31,March 31,
(in millions, except per share data) 1997 1996
- ---------------------------------------------------------------
Primary Earnings Per Share:
Net income applicable to common stock:
Net income $22.0 $20.8
Dividends paid on preferred stock - (0.3)
- ---------------------------------------------------------------
Net income applicable to common stock $22.0 $20.5
=================
Weighted average number of shares:
Weighted average number of common
shares outstanding 40.62 39.03
Dilutive effect of outstanding stock
options 0.40 0.48
- ---------------------------------------------------------------
Total weighted average number of
shares 41.02 39.51
=================
Primary earnings per share $0.54 $0.52
=================
Fully Diluted Earnings Per Share:
Net income $22.0 $20.8
=================
Weighted average number of shares:
Weighted average number of common
shares outstanding 40.62 39.03
Dilutive effect of outstanding stock
options 0.40 0.49
Shares issuable from assumed exercise
of convertible preferred stock - 1.36
- ---------------------------------------------------------------
Total weighted average number of shares 41.02 40.88
=================
Fully diluted earnings per share $0.54 $0.51
=================
22
<PAGE>
People's Bank and Subsidiaries
Exhibit II
Pro Forma Effect of Stock Split
In April 1997, People's declared a three-for-two stock split
providing People's stockholders with an additional half share of
common stock for every share held as of May 1, 1997 (20.4 million
additional shares). The additional shares will be distributed to
stockholders on May 15, 1997. Following approval by People's
stockholders at the Annual Meeting on April 17, 1997, the number
of authorized shares of People's common stock was increased from
60,000,000 to 100,000,000.
The following is a pro forma summary of per share data on a
post-split basis as of March 31, 1997:
- -----------------------------------------------------------------------
Historical Pro forma
(in millions) Pre-Split Adjustments Post-Split
- -----------------------------------------------------------------------
Stockholders' equity
Common stock $40.7 $20.4(1) $61.1
Additional paid-in capital 113.8 (20.5)(2) 93.3
Retained earnings 483.8 - 483.8
Net unrealized loss on securities (4.2) - (4.2)
---------- ----------- ---------
Total stockholders' equity $634.1 ($0.1) $634.0
========== =========== =========
(in millions, except Historical Pro forma
per share data Pre-Split Adjustments Post-Split
- -----------------------------------------------------------------------
Implications for number of
shares and per share data
Authorized shares 60.0 40.0(3) 100.0
Shares issued and outstanding 40.7 20.4(4) 61.1
Shares held by People's Mutual
Holdings 24.3 12.2(4) 36.5
Publicly traded shares 16.4 8.2(4) 24.6
Closing stock price $32.50 ($10.83) $21.67 (5)
Fully diluted net income per
common share $0.54 ($0.18) $0.36 (5)
Common stock dividend declared $0.25 ($0.08) $0.167 (5)
Common book value $15.59 ($5.20) $10.39 (5)
- ---------------------------------------------------------------------------
(1) Reflects the transfer of $20.4 million, representing the
allocation of $1 to the common stock account for each
additional share to be issued in the split.
(2) Reflects the $20.4 million transfer plus estimated cash of
$127,000 to be paid in lieu of fractional shares.
(3) Represents the increase in the number of authorized common
shares.
(4) Represents 50% of pre-split levels, reflecting three-for-two
stock split.
(5) Represents 2/3 of pre-split amount.
23
Exhibit 99(3)
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
Form F-4
Quarterly Report Under Section 13 of the
Securities Exchange Act of 1934 for the
Quarter Ended June 30, 1997
FDIC Insurance Certificate Number 27334
-----
PEOPLE'S BANK
-----------------------------------------
(Exact name of bank as specified in its charter)
850 Main Street, Bridgeport, Connecticut 06604
--------------------------------------------------
(Address of principal executive offices)
Connecticut
----------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-1213065
--------------------------------
(I.R.S. Employer Identification No.)
(203) 338-7171
--------------------------------------------
(Bank's telephone number, including area code)
Indicate by check mark if the bank, as a "small business issuer"
as defined under 17 CFR 240.12b-2, is providing alternative
disclosures as permitted for small business issuers in this
Form F-4. [ ]
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:
61,125,869 shares of common stock as of July 31, 1997
<PAGE>
Table of Contents
Page
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Changes
in Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis 8
Part II - Other Information
Item 1 - Legal Proceedings 25
Item 6 - Exhibits 25
Signatures 26
<PAGE>
People's Bank and Subsidiaries
Item 1 - Financial Statements
Consolidated Statements of Condition
(Unaudited)
June 30, Dec. 31,
(dollars in millions) 1997 1996
- -------------------------------------------------------------------
Assets
Cash and due from banks $265.0 $196.2
Short-term investments 148.3 146.7
Securities (Note 2):
Trading account securities,
at estimated fair value - 2.8
Securities available for sale,
at estimated fair value
(amortized cost of $1,221.6
and $1,214.4 at the respective
dates) 1,254.6 1,227.6
Securities held to maturity,
at amortized cost (estimated
fair value of $422.2 and $466.5
at the respective dates) 427.9 472.1
- -------------------------------------------------------------------
Total securities, net 1,682.5 1,702.5
- -------------------------------------------------------------------
Loans, net (Note 3):
Residential mortgage 2,215.5 2,242.5
Commercial mortgage 856.3 819.1
Commercial 622.7 591.2
Credit card 1,409.6 1,386.6
Other consumer 256.3 237.6
- -------------------------------------------------------------------
Total loans 5,360.4 5,277.0
Less allowance for loan losses (85.7) (87.6)
- -------------------------------------------------------------------
Total loans, net 5,274.7 5,189.4
- -------------------------------------------------------------------
Other assets 499.5 410.4
- -------------------------------------------------------------------
Total assets $7,870.0 $7,645.2
=========================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $1,008.2 $930.2
Savings, NOW and money market 2,207.7 2,144.8
Time 2,375.6 2,170.2
- -------------------------------------------------------------------
Total deposits 5,591.5 5,245.2
- -------------------------------------------------------------------
Borrowings:
Federal Home Loan Bank advances 756.5 836.8
Repurchase agreements 290.5 452.7
Federal funds purchased 305.8 257.1
Subordinated notes 148.1 148.0
- -------------------------------------------------------------------
Total borrowings 1,500.9 1,694.6
- -------------------------------------------------------------------
Other liabilities 110.1 87.4
- -------------------------------------------------------------------
Total liabilities 7,202.5 7,027.2
- -------------------------------------------------------------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock (without par value;
100,000,000 shares authorized;
61,054,094 shares and 60,830,169
shares issued and outstanding
at the respective dates) (1) 61.1 60.8
Additional paid-in capital (1) 93.9 90.8
Retained earnings 501.3 465.8
Net unrealized gain on securities,
net of tax 11.2 0.6
- -------------------------------------------------------------------
Total stockholders' equity 667.5 618.0
- -------------------------------------------------------------------
Total liabilities and
stockholders' equity $7,870.0 $7,645.2
=========================
(1) Prior period common stock and additional paid-in capital
have been restated to reflect the 3-for-2 stock split
completed in May 1997.
See accompanying notes to consolidated financial statements.
1
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Income
(Unaudited)
- ----------------------------------------------------------------------------
Quarters Ended Six Months Ended
------------------- -------------------
(in millions, except June 30, June 30, June 30, June 30,
per share data) 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Interest and dividend income:
Residential mortgage $42.8 $40.0 $85.3 $80.2
Commercial mortgage 18.8 16.5 36.9 32.9
Commercial 14.9 12.8 28.4 25.2
Credit card 21.7 22.8 52.2 40.3
Other consumer 5.4 4.1 10.4 9.9
- ----------------------------------------------------------------------------
Total interest on loans 103.6 96.2 213.2 188.5
Securities 22.1 23.3 43.5 46.9
Short-term investments 2.3 1.2 4.0 2.6
- ----------------------------------------------------------------------------
Total interest and
dividend income 128.0 120.7 260.7 238.0
- ----------------------------------------------------------------------------
Interest expense:
Deposits 44.1 40.6 86.0 79.9
Borrowings 23.1 21.0 48.2 41.1
- ----------------------------------------------------------------------------
Total interest expense 67.2 61.6 134.2 121.0
- ----------------------------------------------------------------------------
Net interest income 60.8 59.1 126.5 117.0
Provision for loan losses 7.3 12.3 18.1 21.0
- ----------------------------------------------------------------------------
Net interest income
after provision for
loan losses 53.5 46.8 108.4 96.0
- ----------------------------------------------------------------------------
Non-interest income:
Fee-based revenues:
Credit card
securitization income
(Note 4) 19.6 13.9 38.2 30.4
Credit card fees 8.4 7.5 17.8 13.8
Service charges on
deposit accounts 7.9 6.7 15.3 13.0
Residential mortgage
loan servicing fees 1.6 1.6 3.1 3.1
Net brokerage commissions 2.3 2.0 4.7 3.8
Other 3.3 3.1 6.5 6.1
- ----------------------------------------------------------------------------
Total fee-based revenues 43.1 34.8 85.6 70.2
Net security gains 9.0 4.3 14.5 7.4
Net gains on sales of
residential mortgage
loans available for sale 4.8 0.8 7.2 1.8
Net gain on sale of
other consumer loans - - - 6.0
Loss on real estate
investments (0.9) (0.5) (1.1) (1.1)
Other 1.2 1.6 2.5 1.9
- ----------------------------------------------------------------------------
Total non-interest income 57.2 41.0 108.7 86.2
- ----------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits 34.3 30.3 68.4 60.3
Occupancy and equipment 12.4 10.1 24.1 19.9
Professional and outside
service fees 9.7 5.5 17.2 11.6
Advertising and promotion 9.6 5.5 18.4 10.4
Loss on real estate acquired
in settlement of loans 0.6 1.3 1.2 2.2
Other 10.9 8.4 19.8 17.6
- ----------------------------------------------------------------------------
Total non-interest expense 77.5 61.1 149.1 122.0
- ----------------------------------------------------------------------------
Income before income taxes 33.2 26.7 68.0 60.2
Income tax expense 11.3 8.5 24.1 21.2
- ----------------------------------------------------------------------------
Net income $21.9 $18.2 $43.9 $39.0
========================================
Net income applicable
to common stock $21.9 $18.1 $43.9 $38.6
========================================
Net income per
common share: (1)
Primary $0.36 $0.30 $0.71 $0.65
========================================
Fully diluted $0.36 $0.30 $0.71 $0.64
========================================
Average common shares: (1)
Primary 61.60 59.95 61.55 59.58
========================================
Fully diluted 61.61 61.41 61.57 61.35
========================================
(1) Restated to reflect the 3-for-2 stock split completed in May 1997.
See accompanying notes to consolidated financial statements.
2
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
For the six
months ended Additional Net Unrealized Total
June 30, 1997 Preferred Common Paid-In Retained Gain on Stockholders'
(in millions) Stock Stock Capital Earnings Securities Equity
- -----------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 (1) $ - $60.8 $90.8 $465.8 $0.6 $618.0
Net income - - - 43.9 - 43.9
Cash dividends
on common stock
($0.32 per share)(1) - - - (8.2) - (8.2)
Change in net
unrealized gain on
securities available
for sale, net of tax - - - - 10.0 10.0
Amortization of net
unrealized loss on
securities transferred
in 1994 from available
for sale to held to
maturity, net of tax - - - - 0.6 0.6
Other - 0.3 3.1 (0.2) - 3.2
- -----------------------------------------------------------------------------------------------------------------------
Balance at
June 30, 1997 $ - $61.1 $93.9 $501.3 $11.2 $667.5
=========================================================================================
- -----------------------------------------------------------------------------------------------------------------------
For the six
months ended Additional Net Unrealized Total
June 30, 1996 Preferred Common Paid-In Retained Gain (Loss) Stockholders'
(in millions) Stock Stock Capital Earnings on Securities Equity
- -----------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 (1) $16.2 $58.5 $74.8 $399.3 $1.3 $550.1
Net income - - - 39.0 - 39.0
Conversions of
preferred stock (9.9) 1.1 8.8 - - -
Cash dividends on
preferred stock
($0.25)(1) - - - (0.4) - (0.4)
Cash dividends
on common stock - - - (6.0) - (6.0)
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax - - - - (5.0) (5.0)
Amortization of
net unrealized
loss on securities
transferred in 1994
from available
for sale to held
to maturity, net of tax - - - - 0.8 0.8
Other - 0.1 1.6 0.1 - 1.8
- -----------------------------------------------------------------------------------------------------------------------
Balance at
June 30, 1996 $6.3 $59.7 $85.2 $432.0 ($2.9) $580.3
========================================================================================
(1) Restated to reflect the 3-for-2 stock split competed in May
1997.
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
- ------------------------------------------------------------------
Six Months Ended
-------------------
June 30, June 30,
(in millions) 1997 1996
- ------------------------------------------------------------------
Cash Flows from Operating Activities:
Interest and dividends received $246.1 $233.1
Interest paid (133.3) (121.4)
Income taxes paid (26.0) (7.8)
Purchases of trading account securities (50.3) (10.8)
Proceeds from sales of trading account
securities 53.1 3.6
Other operating cash flows, net (14.3) (24.7)
- ------------------------------------------------------------------
Net cash provided by operating activities 75.3 72.0
- ------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sales of available for
sale securities
Debt securities 209.8 269.0
Equity securities 405.4 234.9
Purchases of available for sale securities (651.8) (711.5)
Purchases of held to maturity securities (11.2) (27.4)
Proceeds from principal repayments
of available for sale securities 48.0 57.1
Proceeds from principal repayments of
held to maturity securities 53.8 65.8
Loan originations, net of principal
collections (866.6) (795.9)
Proceeds from sales of loans 268.1 290.3
Proceeds from sales of securitized
credit card receivables 500.0 -
Other investing cash flows, net (112.1) (25.1)
- ------------------------------------------------------------------
Net cash used in investing activities (156.6) (642.8)
- ------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposits 346.3 222.7
Proceeds from Federal Home Loan Bank
advances 1,079.2 794.6
Payments on Federal Home Loan
Bank advances (1,159.5) (636.9)
Net (decrease) increase in other
borrowings (113.4) 159.6
Cash dividends paid on common and
preferred stock (8.2) (6.4)
Other financing cash flows, net 2.1 9.3
- ------------------------------------------------------------------
Net cash provided by financing activities 146.5 542.9
- ------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 65.2 (27.9)
Cash and cash equivalents at beginning
of period 330.1 394.0
- ------------------------------------------------------------------
Cash and cash equivalents at end of period $395.3 $366.1
==================
Supplemental Disclosure of Non-Cash
Investing Activities:
Real estate properties acquired by foreclosure $4.8 $9.4
==================
See accompanying notes to consolidated financial statements.
4
<PAGE>
People's Bank and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited
consolidated financial statements of People's Bank and its
consolidated subsidiaries ("People's") have been prepared to
reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and results of
operations as of the dates and for the periods shown. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses.
Material estimates that are particularly susceptible to
significant near-term change include the allowance for loan
losses and the valuation allowance for deferred tax assets.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted or
condensed. These statements should be read in conjunction with
People's 1996 Annual Report to Stockholders. The results of
operations for the quarter and six months ended June 30, 1997 are
not necessarily indicative of the results of operations which may
be expected for the entire year. Certain reclassifications have
been made to prior period amounts to conform to the current
period presentation.
In April 1997, stockholders approved an increase in authorized
shares to 100 million, and People's declared a three-for-two
stock split. The split resulted in the issuance of 20.3 million
additional common shares. The total par value for these shares
was retroactively transferred to common stock from additional
paid-in capital. In addition, all share and per share data
presented have been restated to reflect the stock split which was
completed in May 1997.
NOTE 2. SECURITIES
- ------------------------------------------------------------------------------
June 30, 1997 December 31, 1996
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in millions) Value Value Value Value
- ------------------------------------------------------------------------------
Trading account securities $ - $ - $ 2.8 $2.8
- ------------------------------------------------------------------------------
Securities held to maturity:
Collateralized mortgage
obligations 336.8 330.9 385.2 379.4
State and municipal 72.1 72.6 62.9 63.5
Corporate and other 19.0 18.7 24.0 23.6
- ------------------------------------------------------------------------------
Total securities held to
maturity 427.9 422.2 472.1 466.5
- ------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
United States Treasury and
agency 331.9 327.3 359.4 354.9
Collateralized mortgage
obligations 122.8 121.0 126.8 125.2
State and municipal 10.2 10.2 14.2 14.2
Corporate and other 191.4 189.9 249.1 248.2
- ------------------------------------------------------------------------------
Total debt securities 656.3 648.4 749.5 742.5
- ------------------------------------------------------------------------------
Equity securities:
Money market preferred stocks 264.3 264.3 231.4 231.4
Common stocks 193.7 234.2 160.4 180.5
Federal Home Loan Bank stock 45.5 45.5 41.9 41.9
Other 61.8 62.2 31.2 31.3
- ------------------------------------------------------------------------------
Total equity securities 565.3 606.2 464.9 485.1
- ------------------------------------------------------------------------------
Total securities
available for sale 1,221.6 1,254.6 1,214.4 1,227.6
Net unrealized gain on
securities available for sale 33.0 - 13.2 -
- ------------------------------------------------------------------------------
Total securities
available for sale 1,254.6 1,254.6 1,227.6 1,227.6
- ------------------------------------------------------------------------------
Total securities $1,682.5 $1,676.8 $1,702.5 $1,696.9
==========================================
5
<PAGE>
People's Bank and Subsidiaries
At June 30, 1997, the net unrealized gain on the available for
sale portfolio, which is reflected in stockholders' equity,
totaled $19.2 million ($33.0 million pre-tax), compared with $7.6
million ($13.2 million pre-tax) at December 31, 1996. Deferred
losses on futures and option contracts utilized to hedge portions
of the available for sale portfolio, which are also reflected in
stockholders' equity, amounted to $4.5 million ($7.0 million
pre-tax) at June 30, 1997 and $2.9 million ($5.0 million pre-tax)
at December 31, 1996.
NOTE 3. LOANS
- --------------------------------------------------------------------
June 30, Dec. 31,
(in millions) 1997 1996
- --------------------------------------------------------------------
Residential mortgage:
Adjustable rate $1,938.0 $1,964.2
Fixed rate 277.5 278.3
- --------------------------------------------------------------------
Total residential mortgage 2,215.5 2,242.5
- --------------------------------------------------------------------
Commercial mortgage:
Office buildings 212.2 220.3
Retail stores and shopping centers 178.9 150.9
Industrial and warehouses 121.1 116.3
Apartment buildings 110.2 110.6
Retail/office 72.6 67.2
Other 161.3 153.8
- --------------------------------------------------------------------
Total commercial mortgage 856.3 819.1
- --------------------------------------------------------------------
Commercial:
Service businesses 217.5 200.1
Manufacturing 150.8 140.9
Finance, insurance and real estate 79.3 82.5
Wholesale distribution 63.8 63.6
Retail sales 31.0 33.2
Other 80.3 70.9
- --------------------------------------------------------------------
Total commercial 622.7 591.2
- --------------------------------------------------------------------
Credit card 1,409.6 1,386.6
Other consumer 256.3 237.6
- --------------------------------------------------------------------
Total loans $5,360.4 $5,277.0
--------------------
NOTE 4. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 125
People's prospectively adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities," on January 1, 1997. Such adoption resulted in the
earlier recognition of certain components of credit card
securitization income, compared to previous practice. For the
three and six months ended June 30, 1997, the adoption of SFAS
No. 125 increased credit card securitization income by $2.7
million and $5.7 million, respectively, and net income by $1.7
million and $3.6 million, respectively. See "Impact of Credit
Card Securitizations" on page 18.
NOTE 5. ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings Per Share," which
requires presentation of both basic earnings per share ("EPS")
and diluted EPS by all entities with complex capital structures.
Basic EPS, which replaces primary EPS, excludes dilution and is
computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock
(such as stock options) were exercised or converted into common
stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. As required, People's will
adopt SFAS No. 128 in the quarter ending December 31, 1997 and
will restate all prior period EPS data to conform to the new
accounting standard at that time.
6
<PAGE>
People's Bank and Subsidiaries
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income (and its
components) in financial statements. The standard does not,
however, specify when to recognize or how to measure items that
make up comprehensive income. Comprehensive income represents net
income and certain amounts reported directly in equity, such as
the net unrealized gain or loss on available for sale securities
and foreign currency translation adjustments. While SFAS No. 130
does not require a specific reporting format, it does require
that an enterprise display an amount representing total
comprehensive income for the period. SFAS No. 130 is effective
for both interim and annual periods beginning after December 15,
1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." Among
other things, SFAS No. 131 requires public companies to report
(1) certain financial and descriptive information about its
reportable operating segments (as defined) and (2) certain
enterprise-wide financial information about products and
services, geographic areas and major customers. The required
segment financial disclosures include a measure of profit or
loss, certain specific revenue and expense items, and total
assets. SFAS No. 131 is effective for periods beginning after
December 15, 1997.
Management does not anticipate that the adoption of these
standards will have a material impact on People's consolidated
financial statements.
NOTE 6. COMMITMENTS AND CONTINGENCIES
In the normal course of business, People's has various
outstanding commitments and contingent liabilities that have not
been reflected in the consolidated financial statements. In
addition, in the normal course of business, there are various
outstanding legal proceedings. Management has discussed the
nature of these legal proceedings with legal counsel. In the
opinion of management, People's financial position will not be
affected materially as a result of the outcome of such
commitments, contingent liabilities and legal proceedings.
7
<PAGE>
People's Bank and Subsidiaries
Item 2 - Management's Discussion and Analysis
Selected Consolidated Financial Data
- -----------------------------------------------------------------------------
Quarters Ended Six Months Ended
---------------------- ----------------
June Mar. June June June
(dollars in millions, 30, 31, 30, 30, 30,
except per share data) 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Operating Data:
Net income $21.9 $22.0 $18.2 $43.9 $39.0
Net interest income 60.8 65.7 59.1 126.5 117.0
Provision for loan losses 7.3 10.8 12.3 18.1 21.0
Operating income 112.6 114.0 98.7 226.6 194.2
Fee-based revenues 43.1 42.5 34.8 85.6 70.2
Non-interest expense 77.5 71.6 61.1 149.1 122.0
- ------------------------------------------------------------------------------
Selected Statistical Data:
Net interest margin - managed
portfolio (1), (2) 4.11% 4.24% 4.19% 4.18% 4.18%
Net interest margin - owned
portfolio (1) 3.57 3.78 3.74 3.68 3.73
Interest rate spread - managed
portfolio (1), (2) 3.55 3.68 3.67 3.61 3.66
Interest rate spread - owned
portfolio(1) 2.94 3.15 3.17 3.04 3.15
Return on average assets (1) 1.13 1.14 1.02 1.14 1.12
Return on average stockholders'
equity (1) 13.5 14.0 12.8 13.8 13.8
Average stockholders' equity to
average assets 8.39 8.14 8.01 8.27 8.08
Net loan charge-offs to average
loans (1) 0.56 0.95 1.05 0.76 0.92
Non-interest expense to average
assets (1) 4.01 3.71 3.43 3.86 3.49
Efficiency ratio - managed portfolio 56.4 53.7 52.5 55.1 53.6
Efficiency ratio - owned portfolio 68.3 62.3 60.6 65.2 61.7
Net loan charge-offs $7.3 $12.7 $12.3 $20.0 $21.0
- ------------------------------------------------------------------------------
Per Share Data (3):
Net income per common share:
Primary $0.36 $0.36 $0.30 $0.71 $0.65
Fully diluted 0.36 0.36 0.30 0.71 0.64
Common stock dividends paid 0.16 0.15 0.13 0.31 0.25
Common book value 10.93 10.39 9.61 10.93 9.61
Common stock price:
High 28.38 24.33 15.33 28.38 15.33
Low 18.92 18.92 13.08 18.92 12.33
Close 25.88 21.67 14.83 25.88 14.83
Total dividend payout ratio (4) 19.8% 17.3% 18.8% 18.6% 16.5%
- ------------------------------------------------------------------------------
June Mar. Dec. June
30, 31, 31, 30,
1997 1997 1996 1996
- ------------------------------------------------------------------------------
Financial Condition Data:
Total assets - managed
portfolio (2) $9,522 $9,321 $8,979 $8,541
Total assets - owned portfolio 7,870 7,538 7,645 7,441
Loans, net - managed portfolio (2) 6,927 6,796 6,523 5,956
Loans, net - owned portfolio 5,275 5,013 5,189 4,456
Securities, net 1,683 1,704 1,703 1,797
Deposits 5,591 5,415 5,245 5,059
Borrowings 1,501 1,389 1,695 1,710
Stockholders' equity 668 634 618 580
Non-performing assets 71 68 101 102
Non-performing assets to total
assets 0.90% 0.91% 1.32% 1.37%
Ratio of allowance for loan
losses to total loans 1.60% l.68% 1.66% 1.66%
Stockholders' equity to total assets 8.5 8.4 8.1 7.8
Tier 1 leverage capital ratio 8.5 8.2 7.9 7.6
Tier 1 risk-based capital ratio 10.2 10.6 10.0 10.2
Total risk-based capital ratio 13.8 14.3 13.9 11.5
- ------------------------------------------------------------------------------
(1) Annualized.
(2) Managed portfolio represents the owned portfolio plus
off-balance-sheet credit card receivables.
(3) Restated to reflect the 3-for-2 stock split completed in May
1997. See Note 1 to the consolidated financial statements.
(4) Reflects the waiver of common stock dividends on
substantially all of the shares owned by People's Mutual
Holdings, and includes cash dividends paid on noncumulative
convertible preferred stock through September 1996.
8
<PAGE>
People's Bank and Subsidiaries
Executive Summary
Key Performance Indicators for Second Quarter 1997
Compared With Second Quarter 1996
Results of Operations
- 20% growth in net income.
- Managed net interest margin down slightly at 4.11%,
compared to 4.19% for the second quarter of 1996, mainly
due to a lower credit card yield resulting from growth in
credit card receivables earning introductory rates and a
higher proportion of convenience users.
- Increases in credit card securitization income, credit card
fees, service charges on deposit accounts, net brokerage
commissions, and trust fees contributed to a 24% increase
in fee-based revenues.
- Managed efficiency ratio increased to 56.4% from 52.5% a
year ago, reflecting increases in expenses related to the
U.S. and U.K. credit card businesses and the Stop & Shop
initiative, as well as higher accruals associated with the
incentive-based compensation tied to People's stock
performance.
- Net security gains of $9 million were realized on sales in
the second quarter of 1997, compared to $4.3 million
during the second quarter of 1996.
- Increase of $2.7 million in pre-tax income ($1.7 million
after-tax) due to a change in the method of accounting for
credit card securitizations in accordance with SFAS No.
125, which was adopted in the first quarter of 1997.
- Effective tax rate equaled 34.0% for the current quarter
compared to 36.8% for the first quarter of 1997, primarily
due to Connecticut tax legislation that changed the
methodology used for taxing companies with national credit
card businesses.
Financial Condition
- Managed assets grew $981 million, or 11%; on-balance-sheet
(owned) assets grew $429 million, or 6%.
- 33% growth in the managed credit card portfolio, which
surpassed $3 billion in receivables.
- U.K. receivables exceeded $100 million, compared to $8.6
million at June 30, 1996.
- Other lending businesses such as commercial mortgage,
commercial lending, and consumer lending generated
over $200 million of loan growth.
- 33 Super Stop & Shop branches were open as of June 30, 1997,
an increase of 23 since last year, averaging over $200
thousand in new deposits per week per store.
- Non-interest-bearing deposits exceeded $1 billion,
representing 16% year-over-year growth; total deposits
grew $500 million, or 11%.
- Non-performing assets declined 31%, primarily due to the
resolution of a $20 million commercial mortgage
loan in the first quarter of 1997.
- As a percentage of average managed credit card receivables,
annualized net charge-offs declined 11 basis points to
4.06%; managed credit card delinquencies declined 29 basis
points to 3.26%.
- Three-for-two stock split completed in May 1997, resulting
in the issuance of 20.3 million additional common shares;
authorized common shares increased to $100 million.
- 15% growth in stockholders' equity.
9
<PAGE>
People's Bank and Subsidiaries
Net Interest Income
Throughout this discussion, reference is made to People's net
interest income, interest rate spread and net interest margin in
terms of the "owned portfolio" and the "managed portfolio." The
owned portfolio encompasses on-balance-sheet earning assets and
interest-bearing liabilities. These amounts are combined with
off-balance-sheet securitized and sold credit card receivables
and the related securities issued to determine "managed
portfolio" performance.
Net interest income and margin are affected by many factors,
including average balances; securitizations and sales of credit
card receivables; sales of loans and securities; interest rate
fluctuations; product pricing; the relative mix and maturity of
earning assets and interest-bearing liabilities;
non-interest-bearing sources of funds; and asset quality.
Managed Portfolio
The increase in FTE net interest income for the managed
portfolio, compared to the second quarter of 1996, primarily
reflects growth of $808 million in average managed credit card
receivables and $286 million in People's other loan categories.
Partially offsetting these increases was a 72 basis point decline
in the yield on average managed credit card receivables,
reflecting growth in balances earning introductory rates and a
higher proportion of convenience users. The loan growth was
funded with increased average non-interest bearing sources of
funds (stockholders' equity and non-interest bearing deposits
totaling $204 million), average interest-bearing deposits ($384
million) and a higher volume of credit card securitizations ($564
million).
Compared to the first quarter of 1997, managed net interest
income was essentially flat, reflecting growth of $165 million in
average managed credit card receivables and $151 million in
People's other earning assets. Partially offsetting these
increases was a 26 basis point decline in the yield on average
managed credit card receivables, reflecting the above-mentioned
factors, and a higher volume of credit card securitizations ($379
million).
For the first half of 1997 compared to same period in 1996, the
increase in FTE net interest income for the managed portfolio
primarily reflects growth of $841 million in average managed
credit card receivables and $244 million in People's other loan
categories. Partially offsetting these increases was a 77 basis
point decline in the yield on average managed credit card
receivables, reflecting the above-mentioned factors. The loan
growth was funded with increased average non-interest bearing
sources of funds (stockholders' equity and non-interest bearing
deposits totaling $200 million), average interest-bearing
deposits ($368 million) and a higher volume of credit card
securitizations ($365 million).
Owned Portfolio
In analyzing the owned portfolio, the only difference from the
above discussion is the exclusion of the securitized credit card
receivables and the related securities issued to investors. As
such, the yield on the owned credit card portfolio reflects a
higher proportion of balances earning introductory rates and the
timing of credit card securitizations. Results presented include
the effect of securitizing and selling $500 million and $400
million in credit card receivables in the first quarter of 1997
and the second quarter of 1996, respectively.
10
<PAGE>
People's Bank and Subsidiaries
Changes in Net Interest Income - FTE Basis
- ----------------------------------------------------------------------------
Second Second Six
Quarter Quarter Months
1997 1997 1997
Compared Compared Compared
to First to Second to Six
Quarter Quarter Months
(in millions) 1997 1996 1996
- ----------------------------------------------------------------------------
On-Balance-Sheet Owned Portfolio
Increase in the volume of average
short-term investments $0.5 $1.0 $1.4
Increase (decrease) in the volume of
average securities $0.8 ($1.0) ($2.3)
Increase in the volume of average:
Residential mortgage loans 0.3 1.7 3.4
Commercial mortgage loans 0.2 1.7 3.3
Commercial loans 0.6 1.5 2.8
Other consumer loans 0.2 1.2 0.8
(Decrease) increase in the volume
of average credit cards (4.1) 4.8 18.9
Increase in the volume of average
interest-bearing deposits (1.7) (4.8) (9.3)
Decrease (increase) in the volume
of average borrowings 3.4 (0.3) (5.2)
Decrease in rates earned on average
earning assets (2.8) (3.5) (4.2)
(Increase) decrease in rates paid
on average interest-bearing liabilities (1.7) (0.3) 1.4
- ----------------------------------------------------------------------------
Change in net interest income ($4.3) $2.0 $11.0
==============================
Off-Balance-Sheet Securitizations
Increase in securitized credit
card receivables $11.2 $17.7 $23.5
Increase in related securities issued (6.4) (9.8) (12.5)
- ----------------------------------------------------------------------------
Change in net interest income $4.8 $7.9 $11.0
==============================
Total Managed Portfolio
Increase in earning assets $7.1 $25.3 $47.7
Increase in interest-bearing liabilities (6.6) (15.4) (25.7)
- ----------------------------------------------------------------------------
Change in net interest income $0.5 $9.9 $22.0
==============================
11
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Balance, Interest and Yield/Rate Analysis
- -------------------------------------------------------------------------------------------------------------------------------
June 30, 1997 March 31, 1997 June 30, 1996
------------------------------ ---------------------------- ----------------------------
Quarters Ended Average Yield/ Average Yield/ Average Yield/
(dollars in millions) (1) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
On-Balance-Sheet
Earning assets: (2)
Short-term
investments $156.3 $2.3 5.84% $124.4 $1.7 5.56% $84.7 $1.2 5.70%
Securities 1,731.2 24.8 5.72 1,674.7 23.5 5.62 1,804.4 25.6 5.68
Loans:
Residential
mortgage 2,275.1 42.8 7.53 2,255.9 42.5 7.54 2,184.8 40.0 7.32
Commercial mortgage 832.9 18.8 8.99 822.9 18.1 8.84 758.4 16.6 8.74
Commercial 609.0 14.9 9.84 585.3 13.5 9.20 546.5 12.8 9.41
Credit card 1,257.3 21.7 6.89 1,471.3 30.5 8.28 1,013.7 22.8 9.00
Other consumer 249.2 5.4 8.59 239.3 5.0 8.41 190.6 4.1 8.63
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 5,223.5 103.6 7.93 5,374.7 109.6 8.16 4,694.0 96.3 8.21
- -------------------------------------------------------------------------------------------------------------------------------
Total earning
assets 7,111.0 $130.7 7.35% 7,173.8 $134.8 7.52% 6,583.1 $123.1 7.48%
================ ================ =================
Other assets 619.9 536.3 545.4
- -------------------------------------- -------- --------
Total assets $7,730.9 $7,710.1 $7,128.5
======== ======== ========
Interest-bearing
liabilities:
Deposits:
Savings, NOW
and money market $2,198.7 $13.3 2.42% $2,133.1 $12.8 2.40% $2,177.6 $14.6 2.70%
Time 2,394.7 30.8 5.15 2,295.8 29.1 5.08 2,031.6 26.0 5.12
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits 4,593.4 44.1 3.84 4,428.9 41.9 3.79 4,209.2 40.6 3.86
- -------------------------------------------------------------------------------------------------------------------------------
Borrowings:
Federal Home
Loan Bank advances 840.1 12.3 5.86 765.6 10.7 5.60 663.6 9.3 5.62
Repurchase agreements 336.2 5.7 6.71 450.2 7.0 6.23 467.1 6.8 5.78
Federal funds purchased 162.9 2.3 5.59 346.3 4.7 5.43 371.6 4.9 5.29
Subordinated notes 148.1 2.8 7.43 148.0 2.7 7.43 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total borrowings 1,487.3 23.1 6.18 1,710.1 25.1 5.89 1,502.3 21.0 5.59
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 6,080.7 $67.2 4.41% 6,139.0 $67.0 4.37% 5,711.5 $61.6 4.31%
================ ================ =================
Non-interest-bearing
deposits 889.6 844.2 762.8
Other liabilities 112.3 99.7 83.1
- -------------------------------------- -------- --------
Total liabilities 7,082.6 7,082.9 6,557.4
Stockholders' equity 648.3 627.2 571.1
- -------------------------------------- -------- --------
Total liabilities
and stockholders'
equity $7,730.9 $7,710.1 $7,128.5
======== ======== ========
Excess of earning
assets over interest-
bearing liabilities $1,030.3 $1,034.8 $871.6
======== ======== ========
Net interest income $63.5 $67.8 $61.5
====== ====== ======
Interest rate spread 2.94% 3.15% 3.17%
Net interest margin 3.57% 3.78% 3.74%
Off-Balance-Sheet
Securitized credit
card receivables $1,715.9 $53.9 12.56% $1,336.5 $42.7 12.77% $1,151.6 $36.2 12.59%
Related securities
issued 1,715.9 26.6 6.20 1,336.5 20.2 6.03 1,151.6 16.8 5.83
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income (3) $27.3 $22.5 $19.4
====== ====== ======
Managed Net Interest
Margin Analysis
Earning assets $8,826.9 $184.6 8.36% $8,510.3 $177.5 8.35% $7,734.7 $159.3 8.24%
Interest-bearing
liabilities 7,796.6 93.8 4.81 7,475.5 87.2 4.67 6,863.1 78.4 4.57
- -------------------------------------------------------------------------------------------------------------------------------
Excess of earning
assets over interest-
bearing liabilities $1,030.3 $1,034.8 $871.6
======== ======== ========
Net interest income $90.8 $90.3 $80.9
====== ====== ======
Interest rate spread 3.55% 3.68% 3.67%
Net interest margin 4.11% 4.24% 4.19%
(1) Average yields earned and rates paid are annualized.
(2) The FTE adjustment for the second quarter of 1997, the first
quarter of 1997 and the second quarter of 1996 was $2.7
million, $2.1 million and $2.4 million, respectively.
(3) Net interest income associated with the off-balance-sheet
portfolio is included in "credit card securitization
income".
</TABLE>
12
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Balance, Interest and Yield/Rate Analysis
- ---------------------------------------------------------------------------------------------
June 30, 1997 March 31, 1997
------------------------------ ----------------------------
Six Months Ended Average Yield/ Average Yield/
(dollars in millions) (1) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------
On-Balance-Sheet
Earning assets: (2)
Short-term investments $140.6 $4.0 5.71% $92.1 $2.6 5.66%
Securities 1,703.1 48.3 5.67 1,783.5 50.1 5.62
Loans:
Residential mortgage 2,265.6 85.3 7.54 2,174.5 80.2 7.38
Commercial mortgage 828.0 36.9 8.92 754.0 33.0 8.76
Commercial 597.2 28.4 9.52 538.4 25.2 9.37
Credit card 1,364.2 52.2 7.64 888.2 40.3 9.07
Other consumer 244.2 10.4 8.50 224.1 9.9 8.78
- ---------------------------------------------------------------------------------------------
Total loans 5,299.2 213.2 8.05 4,579.2 188.6 8.24
- ---------------------------------------------------------------------------------------------
Total earning assets 7,142.9 $265.5 7.43% 6,454.8 $241.3 7.48%
=============== ==============
Other assets 577.6 535.4
- -------------------------------------- --------
Total assets $7,720.5 $6,990.2
======== ========
Interest-bearing
liabilities:
Deposits:
Savings, NOW and
money market $2,166.1 $26.1 2.41% $2,159.1 $28.8 2.68%
Time 2,345.5 59.9 5.11 1,984.8 51.1 5.15
- ---------------------------------------------------------------------------------------------
Total deposits 4,511.6 86.0 3.81 4,143.9 79.9 3.86
- ---------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan
Bank advances 803.0 23.0 5.73 599.3 17.4 5.81
Repurchase agreements 392.9 12.7 6.44 537.9 15.5 5.76
Federal funds
purchased 254.1 7.0 5.50 312.6 8.2 5.26
Subordinated notes 148.1 5.5 7.43 - - -
- ---------------------------------------------------------------------------------------------
Total borrowings 1,598.1 48.2 6.03 1,449.8 41.1 5.67
- ---------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 6,109.7 $134.2 4.39% 5,593.7 $121.0 4.33%
=============== ==============
Non-interest-bearing
deposits 867.0 740.7
Other liabilities 105.5 91.0
- -------------------------------------- -------
Total liabilities 7,082.2 6,425.4
Stockholders' equity 638.3 564.8
- -------------------------------------- -------
Total liabilities
and stockholders'
equity $7,720.5 $6,990.2
======== ========
Excess of earning assets
over interest-bearing
liabilities $1,033.2 $861.1
======== ========
Net interest income $131.3 $120.3
======== ========
Interest rate spread 3.04% 3.15%
Net interest margin 3.68% 3.73%
Off-Balance-Sheet
Securitized credit card
receivables $1,527.3 $96.6 12.64% $1,162.7 $73.1 12.58%
Related securities issued 1,527.3 46.8 6.12 1,162.7 34.3 5.90
- ---------------------------------------------------------------------------------------------
Net interest income (3) $49.8 $38.8
======== ========
Managed Net Interest
Margin Analysis
Earning assets $8,670.2 $362.1 8.35% $7,617.5 $314.4 8.26%
Interest-bearing
liabilities 7,637.0 181.0 4.74 6,756.4 155.3 4.60
- ---------------------------------------------------------------------------------------------
Excess of earning assets
over interest-bearing
liabilities $1,033.2 $861.1
======== ========
Net interest income $181.1 $159.1
======== ========
Interest rate spread 3.61% 3.66%
Net interest margin 4.18% 4.18%
(1) Average yields earned and rates paid are annualized.
(2) The FTE adjustment for the six months ended June 1997 and
June 1996 was $4.8 million and $3.3 million, respectively.
(3) Net interest income associated with the off-balance-sheet
portfolio is included in "credit card securitization
income."
</TABLE>
13
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Income
- -----------------------------------------------------------------------------------
Quarters Ended Six Months Ended
--------------------------------------------
June March June June June
30, 31, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
Fee-based revenues:
Credit card securitization income $19.6 $18.6 $13.9 $38.2 $30.4
Credit card fees 8.4 9.4 7.5 17.8 13.8
- -----------------------------------------------------------------------------------
Total credit card fee-based revenues 28.0 28.0 21.4 56.0 44.2
Service charges on deposit accounts 7.9 7.4 6.7 15.3 13.0
Residential mortgage loan servicing fees 1.6 1.5 1.6 3.1 3.1
Net brokerage commissions 2.3 2.4 2.0 4.7 3.8
Other fee-based revenues:
Other banking service charges and fees 1.4 1.4 1.2 2.8 2.5
Other loan fees 1.1 0.9 1.1 2.0 2.1
Trust fees 0.8 0.9 0.8 1.7 1.5
- -----------------------------------------------------------------------------------
Total other fee-based revenues 3.3 3.2 3.1 6.5 6.1
- -----------------------------------------------------------------------------------
Total fee-based revenues 43.1 42.5 34.8 85.6 70.2
- -----------------------------------------------------------------------------------
Net security gains (losses):
Trading account securities (0.1) (0.6) - (0.7) (0.1)
Debt securities available for sale 0.7 0.6 0.3 1.3 1.0
Equity securities available for sale 8.4 5.5 4.0 13.9 6.5
- -----------------------------------------------------------------------------------
Total net security gains 9.0 5.5 4.3 14.5 7.4
- -----------------------------------------------------------------------------------
Net gains on sales of residential
mortgage loans available for sale 4.8 2.4 0.8 7.2 1.8
Net gain on sale of other consumer loans - - - - 6.0
Loss on real estate investments (0.9) (0.2) (0.5) (1.1) (1.1)
Other income 1.2 1.3 1.6 2.5 1.9
- -----------------------------------------------------------------------------------
Total non-interest income $57.2 $51.5 $41.0 $108.7 $86.2
========================================
</TABLE>
Fee-based revenues increased $8.3 million in the second quarter
of 1997 compared to the second quarter of 1996, and increased
$15.4 million in the first six months of 1997 compared to the
first half of 1996. The highest increases were evident in credit
card-related fees and service charges on deposit accounts. These
increases reflect growth in the managed credit card portfolio and
deposit liabilities. Net brokerage commissions increased as a
result of higher trading volume for People's Securities, Inc. The
managed credit card portfolio grew 33% since June 30, 1996, while
non-interest-bearing deposits grew 16%. Also contributing to the
increase in credit card fee-based revenues was the prospective
adoption of SFAS No. 125 as of January 1, 1997 as discussed in
Note 4 to the consolidated financial statements on page 6. The
adoption of this new accounting standard increased credit card
securitization income by $2.7 million and $5.7 million for the
second quarter and first six months of 1997, respectively.
Net gains on sales of securities increased $3.5 million and $4.7
million compared to the first quarter of 1997 and the second
quarter of 1996, respectively. For the first half of 1997, net
gains increased $7.1 million compared to the 1996 period.
Unrealized gains in the common stock portfolio totaled $40.5
million at June 30, 1997, compared to $16.7 million as of March
31, 1997 and $17.3 million as of June 30, 1996. The increase in
realized and unrealized gains is reflective of the strong
financial markets.
Net gains on sales of residential mortgage loans increased $2.4
million and $4.0 million compared to the first quarter of 1997
and the second quarter of 1996, respectively, and increased $5.4
million in the first six months of 1997 compared to the 1996
period. Contributing to the increase was a $4 million gain on the
sale of $115 million of adjustable rate mortgage loans in the
second quarter of 1997.
In February 1996, People's sold approximately $119 million in
home equity credit line balances on a non-recourse basis and
retained the related servicing rights. This transaction, which
was undertaken in part due to the premium such assets commanded
in the marketplace, resulted in a net gain of $6.0 million.
14
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Expense
- -----------------------------------------------------------------------------------
Quarters Ended Six Months Ended
--------------------------------------------
June March June June June
30, 31, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
Compensation and benefits $34.3 $34.1 $30.3 $68.4 $60.3
Occupancy and equipment 12.4 11.7 10.1 24.1 19.9
Professional and outside service fees 9.7 7.5 5.5 17.2 11.6
Advertising and promotion 9.6 8.8 5.5 18.4 10.4
Loss on real estate acquired in
settlement of loans ("REO") 0.6 0.6 1.3 1.2 2.2
Other non-interest expense:
Printing, postage, stationery and supplies 3.4 3.3 3.6 6.7 6.4
Telephone 1.7 1.3 1.3 3.0 2.4
Other expense 5.8 4.3 3.5 10.1 8.8
- -----------------------------------------------------------------------------------
Total other non-interest expense 10.9 8.9 8.4 19.8 17.6
- -----------------------------------------------------------------------------------
Total non-interest expense $77.5 $71.6 $61.1 $149.1 $122.0
========================================
Average number of full-time equivalent
employees 2,823 2,813 2,585 2,817 2,561
Efficiency ratio - managed portfolio,
annualized 56.4% 53.7% 52.5% 55.1% 53.6%
Efficiency ratio - owned portfolio,
annualized 68.3% 62.3% 60.6% 65.2% 61.7%
========================================
</TABLE>
Non-interest expense for the second quarter increased $16.4
million compared to the second quarter of 1996. For the first six
months of 1997, non-interest expense increased $27.1 million
compared to the first half of 1996. The growth in expenses
primarily consists of compensation and benefits, marketing, and
credit card processing costs, which reflect continued expansion
of business initiatives such as the U.S. and U.K. credit card
businesses (representing second quarter increases of $7.0 million
and $1.5 million, respectively) and the Super Stop & Shop
initiative (representing a second quarter increase of $5.0
million). Incentive-based compensation tied to People's Bank
stock performance contributed $1.0 million to the overall
increase in compensation and benefits. Given the consolidation
environment in the Connecticut banking market, People's has
maintained an active marketing campaign further increasing
advertising and promotion costs. These increases have put
pressure on the managed efficiency ratio which equaled 56.4% and
55.1% for the second quarter and first six months of 1997
compared to 52.5% and 53.6% for the respective 1996 periods.
Income Taxes
The effective tax rates were 34.0% and 35.4% for the second
quarter and first six months of 1997, compared with 31.8% and
35.2% for the respective 1996 periods. The effective tax rates
for 1997 reflect changes in Connecticut tax legislation that
changed the methodology for taxing companies with national credit
card businesses. This legislation was enacted in the second
quarter of 1997, retroactive to January 1, 1997. Income tax
expense for the second quarter of 1997 was reduced by $1.5
million as a result of the new methodology.
15
<PAGE>
People's Bank and Subsidiaries
FINANCIAL CONDITION
General
Total managed assets increased $543.0 million to $9.52 billion at
June 30, 1997 from $8.98 billion at December 31, 1996. An
increase of $341.0 million is attributable to the growth in
managed credit card receivables. Total owned assets increased
$225.0 million to $7.87 billion at June 30, 1997 from $7.65
billion at December 31, 1996. Loan growth totaling $87.4 million
was experienced in the commercial mortgage, commercial loan, and
other consumer loan portfolios. On a year-over-year basis,
managed assets grew by $980.4 million led by managed credit card
($763.5 million), commercial mortgage ($97.1 million), commercial
lending ($66.6 million) and other consumer loans ($59.0 million).
People's liabilities increased $175.3 million to $7.20 billion at
June 30, 1997 from $7.03 billion at December 31, 1996. The $346.3
million increase in deposits was partially offset by a decrease
in borrowings of $193.7 million. The largest increase in deposits
was evident in the time deposit category, reflecting growth of
$205.4 million. Non-interest-bearing deposits increased $78.0
million, while savings, NOW, and money market deposits increased
$62.9 million. The decrease in borrowings is primarily due to
reductions in repurchase agreements and Federal Home Loan Bank
("FHLB") of Boston advances. Borrowings were reduced using the
proceeds from the credit card securitization and sale completed
at the end of the first quarter.
At June 30, 1997, People's stockholders' equity totaled $667.5
million, a $49.5 million increase compared to December 31, 1996.
The increase primarily reflects net income of $43.9 million for
the first half of 1997 and an increase of $10 million in
after-tax net unrealized gains on securities, partially offset by
$8.2 million of dividends paid on common stock. As a percentage
of total owned assets, stockholders' equity was 8.5% at June 30,
1997, compared to 8.1% at December 31, 1996 and 7.8% at June 30,
1996.
Risk Management
People's manages various risk exposures through the use of
derivative financial instruments such as interest rate swaps and
corridors, options, futures contracts and foreign exchange rate
forward contracts. These instruments are used in hedging
strategies to manage interest rate, price, and foreign currency
risks, and are not used for trading purposes. Written policy
guidelines, which have been approved by the Board of Directors
and the Asset/Liability Committee (ALCO), govern the use of
off-balance-sheet financial instruments, including approved
counterparties, risk limits and appropriate separation of duties.
Master netting agreements for interest rate swaps, corridors and
foreign exchange forward contracts are arranged and collateral is
obtained through physical delivery of securities or cash to
reduce People's exposure to credit losses in the event of
non-performance by the counterparties to these transactions.
People's also controls its counterparty risk by entering into
agreements with only highly-rated counterparties which are
specifically approved by People's up to a maximum credit
exposure. Net credit exposure on interest rate swaps, corridors
and foreign exchange forward contracts, representing the net
positive fair values including the effect of bi-lateral netting
agreements, amounted to $3.4 million at June 30, 1997 and March
31, 1997, compared to $0.9 million at December 31, 1996 and $3.6
million at June 30, 1996.
16
<PAGE>
People's Bank and Subsidiaries
Interest Rate Risk
People's strives to manage interest rate risk so that a gradual
200 basis point change in interest rates over a 12-month period
should not result in more than a 5% negative impact on "income at
risk," which is net interest income and adjusted credit card
securitization income. For this purpose, adjusted credit card
securitization income includes interest income on securitized
receivables less interest payments to the certificateholders. At
June 30, 1997, People's was within its established limit with
respect to income at risk.
Interest rate swaps and corridors are used to manage interest
rate risk associated with interest-earning assets and
interest-bearing liabilities. The notional amounts of interest
rate swaps and options totaled $1.1 billion and $425.0 million,
respectively, as of June 30, 1997.
People's enters into eurodollar futures contracts to reduce the
impact that higher interest rates would have on the estimated
fair value of a portion of the available for sale debt securities
portfolio. At June 30, 1997, outstanding eurodollar futures
contracts had a total notional amount of $2.0 billion. Changes in
the estimated fair value of the hedged portion of the securities
portfolio have been (and are expected to be) substantially offset
by gains or losses on the futures contracts. After-tax deferred
futures losses of $2.7 million ($3.8 million pre-tax) are
reflected in stockholders' equity at June 30, 1997.
The net effect of interest rate swaps, corridors, and futures
contracts during the second quarter and first six months of 1997,
and the respective 1996 periods, was to decrease net interest
income by $1.0 million, $1.8 million, $1.7 million and $2.9
million, respectively. These amounts reduced the net interest
margin by 10 basis points, 5 basis points, 10 basis points and 9
basis points, respectively.
Equity Portfolio Price Risk
In March 1997, People's entered into a hedging program to reduce
the impact that a downturn in the stock market would have on the
fair value of People's common stock portfolio. The hedge
consisted of the sale of S&P futures contracts, and the purchase
of S&P puts and calls.
In light of changes in economic and market outlooks, People's
decided to substantially reduce the hedge protection during the
second quarter of 1997 by closing all of the S&P futures and
calls at a loss of $4.1 million ($3.2 million of which was
deferred). This loss was more than offset by $32.2 million of
appreciation in the value of the underlying common stock
portfolio during the quarter ($8.4 million in realized gains on
sales of common stocks and $23.8 million in unrealized gains).
Stockholders' equity at June 30, 1997 reflects the unrealized
gains and deferred losses on an after-tax basis.
People's continues to hold $50 million of out-of-the-money puts,
expiring in September 1997, which would provide some price
protection in the event of a 15% to 20% correction in the equity
markets. The unamortized premiums on these puts amounted to $0.5
million at June 30, 1997.
Foreign Currency Exchange Rate Risk
Foreign exchange rate forward contracts are commitments to buy or
sell foreign currency on a future date at a contractual price.
People's uses these contracts to reduce its exposure to foreign
currency exchange rate risk on credit card receivables
denominated in pounds sterling. At June 30, 1997, People's had
contracts outstanding to sell pounds sterling, with a total U.S.
dollar notional amount of $108.0 million, which mature within one
year. Gross unrealized losses on these contracts were $2.2
million at June 30, 1997, and realized gains (losses) on matured
contracts were $0.2 million and ($0.3) million for the second
quarter and first six months of 1997. Gains and losses on forward
contracts have substantially offset the translation gains and
losses on the related hedged items.
17
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Impact of Credit Card Securitizations (pro forma)
- ---------------------------------------------------------------------------------------------------------------
June 30, 1997 June 30, 1996
-------------------------------- -------------------------------
Excluding Excluding
As of and for the Impact of Impact of Impact of Impact of
quarters ended Securi- Securi- As Securi- Securi- As
(dollars in millions) tization tization Reported tization tization Reported
- ---------------------------------------------------------------------------------------------------------------
Interest and dividend
income $181.9 ($53.9) $128.0 $156.9 ($36.2) $120.7
Interest expense (93.8) 26.6 (67.2) (78.4) 16.8 (61.6)
- ---------------------------------------------------------------------------------------------------------------
Net interest income 88.1 (27.3) 60.8 78.5 (19.4) 59.1
Provision for loan losses (31.1) 23.8 (7.3) (27.5) 15.2 (12.3)
Credit card securitization
income (1) - 19.6 19.6 - 13.9 13.9
Credit card fees 20.5 (12.1) 8.4 16.8 (9.3) 7.5
Other non-interest income 30.5 (1.3) 29.2 20.0 (0.4) 19.6
Non-interest expense (77.5) - (77.5) (61.1) - (61.1)
Income tax expense (10.3) (1.0) (11.3) (8.5) - (8.5)
- ---------------------------------------------------------------------------------------------------------------
Net income (1) $20.2 $1.7 $21.9 $18.2 $ - $18.2
=====================================================================
Tier 1 leverage capital
ratio 7.4% 1.1% 8.5% 7.1% 0.5% 7.6%
Risk-based capital ratios:
Tier 1 8.1% 2.1% 10.2% 9.2% 1.0% 10.2%
Total 11.0% 2.8% 13.8% 10.4% 1.1% 11.5%
Credit card securitization
income as a percentage
of average securitized
and sold portfolio (2), (3) - - 4.56% - - 4.83%
Net interest margin (2) 4.11% (0.54%) 3.57% 4.19% (0.45%) 3.74%
Efficiency ratio 56.4% 11.9% 68.3% 52.5% 8.1% 60.6%
Credit card loans $3,061.5 ($1,651.9) $1,409.6 $2,298.0 ($1,500.0) $798.0
Total loans, net 6,926.6 (1,651.9) 5,274.7 5,955.6 (1,500.0) 4,455.6
Total assets 9,521.9 (1,651.9) 7,870.0 8,541.5 (1,100.0) 7,441.5
Total average earning
assets 8,826.9 (1,715.9) 7,111.0 7,734.7 (1,151.6) 6,583.1
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
June 30, 1997 June 30, 1996
-------------------------------- -------------------------------
Excluding Excluding
As of and for the Impact of Impact of Impact of Impact of
six months ended Securi- Securi- As Securi- Securi- As
(dollars in millions) tization tization Reported tization tization Reported
- ---------------------------------------------------------------------------------------------------------------
Interest and dividend
income $357.3 ($96.6) $260.7 $311.1 ($73.1) $238.0
Interest expense (181.0) 46.8 (134.2) (155.3) 34.3 (121.0)
- ---------------------------------------------------------------------------------------------------------------
Net interest income 176.3 (49.8) 126.5 155.8 (38.8) 117.0
Provision for loan losses (60.0) 41.9 (18.1) (50.7) 29.7 (21.0)
Credit card
securitization income (1) - 38.2 38.2 - 30.4 30.4
Credit card fees 40.6 (22.8) 17.8 34.3 (20.5) 13.8
Other non-interest income 54.5 (1.8) 52.7 42.8 (0.8) 42.0
Non-interest expense (149.1) - (149.1) (122.0) - (122.0)
Income tax expense (22.0) (2.1) (24.1) (21.2) - (21.2)
- ---------------------------------------------------------------------------------------------------------------
Net income (1) $40.3 $3.6 $43.9 $39.0 $ - $39.0
=====================================================================
Credit card securitization
income as a percentage
of average securitized
and sold portfolio (2), (3) - - 5.00% - - 5.23%
Net interest margin (2) 4.18% (0.50%) 3.68% 4.18% (0.45%) 3.73%
Efficiency ratio 55.1% 10.1% 65.2% 53.6% 8.2% 61.7%
Total average earning
assets 8,670.2 (1,527.3) 7,142.9 7,617.5 (1,162.7) 6,454.8
- ---------------------------------------------------------------------------------------------------------------
(1) The adoption of SFAS No. 125 increased credit card
securitization income by $2.7 million and $5.7 million, and
net income by $1.7 and $3.6 million for the
three and six months ended June 30, 1997, respectively.
(2) Annualized.
(3) Percentages for the three and six months ended June 30, 1997
would have been 3.93% and 4.25%, respectively, without the
impact of SFAS No. 125.
</TABLE>
18
<PAGE>
People's Bank and Subsidiaries
Since beginning its securitization program in 1993, People's has
securitized and sold credit card receivables totaling $2.1
billion in the capital market with $1.65 billion outstanding at
June 30, 1997. Securitization involves the transfer of a group of
credit card receivables from People's to the People's Bank Credit
Card Master Trust. These receivables arise from credit card
accounts whose ownership and servicing responsibilities are
retained by People's. In addition to transferring the existing
receivables, rights to new receivables and most fees generated by
these accounts are also transferred to the trust. The trust
issues two types of certificates representing undivided interests
in the trust. Investor Certificates are sold by the trust to
investors, generally through a public offering. People's, through
its wholly owned special purpose subsidiary, People's Structured
Finance Corp., retains the Transferor Certificate. See
"Liquidity" on page 23.
For securitized and sold receivables, amounts that would have
been previously reported as net interest income, credit card fees
and provisions for loan losses (if such receivables had not been
sold but remained on-balance-sheet) are instead combined and
reported as credit card securitization income. People's credit
card securitization income may vary over the term of the
transactions depending upon the level of interest and fees
charged on credit card accounts, the interest rate environment
and the credit performance of the securitized receivables.
However, People's exposure to losses on the securitized
receivables is contractually limited to future excess spread
revenue and to collateral established for the benefit of
investors, which totaled $58.8 million at June 30, 1997. See
"Non-Interest Income" on page 14 and "Liquidity" on page 23.
Consistent with industry practice prior to SFAS No. 125, People's
recognized excess spread revenue on sold credit card receivables
over the term of the securitization. In certain circumstances,
however, SFAS No. 125 requires capitalization of future excess
spread revenue, which resulted in earlier recognition by People's
of certain components of credit card securitization income in the
first half of 1997. People's prospective adoption of SFAS No.
125, as of January 1, 1997, resulted in increases of $5.7 million
in credit card securitization income (capitalized future excess
spread revenue, less amortization) and $3.6 million in net income
for the six months ended June 30, 1997 ($2.7 million and $1.7
million, respectively, for the second quarter of 1997).
The components of credit card securitization income are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Quarters Ended Six Months Ended
----------------------- ---------------------
June March June June June
30, 31, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- --------------------------------------------------------------------------------------
Interest on credit cards $53.9 $42.7 $36.2 $96.6 $73.1
Credit card fees and other 13.4 11.2 9.7 24.6 21.3
Capitalized future excess spread
revenue, net 2.7 3.0 - 5.7 -
Interest on asset-backed Investor
Certificates (26.6) (20.2) (16.8) (46.8) (34.3)
Net credit card charge-offs (23.8) (18.1) (15.2) (41.9) (29.7)
Servicing fee paid (6.6) (6.6) (5.6) (8.5) (11.4)
- --------------------------------------------------------------------------------------
Excess spread revenue 13.0 12.0 8.3 29.7 19.0
Servicing fee revenue 6.6 6.6 5.6 8.5 11.4
- --------------------------------------------------------------------------------------
Credit card securitization income $19.6 $18.6 $13.9 $38.2 $30.4
============================================
</TABLE>
19
<PAGE>
People's Bank and Subsidiaries
Asset Quality
Non-Performing Assets
- ----------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31, June 30,
(dollars in millions) 1997 1997 1996 1996
- ----------------------------------------------------------------------------
Non-accrual loans:
Residential mortgage $29.3 $31.0 $30.2 $35.6
Commercial mortgage 5.3 5.4 25.8 31.0
Commercial 10.5 10.8 11.2 13.8
Credit card (owned portfolio) 16.4 9.6 21.6 6.8
Other consumer 2.1 2.5 2.1 3.4
- -----------------------------------------------------------------------------
Total non-accrual loans 63.6 59.3 90.9 90.6
- -----------------------------------------------------------------------------
Restructured loans:
Commercial mortgage 0.9 2.1 2.5 3.2
Commercial 1.2 0.8 1.0 1.0
- -----------------------------------------------------------------------------
Total restructured loans 2.1 2.9 3.5 4.2
- -----------------------------------------------------------------------------
Total non-performing loans 65.7 62.2 94.4 94.8
REO, net 4.9 6.1 6.9 7.4
- -----------------------------------------------------------------------------
Total non-performing assets $70.6 $68.3 $101.3 $102.2
===================================
Non-performing loans as a percentage
of total loans 1.23% 1.22% 1.79% 2.09%
Non-performing assets as a percentage
of total assets 0.90% 0.91% 1.32% 1.37%
Non-performing assets as a percentage
of stockholders' equity and allowance
for loan losses 9.38% 9.49% 14.35% 15.60%
Allowance for loan losses as a
percentage of non-performing loans 130.40% 137.78% 92.86% 79.07%
Allowance for loan losses as a
percentage of loans 1.60% 1.68% 1.66% 1.66%
Non-performing assets increased slightly to $70.6 million at June
30, 1997 from $68.3 million at March 31, 1997 and decreased 31%
from $102.2 million at June 30, 1996. The decrease in the level
of non-performing assets from a year ago reflects the resolution
of a $20.6 million commercial mortgage loan (associated with a
retail shopping center) during the first quarter of 1997. The
resolution of this loan, which was originally placed on
non-accrual status in the first quarter of 1996, did not result
in a charge-off. Compared to June 30, 1996, non-performing loans
also declined in the residential mortgage, commercial loan, and
other consumer loan portfolios. Changes in non-performing credit
cards primarily reflect the level of the owned portfolio which is
impacted by the timing of credit card securitizations and by
portfolio growth.
Net Charge-Offs (Recoveries)
- ----------------------------------------------------------------------------
Six Months
Quarters Ended Ended
--------------------- ------------
June Mar. June June June
30, 31, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Residential mortgage $1.7 $2.1 $2.0 $3.8 $4.9
Commercial mortgage (1.0) 1.1 2.3 0.1 3.2
Commercial (0.3) (0.8) 0.2 (1.1) (0.3)
Credit card (owned portfolio) 6.4 10.0 7.4 16.4 12.3
Other consumer 0.5 0.3 0.4 0.8 0.9
- -----------------------------------------------------------------------------
Total $7.3 $12.7 $12.3 $20.0 $21.0
=========================================
20
<PAGE>
People's Bank and Subsidiaries
Net Charge-Offs (Recoveries) as a Percentage of Average Loans (1)
- ------------------------------------------------------------------------
Six Months
Quarters Ended Ended
-------------------- ------------
June Mar. June June June
30, 31, 30, 30, 30,
1997 1997 1996 1997 1996
- -------------------------------------------------------------------------
Residential mortgage 0.30% 0.37% 0.37% 0.33% 0.45%
Commercial mortgage (0.45) 0.52 1.20 0.03 0.84
Commercial (0.20) (0.53) 0.20 (0.36) (0.09)
Credit card (owned portfolio) 2.03 2.71 2.92 2.40 2.76
Other consumer 0.80 0.61 0.78 0.70 0.81
- -------------------------------------------------------------------------
Total 0.56% 0.95% 1.05% 0.76% 0.92%
=======================================
(1) Annualized
The provision for loan losses is based on management's ongoing
evaluation of the adequacy of the allowance for loan losses,
which is based on factors such as People's historical loan loss
experience; a review of non-performing loans and related
collateral values; the possibility of loss in view of the
geographic and industry concentrations and other portfolio risk
characteristics; the present financial condition of borrowers;
and current economic conditions. It is implicit in lending
activities that credit losses will be experienced even in the
best economic conditions. While People's strives to minimize
credit losses, the amount of such losses will vary from period to
period depending on the above factors as affected by changing
economic conditions and the financial condition of borrowers.
Credit losses associated with credit card receivables securitized
and sold are not included in People's provision and allowance for
loan losses. Credit losses are absorbed directly under the
contractual agreements of the People's Bank Credit Card Master
Trust, thereby reducing credit card securitization income rather
than increasing the provision for loan losses.
Net charge-offs in the second quarter of 1997 decreased $5.4
million and $5.0 million compared to the first quarter of 1997
and second quarter of 1996, respectively. The decreases were
mainly attributable to a lower net charge-off rate on the owned
credit card portfolio and net recoveries in the commercial
mortgage portfolio. The lower net charge-off rate for credit
cards primarily reflects new accounts which exhibit relatively
low loss rates and the continued securitization of more seasoned
accounts.
On a managed basis (including securitized credit card
receivables), annualized net charge-offs as a percentage of
average credit card receivables equaled 4.06% for the second
quarter of 1997, 4.01% for the first quarter of 1997 and 4.17%
for the second quarter of 1996. New credit card receivables
generally exhibit rising delinquencies and losses after six
months, and generally peak within approximately 18 to 36 months.
Management believes that People's frequent and early contact with
delinquent customers, as well as active portfolio risk
management, has a significant impact on limiting delinquency
trends and net credit losses.
21
<PAGE>
People's Bank and Subsidiaries
Managed Credit Card Portfolio Delinquencies
------------------------------------------------------
June 30, 1997 March 31, 1997 June 30, 1996
----------------- ---------------- -----------------
Percent of Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- ------------------------------------------------------------------------------
Number of days
delinquent:
31-60 days $28.6 0.9% $30.1 1.0% $26.4 1.2%
61-90 days 18.6 0.6 20.1 0.7 15.7 0.7
91 or more days 52.7 1.7 54.9 1.9 39.5 1.7
- ------------------------------------------------------------------------------
Total $99.9 3.2% $105.1 3.6% $81.6 3.6%
=====================================================
Managed Credit Card Portfolio Net Charge-Offs
- ------------------------------------------------------------------------------
Quarters Ended
------------------------------------------------------
June 30, 1997 March 31, 1997 June 30, 1996
----------------- ---------------- -----------------
Percent of Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- ------------------------------------------------------------------------------
Owned portfolio (1) $6.4 2.03% $10.0 2.71% $7.4 2.92%
Securitized and sold
portfolio (2) 23.8 5.55 18.1 5.43 15.2 5.28
- ------------------------------------------------------------------------------
Managed portfolio $30.2 4.06% $28.1 4.01% $22.6 4.17%
=====================================================
- ------------------------------------------------------------
Six Months Ended
------------------------------------
June 30, 1997 June 30, 1996
----------------- -----------------
Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio
- -------------------------------------------------------------
Owned portfolio (1) $16.4 2.40% $12.3 2.76%
Securitized and sold
portfolio (2) 41.9 5.49 29.7 5.10
- -------------------------------------------------------------
Managed portfolio $58.3 4.03% $42.0 4.09%
====================================
(1) Net charge-offs reduce the allowance for loan losses.
(2) Net charge-offs reduce credit card securitization income.
22
<PAGE>
People's Bank and Subsidiaries
Liquidity
Asset liquidity is provided by cash; short-term investments;
proceeds on sales, maturities and principal repayments of
securities; proceeds from principal collections and sales of
loans; and proceeds from credit card securitizations and sales.
In addition, securities may be utilized to collateralize
borrowings under repurchase agreements. The Consolidated
Statements of Cash Flows, on page 4, present data on cash
provided by and used in People's operating, investing and
financing activities. At June 30, 1997, People's liquid assets
included $148.3 million in short-term investments, $648.4 million
in debt securities available for sale, and $560.7 million in
marketable equity securities. At June 30, 1997, People's had
pledged debt securities with a total carrying value of $362.3
million ($242.1 million available for sale and $120.2 million
held to maturity) as collateral to secure public deposits,
repurchase agreements, off-balance-sheet financial instruments
and for other purposes as required by law.
Liability liquidity is measured by People's ability to obtain
core deposits and purchased funds at cost effective rates, and in
diversified markets and maturities. Core deposits are the most
stable source of liquidity due to People's long-term relationship
with deposit customers. Core deposits totaled $4.9 billion at
June 30, 1997 and $4.7 billion at December 31, 1996 (representing
62% of total assets for each period). Purchased funds are
routinely used to compensate for reductions in core deposits, to
support asset growth or to diversify People's funding mix.
People's purchased funds, which include borrowings, time deposits
of $100,000 or more and brokered certificates of deposit, totaled
$2.2 billion at June 30, 1997 and December 31, 1996 (representing
28% and 29% of total assets, respectively).
People's securitizes and sells credit card receivables as an
additional method of diversifying its funding base. This is
accomplished primarily by the public issuance of asset-backed
securities. As credit card receivables are securitized, People's
on-balance-sheet funding needs are reduced by the amount of the
loans securitized. Securitization provides funding for both new
loans and the amortization of previously securitized loans, as
well as the opportunity to repay borrowings. At June 30, 1997,
outstanding asset-backed certificates totaled $1.65 billion
compared to $1.33 billion at December 31, 1996 (representing 17%
and 15% of total managed assets at the respective dates). In the
event that People's is unable to continue securitizing and
selling credit card receivables, its capital ratios and
flexibility of funding sources would be adversely affected.
Although, on a managed basis, People's capital ratios exceeded
all minimum requirements for a well capitalized bank as of June
30, 1997. See "Impact of Credit Card Securitizations" on page 18.
People's credit card securitizations include a revolving period
and a repayment period. During the revolving period, repayments
on trust credit card receivables are used to pay interest to the
Investor Certificateholders and principal collections are used to
purchase new loan receivables. During the repayment period,
principal payments on the credit card receivables are paid to the
investors and People's funding requirements increase accordingly,
as new receivables are no longer purchased by the Investor
Certificateholders, and are thereby returned to the balance
sheet. People's plans to fund the repayment of securitizations
through normal business operations and continued securitizations.
23
<PAGE>
People's Bank and Subsidiaries
- --------------------------------------------------
Scheduled Amortization of Credit Card
Securitizations
(in millions)
- --------------------------------------------------
For the six months ending
December 31, 1997 $196.2
For the years
ending December 31:
1998 155.7
1999 108.6
2000 318.5
2001 324.8
2002 548.1
- --------------------------------------------------
$1,651.9
========
People's may borrow from the FHLB of Boston subject to certain
limitations. Based on the level of qualifying collateral at June
30, 1997, People's borrowing limit was approximately $1.8
billion, with remaining borrowing capacity of approximately $1
billion at that date. At June 30, 1997, People's had outstanding
commitments to originate loans totaling $270 million, and
approved but unused lines of credit extended to customers
totaling $8.6 billion.
The sources of liquidity discussed above are deemed by management
to be sufficient to fund outstanding loan commitments and to meet
People's other obligations.
Capital
At June 30, 1997, People's Tier 1 leverage capital ratio was
8.5%, compared to the minimum ratio of 4.0% generally required by
FDIC regulations. People's is also subject to the FDIC's
risk-based capital regulations, which require minimum ratios of
Tier 1 capital and total capital to risk-weighted assets of 4.0%
and 8.0%, respectively. People's satisfied these requirements at
June 30, 1997 with ratios of 10.2% and 13.8%, respectively.
People's regulatory capital ratios at June 30, 1997 exceed the
FDIC's numeric criteria for classification as a "well
capitalized" bank.
Risk-Based Capital
- -----------------------------------------------------------------------
As of June 30, 1997 People's FDIC Minimum Requirements
----------------- -------------------------
(dollars in millions) Amount Ratio(1) Amount(1) Ratio
- -----------------------------------------------------------------------
Tier 1 capital $655.6(2) 10.2% $256.3 4.0%
Total capital 883.8(3) 13.8% 512.6 8.0%
- -----------------------------------------------------------------------
(1) Based on People's risk-adjusted total assets, as defined, of
$6,407.7 million.
(2) Represents total stockholders' equity, excluding net
unrealized gains or losses on debt securities classified as
available for sale and net unrealized gains on equity
securities classified as available for sale, less certain
assets not recognized in Tier 1 capital
(3) Represents Tier 1 capital plus the allowance for loan losses
up to 1.25% of risk-adjusted total assets.
24
<PAGE>
People's Bank and Subsidiaries
At June 30, 1997, People's Mutual Holdings ("Holdings") owned
36.5 million shares, representing 59.7% of the outstanding common
stock of People's. Holdings is a mutual bank holding company
organized in connection with the 1988 stock offering and
reorganization of People's Bank.
In July 1997, People's declared a cash dividend of $0.17 per
common share, payable on August 15, 1997 to stockholders of
record on August 1, 1997. Holdings elected to waive receipt of
dividends on 96% of its shares, resulting in total dividend
payments of $4.4 million on approximately 26 million shares.
In April 1997, People's declared a three-for-two stock split
providing People's stockholders with an additional half share of
common stock for every share held as of May 1, 1997 (20.3 million
additional shares). The additional shares were distributed to
stockholders on May 15, 1997. The number of authorized shares of
People's common stock was increased from 60,000,000 to
100,000,000.
Part II - Other Information
Item 1 - Legal Proceedings
On August 20, 1993, the Golden Hill Paugussett Tribe of Indians
(the "Tribe") filed a lawsuit against People's in Bridgeport
Superior Court alleging that the Tribe exclusively owned, used
and occupied "since time immemorial" a certain parcel of land,
located in the City of Bridgeport, Connecticut. People's holds
record title to this property, on which Bridgeport Center, its
headquarters office building, is located. People's referred the
matter to the title insurance company for defense. On May 9,
1997, the court granted People's motion to dismiss and its motion
for summary judgment.
Exhibits
(a) Exhibits
Exhibit I Computation of Earnings Per Share
25
<PAGE>
People's Bank and Subsidiaries
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934,
People's has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
People's Bank
Date: August 12, 1997 By: /s/ David E.A. Carson
---------------------
David E.A. Carson
President and
Chief Executive Officer
Date: August 12, 1997 By: /s/ Vincent J. Calabrese
------------------------
Vincent J. Calabrese
Vice President and
Chief Accounting Officer
26
<PAGE>
People's Bank and Subsidiaries
Exhibit I
Computation of Earnings Per Share (1)
Quarters Ended Six Months Ended
----------------- -----------------
June June June June
(dollars in millions, 30, 30, 30, 30,
except per share data) 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Primary Earnings Per Share:
Net income applicable to common stock:
Net income $21.9 $18.2 $43.9 $39.0
Dividends paid on preferred stock - (0.1) - (0.4)
- -----------------------------------------------------------------------------
Net income applicable to common stock 21.9 $18.1 $43.9 $38.6
----------------------------------
Weighted average number of shares:
Weighted average number of common shares
oustanding 61.03 59.27 60.99 58.91
Dilutive effect of outstanding stock
options 0.57 0.68 0.56 0.67
- -----------------------------------------------------------------------------
Total weighted average number
of shares 61.60 59.95 61.55 59.58
==============================
Primary earnings per share $0.36 $0.30 $0.71 $0.65
==============================
Fully Diluted Earnings Per Share:
Net income $21.9 $18.2 $43.9 $39.0
==============================
Weighted average number of shares:
Weighted average number of common
shares outstanding 61.03 59.27 60.99 58.91
Dilutive effect of outstanding stock
options 0.58 0.70 0.58 0.70
Shares issuable from assumed exercise
of convertible preferred stock - 1.44 - 1.74
- -----------------------------------------------------------------------------
Total weighted average number
of shares 61.61 61.41 61.57 61.35
==============================
Fully diluted earnings per share $0.36 $0.30 $0.71 $0.64
==============================
(1) Restated to reflect the 3-for-2 stcok split completed in May
1997.
25
Exhibit 99(4)
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
Form F-4
Quarterly Report Under Section 13 of the
Securities Exchange Act of 1934 for the
Quarter Ended September 30, 1997
FDIC Insurance Certificate Number 27334
-----
PEOPLE'S BANK
-------------
(Exact name of bank as specified in its charter)
850 Main Street, Bridgeport, Connecticut 06604
----------------------------------------------
(Address of principal executive offices)
Connecticut
-----------
(State or other jurisdiction of incorporation or organization)
06-1213065
----------
(I.R.S. Employer Identification No.)
(203) 338-7171
--------------
(Bank's telephone number, including area code)
Indicate by check mark if the bank, as a "small business issuer"
as defined under 17 CFR 240.12b-2, is providing alternative
disclosures as permitted for small business issuers in this
Form F-4. [ ]
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:
61,132,119 shares of common stock as of November 1, 1997
<PAGE>
Table of Contents
-----------------
Page
----
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (Unaudited)
-----------------------------------------
Consolidated Statements of Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis 9
---------------------------------------------
Part II - Other Information
- ---------------------------
Item 6 - Exhibits and Reports on Form F-3 26
- -----------------------------------------
Signatures 27
- ----------
<PAGE>
People's Bank and Subsidiaries
Item 1 - Financial Statements
Consolidated Statements of Condition
(Unaudited)
===========================================================================
Sept. 30, Dec. 31,
(dollars in millions) 1997 1996
- ---------------------------------------------------------------------------
Assets
Cash and due from banks $230.1 $196.2
Short-term investments 144.8 146.7
Securities:
Trading account securities, at estimated
fair value - 2.8
Securities available for sale, at estimated
fair value (amortized cost of $1,323.7 and
$1,214.4 at the respective dates) 1,373.3 1,227.6
Securities held to maturity, at amortized
cost (estimated fair value of $392.8 and
$466.5 at the respective dates) 395.1 472.1
- ---------------------------------------------------------------------------
Total securities, net 1,768.4 1,702.5
- ---------------------------------------------------------------------------
Loans, net:
Residential mortgage 2,168.9 2,242.5
Commercial mortgage 860.8 819.1
Commercial 623.9 591.2
Credit card 1,217.1 1,386.6
Other consumer 276.7 237.6
- ---------------------------------------------------------------------------
Total loans 5,147.4 5,277.0
Less allowance for loan losses (85.7) (87.6)
- ---------------------------------------------------------------------------
Total loans, net 5,061.7 5,189.4
- ---------------------------------------------------------------------------
Premises and equipment, net 182.4 173.6
Other assets 343.8 236.8
- ---------------------------------------------------------------------------
Total assets $7,731.2 $7,645.2
==========================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $943.3 $930.2
Savings, NOW and money market 2,164.2 2,144.8
Time 2,507.0 2,170.2
- ---------------------------------------------------------------------------
Total deposits 5,614.5 5,245.2
- ---------------------------------------------------------------------------
Borrowings:
Federal Home Loan Bank advances 714.6 836.8
Repurchase agreements 237.2 452.7
Federal funds purchased 174.0 257.1
Subordinated notes 148.2 148.0
- ---------------------------------------------------------------------------
Total borrowings 1,274.0 1,694.6
- ---------------------------------------------------------------------------
Other liabilities 145.2 87.4
- ---------------------------------------------------------------------------
Total liabilities 7,033.7 7,027.2
- ---------------------------------------------------------------------------
Stockholders' equity:
Common stock (without par value; 100,000,000
shares authorized; 61,125,869 shares and
60,830,169 shares issued and outstanding
at the respective dates) (1) 61.1 60.8
Additional paid-in capital (1) 94.9 90.8
Retained earnings 520.1 465.8
Net unrealized gain on securities,
net of tax 21.4 0.6
- ---------------------------------------------------------------------------
Total stockholders' equity 697.5 618.0
- ---------------------------------------------------------------------------
Total liabilities and stockholders'
equity $7,731.2 $7,645.2
==========================
(1) Prior period common stock and additional paid-in capital have
been restated to reflect a 3-for-2 stock split completed in May 1997.
See accompanying notes to consolidated financial statements.
1
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Income
(Unaudited)
==============================================================================
Quarters Ended Nine Months Ended
------------------- ------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(in millions, except per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Interest and dividend income:
Residential mortgage $ 42.4 $ 41.9 $ 127.7 $ 122.1
Commercial mortgage 19.2 16.6 56.1 49.5
Commercial 14.4 13.6 42.8 38.8
Credit card 31.3 16.1 83.5 56.4
Other consumer 5.6 4.5 16.0 14.4
- ------------------------------------------------------------------------------
Total interest on loans 112.9 92.7 326.1 281.2
Securities 21.1 22.7 64.6 69.6
Short-term investments 2.2 1.4 6.2 4.0
- ------------------------------------------------------------------------------
Total interest and dividend income 136.2 116.8 396.9 354.8
- ------------------------------------------------------------------------------
Interest expense:
Deposits 46.3 41.2 132.3 121.1
Borrowings 23.9 20.5 72.1 61.6
- ------------------------------------------------------------------------------
Total interest expense 70.2 61.7 204.4 182.7
- ------------------------------------------------------------------------------
Net interest income 66.0 55.1 192.5 172.1
Provision for loan losses 13.8 17.5 31.9 38.5
- ------------------------------------------------------------------------------
Net interest income after provision
for loan losses 52.2 37.6 160.6 133.6
- ------------------------------------------------------------------------------
Non-interest income:
Fee-based revenues:
Credit card securitization income 21.2 18.1 59.4 48.5
Credit card fees 10.6 6.4 28.4 20.2
Service charges on deposit accounts 8.1 7.1 23.4 20.1
Residential mortgage loan servicing
fees 1.6 1.5 4.7 4.6
Net brokerage commissions 2.6 1.7 7.3 5.5
Other 4.0 3.2 10.5 9.3
- ------------------------------------------------------------------------------
Total fee-based revenues 48.1 38.0 133.7 108.2
Net security gains 14.2 2.8 28.7 10.2
Net gains on sales of residential
mortgage loans available for sale 5.5 2.7 12.7 4.5
Net gain on sale of other consumer
loans - - - 6.0
Loss on real estate investments (0.2) (0.6) (1.3) (1.7)
Other 0.7 0.8 3.2 2.7
- ------------------------------------------------------------------------------
Total non-interest income 68.3 43.7 177.0 129.9
- ------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits 38.1 32.1 106.5 92.4
Occupancy and equipment 12.8 11.7 36.9 31.6
Professional and outside service
fees 9.7 9.0 26.9 20.6
Advertising and promotion 10.3 7.8 28.7 18.2
Loss on real estate acquired in
settlement of loans 0.6 0.9 1.8 3.1
Other 11.0 8.8 30.8 26.4
- ------------------------------------------------------------------------------
Total non-interest expense 82.5 70.3 231.6 192.3
- ------------------------------------------------------------------------------
Income before income taxes 38.0 11.0 106.0 71.2
Income tax expense (benefit) 14.7 (9.5) 38.8 11.7
- ------------------------------------------------------------------------------
Net income $ 23.3 $ 20.5 $ 67.2 $ 59.5
=======================================
Net income applicable to
common stock $ 23.3 $ 20.3 $ 67.2 $ 58.9
=======================================
Net income per common share: (1)
Primary $0.38 $0.33 $1.09 $0.98
=======================================
Fully diluted $0.38 $0.33 $1.09 $0.97
=======================================
Average common shares: (1)
Primary 61.64 60.66 61.54 59.92
=======================================
Fully diluted 61.65 61.45 61.57 61.38
=======================================
(1) Restated to reflect the 3-for-2 stock split completed in May 1997.
See accompanying notes to consolidated financial statements.
2
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
For the nine months ended Additional Net Unrealized Total
September 30, 1997 Preferred Common Paid-In Retained Gain (Loss) Stockholders'
(in millions) Stock Stock Capital Earnings on Securities Equity
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 (1) $ - $60.8 $90.8 $465.8 $0.6 $618.0
Net income - - - 67.2 - 67.2
Cash dividends on common stock
($0.48 per share)(1) - - - (12.6) - (12.6)
Change in net unrealized gain on
securities available for sale,
net of tax - - - - 19.8 19.8
Amortization of net unrealized
loss on securities transferred
in 1994 from available for sale
to held to maturity, net of tax - - - - 1.0 1.0
Other - 0.3 4.1 (0.3) - 4.1
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ - $61.1 $94.9 $520.1 $21.4 $697.5
========================================================================
- ----------------------------------------------------------------------------------------------------------
For the nine months ended Additional Net Unrealized Total
September 30, 1996 Preferred Common Paid-In Retained Gain (Loss) Stockholders'
(in millions) Stock Stock Capital Earnings on Securities Equity
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 (1) $16.2 $57.9 $75.4 $399.3 $1.3 $550.1
Net income - - - 59.5 - 59.5
Conversions of preferred stock (16.2) 2.6 13.6 - - -
Cash dividends on preferred stock
($3.18 per share) - - - (0.6) - (0.6)
Cash dividends on common stock
($0.38 per share)(1) - - - (9.3) - (9.3)
Change in net unrealized gain
(loss) on securities available
for sale, net of tax - - - - (4.8) (4.8)
Amortization of net unrealized
loss on securities transferred
in 1994 from available for sale
to held to maturity, net of tax - - - - 1.2 1.2
Other - 0.3 2.0 (0.3) - 2.0
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ - $60.8 $91.0 $448.6 ($2.3) $598.1
========================================================================
</TABLE>
(1) Restated to reflect the 3-for-2 stock split completed in May 1997.
See accompanying notes to consolidated financial statements.
3
<PAGE>
People's Bank and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Consolidated Statements of Cash Flows
==========================================================================
Nine Months Ended
--------------------------
Sept. 30, Sept. 30,
(in millions) 1997 1996
- --------------------------------------------------------------------------
Cash Flows from Operating Activities:
Interest and dividends received $377.2 $348.7
Interest paid (198.9) (181.7)
Income taxes paid (36.1) (14.0)
Purchases of trading account securities (65.2) 10.2
Proceeds from sales of trading account
securities 68.0 (16.2)
Other operating cash flows, net (61.5) (53.3)
- --------------------------------------------------------------------------
Net cash provided by operating activities 83.5 93.7
- --------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sales of available for sale
securities
Debt securities 394.8 438.0
Equity securities 613.9 372.5
Purchases of available for sale securities (1,160.5) (973.1)
Purchases of held to maturity securities (7.7) (37.0)
Proceeds from principal repayments of
available for sale securities 63.6 78.6
Proceeds from principal repayments of
held to maturity securities 86.5 97.6
Loan originations, net of principal
collections (1,320.9) (1,216.4)
Proceeds from sales of loans 429.2 415.3
Proceeds from sales of securitized
credit card receivables 1,000.0 400.0
Other investing cash flows, net (105.0) (49.5)
- --------------------------------------------------------------------------
Net cash used in investing activities (6.1) (474.0)
- --------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposits 369.4 263.6
Proceeds from Federal Home Loan
Bank advances 1,602.3 1,149.5
Payments on Federal Home Loan
Bank advances (1,724.5) (946.9)
Net (decrease) increase in other
borrowings (298.4) (143.6)
Cash dividends paid on common and
preferred stock (12.6) (9.9)
Other financing cash flows, net 14.4 23.6
- --------------------------------------------------------------------------
Net cash provided by financing
activities (49.4) 336.3
- --------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 28.0 (44.0)
Cash and cash equivalents at beginning
of period 330.1 394.0
- --------------------------------------------------------------------------
Cash and cash equivalents at end of period $358.1 $350.0
==========================
Supplemental Disclosure of Non-Cash
Investing Activities:
Real estate properties acquired
by foreclosure $0.3 $14.8
==========================
See accompanying notes to consolidated financial statements.
4
<PAGE>
People's Bank and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited
consolidated financial statements of People's Bank and its
consolidated subsidiaries ("People's") have been prepared to
reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and results of
operations as of the dates and for the periods shown. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses. One
material estimate that is particularly susceptible to significant
near-term change is the allowance for loan losses.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted or
condensed. These statements should be read in conjunction with
People's 1996 Annual Report to Stockholders. The results of
operations for the quarter and nine months ended September 30,
1997 are not necessarily indicative of the results of operations
which may be expected for the entire year. Certain
reclassifications have been made to prior period amounts to
conform to the current period presentation.
In April 1997, stockholders approved an increase in authorized
shares of common stock to 100 million, and People's declared a
three-for-two stock split. The split resulted in the issuance of
20.3 million additional common shares. The total stated value for
these shares was transferred to common stock from additional
paid-in capital. In addition, all share and per share data
presented have been restated to reflect the stock split which was
completed in May 1997.
NOTE 2. ACQUISITIONS
On September 3, 1997, People's, Norwich Financial Corp.
("Norwich"), and The Norwich Savings Society ("NSS") (a
wholly-owned subsidiary of Norwich) entered into an Agreement and
Plan of Merger under which People's will acquire Norwich and NSS.
The proposed transaction was reported on a Current Report on Form
F-3 for the month of September, 1997 and filed by People's with
the Federal Deposit Insurance Corporation. The merger agreement
is subject to approval by the stockholders of People's and
Norwich, and by appropriate state and federal regulatory
agencies. The transaction, which will be accounted for as a
purchase, is expected to close during the first quarter of 1998.
5
<PAGE>
People's Bank and Subsidiaries
NOTE 3. SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
----------------------- --------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------
Trading account securities $ - - $2.8 $2.8
- ------------------------------------------------------------------------------------------------------------
Securities held to maturity:
Collateralized mortgage obligations 306.3 303.3 385.2 379.4
State and municipal 71.9 72.7 62.9 63.5
Corporate and other 16.9 16.8 24.0 23.6
- ------------------------------------------------------------------------------------------------------------
Total securities held to maturity 395.1 392.8 472.1 466.5
- ------------------------------------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
United States Treasury and agency 289.9 287.8 359.4 354.9
Collateralized mortgage obligations 203.1 202.6 126.8 125.2
State and municipal 2.2 2.2 14.2 14.2
Corporate and other 207.5 207.4 249.1 248.2
- ------------------------------------------------------------------------------------------------------------
Total debt securities 702.7 700.0 749.5 742.5
- ------------------------------------------------------------------------------------------------------------
Equity securities:
Money market preferred stocks 245.6 245.6 231.4 231.4
Common stocks 250.8 302.2 160.4 180.5
Federal Home Loan Bank stock 49.3 49.3 41.9 41.9
Other 75.3 76.1 31.2 31.3
- ------------------------------------------------------------------------------------------------------------
Total equity securities 621.0 673.2 464.9 485.1
- ------------------------------------------------------------------------------------------------------------
Total securities available for sale 1,323.6 1,373.2 1,214.4 1,227.6
Net unrealized gain on securities available for sale 49.6 - 13.2 -
- ------------------------------------------------------------------------------------------------------------
Total securities available for sale 1,373.2 1,373.2 1,227.6 1,227.6
- ------------------------------------------------------------------------------------------------------------
Total securities $1,768.3 $1,766.0 1,702.5 $1,696.9
=======================================================
</TABLE>
At September 30, 1997, the net unrealized gain on the available
for sale portfolio, which is reflected in stockholders' equity,
totaled $25.7 million ($49.6 million pre-tax), compared with $7.6
million ($13.2 million pre-tax) at December 31, 1996. Deferred
losses on futures and option contracts utilized to hedge portions
of the available for sale portfolio, which are also reflected in
stockholders' equity, amounted to $4.4 million ($6.6 million
pre-tax) at September 30, 1997 and $2.9 million ($5.0 million
pre-tax) at December 31, 1996.
6
<PAGE>
People's Bank and Subsidiaries
NOTE 4. LOANS
=================================================================
Sept. 30, Dec. 31,
(in millions) 1997 1996
- -----------------------------------------------------------------
Residential mortgage:
Adjustable rate $1,874.9 $1,964.2
Fixed rate 294.0 278.3
- -----------------------------------------------------------------
Total residential mortgage 2,168.9 2,242.5
- -----------------------------------------------------------------
Commercial mortgage:
Office buildings 205.9 220.3
Retail stores and shopping centers 188.4 150.9
Industrial and warehouses 121.0 116.3
Apartment buildings 108.0 110.6
Retail/office 71.9 67.2
Other 165.7 153.8
- -----------------------------------------------------------------
Total commercial mortgage 860.9 819.1
- -----------------------------------------------------------------
Commercial:
Service businesses 199.6 200.1
Manufacturing 156.1 140.9
Finance, insurance and real estate 81.4 82.5
Wholesale distribution 72.8 63.6
Retail sales 30.0 33.2
Other 84.0 70.9
- -----------------------------------------------------------------
Total commercial 623.9 591.2
- -----------------------------------------------------------------
Credit card 1,217.1 1,386.6
Other consumer 276.7 237.6
- -----------------------------------------------------------------
Total loans $5,147.5 $5,277.0
=============================
NOTE 5. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 125
People's prospectively adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities," on January 1, 1997. This resulted in the earlier
recognition of certain components of credit card securitization
income, compared to previous practice. For the quarter and nine
months ended September 30, 1997, the adoption of SFAS No. 125
increased credit card securitization income by $4.8 million and
$10.9 million, respectively, and net income by $3.1 million and
$7.0 million, respectively. See "Impact of Credit Card
Securitizations" on page 21.
NOTE 6. ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings Per Share," which
requires entities with complex capital structures to present both
basic earnings per share ("EPS") and diluted EPS. Basic EPS,
which will replace primary EPS, excludes dilution and is computed
by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock
(such as stock options) were exercised or converted into common
stock or resulted in the issuance of common stock that would then
share in the earnings of the entity. As required, People's will
adopt SFAS No. 128 in the quarter ending December 31, 1997 and
will restate all prior period EPS data to conform to the new
accounting standard at that time.
7
<PAGE>
People's Bank and Subsidiaries
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income (and its
components) in financial statements. The standard does not,
however, specify when to recognize or how to measure items that
make up comprehensive income. Comprehensive income represents net
income and certain amounts reported directly in stockholders'
equity, such as the net unrealized gain or loss on securities
available for sale and foreign currency translation adjustments.
While SFAS No. 130 does not require a specific reporting format,
it does require that an enterprise display an amount representing
total comprehensive income for the period. SFAS No. 130 is
effective for both interim and annual periods beginning after
December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." Among
other things, SFAS No. 131 requires public companies to report
(1) certain financial and descriptive information about its
reportable operating segments (as defined) and (2) certain
enterprise-wide financial information about products and
services, geographic areas and major customers. The required
segment financial disclosures include a measure of profit or
loss, certain specific revenue and expense items, and total
assets. SFAS No. 131 is effective for periods beginning after
December 15, 1997 and will be implemented during the fourth
quarter of 1998.
Management does not anticipate that the adoption of these
standards will have a material impact on People's consolidated
financial statements.
NOTE 7. COMMITMENTS AND CONTINGENCIES
In the normal course of business, People's has various
outstanding commitments and contingent liabilities that have not
been reflected in the consolidated financial statements. In
addition, in the normal course of business, there are various
outstanding legal proceedings. Management has discussed the
nature of these legal proceedings with legal counsel. In the
opinion of management, People's financial position will not be
affected materially as a result of the outcome of such
commitments, contingent liabilities and legal proceedings.
8
<PAGE>
People's Bank and Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected Consolidated Financial Data
- ------------------------------------------------------------------------------
As of and for the periods ended Quarters Ended Nine Months Ended
-------------------- -----------------
Sept. June Sept. Sept. Sept.
30, 30, 30, 30, 30,
(dollars in millions, 1997 1997 1996 1997 1996
except per share data)
- ------------------------------------------------------------------------------
Operating Data:
Net income $23.3 $21.9 $20.5 $67.2 $59.5
Net interest income 66.0 60.8 55.1 192.5 172.1
Provision for loan losses 13.8 7.3 17.5 31.9 38.5
Operating income 123.2 112.6 98.7 349.8 292.9
Net security gains 14.2 9.0 2.8 28.7 10.2
Fee-based revenues 48.1 43.1 38.0 133.7 108.2
Non-interest expense 82.5 77.5 70.3 231.6 192.3
- ------------------------------------------------------------------------------
Selected Statistical Data:
Net interest margin - managed
portfolio (1), (2) 4.15% 4.11% 4.11% 4.16% 4.16%
Net interest margin - owned
portfolio (1) 3.72 3.57 3.49 3.69 3.65
Interest rate spread -
managed portfolio (1), (2) 3.53 3.55 3.58 3.58 3.64
Interest rate spread -
managed portfolio (Including
non-interest-bearing
deposits) (1) (2) 4.05 4.05 4.05 4.07 4.09
Interest rate spread -
owned portfolio (1) 3.04 2.94 2.89 3.05 3.06
Interest rate spread -
owned portfolio (Including
non-interest-bearing
deposits (1) 3.62 3.50 3.42 3.60 3.58
Return on average assets (1) 1.16 1.13 1.15 1.15 1.13
Return on average stockholders'
equity (1) 13.7 13.5 14.0 13.7 13.9
Average stockholders' equity
to average assets 8.52 8.39 8.21 8.35 8.12
Net loan charge-offs to
average loans (1) 1.00 0.56 0.41 0.84 0.75
Non-interest expense to
average assets (1) 4.12 4.01 3.95 3.95 3.65
Efficiency ratio - managed
portfolio 56.7 56.4 58.4 55.6 55.2
Efficiency ratio - owned
portfolio 66.5 68.3 70.3 65.7 64.6
Net loan charge-offs $13.8 $7.3 $4.9 $33.8 $25.9
- ------------------------------------------------------------------------------
Per Share Data:
Net income per common share: (3)
Primary $0.38 $0.36 $0.33 $1.09 $0.98
Fully diluted 0.38 0.36 0.33 1.09 0.97
Common stock dividends paid (3) 0.17 0.16 0.13 0.48 0.38
Common book value (3) 11.41 10.93 9.84 11.41 9.84
Common stock price: (3)
High 32.62 28.38 17.00 32.62 17.00
Low 25.38 18.92 13.50 18.92 12.33
Close 32.06 25.88 16.50 32.06 16.50
Total dividend payout ratio (4) 19.0% 19.8% 16.9% 18.7% 16.6%
- ------------------------------------------------------------------------------
Financial Condition Data:
Total assets - managed
portfolio (2) $9,768 $9,522 $8,670
Total assets - owned portfolio 7,731 7,870 7,237
Loans, net - managed
portfolio (2) 7,099 6,927 6,160
Loans, net - owned portfolio 5,062 5,275 4,726
Securities, net 1,768 1,683 1,699
Deposits 5,615 5,591 5,100
Borrowings 1,274 1,501 1,451
Stockholders' equity 697 668 598
Non-performing assets 59 71 103
Non-performing assets
to total assets 0.76% 0.90% 1.42%
Ratio of allowance for loan
losses to tota1 loans 1.66 1.60 1.82
Stockholders' equity to total
assets 9.0 8.5 8.3
Tier 1 leverage capital ratio 8.4 8.5 7.7
Tier 1 risk-based capital ratio 10.4 10.2 10.6
Total risk-based capital ratio 14.0 13.8 11.8
- ------------------------------------------------------------------------------
(1) Annualized.
(2) Managed portfolio represents the owned portfolio plus off-balance-sheet
credit card receivables.
(3) Restated to reflect the 3-for-2 stock split completed in May 1997.
(4) Reflects the waiver of common stock dividends on substantially all
of the shares owned by People's Mutual Holdings, and includes cash
dividends paid on noncumulative convertible preferred stock through
September 1996.
9
<PAGE>
People's Bank and Subsidiaries
Executive Summary
Key Performance Indicators for Third Quarter 1997 Compared With
Third Quarter 1996
Results of Operations
- - 14% growth in net income.
- Net income for the third quarter of 1996 included a $13.3
million tax credit associated with changes in the federal tax
law and a $12.6 million ($7.6 million after tax) increase to
the allowance for loan losses.
- Net income for the third quarter of 1997 was 57% higher
than adjusted net income of $14.8 million for the third quarter
of last year.
- - Managed net interest margin up slightly to 4.15%, compared to
4.11% for the third quarter of 1996, mainly due to growth of
$794.8 million in managed credit card receivables.
- - All components of fee-based revenues increased, contributing to
27% year-over-year growth.
- - Managed efficiency ratio improved to 56.7% compared to 58.4% a year
ago.
- - Net security gains totaled $14.2 million for the quarter, compared
to $2.8 million for the third quarter of 1996.
- - Managed credit card net charge-offs as a percentage of
average managed credit card receivables increased slightly
by 14 basis points to 4.10%.
- - Effective tax rate equaled 38.7% for the current quarter compared
to 34.5% for the third quarter of 1996.
Financial Condition
- - Managed assets grew $1.1 billion, with nearly $1.0 billion
related to loan growth.
- - Managed credit card portfolio grew $794.8 million, with $114.3
million of the increase attributable to UK receivables.
- - 37 Super Stop & Shop branches were open as of September 30,
1997, handling $479 million in deposits.
- - Total deposits grew 10%, with significant increases in non-
interest-bearing deposits (17%) and municipal deposits (44%).
- - Non-performing assets declined 43%, to $58.6 million.
- - Managed credit card delinquencies declined 55 basis points to 3.25%.
- - 17% growth in stockholders' equity.
10
<PAGE>
People's Bank and Subsidiaries
Net Interest Income
Throughout this discussion, reference is made to People's net
interest income, interest rate spread and net interest margin in
terms of the "owned portfolio" and the "managed portfolio." The
owned portfolio encompasses on-balance-sheet earning assets and
interest-bearing liabilities. These amounts are combined with
off-balance-sheet securitized and sold credit card receivables
and the related securities issued to determine "managed
portfolio" performance.
Net interest income and margin are affected by many factors,
including average balances; securitizations and sales of credit
card receivables; sales of loans and securities; interest rate
fluctuations; product pricing; the relative mix and maturity of
earning assets and interest-bearing liabilities;
non-interest-bearing sources of funds; and asset quality.
Managed Portfolio
The increase in fully taxable equivalent ("FTE") net interest
income for the managed portfolio, compared to the third quarter
of 1996, primarily reflects growth of $755 million in average
managed credit card receivables and $174 million in People's
other loan categories. Partially offsetting these increases was a
25 basis point decline in the yield on average managed credit
card receivables, reflecting growth in balances earning
introductory rates and a higher proportion of convenience users,
who generally do not carry balances on their credit cards from
month to month. The loan growth was funded with increased average
non-interest bearing sources of funds (stockholders' equity of
$98 million and non-interest bearing deposits of $143 million)
and average interest-bearing deposits ($438 million). Net
interest margin was up four basis points to 4.15%, due to growth
in average earning assets as stated above. Although net interest
income increased, the 12 basis point increase on the yield of
average earning assets was offset by a 17 basis point increase in
the yield on average interest-bearing liabilities.
Compared to the second quarter of 1997, the increase in net
interest income reflects growth of $190 million in average
earning assets, with growth of $171 million in average managed
credit card receivables. Also contributing to the increase was a
25 basis point increase in the yield on average managed credit
card receivables due to the repricing of $600 million in credit
card receivables, which impacted finance charges in September, in
addition to normally scheduled repricings. Partially offsetting
this increase was an additional $90 million in interest-bearing
liabilities.
For the first nine months of 1997 compared to same period in
1996, the increase in FTE net interest income for the managed
portfolio primarily reflects growth of $812 million in average
managed credit card receivables and $220 million in People's
other loan categories. Partially offsetting these increases was a
57 basis point decline in the yield on average managed credit
card receivables, reflecting the above-mentioned factors. The
loan growth was funded with increased average non-interest
bearing sources of funds (stockholders' equity of $82 million and
non-interest bearing deposits of $132 million), average
interest-bearing deposits ($391 million), average borrowings
($154 million) and a higher volume of credit card securitizations
($295 million).
Owned Portfolio
In analyzing the owned portfolio, the only difference from the
above discussion is the exclusion of the securitized credit card
receivables and the related securities issued to investors. As
such, the yield on the owned credit card portfolio reflects a
higher proportion of balances earning introductory rates and the
timing of credit card securitizations. Results presented include
the effect of securitizing and selling $1 billion and $400
million in credit card receivables in the first nine months of
1997 and 1996, respectively.
11
<PAGE>
People's Bank and Subsidiaries
Changes in Net Interest Income - FTE Basis
==============================================================================
Third Third Nine
Quarter Quarter Months
1997 1997 1997
Compared Compared Compared
to Second to Third to Nine
Quarter Quarter Months
(in millions) 1997 1996 1996
- ------------------------------------------------------------------------------
On-Balance-Sheet Owned Portfolio
Increase (decrease) in the volume of average
short-term investment ($0.1) $0.8 $2.1
Increase (decrease) in the volume of average
securities $0.2 $0.0 ($2.2)
Increase (decrease) in the volume of average:
Residential mortgage loans (0.7) (0.2) 3.2
Commercial mortgage loans 0.5 2.0 5.3
Commercial loans 0.4 0.9 3.7
Other consumer loans 0.3 1.2 2.0
Increase in the volume of average credit cards 5.0 12.0 30.7
Increase in the volume of average interest-
bearing deposits (1.2) (5.4) (14.8)
Increase in the volume of average borrowings (1.3) (2.8) (8.0)
Increase (decrease) in rates earned on average
earning assets 3.0 3.5 (0.4)
(Increase) decrease in rates paid on average
interest-bearing liabilities (0.7) (0.3) 1.1
- ------------------------------------------------------------------------------
Increase in net interest income $5.4 $11.7 $22.7
==================================
Off-Balance-Sheet Securitizations
Increase (decrease) in securitized credit card
receivables ($3.3) $3.0 $26.5
(Increase) decrease in related securities issued 0.7 (3.7) (16.6)
- ------------------------------------------------------------------------------
Increase (decrease) in net interest
income ($2.6) ($0.7) $9.9
==================================
Total Managed Portfolio
Increase in earning assets $5.1 $23.2 $70.9
Increase in interest-bearing liabilities (2.3) (12.2) (38.3)
- ------------------------------------------------------------------------------
Increase in net interest income $2.8 $11.0 $32.6
==================================
12
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Balance, Interest and Yield/Rate Analysis
==========================================================================================================================
September 30, 1997 June 30, 1997 September 30, 1996
--------------------------- ----------------------------- -----------------------------
Quarters Ended Average Yield/ Average Yield/ Average Yield/
(dollars in millions) (1) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
On-Balance-Sheet
Earning assets: (2)
Short-term investments $ 148.1 $ 2.2 5.91% $ 156.3 $ 2.3 5.84% $ 96.1 $ 1.4 5.67%
Securities 1,744.1 23.9 5.48 1,731.2 24.8 5.72 1,741.2 24.7 5.68
Loans:
Residential mortgage 2,235.4 42.4 7.57 2,275.1 42.8 7.53 2,245.7 41.9 7.47
Commercial mortgage 856.3 19.3 8.98 832.9 18.8 8.99 767.7 16.7 8.70
Commercial 623.8 14.4 9.23 609.0 14.9 9.84 583.6 13.6 9.29
Credit card 1,518.1 31.3 8.27 1,257.3 21.7 6.89 918.6 16.1 7.02
Other consumer 264.9 5.6 8.51 249.2 5.4 8.59 209.7 4.5 8.62
- --------------------------------------------------------------------------------------------------------------------------
Total loans 5,498.5 113.0 8.22 5,223.5 103.6 7.93 4,725.3 92.8 7.86
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,390.7 $139.1 7.53% 7,111.0 $130.7 7.35% 6,562.6 $118.9 7.25%
================== ================== ==================
Other assets 611.0 619.9 551.6
- ------------------------------------- --------- ---------
Total assets $8,001.7 $7,730.9 $7,114.2
========= ========= =========
Interest-bearing liabilities:
Deposits:
Savings, NOW and
money market $2,188.6 $ 13.6 2.48% $2,198.7 $ 13.3 2.42% $2,146.5 $ 14.3 2.65%
Time 2,488.5 32.7 5.25 2,394.7 30.8 5.15 2,092.5 26.9 5.14
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 4,677.1 46.3 3.95 4,593.4 44.1 3.84 4,239.0 41.2 3.89
- --------------------------------------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan
Bank advances 874.6 12.5 5.72 840.1 12.3 5.86 746.5 10.6 5.68
Repurchase agreements 298.0 5.0 6.77 336.2 5.7 6.71 375.7 5.8 6.21
Federal funds purchased 263.3 3.7 5.66 162.9 2.3 5.59 297.0 4.1 5.43
Subordinated notes 148.2 2.7 7.42 148.1 2.8 7.43 - - -
- --------------------------------------------------------------------------------------------------------------------------
Total borrowings 1,584.1 23.9 6.07 1,487.3 23.1 6.18 1,419.2 20.5 5.77
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 6,261.2 $ 70.2 4.49% 6,080.7 $ 67.2 4.41% 5,658.2 $ 61.7 4.36%
================== ================== ==================
Non-interest-bearing
deposits 927.9 889.6 784.5
Other liabilities 130.9 112.3 87.7
- ------------------------------------- --------- ---------
Total liabilities 7,320.0 7,082.6 6,530.4
Stockholders' equity 681.7 648.3 583.8
- ------------------------------------- --------- ---------
Total liabilities
and stockholders'
equity $8,001.7 $7,730.9 $7,114.2
========= ========= =========
Excess of earning assets
over interest-bearing
liabilities $1,129.5 $1,030.3 $ 904.4
========= ========= =========
Net interest income $ 68.9 $ 63.5 $ 57.2
======= ======= ========
Interest rate spread 3.04% 2.94% 2.89%
Interest rate spread
(Including non-interest-
bearing deposits) 3.62% 3.50% 3.42%
Net interest margin 3.72% 3.57% 3.49%
Off-Balance-Sheet
Securitized credit card
receivables $1,625.7 $ 50.6 12.45% $1,715.9 $ 53.9 12.56% $1,469.8 $ 47.6 12.94%
Related securities issued 1,625.7 25.9 6.38 1,715.9 26.6 6.20 1,469.8 22.2 6.04
- --------------------------------------------------------------------------------------------------------------------------
Net interest income (3) $ 24.7 $ 27.3 $ 25.4
======= ======= ========
Managed Net Interest
Margin Analysis
Earning assets $9,016.4 $189.7 8.41% $8,826.9 $184.6 8.36% $8,032.4 $166.5 8.29%
Interest-bearing
liabilities 7,886.9 96.1 4.88 7,796.6 93.8 4.81 7,128.0 83.9 4.71
- --------------------------------------------------------------------------------------------------------------------------
Excess of earning assets
over interest-bearing
liabilities $1,129.5 $1,030.3 $ 904.4
========= ========= =========
Net interest income $ 93.6 $ 90.8 $ 82.6
======= ======= ========
Interest rate spread 3.53% 3.55% 3.58%
Interest rate spread
(Including non-interest-
bearing deposits) 4.05% 4.05% 4.05%
Net interest margin 4.15% 4.11% 4.11%
(1) Average yields earned and rates paid are annualized.
(2) The FTE adjustment for the quarters ended September 30, 1997, June 30, 1997, and September 30, 1996 was $2.9 million,
$2.7 million and $2.1 million, respectively.
(3) Net interest income associated with the off-balance-sheet portfolio is included in "credit card securitization income".
</TABLE>
13
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Balance, Interest and Yield/Rate Analysis
===================================================================================================
September 30, 1997 September 30, 1996
------------------------------- -----------------------------
Nine Months Ended Average Yield/ Average Yield/
(dollars in millions) (1) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------
On-Balance-Sheet
Earning assets: (2)
Short-term investments $ 143.0 $ 6.2 5.78% $ 93.5 $ 4.0 5.66%
Securities 1,716.9 72.2 5.61 1,769.3 74.8 5.64
Loans:
Residential mortgage 2,255.4 127.7 7.55 2,198.4 122.1 7.41
Commercial mortgage 837.5 56.2 8.94 758.6 49.7 8.74
Commercial 606.2 42.8 9.42 553.6 38.8 9.34
Credit card 1,415.8 83.5 7.87 898.4 56.4 8.37
Other consumer 251.2 16.0 8.50 219.3 14.4 8.73
- ---------------------------------------------------------------------------------------------------
Total loans 5,366.1 326.2 8.10 4,628.3 281.4 8.11
- ---------------------------------------------------------------------------------------------------
Total earning assets 7,226.0 $404.6 7.47% 6,491.1 $360.2 7.40%
================ ================
Other assets 589.3 540.7
- --------------------------------------------------- ---------
Total assets $7,815.3 $7,031.8
========= =========
Interest-bearing liabilities:
Deposits:
Savings, NOW and money market $2,173.6 $ 39.7 2.43% $2,154.9 $ 43.1 2.67%
Time 2,393.7 92.6 5.16 2,021.0 78.0 5.15
- ---------------------------------------------------------------------------------------------------
Total deposits 4,567.3 132.3 3.86 4,175.9 121.1 3.87
- ---------------------------------------------------------------------------------------------------
Borrowings:
Federal Home Loan Bank advances 827.1 35.5 5.73 648.7 28.0 5.76
Repurchase agreements 360.9 17.7 6.54 483.4 21.3 5.88
Federal funds purchased 257.2 10.7 5.55 307.4 12.3 5.31
Subordinated notes 148.1 8.2 7.43 - - -
- ---------------------------------------------------------------------------------------------------
Total borrowings 1,593.3 72.1 6.04 1,439.5 61.6 5.70
- ---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 6,160.6 $204.4 4.42% 5,615.4 $182.7 4.34%
================ ================
Non-interest-bearing deposits 887.6 755.3
Other liabilities 114.3 90.3
- --------------------------------------------------- ---------
Total liabilities 7,162.5 6,461.0
Stockholders' equity 652.8 570.8
- --------------------------------------------------- ---------
Total liabilities and
stockholders' equity $7,815.3 $7,031.8
========= =========
Excess of earning assets over
interest-bearing liabilities $1,065.4 $ 875.7
========= =========
Net interest income $200.2 $177.5
======= ======
Interest rate spread 3.05% 3.06%
Interest rate spread (Including
non-interest-bearing deposits) 3.60% 3.58%
Net interest margin 3.69% 3.65%
Off-Balance-Sheet
Securitized credit card receivables $1,560.4 $147.2 12.57% $1,265.8 $120.7 12.71%
Related securities issued 1,560.4 73.1 6.25 1,265.8 56.5 5.95
- ---------------------------------------------------------------------------------------------------
Net interest income (3) $74.1 $64.2
======= ======
Managed Net Interest Margin Analysis
Earning assets $8,786.4 $551.8 8.37% $7,756.9 $480.9 8.27%
Interest-bearing liabilities 7,721.0 277.5 4.79 6,881.2 239.2 4.63
- ---------------------------------------------------------------------------------------------------
Excess of earning assets over
interest-bearing liabilities $1,065.4 $ 875.7
========= =========
Net interest income $274.3 $241.7
======= ======
Interest rate spread 3.58% 3.64%
Interest rate spread (Including non-
interest-bearing deposits) 4.07% 4.09%
Net interest margin 4.16% 4.16%
(1) Average yields earned and rates paid are annualized.
(2) The FTE adjustment for the nine months ended September 1997 and September 1996 was $7.7 million and $5.4 million,
respectively.
(3) Net interest income associated with the off-balance-sheet portfolio is included in "credit card securitization income".
</TABLE>
14
<PAGE>
People's Bank and Subsidiaries
Non-Interest Income
==============================================================================
Quarters Ended Nine Months Ended
--------------------------- -------------------
Sept. June Sept. Sept. Sept.
30, 30, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Fee-based revenues:
Credit card securitization
income $21.2 $19.6 $18.1 $59.4 $48.5
Credit card fees 10.6 8.4 6.4 28.4 20.2
- ------------------------------------------------------------------------------
Total credit card fee-
based revenues 31.8 28.0 24.5 87.8 68.7
Service charges on demand
and NOW accounts 8.1 7.9 7.1 23.4 20.1
Residential mortgage loan
servicing fees 1.6 1.6 1.5 4.7 4.6
Net brokerage commissions 2.6 2.3 1.7 7.3 5.5
Other fee-based revenues:
Other banking service
charges and fees 1.6 1.4 1.4 4.4 3.9
Other loan fees 1.5 1.1 1.1 3.5 3.2
Trust fees 0.9 0.8 0.7 2.6 2.2
- ------------------------------------------------------------------------------
Total other fee-
based revenues 4.0 3.3 3.2 10.5 9.3
- ------------------------------------------------------------------------------
Total fee-based revenues 48.1 43.1 38.0 133.7 108.2
- ------------------------------------------------------------------------------
Net security gains (losses):
Trading account securities - (0.1) 0.4 (0.7) 0.3
Debt securities available
for sale 1.5 0.7 0.5 2.8 1.5
Equity securities available
for sale 12.7 8.4 1.9 26.6 8.4
- ------------------------------------------------------------------------------
Total net security gains 14.2 9.0 2.8 28.7 10.2
- ------------------------------------------------------------------------------
Net gains on sales of
residential mortgage loans
available for sale 5.5 4.8 2.7 12.7 4.5
Net gain on sale of other
consumer loans - - - - 6.0
Loss on real estate investments (0.2) (0.9) (0.6) (1.3) (1.7)
Other income 0.7 1.2 0.8 3.2 2.7
- ------------------------------------------------------------------------------
Total non-interest income $68.3 $57.2 $43.7 $177.0 $129.9
===============================================
Fee-based revenues increased $10.1 million in the third quarter
of 1997 compared to the third quarter of 1996, and increased
$25.5 million in the first nine months of 1997 compared to the
first nine months of 1996. Credit card-related fees contributed
significantly to the increase primarily due to 32% growth in the
managed credit card portfolio since September 30, 1996, as well
as the prospective adoption of SFAS 125 as of January 1, 1997
(see Note 5 to the consolidated financial statements on page 7).
This new accounting standard increased credit card securitization
income by $4.8 million and $10.9 million for the third quarter
and first nine months of 1997, respectively, compared to the
respective 1996 periods. Service charges on deposit accounts and
net brokerage commissions also contributed to the increase in
fee-based revenues. Higher service charges on deposit accounts
reflect the 17% growth in non-interest-bearing deposits. Net
brokerage commissions increased due to higher trading volume for
People's Securities, Inc.
Net gains on sales of securities increased $11.4 million compared
to the third quarter of 1996. For the first nine months of 1997,
net gains increased $18.5 million compared to the 1996 period.
Even with the significant higher level of realized gains,
People's unrealized gains in the common stock portfolio totaled
$51.4 million at September 30, 1997, compared to $40.5 million as
of June 30, 1997 and $18.0 million as of September 30, 1996. The
increase in realized and unrealized gains reflects strength in
the financial markets during the third quarter and first nine
months of the year.
Net gains on sales of residential mortgage loans increased $2.8
million compared to the third quarter of 1996, and increased $8.2
million for the first nine months of 1997 compared to the 1996
period. The volume of residential mortgage loans sold increased
as well as the premiums received due to the demand in the market
place.
15
<PAGE>
People's Bank and Subsidiaries
In February 1996, People's sold approximately $119 million in
home equity credit line balances on a non-recourse basis and
retained the related servicing rights. This transaction, which
was undertaken in part due to the premium assets of this type
commanded in the marketplace, resulted in a net gain of $6.0
million.
Non-Interest Expense
- ------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
---------------------------- --------------------
Sept. June Sept. Sept. Sept.
30, 30, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Compensation and benefits $38.1 $34.3 $32.1 $106.5 $92.4
Occupancy and equipment 12.8 12.4 11.7 36.9 31.6
Professional and outside
service fees 9.7 9.7 9.0 26.9 20.6
Advertising and promotion 10.3 9.6 7.8 28.7 18.2
Loss on REO 0.6 0.6 0.9 1.8 3.1
Other non-interest expense:
Printing, postage,
stationery and supplies 3.9 3.4 2.8 10.6 9.2
Telephone 1.6 1.7 1.5 4.6 3.9
Other expense 5.5 5.8 4.5 15.6 13.3
- ----------------------------------------------------------------------------
Total other non-
interest expense 11.0 10.9 8.8 30.8 26.4
- ----------------------------------------------------------------------------
Total non-interest
expense $82.5 $77.5 $70.3 $231.6 $192.3
===============================================
Average number of full-time
equivalent employees 2,964 2,823 2,702 2,889 2,621
Efficiency ratio - managed
portfolio, annualized 56.7% 56.4% 58.4% 55.6% 55.2%
Efficiency ratio -
owned portfolio, annualized 66.5% 68.3% 70.3% 65.7% 64.6%
===============================================
For the third quarter of 1997, non-interest expense increased
$12.2 million compared to the third quarter of 1996. The growth
in expenses primarily consists of compensation and benefits and
marketing costs which reflect continued expansion of business
initiatives such as the domestic credit card business
(representing an increase of $7.5 million), and the Super Stop &
Shop initiative (representing an increase of $2.0 million).
Incentive-based compensation tied to People's Bank stock
performance contributed $2.4 million to the overall increase in
compensation and benefits.
The $39.3 million increase in expenses for the first nine months
of 1997 compared to the same period in 1996 is attributable to
the factors mentioned above, as well as a $6.3 million increase
in professional and outside service fees, primarily related to
credit card processing costs.
Higher expenses were offset by higher revenues in the third
quarter of 1997, resulting in a slight decrease in the managed
efficiency ratio to 56.7% in the current quarter from 58.4% for
the quarter ended September 30, 1996. The managed efficiency
ratio remained relatively stable at 55.6% for the first nine
months of 1997 compared to 55.2% for the same period last year.
Income Taxes
The effective tax rates were 38.7% and 36.6% for the third
quarter and first nine months of 1997, compared with 34.5% and
35.1% for the respective 1996 periods. The 1996 effective tax
rates have been adjusted to exclude the $13.3 million income tax
benefit recorded in the third quarter of 1996.
16
<PAGE>
People's Bank and Subsidiaries
FINANCIAL CONDITION
General
Total managed assets increased $790.0 million to $9.77 billion at
September 30, 1997 from $8.98 billion at December 31, 1996,
mainly as a result of $534.3 million growth in managed credit
card receivables. Total owned assets increased $86.0 million to
$7.73 billion at September 30, 1997 from $7.65 billion at
December 31, 1996. Contributing to the increase was loan growth
totaling $113.5 million for the commercial mortgage ($41.7
million), commercial loan ($32.7 million) and other consumer loan
($39.1 million) portfolios. This loan growth was partially offset
by a $73.6 million decrease in residential mortgages.
Originations of residential mortgages totaled $682.2 million year
to date, however the decrease in the portfolio reflects the
regular sales of fixed rate mortgages as well as repayments.
Total securities increased $65.9 million due to purchases in the
equity portfolio. On a year-over-year basis, managed assets grew
by $1.10 billion led by managed credit card ($794.8 million),
commercial mortgage ($84.3 million), commercial lending ($27.5
million) and other consumer loans ($55.3 million).
People's liabilities remained relatively flat at $7.03 billion
compared to December 31, 1996. On a managed basis, liabilities
totaled $9.07 billion compared to $8.36 billion at December 31,
1996. Total deposits increased $369.3 million, primarily due to
growth of $336.8 in time deposits. Contributing to this growth
was an increase in municipal deposits of $78.6 million. Total
borrowings decreased $420.6 million, primarily due to reductions
in repurchase agreements and Federal Home Loan Bank ("FHLB") of
Boston advances. Borrowings were reduced using portions of the
proceeds from two credit card securitizations and sales completed
in the first and third quarters, each totaling $500 million.
At September 30, 1997, People's stockholders' equity totaled
$697.5 million, a $79.5 million increase compared to December 31,
1996. The increase primarily reflects net income of $67.2 million
for the first nine months of 1997 and an increase of $20.8
million in after-tax net unrealized gains on securities,
partially offset by $12.6 million of dividends paid on common
stock. As a percentage of total owned assets, stockholders'
equity was 9.0% at September 30, 1997, compared to 8.1% at
December 31, 1996 and 8.3% at September 30, 1996.
Risk Management
People's manages various risk exposures through the use of
derivative financial instruments such as interest rate swaps and
corridors, options, futures contracts and foreign exchange rate
forward contracts. These instruments are used in hedging
strategies to manage interest rate, price and foreign currency
risks, and are not used for trading purposes. Written policy
guidelines, which have been approved by the Board of Directors
and the Asset/Liability Committee (ALCO), govern the use of
off-balance-sheet financial instruments, including approved
counterparties, risk limits and appropriate separation of duties.
Master netting agreements for interest rate swaps, corridors and
foreign exchange forward contracts are arranged and collateral is
obtained, where appropriate, through physical delivery of
securities or cash to reduce People's exposure to credit losses
in the event of non-performance by the counterparties to these
transactions. People's also controls its counterparty risk by
entering into agreements with only highly-rated counterparties
which are specifically approved by People's up to a maximum
credit exposure. Net credit exposure on interest rate swaps,
corridors and foreign exchange forward contracts, representing
the net positive fair values including the effect of bilateral
netting agreements, amounted to $2.2 million and $0.9 million at
September 30, 1997 and December 31, 1996, respectively.
17
<PAGE>
People's Bank and Subsidiaries
Interest Rate Risk
People's strives to manage interest rate risk so that a gradual
200 basis point change in interest rates over a 12-month period
should not result in more than a 5% negative impact on "income at
risk," which is net interest income and adjusted credit card
securitization income. For this purpose, adjusted credit card
securitization income includes interest income on securitized
receivables less interest payments to the certificateholders. At
September 30, 1997, People's was within its established limits
with respect to income at risk.
Interest rate swaps and corridors are used to manage interest
rate risk associated with interest-earning assets and
interest-bearing liabilities. The notional amounts of interest
rate swaps and options totaled $1.06 billion and $425.0 million,
respectively, as of September 30, 1997.
People's enters into eurodollar futures contracts to reduce the
impact that higher interest rates would have on the estimated
fair value of a portion of the available for sale debt securities
portfolio. At September 30, 1997, outstanding eurodollar futures
contracts had a total notional amount of $1.68 billion. Changes
in the estimated fair value of the hedged portion of the
securities portfolio have been (and are expected to be)
substantially offset by gains or losses on the futures contracts.
After-tax deferred futures losses of $3.3 million ($4.8 million
pre-tax) are reflected in stockholders' equity at September 30,
1997.
The net effect of interest rate swaps, corridors, and futures
contracts during the third quarter was a decrease in net interest
income by $0.7 million compared to a decrease of $1.7 million for
the same period last year. These amounts reduced the net interest
margin by 3 basis points and 10 basis points for the respective
periods. For the first nine months of 1997, these items caused
net interest income to decrease by $2.5 million compared to a
decrease of $4.6 million for the first nine months of 1996. These
amounts reduced the net interest margin by 5 basis points and 9
basis points, respectively.
Equity Portfolio Price Risk
In March 1997, People's entered into a hedging program to reduce
the impact that a downturn in the stock market would have on the
fair value of People's common stock portfolio. The hedge
consisted of the sale of S&P futures contracts and the purchase
of S&P puts and calls.
In light of changes in economic and market outlooks, People's
substantially reduced the hedge protection during the second
quarter of 1997 by closing all of its positions in S&P futures
and calls. The remaining S&P puts expired during the third
quarter. Losses totaled $5.1 million, of which $1.8 million was
deferred as of September 30, 1997. Stockholders' equity at
September 30, 1997 reflects $1.1 million in deferred losses on
the hedge on an after-tax basis. These losses were more than
offset by the appreciation in the value of the underlying common
stock portfolio during the second and third quarters.
Foreign Currency Exchange Rate Risk
Foreign exchange rate forward contracts are commitments to buy or
sell foreign currency on a future date at a contractual price.
People's uses these contracts to reduce its exposure to foreign
currency exchange rate risk on credit card receivables
denominated in pounds sterling. At September 30, 1997, People's
had contracts outstanding to sell pounds sterling, with a total
U.S. dollar notional amount of $129.0 million, which mature
within one year. Gains and losses on forward contracts have
substantially offset the gains and losses attributable to
currency translations on the related hedged items.
18
<PAGE>
People's Bank and Subsidiaries
Managed Credit Card Portfolio
People's began its credit card program in 1985 by marketing a low
fixed interest rate card to highly creditworthy individuals in
its market area, and as a result of the success of the initial
program, the operation was expanded nationally. In 1996 the
credit card operation was further expanded into the United
Kingdom. In order to continue growing the portfolio, People's has
invested in sophisticated information-based strategies for
originating and managing credit card accounts. New account
solicitations are primarily targeted at customers who are highly
creditworthy and carry balances on their credit cards. Compared
to December 31, 1996, the managed credit card portfolio increased
by $534.1 million to $3.25 billion at September 30, 1997.
Contributing to this growth was $90.3 million in receivables
generated in the United Kingdom during this period.
New credit card receivables generally exhibit rising
delinquencies and losses after six months, and generally peak
within approximately 18 to 36 months. Management believes that
People's frequent and early contact with delinquent customers, as
well as active portfolio risk management, has a significant
impact on limiting delinquency trends and net credit losses.
Credit card delinquencies equaled 3.25% of quarter-end managed
receivables, down from 3.80% a year ago. Annualized net
charge-offs as a percentage of average credit card receivables
equaled 4.10% for the quarter, a slight increase from 4.06% for
the second quarter of 1997 and 3.96% for the third quarter of
1996.
Managed Credit Card Portfolio Delinquencies
---------------------------------------------------------
Sept. 30, 1997 June 30, 1997 Sept. 30, 1996
--------------------- ------------------ ----------------
Percent of Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- -----------------------------------------------------------------------------
Number of days
delinquent:
31-60 days $33.7 1.0% $28.6 0.9% $30.2 1.2%
61-90 days 21.4 0.7 18.6 0.6 19.6 0.8
91 or more days 50.8 1.6 52.7 1.7 43.4 1.8
- -----------------------------------------------------------------------------
Total $105.9 3.25% $99.9 3.26% $93.2 3.80%
===========================================================
Managed Credit Card Portfolio Net Charge-Offs
- ------------------------------------------------------------------------------
Quarters Ended
------------------------------------------------------
Sept. 30, 1997 June 30, 1997 Sept. 30, 1996
------------------------------------------------------
Percent of Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio Amount Portfolio
- ------------------------------------------------------------------------------
Owned portfolio (1) $11.0 2.91% $6.4 2.03% $3.5 1.52%
Securitized and
sold portfolio (2) 21.2 5.20 23.8 5.55 20.1 5.48
- ------------------------------------------------------------------------------
Managed portfolio $32.2 4.10% $30.2 4.06% $23.6 3.96%
======================================================
- -----------------------------------------------------------------------
Nine Months Ended
-------------------------------------------
Sept. 30, 1997 Sept. 30, 1996
-------------------------------------------
Percent of Percent of
(dollars in millions) Amount Portfolio Amount Portfolio
- -----------------------------------------------------------------------
Owned portfolio (1) $27.4 2.58% $15.8 2.34%
Securitized and
sold portfolio (2) 63.1 5.39 49.8 5.25
- -----------------------------------------------------------------------
Managed portfolio $90.5 4.05% $65.6 4.04%
===========================================
(1) Net charge-offs reduce the allowance for loan losses.
(2) Net charge-offs reduce credit card securitization income.
19
<PAGE>
People's Bank and Subsidiaries
Since beginning its securitization program in 1993, People's has
securitized and sold credit card receivables totaling $2.6
billion in the capital market with $2.04 billion outstanding at
September 30, 1997. Securitization involves the transfer of a
group of credit card receivables from People's to the People's
Bank Credit Card Master Trust. These receivables arise from
credit card accounts whose ownership and servicing
responsibilities are retained by People's. In addition to
existing receivables, rights to new receivables and most fees
generated by these accounts are also transferred to the trust.
The trust issues two types of certificates representing undivided
interests in the trust. Investor Certificates are sold by the
trust to investors, generally through a public offering.
People's, through its wholly-owned special purpose subsidiary,
People's Structured Finance Corp., retains the Transferor
Certificate. See "Liquidity" on page 24.
For securitized and sold receivables, amounts that would have
been previously reported as net interest income, credit card fees
and provisions for loan losses (if such receivables had not been
sold but remained on-balance-sheet) are instead combined and
reported as credit card securitization income. People's credit
card securitization income may vary over the term of the
transactions depending upon the level of interest and fees
charged on credit card accounts, the interest rate environment
and the credit performance of the securitized receivables.
However, People's exposure to losses on the securitized
receivables is contractually limited to future excess spread
revenue and to collateral established for the benefit of
investors, which totaled $69.8 million at September 30, 1997. See
"Non-Interest Income" on page 15 and "Liquidity" on page 24.
Consistent with industry practice prior to adoption of SFAS No.
125, People's recognized excess spread revenue on securitized and
sold credit card receivables over the term of the securitization.
In certain circumstances, however, SFAS No. 125 requires
capitalization of future excess spread revenue, which resulted in
earlier recognition by People's of certain components of credit
card securitization income in the first nine months of 1997.
People's prospective adoption of SFAS No. 125, as of January 1,
1997, resulted in increases of $4.8 million and $10.9 million in
credit card securitization income (capitalized future excess
spread revenue, less amortization) for the quarter and nine
months ended September 30, 1997, respectively.
The components of credit card securitization income are as
follows:
- -----------------------------------------------------------------------------
Quarters Ended Nine Months Ended
-------------------------- ------------------
Sept. June Sept. Sept. Sept.
30, 30, 30, 30, 30,
(in millions) 1997 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Interest on credit
cards $50.6 $53.9 $47.6 $147.2 $120.7
Credit card fees and other 12.9 13.4 12.8 37.5 34.1
Capitalized future excess
spread revenue, net 4.8 2.7 - 10.9 -
Interest on asset-backed
Investor Certificates (25.9) (26.6) (22.2) (73.1) (56.5)
Net credit card charge-offs (21.2) (23.8) (20.1) (63.1) (49.8)
Servicing fee paid (8.1) (8.5) (7.3) (23.2) (18.7)
- -----------------------------------------------------------------------------
Excess spread revenue 13.2 11.1 10.8 36.2 29.8
Servicing fee revenue 8.1 8.5 7.3 23.2 18.7
- -----------------------------------------------------------------------------
Credit card
securitization income $21.2 $19.6 $18.1 $59.4 $48.5
------------------------------------------------
20
<PAGE>
People's Bank and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Impact of Credit Card Securitizations (pro forma)
=============================================================================================================
September 30, 1997 September 30, 1996
------------------------------------ ------------------------------------
Excluding Impact of Excluding Impact of
As of and for the quarters ended Impact of Securiti- As Impact of Securiti- As
(dollars in millions) Securitization zation Reported Securitization zation Reported
- -------------------------------------------------------------------------------------------------------------
Interest and dividend income $186.8 ($50.6) $136.2 $164.4 ($47.6) $116.8
Interest expense (96.1) 25.9 (70.2) (83.9) 22.2 (61.7)
- -------------------------------------------------------------------------------------------------------------
Net interest income 90.7 (24.7) 66.0 80.5 (25.4) 55.1
Provision for loan losses (35.0) 21.2 (13.8) (37.6) 20.1 (17.5)
Credit card securitization income (1) - 21.2 21.2 - 18.1 18.1
Credit card fees 22.2 (11.6) 10.6 18.6 (12.2) 6.4
Other non-interest income 37.8 (1.3) 36.5 19.8 (0.6) 19.2
Non-interest expense (82.5) - (82.5) (70.3) - (70.3)
Income tax expense (13.0) (1.7) (14.7) 9.5 - 9.5
- -------------------------------------------------------------------------------------------------------------
Net income (1) $20.2 $3.1 $23.3 $20.5 $ - $20.5
==========================================================================
Tier 1 leverage capital ratio 7.2% 1.2% 8.4% 7.1% 0.6% 7.7%
Risk-based capital ratios :
Tier 1 8.0% 2.5% 10.4% 9.2% 1.4% 10.6%
Total 10.7% 3.3% 14.0% 10.4% 1.4% 11.8%
Credit card securitization
income as a percentage
of average securitized
and sold portfolio (2), (3) - - 5.23% - - 4.91%
Net interest margin (2) 4.15% (0.43%) 3.72% 4.11% (0.62%) 3.49%
Efficiency ratio 56.7% 9.8% 66.5% 58.4% 11.9% 70.3%
Total loans, net $7,098.8 ($2,037.1) $5,061.7 $6,159.7 ($1,433.3) $4,726.4
Total assets 9,768.3 (2,037.1) 7,731.2 8,669.9 (1,433.3) 7,236.6
Total average earning assets 9,016.4 (1,625.7) 7,390.7 8,032.4 (1,469.8) 6,562.6
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
September 30, 1997 September 30, 1996
------------------------------------ ------------------------------------
As of and for the Excluding Impact of Excluding Impact of
nine months ended Impact of Securiti- As Impact of Securiti- As
(dollars in millions) Securitization zation Reported Securitization zation Reported
- -------------------------------------------------------------------------------------------------------------
Interest and dividend income $544.1 ($147.2) $396.9 $475.5 ($120.7) $354.8
Interest expense (277.5) 73.1 (204.4) (239.2) 56.5 (182.7)
- -------------------------------------------------------------------------------------------------------------
Net interest income 266.6 (74.1) 192.5 236.3 (64.2) 172.1
Provision for loan losses (95.0) 63.1 (31.9) (88.3) 49.8 (38.5)
Credit card securitization income (1) - 59.4 59.4 - 48.5 48.5
Credit card fees 62.8 (34.4) 28.4 52.9 (32.7) 20.2
Other non-interest income 92.3 (3.1) 89.2 62.6 (1.4) 61.2
Non-interest expense (231.6) - (231.6) (192.3) - (192.3)
Income tax expense (34.9) (3.9) (38.8) (11.7) - (11.7)
- -------------------------------------------------------------------------------------------------------------
Net income (1) $60.2 $7.0 $67.2 $59.5 $ - $59.5
==========================================================================
Credit card securitization
income as a percentage
of average securitized and
sold portfolio (2), (3) - - 5.08% - - 5.10%
Net interest margin (2) 4.16% (0.47%) 3.69% 4.16% (0.51%) 3.65%
Efficiency ratio 55.6% 10.1% 65.7% 55.2% 9.4% 64.6%
Total loans, net $7,098.8 ($2,037.1) $5,061.7 $6,159.7 ($1,433.3) $4,726.4
Total assets 9,768.3 (2,037.1) 7,731.2 8,669.9 (1,433.3) 7,236.6
Total average earning assets 8,786.4 (1,560.4) 7,226.0 7,756.9 (1,265.8) 6,491.1
- -----------------------------------------------------------------------------------------------------------
(1) The adoption of SFAS No. 125 increased credit card securitization income by $4.8 million and $10.9 million,
and net income by $3.1 million and $7.0 for the quarter and nine months ended September 30, 1997, respectively.
(2) Annualized.
(3) Percentages for the quarter and for the nine months ended September 30, 1997, would have been 4.06% and 4.14%,
respectively, without the without the impact of SFAS 125.
</TABLE>
21
<PAGE>
People's Bank and Subsidiaries
Asset Quality
Non-Performing Assets
==============================================================================
Sept. June Sept. Dec. Sept.
30, 30, 31, 31, 30,
(dollars in millions) 1997 1997 1997 1996 1996
- ------------------------------------------------------------------------------
Non-accrual loans:
Residential mortgage $29.5 $29.3 $31.0 $30.2 $31.7
Commercial mortgage 2.1 5.3 5.4 25.8 28.7
Commercial 7.4 10.5 10.8 11.2 14.7
Credit card (owned portfolio) 13.4 16.4 9.6 21.6 10.9
Other consumer 2.2 2.1 2.5 2.1 2.7
- ------------------------------------------------------------------------------
Total non-accrual loans 54.6 63.6 59.3 90.9 88.7
- ------------------------------------------------------------------------------
Restructured loans:
Commercial mortgage 0.4 0.9 2.1 2.5 3.3
Commercial 0.3 1.2 0.8 1.0 1.0
- ------------------------------------------------------------------------------
Total restructured loans 0.7 2.1 2.9 3.5 4.3
- ------------------------------------------------------------------------------
Total non-performing loans 55.3 65.7 62.2 94.4 93.0
REO, net 3.3 4.9 6.1 6.9 9.9
- ------------------------------------------------------------------------------
Total non-performing assets $58.6 $70.6 $68.3 $101.3 $102.9
============================================
Non-performing loans as a
percentage of total loans 1.07% 1.23% 1.22% 1.79% 1.93%
Non-performing assets as a
percentage of total assets 0.76% 0.90% 0.91% 1.32% 1.42%
Non-performing assets as a
percentage of stockholders'
equity and allowance for
loan losses 7.48% 9.38% 9.49% 14.35% 15.01%
Allowance for loan losses as
a percentage of non-performing
loans 154.89% 130.40% 137.78% 92.86% 94.21%
Allowance for loan losses as
a percentage of loans 1.66% 1.60% 1.68% 1.66% 1.82%
Non-performing assets decreased 17% to $58.6 million at September
30, 1997 from $70.6 million at June 30, 1997 and decreased 43%
from $102.9 million at September 30, 1996. The commercial lending
and commercial mortgage portfolios reflect the greatest
reductions from the prior year, with a significant portion
related to the resolution of a $20.6 million commercial mortgage
loan (associated with a retail shopping center) during the first
quarter of 1997. The resolution of this loan, which was
originally placed on non-accrual status in the first quarter of
1996, did not result in a charge-off. There were also declines in
the level of non-performing assets in the residential mortgage
and other consumer loan portfolios, as well as a reduction in
restructured loans and real estate owned. Compared to the second
quarter of 1997, reductions occurred in almost all categories,
except for residential mortgage and other consumer loans which
remained relatively flat. Fluctuations in the level of
non-performing on-balance sheet credit cards are directly related
to the timing of credit card securitizations and to portfolio
growth.
22
<PAGE>
People's Bank and Subsidiaries
Net Charge-Offs (Recoveries)
- ------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
--------------------------- -------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Residential mortgage $1.9 $1.7 $2.4 $5.7 $7.3
Commercial mortgage 0.9 (1.0) 0.5 1.0 3.7
Commercial (0.7) (0.3) (2.1) (1.8) (2.4)
Credit card (owned portfolio) 11.0 6.4 3.5 27.4 15.8
Other consumer 0.7 0.5 0.6 1.5 1.5
- ------------------------------------------------------------------------------
Total $13.8 $7.3 $4.9 $33.8 $25.9
================================================
Net Charge-Offs (Recoveries) as a Percentage of Average Loans (1)
- ------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
---------------------------- ------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Residential mortgage 0.34% 0.30% 0.42% 0.50% 0.44%
Commercial mortgage 0.42 (0.45) 0.25 0.25 0.64
Commercial (0.45) (0.20) (1.44) (0.59) (0.57)
Credit card 2.91 2.03 1.52 3.87 2.34
Other consumer 0.94 0.80 1.23 1.18 0.94
- ------------------------------------------------------------------------------
Total 1.00% 0.56% 0.41% 1.26% 0.75%
-----------------------------------------------
(1) Annualized
The provision for loan losses is based on management's ongoing
evaluation of the adequacy of the allowance for loan losses,
which is based on factors such as the following: People's
historical loan loss experience; a review of non-performing loans
and related collateral values; the possibility of loss in view of
the geographic and industry concentrations and other portfolio
risk characteristics; the present financial condition of
borrowers; and current economic conditions. It is implicit in
lending activities that credit losses will be experienced even in
the best economic conditions. While People's strives to minimize
credit losses, the amount of such losses will vary from period to
period depending on the above factors as affected by changing
economic conditions and the financial condition of borrowers.
Credit losses associated with credit card receivables securitized
and sold do not affect People's provision and allowance for loan
losses. These losses are absorbed directly under the contractual
agreements of the People's Bank Credit Card Master Trust, thereby
reducing credit card securitization income rather than resulting
in changes to the allowance or necessitating an increase in the
provision for loan losses.
Net charge-offs in the third quarter of 1997 increased $8.9
million compared to the third quarter of 1996, mainly due to the
commercial mortgage and credit card portfolios. The commercial
loan portfolio recorded net recoveries in each period presented;
however, recoveries were $1.4 million lower in the third quarter
of 1997 compared to the third quarter of 1996. Charge-offs in the
owned credit card portfolio typically decline in the period in
which a securitization and sale occurs, which is evident in the
relatively low level of charge-offs for the third quarter of
1996. Since the most recent securitization occurred late in the
third quarter of 1997, the charge-off amount for the quarter
ended September 30, 1997 reflects the effect of the credit card
portfolio for essentially a full quarter. Although charge-offs
increased in the credit card owned portfolio, on a managed basis,
net charge-offs were up slightly. See page 19 for discussion of
managed credit card asset quality.
23
<PAGE>
People's Bank and Subsidiaries
Liquidity
Asset liquidity is provided by cash; short-term investments;
proceeds on sales, maturities and principal repayments of
securities; proceeds from principal collections and sales of
loans; and proceeds from credit card securitizations and sales.
In addition, securities may be utilized to collateralize
borrowings under repurchase agreements. The Consolidated
Statements of Cash Flows, on page 4, present data on cash
provided by and used in People's operating, investing and
financing activities. At September 30, 1997, People's liquid
assets included $144.8 million in short-term investments, $700.0
million in debt securities available for sale, and $673.2 million
in marketable equity securities. At September 30, 1997, People's
had pledged debt securities with a total carrying value of $324.1
million ($163.9 million available for sale and $160.2 million
held to maturity) as collateral to secure public deposits,
repurchase agreements, off-balance-sheet financial instruments
and for other purposes as required by law.
Liability liquidity is measured by People's ability to obtain
core deposits and purchased funds at cost effective rates, and in
diversified markets and maturities. Core deposits are the most
stable source of liquidity due to People's long-term relationship
with deposit customers. Core deposits totaled $4.66 billion at
September 30, 1997 and $4.71 billion at December 31, 1996
(representing 60% and 62% of total assets, respectively).
Purchased funds are routinely used to support asset growth or to
diversify People's funding mix. People's purchased funds, which
include borrowings, time deposits of $100,000 or more and
brokered certificates of deposit, totaled $2.2 billion at both
September 30, 1997 and December 31, 1996 (representing 29% of
total assets at each date).
People's securitizes and sells credit card receivables as an
additional method of diversifying its funding base. This is
accomplished primarily by the public issuance of asset-backed
securities. As credit card receivables are securitized, People's
on-balance-sheet funding needs are reduced by the amount of the
loans securitized. Securitization provides funding for both new
loans and the amortization of previously securitized loans, as
well as the opportunity to repay borrowings. At September 30,
1997, outstanding asset-backed certificates totaled $2.04 billion
compared to $1.33 billion at December 31, 1996 (representing 21%
and 15% of total managed assets at the respective dates). In the
event that People's is unable to continue securitizing and
selling credit card receivables, its capital ratios and
flexibility of funding sources would be adversely affected. On a
managed basis, People's capital ratios exceeded all minimum
statistical requirements for a well capitalized bank as of
September 30, 1997. See "Impact of Credit Card Securitizations"
on page 20.
People's credit card securitizations include a revolving period
and a repayment period. During the revolving period, repayments
on credit card receivables held by the trust are used to pay
interest to the Investor Certificateholders and principal
collections are used to purchase new loan receivables. During the
repayment period, principal payments on the credit card
receivables are paid to the investors and People's funding
requirements increase accordingly, as new receivables are no
longer purchased by the Investor Certificateholders, and are
thereby returned to the balance sheet. People's plans to fund the
repayment of securitizations through normal business operations
and continued securitizations.
24
<PAGE>
People's Bank and Subsidiaries
- -----------------------------------------------------
Scheduled Amortization of Credit Card Securitizations
(in millions)
- -----------------------------------------------------
For the three months ending
December 31, 1997 $81.4
For the years
ending December 31:
1998 155.7
1999 108.6
2000 318.5
2001 324.9
2002 1,048.1
- -----------------------------------------------------
$2,037.2
============
People's may borrow from the FHLB of Boston subject to certain
limitations. Based on the level of qualifying collateral at
September 30, 1997, People's borrowing limit was approximately
$1.77 billion, with remaining borrowing capacity of approximately
$1.06 billion at that date. At September 30, 1997, People's had
outstanding commitments to originate loans totaling $260.5
million, and approved but unused lines of credit extended to
customers totaling $9.13 billion.
The sources of liquidity discussed above are deemed by management
to be sufficient to fund outstanding loan commitments and to meet
People's other obligations.
Capital
At September 30, 1997, People's Tier 1 leverage capital ratio was
8.4%, compared to the minimum ratio of 4.0% generally required by
FDIC regulations. People's is also subject to the FDIC's
risk-based capital regulations, which require minimum ratios of
Tier 1 capital and total capital to risk-weighted assets of 4.0%
and 8.0%, respectively. People's satisfied these requirements at
September 30, 1997 with ratios of 10.4% and 14.0%, respectively.
People's regulatory capital ratios at September 30, 1997 exceed
the FDIC's numeric criteria for classification as a "well
capitalized" bank.
Risk-Based Capital
- ----------------------------------------------------------------------
As of September 30, 1997 People's FDIC Minimum Requirements
------------------- -------------------------
(dollars in millions) Amount Ratio(1) Amount(1) Ratio
- ----------------------------------------------------------------------
Tier 1 capital $675.3(2) 10.4% $259.0 4.0%
Total capital 904.5(3) 14.0% 517.9 8.0%
- ----------------------------------------------------------------------
(1) Based on People's risk-adjusted total assets, as defined, of
$6,474.0 million.
(2) Represents total stockholders' equity, excluding net
unrealized gains or losses on debt securities classified as
available for sale and net unrealized gains on equity
securities classified as available for sale, less certain
assets not recognized in Tier 1 capital.
(3) Represents Tier 1 capital plus the allowance for loan losses
up to 1.25% of risk-adjusted total assets and total
subordinated notes.
25
<PAGE>
People's Bank and Subsidiaries
At September 30, 1997, People's Mutual Holdings ("Holdings")
owned approximately 36.5 million shares, representing 59.6% of
the outstanding common stock of People's. Holdings is a mutual
bank holding company organized in connection with the 1988 stock
offering and reorganization of People's Bank.
In October 1997, People's declared a cash dividend of $0.19 per
common share, payable on November 15, 1997 to stockholders of
record on November 1, 1997. Holdings elected to waive receipt of
dividends on 97% of its shares, resulting in total dividend
payments by People's of $4.9 million on approximately 25.9
million shares.
In April 1997, People's declared a three-for-two stock split
providing People's stockholders with an additional half share of
common stock for every share held as of May 1, 1997 (20.3 million
additional shares). The additional shares were distributed to
stockholders on May 15, 1997. The stockholders of People's
approved an increase in the number of authorized shares of
People's common stock from 60,000,000 to 100,000,000.
Part II - Other Information
Item 6 - Exhibits and Reports on Form F-3
(a) Exhibits
Exhibit I Computation of Earnings Per Share
Exhibit II Agreement and Plan of Merger, dated
as of September 3, 1997, by and among People's Bank,
Norwich Financial Corp. and The Norwich Savings
Society (incorporated herein by reference to
Exhibit 12.1 to Current Report on Form F-3 of
People's Bank for the month of September, 1997).
(b) Reports on Form F-3
In September 1997, People's filed a Current Report on Form
F-3 with the Federal Deposit Insurance Corporation,
reporting that People's had entered into an Agreement and
Plan of Merger under which People's will acquire Norwich
Financial Corp. and its wholly-owned subsidiary, The
Norwich Savings Society.
26
<PAGE>
People's Bank and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, People's has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
People's Bank
Date: November 7, 1997 By: /s/ David E.A. Carson
---------------------
David E.A. Carson
President and
Chief Executive Officer
Date: November 7, 1997 By: /s/ Vincent J. Calabrese
------------------------
Vincent J. Calabrese
Vice President and
Chief Accounting Officer
27
<PAGE>
EXHIBIT INDEX
Exhibit I Computation of Earnings Per Share Page 1
Exhibit II Agreement and Plan of Merger, dated as of September 3,
1997, by and among People's Bank, Norwich Financial Corp. and The
Norwich Savings Society (incorporated herein by reference to
Exhibit 12.1 to Current Report on Form F-3 of People's Bank for
the month of September, 1997). Page 2
<PAGE>
People's Bank and Subsidiaries
Exhibit I
Computation of Earnings Per Share (1)
Quarters Ended Nine Months Ended
-----------------------------------------
(dollars in millions, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------
Primary Earnings Per Share:
Net income applicable to
common stock:
Net income $23.3 $20.5 $67.2 $59.5
Dividends paid on preferred
stock - (.2) - (.6)
- ------------------------------------------------------------------------------
Net income applicable
to common stock $23.3 $20.3 $67.2 $58.9
=========================================
Weighted average number
of shares:
Weighted average number of
common shares outstanding 61.11 59.99 61.03 59.27
Dilutive effect of
outstanding stock options .53 .67 .52 .65
- ------------------------------------------------------------------------------
Total weighted average
number of shares 61.64 60.66 61.54 59.92
=========================================
Primary earnings per share $0.38 $0.33 $1.09 $0.98
=========================================
Fully Diluted Earnings Per Share:
Net income $23.3 $20.4 $67.2 $59.5
=========================================
Weighted average number
of shares:
Weighted average number
of common shares outstanding 61.11 59.99 61.03 59.27
Dilutive effect of
outstanding stock options 0.54 0.70 .54 0.70
Shares issuable from assumed
exercise of convertible
preferred stock - 0.76 - 1.41
- ------------------------------------------------------------------------------
Total weighted average
number of shares 61.65 61.45 61.57 61.38
=========================================
Fully diluted earnings
per share $0.38 $0.33 $1.09 $0.97
=========================================
(1) Restated to reflect the 3-for-2 stcok split completed in May 1997.
27
<PAGE>
People's Bank and Subsidiaries
Exhibit II
Agreement and Plan of Merger, dated as of September 3, 1997, by
and among People's Bank, Norwich Financial Corp. and The Norwich
Savings Society (incorporated herein by reference to Exhibit 12.1
to Current Report on Form F-3 of People's Bank for the month of
September, 1997).
27
Exhibit 99(5)
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
-------------------
FORM F-3
CURRENT REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
For the month of May, 1997
PEOPLE'S BANK
-------------------------------------------
(Exact Name of Bank as Specified in Charter)
850 Main Street, Bridgeport, Connecticut 06604
-----------------------------------------------
(Address of Principal Office)
<PAGE>
Item 7. Increase in Amount of Securities Outstanding.
(a) On May 15, 1997, People's Bank, a Connecticut capital
stock savings bank (the "Bank"), effected a 3-for-2 split of its
Common Stock in the form of a 50% stock dividend. As previously
reported, the Bank had 40,677,833 shares of Common Stock
outstanding at March 31, 1997. As a result of the stock split,
the Bank had outstanding (as of May 20, 1997), 61,035,257 shares
of Common Stock.
(b) The stock split was effected as a 50% stock dividend,
and resulted in no cash proceeds or other consideration received
by the Bank.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
<PAGE>
SIGNATURES
Under the requirements 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.
PEOPLE'S BANK
By /s/ William T. Kosturko
--------------------------
William T. Kosturko
Executive Vice President
and General Counsel
Dated: May 22, 1997
Exhibit 99(6)
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
-------------------
FORM F-3
CURRENT REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
For the month of September, 1997
PEOPLE'S BANK
-------------------------------------------
(Exact Name of Bank as Specified in Charter)
850 Main Street, Bridgeport, Connecticut 06604
-----------------------------------------------
(Address of Principal Office)
<PAGE>
Item 12. Other Materially Important Events.
On September 3, 1997, People's Bank (the "Bank"), Norwich
Financial Corp. ("NFC") and The Norwich Savings Society ("NSS")
(a wholly-owned subsidiary of NFC) entered into an Agreement and
Plan of Merger (the "Merger Agreement") under which the Bank will
acquire NFC and NSS. The Merger Agreement, which has been
approved by the Board of Directors of the Bank, NFC, and NSS,
respectively, is subject to approval by the shareholders of NFC
and of the Bank, and by appropriate state and federal regulatory
agencies. The transaction is expected to close during the first
quarter of 1998.
The transaction is structured as a merger of NFC and NSS
with and into the Bank. Approximately half of the consideration
will be in the form of cash, and half in shares of the Bank's
common stock. As a result of the merger, each outstanding share
of NFC common stock (excluding treasury and certain other shares)
will be converted into the right to receive, at the election of
the holder, either 1.0310 shares of Bank common stock or $28.74
in cash, in each case subject to allocation and adjustment as set
forth in Article I of the Merger Agreement. The Merger Agreement
is attached hereto as Exhibit 2.1 and is incorporated herein by
reference.
Contemporaneously with the execution and delivery of the
Merger Agreement, NFC and the Bank entered into a Stock Option
Agreement (the "Stock Option Agreement") and a termination fee
agreement (the "Fee Letter"), attached hereto as Exhibits 2.2 and
2.3, respectively. Upon the occurrence of certain events, the
Stock Option Agreement would permit the Bank to exercise an
option to purchase up to 1,081,036 shares of NFC's common stock
at a price of $25.00 per share. In addition, pursuant to the Fee
Letter, NFC has agreed to pay the Bank a cash fee of $7 million
upon the occurrence of certain triggering events. The Stock
Option Agreement and the Fee Letter are incorporated herein by
reference.
In connection with the Merger Agreement, People's Mutual
Holdings, a mutual-form bank holding company that owns a majority
of the shares of the Bank's outstanding common stock, has entered
into a letter agreement (the "Support Agreement") with NFC,
pursuant to which PMH has agreed to vote its shares of the Bank's
common stock in favor of the proposed transaction. The Support
Agreement is attached hereto as Exhibit 2.4 and is incorporated
herein by reference.
A copy of the press release issued by the Bank on September
4, 1997 is attached hereto as Exhibit 2.5 and is incorporated
herein by reference.
The preceding summary of certain terms of the Merger
Agreement, the Stock Option Agreement, the Fee Letter and the
Support Agreement is not intended to be complete and is qualified
in its entirety by reference to the full text of such agreements,
all of which are attached hereto as exhibits.
<PAGE>
Item 13. Financial Statements and Exhibits.
(b) Exhibits.
12.1 Agreement and Plan of Merger, dated as of September 3, 1997,
by and among People's Bank, Norwich Financial Corp., and The
Norwich Savings Society.
12.2 Stock Option Agreement, dated as of September 3, 1997, by
and between People's Bank and Norwich Financial Corp.
12.3 Termination Fee Letter Agreement, dated as of September 3,
1997, between People's Bank and Norwich Financial Corp.
12.4 Support Letter Agreement, dated as of September 3, 1997, by
and among People's Bank, Norwich Financial Corp. and The Norwich
Savings Society.
12.5 Press release issued by People's Bank on September 4, 1997.
<PAGE>
SIGNATURES
Under the requirements 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.
PEOPLE'S BANK
By /s/ William T. Kosturko
--------------------------
William T. Kosturko
Executive Vice President
and General Counsel
Dated: September 23, 1997
Exhibit 99(7)
- -----------------------------------------------------------------
people's bank People's Bank
Bridgeport Center, 850 Main Street
Bridgeport, Connecticut 06604-4913
March 7, 1997
To Holders of Our Common Stock:
On behalf of the Board of Directors, I cordially invite you to
attend the 1997 Annual Meeting of People's Bank stockholders. The
Annual Meeting will be held at 10:00 a.m. on Thursday, April 17,
1997, at Bridgeport Center, 850 Main Street, Bridgeport,
Connecticut. The accompanying formal Notice of Annual Meeting and
Proxy Statement describe the matters expected to be acted upon at
the Annual Meeting. Management will also report on the Bank's
business and financial results, and a discussion period will be
provided for questions and comments.
The Board of Directors appreciates and encourages your
continued interest in the affairs of People's Bank. It is
important that your views be represented, whether or not you are
able to attend the Annual Meeting. Accordingly, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT TO THE BANK
IN THE POSTPAID ENVELOPE. To assist us in our preparations for
the Annual Meeting, please also indicate on your proxy card
whether you plan to attend the meeting.
Should you require directions to Bridgeport Center or need
further information about the Annual Meeting, you may call our
Shareholder Relations Department at (203) 338-7228.
Sincerely,
/s/ David E.A. Carson
David E.A. Carson
President, Chief Executive Officer
and Chairman of the Board
<PAGE>
- -----------------------------------------------------------------
people's bank People's Bank
Bridgeport Center, 850 Main Street
Bridgeport, Connecticut 06604-4913
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Holders of People's Bank Common Stock:
Notice is hereby given that the Annual Meeting of Stockholders
of People's Bank will be held at 10:00 a.m. on Thursday, April
17, 1997, at Bridgeport Center, 850 Main Street, Bridgeport,
Connecticut, for the purpose of considering and voting upon the
following matters:
1. Election of five directors who, with the nine directors
whose terms of office do not expire at this Annual Meeting, will
constitute the full Board of Directors of People's Bank.
2. Approval of amendments to the People's Bank 1988 Long-Term
Incentive Plan.
3. Approval of amendments to the People's Bank 1995 Stock Price
Appreciation Unit Plan.
4. Approval of amendments to the Articles of Incorporation of
People's Bank to increase the number of authorized shares of the
Bank's Common Stock from 60,000,000 to 100,000,000, and to update
references in the Articles of Incorporation to state laws that
have been amended or recodified since adoption of the Articles of
Incorporation.
5. Ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the year ending December 31, 1997.
6. Such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
Only holders of record of Common Stock at the close of business
on March 3, 1997 are entitled to notice of, and to vote at, the
Annual Meeting.
By Order of the Board of Directors
/s/ Sandra J. Brown
Sandra J. Brown, Secretary
March 7, 1997
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON. PLEASE INDICATE ON THE PROXY WHETHER YOU PLAN TO ATTEND
THE MEETING. IF YOU WERE A STOCKHOLDER OF RECORD ON MARCH 3, 1997
AND ATTEND THE MEETING, YOU MAY THEN REVOKE YOUR PROXY AND VOTE
IN PERSON.
If you have not received the 1996 Annual Report of People's
Bank, which includes the Bank's audited financial statements,
kindly notify Jane S. Sharpe, Vice President, Shareholder
Relations, at (203) 338-7228, and a copy will be sent to you
immediately.
<PAGE>
- -----------------------------------------------------------------
people's bank People's Bank
Bridgeport Center, 850 Main Street
Bridgeport, Connecticut 06604-4913
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of People's Bank
("People's" or the "Bank") of proxies to be voted at the 1997
Annual Meeting of Stockholders to be held on April 17, 1997 (the
"Annual Meeting"), and at any adjournment thereof. The Board of
Directors has fixed March 3, 1997 as the record date for
determining stockholders entitled to notice of, and to vote at,
the Annual Meeting and at any adjournment thereof. The date on
which this Proxy Statement and the enclosed form of proxy are
first being sent to stockholders is March 7, 1997.
As of February 1, 1997, there were 40,617,546 shares of the
Bank's Common Stock, no par value (the "Common Stock"),
outstanding and entitled to vote at the Annual Meeting. Each
share of Common Stock is entitled to one vote on each matter to
be presented at the Annual Meeting. Directors will be elected by
a plurality of the votes cast by the shares of Common Stock
entitled to vote at the Annual Meeting. A "plurality" means that
the nominees with the largest number of votes are elected as
directors, up to the maximum number of directors to be elected at
the Annual Meeting. The proposal to amend the Bank's Articles of
Incorporation will be approved if a majority of the shares of
Common Stock outstanding and entitled to vote at the Annual
Meeting are voted in favor of such proposal. The proposals to
approve the 1988 Long-Term Incentive Plan (the "Incentive Plan")
and the 1995 Stock Price Appreciation Unit Plan (the "Unit
Plan"), and to ratify the appointment of KPMG Peat Marwick LLP as
the Bank's independent auditors, will be approved if there are
more votes cast in favor of these proposals at the Annual Meeting
than votes cast in opposition.
A quorum consists of a majority of the votes entitled to be
cast at the Annual Meeting. In certain circumstances, a
stockholder will be considered to be present at the Annual
Meeting for quorum purposes, but will not be deemed to have voted
in the election of directors or in connection with other matters
presented for approval at the Annual Meeting. Such circumstances
will exist when a stockholder is present but specifically
abstains from voting, or when shares are represented at a meeting
by a proxy conferring authority to vote on certain matters but
not on the election of directors or on other matters to be voted
on at the Annual Meeting. Under Connecticut law, such abstentions
and non-votes will have the practical effect of votes against the
proposal to amend the Bank's Articles of Incorporation, but will
have a neutral effect on the election of directors and on the
approval or disapproval of the other matters presented for
stockholder action.
Any stockholder who has given a proxy has the power to revoke
such proxy at any time before it is voted by giving notice to
People's in writing or by submitting a duly executed proxy
bearing a later date. A stockholder of record on the record date
may also revoke a proxy by appearing at the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not in
itself revoke a proxy. In addition, stockholders
<PAGE>
whose shares of Common Stock are not registered in their names
will need additional documentation from the record holders of
such shares to vote in person at the Annual Meeting.
Shares of Common Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted
at the Annual Meeting in accordance with the instructions
indicated in the proxies. If no instructions are indicated,
shares will be voted FOR the nominees for director identified in
this Proxy Statement; FOR the proposals to approve amendments to
the Incentive Plan and the Unit Plan; FOR the proposal to amend
the Articles of Incorporation to increase the number of
authorized shares of Common Stock and to update statutory
references; FOR the ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors for the year ending December
31, 1997; and, in the discretion of the proxy holders, as to any
other matter which may properly come before the Annual Meeting or
any adjournment thereof.
As reflected in the following table, as of February 1, 1997,
People's Mutual Holdings ("Holdings") beneficially owns
24,300,000 shares of the Common Stock, and is the only person
known to the Bank to be the beneficial owner of more than five
percent of the Common Stock. Holdings has sole voting and
investment power with respect to the shares owned.
Amount and
Nature of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner Ownership of Class
- -------- ----------------------------- ----------- --------
Common People's Mutual Holdings 24,300,000 59.8%
Bridgeport Center
850 Main Street
Bridgeport, Connecticut 06604
The following table sets forth, as of February 1, 1997, the
beneficial ownership of Common Stock by each director, each
nominee for election as a director, each Named Executive Officer
(as defined below) who is not also a director, and by directors
and executive officers as a group. Except as indicated in the
notes following the table, each person has sole voting and
investment power with respect to the shares listed as being
beneficially owned by such person.
2
<PAGE>
Common Stock
--------------------------
Amount and
Nature of
Beneficial Percent
Name Ownership of Class
- ---- ----------------- --------
Directors and Nominees
James P. Biggs............................. 45,170(a)(b)(c) *
David E.A. Carson.......................... 166,678(b)(c)(d) *
George P. Carter........................... 5,741 *
Joseph E. Clancy........................... 11,136(e) *
George R. Dunbar........................... 7,060(f) *
Jerry Franklin............................. 300 *
Norwick R.G. Goodspeed..................... 22,274(b)(g) *
Eunice S. Groark........................... 1,000 *
Samuel W. Hawley........................... 8,340(h) *
Betty Ruth Hollander....................... 145,120(i) *
Saul Kwartin............................... 5,212(j) *
Jean M. LaVecchia.......................... 1,056(k) *
Jack E. McGregor........................... 2,059(l) *
John F. Merchant........................... 3,254 *
James A. Thomas............................ 802(m) *
Wilmot F. Wheeler, Jr. .................... 36,224(n) *
Named Executive Officers
John A. Klein.............................. 26,673(b)(c) *
George W. Morriss.......................... 31,763(b)(c)(o) *
Louis H. Ulizio, Jr. ...................... 49,350(b)(c) *
All Directors and Executive
Officers as a Group........................ 709,779(b)(c) 1.74%
- ------
* Denotes beneficial ownership of less than one percent of the
outstanding shares of Common Stock.
(a) Includes 3,538 shares held for the benefit of Mr. Biggs and
his spouse in individual retirement accounts. Mr. Biggs
disclaims beneficial ownership of shares held in his
spouse's individual retirement account.
(b) Includes shares of Common Stock allocated under the Bank's
401(k) Employee Savings Plan (the "Savings Plan") to the
participants listed below who have Savings Plan balances
invested in the Bank Stock Fund.
Name Shares
- ---- -------
James P. Biggs................................... 18,282
David E.A. Carson................................ 11,283
Norwick R.G. Goodspeed........................... 15,044
John A. Klein.................................... 5,536
George W. Morriss................................ 6,245
Louis H. Ulizio, Jr. ............................ 9,400
All Directors and Executive Officers as a Group.. 105,676
3
<PAGE>
(c) Includes shares of Common Stock which the persons listed
below have the right to acquire within 60 days from February
1, 1997, whether upon the exercise of stock options or
otherwise:
Name Right to Acquire
- ---- ----------------
James P. Biggs................................... 23,350
David E.A. Carson................................ 83,900
John A. Klein.................................... 21,137
George W. Morriss................................ 25,200
Louis H. Ulizio, Jr.............................. 39,950
All Directors and Executive Officers as a Group.. 279,112
(d) Includes 16,473 shares owned by Mr. Carson's spouse, as to
which Mr. Carson disclaims beneficial ownership.
(e) All shares are held for the benefit of Mr. Clancy in an
individual retirement account.
(f) Includes 500 shares owned by Dr. Dunbar's spouse; 235 shares
owned by his daughter; and 265 shares held by his spouse as
custodian under the Connecticut Uniform Transfers to Minors
Act.
(g) Includes 3,030 shares held for Mr. Goodspeed's benefit in a
Keogh account.
(h) Includes 1,000 shares owned by Mr. Hawley's spouse.
(i) Includes 103,000 shares owned jointly by Mrs. Hollander and
her spouse; 4,000 shares held for Mrs. Hollander's benefit
in an individual retirement account; and 38,120 shares held
in an individual retirement account for the benefit of Mrs.
Hollander's spouse. Mrs. Hollander disclaims beneficial
ownership of shares owned for the benefit of her spouse.
(j) Includes 1,212 shares of Common Stock held by Mr. Kwartin's
spouse, and 1,176 shares owned jointly by Mr. Kwartin and
his spouse.
(k) Includes 556 shares owned jointly by Mrs. LaVecchia and her
spouse.
(l) All shares are held for the benefit of Mr. McGregor in an
individual retirement account.
(m) Includes 198 shares owned by Mr. Thomas's spouse; 117 shares
owned jointly by his spouse and his daughter; and 176 shares
owned by his son.
(n) Includes 21,764 shares owned by a limited partnership of
which Mr. Wheeler is a general partner, and 8,060 shares
held for Mr. Wheeler's benefit in a Keogh account.
(o) Includes 318 shares held by Mr. Morriss as custodian under
the Connecticut Uniform Transfers to Minors Act.
ITEM I. ELECTION OF DIRECTORS
The Bank's Articles of Incorporation and Bylaws provide for the
election of directors by the stockholders and for the division of
the Board of Directors into three classes of directors as nearly
equal in number as reasonably possible. The terms of office of
the members of one class expire and a successor class is elected
for a three-year term at each annual meeting of stockholders.
The Bank's Bylaws provide that there will be between nine and
sixteen members of the Board of Directors, as fixed by resolution
of the Board of Directors. The Board of Directors has resolved
that there will be fourteen members of the Board. The terms of
David E.A. Carson, George P. Carter and Eunice S. Groark expire
at the Annual Meeting, and each has been nominated for
re-election for a three-year term expiring at the annual meeting
of stockholders in 2000. The Board of Directors has also
nominated James A. Thomas and Jerry Franklin for election as
directors for the same three-year term. Norwick R.G. Goodspeed,
Chairman of the Board of Trustees of Holdings and a director of
the Bank since 1968, will retire from the Board of Directors of
the Bank at the expiration of his term at the Annual Meeting. Mr.
Goodspeed will
4
<PAGE>
remain Chairman of the Board of Trustees of Holdings. The Bank
wishes to extend its sincere gratitude to Mr. Goodspeed for his
many years of service to the Bank as a director, former Chief
Executive Officer and former Chairman of the Board of the Bank.
John F. Merchant, a director of the Bank since 1969 and a member
of the Board of Trustees of Holdings, has informed the Board of
Directors of his decision not to stand for reelection to the
Board of Directors at the Annual Meeting. Mr. Merchant is
expected to remain a Trustee of Holdings until the expiration of
his current term. The Bank wishes to extend its sincere thanks to
Mr. Merchant for his many years of service to the Bank as a
director and Trustee.
Directors elected at the Annual Meeting will serve until their
respective successors have been elected and qualified. Each
nominee has consented to being named in this Proxy Statement and
to serve as a director of People's if elected. It is the
intention of the persons named in the proxy to vote shares under
the authority granted by the proxy for the election of all
nominees named below. If any of the nominees should be unable to
serve, the persons named in the form of proxy will use their
discretion in voting the shares represented by such proxies.
Certain information concerning the nominees and the directors
continuing in office, including the business experience of each
during the past five years, is set forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED BELOW.
NOMINEES TO THE BOARD OF DIRECTORS
David E.A. Carson has been President of People's since January
1, 1983; Chief Executive Officer since January 1, 1985; and
Chairman of the Board since July 6, 1988. Mr. Carson is a member
of the Board of Directors of the United Illuminating Company, and
is a Trustee of American Skandia Trust, Mass Mutual Institutional
Funds, and MML Series Investment Fund.
Mr. Carson was first elected a director of People's in 1983
and is a Trustee of Holdings. He is a member of the Executive
Committee of the Board of Directors of People's. Mr. Carson is 62
years old.
George P. Carter is the President of Connecticut Foods,
Inc., a corporation that owns several restaurants in Connecticut.
Mr. Carter is also Chairman of the Board and Chief Executive
Officer of Franchise Associates, Inc., operator and franchisor of
Howard Johnson Restaurants.
Mr. Carter was first elected to the Board in 1976 and is a
Trustee of Holdings. He is the Chairman of People's Audit
Committee and is a member of People's Executive and Investment
Committees. Mr. Carter is 60 years old.
Jerry Franklin is the President and Chief Executive Officer
of Connecticut Public Broadcasting Inc., a position he has held
since 1985. Mr. Franklin serves as a member of a presidential
task force initiated under
5
<PAGE>
the American Assembly Program to develop policy options for urban
centers; is a Senior Fellow of the American Leadership Forum, a
national leadership organization dedicated to educational, urban
and health care needs; and is a member of the Board of Trustees
of Connecticut Children's Medical Center. Mr. Franklin is 49 years
old.
Eunice S. Groark, an attorney in Hartford, Connecticut, served
as Lieutenant Governor of the State of Connecticut from 1991
until January 1995. Prior to 1991, Mrs. Groark was Corporation
Counsel for the City of Hartford, Connecticut. Most recently, she
was a Fellow at the Institute of Politics at the Kennedy School
of Government at Harvard University from September to December
1996.
Mrs. Groark was first elected to the Board of Directors in
1995 and is a member of the Audit and Trust Committees. She is 59
years old.
James A. Thomas has served as a member of the Board of Trustees
of Holdings since 1992. Mr. Thomas is Associate Dean at Yale Law
School, a position he has held since 1969, and served as Master
of Saybrook College of Yale University from 1990 to 1996.
Mr. Thomas is also a director of United Illuminating
Company, Shubert Theatre and Yale-New Haven Hospital. Mr. Thomas
is 57 years old.
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
Terms Expiring at the 1998 Annual Meeting
James P. Biggs is an Executive Vice President (Marketing and
Regional Banking division) of People's, a position he has held
since 1984. Mr. Biggs is primarily responsible for managing the
Bank's Regional Banking division, which administers the branch
network, marketing, strategic planning and auditing functions. He
also has responsibility for the Bank's Human Resources
department. Mr. Biggs has served People's in various capacities
since 1964.
Mr. Biggs was first elected as a director in 1992 and is a
member of the Executive and Investment Committees. Mr. Biggs is
56 years old.
George R. Dunbar served as Chief Administrative Officer of the
City of Bridgeport from 1990 to 1991, and in 1992 became
President of Dunbar Associates, LLC, a public management
consulting firm. Dr. Dunbar is also a director of Acme United
Corporation.
Dr. Dunbar was first elected to the Board in 1973 and is a
member of the Bank's Executive and Loan Review Committees. He is
also a member of the Board of Trustees of Holdings. Dr. Dunbar is
73 years old.
6
<PAGE>
Betty Ruth Hollander is the Chairman and Chief Executive
Officer of Omega Technologies, Inc., a manufacturer and
distributor of instrumentation for the process control industry.
Mrs. Hollander is also a director of Dayton-Hudson Corporation.
Mrs. Hollander was first elected as a Board member in 1982
and is a member of the Bank's Loan Review Committee. Mrs.
Hollander, who is 67 years old, is also a Trustee of Holdings.
Jack E. McGregor is a principal in the investment firm of
Bridgeport Waterfront Investors, LLC and is of counsel to the law
firm of Cohen and Wolf, P.C. Mr. McGregor was Chairman of the
Board of Aquarion Company, a diversified water management
company, until October 1, 1996. Mr. McGregor served as Aquarion
Company's President from 1987 to 1995 and Chief Executive Officer
from 1990 to 1995. Mr. McGregor is also a director of Aquarion
Company and Bay State Gas Company.
Mr. McGregor has been a director of People's since 1989. He
is Chairman of the Human Resources Committee and is a member of
the Executive and Audit Committees. Mr. McGregor is 62 years old.
Wilmot F. Wheeler, Jr. is the Chairman of the Board of
Jelliff Corp., a wire products manufacturer. Mr. Wheeler held
various positions with Manhattan National Corp., an insurance
company, from 1972 until his retirement in 1992, including
Chairman and Chief Executive Officer from 1986 to 1987. Mr.
Wheeler is also the Vice President and a director of the William
T. Morris Foundation, a charitable foundation.
Mr. Wheeler was first elected to the Board of People's in
1975 and is the Chairman of the Loan Review Committee and a
member of the Executive and Human Resources Committees. He is
also a Trustee of Holdings. Mr. Wheeler is 73 years old.
Terms Expiring at the 1999 Annual Meeting
Joseph E. Clancy is the Chairman of the Board and Chief
Executive Officer of Bridgeport Machines, Inc., a manufacturer of
machine tools and controls.
Mr. Clancy became a director of People's in 1991 and is a
Trustee of Holdings. He is Chairman of the Investment Committee
and a member of the Human Resources Committee. Mr. Clancy is 66
years old.
Samuel W. Hawley has been associated with People's since 1933.
He was Chief Executive Officer of People's from 1956 through 1975
and Chairman of the Board from 1971 to 1980.
Mr. Hawley was first elected to the Bank's Board in 1948 and
has been the Chairman of People's Executive Committee since 1980.
He is also a member of the Trust and Investment Committees. Mr.
Hawley, who is 87 years old, is also a Trustee of Holdings.
7
<PAGE>
Saul Kwartin was a practicing attorney and a partner with the
law firm of Wofsey, Rosen, Kweskin & Kuriansky in Stamford,
Connecticut until August 1992, when he became of counsel to that
firm.
Mr. Kwartin was first elected as a member of People's Board
in 1981 and is the Chairman of the Trust Committee and a member
of the Loan Review Committee. Mr. Kwartin is 69 years old.
Jean M. LaVecchia has been an officer of the Southern New
England Telecommunications Corporation since 1987. She is
currently the Senior Vice President-Organization Development, a
position she has held since August 1, 1994.
Ms. LaVecchia became a director of People's in 1993 and is a
member of the Audit, Human Resources and Investment Committees.
She is 45 years old.
Except as set forth above, during the past five years no
director has had a principal occupation or employment with
People's, Holdings or any of their subsidiaries or other
affiliates. No director is related by blood, marriage or adoption
to an executive officer of People's or Holdings or any of their
subsidiaries or other affiliates.
People's has a standing Audit Committee which met nine times
during 1996. The Audit Committee is composed solely of
individuals who are neither officers nor employees of People's,
Holdings or any of their respective subsidiaries. The members of
the Audit Committee are George P. Carter (Chairman), Eunice S.
Groark, Jean M. LaVecchia and Jack E. McGregor. The Audit
Committee is responsible for monitoring the accounting practices
and internal controls of People's, including the supervision of
an annual audit of the books, records, accounts, affairs and
securities of People's by certified public accountants.
The Human Resources Committee, the members of which are listed
below under the heading "Compensation Committee Interlocks and
Insider Participation," met three times during 1996. The
Committee is responsible for making policy decisions concerning
the compensation and benefit programs maintained by People's, and
conducts periodic performance reviews of the senior and executive
officers of People's. The Committee also recommends nominees for
election as directors to the full Board of Directors. The Human
Resources Committee will consider qualified nominees recommended
by stockholders. Stockholder nominations should be submitted in
writing to Sandra J. Brown, Corporate Secretary, People's Bank,
Bridgeport Center, 850 Main Street, Bridgeport, Connecticut
06604, no later than 120 days in advance of the next annual
meeting at which directors will be elected. Such nominations must
include information specified in the Bank's Articles of
Incorporation, which will enable the Committee to evaluate the
qualifications of the proposed nominee.
The Bank's Investment Committee is responsible for approving
policies and strategies for, and reviewing the investments and
financial activities of, the Bank's Investment Department. The
Investment Committee is also charged with reviewing and approving
the Bank's asset/liability strategies, including wholesale funding,
8
<PAGE>
interest rate risk management and the Bank's asset securitization
program. The Investment Committee met 12 times during 1996.
Joseph E. Clancy is the Chairman of the Investment Committee; its
other members are James P. Biggs, George P. Carter, Samuel W.
Hawley and Jean M. LaVecchia.
The members of the Bank's Loan Review Committee are Wilmot
F. Wheeler, Jr. (Chairman), George R. Dunbar, Norwick R.G.
Goodspeed, Betty Ruth Hollander, Saul Kwartin and John F.
Merchant. The Loan Review Committee, which met 26 times during
1996, is charged with reviewing and approving strategies,
planning and procedures concerning People's commercial,
commercial real estate, consumer and community lending
activities, reviewing lending activities of the Bank, and where
appropriate, approving loans brought before the Committee for
approval.
Saul Kwartin is the Chairman of the Bank's Trust Committee.
Norwick R.G. Goodspeed, Eunice S. Groark, Samuel W. Hawley and
John F. Merchant are members of the Trust Committee, which met 12
times during 1996. The Trust Committee is responsible for making
policy for, and reviewing the financial and fiduciary status of,
the Bank's Trust Department.
The members of People's Executive Committee are Samuel W.
Hawley (Chairman), James P. Biggs, David E.A. Carson, George P.
Carter, George R. Dunbar, Jack E. McGregor and Wilmot F. Wheeler,
Jr. The Executive Committee may formulate and recommend to the
Board of Directors for approval general policies regarding the
management and affairs of People's, and may perform such other
functions as are provided in the Bylaws of the Bank or as
directed by the Board of Directors. The Executive Committee met
12 times during 1996.
The Board of Directors met 12 times during 1996. No director
attended fewer than 75% of the aggregate of (a) the total number
of meetings of the Board of Directors held while he or she was a
director and (b) the total number of meetings held by all
committees of the Board on which he or she served.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
the Bank's directors and executive officers, and persons who own
more than 10% of the Common Stock, to file initial reports of
ownership and reports of changes in ownership of the Common Stock
with the Federal Deposit Insurance Corporation (the "FDIC").
Directors, executive officers and 10% stockholders are required
by FDIC regulations to furnish the Bank with copies of all
Section 16(a) reports filed.
Based solely on a review of the reporting forms received by the
Bank, and written representations that no other reports were
required, People's believes that all Section 16(a) filing
requirements were satisfied for fiscal year 1996, except that Dr.
Dunbar filed one late report disclosing a single transaction
involving the sale of 500 shares of Common Stock by his adult
son. Dr. Dunbar reported this transaction promptly upon becoming
aware of it.
9
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Human Resources Committee of the Bank's Board of Directors
is composed solely of individuals who are neither officers nor
employees of People's, Holdings or any of their respective
subsidiaries. The members of the Human Resources Committee are
Jack E. McGregor (Chairman), Joseph E. Clancy, Jean M.
LaVecchia and Wilmot F. Wheeler, Jr.
EXECUTIVE COMPENSATION
Human Resources Committee Report on Executive Compensation
The Human Resources Committee of the Board of Directors is
composed of four independent, nonemployee directors, and is
generally responsible for establishing the Bank's compensation
and benefits policies. The Committee also monitors the operation
of the Bank's benefit plans and reviews the performance and
compensation of the Bank's executive officers, including the
President and Chief Executive Officer and the other Named
Executive Officers (as defined below). For several years, the
Committee has retained the services of an outside executive
compensation consultant to assist it in discharging these
responsibilities.
Executive Officer Compensation Policies
The executive compensation program is designed to assure that
stockholder and management interests are properly aligned with
the long-term success of People's, as well as to attract,
motivate and retain key executives.
There are three principal components to the Bank's executive
compensation program: base salary, annual incentive compensation
and long-term incentive compensation. Base salary is intended to
compensate the executive for performing his or her basic
responsibilities. Annual incentive compensation is designed to
provide rewards for favorable short-term performance of the Bank
and the executive, while long-term incentives reward growth and
improved performance over the longer term.
Overall Pay Positioning: People's positions total direct
compensation (aggregate base salary and annual and long-term
incentive compensation) at pay levels competitive with financial
institutions included in several nationwide executive
compensation surveys (the "Comparison Surveys"). The Committee
analyzes published surveys of financial institutions with
appropriate asset size relative to People's. The Committee
believes that this analysis is an appropriate and effective
method for establishing suitable levels of compensation.
Components of Compensation: The Committee targets each
component of executive compensation to be competitive with
comparable positions at institutions included in the Comparison
Surveys.
Base Salary: Base salary levels are reviewed annually by the
Committee and are determined by evaluating (a) the individual
executive's level of experience, on-going performance and the
responsibilities associated with the position, and (b) changes in
base salary levels in the banking industry in general. In 1996,
the base salary of the Bank's executives (including the Named
Executive Officers) increased on average by approximately 5.3%.
10
<PAGE>
Annual Incentives: Annual incentives are based primarily on Bank
performance and secondarily on individual performance objectives
that relate to the Bank's strategic business goals. The Bank's
performance is based on its ability to achieve a target return on
equity established by the Committee. For the President and Chief
Executive Officer, the annual incentive is based on the Bank's
performance. For the Named Executive Officers, the annual
incentive is based 80% on the Bank's performance, and 20% on
individual performance.
For 1996, annual incentive target awards were 45% of base salary
for the President and Chief Executive Officer, and 35% of base
salary for the other Named Executive Officers. The annual
incentive program in effect for 1996 permitted payouts of 50% to
150% of the target award. For 1996, the Bank achieved a return on
equity equal to 13.8%, and all individual performance objectives
were met. This resulted in payouts to the Named Executive
Officers equal to 99.5% of target awards.
Long-Term Incentives: Long-term incentives, in the form of stock
price appreciation units and performance units, are granted every
other year. Averaged over this award cycle, target awards equaled
75% of base salary for the President and Chief Executive Officer,
and 45% of base salary for the other Named Executive Officers.
The Committee determines the appropriate mix of stock price
appreciation units and performance units granted to executives
based on an analysis of the practices of institutions included in
the Comparison Surveys and on the Committee's goal of targeting
long-term awards at levels competitive with institutions included
in the Comparison Surveys.
Grants in 1996. Since long-term incentives (in the form of stock
price appreciation units and performance units) were granted in
1995, no long-term incentives were granted in 1996.
Payouts of Performance Units. The Committee has established a
performance period of three years. For the 1993-1995 performance
period, performance units were valued by comparing the Bank's
return on equity and total return to stockholders during the
three-year performance period to the return on equity and total
return to stockholders of a peer group of New England and New
York (excluding New York City) banks and thrifts with assets in
excess of $1 billion (the "Peer Group") during that period. For
this period, the Bank's return on equity and total return to
stockholders significantly exceeded the Peer Group's returns.
This resulted in cash payouts in 1996 equal to 147% of the target
award established for the 1993-1995 performance period.
Going Forward. Because of the significant consolidations and
realignments in the banking industry, the Committee believes
that, beginning with the 1997-1999 performance period, the
interests of the Bank and its stockholders will be better served
by measuring performance against targets established by the
Committee rather than against Peer Group performance.
Accordingly, the Committee intends to make grants of performance
units on that basis. As more fully discussed below, the
stockholders are being asked to approve certain amendments to the
Incentive Plan and the Unit Plan, including specific amendments
relating to performance goals.
Policy on Deductibility of Compensation. Section 162(m) of the
Internal Revenue Code limits the deductibility for Federal income
tax purposes by a company of compensation in excess of $1 million
paid to its Chief Executive Officer or any of its four most
highly compensated executive officers other than
11
<PAGE>
the Chief Executive Officer, unless certain requirements for
performance-based compensation are satisfied. The Committee
intends to continue its policy of taking the deductibility of
executive compensation into consideration in all compensation
decisions.
Chief Executive Officer Compensation
The President and Chief Executive Officer of the Bank
participates in the executive compensation program described
above. In general, the measurements governing the compensation
paid to the President and Chief Executive Officer are the same as
those covering other executive officers. The full Board of
Directors approves Mr. Carson's compensation package.
The Committee believes that under Mr. Carson's leadership the
Bank has made substantial and consistent progress in achieving
its financial and strategic goals. Over the past three years,
1994 through 1996, the Bank increased stockholder value by over
250%, as measured by dividends paid and stock price appreciation.
In addition, the Bank has undertaken several major initiatives
(including the opening of 21 of an expected 45 full service
branches in Connecticut Stop & Shop supermarkets, and the
establishment of a credit card operation in the United Kingdom),
while maintaining the Bank's position as the leading residential
mortgage lender in Connecticut and Fairfield County. This
performance has furthered the Bank's goal of remaining the
premier financial institution in Connecticut.
Base Salary: Based on the Committee's assessment of Mr. Carson's
and the Bank's performance in 1995, Mr. Carson's base salary was
increased in 1996 by 6% to $530,000. Mr. Carson's base salary
remains competitive with salary levels of institutions in the
Comparison Surveys.
Annual Incentive Compensation: For 1996, the Committee granted an
annual incentive award to Mr. Carson of $250,000. This award was
based on the Bank's return on equity in 1996 and the strategic
initiatives undertaken by the Bank during 1996 under Mr. Carson's
direction.
Long-Term Incentive Compensation: Mr. Carson received a payout
during 1996 of $389,312 for his performance units with respect to
the 1993-1995 three-year performance period. This payout is
consistent with the description of long-term incentive awards
discussed above.
People's Bank Human Resources Committee
Jack E. McGregor, Chairman
Joseph E. Clancy
Jean M. LaVecchia
Wilmot F. Wheeler, Jr.
Compensation of Executive Officers
The following table sets forth a summary for the last three
fiscal years of the cash and non-cash compensation paid or
awarded by People's to its President and Chief Executive Officer
and to its four most highly compensated executive officers, other
than the President and Chief Executive Officer (together, the
"Named Executive Officers").
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
----------------------------- ---------------------
Awards Payouts
------------ -------
Other Appreciation
Annual Units/ LTIP All Other
Name and Salary Bonus Compensation Options(a) Payouts Compensation(b)
Principal Position Year ($) ($) ($) (#) ($) ($)
- ------------------ ---- ------- ------- ------------- ------------- ------- ---------------
David E.A. Carson 1996 526,538 250,000 * 0 389,312 67,816
President and Chief 1995 492,308 250,000 * 67,300 0 72,883
Executive Officer 1994 440,769 287,550 * 0 178,500 62,850
James P. Biggs 1996 258,846 91,059 * 0 159,264 35,525
Executive Vice President 1995 246,154 99,929 * 20,200 0 37,334
(Marketing & Regional Banking) 1994 222,231 116,298 * 0 62,700 31,489
John A. Klein 1996 217,692 76,316 * 0 119,448 31,659
Executive Vice President 1995 196,231 79,943 * 16,200 0 31,014
(Credit Card) 1994 171,976 92,457 * 4,675 36,600 25,220
George W. Morriss, Executive 1996 208,846 72,847 * 0 130,508 31,586
Vice President (Financial) and 1995 198,462 78,435 * 16,200 0 30,007
Chief Financial Officer 1994 186,769 96,318 * 0 49,300 14,609
Louis H. Ulizio, Jr. 1996 238,846 83,254 * 0 157,052 31,158
Executive Vice President 1995 228,461 90,200 * 18,600 0 33,163
(Commercial Banking) 1994 217,538 113,714 * 0 49,300 37,875
- ------
* The Bank's incremental cost with respect to perquisites and
other personal benefits paid to the Named Executive Officers
is not reported because the cost did not exceed the lesser
of $50,000 or 10% of the sum of the Named Executive
Officer's salary and bonus.
(a) Awards granted in 1995 consist of stock price appreciation
units, which are exercisable by the Named Executive Officers
in 50% increments on the third and fourth anniversaries of
the grant date.
(b) Amounts in this column consist primarily of matching
contributions by the Bank to the Savings Plan and matching
credits under the Bank's Supplemental Savings Plan, and the
value to the Named Executive Officer of split-dollar life
insurance premiums paid by People's. For 1996, these amounts
were as follows:
</TABLE>
Matching
Contributions Split-Dollar
Name and Credits Insurance
- ---- ------------- ------------
David E. A. Carson..... $46,626 $21,190
James P. Biggs......... 21,563 13,962
John A. Klein.......... 17,769 13,890
George W. Morriss...... 17,289 14,297
Louis H. Ulizio, Jr. .. 13,162 17,996
Split-dollar premiums paid by People's will be refunded to the
Bank upon the first to occur of (a) the Named Executive Officer's
death, (b) cancellation of the policy by People's, or (c) the
later to occur of (i) the Named Executive Officer's attainment of
age 65 or (ii) the tenth anniversary of the last insurance policy
to be put in force for the benefit of the Named Executive
Officer. The estimated values of split-dollar insurance premiums
have been calculated by deducting the estimated present value of
the amount to be refunded to People's (assuming condition (c)
applies) from the amount of the premium actually paid.
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<PAGE>
No stock options, performance units or stock price appreciation
units were granted in 1996 to the Named Executive Officers under
the Incentive Plan or under the Unit Plan.
The following table sets forth information concerning stock
options exercised during 1996 by the Named Executive Officers,
and the number and value of unexercised options and stock price
appreciation units held by the Named Executive Officers at
December 31, 1996. The value of unexercised in-the-money options
and stock price appreciation units at December 31, 1996 is
presented as required by FDIC rules. The actual amount, if any,
realized upon exercise of options and stock price appreciation
units will depend upon the excess, if any, of the market price of
the Common Stock over the exercise price per share of Common
Stock of the option or unit at the time it is exercised. There is
no assurance that the values of unexercised in-the-money stock
options or stock price appreciation units reflected in this table
will be realized.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Aggregated Option/Appreciation Unit Exercises
in Last Fiscal Year and FY-End Option/Appreciation Unit Values
-------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options/Appreciation Units
Acquired on Value FY-End (#)(a) at FY-End ($)(b)
Name Exercise (#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------- ----------- ------------------------- --------------------------
David E.A. Carson...... 11,075 175,406 75,600 110,600 1,622,584 2,057,452
James P. Biggs......... 15,850 229,836 11,000 38,050 242,715 724,635
John A. Klein.......... 4,500 92,531 9,400 30,275 207,411 555,083
George W. Morriss...... 6,250 137,244 10,600 30,800 233,889 587,424
Louis H. Ulizio, Jr. .. -0- -0- 22,350 36,200 506,813 692,919
- ------
(a) Amounts in these columns include stock price appreciation
units, which entitle the executive to the difference in cash
between the fair market value of the Bank's Common Stock on
the date of grant and on the date of exercise. However,
there are no shares of Common Stock underlying the stock
price appreciation units.
(b) Based upon the difference between the exercise price and
closing price per share of Common Stock at December 31,
1996.
</TABLE>
The Bank maintains a tax-qualified noncontributory defined
benefit plan (the "Retirement Plan") and two nonqualified
supplemental defined benefit plans (the "Cap Plan" and the
"Enhanced Plan;" collectively, the "SERPs"). The following table
shows the maximum estimated combined annual pension benefits
payable under the Retirement Plan and the SERPs upon retirement
in 1997 at age 65 based upon various classifications of
compensation and years of service.
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Years of Service
-----------------------
Average Annual Salary 10 (b) 15 or more (b)
- --------------------- -------- --------------
$150,000(a).......... $50,000 $75,000
200,000............. 66,667 100,000
300,000............. 100,000 150,000
400,000............. 133,333 200,000
500,000............. 166,667 250,000
600,000............. 200,000 300,000
700,000............. 233,333 350,000
800,000............. 266,667 400,000
900,000............. 300,000 450,000
- ------
(a) Under the Internal Revenue Code of 1986, as amended (the
"Code"), compensation in excess of $150,000 ($160,000 for
1997 and subsequent years) cannot be considered for
tax-qualified pension benefits. Benefits attributable to
covered compensation in excess of this amount will generally
be paid pursuant to the SERPs.
(b) The Code limits the amount of annual benefits payable under
tax-qualified pension plans. Benefits in excess of this
limit will be paid entirely pursuant to the SERPs.
The Retirement Plan provides retirement benefits for eligible
employees (employees who have completed at least 1,000 hours of
service within certain periods and who have attained age 21).
Subject to the limitations imposed under the Code, benefit
payments are based on the employee's years of credited service
and the higher of (a) average annual compensation paid during the
five consecutive calendar years during the last ten years of
participation that produce the highest average, or (b) 12 times
the average monthly compensation paid during the last 60
consecutive months during which the employee received a salary
while a participant in the Retirement Plan.
For purposes of the benefit calculation, compensation is the
covered employee's normal straight time pay, plus overtime pay,
sales incentive compensation and annual incentive compensation,
as well as salary reduction amounts elected under the Bank's
employee benefit programs. Under the Code, compensation in excess
of $150,000 ($160,000 for 1997 and subsequent years) cannot be
considered for purposes of determining benefits under the
Retirement Plan. For the Named Executive Officers, compensation
is the sum of salary and bonus reported in the Summary
Compensation Table, subject, for purposes of the Retirement Plan
benefit calculations, to such $150,000 ($160,000 for 1997 and
subsequent years) limit. Subject to certain grandfathered
benefits under the terms of the Retirement Plan and the Code, the
basic pension benefit is a lifetime annual pension payable to
employees retiring at age 65 equal to 1.1% of average annual
compensation up to the retiree's Social Security covered
compensation (which is an average of Social Security wage bases),
plus 1.7% of average annual compensation in excess of the
retiree's Social Security covered compensation, all multiplied by
the retiree's years of credited service up to 30 years.
The Cap Plan covers employees who are participants in the
Retirement Plan, have a salary grade of 10 or higher and whose
benefits under the Retirement Plan are affected by limitations on
compensation described
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above and limitations on benefit amount under the Code. The Cap
Plan benefit is equal to the monthly benefit the participant
would have received under the Retirement Plan if such limitations
did not apply. A participant in the Cap Plan becomes vested at
the same time vesting occurs under the Retirement Plan.
The Enhanced Plan provides for the payment of supplemental
pension benefits for employees who have a salary grade of 10 or
higher and have attained age 50. The Enhanced Plan provides for
an annual target retirement benefit equal to the excess of (a)
50% of the average compensation that would be used in calculating
Retirement Plan benefits if the limitations on compensation
imposed by the Code did not apply, over (b) the benefits payable
to the covered employee under any other qualified defined benefit
plans maintained by the employee's former employers, subject to
certain exceptions. The target benefit is then reduced by 1/15th
for each year of credited service with the Bank less than 15.
Target benefits under the Enhanced Plan are offset by benefits
payable under the Retirement Plan and the Cap Plan. A participant
in the Enhanced Plan becomes vested upon attaining age 55 or upon
completing five years of service (whichever is later), and in any
event upon reaching his or her normal retirement date. In
addition, all participants in the Enhanced Plan become fully
vested upon a Change in Control of the Bank or Holdings (as
defined below under "Employment and Change in Control
Agreements") or on the date either the Bank or Holdings enters
into an agreement the consummation of which would result in a
Change in Control.
The SERPs provide for payment of benefits at the same time and
in the same manner as payment of benefits to the participant
under the Retirement Plan. However, the SERPs provide for benefit
payment in a lump sum in the event the Bank's financial ratings
fall below certain thresholds.
A trust has been established to provide for payment of the
Bank's obligations under the SERPs to the extent the Bank does
not pay them directly. The purpose of the trust is to provide
participants in the SERPs with greater assurance that the
benefits to which they are entitled will be paid. The Bank
intends to fund the trust, but all assets in the trust will
remain subject to the claims of the Bank's general creditors.
Estimated years of credited service at normal retirement age
and current average annual compensation of the Named Executive
Officers are: Mr. Carson, 17 years ($603,083); Mr. Biggs, 40
years ($295,429); Mr. Klein, 40 years ($227,244); Mr. Morriss, 30
years ($239,270); and Mr. Ulizio, 12 years ($283,259).
Employment and Change in Control Agreements
Mr. Carson is a party to an employment contract with People's
that will remain in effect through December 31, 1999. People's
has the general right to remove or replace Mr. Carson at any
time, but would remain obligated to pay all compensation and
accrue all benefits due to Mr. Carson under the agreement until
termination of the agreement in accordance with its scheduled
term. Effective February 15, 1996, Mr. Carson became entitled to
receive base compensation under the agreement of $530,000 per
annum. Mr. Carson's base compensation is subject to upward
adjustment with the approval of the Board. Mr. Carson is also
entitled to participate in all tax-qualified and nonqualified
pension, profit sharing and savings plans and all other basic
benefit plans maintained by People's for the benefit of its
executive officers generally.
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Mr. Carson's employment agreement also provides for payment of
supplemental retirement benefits in an amount equal to the
difference between (a) 3.42% of the product obtained by
multiplying Mr. Carson's years of credited service by his average
annual compensation that would be used in calculating Retirement
Plan benefits if the limitations on compensation imposed by the
Code did not apply, minus (b) all benefits payable to Mr. Carson
under the Retirement Plan and the SERPs. The amount so determined
will be reduced by 3% of the product obtained by multiplying Mr.
Carson's years of credited service by the amount of Mr. Carson's
primary benefits under Social Security. These supplemental
retirement benefits are 100% vested as they accrue.
Mr. Ulizio is a party to an agreement with People's pursuant to
which he will be entitled to a minimum annual retirement benefit
equal to 30% of his average annual salary that would be used in
calculating Retirement Plan benefits if the limitations on
compensation imposed by the Code did not apply, provided he has
been continually employed by People's until reaching age 60. In
the event he should leave the employ of People's prior to age 60,
the benefit payable under the agreement will be reduced. The
monthly amount of the benefit will also be reduced actuarially if
payment begins before age 65. In addition, any benefit payable to
Mr. Ulizio under the agreement will be payable only to the extent
that it exceeds the total benefits to which he is otherwise
entitled under the Retirement Plan and the SERPs.
People's has entered into change in control agreements (the
"Agreements") with each of its executive officers other than Mr.
Carson. The Agreements provide that if a Change in Control (as
defined below) occurs during the five year term of each
Agreement, and within three years following the Change in Control
the officer is discharged from employment, People's will pay the
officer a lump sum severance payment equal to 2.99 times his or
her annual salary (for this purpose, base salary plus incentive
compensation), as well as certain insurance benefits and
supplemental retirement benefits.
A Change in Control is defined to include (a) approval by the
Board of Directors or, in the case of Holdings, the Board of
Trustees, of certain mergers, consolidations, recapitalizations
and sales of all or substantially all of the assets of People's
or Holdings, and the liquidation or dissolution of People's; (b)
any person (with certain exceptions) acquiring beneficial
ownership of securities having 20% or more of the voting power of
the outstanding securities of People's or Holdings; and (c) a
change (with certain exceptions) during a period of two
consecutive calendar years in a majority of the members of the
Board of Directors of People's or the Board of Trustees of
Holdings. An officer is deemed to be discharged if People's
discharges him or her or if the officer elects to terminate
employment for "good reason." The term "good reason" includes
adverse changes in the officer's responsibilities or conditions
of employment, reductions in compensation, relocation beyond a
specified number of miles and adverse changes in compensation and
benefit plans. People's is not required to make payments if the
officer is discharged for "cause" after a Change in Control.
"Cause" is defined to mean willful failure substantially to
perform his or her duties with People's or willfully engaging in
conduct which is demonstrably and materially injurious to
People's.
The Agreements contain provisions designed to avoid the
imposition of excise taxes on the officer and the disallowance of
deductions to People's under the "parachute payment" provisions
of the Code. In addition,
17
<PAGE>
the Agreements provide that People's will not be obligated to
make any payments which would violate any law, regulation or
regulatory order applicable to People's, including FDIC
regulations which would prohibit "golden parachute" payments. In
1996, the FDIC promulgated final rules limiting and, in certain
circumstances, prohibiting an FDIC-insured institution from
agreeing to make or making "golden parachute" payments at a time
when the institution is in a troubled condition. However, the
golden parachute rules contain an exception for those plans
considered under the rules to be "bona fide deferred compensation
plans."
The Agreements are not employment agreements, and a covered
officer may therefore be discharged by People's prior to a Change
in Control without triggering any payment obligations under the
Agreements.
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Five-Year Performance Comparison
The following graph compares total stockholder return on the
Common Stock over the last five fiscal years with (a) the S&P 500
Index, (b) the SNL New England Bank Index (the "Regional Bank
Index"), and (c) the SNL Thrift Index-Assets Greater than $5
Billion (the "Large Thrift Index"). Index values are as of
December 31 of the indicated year.
[Line Graph comparing stockholder return
over last five fiscal years,
People's Bank, S&P 500, Regional Bank, Large Thrift]
The graph assumes $100 invested on December 31, 1991 in each of
the Bank's Common Stock, the S&P 500 Index, the Regional Bank
Index (an index prepared by SNL Securities comprised of 26 banks
based in New England), and the Large Thrift Index (an index
prepared by SNL Securities comprised of 22 thrift institutions
located throughout the United States and having assets in excess
of $5 billion). The graph also assumes reinvestment of all
dividends.
19
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Compensation of Directors
Directors who are not employed by the Bank are paid a basic
annual retainer of $8,500 per year, plus an additional $2,000 per
year for service as a Committee Chairman, except for the Chairmen
of the Loan Review and Audit Committees, who each receive an
additional $4,000 per year. Non-employee directors also receive
an attendance fee of $750 for each Board or Committee meeting
attended, except for the Chairmen of the Loan Review and Audit
Committees, who each receive an attendance fee of $950 at
meetings when serving as Chairman of the Committee.
Directors who are not employees of the Bank may defer all or a
part of their director compensation in accordance with the terms
of the Amended and Restated Deferred Compensation Plan for
Directors. Under this Plan, a director may defer retainer and
meeting fees until such time as the director ceases to be a
member of the Board of Directors. Amounts deferred under the Plan
earn interest at market rates until paid.
In 1995, the Bank's Board of Directors adopted the People's
Bank Directors' Retirement Plan, which provides for payments to
directors of the Bank (who are not Bank employees) after they
cease to be directors. The annual benefit provided to a former
director under this Plan is equal to the basic annual retainer
fee (exclusive of any special fees, such as monthly meeting or
committee fees) in effect on the director's last day of service.
Benefits are payable to a former director until the first to
occur of the following: (a) receipt of payments for a period of
time equal to his or her years of service as a director; (b)
receipt of payments for 10 years; or (c) the director's death.
In order to align more closely the interests of the directors
with the interests of the Bank's stockholders, the Board of
Directors has determined to terminate the Directors' Retirement
Plan, effective as of April 16, 1997, and replace it with the
People's Bank Directors' Stock Unit Plan. Under this Plan, each
director who is not an employee will be granted an annual award
of 200 Stock Units immediately following each annual meeting of
stockholders. A Stock Unit has an initial value equal to the fair
market value (the price reported by NASDAQ) of a share of Common
Stock on the grant date. Stock Units awarded to a director are
credited to that director's account. Each director's account is
periodically credited with additional Stock Units ("Additional
Units") having a value (as of the payment or distribution date)
equal to the value of any cash dividends paid or other
distributions made with respect to a share of Common Stock,
multiplied by the number of Stock Units credited to such
director's account immediately prior to such transaction. Stock
Units will be adjusted as a result of stock dividends, stock
splits and similar transactions affecting the Common Stock.
Upon the effective date of the Directors' Stock Unit Plan, each
continuing director's account will be credited with Stock Units
having an aggregate value (as of December 31, 1996) equal to the
lump sum present value (with certain adjustments) of the benefits
credited to the director as a result of the Directors' Retirement
Plan. Directors who are participants in the Directors' Retirement
Plan but who will not continue in office after the Annual Meeting
will not become participants in the Directors' Stock Unit Plan.
The present value of
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<PAGE>
the accrued benefit for each such director under the Directors'
Retirement Plan will be paid to the director in a lump sum.
Stock Units attributable to annual grants, together with
Additional Units attributable directly or indirectly thereto,
will be paid in cash as of the third anniversary of the grant
date or, if earlier, at the director's cessation of service,
based on the fair market value of the Common Stock at the time
payment is made. Stock Units attributable to the amount converted
from the Directors' Retirement Plan, together with Additional
Units attributable directly or indirectly thereto, will be paid
in the same manner as of the fifth anniversary of the conversion
or, if earlier, the cessation of service. In the event of a
director's death, his or her account will be paid in cash to his
or her beneficiary. Payment under this Plan will also be made
upon a Change in Control.
Indebtedness of Management
People's engages in banking transactions (including loans and
other extensions of credit) in the ordinary course of business
with various business organizations which have directors or
executive officers of People's as their officers, partners and
substantial stockholders. People's also extends credit in the
ordinary course of business to its directors and executive
officers. Such banking transactions have been and are on
substantially the same terms, including interest rates,
collateral and repayment conditions, as those prevailing at the
time for comparable transactions with others. Since January 1,
1996, there have been no outstanding loans or extensions of
credit to any director or executive officer of People's or to
their respective associates aggregating more than $5 million or
which involved more than the normal risk of collectability or
other unfavorable features, such as delinquent payments.
Transactions with Management
Holdings has entered into a management agreement with People's
pursuant to which People's provides certain accounting, legal,
managerial and administrative functions for Holdings. Holdings
pays People's the sum of $100,000 per year for providing such
services, together with out-of-pocket costs incurred by People's
on behalf of Holdings.
Mr. Kwartin is of counsel to the law firm of Wofsey, Rosen,
Kweskin & Kuriansky, which occasionally performs legal services
for People's. The amount of legal fees paid to Mr. Kwartin's firm
in 1996 was not material.
Mrs. Groark's husband is a partner in the law firm of Day,
Berry & Howard. Day, Berry & Howard has been retained by the Bank
on various legal matters, and it is expected that this
relationship will continue. The Bank paid approximately $112,000
in legal fees to Day, Berry & Howard in 1996.
Mr. McGregor is of counsel to the law firm of Cohen and
Wolf, P.C., which occasionally performs legal services for the
Bank. The amount of legal fees paid to Mr. McGregor's firm in
1996 was not material. Mr. McGregor is also a principal in the
investment firm of Bridgeport Waterfront Investors, LLC ("BWI").
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BWI was formed to participate in various projects designed to
stimulate the redevelopment of the downtown and waterfront areas
of the City of Bridgeport. BWI's participation in redevelopment
projects may take various forms, including equity investments in
projects, acting as project manager for developers, providing
project funding advice and establishing and managing a fund for
the purchase of potential project sites. The Bank may provide
financing for one or more of the projects in which BWI is a
participant.
ITEM II. AMENDMENT OF 1988 LONG-TERM INCENTIVE PLAN
Background
The Board of Directors has approved and recommends to the
stockholders for approval certain amendments to the Incentive
Plan. The stockholders first approved the Incentive Plan in 1989,
and approved an amendment in 1993 to increase the number of
shares of Common Stock available for issuance under the Incentive
Plan. The Incentive Plan provides for the award of incentive
stock options and nonstatutory stock options (collectively,
"Stock Options"), stock appreciation rights ("SARs"), restricted
stock, and performance unit awards. The Human Resources Committee
of the Board of Directors (the "Committee") administers the
Incentive Plan. The Committee has awarded Stock Options,
restricted stock and performance units under the Incentive Plan,
but has not to date awarded SARs. No Stock Options have been
granted under the Incentive Plan since 1995, and it is not
anticipated that additional awards of Stock Options will be made
under the Incentive Plan.
Awards may be made to officers and other key employees of the
Bank, Holdings or the Bank's subsidiaries. There are 37 employees
who participate in the Incentive Plan, including the executive
officers named in the Summary Compensation Table.
Description of the Proposed Amendments
Under the Internal Revenue Code, as amended, publicly-held
companies may not treat compensation paid to certain executive
officers as an expense deductible for purposes of computing
taxable income to the extent that such compensation exceeds $1
million in any one year for any such officer. Regulations under
Section 162(m) of the Code were adopted in 1995 to clarify the
conditions a company must satisfy to deduct compensation in
excess of $1 million paid to the Chief Executive Officer or any
of the four most highly compensated officers other than the Chief
Executive Officer.
In an effort to comply with the new regulations under Section
162(m) and to ensure that awards are deductible to the maximum
extent possible, the Committee has adopted amendments to the
Incentive Plan, subject to stockholder approval. The purpose of
the proposed amendments is to qualify awards under the Incentive
Plan for an exception to the deductibility limit that exists for
"performance-based" compensation. The amendments would become
effective on the date they are approved by the stockholders, and
would add the following provisions to the Incentive Plan:
a. A requirement that the Committee members be "Outside
Directors" as defined in the Code.
22
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b. A definition of "performance goals" as objective criteria
specifically defined by the Committee on a Bank-specific basis or
in comparison with peer group performance based on one or more of
the following: earnings before interest and taxes, net earnings,
earnings per share, return on equity, return on assets, stock
price appreciation and total return to stockholders.
c. A requirement that the maximum number of shares that may be
awarded to any participant in the Incentive Plan in any year as
Stock Options or as SARs is 100,000.
d. A requirement that all future restricted stock awards must
be made subject to attainment of performance goals established by
the Committee, in writing, no later than the 90th day of the
period to which the performance goal shall apply. Performance
periods used must not be shorter than one year.
e. A requirement that the maximum number of shares of
restricted stock that may be awarded to any participant in any
year is 10,000.
f. A requirement that performance unit awards must be made
subject to attainment of performance goals established by the
Committee, in writing, no later than the first 90 days of the
period in which the performance goal shall apply. Performance
periods used must not be shorter than one year.
g. A requirement that the Committee may not adjust performance
goals and performance periods for any restricted stock or
performance unit award if such adjustment would increase the
amount of such award.
h. A requirement that the maximum amount, including the fair
market value of any Common Stock, that may be paid to any
participant in any two-year period with respect to performance
unit awards is $600,000.
i. A general provision that prohibits the Committee from
exercising discretion to the extent such exercise would cause
compensation attributable to the award to fail to qualify as
"performance-based" compensation.
The Committee has also made several technical changes to the
Incentive Plan to reflect changes in applicable law and
regulations effected since its adoption.
General Summary of the Incentive Plan.
The full text of the Incentive Plan appears as Exhibit A to
this Proxy Statement, to which reference is made for a complete
statement of its terms and provisions. A summary of the principal
features of the Incentive Plan, including the proposed
amendments, follows:
Administration. The Incentive Plan is administered by the
Committee, which selects full time employees eligible to
participate, determines the terms of awards, interprets the
Incentive Plan, and makes all other determinations for
administering the Incentive Plan. Committee members must be
"Outside Directors" for purposes of Section 162(m) of the Code.
23
<PAGE>
Shares Available for Awards. The total number of shares of
Common Stock reserved for distribution under the Incentive Plan
is 1,332,500. As of February 1, 1997, approximately 101,500
shares remain available for awards under the Incentive Plan.
Stock Options. The Committee may grant "incentive stock
options" within the meaning of Section 422 of the Code (options
that afford tax benefits to recipients upon compliance with
certain conditions and which do not result in a tax deduction to
the Bank), or nonstatutory stock options (options that do not
afford tax benefits to the recipients, but which may provide tax
benefits to the Bank). The Committee may determine the option
price of Stock Options, but the option price must at least equal
the fair market value of shares of Common Stock on the date of
grant. Exercise of a Stock Option is subject to terms and
conditions set by the Committee and set forth in the instrument
evidencing the Stock Option. The date of expiration of a Stock
Option is fixed by the Committee, but may not be longer than 10
years from the date of grant for an incentive stock option.
Stock Appreciation Rights. SARs may be granted in conjunction
with all or any part of any Stock Option. SARs entitle the holder
of a Stock Option with respect to which SARs are granted to
surrender the Stock Option, or any applicable unexercised portion
thereof, and to receive the difference between (i) the fair
market value of the shares of Common Stock subject to the
surrendered Stock Option at the time the SARs are exercised and
(ii) the option price of such shares. The Bank, at the sole
discretion of the Committee, will pay such difference either by
delivery of shares of Common Stock or in cash, or by a
combination of shares of Common Stock and cash. SARs may be
exercised at the time and to the extent that the related Stock
Option may be exercised.
Termination of Stock Options and SARs. Stock Options and
related SARs expire on the earlier of their stated expiration
date or (a) three months following termination of employment for
any reason other than cause, retirement, death, or disability;
(b) three years after termination (or such shorter period as the
Committee shall determine at the time of awarding such options
and SARs) in the event of disability or retirement; (c) one year
following termination of employment due to death; and (d)
immediately in the event of termination of employment for cause.
Maximum Number of Stock Options and SARs. The maximum number of
shares that may be awarded to any participant in any year as
Stock Options or as SARs is 100,000.
Performance Goals. A "Performance Goal" means objective
criteria specifically defined by the Committee on a Bank-specific
basis or in comparison with peer group performance based on one
or more of the following: earnings before interest and taxes, net
earnings, earnings per share, return on equity, return on assets,
stock price appreciation and total return to stockholders. The
Committee may not adjust performance goals and performance
periods established for any award if such adjustment would
increase the amount of the award.
Restricted Stock. Under the Incentive Plan, shares of Common
Stock, the ownership of which vests over a specified period of
time ("Restricted Stock"), may be issued to certain executives
and key employees. The Committee is authorized to make awards of
Restricted Stock subject to Performance Goals established by the
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<PAGE>
Committee, in writing, no later than the 90th day of the period
to which the Performance Goal applies. Attainment of Performance
Goals may not be measured over a period shorter than one year.
Prior to the date of vesting, the person to whom the Restricted
Stock is issued is entitled to exercise all voting rights
relating to the Restricted Stock, and all dividends declared in
respect of such Restricted Stock will accrue to his or her
benefit. Any participant's rights to retain or receive shares of
Restricted Stock expire upon termination of employment with the
Bank prior to the applicable vesting date. The maximum number of
shares of Common Stock that may be awarded each year to any
participant as Restricted Stock is 10,000.
Performance Units. The Incentive Plan also incorporates as one
of its key elements the Performance Unit Award Program. Officers
and key employees eligible for participation in the performance
unit feature of the Incentive Plan are determined in the sole
discretion of the Committee. The Committee may in any given year
elect not to grant performance units to persons otherwise
eligible to participate.
The Committee is authorized to make awards of performance units
subject to Performance Goals established by the Committee, in
writing, no later than the first 90 days of the period in which
the Performance Goal applies. The Committee may establish goals
set individually with respect to each participant in the period
over which performance is to be measured. At the end of the
performance period, which must be at least one year, the
Committee will determine if the conditions of the award have been
met, and to the extent that such conditions have been met, the
award will be paid in cash or shares of Common Stock (or a
combination thereof), in a lump sum or in annual installments. In
most circumstances, the participant must be employed by the Bank
at the end of the performance period in order to receive his or
her award. Any award paid in shares of Common Stock will be based
on the fair market value of the Common Stock at the date payment
is first made. The maximum amount, including the fair market
value of any Common Stock, that may be paid to any participant in
any two-year period with respect to performance unit awards is
$600,000. To date, the Committee has established a performance
period of three years.
Change in Control Provisions. In the event of a Change in
Control (defined as the acquisition of beneficial ownership of a
majority of the total voting power of the Bank's then outstanding
voting securities), Stock Options and, except in certain
circumstances, SARs, will become fully exercisable; the
restrictions applicable to Restricted Stock will lapse and the
Restricted Stock will become immediately vested; and outstanding
performance units will be vested and prorated payments will be
made based on the number of months that have expired since the
date of grant.
Amendment and Termination. The Board of Directors may at any
time amend or terminate the Incentive Plan, but no such amendment
or termination may impair the rights of a participant without his
or her consent. Except for adjustments for certain events such as
reorganizations or recapitalizations, the Board may not, without
stockholder approval, increase the total number of shares
reserved for use under the Incentive Plan; decrease the option
price of any Stock Option to less than the fair market value on
the date of grant; change the class of employees eligible to
participate in the Incentive Plan; or alter certain exercise
periods with respect to Stock Options.
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Adjustments. In the event of a stock split, stock dividend or
other similar corporate change, the number of shares of Common
Stock available under the Incentive Plan and the option price
payable will be proportionately adjusted. In the event of certain
mergers or similar transactions involving the Bank, the Committee
may accelerate unvested Stock Options and SARs, and may authorize
an agreement providing for the substitution of shares of Common
Stock subject to unexercised Stock Options for shares of the
resulting entity.
Federal Income Tax Consequences
Nonstatutory Stock Options. Under the applicable provisions of
the Code, no tax will be payable by the recipient of an option at
the time of grant. Upon exercise of a nonstatutory option, the
excess, if any, of the fair market value of the shares with
respect to which the option is exercised over the total option
price of such shares will be treated for Federal tax purposes as
ordinary income. Any profit or loss realized on the sale or
exchange of any share actually received will be treated as a
capital gain or loss. The Bank will be entitled to deduct the
amount, if any, by which the fair market value on the date of
exercise of the shares with respect to which the option was
exercised exceeds the exercise price.
Incentive Stock Options. With respect to incentive stock
options, generally no taxable gain or loss will be recognized
when the option is exercised. Incentive stock options exercised
more than three months after termination of employment will be
taxed in the same manner as nonstatutory options described above.
Generally, upon exercise of an incentive stock option, the spread
between the fair market value and the exercise price will be an
item of tax preference for purposes of the alternative minimum
tax.
If the shares acquired upon the exercise of an incentive stock
option are held for at least one year, any gain or loss realized
upon their sale will be treated as long-term capital gain or
loss. The Bank will not be entitled to a deduction. If the shares
are not held for the one-year period, ordinary income will be
recognized in an amount equal to the difference between the
amount realized on the sale and the price paid for the shares to
the extent the exercise price exceeded the grant price. Remaining
gain, if any, would be capital gain. The Bank will be entitled to
a deduction equal to the amount of any ordinary income so
recognized. If the shares are not held for the one-year period
and the amount realized upon sale is less than the grant price,
such difference will be a capital loss.
Stock Appreciation Rights. Upon the grant of an option with a
related SAR, no taxable income is realized by the holder and no
deduction is available to the Bank. Upon exercise of an option
through a SAR election, the tax consequences to the holder and
the Bank are the same as for exercise of a nonstatutory stock
option.
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Incentive Plan Table
The following table sets forth awards made in 1997 under the
Incentive Plan, which have been granted subject to the
stockholders' approval of the Incentive Plan amendments. If such
stockholder approval is not obtained, the performance unit awards
will be rescinded. On January 31, 1997, the closing sale price
for shares of Common Stock was $33-1/4.
1988 Long-Term Incentive Plan
Performance Restricted
Name Units (#) Stock (#)
- ---- ----------- ----------
David E.A. Carson.............................. 14,050 0
James P. Biggs................................. 4,150 0
John A. Klein.................................. 3,450 0
George W. Morriss.............................. 3,300 0
Louis H. Ulizio, Jr............................ 3,800 0
All executive officers as a group.............. 37,800 0
All other employees (including all
officers who are not executive officers)
as a group..................................... 30,100 9,900
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENTS TO
THE INCENTIVE PLAN ARE IN THE BEST INTERESTS OF THE BANK AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION
OF THESE AMENDMENTS.
ITEM III. AMENDMENT OF 1995 STOCK PRICE APPRECIATION UNIT PLAN
The Board of Directors has also approved and recommends to the
stockholders for approval certain amendments to the Unit Plan.
The Unit Plan provides for the award of stock price appreciation
units to officers and other key employees of the Bank, Holdings
or subsidiaries of the Bank. The Committee administers the Unit
Plan. There are 37 employees who participate in the Unit Plan,
including the executive officers named in the Summary
Compensation Table.
Description of the Proposed Amendments
The purpose of the proposed amendments is to qualify awards
under the Unit Plan for the exception to the deductibility limit
under Section 162(m) of the Code for "performance-based"
compensation. The Committee has adopted amendments to the Unit
Plan, subject to stockholder approval, which would become
effective on the date the amendments are approved by the
stockholders. The proposed amendments would add the following
provisions to the Unit Plan:
a. A requirement that the Committee members be "Outside
Directors" as defined in the Code.
b. A requirement that the maximum number of stock price
appreciation units that may be awarded to any participant in any
two-year period is 120,000.
c. A general provision that prohibits the Committee from
exercising discretion to the extent such exercise would cause
compensation attributable to the award to fail to qualify as
"performance-based" compensation.
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General Summary of the Unit Plan.
The full text of the Unit Plan appears as Exhibit B to this
Proxy Statement, to which reference is made for a complete
statement of its terms and provisions. A summary of the principal
features of the Unit Plan, including the proposed amendments,
follows:
Administration. The Unit Plan is administered by the Committee,
which selects employees eligible to receive awards, determines
the terms of awards, interprets the Unit Plan, and makes all
other determinations for administering the Unit Plan. Committee
members must be "Outside Directors" for purposes of Section
162(m) of the Code.
Units Subject to the Unit Plan. The total number of stock price
appreciation units available for grant under the Unit Plan is
1,700,000. As of February 1, 1997, approximately 1,383,000 units
remain available for awards under the Unit Plan.
Stock Price Appreciation Units. Stock price appreciation units
entitle the recipient to the difference in cash between the fair
market value of the Bank's Common Stock on the date of grant and
on the date of exercise. The base price of a unit may not be less
than the fair market value of a share of Common Stock on the
grant date. Exercise of a unit is subject to terms and conditions
set by the Committee and set forth in the instrument evidencing
the grant of the unit. The date of expiration of a unit is fixed
by the Committee.
Termination of Units. Stock price appreciation units expire on
the earlier of their stated expiration date or (a) three months
following termination of employment for any reason other than
cause, retirement, death, or disability; (b) three years after
termination (or such shorter period as the Committee shall
determine at the time of awarding such units) in the event of
disability or retirement; (c) one year following termination of
employment due to death; and (d) immediately in the event of
termination of employment for cause.
Maximum Number of Units. The maximum number of stock price
appreciation units that may be awarded to any participant in any
two-year period is 120,000.
Change in Control Provisions. In the event of a Change in
Control (defined as the acquisition of beneficial ownership of a
majority of the total voting power of the Bank's then outstanding
voting securities), stock price appreciation units will become
fully exercisable.
Amendment and Termination. The Board of Directors at any time
may amend or terminate the Unit Plan, but no such amendment or
termination may impair the rights of a recipient of a previously
issued unit without his or her consent. The Committee may
substitute new units for previously granted units. Stockholder
approval would not be required for amendments or termination of
the Unit Plan unless otherwise required by law.
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Adjustments. In the event of a stock split, stock dividend or
other similar corporate change, the base price of stock price
appreciation units will be proportionately adjusted. The
exercisability of units may also be accelerated in the event of
certain mergers or similar transactions involving the Bank.
Federal Income Tax Consequences.
Under the applicable provisions of the Code, no tax will be
payable by the recipient of a stock price appreciation unit at
the time of grant. Upon exercise, the excess, if any, of the fair
market value of the shares with respect to which the unit is
exercised over the total base price will be treated for Federal
income tax purposes as ordinary income. The Bank will be entitled
to deduct the amount, if any, by which the fair market value on
the date of exercise exceeds the base price.
Unit Plan Table
The following table sets forth awards made in 1997 under the
Unit Plan, which have been granted subject to the stockholders'
approval of the Unit Plan amendments. If such stockholder
approval is not obtained, the awards will be rescinded.
1995 Stock Price Appreciation Unit Plan
Stock Price
Appreciation
Name Units (#)
- ---- -------------
David E.A. Carson.................................... 26,200
James P. Biggs....................................... 7,700
John A. Klein........................................ 6,450
George W. Morriss.................................... 6,200
Louis H. Ulizio, Jr. ................................ 7,050
All executive officers as a group.................... 70,350
All other employees (including all officers
who are not executive officers) as a group........... 57,300
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENTS TO
THE UNIT PLAN ARE IN THE BEST INTERESTS OF THE BANK AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION
OF THESE AMENDMENTS.
ITEM IV. AMENDMENT OF ARTICLES OF INCORPORATION
The Board of Directors has adopted a resolution recommending
that the stockholders approve certain amendments to the Bank's
Articles of Incorporation. These amendments, if adopted, would
(a) amend Article V of the Bank's Articles of Incorporation to
increase the number of authorized shares of the Common Stock from
60,000,000 to 100,000,000; and (b) update references to
Connecticut statutes that have been amended or recodified since
the Articles of Incorporation were first adopted.
Increase of Authorized Common Stock. As of February 1, 1997,
40,617,546 shares of the Common Stock were issued and
outstanding. An additional 549,800 shares are reserved for
issuance upon exercise of outstanding Stock Options. Therefore, a
balance of 18,832,654 authorized but unissued shares of Common
Stock remain available for issuance.
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<PAGE>
The Board of Directors believes it is desirable to have the
additional authorized shares of Common Stock available for future
equity financing, stock dividends and stock splits, employee
benefit plans, acquisition transactions and other general
corporate purposes. Having additional authorized shares of Common
Stock available for issuance in the future will give the Bank
greater flexibility and may allow such shares to be issued
without the expense and delay of a special stockholders' meeting.
All authorized but unreserved and unissued shares of Common
Stock, including the additional shares of Common Stock authorized
by the proposed amendment, will be available for issuance without
further action by the stockholders, unless such action is
required by applicable law or the rules of The National
Association of Securities Dealers, Inc. (the "NASD"), on whose
National Market System the Bank's Common Stock is currently
traded, or any stock exchange on which the Bank's securities may
then be listed. The Board of Directors does not intend to seek
additional approval by stockholders for the issuance of the
additional shares, unless required to do so by such applicable
laws, regulations or NASD rules.
The additional shares of Common Stock for which authorization
is sought would be a part of the existing class of Common Stock
and, if and when issued, would have the same rights and
privileges as the shares of Common Stock presently outstanding.
Holders of the Bank's Common Stock will generally have the right
to exercise preemptive rights with respect to any offering or
sale by the Bank of any shares of the capital stock of the Bank
or any securities convertible into any of such shares. Preemptive
rights, which entitle a holder of Common Stock to purchase
additional shares of Common Stock (or securities convertible into
Common Stock) to be issued in proportion to the number of shares
of Common Stock previously owned by such holder, may be waived by
a stockholder at the request of the Bank. Even if not waived,
such rights will lapse if not exercised in accordance with the
terms and procedures required by law and specified by the Board
of Directors at the time such rights become exercisable.
A potential effect of the proposed increase in the number of
authorized shares of Common Stock, particularly in connection
with any waiver or lapse of preemptive rights, would be a
dilution of present stockholders' interest in the Bank if the
Bank issues a substantial number of the newly authorized shares.
In addition, any issuance of additional shares of Common Stock
could have the effect of diluting the earnings per share and book
value per share of existing shares.
Although the Bank has no intention at the present time of doing
so, the Bank would be able to issue previously authorized but
unissued shares of Common Stock that could, depending on the
terms of such issue, preclude or make more difficult merger or
takeover attempts. In certain circumstances, increasing the
number of authorized shares of Common Stock could enhance the
ability of the Bank to deter potential acquirors and lessen their
ability to obtain control of the Bank. On balance, however, the
Board of Directors believes that the advantages of increasing its
flexibility to engage in forms of equity financing outweigh any
disadvantages to the stockholders.
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Statutory References. The Articles of Incorporation contain a
number of references to various Connecticut statutes. Since the
Articles were first adopted, many of these laws have been
changed. For example, the Connecticut Stock Corporation Act was
repealed effective January 1, 1997 and replaced by the
Connecticut Business Corporation Act. Similarly, Connecticut's
Banking Laws were amended, recodified and renumbered effective
January 1, 1995.
The purpose of the proposed amendment is to make current all
references to the Connecticut General Statutes and other laws
contained in the Articles of Incorporation in order to eliminate
any possible confusion or uncertainty that might otherwise
result. These amendments are technical in nature. They are not
intended to effect any substantive changes to the Articles of
Incorporation, to change in any way the rights of the
stockholders of the Bank, or to change the manner in which the
Bank is organized or operates.
The full text of the proposed amendments to the Bank's Articles
of Incorporation is attached as Exhibit C to this Proxy
Statement. These amendments are presented for consideration as a
group, and will be voted on as such and not individually.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENTS TO
THE ARTICLES OF INCORPORATION ARE IN THE BEST INTERESTS OF THE
BANK AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR ADOPTION OF THESE AMENDMENTS.
ITEM V. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of KPMG Peat
Marwick LLP, certified public accountants, as the Bank's
independent auditors for the year ending December 31, 1997. KPMG
Peat Marwick LLP has served as the independent auditors of
People's since 1986. The appointment was recommended to the Board
of Directors by its Audit Committee, which reviews the firm's
professional competence, proposed audit scope and related fees,
and the types of nonaudit services rendered by the firm and
related fees. People's has been advised by KPMG Peat Marwick LLP
that neither the firm nor any of its associates has any
relationship with People's or with affiliates of People's which
would impair the firm's independence. In recognition of the
important role of People's independent auditors, the Board of
Directors has determined that the appointment of KPMG Peat
Marwick LLP should be submitted to the stockholders for
ratification. If more votes are cast in opposition to the
proposal to ratify the appointment of KPMG Peat Marwick LLP than
are cast in favor of such proposal at the Annual Meeting, the
selection of independent auditors will be reconsidered by the
Audit Committee and the Board of Directors.
Before recommending KPMG Peat Marwick LLP to the entire Board,
the Audit Committee carefully considered the firm's
qualifications as auditors for People's. This included a review
of its performance in prior years, as well as its reputation for
integrity and competence in the fields of accounting and
auditing. The Committee has expressed its satisfaction with KPMG
Peat Marwick LLP in all of these respects.
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Representatives of KPMG Peat Marwick LLP are expected to be
present at the Annual Meeting. They will have an opportunity to
make a statement and will be available to respond to appropriate
questions from stockholders present at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1997.
OTHER MATTERS
The Board of Directors knows of no other business to be
presented at the Annual Meeting. In the event that matters not
known at this time should come before the meeting, the form of
proxy confers certain discretionary authority with respect to
these matters and, unless such authority is withdrawn on the form
of proxy, it is the intention of the persons named in the proxy
to vote in accordance with their judgment on these matters.
The cost of soliciting proxies is to be borne by People's. In
addition to the use of the mails, proxies may be solicited by
regular employees of the Bank, without additional remuneration,
by personal interview, telephone or telegram. Arrangements will
also be made with brokerage houses and other custodians, nominees
and fiduciaries for the forwarding of solicitation material to
the beneficial owners of the Bank's Common Stock held of record
by such persons, and People's may reimburse such custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses
incurred in connection therewith.
STOCKHOLDER PROPOSALS
People's has received no stockholder proposals for presentation
at the Annual Meeting. Under FDIC regulations, any stockholder
who wishes to submit a written proposal for possible inclusion in
next year's proxy materials must ensure that such proposal is
received by People's at its principal executive offices no later
than December 8, 1997.
AVAILABILITY OF FORM F-2
THE BANK'S ANNUAL REPORT ON FORM F-2 DETAILING THE ACTIVITIES
AND FINANCIAL RESULTS OF PEOPLE'S BANK DURING 1996 MAY BE
OBTAINED BY STOCKHOLDERS WITHOUT CHARGE FROM JANE S. SHARPE, VICE
PRESIDENT, SHAREHOLDER RELATIONS, PEOPLE'S BANK, 850 MAIN STREET,
BRIDGEPORT, CONNECTICUT 06604.
By Order of the Board of Directors
/s/ Sandra J. Brown
Sandra J. Brown, Secretary
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EXHIBIT A
AMENDED AND RESTATED
PEOPLE'S BANK
1988 LONG-TERM INCENTIVE PLAN
Section 1. Purpose. The purpose of the Plan is to promote the
mutual interests of the Bank and its shareholders by enabling key
employees of the Bank, or of the Parent or any subsidiary of the
Bank, to participate in the Bank's future growth. The Plan is
designed to give those employees upon whose judgment, initiative
and efforts the successful conduct of the Bank's business
depends, additional incentives to perform in a superior manner.
The Plan also provides a means through which the Bank can
attract, motivate and retain people of experience and ability as
employees.
Section 2. Definitions. For purposes of the Plan, the following
terms shall have the meanings set forth below:
"Award" means a grant of any Non-Statutory Stock Option,
Incentive Stock Option, Stock Appreciation Right, Restricted
Stock Award, Performance Unit Award, or any combination of the
foregoing, under the provisions of the Plan.
"Bank" means People's Bank, a Connecticut state-chartered
capital stock savings bank, and any successor thereto.
"Board" means the Board of Directors of the Bank.
"Change of Control" has the meaning set forth in Section 12(a)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
"Committee" means the Human Resources Committee of the Bank
referred to in Section 3 hereof.
"disability" means permanent and total disability as determined
under procedures established by the Committee for purposes of the
Plan.
"Disinterested Person" has the meaning set forth in Section
335.411(c)(4)(iii), as promulgated by the FDIC, or any successor
definition adopted by the FDIC.
"early retirement" means retirement at any age before age 65,
with the consent of the Committee, pursuant to such early
retirement provisions as are adopted by the Committee, and such
termination shall be treated as a termination other than for
cause for purposes of the Plan.
"employment with the Bank" (and terms substantially equivalent
thereto) means a subsisting employer-employee relationship
between the Bank and the employee and includes employment with
the Parent or any Subsidiary. Employment shall be deemed to
cease, for purposes of the Plan, irrespective of any notice
period or lapse of time, upon any date on which an employee
informs the Bank that he or she intends to quit or resign from
his or her employment, or the Bank (or related employer) informs
the employee in writing that his or her employment is to be
terminated.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute thereto.
"Fair Market Value" means as of a particular date:
(i) if the Stock is not then listed or admitted to trading on a
national securities exchange (as that term is used in Section 6
of the Exchange Act), and prices of trades in Stock are regularly
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the mean between the high
and low selling prices for Stock on such date as reported by
NASDAQ or, in the event no high and low selling prices for Stock
are reported by NASDAQ for such date, then the mean between the
high and low selling prices reported by NASDAQ for the next
preceding day in respect of which both high and low selling
prices are so reported; or
(ii) if the Stock is then listed or admitted to trading on one
or more national securities exchanges, the mean between the high
and low selling prices at which Stock is traded on the principal
securities exchange on which the Stock is traded on such date or,
if Stock is not so traded on such exchange on such date, the mean
between the high and low selling prices at which Stock was traded
on such exchange on the next preceding day on which stock was so
traded; or
(iii) if neither (i) nor (ii) is applicable, such amount as the
Committee shall determine on the basis of such factors as it
deems relevant.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency thereto.
"Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
"Non-Statutory Stock Option" means any Stock Option that is not
an Incentive Stock Option.
"Option Agreement" or "Stock Option Agreement" means the
written agreement between the Bank and an Optionee confirming the
Stock Option and setting forth the terms and conditions upon
which it may be exercised, as described in Section 7(b) hereof.
"Optionee" means an eligible employee, as described in Section
5 hereof, who accepts an Award for a Stock Option, a Stock
Appreciation Right, or both.
"Option Price" means the price per share of Stock to be paid
for the shares of Stock being purchased pursuant to an Option
Agreement.
"Outside Director" has the meaning set forth in Section 162(m)
of the Code ("Section 162(m)") and the regulations thereunder as
may from time to time be in effect (the "Regulations").
"Parent" means People's Mutual Holdings, a Connecticut
state-chartered mutual holding company.
"Participant" means an eligible employee (as described in
Section 5 hereof) who accepts an Award for Restricted Stock,
Performance Units, or both (as described in Sections 9 and 10
hereof).
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"Performance Goals" means the objective criteria established by
the Committee from time to time in accordance with Section 11 of
the Plan and upon which the performance of a Participant during a
Performance Period is to be measured for purposes of determining
whether an Award shall be granted under the Plan.
"Performance Period" means the measuring period for determining
whether Restricted Stock Awards and Performance Unit Awards have
been earned.
"Performance Unit Agreement" means the written agreement
between the Bank and a Participant confirming the Award and
setting forth the terms and conditions of such Award.
"Performance Unit Award" means an Award under Section 10 hereof.
"Plan" means the Amended and Restated People's Bank 1988
Long-Term Incentive Plan, as set forth herein and as hereinafter
amended from time to time.
"Restricted Stock Agreement" means the written agreement
between the Bank and a Participant confirming the Award and
setting forth the terms and conditions of such restrictions.
"Restricted Stock" means an Award under Section 9 hereof.
"Restriction Period" means the period determined by the
Committee during which restriction shall be applicable to
Restricted Stock.
"retirement" means the termination of an employee's employment
at or after age 65.
"Section 335.411" means 12 C.F.R. Section 335.411, as promulgated
by the FDIC, as amended from time to time.
"Stock" means the Common Stock of the Bank, having no par value.
"Stock Appreciation Right" means a right granted under Section
8 hereof.
"Stock Option" or "Option" means an option granted under
Section 7 hereof.
"Subsidiary" means any corporation in which the Bank owns,
directly or indirectly through one or more other Subsidiaries, at
least 50% of the total combined voting power of all classes of
stock.
"Termination for cause" (and terms substantially equivalent
thereto) means a termination of employment by reason of an
employee's act of dishonesty, moral turpitude, insubordination,
or an intentional or grossly negligent act detrimental to the
interests of the Bank, or of its Parent or any Subsidiary.
Section 3. Administration. The Plan shall be administered by the
Committee or such other committee of the Board that is designated
and empowered to perform the functions of the Committee, and in
either case, composed of not fewer than two (2) directors of the
Bank each of whom shall be both a Disinterested Person and an
Outside Director. In particular, the Committee shall have the
authority, subject to the terms of the Plan, to select the
officers and other key employees to whom Awards may from time to
time be granted, to
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determine whether and to what extent Incentive Stock Options,
Non-Statutory Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, or Performance Unit Awards, or any
combination thereof are to be granted, and to determine the terms
and conditions of all such grants. The Committee shall supervise
and administer the Plan and shall have plenary powers and
authority to make such rules and regulations and establish such
procedures as it deems appropriate for the administration of the
Plan. Any questions of interpretation of the Plan, any Awards
issued under it, or any such rules and regulations, shall be
determined by the Committee, and such determinations shall be
binding and conclusive for all purposes and upon all persons.
Section 4. Types of Awards. The Committee shall have full and
complete authority, in its discretion, subject to the provisions
of the Plan, to grant Awards consisting of any one or a
combination of Incentive Stock Options (as provided in Section 7
hereof); Non-Statutory Stock Options (as provided in Section 7
hereof); Stock Appreciation Rights (as provided in Section 8
hereof); Restricted Stock (as provided in Section 9 hereof); and
Performance Units (as provided in Section 10 hereof). Each Award
granted under the Plan is intended to be performance-based
compensation within the meaning of Section 162(m)(4)(C) of the
Code. Notwithstanding any other provision of this Plan to the
contrary, the Committee shall not be entitled to exercise any
discretion otherwise authorized hereunder with respect to such
Awards to the extent the ability to exercise such discretion or
the exercise of such discretion itself would cause the amounts
attributable to such Awards to fail to qualify as
performance-based compensation within the meaning of Section
162(m)(4)(C) of Code and the Regulations.
Section 5. Eligibility. Officers and other key employees of
the Bank, its Parent and any Subsidiaries (but excluding members
of the Committee and any person who serves only as a director)
are eligible to be granted Awards under the Plan.
Section 6. Stock subject to Plan. The total number of shares of
Stock reserved and available for distribution pursuant to Awards
under the Plan, subject to adjustment as provided in Section 13
hereof, shall be 1,332,500 shares. Such shares may consist, in
whole or in part, of authorized and unissued shares or issued
shares reacquired by the Bank and currently or hereafter held as
treasury shares, as the Committee may from time to time
determine. If any Awards granted pursuant to the Plan are
exercised or Awards granted in the form of Restricted Stock vest,
the shares attributable to each such Award shall be unavailable
for future grants under the Plan. If any Award granted pursuant
to the Plan remains unexercised at the expiration thereof or is
terminated unexercised, then the shares attributable to such
Award may be the subject of the grant of future Awards; however,
if a Stock Appreciation Right granted in conjunction with a Stock
Option is exercised, such Stock Option shall be deemed to have
been exercised for purposes of determining whether the shares
attributable to such Stock Option shall be available for future
grants under the Plan. The maximum number of shares that may be
awarded to any Optionee in any year as Stock Options (Incentive
Stock Options and Non-Statutory Stock Options) or Stock
Appreciation Rights is 100,000. The maximum number of shares of
Stock that may be awarded each year to any Participant as
Restricted Stock is 10,000.
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Section 7. Stock Options. The Committee may, from time to time,
grant Stock Options, alone or in addition to other Awards granted
under the Plan. The two types of Stock Options that may be
granted are Incentive Stock Options and Non-Statutory Stock
Options, which may be granted by the Committee to eligible
employees (as described in Section 5 hereof) severally or
together (in each case, with or without Stock Appreciation
Rights). If any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a Non-Statutory Stock Option as
provided in this Section 7. Stock Options granted under the Plan
shall be subject to the following terms and conditions, and may
contain such additional terms and conditions as the Committee
shall deem desirable.
(a) Grant Date. The grant of a Stock Option shall occur on the
date the Committee, by resolution, (i) selects an eligible
employee as grantee, (ii) determines the number of Stock Options
granted to such employee, and (iii) specifies the terms and
provisions of the Option Agreement. In no event may the Committee
grant a Stock Option later than 10 years after the earlier of,
(i) the initial date of adoption of the Plan, and (ii) the date
the Plan is initially approved by the shareholders of the Bank.
(b) Option Agreement. Each Stock Option shall be evidenced by
an Option Agreement, and the terms and provisions of each Option
Agreement may differ. Each Option Agreement shall indicate on its
face whether it is an agreement for Incentive Stock Options or
Non-Statutory Stock Options.
(c) Interpretation. Notwithstanding any terms of the Plan to
the contrary, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered to disqualify
the Plan under Section 422 of the Code.
(d) Price. The Option Price for each share of Stock purchasable
under a Stock Option shall be an amount equal to the Fair Market
Value of each share of the Stock on the date of grant, or such
higher price as the Committee shall determine on or prior to such
date; however, the Option Price per share of Stock to an eligible
employee who owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Bank shall
be an amount not less than 110% of the Fair Market Value of the
Stock on the date the Incentive Stock Option is granted.
(e) Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable
more than 10 years after the date the Stock Option is granted;
however, no Incentive Stock Option granted to an eligible
employee who owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Bank shall
be exercisable more than 5 years after the date the Stock Option
is granted.
(f) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall
be determined by the Committee; provided, however, that, except
as provided in Sections 7(i), 7(j) , 7(k), 12, 13, and 14 hereof
and unless otherwise determined by the Committee, no Stock Option
shall be exercisable prior to the first anniversary date of the
date of grant of such Stock Option. If the Committee provides
that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise
provisions, in whole or in part, based on such factors as the
Committee may determine.
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(g) Method of Exercise. Subject to the provisions of this
Section 7, Stock Options may be exercised, in whole or in part,
at any time during the option term by the Optionee's giving
written notice of exercise to the Bank specifying the number of
shares to be purchased. Such notice shall be accompanied by
payment in full of the Option Price by cash, certified or bank
check, or such other form of payment as may be lawful
consideration for capital stock and as the Bank may accept. With
the consent of the Committee, payment in full or in part may also
be made in the form of Stock already owned by the Optionee or, in
the case of the exercise of a Non-Statutory Stock Option,
Restricted Stock (based on the Fair Market Value of such Stock on
the date the Stock Option is exercised), the share certificates
for which shall be endorsed in blank or accompanied by duly
executed stock powers with signatures guaranteed by a
broker-dealer firm that is a member of a national securities
exchange or a commercial bank or trust company (unless such
signature guaranty is waived by the Bank). In the case of an
Incentive Stock Option, the right to make a payment in the form
of shares already owned may be authorized only at the time the
Stock Option is granted. The Committee may determine whether any
restrictions shall be applicable to any shares received if
payment of the Option Price for a Non-Statutory Stock Option is
made, in whole or in part, in the form of Restricted Stock, and,
if any restrictions are so imposed, the terms of such
restrictions. No shares of Stock shall be issued until full
payment therefor has been made.
(h) Non-transferability; Non-assignability. Stock Options shall
not be transferable by the Optionee other than by will or by the
laws of descent and distribution, and shall be exercisable during
the Optionee's lifetime only by the Optionee for his or her
individual account; or, in the event of his or her legal
incapacity, by his or her legal representative; or, in the event
of his or her disability, by the Optionee or his or her legal
representative (as the case may be).
(i) Termination by Death. Subject to this Section 7, if an
Optionee's employment terminates by reason of his or her death,
any Stock Option held by such Optionee may thereafter be
exercised, to the extent then exercisable or on such accelerated
basis as the Committee may determine, for a period of 12 months
(or such other period as the Committee may specify) after the
date of such death or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
(j) Termination by Reason of Disability. Subject to this
Section 7, if an Optionee's employment terminates by reason of
his or her disability, any Stock Option held by such Optionee may
thereafter be exercised by the Optionee, to the extent it was
exercisable at the time of termination or on such accelerated
basis as the Committee may determine, for a period of 3 years (or
such shorter period as the Committee may specify at grant) after
the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever
period is shorter; provided, however, that if the Optionee dies
within such period, any unexercised Stock Option held by such
Optionee shall continue to be exercisable to the extent to which
it was exercisable at the time of death for a period of 12 months
after the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is shorter. In
the event of termination of employment by reason of disability if
an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option shall thereafter be treated as a
Non-Statutory Stock Option.
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(k) Termination by Reason of Retirement. Subject to this
Section 7, if an Optionee's employment terminates by reason of
retirement, any Stock Option held by such Optionee may thereafter
be exercised by the Optionee, to the extent it was exercisable at
the time of such retirement or on such accelerated basis as the
Committee may determine, for a period of 3 years (or such shorter
period as the Committee may specify at grant) after the date of
such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter;
provided, however, that, if the Optionee dies within such period,
any unexercised Stock Option held by such Optionee shall,
notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months after the date of such death
or until the expiration of the stated term of such Stock Option,
whichever period is shorter. In the event of termination of
employment by reason of retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Statutory Stock Option.
(l) Other Termination. Unless otherwise determined by the
Committee, if an Optionee's employment terminates for any reason
other than death, disability, or retirement, the Stock Option
shall immediately terminate, except that such Stock Option, to
the extent then exercisable, may be exercised for the lesser of 3
months or the balance of such Stock Option's term if the
Optionee's employment is terminated for reasons other than for
cause by the Bank, or its Parent or a Subsidiary (whichever is
then the Optionee's employer).
(m) Incentive Stock Option Limitations. To the extent required
for "incentive stock option" status under Section 422 of the
Code, the Committee is authorized to limit the aggregate Fair
Market Value of the Stock (determined as of the date of grant)
with respect to which Incentive Stock Options are exercisable for
the first time by an Optionee during any calendar year under the
Plan and any other stock option plan of any subsidiary or parent
corporation (within the meaning of Section 424 of the Code). The
Committee is authorized to provide at grant that, to the extent
permitted under Section 422 of the Code, if an employee's
employment with the Bank is terminated by reason of death,
disability or retirement and the portion of any Incentive Stock
Option that is otherwise exercisable during the post-termination
period specified in Section 7(i), 7(j), or 7(k) hereof, applied
without regard to this Section 7, is greater than the portion of
such Option that is exercisable as an "incentive stock option"
during such post-termination period under Section 422, such
post-termination period shall automatically be extended (but not
beyond the original option term) to the extent necessary to
permit the Optionee to exercise such Incentive Stock Option
(either as an Incentive Stock Option or, if exercised after the
expiration periods that apply for the purposes of Section 422, as
a Non-Statutory Stock Option).
Section 8. Stock Appreciation Rights. The Committee may, from time
to time and on such terms and conditions as it deems appropriate,
grant Stock Appreciation Rights in connection with all or part of
a Stock Option granted under this Plan. A Stock Appreciation
Right may be exercised by an Optionee in accordance with Section
8(a) by his or her surrendering the applicable portion of the
related Stock Option in accordance
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with procedures established by the Committee. Upon such exercise
and surrender, the Optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 8(b)
hereof. Stock Options which have been so surrendered shall no
longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option
granted under the Plan. In the case of a Non-Statutory Stock
Option, such rights may be granted either at or after the time of
grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right, or the applicable
portion thereof granted with respect to a Stock Option, shall
terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option. Unless otherwise determined
by the Committee at the time of grant, a Stock Appreciation Right
granted with respect to less than the full number of shares the
subject of a related Stock Option shall not be reduced until the
number of shares the subject of an exercise or termination of the
related Stock Option exceeds the number of shares that are not
the subject of the Stock Appreciation Right.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions as shall be determined by
the Committee. Upon the exercise of a Stock Appreciation Right,
an Optionee shall be entitled to receive an amount in cash or
shares of Stock (or both) equal in value to the excess of the
Fair Market Value of one share of Stock over the Option Price
specified in the related Stock Option, multiplied by the number
of shares in respect of which the Stock Appreciation Right shall
have been exercised. The Committee may determine the form of
payment. A Stock Appreciation Right may only be exercised when
the Fair Market Value of Stock exceeds the Option Price specified
in the related Stock Option. In the case of Stock Appreciation
Rights relating to Stock Options held by Optionees who are
actually or potentially subject to Section 16(b) of the Exchange
Act, the Committee:
(i) may require that such Stock Appreciation Rights be exercised
only in accordance with the applicable "window period" provisions
of Section 335.411; and
(ii) shall require that a Stock Appreciation Right shall not be
exercisable during the first 6 months of its term, except that
this limitation shall not apply in the event of the death or
disability of the Optionee prior to the expiration of the 6-month
period.
Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be
transferable under the Plan. Upon the exercise of a Stock
Appreciation Right, the Stock Option or part thereof to which
such Stock Appreciation Right is related shall be deemed to have
been exercised for the purpose of the limitation set forth in
Section 6 hereof on the number of shares issued under the Stock
Appreciation Right at the time of exercise, based on the value of
the Stock Appreciation Right at the time of exercise. Upon the
termination of the Optionee's employment for any reason, he or
she may exercise any Stock Appreciation Rights held by him or her
on the same terms and conditions as the related Option.
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Section 9. Restricted Stock Awards. The Committee may, from time
to time, grant Restricted Stock Awards under the Plan, subject to
the following terms and conditions and such other terms and
conditions as the Committee, in its discretion, may establish.
(a) Administration. Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the
Plan. The Committee shall select the officers and key employees
to whom and the date or dates upon which grants of Restricted
Stock will be made, the number of shares to be awarded, the time
or times within which such Awards may be subject to forfeiture,
the events or conditions of forfeiture, and such other terms and
conditions as the Committee shall determine. The Committee shall
condition the grant of Restricted Stock upon the attainment of
specified Performance Goals established by the Committee in
writing, no later than the 90th day of the Performance Period to
which the Performance Goals shall apply. Performance Periods
shall not be shorter than one year. Other terms, conditions and
restrictions of such Awards shall be set forth in an agreement or
agreements between the Bank and the recipient of the Award. The
provisions of Restricted Stock Awards need not be the same with
respect to each recipient. Each Restricted Stock Award shall be
evidenced by a Restricted Stock Agreement.
(b) Certificates. Each Participant receiving a Restricted Stock
Award shall be issued a certificate representing such shares of
Restricted Stock. Such certificate shall be registered in the
name of such Participant. The Committee may require that the
certificates evidencing such shares be held in custody by the
Bank until the restrictions thereon shall have lapsed and that,
as a condition of any Restricted Stock Award, the Participant
shall have delivered to the Bank upon receipt of such Award, a
duly executed stock power, endorsed in blank, with signatures
guaranteed by a broker-dealer firm that is a member of a national
securities exchange or a commercial bank or trust company (unless
such guaranty is waived by the Bank), relating to the Stock made
the subject of such Restricted Stock Award.
(c) Terms and Conditions. Each grant of a Restricted Stock
Award shall be subject to the following terms and conditions, in
addition to such other terms and conditions as the Committee may
determine.
(i) Subject to the provisions of the Plan and the Restricted
Stock Agreement, during the period determined by the Committee
(the "Restriction Period"), the Participant shall not be
permitted to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of or encumber any shares of Restricted Stock.
The Committee may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions, in
whole or in part, based on service, performance and such other
factors or criteria as the Committee may determine.
(ii) Except as otherwise provided in this Section 9(c)(ii) and
Section 9(c)(i), the Participant shall have, with respect to his
or her shares of Restricted Stock, all of the rights of a
shareholder of the Bank, including the right to vote the shares
and the right to receive any cash dividends. Unless otherwise
determined by the Committee, cash dividends shall be
automatically deferred and reinvested in additional Restricted
Stock and dividends payable in Stock shall be paid in the form of
shares of Restricted Stock.
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(iii) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 9(c)(i) and 9(c)(iv)
hereof, upon termination of a Participant's employment for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the Participant.
(iv) In the event of hardship or other special circumstances
affecting a Participant whose employment is involuntarily
terminated (other than for cause), the Committee may waive in
whole or in part any or all remaining restrictions with respect
to such Participant's shares of Restricted Stock.
Section 10. Performance Unit Awards. The Committee shall, from
time to time, in its discretion, set Performance Goals and grant
Awards to eligible employees (as defined in Section 5 hereof)
based upon the attainment of such Performance Goals in the form
of Performance Units, provided that the Performance Goals are
established in writing, no later than the 90th day of the
Performance Period to which the Performance Goals shall apply.
Performance Periods shall not be shorter than one year.
Performance Unit Awards granted pursuant to the Plan shall
supersede and take the place of performance unit awards granted
pursuant to any previous plan or plans.
(a) Administration. Performance Units may be awarded either
alone or in addition to other Awards granted under the Plan. The
Committee shall select the officers and key employees to whom and
the time or times at which Performance Units shall be awarded and
any other terms and conditions of the Award. The Committee shall
determine the nature, duration, and starting date of the
Performance Period and shall determine the Performance Goals to
be used in valuing Performance Units and determining the extent
to which Performance Units have been earned. The provisions of
Performance Units Awards need not be the same with respect to
each recipient, and Performance Goals may vary among Participants
and groups of Participants.
(b) Performance Period. Except as provided in Sections
10(c)(iv) hereof, Participants shall be entitled to payment of
Performance Units pursuant to Section 10 hereof only if the
Participant is employed with the Bank for a period of time to be
determined by the Committee, but such period of time in no event
shall be less than one year from the date of grant of the Award.
Performance Periods may overlap and Participants may
simultaneously participate with respect to Performance Unit
Awards that are subject to different performance factors and
criteria.
(c) Terms and Conditions. Performance Unit Awards shall be
subject to the following terms and conditions, in addition to any
other terms and conditions the Committee may determine.
(i) Not more than 90 days after the commencement of the
Performance Period, the Committee shall establish such
performance targets and indicators as shall enable the Committee
to calculate the percentage of a Performance Unit to be paid to a
Participant based upon the extent to which such Performance Unit
Award has been earned. The Committee shall determine the value
for each Performance Unit based upon the Bank's audited financial
statements for the year immediately
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preceding the year during which the Performance Units are to be
awarded. Payment of the value of the Performance Units shall be
made in cash or whole shares of Stock, including Restricted
Stock, or any combination thereof, and in a lump sum or in annual
installments as the Committee may determine. The Committee may
adjust the performance targets and indicators and measurements
applicable to Performance Unit Awards to take into account
changes in law, accounting and tax rules and to make such
adjustments as the Committee deems necessary or appropriate to
reflect the impact of extraordinary or unusual items, events or
circumstances.
(ii) Subject to the provisions of the Plan, Performance Unit
Awards may not be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of.
(iii) Except to the extent otherwise provided in Section
10(c)(iv) hereof, Performance Units shall have no value if the
Participant is not an employee of the Bank at the end of the
Performance Period for which the Performance Unit was granted. In
the event of the death, disability, retirement, or termination of
the Participant's employment for reasons other than cause, the
Committee may, at its discretion, direct prorated payments based
upon: (x) the number of full calendar months between the date of
grant of the Award and the date of termination of employment,
divided by, (y) the total number of months in the Performance
Period.
(iv) Based on such factors or criteria as the Committee may
determine, the Committee may shorten the Performance Period or
declare any Performance Units immediately payable in such amounts
as the Committee may determine whenever it decides in its
absolute discretion that such action is in the interests of the
Bank and equitable to the Participants, or in the event of
hardship or other special circumstances of a Participant whose
employment is terminated (other than for cause).
(v) Each Performance Unit Award shall be confirmed by and be
subject to the terms of a Performance Unit Award Agreement.
(vi) The maximum amount, including the Fair Market Value of any
Stock, that may be paid to any Participant in any year with
respect to Performance Unit Awards is $600,000.
Section 11. Performance Goals. Performance Goal(s) applicable to
a Performance Period shall identify one or more business criteria
to be monitored during the Performance Period. Such business
criteria shall be established on a Bank-specific basis or in
comparison with peer group performance based on one or more of
the following: earnings before interest and taxes, net earnings,
earnings per share, return on equity, return on assets, stock
price appreciation and total return to stockholders. The
Committee shall determine the level(s) of performance that must
be achieved with respect to each criterion that is identified in
a Performance Goal in order for a Performance Goal to be treated
as attained in whole or in part. The Committee may base
Performance Goal(s) on one or more of the foregoing business
criteria. If Performance Goal(s) are based on more than one
business criterion, the Committee may determine to make a grant
of an Award upon attainment of the Performance Goal(s) relating
to any one or more of the criteria. The Committee may not
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adjust Performance Goals or Performance Periods established for
any Award to the extent such adjustment would increase the amount
of the Award; however, the Committee shall retain the discretion
to decrease Awards. The Committee shall certify in writing before
payment of the amounts payable under the Restricted Stock Awards
and Performance Unit Awards that the Performance Goals and any
other material terms were in fact satisfied. Certification by the
Committee is not required for amounts payable that are
attributable solely to the increase in the value of Stock.
Section 12. Change of Control. In the event of a Change of Control
of the Bank (as defined in Section 12(a) hereof), notwithstanding
any provisions to the contrary in the Plan or in any agreements
evidencing the grant of Awards, (i) any Stock Options and Stock
Appreciation Rights outstanding on the date a Change of Control
is deemed to have occurred shall immediately become fully
exercisable, provided that any Stock Appreciation Rights
outstanding with respect to an Optionee who is subject to Section
16(b) of the Exchange Act shall not become fully exercisable
unless such Stock Appreciation Rights shall have been outstanding
for at least 6 months on the date such Change of Control is
deemed to have occurred; (ii) the restrictions applicable to any
Restricted Stock shall lapse and such Restricted Stock shall
immediately become fully vested; and (iii) any outstanding
Performance Unit Awards shall be vested and paid out in
accordance with the time ratio set forth in Section 10(c)(iii)
hereof. All outstanding Stock Options, Stock Appreciation Rights,
and Restricted Stock shall be redeemable for cash, unless
otherwise determined by the Committee on or after the date of
grant, with the value of shares of Stock being deemed equivalent
to their Fair Market Value determined as of the date specified in
Section 12(b) hereof, as of the date of such Change of Control,
or as of such other date as the Committee may determine prior to
the date of such Change of Control.
(a) Definition. A Change of Control shall be deemed to have
occurred at any time that a person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act) other than the Bank
or its Parent or any Subsidiary becomes the "beneficial owner"
(as defined in the Exchange Act) directly or indirectly of
securities of the Bank representing a majority of the total
voting power of the Bank's then outstanding voting securities.
(b) Valuation Date. Upon the occurrence of a Change of Control
of the Bank, the valuation date to be used in determining the
Fair Market Value of shares of Stock shall be the date
immediately preceding the date upon which such Change of Control
shall have occurred.
Section 13. Reorganizations and Recapitalizations of the Bank.
Unless the Committee, in its discretion, shall otherwise provide
to the contrary in any Option Agreement, Performance Unit
Agreement or Restricted Stock Agreement, the following terms
apply to adjustments, reorganizations, recapitalizations, and
other changes in the structure of the Bank:
(a) The existence of the Plan and Awards granted thereunder
shall not affect in any way the right or power of the Bank or its
shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Bank's
capital structure or its business, or any merger or consolidation
of the Bank, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
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(b) The shares with respect to which Options or Stock
Appreciation Rights (or both) may be granted hereunder are shares
of Stock as currently constituted, but if, and whenever, prior to
the delivery by the Bank of all of the shares of Stock that are
the subject of Stock Options or Stock Appreciation Rights (or
both) granted pursuant to the Plan, the Bank shall effect a
subdivision or combination of shares or other capital adjustment,
the payment of a stock dividend or other increase or reduction in
the number of shares of Stock outstanding without receiving
consideration therefor in money, services or property, the number
of shares of Stock available under the Plan and the number of
shares of Stock with respect to which Stock Options or Stock
Appreciation Rights (or both) granted hereunder may thereafter be
exercised shall (i) in the event of an increase in the number of
shares of Stock, be proportionately increased, and the Option
Price payable per share shall be proportionately reduced; and
(ii) in the event of a reduction in the number of shares of
Stock, be proportionately reduced, and the Option Price payable
per share shall be proportionately increased.
(c) If the Bank is reorganized, or merged into or consolidated
with another corporation, or if the Bank sells or otherwise
disposes of substantially all of its assets to another
corporation, or if 20% or more of all classes of outstanding
capital stock of the Bank ordinarily entitled to vote in the
election of directors is acquired by another corporation in
exchange for stock or other securities of such other corporation
and while unexercised Options remain outstanding under the Plan,
subject to the provisions of Section 12 hereof, the Committee may
authorize an agreement between the Bank and such other
corporation providing that there shall be substituted for the
shares subject to the unexercised portions of such outstanding
Options an appropriate number of shares, if any, of each class of
stock or other securities of the reorganized, merged,
consolidated or acquiring corporation that were distributed or
issued to the shareholders of the Bank in respect of their shares
of Stock; and in the case of any merger or consolidation in which
the Bank is not the surviving corporation, or any sale or other
disposition of substantially all of the assets of the Bank to
another corporation, or the acquisition of 20% or more of all
classes of the outstanding capital stock of the Bank ordinarily
entitled to vote in the election of directors by another
corporation and in exchange for stock or other securities of such
other corporation, the Committee may accelerate unmatured
installments of Stock Options or Stock Appreciation Rights (or
both).
Section 14. Amendments and Termination. The Board may amend, alter,
or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made which would impair the rights of an
Optionee under a Stock Option or a Stock Appreciation Right
Agreement, or a Participant under an agreement for a Restricted
Stock Award or Performance Unit Award theretofore granted without
such Optionee's or Participant's consent or which, without the
approval of the Bank's shareholders, would:
(a) except as expressly provided in the Plan, increase the total
number of shares reserved for the purpose of the Plan;
(b) except as expressly provided in the Plan, decrease the
Option Price of any Stock Option to less than the Fair Market
Value on the date of grant;
(c) change the class of employees eligible to participate in the
Plan; or
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(d) extend the maximum option period with respect to Incentive
Stock Options under Section 7(e) or the maximum exercise period
under Section 7(f) hereof.
The Committee may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no
such amendment shall impair the rights of any Optionee or
Participant without such Optionee's or Participant's consent. The
Committee may also substitute new Stock Options for previously
granted Stock Options, including previously granted Stock Options
having higher Option Prices. Subject to the provisions set forth
in this Section 14, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting
rules, as well as other developments.
Section 15. Effective Date. The Plan shall be effective and Awards
may be granted thereunder, immediately upon its adoption by the
Board. If, however, the Plan shall not have received approval by
the holders of a majority of the total voting power represented
by the voting securities of the Bank within 12 months after its
adoption by the Board, the Plan and all Awards thereunder shall
be terminated and shall be of no further effect.
Section 16. General Provisions. The following general provisions
shall apply to the Plan:
(a) The Plan and all Awards granted and all actions taken
thereunder shall be governed by and construed in accordance with
the laws of the State of Connecticut.
(b) Nothing contained in the Plan shall prevent the Bank, its
Parent or any Subsidiary from adopting other or additional
compensation arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way
with the right of the Bank, its Parent or any Subsidiary, to
terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income for federal income tax purposes of
an Optionee or Participant with respect to any Award under the
Plan, such Optionee or Participant shall pay to the Bank, or make
arrangements satisfactory to the Bank regarding the payment of,
any federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. Unless
otherwise determined by the Bank, withholding obligations may be
settled with Stock, including Stock that is part of the Award
giving rise to the withholding requirement. The obligations of
the Bank under the Plan may be conditioned on such payment or
arrangements, and the Bank, its Parent and any Subsidiary shall,
to the extent permitted by law, have the right to deduct any such
taxes from any payment otherwise due to the Optionee or
Participant.
(e) The reinvestment of dividends in additional Restricted
Stock at the time of any dividend payment shall only be
permissible if sufficient shares of Stock are available under
Section 6 hereof for such reinvestment (taking into account then
outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems
appropriate for an Optionee or Participant to designate a
beneficiary to whom any amounts payable in the event of such
Optionee's or Participant's death are to be paid.
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EXHIBIT B
AMENDED AND RESTATED
PEOPLE'S BANK
1995 STOCK PRICE APPRECIATION UNIT PLAN
1. Purpose. The purpose of the Plan is to promote the mutual
interests of the Bank and its shareholders by enabling key
employees of the Bank, or of the Parent or any Subsidiary of the
Bank, to participate in the Bank's future growth. The Plan is
designed to give those employees upon whose judgment, initiative
and efforts the successful conduct of the Bank's business depends
additional incentives to perform in a superior manner. The Plan
also provides a means through which the Bank can attract,
motivate and retain people of experience and ability as
employees.
2. Definitions. For purposes of the Plan, the following terms
shall have the meanings set forth below:
"Award" means a grant of Stock Price Appreciation Units under
the provisions of the Plan.
"Award Agreement" means the written agreement between the Bank
and a Participant confirming the grant of Stock Price
Appreciation Units and setting forth the terms and conditions
upon which they may be exercised.
"Bank" means People's Bank, a Connecticut state-chartered
capital stock savings bank, and any successor thereto.
"Base Price" means the value determined pursuant to Section
6(c) hereof.
"Board" means the Board of Directors of the Bank.
"Cause" means an employee's act of dishonesty, moral turpitude,
insubordination, or an intentional or grossly negligent act
detrimental to the interests of the Bank, or of its Parent or any
Subsidiary.
"Change of Control" has the meaning set forth in Section 7(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
"Committee" means the Human Resources Committee of the Board
referred to in Section 3 hereof.
"Disability" means permanent and total disability as determined
under procedures established by the Committee for purposes of the
Plan.
"Disinterested Person" has the meaning set forth in 17 C.F.R.
Section 240.16b-3, as promulgated by the SEC and adopted by the FDIC,
as amended from time to time, or any successor definition adopted
by the FDIC.
"Early Retirement" means retirement at any age before age 65,
with the consent of the Committee, pursuant to such early
retirement provisions as are adopted by the Committee, and such
termination shall be treated as a termination of employment other
than for Cause for purposes of the Plan.
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"Employment" or "employment with the Bank" (and terms
substantially equivalent thereto) means a subsisting
employer-employee relationship between the Bank and the employee
and includes employment with the Parent or any Subsidiary;
employment shall be deemed to cease, for purposes of the Plan,
irrespective of any notice period or lapse of time, upon any date
on which an employee informs the Bank that he or she intends to
quit or resign from his or her employment, or the Bank (or
related employer) informs the employee in writing that his or her
employment is to be terminated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute thereto.
"Fair Market Value" means as of a particular date:
(i) if the Stock is not then listed or admitted to trading on a
national securities exchange (as that term is used in Section 6
of the Exchange Act), and prices of trades in Stock are regularly
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the mean between the high
and low selling prices for Stock on such date as reported by
NASDAQ or, in the event no high and low selling prices for Stock
are reported by NASDAQ for such date, then the mean between the
high and low selling prices reported by NASDAQ for the next
preceding day in respect of which both high and low selling
prices are so reported; or
(ii) if the Stock is then listed or admitted to trading on one
or more national securities exchanges, the mean between the high
and low selling prices at which Stock is traded on the principal
securities exchange on which the Stock is traded on such date or,
if Stock is not so traded on such exchange on such date, the mean
between the high and low selling prices at which Stock was traded
on such exchange on the next preceding day on which stock was so
traded; or
(iii) if neither (i) nor (ii) is applicable, such amount as the
Committee shall determine on the basis of such factors as it
deems relevant.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency thereto.
"Outside Director" has the meaning set forth in Section 162(m)
of the Code ("Section 162(m)") and the regulations thereunder as
may be in effect from time to time (the "Regulations").
"Parent" means People's Mutual Holdings, a Connecticut
state-chartered mutual holding company.
"Participant" means an eligible employee (as described in
Section 4 hereof) who accepts an Award.
"Plan" means People's Bank 1995 Stock Price Appreciation Unit
Plan, as set forth herein and as hereinafter amended from time to
time.
"Retirement" means the termination of an employee's employment at
or after age 65.
"SEC" means the Securities and Exchange Commission or any successor
agency thereto.
"Stock" means the common stock of the Bank, having no par value.
"Stock Price Appreciation Unit" or "Unit" means a unit granted
under Section 6 hereof.
B-2
<PAGE>
"Subsidiary" means any corporation in which the Bank owns,
directly or indirectly through one or more other Subsidiaries, at
least 50% of the total combined voting power of all classes of
stock.
3. Administration. The Plan shall be administered by the
Committee or such other committee of the Board that is designated
and empowered to perform the functions of the Committee, and in
either case, composed of not fewer than two (2) directors of the
Bank each of whom shall be both a Disinterested Person and an
Outside Director. In particular, the Committee shall have the
authority, subject to the terms of the Plan, to select the
officers and other employees to whom Awards may from time to time
be granted, to determine whether and to what extent Awards are to
be granted, and to determine the terms and conditions of all such
Awards. The Committee shall supervise and administer the Plan and
shall have plenary powers and authority to make such rules and
regulations and establish such procedures as it deems appropriate
for the administration of the Plan. Any questions of
interpretation of the Plan, any Awards issued under it, or any
such rules and regulations, shall be determined by the Committee,
and such determinations shall be binding and conclusive for all
purposes and upon all persons. Each Award granted under the Plan
is intended to be performance-based compensation within the
meaning of Section 162(m)(4)(C) of the Code. Notwithstanding any
other provision of this Plan to the contrary, the Committee shall
not be entitled to exercise any discretion otherwise authorized
hereunder with respect to such Awards to the extent the ability
to exercise such discretion or the exercise of such discretion
itself would cause the amounts attributable to such Awards to
fail to qualify as performance-based compensation within the
meaning of Section 162(m)(4)(C) of the Code and the Regulations.
4. Eligibility. Officers and other key employees of the
Bank, its Parent and any Subsidiaries (but excluding members of
the Committee and any person who serves only as a director and/or
trustee) are eligible to be granted Awards under the Plan.
5. Units Subject to Plan. The total of 1,700,000 Stock Price
Appreciation Units shall be available for grant pursuant to
Awards under the Plan, subject to adjustment as provided in
Section 8 hereof. If any Units granted pursuant to the Plan are
exercised, such Units shall be unavailable for future grants
under the Plan. If any Units are terminated unexercised, then
such Units may be the subject of the grant of future Awards. The
maximum number of Units that may be awarded to a Participant
during any two year period may not exceed 120,000.
6. Stock Price Appreciation Units. The Committee may, from time
to time, grant Stock Price Appreciation Units under the Plan to
one or more eligible employees (as described in Section 4
hereof). Stock Price Appreciation Units granted under the Plan
shall be subject to the following terms and conditions and such
additional terms and conditions as the Committee shall deem
desirable.
(a) Grant Date. The date of grant of an Award shall be the date
the Committee, by resolution, (i) selects an eligible employee as
grantee, (ii) determines the number of Stock Price Appreciation
Units granted to such employee, and (iii) specifies the terms and
provisions of the Award Agreement. In no event may the Committee
grant an Award later than 10 years after the date of adoption of
the Plan.
B-3
<PAGE>
(b) Award Agreement. Each Award shall be evidenced by an
Award Agreement, and the terms and provision of each Award
Agreement may differ.
(c) Base Price. The base price of a Stock Price Appreciation
Unit shall be equal to the Fair Market Value of a share of the
Stock on the date of grant, or such higher price as the Committee
shall determine on or prior to such date.
(d) Term. The term of each Award and Stock Price Appreciation
Unit granted thereby shall be fixed by the Committee.
(e) Exercisability. Stock Price Appreciation Units shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided,
however, that, except as provided in Sections 6(i), 6(j), 6(k),
7, 8, and 9 hereof and unless otherwise determined by the
Committee, no Stock Price Appreciation Unit shall be exercisable
prior to the first anniversary date of the date of grant of such
Unit. If the Committee provides that any Stock Price Appreciation
Unit is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or
in part, based on such factors as the Committee may determine.
(f) Method of Exercise. Subject to the provisions of this
Section 6, Stock Price Appreciation Units may be exercised, in
whole or in part, at any time during the term thereof by the
Participant's giving written notice of exercise to the Director
of the Human Resources Department or his or her designee
specifying the number of Units to be exercised and such other
information as the Director may require, and, to the extent then
exercisable, Stock Price Appreciation Units having a Base Price
which is less than the Fair Market Value of a share of Stock on
the last day of the term thereof shall be deemed automatically
exercised on the last day of the term thereof.
(g) Payment. Upon exercise, a Participant shall be entitled to
receive, for each Stock Price Appreciation Unit exercised, an
amount in cash equal to the excess of the Fair Market Value of
one share of Stock on the date of exercise over the Base Price of
such Stock Price Appreciation Unit, net of all taxes required to
be withheld by the Bank on such amount. All such payments shall
be made only in cash, check, money order or wire transfer of
funds and no Participant shall have any right to receive payment
with respect to any Stock Price Appreciation Unit in the form of
Stock or any other equity security (as such term is defined in
the Exchange Act).
(h) Non-transferability: Non-assignability. Stock Price
Appreciation Units shall not be transferable by a Participant
other than by will or by the laws of descent and distribution and
shall be exercisable during the Participant's lifetime only by
the Participant for his or her individual account; or, in the
event of his or her legal incapacity, by his or her legal
representative; or, in the event of his or her Disability, by the
Participant or his or her legal representative (as the case may
be).
(i) Termination by Death. Subject to this Section 6, if a
Participant's employment terminates by reason of his or her
death, any Stock Price Appreciation Units held by such
Participant may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Committee may
determine, for a period of 12 months (or such other period as the
Committee may specify in the Award
B-4
<PAGE>
Agreement) after the date of such death or until the expiration
of the stated term of such Stock Price Appreciation Unit,
whichever period is shorter.
(j) Termination by Reason of Disability. Subject to this
Section 6, if a Participant's employment terminates by reason of
his or her Disability, any Stock Price Appreciation Units held by
such Participant may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Committee may
determine, for a period of 3 years (or such shorter period as the
Committee may specify in the Award Agreement) after the date of
such termination of employment or until the expiration of the
stated term of such Stock Price Appreciation Unit, whichever
period is shorter; provided, however, that if the Participant
dies within such period, any unexercised Stock Price Appreciation
Unit held by such Participant shall, notwithstanding the
expiration of such period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a
period of 12 months after the date of such death or until the
expiration of the stated term of such Stock Price Appreciation
Unit, whichever period is shorter.
(k) Termination by Reason of Retirement. Subject to this
Section 6, if a Participant's employment terminates by reason of
Retirement, any Stock Price Appreciation Units held by such
Participant may thereafter be exercised by the Participant, to
the extent it was then exercisable or on such accelerated basis
as the Committee may determine, for a period of 3 years (or such
shorter period as the Committee may specify at grant) after the
date of Retirement or until the expiration of the stated term of
such Stock Price Appreciation Unit, whichever period is shorter;
provided, however, that if the Participant dies within such
period, any unexercised Stock Price Appreciation Unit shall,
notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months after the date of such death
or until the expiration of the stated term of such Stock Price
Appreciation Unit, whichever period is shorter.
(l) Other Termination. Unless otherwise determined by the
Committee, if a Participant's employment terminates for any
reason other than death, Disability or Retirement, any Stock
Price Appreciation Units held by such Participant shall
immediately terminate, except that if the Participant's
employment is terminated for reasons other than for Cause, such
Units, to the extent then exercisable, may be exercised for a
period of 3 months after the date of such termination of
employment or until the expiration of the stated term of the
balance of such Stock Price Appreciation Units, whichever period
is shorter.
7. Change of Control. In the event of a Change of Control of
the Bank (as defined in Section 7(a) hereof), notwithstanding any
provisions to the contrary in the Plan or in any Award Agreement,
(i) any Stock Price Appreciation Units outstanding on the date a
Change of Control is deemed to have occurred shall immediately
become fully exercisable. All outstanding Stock Price
Appreciation Units shall be redeemable for cash, with the value
of a share of Stock being deemed equivalent to its Fair Market
Value as of the date specified in Section 7(b) hereof, as of the
date of such Change of Control, or as of such other date as the
Committee may determine prior to the date of such Change of
Control. All such payments shall be made only in cash, and no
Participant shall have any right to receive payment with respect
to any Stock Price Appreciation Unit in the form of Stock or any
other equity security (as such term is defined in the Exchange
Act).
B-5
<PAGE>
(a) Definition. A Change of Control shall be deemed to have
occurred at any time that a person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act) other than the Bank
or its Parent or any Subsidiary becomes the "beneficial owner"
(as defined in the Exchange Act) directly or indirectly of
securities of the Bank representing a majority of the total
voting power of the Bank's then outstanding voting securities.
(b) Valuation Date. Upon the occurrence of a Change of Control
of the Bank, the valuation date to be used in determining the
Fair Market Value of shares of Stock shall be the date
immediately preceding the date upon which such Change of Control
shall have occurred.
8. Reorganizations and Recapitalizations of the Bank. Unless
the Committee, in its discretion, shall otherwise provide to the
contrary in any Award Agreement, the following terms apply to
adjustments, reorganizations, recapitalizations, and other
changes in the structure of the Bank:
(a) The existence of the Plan and Awards granted thereunder
shall not effect in any way the right or power of the Bank or its
shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Bank's
capital structure or its business, or any merger or consolidation
of the Bank, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) If, and whenever, the Bank shall effect a subdivision or
combination of shares or other capital adjustment, the payment of
a stock dividend or other increase or reduction in the number of
shares of Stock outstanding without receiving consideration
therefor, in money, services or property, the number of Units
then available under the Plan and the number of Units then
outstanding shall (i) in the event of an increase in the number
of shares of Stock, be proportionately increased, and the Base
Price per Unit shall be proportionately reduced; and (ii) in the
event of a reduction in the number of shares of Stock, be
proportionately reduced, and the Base Price per Unit shall be
proportionately increased.
(c) Subject to the provisions of Section 7 hereof in the case
of any merger or consolidation in which the Bank is not the
surviving corporation, or any sale or other disposition of
substantially all of the assets of the Bank to another
corporation, or the acquisition of 20% or more of all classes of
the outstanding capital stock of the Bank ordinarily entitled to
vote in the election of directors by another corporation and in
exchange for stock or other securities of such other corporation,
the Committee may accelerate unmatured installments of Stock
Price Appreciation Units.
9. Amendments and Termination. The Board may amend, alter,
or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a
Participant under an Award theretofore granted without such
Participant's consent. The Committee may amend the terms of any
Award theretofore granted, prospectively or retroactively, but no
such amendment shall impair the rights of any Participant without
such Participant's consent. The Committee may also substitute new
Stock Price
B-6
<PAGE>
Appreciation Units for previously granted Stock Price
Appreciation Units, including previously granted Stock Price
Appreciation Units having higher Base Prices. Subject to the
provisions set forth in this Section 9, the Board shall have
authority to amend the Plan to take into account changes in law
and tax and accounting rules, as well as other developments.
10. Effective Date. The Plan shall be effective, and Awards may
be granted thereunder, immediately upon its adoption by the Board.
11. General Provisions. The following general provisions shall
apply to the Plan:
(a) The Plan and all Awards granted and all actions taken
thereunder shall be governed by and construed in accordance with
the laws of the State of Connecticut.
(b) Nothing contained in the Plan shall prevent the Bank, its
Parent or any Subsidiary from adopting other or additional
compensation arrangements for their respective employees.
(c) Adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way
with the right of the Bank, its Parent or any Subsidiary, to
terminate the employment of any of their respective employees at
any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income for federal income tax purposes of
a Participant with respect to any Award under the Plan, the Bank,
its Parent and any Subsidiary shall, to the extent permitted by
law, have the right to deduct from any payment otherwise due to
the Participant any federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to such amount.
(e) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom
any amounts payable in the event of such Participant's death are
to be paid.
B-7
<PAGE>
EXHIBIT C
PROPOSED AMENDMENTS TO ARTICLES OF INCORPORATION
RESOLVED, that the Articles of Incorporation of People's Bank
(the "Articles") are hereby amended in the following respects:
(A) by deleting Section 5.1 of Article V thereof in its
entirety, and substituting the following in lieu thereof:
"5.1 Authorized Stock. The total number of shares of all
classes of capital stock which the Bank shall have authority to
issue is 110,000,000, consisting of:
(a) One Hundred Million (100,000,000) shares of common
stock, without par value ("Common Stock"); and
(b) Ten Million (10,000,000) shares of preferred stock,
without par value ("Preferred Stock")."
(B) by making the following changes to statutory references
appearing in the Articles:
(1) the reference to "Chapter 599 of the Connecticut General
Statutes" appearing in Section 5.3 of the Articles is deleted,
and reference to "Chapter 601 of the Connecticut General
Statutes, as the same may be amended or recodified from time to
time," is substituted therefor;
(2) the reference to "Section 5(c) of the Connecticut Public
Act No. 85-330" appearing in Section 5.3(e) of the Articles is
deleted, and reference to "Section 36a-195(c) of the Connecticut
General Statutes, as the same may be amended or recodified from
time to time," is substituted therefor;
(3) the reference to "Titles 33 or 36 of the Connecticut
General Statutes" appearing in Section 5.4 of the Articles is
deleted, and reference to "Titles 33 or 36a of the Connecticut
General Statutes, as the same may be amended or recodified from
time to time," is substituted therefor;
(4) the reference to "Section 33-330 of the Connecticut General
Statutes" appearing in Section 5.5 of the Articles is deleted,
and reference to "Section 33-698 of the Connecticut General
Statutes, as the same may be amended or recodified from time to
time," is substituted therefor;
(5) the reference to "Section 6(a) of Connecticut Public Act
No. 85-330" appearing in Article VI of the Articles is deleted,
and reference to "Section 36a-196(a) of the Connecticut General
Statutes, as the same may be amended or recodified from time to
time," is substituted therefor;
(6) the reference to "Section 6(c) of Connecticut Public Act
No. 85-330" appearing in Article VI of the Articles is deleted,
and reference to "Section 36a-196(c) of the Connecticut General
Statutes, as the same was in effect immediately prior to its
amendment by Section 203 of Connecticut Public Act No.
96-271," is substituted therefor;
(7) the reference to "Section 33-320a of the Connecticut
General Statutes" appearing in Section 10.1 of the Articles is
deleted, and reference to "Sections 33-770 through 33-778
(inclusive) of the
C-1
<PAGE>
Connecticut General Statutes, as the same may be amended or
recodified from time to time to provide for indemnification on an
equivalent or expanded (but not more limited) basis," is
substituted therefor;
(8) the reference to "subdivision (3) of Section 33-374d of the
Connecticut General Statutes" appearing in Section 10.2 of the
Articles is deleted, and reference to "subdivision (2) of Section
33-840 of the Connecticut General Statutes, as the same may be
amended or recodified from time to time," is substituted
therefor; and
(9) the reference to "Section 36-9 of the Connecticut General
Statutes" appearing in Section 10.2 of the Articles is deleted,
and reference to "Section 36a-58 of the Connecticut General
Statutes, as the same may be amended or recodified from time to
time," is substituted therefor.
C-2
Exhibit 99(8)
AMENDMENT NO. 2
TO
FORM F-1
FORM FOR REGISTRATION OF SECURITIES OF A BANK
UNDER SECTION 12(b) OR SECTION 12(g)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FDIC Certificate No. 27334
People's Bank
- -----------------------------------------------------------------
(Exact name of bank as specified in charter)
850 Main Street, Bridgeport, Connecticut 06604
- -----------------------------------------------------------------
(Address of principal office)
06-1213065
- -----------------------------------------------------------------
(I.R.S. Employer Identification No.)
(203) 338-7171
- -----------------------------------------------------------------
(Bank's telephone number, including area code)
Title of each class of securities being registered under Section
12(b) of the Act:
NONE
Title of each class of securities being registered under Section
12(g) of the Act:
COMMON STOCK (without par value)
Indicate by check mark if the bank, as a "small business issuer"
as defined under 17 CFR 240.12b-2, is providing alternative
disclosures as permitted for small business issuers in this Form
F-1. [ ]
<PAGE>
Preliminary Note: This Amendment No. 2 to Form F-1 is being
filed by People's Bank ("People's") solely to amend and update
Item 14, "Capital Stock Being Registered", contained in People's
registration statement on Form F-1 dated June 22, 1988 as amended
by Amendment No. 1 to Form F-1 dated July 28, 1988. The
information required by Item 14 of Form F-1 as in effect at the
time Form F-1 and Amendment No. 1 to Form F-1 were filed is now
required by Item 13 (Securities Being Registered) of Form F-1 as
currently in effect. Only information required by Item 13 is
included in this filing. The omission from this Amendment No. 2
of responses to other items of Form F-1 (a) is not intended to
effect or imply, and may not be construed as effecting or
implying, any amendment to any other item of Form F-1 or
Amendment No. 1 to Form F-1 previously filed by People's, and (b)
is not intended to revoke or amend, and may not be construed as
revoking or amending, any updated information pertaining to any
such item that may have been contained in any filing made by
People's with the Federal Deposit Insurance Corporation pursuant
to the Securities Exchange Act of 1934 subsequent to the filing
of Form F-1 or Amendment No. 1 to Form F-1.
Item 13 - Securities Being Registered.
(a) Capital Stock.
General. People's is authorized by its Articles of
Incorporation (the "Articles") to issue up to 100,000,000
shares of Common Stock, without par value (the "Common
Stock"), and 10,000,000 shares of preferred stock, without
par value ("Preferred Stock").
The Board of Directors of People's (the "Board") has broad
authority to designate and establish the terms of one or
more series of Preferred Stock. Among other matters, the
Board is authorized to establish voting powers,
designations, preferences and relative participating,
optional or other special rights of each such series and
any qualifications, limitations and restrictions thereon.
No shares of any series of Preferred Stock are outstanding
as of the date hereof.
This Form applies only to People's Common Stock.
Voting. Each holder of Common Stock is entitled to one vote
for each share held on all matters voted upon by
shareholders. Shareholders are not permitted to cumulate
their votes for the election of directors. Under People's
Articles, shareholder action is by the vote of a majority
of the voting power of all issued and outstanding shares of
capital stock entitled to vote on such action, except where
a greater percentage is required by the Connecticut Banking
Law (the "CTBL") or the Connecticut Business Corporation
Act (the "CTBCA").
Subject to applicable provisions of the CTBCA, shareholder
action may be taken without a vote by written consent of
the holders of a majority of the outstanding shares of
Common Stock (or such greater percentage as may be required
by the Articles or by law as noted above).
The CTBL limits the voting rights that may be conferred on
any class of preferred stock issued by People's only to
such voting rights as are required to be granted by the
CTBCA to be granted to the holders of such class of stock.
<PAGE>
Dividends. The declaration and payment of dividends on the
Common Stock is subject to determination by the Board in
its discretion and to the preferential rights, if any, of
any class of securities having priority as to dividends or
other distributions with respect to the Common Stock. The
declaration and payment of dividends on the Common Stock is
also subject to applicable provisions of the CTBL, the
CTBCA, and federal banking laws.
Liquidation Rights. If People's were to be liquidated,
holders of Common Stock would be entitled to receive any
remaining assets of People's, in cash or in kind, after
payment of all liabilities and of all amounts reserved in
liquidation accounts as well as any amounts payable to
holders of equity securities senior to the Common Stock, if
any. The CTBL limits the priority of liquidation rights
that may be conferred on any class of preferred stock
issued by People's to an amount equal to the original
investment in such stock, plus an amount equal to any
dividends earned but not paid prior to liquidation.
Preemptive Rights. Holders of Common Stock are entitled to
preemptive rights with respect to any additional shares of
Common Stock or securities convertible into Common Stock
that may be issued for cash (except pursuant to stock
options or option plans approved by shareholders).
Preemptive rights may be waived by a holder of shares of
Common Stock.
Redemption. The Common Stock is not subject to call or
redemption, and may not be redeemed or repurchased by
People's without the consent of the FDIC and the Banking
Commissioner of the State of Connecticut (the
"Commissioner").
Board of Directors. People's Articles provide that the
Board of Directors of People's will be divided into three
classes, with directors in each class elected for
three-year terms. People's Bylaws provide that the number
of positions on the Board of Directors - within the range
of 9 to 16 directors - may be increased or decreased only
by the Board of Directors. People's Bylaws also impose
restrictions on the ability of shareholders to nominate
candidates for election to the Board of Directors. People's
Articles and Bylaws provide that vacancies created by an
increase in the number of directorships can be filled for
the unexpired term only by the People's Board. Vacancies
occurring for any other reason, such as death or
resignation, would likewise be filled by the remaining
directors.
Restrictions on Acquisition of Common Stock.
(i) State and Federal Laws. Certain provisions of Connecticut
law and federal law may limit or otherwise affect the acquisition
of Common Stock. One such provision is contained in Section
36a-194(e) of the CTBL, which allows the Commissioner to seek
the appointment of a receiver and to institute proceedings to
dissolve a Connecticut mutual holding company if such holding
company ceases to own at least 51% of the "ordinarily voting"
equity securities of its subsidiary bank. People's was formed
as part of a corporate reorganization in which People's Mutual
Holdings was created as a mutual holding company, with People's
as its majority-owned subsidiary. The Common Stock represents
the only class of "ordinarily voting" equity securities of
People's for purposes of this statute.
<PAGE>
The CTBL and federal banking statutes contain other
provisions intended to govern the acquisition of control of
banking organizations such as People's. The CTBCA contains
certain fair price and procedural provisions applicable to
"business combinations" involving an "interested
shareholder" and a Connecticut corporation such as
People's. These laws are of general application, and
consequently are not summarized in this Item 13.
(ii) People's Articles. Certain provisions of the Articles
are designed to discourage certain types of transactions
which involve an actual or threatened change in control of
People's. Specifically, Article VIII of the Articles
requires the Board to evaluate any proposed business
combination, any proposal by another person or persons
acting as a group to effect a business combination, or a
tender or exchange offer involving People's or any
subsidiary thereof, in light of various business and
non-business factors. Factors which the Board must
consider, in addition to the adequacy of the amount to be
paid in connection with any such transaction, include (A)
the social and economic effects of the transaction on
People's and its subsidiaries, affiliates, employees,
depositors, borrowers from and other customers of People's,
creditors, and the relevant constituencies of the
communities in which People's and its subsidiaries and
affiliates operate or are located, (B) the business and
financial condition and earnings prospects (present and
anticipated) of People's and its subsidiaries and
affiliates, (C) the business and financial condition and
earnings prospects of the acquiring person or group,
including, but not limited to, debt service and other
existing financial obligations, financial obligations to be
incurred in connection with the acquisition, and other
foreseeable financial obligations of the acquiring person
or group, and the possible effects of such factors upon
People's and its subsidiaries and affiliates and the
relevant constituencies of the communities in which
People's and its subsidiaries and affiliates operate or are
located, and (D) the competence, experience and integrity
of the acquiring person or group and its management.
The term "business combination" in Article VIII of the
Articles encompasses four categories of transactions: (1)
the sale, exchange, lease, transfer or other disposition to
or with any person or group or any affiliate or associate
of such person or group by People's or any of its
subsidiaries (in a single transaction or in a series of
related transactions) of all, substantially all, or any
substantial part, of its or their assets or businesses
(including, without limitation, any securities issued by a
subsidiary of People's); (2) any purchase, exchange, lease,
or other acquisition by People's or any of its subsidiaries
(in a single transaction or a series of related
transactions) of all or substantially all, or any
substantial part, of the assets or business of any person
or group or any affiliate or associate of any such person
or group; (3) any merger or consolidation of People's or
any subsidiary thereof into or with any person or group or
affiliate or associate of such person or group,
irrespective of which person or group is the surviving
entity in such merger or consolidation; and (4) the
acquisition upon the issuance thereof of beneficial
ownership by any person or group of Common Stock or
securities convertible into Common Stock or any voting
securities or securities convertible into voting securities
of any subsidiary of People's, or the acquisition, upon the
issuance thereof of beneficial ownership by any person or
group of any rights, warrants or options to acquire any of
the foregoing or any combination of the foregoing if such
person or group prior to such acquisition owned, or as a
result of such acquisition would own, more than 5% of the
Common Stock or more than 5% of the voting securities of a
<PAGE>
subsidiary then issued and outstanding (assuming full
conversion of all securities owned or to be acquired by
such person or group which are or would be convertible into
Common Stock or voting securities of a subsidiary).
(b) Debt Securities. Not applicable.
(c) Warrants and Rights. Not applicable.
(d) Other Securities. Not applicable.
(e) Market Information for Securities Other Than Common Equity.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, People's has duly caused this Amendment No. 2 to the
Registration Statement on Form F-1 to be signed on its behalf by
the undersigned thereunto duly authorized.
PEOPLE'S BANK
Date: December 30, 1997 By: /s/ Vincent J. Calabrese
------------------------
Vincent J. Calabrese
Vice President and
Chief Accounting Officer
