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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
December 31, 1995 34-0-18162
People's Savings Financial Corp.
(Exact name of registrant as specified in its charter)
Connecticut 06-1259026
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
123 Broad Street, New Britain, Connecticut 06053
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203)224-7771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
X Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Page 1 of 30 pages.
The Exhibit Index is found at page 25.
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The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sale price of such stock on February 29,
1996 was $35,339,335.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class February 29, 1996
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Common Stock, par value $1.00 per share 1,924,363
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Annual Report on Form 10-K as indicated herein.
Part of Form 10-K
Document into which incorporated
-------- -----------------------
1995 Annual Report to Shareholders I and II
Proxy Statement for the 1996 Annual III
Meeting of Stockholders (to be filed
within 120 days of December 31, 1995)
(the "Proxy Statement")
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TABLE OF CONTENTS
Page
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PART I
Item 1 - Business.............................................. 1
Item 2 - Properties............................................ 20
Item 3 - Legal Proceedings..................................... 20
Item 4 - Submission of Matters to a Vote of Security
Holders............................................. 21
- Executive Officers of the Registrant.................. 21
PART II
Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters......................... 21
Item 6 - Selected Financial Data............................... 22
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 22
Item 8 - Financial Statements and Supplementary Data........... 22
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 23
PART III
Item 10 - Directors and Executive Officers of the
Registrant.......................................... 23
Item 11 - Executive Compensation................................ 23
Item 12 - Security Ownership of Certain Beneficial Owner
and Management...................................... 23
Item 13 - Certain Relationships and Related Transactions........ 23
PART IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. 24
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PART I
Item 1 - Business
The principal executive offices of People's Savings Financial Corp. (the
"Company") and of The People's Savings Bank of New Britain (the "Bank") are
located at 123 Broad Street, New Britain, Connecticut 06053. The telephone
number of the Company and the Bank is (203)224-7771.
The Company was organized as a corporation under the laws of the State of
Connecticut on February 22, 1989, to operate principally as a bank holding
company for the Bank. The Bank's shareholders approved the acquisition by the
Company of all of the outstanding common stock of the Bank (the "Bank Common
Stock") in exchange for shares of common stock of the Company (the "Company
Common Stock"). The Bank is the sole subsidiary of the Company and its principal
asset. As of December 31, 1995, the Company had total consolidated assets of
$410.2 million, total consolidated deposits of $339.4 million, consolidated net
loans of $236.8 million and consolidated shareholders' equity of $44.7 million.
As of December 31, 1994, the Bank had total assets of $402.1 million, total
deposits of $321.7 million, net loans of $226.3 million and shareholders' equity
of $41.2 million.
The Bank was originally organized in 1907 as a Connecticut-chartered mutual
savings bank, and converted to a Connecticut-chartered capital stock savings
bank on August 27, 1986. The Bank currently offers general banking services,
including accepting deposits from the general public and lending or investing
those funds and also offers trust services. In addition to its main office, the
Bank operates seven banking branches located in New Britain, Southington,
Newington, Rocky Hill, and Plainville, Connecticut. The Bank will open its eight
branch in Meriden, CT in early spring 1996.
Principal Market Area
The Bank's principal market encompasses the City of New Britain and the
Towns of Berlin, Newington, Southington, Rocky Hill, Plainville and Meriden.
Although traditionally servicing the banking needs of New Britain's Polish
community, the Bank has expanded its customer base over the past several years.
The Bank intends to continue to focus its marketing efforts in the next several
years on other segments of the New Britain community and upon residents of other
towns in its market area.
The City of New Britain is evolving from a primarily industrial economy to
an industrial-commercial-service economy. The surrounding communities are
largely residential but also have significant industrial and commercial
activities. The transfer of several major manufacturing facilities to other
areas of the country continues to affect adversely the New Britain area labor
market.
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Lending and Investment Activities
The Bank provides personalized financial services to its existing customers
and intends to achieve growth by increasing its customer base in New Britain and
by increasing its services to, and expanding its customer base in, the
communities surrounding New Britain. The Bank's principal business consists of
attracting deposits from the public and using such deposits, with other funds,
to make various types of loans and investments. A substantial portion of the
loans and investments originated over the last five years has been on a
short-term or variable-rate basis, although origination of more traditional
fixed-rate mortgage loans increased during the low interest rate environment in
1993. The Bank has originated more adjustable rate loans with the rise in
interest rates during 1994 and 1995. During 1991 through 1995, maturities on
both mortgages and investments were extended to take advantage of higher yields
on longer maturities. Fixed rate mortgages and loans are originated with 8 to 30
year maturities, while maturities on some investments were extended to 5 to 7
years. The Bank sold the majority of the 30-year fixed rate mortgages which it
originated during 1994 and 1995 in order to reduce the Bank's interest rate risk
exposure. The Bank's activities in this regard will vary in degree from time to
time depending upon investment opportunities, economic and rate conditions,
liability strategy and the Bank's efforts to maintain an adequate net interest
spread.
Since the conversion to a capital stock savings bank, the Bank has
regulated its efforts to increase future deposit growth based on its assessment
of the profitability of the investment options then available for such funds.
The Bank also seeks to expand existing and develop additional fee-based
services. Current fee-based product lines include mortgage originations, selling
and servicing mortgages (the income from which is not considered a significant
part of the Bank's operations), checking accounts, and Savings Bank Life
Insurance.
During 1993, the Bank also added a Trust Department and an Investment
Services Department to increase fee income. In November 1994, the Bank purchased
the New Meriden Trust Co., a trust company with $179,000,000 in trust assets
from the FDIC. In May, 1995 the Bank opened a trust office in Middletown, CT.
Trust assets grew to $310 million at December 31, 1995.
Average Balance Sheets; Analysis of Net Interest Income; and Analysis of Changes
in Interest Income and Interest Expense
The supplementary information required by Item I of "Guide 3. Statistical
Disclosure by Bank Holding Companies" relating to average balance sheets; an
analysis of net interest income; and an analysis of increases and decreases in
interest income and expense in terms of changes in volume and interest rates
appears on pages 19 and 20 of the Company's 1995 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and is incorporated by reference herein. Such
information should be read in conjunction with the related financial statements
and notes thereto incorporated by reference herein under Item 8.
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Lending Activities
The supplementary information required by Item III.A. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to the composition of
the loan portfolio appears on page 13 of the Company's 1995 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and is incorporated by reference
herein. Such information should be read in conjunction with the related
financial statements and notes thereto incorporated by reference herein under
Item 8.
The Bank's net loan portfolio totaled $236.8 million, excluding loans held
for sale, as of December 31, 1995, representing 57.7% of total assets. The
Bank's principal lending activity consists of the origination of mortgage loans
on residential property.
The Bank's consumer loans continue to be an important aspect of its lending
activities, representing 13.6% of the Bank's total loan portfolio.
In order to diversify its loan products the Bank established a commercial
loan department to provide traditional commercial loans and Small Business
Administration loans. The void resulting from industry consolidation and
downsizing has created an opportunity for the Bank to respond to the credit
needs of small and medium size business in a timely manner with practical and
effective solutions. The Bank hired a team of experienced commercial lending
officers to build a conservative, high-quality commercial loan portfolio. As of
December 31, 1995, the commercial mortgage portfolio totaled approximately $5.9
million, representing 2.5% of the Bank's total loan portfolio.
The lending activities of the Bank are heavily influenced by economic
trends affecting the availability of funds and by general interest rate levels.
In originating loans, the Bank must compete with other savings banks, savings
and loan associations, commercial banks, mortgage companies, insurance companies
and other financial intermediaries.
Residential Mortgage Loans. The Bank actively solicits residential mortgage
loan applications from existing customers, builders and Realtors. Almost all of
the Bank's residential mortgage loans are made to borrowers who occupy the
properties securing their loans. While the Bank is authorized to make loans
secured by real estate located either within or outside the State of
Connecticut, its policy is to concentrate on loans secured by properties located
within Connecticut, particularly in its primary market area. The Bank originates
residential real estate loans through all eight of its offices. The Bank's
mortgage originations decreased by 25% from 1994 to 1995, primarily due to a
sluggish real estate market and increased competition. As of December 31, 1995
residential mortgage loans were 80.6% of the Bank's total loans.
For its own portfolio, the Bank originates adjustable-rate and selected
fixed-rate first mortgage loans secured by residential properties. In 1993 and
1992 the Bank sold a significant number of its 30-year, 20-year and 15-year
fixed-rate mortgage loans and in 1994 and 1995 sold some of its 30-year and
20-year fixed rate loans generated in those years. Points are charged on all
residential mortgage loans unless the borrower elects to pay a higher interest
rate to offset points.
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During 1994 the Bank started offering adjustable-rate loans that are fixed for
the first three, five or seven years and then adjust every year after the fixed
period. In 1995 the Bank started offering adjustable-rate loans that are fixed
for the first ten years and then adjust every year after the fixed period.
Adjustable-rate mortgages carry an interest rate cap which limits the Bank's
ability to vary the rate at the time of adjustment and over the life of the
loan. The annual interest rate cap is 2% and the lifetime cap is 6%, although
the Bank in the past had an adjustable rate mortgage loan program with an 8%
lifetime cap. Interest rate caps limit both increases and decreases in rate. The
Bank bases its adjustable-rate mortgages on indices that are best matched to the
repricing of its liabilities.
Fixed-rate first mortgage loans constituted approximately 37.3% of net
loans as of December 31, 1995, down from 40.8% as of December 31, 1994.
The volume of first mortgage loan originations since 1990 is shown in the
following table:
Year Ended Number of Total Loans
December 31, Loans Originated
------------ ----- ----------
1991 397 44,344,000
1992 795 81,485,000
1993 721 73,072,000
1994 432 47,237,000
1995 305 35,338,000
Despite the benefits of adjustable-rate mortgages to the Bank's
asset/liability management program, they do pose potential additional risks,
primarily because as interest rates rise, the underlying payments by the
borrower rise, thereby increasing the potential for default. At the same time,
the marketability of the underlying property may be adversely affected by higher
interest rates. It is difficult to quantify the risks resulting from increased
costs to the borrower as a result of periodic repricing of adjustable-rate
mortgages. The risk associated with holding fixed rate mortgages in the Bank's
loan portfolio is that during periods of rising interest rates, their value
decreases and the initial positive spread over the Bank's cost of funds may
become negative. The benefits of holding fixed rate mortgages include a larger
initial positive spread, increased cash flows and the average life of the loans
are usually shorter than the stated maturity.
In its residential real estate lending, the Bank follows the underwriting
requirements of Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation. The Bank lends up to 95% of the appraised value of
owner-occupied property and up to 70% of the value of non-owner-occupied
property. Under a special program for first time home buyers the Bank has lent
up to 97% of the appraised value of the owner-occupied property. Residential
borrowers are required to obtain private mortgage insurance covering any excess
on loans with over 80% loan-to-value ratios. All conventional first mortgages
include "due-on-sale" clauses, which give the lender the right to declare a loan
immediately due and payable in the event the borrower sells or otherwise
disposes of the real property that secures the loan.
Loans Held for Sale. At December 31, 1995, loans held for sale totaled
$927,000, with a market value of $927,000.
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Commercial Loans. As of December 31, 1995, commercial and commercial real
estate loans totaled $519,000, compared to $329,000 at December 31, 1994.
Commercial loans constituted 0.2% of the Bank's total loans as of December 31,
1995.
The Bank's commercial mortgage loans are directly originated and consist of
loans made on multifamily homes (more than four units) and loans collateralized
by non-residential properties. Commercial mortgage loans collateralized by
non-residential properties as of December 31, 1995 totaled $5.9 million,
compared to $4.2 million as of December 31, 1994. Commercial mortgage loans
collateralized by non-residential properties constituted 2.5% of total loans as
of December 31, 1995. Loans made on multifamily homes constituted 1.6% of total
loans, or $3.9 million, as of December 31, 1995, compared to $3.9 million at
December 31, 1994. The Bank lends up to 80% of the appraised value of commercial
property. Generally, the size of commercial mortgage loans is less than
$300,000, with the largest loan totaling $737,000.
Construction Loans. As of December 31, 1995, residential construction loans
totaled approximately $3.9 million, or 1.6% of the Bank's total loans, compared
to $3.1 million, or 1.4% of total loans as of December 31, 1994. The Bank's
limited construction loan investments are generally short-term (1-2 years) and
are presently limited to residential properties in Connecticut. Construction
loan applications are underwritten as if they were applications for permanent
financing, obviating the need for a commitment for permanent financing at the
close of the construction period.
Consumer Loans. Connecticut savings banks are authorized by statute to
invest their assets in secured and unsecured consumer loans without limitation.
Connecticut savings banks may also invest their assets, without restriction as
to a percentage of assets, in lines of credit, overdraft loans, and credit card
outstandings. The Bank's consumer loans include home improvement loans,
automobile and boat loans and loans to pay for medical or vacation expenses. In
October of 1994 the Bank started offering its own MasterCard and Visa credit
cards. The Bank originates both fixed and adjustable rate second mortgage loans
for its own portfolio and offers a variable rate pre-approved consumer line of
credit product secured by the equity in the consumer's home.
The Bank also is authorized to make educational loans under the Connecticut
Guaranteed Student Loan Program. The interest on loans in this program is
partially subsidized and is fully guaranteed by the federal government. At
December 31, 1995, the Bank had sold substantially all of its education loans to
the Student Loan Marketing Association (Sallie Mae) prior to conversion of such
loans to amortizing loans.
Total consumer loans (excluding credit card loans) increased from $29.0
million at December 31, 1994 to $30.8 million at December 31, 1995. Although not
classified as collateral loans, approximately 99% of the Bank's installment
loans are secured by mortgages on real property or security interests in
personal property. Collateral loans, secured by either regular savings accounts,
marketable securities, or certificates of deposit, amounted to approximately
$1.9 million at December 31, 1995 and December 31, 1994. Credit card loans
totaled $1.3 million at December 31, 1995 as compared to $.5 million at December
31, 1994.
Interest Rates. Interest rates charged by the Bank on its loans are
primarily determined by the cost of funds to the Bank, competitors' rates and
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comparable investment alternatives available to the Bank. Federal law preempts
state usury limits on interest, origination fees and all related charges for
federally related mortgage loans secured by first liens on residential real
property, and no action has been taken by the Connecticut legislature (as
permitted by Federal law) to reimpose such state limits.
The supplementary information required by Item III.B. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to maturities and
sensitivities of loans to changes in interest rates appears on page 16 of the
Company's 1995 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
is incorporated by reference herein. Such information should be read in
conjunction with the related financial statements and notes thereto incorporated
by reference herein under Item 8.
Loan Commitments. The Bank's commitments to make mortgage loans on existing
residential and commercial real property are made for periods of up to 120 days
from the date of commitment. Such commitments are generally made at the market
rate of interest prevailing at the time that the commitment is made to the
customer. The rate on the commitment is guaranteed for a period of 60 days.
Loan Origination Fees and Other Fees. In addition to interest earned on
loans, the Bank receives loan origination fees for originating residential and
commercial mortgage loans. These fees, commonly called "points", are paid by
borrowers from their own funds and are not netted from the face amount of a
mortgage loan. Loan origination fees and certain direct loan origination costs
are deferred and the net amount amortized as an adjustment of the loan's yield
over the life of the loan. Origination fees on loans sold by the Bank are taken
into income currently.
The Bank also receives other fees and charges relating to existing loans,
which include primarily late charges. In connection with its mortgage loan
origination activities, the Bank also receives application fees. These fees do
not constitute a material source of income to the Bank.
Risk Elements in the Loan Portfolio. The Bank's loans are regularly
reviewed by management. If contractually due principal and interest payments on
any loan are not received 15 days after the due date of the overdue payment, the
Bank institutes monitored efforts to restore such loan to current status. Loans
are classified as non-accrual and placed on a cash basis for purposes of income
recognition when the collectibility of interest and principal becomes uncertain.
All loans past due 90 days are treated as non-accrual loans. Generally, payments
received are recorded as principal only after the interest is brought current.
Continued unsuccessful collection efforts lead to initiation of foreclosure or
other legal proceedings.
Properties carried as foreclosed real estate have either been acquired
through foreclosure or by deed in lieu of foreclosure, and is carried at the
lower of (1) carrying value of loan, including costs of foreclosure, or (2)
estimated fair value of the real estate acquired less estimated cost to sell. At
the time of foreclosure, the excess, if any, of the loan value over the
estimated fair value of the property acquired is charged to the allowance for
loan losses. Subsequent to the time of foreclosure, reductions in the carrying
value of foreclosed properties due to further declines in fair value or losses
on their sale are recognized through charges to foreclosed real estate expense.
Costs relating to the subsequent development or improvement
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of the property are capitalized; and holding costs are charged to foreclosed
real estate expense in the period in which they are incurred.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114") which was later amended in October of
1994 by SFAS 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures." SFAS 114 and SFAS 118, which the Bank adopted in
1995, requires creditors to evaluate the collectibility of both contractual
interest and contractual principal of all loans when assessing the need for a
loss accrual. When a loan is impaired, a creditor shall measure impairment based
on the present value of the expected future cash flows discounted at the loan's
effective interest rate, or the fair value of the collateral, less estimated
selling costs, if the loan is collateral-dependent and foreclosure is probable.
The creditor shall recognize an impairment by creating a valuation allowance.
The adoption of these pronouncements did not have a material impact on the
Bank's financial condition or results of operations.
The supplementary information required by Item III.C. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to the discussion and
statistical disclosure of non-accrual, past due and restructured loans appears
on pages 14 and 15 of the Company's 1995 Annual Report to Shareholders under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations", and is incorporated by reference herein. Such information should
be read in conjunction with the related financial statements and notes thereto
incorporated by reference herein under Item 8.
The Company has not made loans to borrowers outside the United States. At
December 31, 1995, there were no concentrations of loans exceeding 10% of total
loans. A concentration of loans is defined as an amount loaned to multiple
borrowers engaged in similar activities which would cause them to be similarly
affected by economic or other conditions.
Potential problem loans are not disclosed as non-accrual, 90 days past due,
or restructured, but are loans which are monitored because of known information
about possible credit problems of borrowers or because they are more than 30
days but less than 90 days past due. Management assesses the potential for loss
on these loans when evaluating the adequacy of the allowance for loan losses on
a regular basis. As of December 31, 1995, monitored loans not disclosed as
non-accrual, 90 days past due, or restructured that were current totaled
$168,000 ($57,000 residential real estate loans, and $110,000 commercial real
estate loans); monitored loans 30 days delinquent totaled $3,117,000 ($2,673,000
residential real estate loans, $224,000 second mortgage loans, $171,000
commercial real estate loans, and $49,000 installment loans); and monitored
loans 60 day's delinquent totaled $791,000 ($404,000 residential real estate
loans, $369,000 second mortgage loans, and $18,000 installment loans).
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Summary of Loan Loss Experience
Management's determination as to the adequacy of the allowance for loan
losses takes into account a variety of factors, including (a) management's
analysis of individual loans and the overall risk characteristics of the loan
portfolio, (b) past loan loss experience, (c) the results of the statutorily
mandated examination of the loan portfolio by regulatory agencies and
independent reviews and evaluations of loans by the Loan Committee of the Bank's
Board of Directors, (d) current and expected economic conditions, and (e) other
relevant factors.
The supplementary information required by Items IV.A. and IV.B. of "Guide
3. Statistical Disclosure by Bank Holding Companies" relating to an analysis of
the allowance for loan losses and an allocation for loan losses by loan category
appears on pages 14 and 15 of the Company's 1995 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and is incorporated by reference herein. Such
information should be read in conjunction with the related financial statements
and notes thereto incorporated by reference herein under Item 8.
Investment Activities
Savings banks chartered in the State of Connecticut have authority to make
a wide range of investments deemed to be prudent by their boards of directors.
Subject to various restrictions, they may own commercial paper, bonds of
government agencies (including states and municipalities), corporate bonds,
mutual fund shares, debt and equity obligations issued by creditworthy entities
(whether traded on public securities exchanges or placed privately for
investment purposes) and interests in real estate located within or outside
Connecticut without limitations as to use.
It has been the Bank's practice to utilize a variety of investment vehicles
to better match deposit maturities. In addition to providing for liquidity
requirements, the Bank maintains investment portfolios to employ funds not
currently required for its various lending activities. Having a portion of
assets in short-term securities has proved beneficial to the Bank during periods
of rapidly rising interest rates. During such periods, as short-term securities
mature, the proceeds can be reinvested in securities at market rates. In a
declining rate environment, loans are likely to have higher yields than debt
securities. Management considers the overall rate-sensitivity of the Bank's
earning assets when investing in securities.
Because of the shortened maturity of its deposit base and increasing
sensitivity to the interest rate cycle, the Bank has invested a substantial
amount of its cash flow in short-term or interest-sensitive money market assets,
including the use of federal funds, debt obligations with maturities no longer
than 5 years of companies rated "A" or better, US Treasury obligations, and
similar instruments. In addition to providing a match of rates on the interest
rate cycle, such a shift of funds into money market instruments provides the
Bank with the liquidity it deems necessary for normal operations.
A majority of the Bank's investments in 1995, excluding mortgage-backed
securities, were purchased with three to five year maturities, although some of
the Bank's investments purchased in 1995 were purchased with maturities
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greater than five years in order to obtain higher yields. Mortgage-based
securities were purchased with fifteen and thirty year maturities. Mortgage-
backed securities pay monthly principal and interest payments providing for a
return of principal earlier than that of a regular bond with the same maturity.
The supplementary information required by Item II.A. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to the maturity and
composition of the Bank's investment portfolio appears on pages 10 through 12 of
the Company's 1995 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
is incorporated by reference herein. Such information should be read in
conjunction with the related financial statements and notes thereto incorporated
by reference herein under Item 8.
At December 31, 1995, the Bank had invested approximately $15.6 million, or
3.8% of its assets, in marketable preferred and common stocks and mutual funds.
This portion of the Bank's portfolio generates dividend income and also may
produce capital gains and losses. Dividends received by the Bank are entitled to
the 70% dividends-received deduction on federal income taxes.
The Bank sold no equity securities during 1995. The Bank had net gains from
the sale of equity securities of $779,000 in 1994. In the event of a decline in
the market for equity securities, the value of the Bank's equity portfolio, and
hence its capital, may be reduced. During the past five years, the largest
amount that the Bank had invested at any one time in the equity securities of a
single company was $730,000. The investment in this company was sold in 1994.
See "Federal Reserve System Regulation" below for further discussion relating to
this investment.
In 1991, the Bank revised its investment strategy, hired new outside
investment advisors and transferred $4.2 million in equity securities and
$835,000 in cash to the trading account in order to create a balanced investment
portfolio managed by professional investment advisors with investment objectives
to match or outperform several investment indices. In February of 1995 the Bank
liquidated it's trading account because of volatility in the investment markets
and the uncertainty of earnings generated from this account. Net gains in this
account in 1995 amounted to $49,000.
The Federal Deposit Insurance Corporation Improvement Act of 1991, which is
discussed in detail below under the caption "Regulation and Supervision",
generally limits the equity investments of state non-member banks to investments
which are permissible for a national bank. An insured state bank is also
prohibited from engaging as principal in any type of activity that is not
permissible for a national bank, unless the Federal Deposit Insurance
Corporation (the "FDIC") determines that the activity would not pose a
significant risk to the insurance fund and the bank is in compliance with
applicable capital standards. As of December 19, 1992, a subsidiary of a state
bank may not engage as principal in an activity which is not permissible for a
subsidiary of a national bank, unless the same conditions are met. See "FDIC
Regulation" below for further discussion relating to these investment and
activities limitations.
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Deposits and Other Sources of Funds
Deposits. Deposits have traditionally been the Bank's major source of
funds, and will continue to be a major source of funds in the foreseeable
future. However, the Bank may rely on borrowings from the Federal Home Loan Bank
in the future (if available) as long as interest rates are favorable. See
"Borrowing" below. The Bank also derives funds from loan amortizations, loan
prepayments, interest and dividend income and sales of assets deemed appropriate
by Bank management.
The Bank offers a wide variety of retail deposit accounts designed to
attract both short- and long-term funds. Time deposits were the primary source
of new funds for the Bank during 1995 due to customer preference, and represent
the largest component of deposits (representing 61.6% of total deposits at
December 31, 1995). Certificates of deposit currently offered by the Bank have
maturities that range from 91 days to five years. The Bank also offers
tax-deferred retirement savings programs (IRA accounts and Simplified Employee
Pension Plans) and other types of plans for its customers. In determining the
rate of interest to pay on deposits, the Bank considers its cash flow
requirements, rates paid by competitors and the Bank's income and growth
objectives.
Management expects competition for deposits in the Bank's market area to
continue for the foreseeable future. As of December 31, 1995, the aggregate
amount of savings accounts at the Bank was $109.2 million and the interest rate
paid on such accounts was 2.0%.
The Bank's deposit marketing strategy includes continually monitoring rates
to insure competitiveness while providing a high level of service at all of the
branch offices. Branch employees participate in sales training programs. The
Bank has been able to attract reasonable deposit growth without having to match
the most competitive rates being offered in its market area.
Substantially all of the Bank's depositors are residents of New Britain and
the contiguous communities. The Bank plans to continue its marketing and service
efforts in the other communities within its market area. Until recently, such
efforts had been hampered by the lack of any Bank branches outside New Britain.
The Bank does not solicit deposits outside Connecticut, nor does it solicit
deposits through deposit brokers.
The supplementary information required by Item V.A. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to average amounts
of, and average rates paid on, deposits appears on page 15 of the Company's 1995
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and is incorporated
by reference herein. Such information should be read in conjunction with the
related financial statements and notes thereto incorporated by reference herein
under Item 8.
The decrease in average savings deposits from 1994 to 1995 was due to
customer preference and the rate structure of deposit products. The Bank
believes that its high capital ratios and financial strength have attracted new
deposit customers. The increase in average time deposits from 1994 to 1995 was
the result of customer preference and the rate structure of deposit products.
The overall increase in average rates paid on deposits from 1994 to 1995 is
consistent with rising interest rates through 1994 and the beginning of 1995,
even though rates decreased in the second half of 1995, because of
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the normal time lag for the Bank's balance sheet to react to market interest
rates.
The supplementary information required by Item V.D. of "Guide 3.
Statistical Disclosure by Bank Holding Companies" relating to the maturity
distributions of time certificates of deposit issued in amounts of $100,000 or
more appears on page 16 of the Company's 1995 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and is incorporated by reference herein. Such
information should be read in conjunction with the related financial statements
and notes thereto incorporated by reference herein under Item 8.
Borrowing. The Bank has been a member of the Federal Home Loan Bank
("FHLB") of Boston since 1980, and as a member may borrow from the FHLB to
secure additional funds. At December 31, 1995, the Bank had outstanding $19.0
million in loans from the FHLB of Boston, a decrease of $14.5 million from $33.5
million outstanding at December 31, 1994. The primary reason for the decrease
was maturities of borrowings. Borrowing from the FHLB of Boston may be at
interest rates and under terms and conditions which vary from time to time.
The Bank also has access to a pre-approved line of credit with the FHLB of
Boston of $8,042,000, and has sufficient qualified collateral to borrow up to an
additional $222 million. This arrangement allows the Bank to obtain advances
from the FHLB of Boston rather than relying on commercial bank lines of credit.
The Bank's interest expense on advances was $1,253,000, $1,455,176, and
$471,767, for the years ended December 31, 1995, 1994 and 1993, respectively.
Competition
The Bank's most direct competition for deposits has historically come from
other thrift institutions and commercial banks located in its principal market
area, many of which have greater resources than the Bank. There are numerous
other banks, credit unions and financial institutions located in the City of New
Britain and surrounding areas that also compete with the Bank. The Bank faces
significant additional competition for investors' funds from short-term money
market funds of securities firms and other financial institutions and from other
corporate and government securities yielding higher interest rates than those
paid by the Bank.
This increased competition has, and is expected to continue to have, an
effect on the Bank's cost of funds. However, the Bank has not experienced and
does not expect to experience any substantial adverse effect on the stability of
its deposit base as a result of increased competition. The Bank competes for
deposits by offering depositors a high degree of personal service, convenient
locations and hours, and other services. The Bank does not rely upon any
individual or entity for a material portion of its deposits, nor does it obtain
any deposits through deposit brokers. A substantial portion of the Bank's
customer and deposit base traditionally has been and continues to be the large
Polish community in New Britain.
The Bank's competition for real estate loans comes principally from
mortgage banking companies, other thrift institutions, commercial banks,
insurance companies and other institutional lenders. The Bank competes for loan
originations primarily through the interest rates and loan fees it charges and
the efficiency and quality of services it provides borrowers, real
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estate brokers and builders. Factors that affect competition include, among
other things, the general availability of lendable funds and credit, general and
local economic conditions, current interest rate levels, and volatility in the
mortgage markets.
Competition is expected to increase as a result of legislation adopted in
recent years at the Federal and State of Connecticut levels which effectively
provide, subject to minimal limitations, for full interestate banking and
branching. As a result of this legislation and increasingly aggressive merger
activity in the Company's market area, competition from larger institutions with
resources much greater than the Company's, is expected to continue into the
future.
Certain legislative and regulatory proposals that could affect the Company
and the Bank and the banking business in general are pending, or may be
introduced, before the United States Congress, the Connecticut General Assembly,
and various governmental agencies. These proposals include measures that may
further alter the structure, regulation, powers, and competitive relationship of
financial institutions and that may subject the Company and the Bank to
increased regulation, disclosure, and reporting requirements. In addition, the
various banking regulatory agencies frequently propose rules and regulations to
implement and enforce existing legislation. It cannot be predicted whether or in
what form any legislation or regulations will be enacted or the extent to which
the business of the Company and the Bank will be affected thereby.
Employees
As of December 31, 1995, the Company and the Bank employed 132 employees,
113 of whom are full-time, including 31 officers. Management considers the
Bank's relations with its employees to be good. The Bank's employees are not
represented by any collective bargaining group.
REGULATION AND SUPERVISION
Connecticut Regulation
As a state-chartered capital stock savings bank, the Bank is subject to
applicable provisions of Connecticut law and the regulations adopted thereunder
by the Connecticut Banking Commissioner (the "Commissioner"). The Commissioner
administers Connecticut banking laws, which contain comprehensive provisions for
the regulation of savings banks. The Bank derives its lending and investment
powers from these laws, and is subject to periodic examination by and reporting
to the Commissioner.
Savings banks in Connecticut are empowered by statute to conduct a general
banking business and to exercise all incidental powers necessary thereto.
Subject to limitations expressed in the statutes, permissible activities include
taking savings and time deposits, including NOW checking accounts, paying
interest on such deposits and accounts, accepting demand deposits, making loans
on residential and other real estate, making consumer
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and commercial loans, exercising trust powers, investing, with certain
limitations, in equity securities and debt obligations of banks and
corporations, and issuing credit cards. In addition, savings banks may engage in
certain other enumerated activities, including the establishment of an insurance
department to sell life insurance and annuities. Connecticut savings banks, in
general, have powers identical to those enjoyed by Connecticut commercial banks.
The Bank is prohibited by Connecticut banking law from paying dividends,
except from its net profits. Net profits are defined as the remainder of all
earnings from current operations. The total of all dividends declared by the
Bank in any calendar year may not, unless specifically approved by the
Commissioner, exceed the total of its net profits of that year combined with its
retained net profits of the preceding two years. These provisions limit the
amount of dividends payable to stockholders of the Company, since dividends
received from the Bank are the primary source of funds for the Company to pay
dividends. As of December 31, 1995, approximately $666,000 was available for
payment of dividends by the Bank to the Company.
Under Connecticut banking law, no person may acquire the beneficial
ownership of more than 10% or 25% or more of any class of voting securities of a
bank chartered by the State of Connecticut or having its principal office in
Connecticut or a bank holding company thereof unless the Commissioner approves
such acquisition.
Full statewide branching is available to all Connecticut depository
institutions. This legislation expands the branching opportunities of the Bank
to other towns while allowing virtually unrestricted branching expansion by
other institutions into New Britain. Legislation passed in 1990 requires the
Commissioner to consider significant additional criteria when reviewing branch
applications. While this legislation may result in increased administrative
review of bank branching applications, the Company does not anticipate at this
time that the criteria to be considered by the Commissioner will adversely
impact the Company's future branching activities or that any such review will
materially deter financial institutions which desire to open branches in New
Britain from doing so.
See "Competition" above for a discussion of Connecticut interstate banking
statutes.
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FDIC Regulation
The Bank's deposit accounts are insured by the FDIC, up to a maximum of
$100,000 per insured depositor. The FDIC issues regulations, conducts periodic
examinations, requires the filing of reports and generally supervises the
operations of its insured banks. The approval of the FDIC is required prior to
any merger or consolidation or the establishment or relocation of an office
facility. This supervision and regulation is intended primarily for the
protection of depositors. Any insured bank which does not operate in accordance
with or conform to FDIC regulations, policies and directives may be sanctioned
for noncompliance. Under FDIC regulations, the Bank is a member of the Bank
Insurance Fund ("BIF") and is required to pay annual insurance premiums,
currently 0.00% of its deposits. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "Improvement Act"), the FDIC has adopted
regulations establishing a risk-based assessment system for insurance premiums.
Under this system, a depository institution's semi-annual assessment will fall
within a range of 0.00% to 0.27% of domestic deposits, based in part on the
probability that the deposit insurance fund will incur a loss with respect to
that institution. In setting assessments for a bank, the FDIC is required to
take into account the revenue needs of the insurance fund and to set the
assessments in a manner that will be sufficient to maintain the insurance fund's
required reserve ratio. Insured depository institutions are required to file
with the FDIC certified statements containing all information required by the
FDIC for the determination of the semi-annual assessment. Each institution has
been or will be notified of its risk classification based on its capital ratios.
The FDIC has the authority to assess penalties against an institution that fails
to make an accurate certified statement. These provisions of the Improvement Act
have not affected the Bank's assessment. Under this system, the Bank, as a well
capitalized institution, is required currently to pay annual insurance premiums
of 0.00% of its deposits.
The FDIC also requires FDIC-insured, state-chartered banks that are not
members of the Federal Reserve System to meet certain minimum capital
requirements. The FDIC amended its minimum requirements for capital as a
percentage of total assets to define capital in a manner consistent with the
risk-based capital categories described below and to require a minimum leverage
standard of 3 percent Tier 1 (or core) capital to total assets (as defined in
FDIC regulations) for the most highly rated banks that are not anticipating or
experiencing any significant growth. All other state banks that are not members
of the Federal Reserve System would be required to meet a minimum leverage ratio
that is at least 100 to 200 basis points above this minimum -- that is, an
absolute minimum leverage ratio of not less than 4 percent for those banks that
are not highly rated or that are anticipating or experiencing significant
growth. "Tier 1 capital" is generally defined as common stockholders' equity,
minority interests in consolidated subsidiaries and non-cumulative perpetual
preferred stock. Tier 1 capital generally excludes goodwill and other
intangibles and investments in subsidiaries that the FDIC determines should be
deducted from capital. As of December 31, 1994, the Bank's leverage ratio was
approximately 9.35%, exceeding the FDIC requirements.
The FDIC has also adopted supplementary capital regulations based on
international risk-based capital standards. The other United States bank
regulatory agencies have also adopted similar guidelines based on these
international standards. The guidelines, as adopted, supplement the minimum
leverage ratios described in the immediately preceding paragraph. The guidelines
set forth (i) a definition of "capital" for risk-based capital
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purposes; (ii) a system for calculating risk-weighted assets by assigning assets
and certain off-balance sheet items to broad risk categories; and (iii) a
schedule, including transitional arrangements during a phase-in period, for
achieving a minimum supervisory ratio of capital to risk-weighted assets. In
general, the risk-weighting imposes "zero percent" risk-weighting for cash;
balances due from Federal Reserve banks; direct claims on (including
securities), and the portions of claims unconditionally guaranteed by, the
United States treasury and United States government agencies; and gold bullion;
"twenty percent" for cash items in the process of collection; all claims on, and
portions of claims guaranteed by, United States depository institutions, United
States government agencies and United States government-sponsored agencies;
general obligation claims on, and the portions of claims that are guaranteed by,
the full faith and credit of states or other political subdivisions of the
United States; and the portions of claims that are collateralized by securities
issued or guaranteed by the United States treasury, governmental agencies or
government-sponsored agencies; "fifty percent" for loans fully secured by first
liens on one to four family residential properties written in accordance with
prudent underwriting standards and certain privately issued mortgage-backed
securities; and "one hundred percent" risk-weighting for assets not included in
one of the other categories, including fixed assets, premises, other real estate
owned and equity investments. Basically, the higher percentage of riskier assets
an institution has, the more capital it must have to satisfy the risk-based
guidelines; the lower the risk, the lower the required capital. The guidelines
do not address other bank "risk" areas, such as interest rate, liquidity,
funding and market risks, the quality and level of earnings, investment or loan
portfolio concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies and management's ability to
monitor and control financial and operating risks. The current minimum risk-
based ratio is 8%. The Bank's total risk-based ratio as of December 31, 1995 was
18.38%. The Bank does not believe that the implementation of the risk-based
guidelines has had or will have a material adverse effect on its prospective
business or require capital-raising efforts in the foreseeable future. In
January 1995, the risk-based capital standards were amended to require analysis
of the Bank's and Company's concentration of credit risks and certain risks from
non-traditional activities in assessing the institution's overall capital
adequacy. The Company and Bank believe that these amended regulations will not
materially affect the Company's and Bank's capital ratios or adequacy.
The Improvement Act increases the supervisory powers of the FDIC and the
other federal regulatory agencies with regard to undercapitalized depository
institutions, and changes the capital rules applicable to the Company and the
Bank. As of December 19, 1992, banking regulators adopted regulations which
define five capital categories of institutions: institutions that are well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The purpose of these
categories is to allow federal regulatory agencies to monitor undercapitalized
institutions more closely in order to take appropriate and prompt regulatory
action to minimize the potential for significant loss to the deposit insurance
fund. Institutions in the first two categories will operate with few
restrictions. Institutions in the other three categories may be required to
raise additional capital, curtail growth, limit interest rates paid, divest
subsidiaries and limit executive compensation. Regulators are also be empowered
to remove top management and call for new elections of directors. The
Improvement Act also allows for the appointment of a conservator or receiver of
an insured depository institution if the institution is
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undercapitalized and either has no reasonable prospect of becoming adequately
capitalized, fails to become adequately capitalized as required, or fails to
submit or materially implement a capital plan. In addition, the Improvement Act
requires a holding company of a failing institution to guarantee that the
institution will comply with a capital restoration plan to the extent of 5% of
the institution's total assets or the amount needed to achieve the required
minimum capital levels. See pages 17 and 18 of the Company's 1995 Annual Report
to Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital". The Bank is currently
categorized as a "well capitalized" institution under the Improvement Act.
After notice and hearing, FDIC insurance of deposits may be terminated by
the FDIC upon a finding by the FDIC that the insured institution has engaged in
unsafe or unsound practices or is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule or order of, or
conditions imposed by, the FDIC. Neither the Company nor the Bank is aware of
any practice, condition or violation that might lead to termination of its
deposit insurance.
The Improvement Act also generally limits the activities and equity
investments of FDIC-insured, state-chartered banks to those that are permissible
for national banks. These restrictions became effective on December 19, 1992,
although the restrictions dealing with equity investments became effective upon
enactment of the Improvement Act on December 19, 1991. In October 1992, the FDIC
issued final regulations to implement the restrictions on equity investments and
indicated its intention to propose regulations addressing the activities
limitations at a later date. Under the regulations dealing with equity
investments, an insured state bank generally may not acquire or retain any
equity investment of a type, or in an amount, that is not permissible for a
national bank. In addition, an insured state bank (i) that is located in a state
which authorized as of September 30, 1991 investment in common or preferred
stock listed on a national securities exchange ("listed stock") or shares of a
registered investment company ("registered shares"), and (ii) which during the
period beginning September 30, 1990 through November 26, 1991 ("measurement
period") made or maintained investments in listed stocks and registered shares,
may retain whatever shares that were lawfully acquired or held prior to December
19, 1991 and continue to acquire listed stock and registered shares, provided
that the bank does not convert its charter to another form or undergo one of
four types of specified transactions which generally deal with changes in
control. In order to acquire or retain any listed stock or registered shares,
however, the bank must file a one-time notice with the FDIC which meets
specified requirements and which sets forth the bank's intention to acquire and
retain stocks or shares, and the FDIC must determine that acquiring or retaining
the listed stocks or registered shares will not pose a significant risk to the
deposit insurance fund of which the bank is a member. The Bank filed a notice of
intention to invest in listed stocks and registered shares with the FDIC on
December 11, 1992. On March 15, 1993, the FDIC granted its approval to the Bank
to continue to hold or acquire listed stocks and registered shares, subject to
the following conditions: (a) the maximum investment in listed stocks and
registered shares may not exceed 100% of the Bank's Tier 1 capital; (b) the Bank
must follow reasonable procedures limiting concentrations in listed stocks and
registered shares so as to provide for diversification of risk; and (c) the FDIC
may alter, suspend or withdraw its approval should any development warrant such
action. At December 31, 1995, the Bank held $.2 million of listed stocks and
registered shares.
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The Community Reinvestment Act of 1977 ("CRA") was enacted to encourage
every financial institution to help meet the credit needs of its entire
community, including low and moderate-income neighborhoods, consistent with the
institution's safe and sound operation. Under CRA, state and federal regulators
are required, when examining financial institutions and when considering
applications for approval of certain merger, acquisition or other transactions,
to take into account the institution's record in helping to meet the credit
needs of its entire community, including low and moderate-income neighborhoods.
In reviewing an institution's CRA record for this purpose, state and federal
regulators will consider reports of regulatory examination, comments received
from interested members of the public or community groups, and the description
of the institution's CRA activities in its publicly available CRA statement,
supplemented, as necessary, by the institution. The Federal Reserve Board has
the power to disapprove proposed merger or acquisition transactions involving
banking organizations that are deemed by the Federal Reserve Board to have
unsatisfactory examination records of CRA compliance. Following its most recent
CRA examination as of August 24, 1995, the Bank received a "Satisfactory" rating
regarding its compliance with CRA.
Federal Reserve System Regulation
Federal Reserve Board regulations require the Bank to maintain reserves
against its transaction accounts and non-personal time deposits. These
regulations generally require that reserves of 3% be maintained against
transaction accounts (other than non-personal time deposits and Eurocurrency
liabilities) totaling $54.0 million or less (except that $4.2 million in the
transaction accounts is exempt from the reserve requirement) and a reserve of
10% be maintained against that portion of total transaction accounts in excess
of $54.0 million. Effective December 19, 1995, the Federal Reserve Board
adjusted these amounts so that reserves of 3% are required to be maintained
against transaction accounts totaling $52.0 million or less (except that $4.3
million is exempt) and a reserve of 10% is required to be maintained against
that portion of total transaction accounts in excess of $52.0 million. These
amounts and percentages are subject to further adjustment by the Federal Reserve
Board. The Bank also has authority to borrow from the Federal Reserve Bank of
Boston "discount window."
The Federal Reserve Board's capital adequacy guidelines for bank holding
companies are similar to the FDIC leverage ratio requirements described above.
This standard establishes a minimum level of Tier 1 capital to total assets of
3% for all bank holding companies with consolidated assets of $150 million or
more. Except with respect to the most highly-rated institutions, this standard
requires bank holding companies to maintain an additional cushion of 100 to 200
basis points depending upon the institution's financial condition and risk
profile. Additionally, the Federal Reserve Board has adopted risk-based capital
guidelines, similar to those adopted by the FDIC as described above, that are
applicable to all bank holding companies. Management believes that the Company
currently is, and expects to continue to be, in full compliance with applicable
capital requirements.
The Company is subject to regulation by the Federal Reserve Board as a
registered bank holding company. The Bank Holding Company Act of 1956, as
amended (the "BHCA"), under which the Company is registered, limits the types of
companies that the Company may acquire or organize and the activities in which
it or they may engage. In general, the Company and its subsidiaries are
prohibited from engaging in or acquiring direct control of any company engaged
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in non-banking activities unless such activities are so closely related to
banking or managing or controlling banks or savings associations as to be a
proper incident thereto. Subject to various limitations, the Federal Reserve
Board has determined by regulation a number of activities that qualify without
the need for specific FRB approval. The Company believes that neither it nor the
Bank is engaged in any activities which would be prohibited under the BHCA.
Under the BHCA, the Company is required to obtain the prior approval of the
Board of Governors of the Federal Reserve System to acquire, with certain
exceptions, more than 5% of the outstanding voting stock of any bank, to acquire
all or substantially all of the assets of a bank or to merge or consolidate with
another bank holding company.
Under the BHCA, the Company, the Bank and any other subsidiaries are
prohibited from engaging in certain tying arrangements in connection with any
extension of credit or provision of any property or services. The Bank is also
subject to certain restrictions imposed by the Federal Reserve Act on issuing
any extension of credit to the Company or any of its subsidiaries, or making any
investments in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower.
The Company is required under the BHCA to file an annual report of its
operations with the Federal Reserve Board, and it and the Bank and any other
subsidiaries are subject to examination by the Federal Reserve Board. In
addition, the Company, as a bank holding company, is required to register with,
submit reports to and be examined by the Commissioner under the Connecticut Bank
Holding Company and Bank Acquisition Act.
Effect of Government Policy
Banking is a business that has historically depended primarily on interest
rate differentials. In general, the difference between the interest rates
received by the Bank on loans to its customers and securities held in the Bank's
portfolio and the interest rate paid by the Bank on its deposits and its other
borrowings will comprise the major portion of the Bank's earnings. The value and
yields of its assets and the rates paid on its liabilities are sensitive to
changes in prevailing market rates of interest. Thus, the earnings and growth of
the Bank will be influenced by general economic conditions, the monetary and
fiscal policies of the federal government, and policies of regulatory agencies,
particularly the Federal Reserve Board, which implement national monetary
policy. The nature and impact of any future changes in monetary policies is
beyond the control of the Bank and cannot be predicted.
The FDIC is required to conduct annual FDIC examinations of all insured
depository institutions unless they are well or adequately capitalized, not less
than $250 million in assets, and have an "outstanding" composite condition (or
"good" if a bank has less than $100 million in assets); such institutions may be
examined every eighteen months. The Improvement Act also requires each insured
depository institution to submit a publicly available annual audit report to its
federal regulators. The report is required to be prepared in accordance with
generally accepted accounting principles and to contain any information that
federal regulators may require. The report must contain management's statement
of its responsibilities for preparing financial statements, establishing and
maintaining internal controls, complying with banking laws and regulations and
assessing the institution's results in these
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areas during the past year. The institution's independent public accountants
must also attest to, and report separately on, management's statement. The
federal regulatory agencies are also required to adopt regulations requiring
each insured depository institution to have an independent audit made of its
financial statements. These audited financial statements will be included in the
institution's annual reports. The Company and the Bank have always had an annual
independent audit.
As discussed above, the Improvement Act allows the regulatory agencies to
take prompt regulatory action for institutions falling into one of the lower
three of five capital categories (see "FDIC Regulation") and restricts an
institution's ability to accept brokered deposits unless the institution is well
capitalized. Restrictions on loans to insiders are also strengthened under the
Improvement Act. Total aggregate loans to all insiders (including directors and
executive officers) and their related interests are generally restricted to the
amount of a bank's unimpaired capital and surplus. Unimpaired capital and
surplus is defined by regulation to mean the sum of (1) the bank's total equity
capital as reported on the bank's most recent consolidated report of condition,
(2) any subordinated notes and debentures approved as an addition to the bank's
capital structure by the appropriate federal banking agency, and (3) any
valuation reserves created by charges to the bank's income as reported on its
most recent consolidated report of condition. The Federal Reserve Board may, by
regulation, make the restrictions on aggregate loans to insiders more stringent.
In addition, certain restrictions on types and amounts of loans that can be made
to executive officers of financial institutions have been added to federal
regulations in addition to the existing restrictions in state law on loans to
executive officers. Loans to individual directors, executive officers, principal
shareholders and their related interests also may not exceed specified
percentages of the Bank's unimpaired capital and surplus (generally, 15% for
loans not "fully secured", and 10% additional for loans that are "fully
secured", with certain limited exceptions). Because the level of the Bank's
loans to insiders is significantly below the amount permitted under the
Improvement Act, the Company does not expect these regulations to adversely
impact the Company or the Bank.
The Improvement Act has also resulted in federal regulatory agencies to
adopt regulations setting forth safety and soundness standards relating to
internal controls, information systems and internal audit systems; loan
documentation; credit underwriting; interest rate exposure; asset growth; and
officers and employees compensation, fees and benefits. The Bank and the Company
do not expect these regulations will materially adversely affect them.
The regulations establish a standard for the ratio of classified assets to
total capital and loan loss allowances at no greater than 100%; and an
earnings/capital standard which provides that a bank's capital will be
sufficient if the bank's last four quarters of earnings history, projected over
the next four quarters, would leave the bank with capital meeting the applicable
minimum capital requirements. If the FDIC were to find that the Bank violated
either of the standards, the Bank would be required to submit a compliance plan,
which must be approved by the FDIC, describing the steps it would take to cure
the deficiency. However, the Company and the Bank currently comply with and
expect to continue to comply with these standards.
The present bank regulatory scheme has undergone and continues to undergo
significant change, both as it affects the banking industry itself and as it
affects competition between banks and non-banking financial
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institutions. There have been significant regulatory changes in the bank merger
and acquisition area, in the products and services banks can offer, and in the
non-banking activities in which bank holding companies can engage. Banks are now
actively competing with other types of depository institutions and with non-bank
financial institutions, such as money market funds, brokerage firms, insurance
companies, and other financial services enterprises. It is not possible at this
time to assess what impact these changes in the regulatory scheme will
ultimately have on the Bank.
Item 2 - Properties
In addition to the main office of the Company and the Bank, located at 123
Broad Street, New Britain, Connecticut, the Bank has seven banking branches
located in New Britain, Southington, Newington, Rocky Hill, and Plainville,
Connecticut. The following table sets forth certain information regarding the
Bank's banking offices.
Owned Lease
or Expiration
Office Location Leased Date
- ------ -------- ------ ----
Main Office 123 Broad Street Owned Not applicable
New Britain, CT 06050
Farmington Avenue 553 Farmington Avenue Owned Not applicable
New Britain, CT 06050
Columbus Plaza 150 Columbus Boulevard Leased October 1999
New Britain, CT 06050
Lafayette Square 450 Main Street Leased July 2001
New Britain, CT 06050
Southington Office 405 Queen Street Leased August 2002
Southington, CT 06489
Newington Office 36 Fenn Road Leased January 2003
Newington, CT 06111
Rocky Hill Office 2270 Silas Deane Highway Owned Not applicable
Rocky Hill, CT 06067
Plainville Offic 275C New Britain Avenue Leased June 2004
Plainville, CT 06062
Total lease payments for all of the Bank's leased offices for 1995 amounted to
$442,892.
Item 3 - Legal Proceedings
There are no pending legal proceedings to which the Company or the Bank is
a party, other than ordinary routine litigation in the normal course of
business. No such proceeding is material to the Company or the Bank.
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Item 4 - Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1995, no matter was submitted to a vote of
shareholders of the Company.
Executive Officers of the Registrant
The following persons are the executive officers of the Company:
Richard S. Mansfield, age 55, has been the President and Chief Executive
Officer and a director of the Company since its incorporation in February 1989.
Mr. Mansfield has been President and Chief Executive Officer and a director of
the Bank since 1986 and was Executive Vice President and Vice President in
charge of mortgage lending at the Bank since 1980. Mr. Mansfield's 1986
employment agreement with the Bank provides for a term of three years with
automatic one year renewals each January 1st, unless either party gives written
notice of his or its intention not to extend the agreement.
John G. Medvec, age 49, has been the Executive Vice President and Treasurer
of the Company since its incorporation in February 1989. Mr. Medvec has been
Executive Vice President and Treasurer of the Bank since 1986 and has served in
various executive positions with the Bank since 1971. Mr. Medvec's 1986
employment agreement with the Bank provides for a term of three years with
automatic one year renewals each January 1st, unless either party gives written
notice of his or its intention not to extend the agreement.
There is no relationship by blood, marriage or adoption between any
executive officer or director of the Company and any other executive officer or
director of the Company.
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
As of February 29, 1996, the Company had 1,924,363 shares of Common Stock
issued and outstanding and approximately 1,404 shareholders of record. The
Company's stock is traded over-the-counter and is quoted on The NASDAQ National
Market under the symbol "PBNB".
The market price information regarding the Company Common Stock and the
information relating to the payment of dividends required by Item 5 appears on
page 46 of the Company's 1995 Annual Report to Shareholders under the captions
"Common Stock Information" and "Dividend Policy", and is incorporated herein by
reference. Dividends are paid by the Company from its assets, which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Company in the form
of cash dividends, loans or advances and such restrictions may materially limit
the Company's ability to pay dividends to its shareholders.
In connection with the Bank's conversion from a mutual savings bank to a
capital stock savings bank, 2,444,324 shares of Common Stock were initially
offered to depositors of the Bank in a subscription offering, with the remaining
shares sold in a public offering. As part of the subscription
21
<PAGE>
offering, the Bank established a liquidation account for a ten-year period for
the benefit of eligible depositors who maintain their accounts with the Bank
after the conversion. In the event of a complete liquidation (and only in such
an event), each eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account before any liquidation
distribution may be made with respect to Bank Common Stock. The Bank may not
declare or pay a cash dividend on or repurchase any of its Common Stock if the
effect thereof would cause the capital accounts to be reduced below the amount
required for the liquidation account, which was approximately $913,000 as of
December 31, 1995.
Connecticut capital stock savings banks, such as the Bank, may not declare
cash dividends in excess of "net profits". "Net profits" are statutorily defined
as "the remainder of all earnings from current operations." In addition, the
total of all cash dividends declared in any calendar year may not, without the
specific approval of the Commissioner, exceed the total of its net profits of
that year combined with its retained net profits of the preceding two years.
The present intention of the Board of Directors of the Company is to
continue the practice of declaring and paying cash dividends on a quarterly
basis. However, the payment and size of any future Company dividend will depend
on the future earnings of the Company and the Bank.
Item 6 - Selected Financial Data
The information required by Item 6 appears on page 1 of the Company's 1995
Annual Report to Shareholders under the caption "Selected Financial Highlights",
and is incorporated by reference herein.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by Item 7 appears on pages 9 through 24 of the
Company's 1995 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
is incorporated by reference herein. See Note 18 "Recent Accounting
Pronouncements" on page 42 of the Company's 1995 Annual Report to Shareholders
and the caption notes to the Consolidated Financial Statements contained
therein.
Item 8 - Financial Statements and Supplementary Data
The information required by Item 8 is indexed in Item 14 of this Annual
Report on Form 10-K, and portions thereof appearing on pages 23 through 45 of
the Company's 1995 Annual Report to Shareholders are incorporated by reference
herein.
22
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information required by Item 10 relating to the identification of
directors and executive officers of the Company and their business experience
appears on pages 3 through 14 of the Company's definitive Proxy Statement dated
March 22, 1996 under the caption "Election of a Class of Directors (Proposal 1)
- - Information on Nominees and Directors", and in Part I of this Annual Report on
Form 10-K under the caption "Executive Officers of the Registrant", and is
incorporated by reference herein.
Item 11 - Executive Compensation
The information required by Item 11 relating to the compensation paid and
benefits provided to directors and executive officers of the Company appears on
pages 8 through 14 of the Company's definitive Proxy Statement under the
captions "Election of a Class of Directors (Proposal 1) - Compensation of
Directors" and "Election of a Class of Directors (Proposal 1) - Compensation of
Executive Officers", and is incorporated by reference herein.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 relating to the ownership of the
Company's securities by certain beneficial owners and management appears on
pages 2 through 7 of the Company's definitive Proxy Statement under the captions
"Principal Stockholders", "Election of a Class of Directors (Proposal 1) -
Information on Nominees and Directors" and "Election of a Class of Directors
(Proposal 1) - Ownership of Shares by Directors and Officers", and is
incorporated by reference herein.
Item 13 - Certain Relationships and Related Transactions
The information required by Item 13 relating to transactions between the
Company and management, directors and certain beneficial owners of the Company's
securities appears on pages 13 through 15 of the Company's definitive Proxy
Statement under the caption "Transactions with Management and Others", and is
incorporated by reference herein.
23
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents, filed as part of this report, are included herein
or are incorporated by reference from the indicated pages of the Company's
1995 Annual Report to Shareholders:
1. Financial Statements:
Page(s) in
Annual Report
-------------
Report of Independent Auditors 23
Consolidated Balance Sheets 24
Consolidated Statements of Income 25
Consolidated Statements of Stockholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28-45
2. Financial Statement Schedules:
All Schedules to the Consolidated Financial Statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
24
<PAGE>
3. Exhibits:
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-4 (No. 33-27219) filed on February 23, 1989).
4 Instruments Defining the Rights of Security Holders are
filed as Exhibits 3.1 and 3.2.
*10.1 Employment Agreement dated August 1, 1986 between the
Bank and Richard S. Mansfield (incorporated by
reference to Exhibit 10.1 of the Company's Registration
Statement on Form S-4 (No. 33-27219) filed on February
23, 1989).
*10.2 Employment Agreement dated August 1, 1986 between the
Bank and John G. Medvec (incorporated by reference to
Exhibit 10.2 of the Company's Registration Statement on
Form S-4 (No. 33-27219) filed on February 23, 1989).
*10.3 Employment Agreement dated August 1, 1986 between the
Bank and Florence Zaniewski (incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement
on Form S-4 (No. 33-27219) filed on February 23, 1989).
*10.4 1986 Stock Option and Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-4 (No. 33-27219) filed on February
23, 1989).
*10.5 1986 Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-4 (No.
33-27219) filed on February 23, 1989).
*10.6 Pension Plan of The People's Savings Bank of New
Britain, as amended (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on
Form S-4 (No. 33-27219) filed on February 23, 1989).
*10.7 Change of Control Agreement, dated as of September 17,
1991, between the Bank and Florence K. Gagnon
(incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.8 Change of Control Agreement, dated as of September 18,
1991, between the Bank and Teresa Sasinski
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.9 Change of Control Agreement, dated as of September 23,
1991, between the Bank and Edward E. Bohnwagner, III
(incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.10 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Walter D. Blogoslawski,
as amended January 1, 1987 (incorporated by reference
to
25
<PAGE>
Exhibit 10.10 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991).
*10.11 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Matthew P. Duksa, as
amended January 1, 1987 and January 20, 1987
(incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.12 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Stanley P. Filewicz, as
amended January 20, 1987 and February 10, 1989
(incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.13 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Robert A. Gryboski, M.D.,
as amended January 1, 1987, January 20, 1987 and
February 10, 1989 (incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
*10.14 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Edward Januszewski, as
amended January 1, 1987 and January 20, 1987
(incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.15 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Roland L. LeClerc, as
amended January 1, 1987, January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.16 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Walter J. Liss, as
amended January 1, 1987 and February 10, 1989
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.17 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Henry R. Poplaski, as
amended January 1, 1987, January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.18 Directors' Voluntary Deferral Agreement, dated January
20, 1987, between the Bank and Anthony R. Puskarz, Jr.
(incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991)
*10.19 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Eugene M. Rosol, as
amended January 1, 1987 and January 20, 1987
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.20 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Chester S. Sledzik, as
amended January 1, 1987, January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit 10.20 to
the
26
<PAGE>
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.21 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Robert A. Story, as
amended January 1, 1987, January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.22 Directors' Voluntary Deferral Agreement, dated January
1, 1985, between the Bank and Joseph A. Welna, as
amended January 1, 1987, January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.23 People's Savings Financial Corp. Dividend Reinvestment
Plan and Stock Purchase Plan (incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form
10-K for this fiscal year ended December 31, 1992).
*10.24 People's Savings Financial Corp. Savings and Investment
Plan (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
*10.25 Change of Control Agreement, dated as of January 17,
1995, between the Bank and Daniel Hurley (incorporated
by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994).
*10.26 Change of Control Agreement, dated as of January 17,
1995, between the Bank and Earl Young (incorporated by
reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994).
*10.27 The People's Savings Financial Corp. 1995 Stock Option
and Incentive Plan for Outside Directors (incorporated
by reference to Exhibit A to the Company's Proxy
Statement for the 1995 Annual meeting of Stockholders).
*10.28 The People's Savings Financial Corp. 1995 Stock Option
and Incentive Plan (for Employees) (incorporated by
reference to Exhibit B to the Company's Proxy Statement
for the 1995 Annual meeting of Stockholders).
11 Statement Concerning Computation of Per Share Earnings
13 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
24 Consent of Independent Accountants
25 Power of Attorney
- ------
* Management contracts or compensatory plans, contracts or arrangements.
27
<PAGE>
(b) Reports on Form 8-K. No report on Form 8-K was filed during the fourth
quarter of 1995.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a separate
part of this report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PEOPLE'S SAVINGS FINANCIAL CORP.
By /s/ RICHARD S. MANSFIELD
-------------------------------------
Richard S. Mansfield
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.
Signature Title Date
--------- ----- ----
/s/ RICHARD S. MANSFIELD President and Chief March 19, 1996
- -------------------------- Executive Officer
Richard S. Mansfield (Principal Executive
Officer)
/s/ JOHN G. MEDVEC Executive Vice March 19, 1996
- -------------------------- President and
John G. Medvec Treasurer (Principal
Financial Officer
and Principal
Accounting Officer)
* Director March 19, 1996
- --------------------------
Joseph A. Welna
* Director March 19, 1996
- --------------------------
Robert A. Gryboski
* Director March 19, 1996
- --------------------------
Walter J. Liss
* Director March 19, 1996
- --------------------------
Robert A. Story
* Director March 19, 1996
- --------------------------
Walter D. Blogoslawski
* Director March 19, 1996
- --------------------------
Stanley P. Filewicz
29
<PAGE>
* Director March 19, 1996
- --------------------------
Roland L. LeClerc
* Director March 19, 1996
- --------------------------
Chester S. Sledzik
* Director March 19, 1996
- --------------------------
Henry Poplaski
* Director March 19, 1996
- --------------------------
A. Richard Puskarz, Jr.
By /c/ JOHN G. MEDVEC
- --------------------------
John G. Medvec
Attorney-in-Fact
30
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
------ ----------- ------
3.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
3.2 Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration
Statement on Form S-4 (No. 33-27219) filed on
February 23, 1989).
4 Instruments Defining the Rights of Security
Holders are filed as Exhibits 3.1 and 3.2.
*10.1 Employment Agreement dated August 1, 1986 between
the Bank and Richard S. Mansfield (incorporated by
reference to Exhibit 10.1 of the Company's
Registration Statement on Form S-4 (No. 33-27219)
filed on February 23, 1989).
*10.2 Employment Agreement dated August 1, 1986 between
the Bank and John G. Medvec (incorporated by
reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-4 (No. 33-27219)
filed on February 23, 1989).
*10.3 Employment Agreement dated August 1, 1986 between
the Bank and Florence Zaniewski (incorporated by
reference to Exhibit 10.3 of the Company's
Registration Statement on Form S-4 (No. 33-27219)
filed on February 23, 1989).
*10.4 1986 Stock Option and Incentive Plan (incorporated
by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4 (No. 33-27219)
filed on February 23, 1989).
*10.5 1986 Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-4 (No.
33-27219) filed on February 23, 1989).
*10.6 Pension Plan of The People's Savings Bank of New
Britain, as amended (incorporated by reference to
Exhibit 10.6 to the Company's Registration
Statement on Form S-4 (No. 33-27219) filed on
February 23, 1989).
*10.7 Change of Control Agreement, dated as of September
17, 1991, between the Bank and Florence K. Gagnon
(incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
*10.8 Change of Control Agreement, dated as of September
18, 1991, between the Bank and Teresa Sasinski
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
*10.9 Change of Control Agreement, dated as of September
23, 1991, between the Bank and Edward E.
Bohnwagner, III (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1991).
<PAGE>
*10.10 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Walter D.
Blogoslawski, as amended January 1, 1987
(incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
*10.11 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Matthew P.
Duksa, as amended January 1, 1987 and January 20,
1987 (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
*10.12 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Stanley P.
Filewicz, as amended January 20, 1987 and February
10, 1989 (incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991).
*10.13 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Robert A.
Gryboski, M.D., as amended January 1, 1987,
January 20, 1987 and February 10, 1989
(incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
*10.14 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Edward
Januszewski, as amended January 1, 1987 and
January 20, 1987 (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1991).
*10.15 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Roland L.
LeClerc, as amended January 1, 1987, January 20,
1987 and February 10, 1989 (incorporated by
reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
*10.16 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Walter J.
Liss, as amended January 1, 1987 and February 10,
1989 (incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
*10.17 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Henry R.
Poplaski, as amended January 1, 1987, January 20,
1987 and February 10, 1989 (incorporated by
reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
*10.18 Directors' Voluntary Deferral Agreement, dated
January 20, 1987, between the Bank and Anthony R.
Puskarz, Jr. (incorporated by reference to Exhibit
10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991).
*10.19 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Eugene M.
Rosol, as amended January 1, 1987 and January 20,
1987 (incorporated by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
2
<PAGE>
*10.20 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Chester S.
Sledzik, as amended January 1, 1987, January 20,
1987 and February 10, 1989 (incorporated by
reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
*10.21 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Robert A.
Story, as amended January 1, 1987, January 20,
1987 and February 10, 1989 (incorporated by
reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
*10.22 Directors' Voluntary Deferral Agreement, dated
January 1, 1985, between the Bank and Joseph A.
Welna, as amended January 1, 1987, January 20,
1987 and February 10, 1989 (incorporated by
reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
*10.23 People's Savings Financial Corp. Dividend
Reinvestment Plan and Stock Purchase Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
*10.24 People's Savings Financial Corp. Savings and
Investment Plan (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993).
*10.25 Change of Control Agreement, dated as of January
17, 1995, between the Bank and Daniel Hurley
(incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
*10.26 Change of Control Agreement, dated as of January
17, 1995, between the Bank and Earl Young
(incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
*10.27 The People's Savings Financial Corp. 1995 Stock
Option and Incentive Plan for Outside Directors.
Incentive Plan for Outside Directors (incorporated
by reference to Exhibit A to the Company's Proxy
Statement for the 1995 Annual meeting of
Stockholders).
*10.28 The People's Savings Financial Corp. 1995 Stock
Option and Incentive Plan for Outside Directors.
Incentive Plan (for Employees), (incorporated by
reference to Exhibit B to the Company's Proxy
Statement for the 1995 Annual meeting of
Stockholders).
11 Statement Concerning Computation of Per Share
Earnings
13 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
24 Consent of Independent Auditors
25 Power of Attorney
- ------
* Management contracts or compensatory plans, contracts or arrangements.
3
<PAGE>
EXHIBIT 11
People's Savings Financial Corp.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Net income - primary and fully diluted $3,389 $3,565 $4,752
- --------------------------------------
Weighted Average Common Stock and Common
- ----------------------------------------
Equivalent Stock
----------------
Weighted average common stock outstanding 1,954 1,996 2,022
Assumed conversion (as of the beginning of
each period or upon issuance during a period)
of stock options outstanding at the end of
each period 33 26 27
------ ------ ------
Weighted average common stock outstanding
- primary 1,987 2,022 2,049
====== ====== ======
Weighted average common stock outstanding 1,954 1,996 2,022
Assumed conversion (as of the beginning of
each period or upon issuance during a period)
of stock options outstanding at the end of
each period 33 25 28
------ ------ ------
Weighted average common stock outstanding
- fully diluted 1,987 2,021 2,050
====== ====== ======
Earnings Per Common and Common Equivalent Share
- -----------------------------------------------
Primary $1.71 $1.76 $2.32
====== ====== ======
Fully diluted $1.71 $1.76 $2.32
====== ====== ======
<PAGE>
Exhibit 13
1995 ANNUAL REPORT
People's
Savings
Financial
Corporation
--------------------
Banking...
Business to Business
Person to Person.
<PAGE>
TABLE OF CONTENTS
- -----------------
Selected Financial Highlights .......................... 1
To our Shareholders .................................... 2
Stepping into a New Dimension .......................... 4
Management's Discussion and Analysis of
Financial Condition and Results of Operation ........... 9
Report of Independent Accountants ...................... 23
Consolidated Financial Statements ...................... 24
Notes to Consolidated Financial Statements ............. 28
Stock Information ...................................... 46
Directors and Officers ................................. 48
Bank and Trust Locations ............................... 49
<PAGE>
SELECTED FINANCIAL HIGHLIGHTS
- -----------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
1991 $ 2,273
1992 $ 3,296
1993 $ 4,752
1994 $ 3,565
1995 $ 3,389
1991 $ 1.12
1992 $ 1.60
1993 $ 2.18
1994 $ 1.76
1995 $ 1.71
</TABLE>
<TABLE>
<CAPTION>
December 31,
(dollars in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
Financial Data At Year End:
<S> <C> <C> <C> <C> <C>
Total Assets $410,164 $402,089 $354,927 $335,396 $297,095
Loans:
Mortgages Fixed-Rate, net 88,208 92,334 93,511 97,053 79,283
Mortgages Adjustable-Rate, net 116,265 104,644 93,479 92,404 106,869
Consumer and Other Loans, net 32,319 29,346 24,792 29,235 35,095
- --------------------------------------------------------------------------------------------------
Total Loans, net 236,792 226,324 211,782 218,692 221,247
Investments 153,579 151,629 126,862 88,749 61,903
Deposits 339,365 321,702 299,467 283,495 250,768
Advances from FHLB 18,950 33,450 7,910 7,000 4,000
Stockholders' Equity 44,713 41,231 42,438 40,275 37,979
- --------------------------------------------------------------------------------------------------
Operating Data For the Year Ended:
Interest Income, including loan fees $ 27,522 $ 25,061 $ 24,146 $ 25,366 $ 25,329
Interest Expense 14,483 11,270 10,666 12,552 15,816
- --------------------------------------------------------------------------------------------------
Net Interest Income 13,039 13,791 13,480 12,814 9,513
- --------------------------------------------------------------------------------------------------
Provision for Loan Losses 101 129 1,010 1,255 1,282
Other Income 1,235 702 1,288 878 869
Gains (Losses) on Sale of Securities (170) 128 110 (7) (506)
Trust Fees 1,129 191 1
Trading Account Gains (Losses) 49 (284) 579 63 1,179
Other Expenses 9,608 8,393 6,890 6,274 5,605
- --------------------------------------------------------------------------------------------------
Income before Income Taxes 5,573 6,006 7,558 6,219 4,168
Income Taxes 2,184 2,441 3,090 2,923 1,895
- --------------------------------------------------------------------------------------------------
Income before the Cumulative Effect
of Changes in Accounting Principles: $ 3,389 $ 3,565 $ 4,468 $ 3,296 $ 2,273
Cumulative Effect of Changes in
Accounting Principles:
Post-Retirement Benefits (154)
Income Taxes 438
- --------------------------------------------------------------------------------------------------
Net Income $ 3,389 $ 3,565 $ 4,752 $ 3,296 $ 2,273
- --------------------------------------------------------------------------------------------------
Per Share Data:
Net Income Per Share $1.71 $1.76 $2.18 $1.60 $1.12
After Cumulative Effect of Changes
in Accounting Principles: 1.71 1.76 2.32 1.60 1.12
Book Value Per Share 22.90 20.73 21.29 19.48 18.68
Cash Dividend Declared 0.88 0.88 0.84 0.74 0.68
- --------------------------------------------------------------------------------------------------
Selected Statistical Data:*
Return on Average Assets 0.84% 0.92% 1.38% 1.04% 0.80%
Return on Average Equity 7.84 8.38 11.48 8.42 6.05
Leverage Capital Ratio 10.33 10.27 11.78 12.01 12.78
Dividend Payout Ratio 50.69 49.28 35.61 45.95 60.82
Net Interest Rate Spread (1) 3.02 3.43 3.73 3.74 2.76
Net Interest Rate Margin (2) 3.41 3.74 4.09 4.22 3.50
- --------------------------------------------------------------------------------------------------
</TABLE>
* 1993 information is after the cumulative effect of changes in accounting
principles.
(1) Return on average earning assets less cost of interest-bearing liabilities,
(tax adjusted yield).
(2) Net interest income divided by average earning assets, (tax adjusted yield).
1
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
[PHOTO]
"The Bank can respond to the need for small or medium size business loans in a
timely manner with practical and effective solutions."
RICHARD S. MANSFIELD
People's Savings Financial Corporation (the "Corporation") and its wholly
owned subsidiary, People's Savings Bank of New Britain (the "Bank" or "PSB"),
performed strongly on many important fronts during 1995:
o Trust assets have increased as a result of the expertise, broad
capabilities and consistent personal service provided by our staff.
o Recently introduced consumer banking products and services were well
received by our community.
o Our entrance into commercial lending to serve small business needs in our
community.
PSB continues to lead the way in our community by offering the banking
services that people and small businesses need. We believe that our mission of
providing the community with high quality banking services in a personalized
manner will continue to provide PSB with positive financial results.
Net income for the year ended December 31, 1995 was $3.4 million, or $1.71
per share, representing a 4.9% decrease from 1994 net income of $3.6 million or
$1.76 per share. Much of this decline is attributable to an increase in expenses
resulting from the expansion of our branch system and trust operations, and
establishment of a commercial lending department.
Net interest income decreased by $752,000 or 5.5% in 1995 due to a decrease
in the net interest spread, attributable in part to a higher cost of funds. Our
investment in New Meriden Trust ("NMT") also contributed to the decrease in net
interest income due to the fact that interest earning assets were used to
purchase NMT, while income earned from trust operations is recorded as other
income rather than interest income. In 1995, trust income increased by $938,000
to $1,129,000 from $191,000 in 1994. Trust operations were started in 1993 and
expanded by PSB in 1994 and 1995 to generate a steady stream of fee income, and
to reduce the Bank's reliance on net interest income which can be volatile with
changes in interest rates.
Asset quality remains very high, with non-performing loans delinquent 90
days or more totalling $721,000, or .30% of total loans as of December 31, 1995,
as compared to $1.3 million, or .57% of total loans as of December 31, 1994.
Non-performing assets, which comprise loans 90 days or more delinquent and other
real estate owned, declined from a December 31, 1994 total of $1.9 million, or
.48% of total assets, to a December 31, 1995 total of $899,000, or .22% of total
assets. In addition, the Bank's allowance for loan losses provided 219% coverage
of non-performing loans at December 31, 1995.
Demand for consumer loans and mortgages was down from 1994. Loan production
for the first half of 1995 was stagnant but increased during the second half of
1995 which accounted for over 66% of
2
<PAGE>
loan production for the year. New mortgages and loans added during 1995 totaled
$51 million, down from the $64 million added to the loan portfolio in 1994. This
is due in part to the sluggish economy in Connecticut and higher interest rates
during the first half of 1995.
In order to diversify its loan products PSB established a commercial loan
department to provide traditional commercial loans and Small Business
Administration loans. The void resulting from industry consolidation and
downsizing has created an opportunity for PSB to respond to the credit needs of
small and medium size businesses in a timely manner with practical and effective
solutions. Accordingly, PSB hired a team of experienced commercial lending
officers to build a conservative, high-quality commercial loan portfolio. We
have targeted a $10 million goal for commercial loan production during 1996.
As we move confidently into 1996, we look forward to another year of
expansion with our ninth branch opening in the early spring of 1996 in Meriden,
Connecticut, where we already have a presence due to our purchase of New Meriden
Trust. Our growth is consistent with our long term goals of geographic
expansion, product expansion in the trust area and now into commercial lending.
We continue to lead the way in our community and now can offer services business
to business and person to person.
We are grateful to our employees, officers, and directors who truly have a
sense of community and to our shareholders whose investment in the Corporation
we deeply appreciate.
Sincerely,
/s/ Richard S. Mansfield
Richard S. Mansfield
President and Chief Executive Officer
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
<S> <C>
1991 $ .68
1992 $ .74
1993 $ .84
1994 $ .88
1995 $ .88
1991 $ 18.68
1992 $ 19.48
1993 $ 21.29
1994 $ 20.73
1995 $ 22.90
</TABLE>
3
<PAGE>
STEPPING INTO A NEW DIMENSION
- -----------------------------
"It was an absolute pleasure to work with a bank that was true to its word,
professionally efficient and took pride in customer satisfaction."
GARY W. VOLZ, D.M.D.
Expenditures key to the Bank's strategic plans for geographic and business-line
expansion are investments in the Bank's future. The Bank has evolved into a
multi-dimensional organization offering diversified services in strategic
locations to better compete for the future banking services customers demand.
WE'RE HERE, THERE, AND EVERYWHERE
The Bank's expanding horizons are both a benefit to customers and an
opportunity for prospects. The Bank has eight branch offices offering full
service banking, including four in New Britain, and one each in Southington,
Rocky Hill, Newington, and Plainville. Together, they combine to serve central
Connecticut successfully while effectively extending our name and reputation to
a bountiful source of new customers. A ninth office will open by the early
spring of 1996 at 834 Broad Street, Meriden, Connecticut. This office will give
us the opportunity to market banking services to our trust customers in Meriden,
as well as the general population.
BUSINESS LENDING IN OUR COMMUNITIES
For the past year, the Bank has been developing a commercial lending
department. The Bank maintains a tremendous opportunity to cross-sell commercial
loan and deposit services to existing accounts and foster new solid and
profitable relationships.
We view ourselves as a Bank ideally suited to meet the banking needs of
many small and medium sized businesses in our market area. As consolidation
within the banking industry continues, there is a growing gap in commercial
services designed and priced for smaller businesses. Feeling left out, many
businesses are turning to local community banks to fill the void.
[PHOTO]
TERESA SASINSKI WITH LAURIE MORNHINEWAY, BRANCH MANAGER OF THE NEW BRANCH OFFICE
IN MERIDEN.
4
<PAGE>
[PHOTO]
"After 18 years of excellent service, products and competitive rates for our
families as well as our business accounts, we always encourage our homebuyers to
meet with People's Savings Bank."
LUIGI ROSSITTO, PASQUALE CALAFIORE, COPPERMINE ESTATES, INC.
WE'VE GOT TO BE READY
Identifying opportunity is one thing. Being prepared to meet the challenge
is another. The Bank is positioned to meet our target market in a responsible
and profitable manner. We've hired experienced commercial lenders who understand
the business needs of our constituents and can offer viable solutions that work
for the customer and the Bank. We have created an infrastructure that can
intelligently extend credit, properly service accounts and provide a solid
return to the Bank that will enhance shareholder value. We have also aligned
ourselves with credit enhancement programs that further protect the Bank's
interests.
Staff
The Bank has assembled a team of lenders that really understand credit,
cash-flow, risk management and small businesses. Our people are experienced and
know how to successfully manage a portfolio of business loans. The staff shares
a vision of what it takes to be a responsive and responsible community bank. The
team's collective experience and professional contacts within the market have
already brought profitable new relationships to the Bank. We are greatly
encouraged by the warm reception from businesses, the communities we serve and
all of the professionals who continually refer business to us.
Infrastructure
Business lending is not a one time event. It is a dynamic process that
really only begins when the loan is closed. We are keenly aware of the need to
intelligently manage our commercial loan portfolio on an ongoing basis. We have
created loan approval, loan servicing, account management and information
reporting structures that protect the portfolio, strengthen the Bank and still
provide the best customer service. Together with highly capable personnel, we
believe our efforts will yield consistently positive results for the Bank and
its shareholders.
Credit Enhancement Programs
The Bank is an approved/participating lender with the programs described
below:
Small Business Administration Loans
This program creates loan guarantees that can reach as high as 80%. The
guaranteed portion of the loan can usually be sold in the secondary market for a
gain or held in the Bank's loan portfolio. The unguaranteed
5
<PAGE>
[PHOTO]
"People's Savings Bank has brought back the days of a close personal banking
relationship with some old-fashioned respect for the hard-working little guy."
PETER SAMIOTIS, SOLO DEVELOPMENT
portion of the loan remains in the Bank's loan portfolio. Servicing fees can be
earned if the Bank decides to sell off the guaranteed portion of the loan.
URBANK'S Connecticut Small Business Reserve Fund Program (sponsored by the State
of Connecticut's Department of Economic Development)
This program is an innovative initiative by the State of Connecticut to
help promote bank lending to small businesses. It is different from the SBA
program, but provides the Bank the ability to further protect itself against
credit risk within our portfolio of business loans. The Bank can register and
insure up to 30% of each loan in the Program against loss.
Connecticut Development Authority's
(CDA) Works Loan Guarantee Program
This program is another State of Connecticut initiative that provides
insurance against any loss of up to 30% for loans registered in the Program.
This program's size and structure are flexible enough to accommodate many
situations.
We will continue to seek out credit enhancement program opportunities that
allow the Bank to expand business while also prudently managing risk.
SMART BUSINESS BANKING
The initial results are encouraging. We will continue our methodical
development of those commercial products and services that address our markets'
needs and can create favorable returns for the Bank.
6
<PAGE>
[PHOTO]
"Everyone at the Bank took a personal interest in my loan application, evidenced
by their continual communication throughout the process."
ROBERT M. OSEYCHIK, SIMSBURY
THE CONSUMER IS STILL NUMBER ONE
The Bank's consumer lending group has always maintained a reputation as a
responsive, convenient and flexible provider of loans to consumers. This
reputation has worked very well and will continue to be the cornerstone of our
efforts.
The Bank's consumer lending group recognizes that the days of sitting
behind a desk and waiting for a loan customer to come in are over. We are taking
a proactive sales approach that focuses upon educating our customers about
alternatives. Our sales culture is designed to help people with all of their
credit needs in a financially responsible manner. We meet many of our customers
outside the Bank at a time and place that is convenient to their lifestyle.
A MATTER OF TRUST
The Bank's trust department has $310 million in assets under management,
making it the second largest trust operation conducted by a savings bank in the
State of Connecticut.
The Bank now has trust offices in New Britain, Meriden and Middletown.
Trust services are being offered in Glastonbury through an agreement with
Glastonbury Bank & Trust. We also service the entire State of Connecticut by
appointment, by request, and at the convenience of customers. Some services
include:
Trustee Under Agreement - A contract (often part of an estate plan) which can
provide for tax savings, investment management, protection from creditors, and
protection from financial worries. This is often used for care of a minor or an
infirmed individual.
7
<PAGE>
[PHOTO]
"The staff shares a vision of what it takes to be a responsive and responsible
community bank."
EARL YOUNG, SENIOR LOAN OFFICER
Trustee Under Will - Similar to the Trustee Under Agreement but is overseen by
the Probate Court System.
Investment Management Agency - An arrangement where assets are deposited with
the Trust Department. The Trust Department gives the client investment advice
and then buys and sells securities to achieve the clients financial goals.
Custody - In this arrangement, the client leaves assets with the Trust
Department to hold for safekeeping and collect and remit income as instructed.
The Bank also works with the client's investment advisor in processing all
security trades.
Escrow Services - Similar to a real estate tax escrow on a mortgage. In many
commercial transactions, sums of money or assets are left with a neutral party
to ensure completion of the transaction. Trust departments are often employed
for this service since they are neutral and have the capacity to monitor the
assets and produce the required records and statements.
Employee Benefit Services - Trust departments are often involved in employee
benefit plans due to their complex administrative and record keeping
requirements. These plans include: IRA rollover, 401(k), defined contribution,
defined benefit, and deferred compensation arrangements.
Charitable Accounts - These can fall into the category of Trust, Agency, or
Custody. The Charity can be an organization, church, school, or foundation. They
need the full capacity of the Trust Department for record keeping, tax work,
investment management, or remittances.
Estate Planning & Settlement - The process of planning and then resolving an
individual's financial affairs after the person has passed away. It involves
dealing with probate, Internal Revenue Service, Department of Revenue Services,
and the beneficiaries. In providing this service, the Bank works closely with a
person's attorney, accountant, and insurance professionals.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
<S> <C>
1991 $ 297,095
1992 $ 335,396
1993 $ 354,927
1994 $ 402,089
1995 $ 410,164
</TABLE>
GENERAL
People's Savings Financial Corp., New Britain, Connecticut (the "Corporation")
created in 1989, is the parent company of The People's Savings Bank of New
Britain (the "Bank"), a state savings bank chartered in 1907 and converted to a
stock savings bank in 1986. The Corporation's assets on December 31, 1995 were
$410,164,000.
The Corporation competes for business with other financial institutions in its
market area as well as with mortgage banking companies, insurance companies and
money market funds. The Corporation's main market area is in central
Connecticut. Management believes that the Corporation provides its customers
with personal service that is unmatched by its competition.
The Corporation's ongoing goals are to expand its consumer and commercial loan
production, increase its trust business, cross-sell its services and add new
services to sell to new and existing customers. In conjunction with these
expansion goals, the Bank has diversified its loan portfolio through the
addition of a commercial loan department. This department is responsible for
developing a $10 million dollar commercial loan portfolio during 1996,
consisting of both traditional and Small Business loans. The commercial loans
and the unguaranteed portion of SBA loans will be held in the Bank's loan
portfolio while the guaranteed portion of SBA loans may be sold to earn fee
income with servicing income retained. The Bank anticipates opening a new branch
in Meriden, Connecticut in the early spring of 1996.
The Corporation's earnings are derived primarily from its "net interest rate
spread", which is the difference between the yield on its earning assets and the
cost of its interest bearing liabilities. Interest rates, after an increase in
February and a stable period for the remainder of the first half of 1995,
declined in the second half of 1995. Net interest income decreased by $752,000
while the net interest rate spread decreased by 41 basis points to 3.02% from
3.43%. During 1995 the average yield on earning assets increased from 6.78% in
1994 to 7.15%. The average cost of funds also increased in 1995 from 3.35% in
1994 to 4.13%. The decrease in the interest rate spread is partially attributed
to competition for deposits keeping the average cost of funds from decreasing as
much as market rates. The Bank earns a significant portion of its income by
taking in short-term deposits and investing the money in longer term
investments. During periods where there is a normal yield curve, the spread
between the rate the Bank pays on a one year deposit and investing the money for
longer than one year can typically be as wide as 3%. During 1995 the yield curve
flattened which means that the yields on short-term investments were almost as
high as those on long term investments. At one point during the year, the yield
on fed funds was less than one percent lower than the 10 year treasury yield.
The Corporation's earnings also depend to a lesser extent on fees generated by
our expanding trust operations, the origination and sale of mortgages and income
generated on the trading account, including interest and dividend income, market
value appreciation and gains from the sale of stock and other services offered
by the Bank, which are offset by operating expenses and market losses.
Mortgage sales were down approximately 68.9% over last year, primarily due to
rising interest rates that decreased refinancing activities of fixed rate
mortgages which were the main source of mortgage lending for the past two years.
Increased competition and a sluggish real estate market also added to the
decline of 25% in mortgage originations. The majority of adjustable rate
mortgages that were originated were held in portfolio.
The profitability and financial condition of the Bank are affected by general
economic conditions. The national economy became stronger during 1995 while
Connecticut's recovery lagged behind. Connecticut's high dependence on the
defense and insurance industries was a major contributor to the lackluster
economy. The general economic effect of this is constrained personal income
growth, less spending by the consumer, decreasing property values and higher
delinquency and foreclosure rates. In contrast, the Bank experienced a
substantial reduction in non-performing loans and other real estate owned during
1995 (unlike many of our competitors, this was not accomplished through bulk
sales of such assets at a discount). In fact, non-performing assets were at
their lowest level since December of 1989. Asset quality is expected to continue
to remain high for the foreseeable future.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
<S> <C>
39% $ 49,990
42% $ 54,546
12% $ 15,575
7% $ 9,478
- --------------------------------
Total $129,589
</TABLE>
INVESTMENT PORTFOLIO
The Bank accounts for investments according to the Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). The available-for-sale investment portfolio at
December 31, 1995 increased to $91,128,000 from $62,638,000 at December 31,
1994, primarily due to purchases of $44,821,000, and the transfer of $18,789,000
from the held-to-maturity portfolio, exceeding the combination of sales,
maturities, called bonds and principal payments totalling $39,223,000. During
December 1995 the Bank took advantage of a window of opportunity that was
provided by the Financial Accounting Standards Board to allow transfers from the
held-to-maturity portfolio into the available-for-sale portfolio. The Bank
transferred $18,789,000 from the held-to-maturity investment portfolio into the
available-for-sale portfolio and sold $3,355,000 of these investments. The Bank
has intentionally let the available-for-sale portfolio grow in size to be able
to have more flexibility in managing the investments in the portfolio.
The held-to-maturity investment portfolio at December 31, 1995 decreased to
$38,461,000 from $71,362,000 at December 31, 1994. The portfolio decreased in
size due to purchases of $1,265,000 totalling less than the combination of
maturities, called bonds and principal payments of $15,299,000, and the transfer
of $18,789,000 to the available-for-sale portfolio.
There is little credit risk associated with both portfolios since 81% of the
securities are U. S. Government or U. S. Agency-backed. The portfolios are
earning a positive spread over the average cost of funds, resulting in
satisfactory liquidity and cash flows. Management will hold the investments in
the held-to-maturity portfolio and currently has no plans to sell from the
available-for-sale portfolio, unless unanticipated changes occur. Such changes
may include changes in interest rates and favorable investment options which
would make the sale of securities either at a loss or a gain beneficial to the
operations of the Bank.
The following table sets forth the carrying amount of investment securities at
the dates indicated:
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
- ----------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available-for-Sale (At Market):
United States Government and Agency Obligations $ 44,552 $ 39,562 $ 41,429
Connecticut State Taxable Obligations 1,251 1,237 1,838
Mortgage-Backed Securities 21,523 4,714 1,992
Other Bonds, Notes and Debentures 8,227 11,241 15,468
Marketable Equity Securities and Mutual Funds 15,046 5,393 5,977
Short-Term Mutual Funds 529 491 7,240
- ----------------------------------------------------------------------------------------
Total Investments Available-for-Sale $ 91,128 $ 62,638 $ 73,944
- ----------------------------------------------------------------------------------------
Investment Held-for-Trading (At Market):
Trading Account -- $ 5,461 $ 5,537
- ----------------------------------------------------------------------------------------
Held-to-Maturity (At Cost):
United States Government and Agency Obligations $ 9,994 $ 28,378 $ 23,478
Mortgage-Backed Securities 28,467 42,984 16,909
- ----------------------------------------------------------------------------------------
Total Investments Held-to-Maturity $ 38,461 $ 71,362 $ 40,387
- ----------------------------------------------------------------------------------------
Total Investment Securities $129,589 $139,461 $119,868
- ----------------------------------------------------------------------------------------
Investments as a Percent of Assets 31.59% 34.68% 33.77%
- ----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following table sets forth the maturities of investment securities at
December 31, 1995 and the weighted average yields of such securities (calculated
on the basis of cost and effective yields weighted for the scheduled maturity of
each security):
<TABLE>
<CAPTION>
(dollars in thousands) Maturing
--------------------------------------------------------------------------
Within After One But After Five But
One Year Within Five Years Within Ten Years After Ten Years
- ------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale (At Market):
United States Government
and Agency Obligations $ 6,000 5.74% $36,547 5.80% $ 2,005 6.84%
Connecticut State Taxable Obligations 1,251 6.52
Mortgage-Backed Securities 5,409 6.04 1,920 7.03 $14,194 7.14%
Other Bonds, Notes and Debentures 2,006 6.63 6,221 6.41
Marketable Equity Securities
and Mutual Funds 15,046 8.46
Short-Term Mutual Funds 529 4.53
- ------------------------------------------------------------------------------------------------------------------
Total Investments Available-for-Sale $24,832 $48,177 $ 3,925 $14,194
- ------------------------------------------------------------------------------------------------------------------
Held-to-Maturity (At Cost):
United States Government
and Agency Obligations $ 4,001 4.48% $ 5,993 6.12%
Mortgage-Backed Securities 7,514 5.91 $20,953 6.40%
Total Investments Held-to-Maturity $ 4,001 $13,507 $20,953
- ------------------------------------------------------------------------------------------------------------------
Total Investments $28,833 $61,684 $ 3,925 $35,147
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation at December 31, 1995 had $21,000,000 of structured notes, which
constitutes approximately 16.2% of the investment securities portfolio.
Structured notes have uncertain cash flows which are driven by interest rate
movements and may expose a company to greater market risk than traditional
medium term notes. All of the Bank's investments of this type are
government-agency issues (primarily Federal Home Loan Bank and Federal National
Mortgage Association). Step-up notes comprised 90.5% and de-leveraged notes 9.5%
of total structured notes at December 31, 1995.
Prior to 1995, the Bank's investment strategy included the purchase of
structured notes in the form of step-up notes, and de-leveraged notes. The Bank
believed that devoting a portion of its investment portfolio to this type of
investment was desirable in an attempt to increase yields and to diversify the
portfolio. Step-up notes initially pay an above-market yield for a short
non-call period and, if not called, "step-up" to a higher coupon rate, generally
1% or less. A multi-step note has a series of fixed and successively higher
coupons over its life. At each call date, if the note is not called, the coupon
rate increases. The Bank discontinued the investment strategy of purchasing
structured notes in 1994.
The structured notes are accounted for in accordance with SFAS 115. The
available-for-sale portfolio at December 31, 1995 includes $17,000,000 of
step-up notes with a weighted average yield of 5.6% and a weighted average
maturity of 3 years, and two de-leveraged notes, each with a cost of $1,000,000,
with a weighted average yield of 5.5% and a weighted average maturity of 6
months. The payment of interest on one of the de-leveraged bonds is based upon
Prime Rate minus 2.72% and the other is based upon .5 times the ten year
constant maturity treasury with a floor of 4.2%. There is no risk of loss of
principal or interest if the structured notes are held-to-maturity. Current
market value of the $21,000,000 in structured notes is $20,982,000, down $18,000
from its original cost. The interest rate being paid on structured notes, like
any other bond, may fall below market rates which will cause the market price to
decrease. If the notes are sold under this scenario, a market loss may occur.
The Bank has no immediate plans to sell the structured notes at this time, but
the Bank anticipates a considerable number of the notes to be called at par if
interest rates continue to fall.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following table illustrates the composition of structured notes held by the
Bank on December 31, 1995:
Average
Market Maturity
Cost Value in Years
- --------------------------------------------------------------------------------
Available-for-Sale
Step-up and multi-step notes $17,000,000 $16,984,000 3.1
De-leveraged notes 2,000,000 1,998,000 0.5
Held-to-maturity
Step-up and multi-step notes 2,000,000 2,000,000 3.1
- --------------------------------------------------------------------------------
Total $21,000,000 $20,982,000 2.8
- --------------------------------------------------------------------------------
Financial Condition:
The discussion of the Corporation's financial condition and results of
operations should be considered in conjunction with the consolidated financial
data and the consolidated financial statements and notes appearing elsewhere in
this report.
The Corporation functions as a financial intermediary, and as such its financial
condition should be examined in terms of its sources and uses of funds.
SOURCES AND USES OF FUNDS
The primary source of funds for the Corporation is the Bank. The primary sources
of funds for the Bank are deposits, Federal Home Loan Bank ("FHLB") advances,
net income, the repayment of loan principal, the maturity of investments, the
origination and sale of fixed rate loans and the occasional sale of investments.
Financing activities of the Bank include the following:
Deposits increased by $17,663,000 or 5.5% to $339,365,000 on December 31, 1995
from $321,702,000 on December 31, 1994. The Bank decreased short-term borrowed
money by $14,500,000 during 1995. The balance of borrowed money at December 31,
1995 was $18,950,000 compared to $33,450,000 on December 31, 1994.
Use of funds provided by financing activities includes the payment of cash
dividends by the Corporation. During 1995 the total dividends paid to
shareholders was $1,727,000, as compared to $1,756,000 paid in 1994. The per
share annual dividend was $.88 in 1995 and 1994. Funds were also used to
purchase 40,000 shares or $721,000 of the Corporation's common stock. Funds
amounting to $46,000, including tax benefits, were received on the exercise by
Officers and Directors of 3,500 stock options.
Investment activities of the Bank include the following:
Gross loans, including loans held for sale, increased by $10,914,000, or 4.8%,
to $239,784,000 on December 31, 1995, up from $228,870,000 on December 31, 1994.
The net increase in loans at the end of the year was accomplished even though
loan originations of $51,206,000 were down 20% from the $64,177,000 originated
in 1994. Mortgage loan originations in 1995 were $35,338,000, down 25% from the
$47,212,000 originated in 1994. During the same period, installment loans to
consumers, including credit cards, decreased by 6% to $15,868,000 from
$16,965,000 in 1994.
The majority of mortgage loans that were originated in 1995 were adjustable rate
mortgages which are normally held by the Bank and not sold. During 1995 the Bank
sold $3,256,000 of fixed rate loans, a decrease of 69% from the $10,471,000 sold
in 1994. The Bank, as part of its asset/liability management policy, sells the
majority of the 30 year fixed rate mortgages and some of the fixed rate
mortgages that mature in 20 years or less. The Bank does not sell consumer
installment loans. The Bank continues to service most loans sold and earns
servicing fees.
To remain competitive, the Bank offers its customers a wide variety of mortgage
programs to choose from, including bi-weekly mortgages, 5, 8, 10, 15, 20 and 30
year fixed rate mortgages and a variety of adjustable rate mortgages. Principal
lending activities have generally consisted of the origination of conventional
mortgages for the purchase of owner-occupied homes and, to a lesser extent,
construction and land loans for single family residences. The Bank has
established a commercial loan department to build a conservative, high quality
commercial loan portfolio.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
<S> <C>
37% 88,208
14% 32,319
49% 116,265
</TABLE>
Investment securities decreased by $9,872,000, or 7.1% to $129,589,000 on
December 31, 1995 from $139,461,000 on December 31, 1994. The available-for-sale
portfolio increased by $28,490,000 or 45.5% to $91,128,000 from $62,638,000 in
1994. Assets totaling $44,821,000 were purchased for the available-for-sale
portfolio and sales totaled $22,949,000 during 1995. The held-to-maturity
portfolio decreased by $32,901,000 or 46.1%. The decrease in the
held-to-maturity category consisted primarily of maturities and principal
repayments of $15,299,000 and the transfer of $18,789,000 to the
available-for-sale portfolio. The Bank also liquidated the trading account
during the first quarter of 1995.
Foreclosed real estate decreased by $450,000 to $178,000 on December 31, 1995
from $628,000 on December 31, 1994, primarily due to sales of $1,218,000 and net
charge-offs of $346,000 exceeding additions of $1,114,000.
LOAN PORTFOLIO
The Corporation's loan portfolio is directed toward home buyers, home equity
loans and, to a lesser extent, real estate construction and commercial loans.
Approximately 49.1% of the Bank's loans are adjustable rate mortgages.
The following table shows the Corporation's loan distribution at the end of each
of the last five years:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real Estate Mortgage (1-4 Family) $192,434 $187,914 $179,727 $180,634 $176,773
Real Estate Construction 3,933 3,110 2,247 3,205 3,444
Real Estate Multifamily (5 or more units) 3,856 3,899 3,676 4,024 4,030
Real Estate Commercial 5,937 4,177 3,936 4,117 3,612
Installment Loans to Individuals 30,832 28,955 24,656 29,033 34,500
Credit Cards 1,346 486
Commercial Loans 519 329 433 576 822
- -----------------------------------------------------------------------------------------------
Total Loans $238,857 $228,870 $214,675 $221,589 $223,181
- -----------------------------------------------------------------------------------------------
</TABLE>
The following table shows the maturity of loans (excluding real estate mortgage
loans, installment loans to individuals and credit cards) outstanding as of
December 31, 1995. Also provided are the amounts due after one year classified
according to the sensitivity to changes in interest rates:
<TABLE>
<CAPTION>
Maturing
Within After One but After
(dollars in thousands) One Year Within Five Years Five Years Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Construction $3,227 $706 $ 0 $3,933
Commercial Loans 419 0 100 519
- ----------------------------------------------------------------------------------------------
Total $3,646 $706 $100 $4,452
- ----------------------------------------------------------------------------------------------
Loans Maturing After One Year With:
Fixed Interest Rates $153 $100
Variable Interest Rates 553
- ----------------------------------------------------------------------------------------------
Total $706 $100
- ----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 all loans past due 90 days were treated as non accrual
loans. Total non-performing loans and foreclosed real estate aggregated $899,000
or .22% of total assets down from the $1,928,000 or .48% of total assets on
December 31, 1994.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
The following table illustrates the composition of non-performing assets as of
December 31, 1995 and 1994:
NON-PERFORMING ASSETS
Non Accrual Loans (90 days or more delinquent)
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Number Number
(dollars in thousands) of Loans Amount of Loans Amount
- --------------------------------------------------------------------------------
Residential 10 $711 15 $1,227
Installment 3 10 4 73
- --------------------------------------------------------------------------------
Total Non-Performing Loans 13 $721 19 $1,300
- --------------------------------------------------------------------------------
Foreclosed Real Estate
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Number Number
of Properties Amount of Properties Amount
- --------------------------------------------------------------------------------
Residential 4 $ 98 4 $ 168
Commercial Real Estate 2 80 2 460
- --------------------------------------------------------------------------------
Total Foreclosures 6 $178 6 $ 628
- --------------------------------------------------------------------------------
Total Non-Performing Assets $899 $1,928
- --------------------------------------------------------------------------------
The Bank has two restructured loans totaling $500,000. Interest and principal
payments on these loans are current. Interest income that would have been
recorded in the year ended December 31, 1995 on non accrual loans under the
original terms was $76,488. Interest income actually recorded on these loans in
1995 was $21,260. The accrual of interest is discontinued when a loan becomes 90
days past due as to principal or interest.
ALLOWANCE FOR LOAN LOSSES
The Bank's allowance for loan losses has been determined based upon management's
analysis of the risks in the portfolio and the economic risks in our lending
areas as well as the Bank's loss experience. Loans are charged against the
allowance when management believes that collection is unlikely. Any subsequent
recoveries are credited to the allowance for loan loss reserve. The allowance
for loan losses was reduced in 1995 due to lower levels of non-performing loans.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES AND SUMMARY OF LOAN LOSS EXPERIENCE
Year ended December 31,
- --------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period $1,791 $2,223 $1,945 $1,164 $1,010
Charge Offs:
Real Estate Mortgage Loans 209 524 384 295 306
Real Estate Construction Loans 109
Commercial Real Estate Loans 70 56 125 530
Installment Loans to Individuals 59 119 337 114 89
Credit Cards 18
Commercial Loans 2 120
- --------------------------------------------------------------------------------------
Total Charge Offs 356 643 777 536 1,154
- --------------------------------------------------------------------------------------
Recoveries:
Real Estate Mortgage Loans 37 7 7 23
Real Estate Construction Loans 5
Commercial Real Estate Loans 37
Installment Loans to Individuals 5 75 45 13 3
- --------------------------------------------------------------------------------------
Total Recoveries 42 82 45 62 26
- --------------------------------------------------------------------------------------
Net Charge Offs 314 561 732 474 1,128
Provision for Loan Losses 101 129 1,010 1,255 1,282
Balance at End of Period $1,578 $1,791 $2,223 $1,945 $1,164
- --------------------------------------------------------------------------------------
Ratio of Net Charge Offs During
Period to Average Loans Outstanding 0.13% 0.26% 0.32% 0.20% 0.53%
- --------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
<S> <C>
1991 $ 6.582
1992 $ 4.696
1993 $ 3.173
1994 $ 1.928
1995 $ .899
1991 $ 250,768
1992 $ 283,495
1993 $ 299,467
1994 $ 321,702
1995 $ 339,365
</TABLE>
Potential problem loans are not disclosed as non accrual, 90 days past due, or
restructured, but are loans which are monitored due to known information about
possible credit problems of borrowers or which are monitored because they are
greater than 30 days but less than 90 days past due. Management assesses the
potential for loss on these loans when evaluating the adequacy of the allowance
for loan losses on a regular basis. As of December 31, 1995, monitored loans not
disclosed as non accrual, 90 days past due, or restructured that were current
totaled $168,000 and monitored loans 30 days delinquent totaled $3,117,000, and
60 days delinquent totaled $791,000.
The following table summarizes the Bank's non-performing assets at the end of
the last five years:
NON-PERFORMING ASSETS
(dollars in thousands) December 31,
- --------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
Nonaccruing Loans $ 721 $1,300 $2,376 $3,666 $5,802
Foreclosed Real Estate 178 628 797 1,030 769
Repossessed Assets 11
- --------------------------------------------------------------------------------
Total $ 899 $1,928 $3,173 $4,696 $6,582
- --------------------------------------------------------------------------------
The following table illustrates the allocation of allowance for loan losses to
the appropriate loan category:
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate
Mortgage Loans $ 511 82.17% $ 661 83.41% $ 623 85.23% $ 535 83.33% $ 200 81.01%
Installment Loans
to Individuals 175 12.91 250 13.24 400 11.64 360 13.10 135 15.46
Real Estate
Construction Loans 100 1.65 135 1.36 125 1.06 125 1.45 125 1.54
Commercial Real
Estate Loans 340 2.49 320 1.83 500 1.86 450 1.86 450 1.62
Commercial Loans 80 0.22 75 0.16 75 0.21 75 0.26 125 0.37
Credit Cards 22 56
Unallocated 350 n/a 350 n/a 500 n/a 400 n/a 129 n/a
- -----------------------------------------------------------------------------------------------------------------------------
Total Allowance
for Loan Losses $1,578 100.00% $1,791 100.00% $2,223 100.00% $1,945 100.00% $1,164 100.00%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
The average daily amount of deposits and rates paid on such deposits for the
past three years are summarized in the following table:
DEPOSITS
<TABLE>
<CAPTION>
(dollars in thousands) Year ended December 31,
- ------------------------------------------------------------------------------------------------
1995 1994 1993
Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
Demand Deposits $ 5,021 $ 3,761 $ 3,109
Interest-bearing Demand Deposits 10,769 1.80% 10,029 1.82% 8,693 2.29%
Money Market Deposit Accounts 3,907 2.25 4,186 2.27 4,273 2.78
Savings Deposits 114,556 2.02 131,429 2.04 132,436 2.66
Time Deposits 197,309 5.36 160,704 4.23 142,935 4.39
- ------------------------------------------------------------------------------------------------
Total $331,562 $310,109 $291,446
- ------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Maturities of time certificates of deposits in amounts of $100,000 or more
outstanding at December 31, 1995 are summarized as follows:
(dollars in thousands) Time Certificates of Deposit
- --------------------------------------------------------------------------------
3 months or less $ 8,369
Over 3 through 6 months 3,760
Over 6 through 12 months 5,325
Over 12 months 7,204
- --------------------------------------------------------------------------------
Total $24,658
- --------------------------------------------------------------------------------
ASSET/LIABILITY AND LIQUIDITY MANAGEMENT
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest sensitive
earning assets and interest bearing liabilities. Liquidity management
involves the ability to meet the cash flow requirements of depositors
wanting to withdraw funds or borrowers needing assurance that sufficient
funds will be available to meet their credit needs. The Bank has a formal
written liquidity and asset/liability policy designed to address these
issues.
The following table sets forth certain information at December 31, 1995
regarding the rate sensitivity of the Corporation's earning assets and sources
of funds:
<TABLE>
<CAPTION>
Interest Rate Sensitivity
December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
0-180 181-365 1-3 3-5 After
(dollars in thousands) Days Days Years Years Five Years Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets Subject to Interest Rate Adjustment:
Short Term Investments $ 21,346 $ 21,346
Investment Securities (at cost) 43,150 $8,981 $29,219 $22,882 $ 25,128 129,360
Adjustable Rate Mortgages 45,903 41,918 10,696 4,261 14,147 116,925
Fixed Rate Mortgages 2,911 1,656 2,812 6,629 74,701 88,709
Installment and Commercial Loans 7,900 1,753 3,735 4,695 14,419 32,502
Loans Held-for-Sale 927 927
Estimated Principal payments
Mortgage-Backed Securities 584 584 1,168
- -------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Assets $ 122,721 $54,892 $46,462 $38,467 $128,395 $390,937
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities Subject to Interest Rate Adjustment:
Interest Bearing NOW $ 11,479 $ 11,479
Regular Savings * 102,161 102,161
Money Market Passbook 7,055 7,055
Money Market Deposits 4,000 4,000
Time Certificates of Deposits 112,664 $50,293 $28,033 $18,074 209,064
Advances from FHLB 8,000 4,000 5,300 1,500 $150 18,950
- -------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Liabilities $245,359 $54,293 $33,333 $19,574 $150 $352,709
- -------------------------------------------------------------------------------------------------------------------------------
INCLUDING REGULAR SAVINGS:
Excess (deficiency) of Rate Sensitive Assets
over Rate Sensitive Liabilities ($122,638) $599 $13,129 $18,893 $128,245 $38,228
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) ($122,638) ($122,039) ($108,910) ($90,017) $ 38,228
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Assets as a percentage of
Cumulative Rate Sensitive Liabilities 50.0% 59.3% 67.3% 74.5% 110.8%
Cumulative excess (deficiency) as a percentage of
Total Assets (29.9%) (29.8%) (26.6%) (21.9%) 9.3%
Excluding Regular Savings:
Excess (deficiency) of Rate Sensitive Assets
over Rate Sensitive Liabilities ($20,477) $599 $13,129 $18,893 $128,245
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) ($20,477) $(19,878) ($6,749) $12,144 $140,389
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Assets as a percentage
of Cumulative Rate Sensitive Liabilities 85.7% 89.9% 97.1% 104.8% 156.0%
Cumulative excess (deficiency) as a
percentage of Total Assets (5.0%) (4.8%) (1.6%) 3.0% 34.2%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
Measurement period _________ _________ _________
(Fiscal year Covered) Index Index
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Measurement PT -
__/__/__ $ _____ $ _____
1991 $ 9,513
1992 $ 12,814
1993 $ 13,480
1994 $ 13,791
1995 $ 13,039
</TABLE>
The interest rate sensitivity table above shows the time periods in which the
Corporation's assets and liabilities are subject to changes in interest rates.
The interest rate sensitivity analysis of the Corporation at December 31, 1995
suggests that if interest rates rise, the Corporation would experience a
decrease in net interest income in the one-year horizon. Since the Corporation's
rate sensitive liabilities are greater than its rate sensitive assets in the
one-year time horizon, the Corporation's interest expense would increase greater
than its interest income in a rising interest rate environment. In a falling
interest rate environment the Corporation's net interest income would increase,
due to interest income decreasing less than interest expense.
* The Corporation has included regular savings in the "within 0-180 days"
category, although management believes that the entire balance of regular
savings is not interest rate sensitive within certain parameters and will not
decrease substantially in the near future. The Gap analysis reflects a static
analysis of interest rate sensitivity which may not reflect the true movement of
interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management is the ability to fund short and long-term growth in
lending and other investment activities as well as having the capacity to fund
any rapid unforeseen large cash outflows in an orderly and cost effective
manner.
The largest investment activity of the Bank is lending. Therefore, the Bank's
liquidity requirements are primarily set upon anticipated loan demand which vary
in response to the economy and competition.
Investing in securities is the second largest investment of the Bank. The
securities in the available-for-sale portfolio can be sold to meet liquidity
needs. The securities in the held-to-maturity portfolio as well as the
available-for-sale category can be pledged as collateral for short or long-term
borrowings if needed.
Deposits are the primary funding source for the Bank. The Bank's policy is not
to accept brokered deposits or offer premium rates to attract certificates of
deposits. The Bank believes the local community makeup of its deposit base tends
to make it somewhat insensitive to moderate interest rate fluctuations. It also
provides for a stable cost and effective source of funds.
As a member of the FHLB, the Bank can borrow on a secured basis by pledging
first mortgage loans and other qualified assets for collateral. The Bank is also
required to maintain a specified ratio of FHLB stock to advances, as required
under the Federal Home Loan Bank Act. Total advances from the Federal Home Loan
Bank, including Ideal Way lines of credit, cannot exceed the value of qualified
collateral held by the Bank. As of December 31, 1995, the Bank had borrowed
$18,950,000 from the FHLB and the Bank had sufficient qualified collateral to
borrow an additional $229,582,000. The $229,582,000 borrowing capacity
significantly exceeds the Bank's annual financing requirements.
At December 31, 1995, liquid assets totaled $33,732,000 or 8.2% of total assets
compared to $25,067,000 or 6.2% of total assets as of December 31, 1994. The
liquidity level during each year was within the range of management's desired
level. Please see "Sources and Uses of Funds" on page 12 of this report and Note
10 (Restrictions on Subsidiary Dividends, Loans or Advances) in the Consolidated
Financial Statements on page 37 of this report.
Capital
Stockholders' equity and book value per share were $44,713,000 and $22.90
respectively, at December 31, 1995. The increase in equity and book value was
due to the net income of $3,389,000 in 1995 and an increase in the net
unrealized holding gains on securities available-for-sale, net of taxes of
$2,487,000 from a loss of $2,291,000 at December 31, 1994, to a gain of $196,000
at December 31, 1995. The increase was partially offset by the acquisition of
treasury stock of $721,000 and dividends declared of $1,718,000.
During 1995, the Corporation repurchased 40,000 shares of its common stock for
$721,000 in the open market. The stock was repurchased as part of a publicly
disclosed repurchase program. The buy back program was initiated to enhance
shareholder value and because the Corporation believed the market value of the
stock did not reflect its true value. The repurchase program also serves to
increase per share earnings,
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
book value and to support the market price for the Corporation's stock. The
board of directors believes that the purchase of the Corporation's own shares is
a prudent use of capital and may continue to utilize this practice as long as
the Corporation remains well capitalized and the market value of the stock is
determined not to be representative of its true value.
The Bank is required by regulation to maintain certain capital ratios. The
minimum Tier 1 capital ratio of 4.00% to 5.00% must be maintained by all banks
except those that are the highest rated institutions by regulators. The Bank is
also required to meet supplemental capital adequacy standards which measure
qualifying capital against risk-weighted assets including off-balance sheet
items such as loan commitments, letters of credits and interest rate swaps. At
December 31, 1995 all of the Bank's capital ratios exceeded minimum regulatory
capital requirements and places it as "well capitalized", the highest rating of
five regulatory capital classifications.
The following table illustrates the capital resources of the Bank and the
Corporation and their capital ratios as of December 31:
(dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------
Bank's capital components:
Tier 1 capital (Stockholders' equity) $37,279 $38,389
Tier 2 capital (Allowance for loan losses) 1,578 1,791
- -------------------------------------------------------------------------------
Bank's total risk-based capital $38,857 $40,180
Bank's capital ratios:
Total Risk-Based 18.38% 19.99%
- -------------------------------------------------------------------------------
Tier 1 risk-based 17.63% 19.10%
Tier 1 leverage 9.35% 9.55%
- -------------------------------------------------------------------------------
Corporation's capital components:
Tier 1 capital (Stockholders' equity) $41,217 $39,777
Tier 2 capital (Allowance for loan losses) 1,578 1,791
- -------------------------------------------------------------------------------
Corporation's total risk-based capital $42,795 $41,568
Corporation's capital ratios:
Total risk-based 20.24% 20.68%
Tier 1 risk-based 19.49% 19.79%
Tier 1 leverage 10.33% 9.89%
- -------------------------------------------------------------------------------
IMPACT OF INFLATION
The Corporation's financial statements have been prepared 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 effect 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. Nevertheless, inflation can
directly affect the value of loan collateral, in particular real estate.
Decreases in real estate prices have resulted in losses on real estate acquired.
Inflation, or disinflation, could continue to significantly affect the
Corporation's earnings in future periods.
RESULTS OF OPERATION
Comparison of years ended December 31, 1995 and 1994.
Net Income: Net income decreased by $176,000 or 4.9% to $3,389,000 for the year
ended December 31, 1995 from $3,565,000 in 1994. The decrease for 1995 was
primarily attributable to a decrease in net interest income, and increased
operating expenses primarily related to the Corporation's expansion goals. The
reduction in earnings was partially offset by an increase in other income,
primarily trust fees.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Interest Income: Interest income for the year ended December 31, 1995 was
$27,522,000, an increase of $2,461,000 from the $25,061,000 for the same period
in 1994. The increase in interest income can be attributed to an increase in
average earning assets of $15,730,000 to $386,854,000 from $371,124,000 in 1994,
and an increase in the yield on earning assets of 37 basis points in 1995 to
7.15% from 6.78% in 1994. The majority of the increase in interest income was
from the loan portfolio. The increase in the volume of loans increased interest
income by $1,051,000 and the increase in yield on loans increased interest
income by $949,000. This increase is consistent with increased interest rates in
1994 and the first half of 1995 due to the typical lag time for the Bank's
balance sheet to react to market interest rates, even though rates decreased in
the second half of 1995.
The following table summarizes the components of the Corporation's net interest
income, net interest rate spread, and net interest rate margin:
<TABLE>
<CAPTION>
YIELD AND RATE/VOLUME ANALYSIS
Year ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning Assets
Loans(1,2) $233,684 $18,297 7.83% $219,909 $16,297 7.41% $226,678 $18,288 8.07%
Investment Securities(5) 143,298 8,637 6.14 145,700 8,480 5.88 94,609 5,376 5.76
Other Interest-earning 9,872 588 5.96 5,515 284 5.15 10,111 482 4.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets(5) $386,854 $27,522 7.15% $371,124 $25,061 6.78% $331,398 $24,146 7.31%
Noninterest-earning Assets 15,358 14,377 13,110
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $402,212 $385,501 $344,508
====================================================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing Liabilities
Savings Deposits $114,556 $ 2,314 2.02% $131,429 $2,675 2.04% $132,436 $3,529 2.66%
Interest-bearing
Demand Deposits 10,769 194 1.80 10,029 183 1.82 8,693 199 2.29
Money Market
Deposit Accounts 3,907 88 2.25 4,186 95 2.27 4,273 119 2.78
Certificates of Deposit 197,309 10,576 5.36 160,704 6,805 4.23 142,935 6,273 4.39
Mortgagors' Escrow 1,794 58 3.23 1,887 57 3.02 1,909 75 3.92
Borrowed Funds 22,080 1,253 5.67 28,137 1,455 5.17 7,664 472 6.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities $350,415 $14,483 4.13% $336,372 $11,270 3.35% $297,910 $10,667 3.58%
Noninterest-bearing
Demand Deposits 5,021 3,761 3,109
Noninterest-bearing Liabilities 3,572 2,842 2,095
Stockholders' Equity 43,204 42,526 41,394
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities
and Stockholders' Equity $402,212 $385,501 $344,508
====================================================================================================================================
Net Interest Income $13,039 $13,791 $13,479
====================================================================================================================================
Net Interest Rate Spread(3)(5) 3.02% 3.43% 3.73%
====================================================================================================================================
Net Interest Rate Margin(4)(5) 3.41% 3.74% 4.09%
====================================================================================================================================
</TABLE>
1. For purposes of these computations, nonaccrual loans are included in the
average loan amount outstanding.
2. Included in interest income are loan fees of $395,269, $389,387, and
$803,120, for the years ended December 31, 1995, 1994, and 1993,
respectively.
3. Return on interest-earning assets less cost of interest-bearing liabilities.
4. Net interest income divided by average earning assets.
5. Tax adjusted yield, tax adjustment of $158,915, $85,771 and $70,840, for the
years ended December 31, 1995, 1994, and 1993, respectively.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Interest Expense: Interest expense increased in 1995 by $3,213,000 to
$14,483,000 from $11,270,000 in 1994. During 1995, the Bank experienced an
increase in its overall cost of funds of 78 basis points to 4.13% from 3.35% in
1994. The average balance in interest-bearing liabilities increased by
$14,043,000 in 1995 to $350,415,000 from $336,372,000 in 1994. The majority of
the increase in interest expense was due to interest expense on certificates of
deposit, offset by a reduction in interest expense on savings deposits. Interest
expense on certificates of deposit increased by $3,771,000, of that $1,740,000
was due to increased volume and $2,031,000 was due to increased rate. Interest
expense on savings deposits decreased by $361,000 primarily due to decreased
volume. This is consistent with a shift in deposits from regular savings to
certificates of deposit, and also increased rates on certificates of deposit due
to increased competition.
Net Interest Income: Net interest income decreased by $752,000, or 5.45%, to
$13,039,000 for the year ended December 31, 1995 from $13,791,000 for 1994 as
the decreased net interest rate spread more than offset the increased volume of
earning assets. The net interest rate spread decreased by 41 basis points, from
3.43% in 1994, to 3.02% for the year ended December 31, 1995, due primarily to
the increased cost of funds. Interest expense increased greater than interest
income as explained in the previous paragraphs.
The following table sets forth changes in the Corporation's interest earned and
interest paid resulting from changes in volume and changes in rates. The change
in interest due to both volume and rate has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
(dollars in thousands) Increase (Decrease) due to Increase (Decrease) due to
- --------------------------------------------------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earned on:
Loans $ 1,051 $ 949 $ 2,000 $ (532) $(1,459) $(1,991)
Investment Securities (136) 293 157 2,969 135 3,104
Other Interest-earning 254 50 304 (234) 36 (198)
- --------------------------------------------------------------------------------------------------------------------------
Total 1,169 1,292 2,461 2,203 (1,288) 915
- --------------------------------------------------------------------------------------------------------------------------
Interest Paid on:
Savings Deposits (341) (20) (361) (27) (827) (854)
Interest-bearing
Demand Deposits 13 (2) 11 28 (44) (16)
Money Market Deposit
Accounts (6) (1) (7) (2) (22) (24)
Certificates of Deposit 1,740 2,031 3,771 765 (233) 532
Mortgagors' Escrow (2) 3 1 (1) (17) (18)
Borrowed Funds (369) 167 (202) 1,070 (87) 983
- --------------------------------------------------------------------------------------------------------------------------
Total 1,035 2,178 3,213 1,833 (1,230) 603
- --------------------------------------------------------------------------------------------------------------------------
Changes in Net Interest Income $ 134 $ (886) $ (752) $ 370 $ (58) $ 312
=========================================================================================================================
</TABLE>
Other Operating Income and Service Fees: The following table details the
significant increases and decreases in other income for the year ended December
31, 1995:
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 Inc (dec) %
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges and fees $1,001 $880 $ 121 13.8%
Trust fees 1,129 191 938 491.1
Net investment securities gains (losses) (170) 128 (298) (232.8)
Trading account gains (losses) 49 (284) 333 (117.3)
Net gains (losses) on sales of mortgages 29 (376) 405 (107.7)
Other operating income 205 198 7 3.5
- -----------------------------------------------------------------------------------------------
Total other income $2,243 $737 $1,506 204.3%
=========================================================================================================================
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Service charges and fees increased primarily due to the increase in the volume
of deposit accounts and services sold. Trust fees increased by $938,000 from
$191,000 at December 31, 1994, to $1,129,000 at December 31, 1995, primarily due
to the November 7, 1994 purchase of substantially all of the assets of New
Meriden Trust Co. from the FDIC, as well as new accounts generated during 1995.
Security losses in the investment portfolio were $170,000, as compared to a gain
of $128,000 for 1994. The trading account, liquidated in February of 1995,
posted a gain of $49,000 as compared to a loss of $284,000 for 1994. The Bank
recorded a small gain on the sale of mortgages of $29,000 in 1995 compared to
losses of $376,000 in 1994, primarily due to rising interest rates in 1994.
Other Expenses: The following table details the significant increases and
decreases in other expense for the year ended December 31, 1995:
(dollars in thousands) 1995 1994 Inc (dec) %
- --------------------------------------------------------------------------------
Salaries and benefits $4,558 $3,556 $1,002 28.2%
- --------------------------------------------------------------------------------
Occupancy 928 844 84 10.0
Furniture and equipment 893 707 186 26.3
FDIC deposit insurance 380 696 (316) (45.4)
Foreclosed real estate 453 253 200 79.1
Other operating expenses 2,397 2,338 59 2.5
- --------------------------------------------------------------------------------
Total other expenses $9,609 $8,394 $1,215 14.5%
- --------------------------------------------------------------------------------
Other expenses increased by $1,215,000 to $9,609,000 in 1995 from $8,394,000 in
1994. Salary and employee benefit expenses increased to $4,558,000 in 1995, a
$1,002,000 or 28.2% increase over the $3,556,000 expensed in 1994. The primary
reason for the increase was a full year of expense for the staffing for two new
branches opened in the second quarter of 1994, and increased staffing due to the
purchase of New Meriden Trust in November of 1994, as well as the establishment
of a commercial loan department. Full-time employee equivalents ("FTE")
increased to 122 at December 31, 1995 from 112 at December 31, 1994 and 86 at
December 31, 1993. The majority of the FTE increases in 1994 occurred late in
the year, thereby causing the large salary expense increase noted above. FDIC
deposit insurance expenses decreased to $380,000 in 1995, a decrease of $316,000
compared to $696,000 in 1994. The FDIC decreased the rate the Bank pays for
deposit insurance to $.04 per $100.00 in deposits effective June of 1995, from a
rate of $.23 per $100.00 in deposits. Occupancy and furniture and equipment
expenses were up $270,000 or 17.4% to $1,821,000 from $1,551,000 in 1994 due to
the full year of expenses related to the opening of the two branches, and the
trust department expansion begun in late 1994. Operating expenses for foreclosed
real estate increased by $200,000 or 79.1% to $453,000 for the year ended
December 31, 1995 from $253,000 in 1994. The increase was due to higher than
expected operating costs and declines in the market value of owned real estate
properties.
Income Taxes: The effective tax rate for 1995 was 39.20%, a decrease of 144
basis points from 40.64% in 1994. The decrease was primarily due to an increase
in dividend income eligible for the dividend received deduction, and a slight
decrease in the State of Connecticut tax rate of 25 basis points to 11.25% in
1995 from 11.50% in 1994.
RESULTS OF OPERATION
Comparison of years ended December 31, 1994 and 1993.
Net Income: Net income decreased by $902,000 or 20.2% to $3,565,000 for the year
ended December 31, 1994 from $4,467,000 before the cumulative effect of changes
in accounting principles for the same period in 1993. Net income for the year
ended December 31, 1993 after the cumulative effect of changes in accounting
principles amounted to $4,752,000. The decrease for 1994 was primarily
attributed to trading account losses and losses on sales of mortgages versus
gains in 1993, and increased operating expenses primarily related to our
expansion goals and the settlement of a lawsuit. These reductions in earnings
were partially offset by increases in net interest income and service charges
and fees, and a decrease in the provision for loan losses due to continued high
asset quality and a reduction in the dollar amount of delinquent loans.
Operating Expenses
(dollars in millions)
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG __________, __________ INDEX AND __________ INDEX
<CAPTION>
Measurement period _________ _________ _________
(Fiscal year Covered) Index Index
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Measurement PT -
__/__/__ $ _____ $ _____ $ _____
1991 $ 5,605
1992 $ 6,274
1993 $ 6,890
1994 $ 8,393
1995 $ 9,608
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Interest Income: Interest income for the year ended December 31, 1994 was
$25,061,000, an increase of $915,000 from the $24,146,000 for the same period in
1993. The increase in interest income can be attributed to an increase in
average earning assets of $39,726,000 to $371,124,000 from $331,398,000 in 1993,
which was partially offset by a decrease in the yield on earning assets of 53
basis points in 1994 to 6.78% from 7.31% in 1993. Falling interest rates in 1993
continued to effect the Bank into 1994 due to the normal lag time for the Bank's
balance sheet to react to market interest rates, even though rates increased in
1994.
Interest Expense: Interest expense increased in 1994 by $603,000 to $11,270,000
from $10,667,000 in 1993. During 1994, the Bank experienced a decrease in its
overall cost of funds of 23 basis points to 3.35% from 3.58% in 1993. The
average balance in interest bearing liabilities increased by $38,462,000 in 1994
to $336,372,000 from $297,910,000 in 1993.
Net Interest Income: Net interest income increased by $311,000 or 2.3% to
$13,791,000 for the year ended December 31, 1994 from $13,480,000 for 1993 as
increased volume of earning assets more than offset the lower spread. The net
interest rate spread decreased by 30 basis points to 3.43% for the year ended
December 31, 1994 from 3.73% in 1993.
Other Operating Income and Service Fees: Service charge and fee income,
including trust fees, increased by $267,000 to $1,070,000 for the year ended
December 31, 1994 from $803,000 for the year ended December 31, 1993. The
increase can be attributed primarily to trust income, in particular revenues
generated from the November 7, 1994 purchase of New Meriden Trust Co. from the
FDIC and increased charges to customers as well as increased volume in services
sold. Security gains in the investment portfolio increased by $18,000 to a gain
of $128,000 for 1994 from a gain of $110,000 in 1993. The trading account
experienced a loss of $284,000 for 1994, down $863,000 from the gain in 1993 of
$579,000. The Bank recorded losses on the sale of mortgages of $375,000 in 1994
compared to gains of $290,000 in 1993, a decrease of $665,000, primarily due to
rising interest rates in 1994.
Other Expenses: Other expenses increased by $1,503,000 to $8,394,000 in 1994
from $6,891,000 in 1993. Salary and employee benefit expenses increased to
$3,556,000 in 1994, a $580,000 or 19.5% increase over the $2,976,000 expensed in
1993. The primary reason for the increase was staffing expenses for two new
branches opened in 1994, and increased staffing due to the purchase of New
Meriden Trust, as well as merit increases awarded throughout the year to various
employees. Full-time employee equivalents increased from 86 at December 31, 1993
to 112 at December 31, 1994. FDIC deposit insurance expenses increased to
$696,000 in 1994, an increase of $43,000 over the $653,000 in 1993. Occupancy,
furniture and equipment, and advertising expenses combined were up $220,000 or
14.2% to $1,766,000 from $1,546,000 in 1993 due to the opening of the two new
branches, and the trust department expansion. Operating expenses for foreclosed
real estate decreased by $274,000 or 52.0% to $253,000 for the year ended
December 31, 1994 from $527,000 in 1993. The reason for the decrease is
primarily due to a decrease in the number of properties held in foreclosed real
estate. Other operating expenses increased by $933,000 to $2,122,000 for the
year ended December 31, 1994 from $1,189,000 in 1993, the increase was primarily
due to the settlement of a lawsuit for approximately $600,000 including legal
fees. The claim involved an isolated incident in which the Bank accepted for
deposit four checks, with endorsements allegedly forged by the wife of the
president of a closely held corporate customer of the Bank. No Bank employee was
alleged to be involved in the fraudulent endorsement. The Bank believed strongly
in its position which it asserted in court. However, the trial resulted in a
jury decision against the Bank. In the opinion of the Bank this decision was
based on the deep pocket theory. The Bank believes strongly that the case was
wrongly decided and influenced by the trial court's prejudicial charge to the
jury and rulings of evidence, but decided not to appeal the case to avoid the
risk of up to $450,000 in interest being added to the judgment and to conclude
the matter without the expense and risk of an additional trial.
Income Taxes: The effective tax rate for 1994 was 40.64%, a slight decrease of
24 basis points from 40.88% in 1993.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors of
People's Savings Financial Corp.:
We have audited the accompanying consolidated balance sheets of People's Savings
Financial Corp. (the "Corporation") as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation'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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
People's Savings Financial Corp. and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Corporation
changed its methods of accounting for investments, income taxes, and
post-retirement benefits other than pensions in 1993.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
January 19, 1996
23
<PAGE>
PAGE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 2):
Non-interest bearing deposits and cash $ 6,815,738 $ 9,537,883
Short-term investments (Note 3) 21,346,359 9,876,312
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 28,162,097 19,414,195
Securities (Note 4):
Trading account securities 5,461,095
Available-for-sale (at market) 91,128,434 62,637,638
Held-to-maturity (market value: $38,259,088 at December 31, 1995;
$66,680,161 at December 31, 1994) 38,460,901 71,362,316
Federal Home Loan Bank stock 2,643,000 2,292,400
Loans held for sale (at market ) 927,034
Loans (Note 5):
Real estate mortgage 202,225,544 195,988,157
Real estate construction 3,933,410 3,110,501
Installment 32,178,447 29,441,420
Commercial 519,461 329,492
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 238,856,862 228,869,570
Less:
Deferred loan fees and unearned income (487,392) (754,496)
Allowance for loan losses (1,577,547) (1,791,270)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 236,791,923 226,323,804
Bank premises and equipment (Note 6) 2,370,366 2,410,227
Foreclosed real estate 177,538 627,614
Accrued income receivable 3,747,646 3,645,910
Goodwill 3,299,902 3,745,089
Other assets 2,455,589 4,168,937
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 410,164,430 $ 402,089,225
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity Liabilities:
Deposits (Note 7) $ 339,364,769 $ 321,701,642
Advances from Federal Home Loan Bank of Boston (Note 8) 18,950,000 33,450,000
Mortgagors' escrow accounts 2,490,394 2,609,017
Accrued expenses 1,239,131 1,164,488
Other liabilities 3,406,746 1,933,164
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 365,451,040 360,858,311
Commitments and Contingencies (Notes 13 and 14)
Stockholders' equity (Notes 10 and 11):
Preferred stock, no par value, 1,000,000 shares authorized; none issued and outstanding
Common stock, par value $1.00, authorized 10,000,000 shares, issued and
outstanding 2,511,824 at December 31, 1995 and 2,508,324 at December 31,
1994, including shares in treasury of 559,461 at December 31, 1995
and 519,461 at December 31, 1994 2,511,824 2,508,324
Additional paid-in capital 21,833,981 21,791,720
Retained earnings 27,421,569 25,750,679
Cost of treasury stock (7,249,861) (6,528,911)
Unrealized gains (losses) on securities available-for-sale, net of taxes 195,877 (2,290,898)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 44,713,390 41,230,914
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $410,164,430 $402,089,225
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
People's Savings Financial Corp. and Subsidiary
24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 18,297,183 $ 16,297,104 $ 18,288,123
Interest and dividends on investments:
Interest income 8,157,176 8,075,009 5,182,605
Dividend income 433,030 189,206 193,321
Trading account 46,174 215,658 185,894
Other interest income 588,358 284,318 296,121
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 27,521,921 25,061,295 24,146,064
Interest expense:
Interest on deposits 13,229,587 9,814,662 10,194,733
Interest on borrowed funds 1,253,007 1,455,176 471,767
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 14,482,594 11,269,838 10,666,500
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 13,039,327 13,791,457 13,479,564
Provision for loan losses 100,974 128,657 1,010,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,938,353 13,662,800 12,469,564
Other income:
Investment securities gains (losses) (169,603) 127,717 109,646
Trading account gains (losses) 49,168 (283,890) 579,193
Gain (loss) on sale of mortgages 29,472 (375,529) 290,272
Trust fees 1,129,325 190,642 616
Service charges and fees 1,001,236 879,792 802,268
Other operating income 203,787 198,326 196,409
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income 2,243,385 737,058 1,978,404
- ------------------------------------------------------------------------------------------------------------------------------------
15,181,738 14,399,858 14,447,968
Other expenses:
Salaries and employee benefits (Note 12) 4,558,419 3,555,996 2,975,704
Occupancy expense 927,646 844,120 767,288
Furniture and equipment expense 892,512 707,125 616,126
Advertising 225,763 215,256 162,735
FDIC deposit insurance 380,429 696,171 652,917
Lawsuit settlement 550,000
Goodwill amortization 382,521 62,183
Foreclosed real estate expenses 452,682 253,273 527,160
Other operating expenses 1,788,954 1,509,848 1,188,636
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expenses 9,608,926 8,393,972 6,890,566
Income before income taxes 5,572,812 6,005,886 7,557,402
Income taxes (Note 9):
Current $ 2,359,649 $ 1,991,085 $ 3,288,964
Deferred (credit) (175,365) 449,929 (198,842)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income taxes 2,184,284 2,441,014 3,090,122
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles 3,388,528 3,564,872 4,467,280
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting principles:
Post-retirement benefits (153,988)
Income taxes 438,481
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,388,528 $ 3,564,872 $ 4,751,773
- ------------------------------------------------------------------------------------------------------------------------------------
Per share data:
Weighted-average shares outstanding and common stock equivalents 1,986,737 2,022,280 2,049,082
Net income before the cumulative effect of changes
in accounting principles: $ 1.71 $ 1.76 $ 2.18
Cumulative effect of changes in accounting principles:
Post-retirement benefits (.07)
Income taxes .21
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1.71 $ 1.76 $ 2.32
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
People's Savings Financial Corp. and Subsidiary
25
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Holding Gains
(Losses)
Outstanding On Securities
Shares of Additional Carried at
Common Common Paid-In Retained Treasury Market, Net
Stock Stock Capital Earnings Stock of Taxes
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Balance at beginning of year 2,067,324 $2,478,824 $21,436,672 $20,882,750 $(4,523,212) $ --
Net income 4,751,773
Dividends declared, $.84 per share (1,691,917)
Stock options exercised 26,500 26,500 243,312
Tax benefit from stock options
exercised 83,986
Acquisition of treasury stock (100,461) (1,870,099)
Net unrealized gains (losses) on
securities available-for-sale,
net of taxes 619,570
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,993,363 $2,505,324 $21,763,970 $23,942,606 $(6,393,311) $619,570
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994
Balance at beginning of year 1,993,363 $2,505,324 $21,763,970 $23,942,606 $(6,393,311) $619,570
Net income 3,564,872
Dividends declared, $.88 per share (1,756,799)
Stock options exercised 3,000 3,000 27,750
Acquisition of treasury stock (7,500) (135,600)
Net unrealized gains (losses) on
securities available-for-sale,
net of taxes (2,910,468)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,988,863 $2,508,324 $21,791,720 $25,750,679 $(6,528,911) $(2,290,898)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995
Balance at beginning of year 1,988,863 $2,508,324 $21,791,720 $25,750,679 $(6,528,911) $(2,290,898)
Net income 3,388,528
Dividends declared, $.88 per share ( 1,717,638)
Stock options exercised 3,500 3,500 42,261
Acquisition of treasury stock (40,000) (720,950)
Net unrealized gains (losses) on
securities available-for-sale,
net of taxes 2,486,775
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,952,363 $2,511,824 $21,833,981 $27,421,569 $(7,249,861) $ 195,877
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
People's Savings Financial Corp. and Subsidiary
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 3,388,528 $ 3,564,872 $ 4,751,773
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 478,794 426,437 305,470
Accretion and amortization of bond premiums and discounts, net 62,431 55,709 38,032
Provision for loan losses 100,974 128,657 1,010,000
Amortization of net deferred loan fees (305,641) (226,485) (673,447)
Deferred income tax (credit) (175,365) 449,929 (198,842)
Decrease in trading account securities 5,461,095 76,262 2,120,979
Decrease (increase) in loans held for sale (927,034) 390,780 12,199,620
Realized investment securities losses (gains) 169,603 (127,717) (109,646)
Write-downs on foreclosed real estate 346,486 231,273 597,758
Amortization of goodwill 382,521 62,183
Increase in accrued expenses 74,643 120,641 344,510
Increase (decrease) in other, net 1,563,271 (1,145,093) (191,464)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,620,306 4,007,448 20,194,743
Investing activities
Proceeds from sales of available-for-sale securities 22,949,049 22,129,184 3,734,895
Proceeds from maturities of
available-for-sale securities 16,273,552 11,662,635
held-to-maturity securities 15,298,572 2,545,640 38,930,261
Purchases of
available-for-sale securities (44,821,086) (29,057,588)
held-to-maturity securities (1,265,000) (31,859,522) (89,880,015)
Purchases of Federal Home Loan Bank stock (350,600) (123,300)
Net increase (decrease) in loans (11,378,262) (14,699,139) 4,160,568
Foreclosed real estate sold 1,218,400 1,457,407 2,199,500
Purchases of premises and equipment (net) (438,933) (1,041,364) (311,328)
Intangibles resulting from acquisition of New Meriden Trust Co. (3,807,133)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,514,308) (42,669,880) (41,289,419)
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts (17,530,631) (520,825) 3,417,370
Net increase in certificates of deposit 35,193,758 22,755,483 12,554,846
Increase (decrease) in mortgage escrow accounts (118,623) 155,685 (74,971)
Net increase (decrease) in overnight borrowings
from the Federal Home Loan Bank of Boston (760,433) 910,433
Proceeds from long-term borrowings 11,800,000
Proceeds from short-term borrowings 49,900,000
Principal payments on short-term borrowings (14,500,000) (35,400,000)
Cash dividends paid (1,727,411) (1,756,139) (1,666,842)
Acquisition of treasury stock (720,950) (135,600) (1,870,099)
Issuance of common stock (under stock option plans) 45,761 30,750 353,798
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 641,904 46,068,921 13,624,535
Increase (decrease) in cash and cash equivalents 8,747,902 7,406,489 (7,470,141)
Cash and cash equivalents at beginning of year 19,414,195 12,007,706 19,477,847
===================================================================================================================================
Cash and cash equivalents at end of year $ 28,162,097 $ 19,414,195 $ 12,007,706
Non-cash investing and financing activities
Change in unrealized gains (loss) on available-for-sale securities $ 4,256,502 $ (5,052,824) $ 1,060,276
Transfer of loans to foreclosed real estate 1,114,810 537,713 2,196,718
Transfer of investment securities from held-to-maturity
to available-for-sale 18,789,280 73,943,925
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
People's Savings Financial Corp. and Subsidiary
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
I SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Corporation and its
subsidiary and the methods of applying those policies are summarized in the
following paragraphs.
Principles of Consolidation: The consolidated financial statements of People's
Savings Financial Corp. (the Corporation) include the accounts of its
wholly-owned subsidiary, The People's Savings Bank of New Britain (the Bank).
All significant intercompany balances and transactions have been eliminated in
consolidation. The Bank operates eight branches in central Connecticut. Its
primary source of revenue is providing residential mortgage loans to customers.
Basis of Financial Statement Presentation: Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and valuation
of foreclosed real estate, management obtains independent appraisals for
significant properties.
A substantial portion (97%) of the Bank's loans, including loans held for sale
and loan commitments, is collateralized by real estate in depressed markets in
central Connecticut. In addition, all of the real estate owned is located in
these same markets. Accordingly, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio and the recovery of a substantial portion
of the carrying amount of foreclosed real estate are particularly susceptible to
changes in market conditions in central Connecticut.
Other financial assets are subject to other impairment issues - similar to
credit quality - that involve subjective determinations. For example, increased
prepayments of principal during periods of falling interest rates have a
significant impact on the economic value of assets such as mortgage servicing
rights.
Many banks and savings institutions activities involve custody of financial
assets, management of such assets, or both. Fiduciary responsibilities are the
focus of activities such as servicing the collateral behind asset-backed
securities, managing mutual funds and administering trusts. These activities
expose the institution to the risk of loss arising from failure to properly
process transactions or handle the related assets on behalf of third parties.
Management believes that the allowances for losses on loans and writedowns of
foreclosed real estate are adequate. While management uses available information
to recognize losses on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on loans and
writedowns of foreclosed real estate. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments of information
available to them at the time of their examination.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
It is at least reasonably possible that the estimate on the effect on the
financial statements of a condition, situation, or set of circumstances that
existed at the date of the financial statements will change in the near term due
to one or more future confirming events. The effect of the change could be
material to the financial statements.
Investment Securities: Effective December 31, 1993 the Corporation adopted, on a
prospective basis, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Please see Note 4 Investment Securities on page 31 of this report for further
explanation.
28 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
Loans Held for Sale: Mortgage loans held-for-sale are valued at the lower of
cost or market as determined by outstanding commitments from investors or
current investor yield requirements calculated on the aggregate loan basis.
Changes in the carrying value are reported in earnings as gains and losses on
mortgage loans. Gains and losses resulting from sales of mortgage loans are
recognized when the proceeds are received from investors.
Loan Interest: Interest on loans is included in income as earned based on rates
applied to principal amounts outstanding. The accrual of interest income is
generally discontinued when a loan becomes 90 days past due as to principal or
interest. Management may elect to continue the accrual of interest when the
estimated fair value of collateral is sufficient to cover the principal balance
and accrued interest. Loan origination fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment of the related
loan's yield over the life of the loan.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on an evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses
charged against income.
On January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan" and No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" ("SFAS 114 and 118"). SFAS No. 114 and 118 requires creditors to
evaluate the collectibility of impaired loans, as defined below, based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are measured
for collectibility of contractual principal and interest based on fair value of
the collateral. As permitted by the statement, smaller-balance homogeneous loans
consisting of residential mortgages and consumer loans are evaluated for
collectibility by the Corporation based on historical loss experience rather
than on an individual loan-by-loan basis. The Corporation considers a loan to be
impaired for SFAS No. 114 and 118 purposes when, based on current information
and events, it is probable that it will be unable to collect all amounts of
contractual interest and principal as scheduled in the loan agreement. An
insignificant delay of under 90 days or a 10% shortfall in the amount of payment
is not an event that, when considered in isolation, would automatically cause
the Corporation to consider a loan to be impaired for purposes of SFAS No. 114
and 118. The Corporation evaluates all impaired loans, other than small balance
loans, on an individual loan-by-loan basis; it does not aggregate impaired loans
into major risk classifications. Except for certain restructured loans, impaired
loans are loans that are on nonaccrual status.
When an impaired loan or a portion of an impaired loan is deemed uncollectible,
the portion deemed uncollectible is charged against the allowance for loan
losses and subsequent recoveries, if any, are credited to the allowance.
Prior to the adoption of SFAS No. 114 and 118, the allowance for loan losses
related to all loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans. The adoption of SFAS No. 114 and
118 did not result in any additions to the provision for loan losses.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method. Maintenance, repairs and minor improvements are charged to expense as
incurred.
Foreclosed Real Estate: Foreclosed real estate consists principally of
properties acquired through mortgage loan foreclosure proceedings. These
properties are recorded at the lower of the carrying value of the related loans,
including costs of foreclosure, or estimated fair value, less estimated selling
costs, of the real estate acquired.
Excess Cost over Net Assets Acquired: The excess cost over net assets acquired
(goodwill) from the acquisition of New Meriden Trust Co. from the FDIC is being
amortized on a straight-line basis over 10
People's Savings Financial Corp. and Subsidiary 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
years. On a periodic basis, the Corporation reviews goodwill for events or
changes in circumstances that may indicate that the carrying amount of goodwill
may not be recoverable.
Income Taxes: Effective January 1, 1993 the Corporation adopted, on a
prospective basis, Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the use of the
asset/liability method of accounting for income taxes. Deferred income taxes and
tax benefits are recognized for the future tax consequence of differences
between the financial statement carrying amounts of assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in when
those temporary differences are expected to be recovered or settled. A valuation
allowance is established when it is considered to be more likely than not that
some portion of a deferred tax asset will not be realized. Prior to the adoption
of SFAS 109, income taxes expense was based on items of income and expense that
were reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
The cumulative effect of adopting SFAS 109 resulted in a benefit of $438,481,
which represents the application of the new accounting principle to the
cumulative temporary differences existing at January 1, 1993.
Earnings Per Share: Earnings per share was computed using the weighted average
common shares outstanding during the year and increased by the average number of
shares issuable on the exercise of stock options based on the treasury stock
method.
Cash Flows: Cash and cash equivalents include cash, amounts due from banks and
short-term investments.
Post-retirement Benefits Other Than Pensions: Effective January 1, 1993, the
Corporation implemented, on the immediate recognition basis, Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" ("SFAS 106"), which requires that
post-retirement benefits other than pensions be accounted for using the accrual
method. These benefits are unfunded and there are no assets associated with the
plan. Previously, post-retirement medical and life insurance costs were expensed
as claims and premiums were paid. The effect of implementing SFAS 106 had an
effect upon results of operations of the Corporation of $(153,988), net of taxes
for the year ended December 31, 1993.
Reclassifications: Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation. These reclassifications had no effect on
earnings in either year.
II RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserves against certain deposit transaction
accounts. At December 31, 1995 the Bank was required to have cash and liquid
assets of approximately $319,000 to meet these requirements.
III SHORT-TERM INVESTMENTS
Short-term investments consisted of:
December 31,
1995 1994
- --------------------------------------------------------------------------------
Federal Home Loan Bank overnight deposits $8,072,499
Federal funds sold $ 19,610,000 1,250,000
Money market accounts 1,736,359 553,813
- --------------------------------------------------------------------------------
$ 21,346,359 $9,876,312
================================================================================
30 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
IV INVESTMENT SECURITIES
Effective December 31, 1993 the Corporation adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") and revised its
securities accounting policy. Securities that may be sold as part of the
Corporation's asset/liability or liquidity management or in response to or in
anticipation of changes in interest rates and resulting prepayment risk, or for
other similar factors, are classified as available-for-sale and carried at fair
market value. Unrealized holding gains and losses on such securities are
reported net of related taxes as a separate component of shareholders' equity.
Securities that the Corporation has the ability and positive intent to hold to
maturity are classified as held-to-maturity and carried at amortized cost.
Realized gains and losses on the sales of securities are reported in earnings
and computed using the specific identification cost basis.
Securities available-for-sale (carried at fair value) and held-to-maturity
(carried at amortized cost) at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale
United States Government and
Agency obligations $44,505,649 $ 158,718 $ 111,798 $44,552,569
State of Connecticut taxable
obligations 1,250,000 1,250 1,251,250
Corporate securities 8,132,634 95,431 1,126 8,226,939
Mortgage-backed securities 21,480,424 162,999 120,407 21,523,016
- --------------------------------------------------------------------------------------------
Total debt securities 75,368,707 418,398 233,331 75,553,774
Marketable equity securities 9,915,136 112,285 24,875 10,002,546
Mutual funds 5,615,389 43,275 5,572,114
- --------------------------------------------------------------------------------------------
$90,899,232 $ 530,683 $ 301,481 $91,128,434
- --------------------------------------------------------------------------------------------
Held-to-Maturity
United States Government and
Agency obligations $ 9,994,460 $ 54,641 $ 22,896 $10,026,205
Mortgage-backed securities 28,466,441 35,045 268,603 28,232,883
- --------------------------------------------------------------------------------------------
$38,460,901 $ 89,686 $ 291,499 $38,259,088
- --------------------------------------------------------------------------------------------
</TABLE>
People's Savings Financial Corp. and Subsidiary 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1994
- --------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale
United States Government and
Agency obligations $42,487,556 $ 6,272 $ 2,932,054 $39,561,774
State of Connecticut taxable
obligations 1,251,870 14,520 1,237,350
Corporate securities 11,624,780 6,895 390,631 11,241,044
Mortgage-backed securities 4,727,921 205 14,005 4,714,121
- --------------------------------------------------------------------------------------------
Total debt securities 60,092,127 13,372 3,351,210 56,754,289
Marketable equity securities 103,334 128,559 1,625 230,268
Mutual funds 6,364,276 711,195 5,653,081
- --------------------------------------------------------------------------------------------
$66,559,737 $ 141,931 $ 4,064,030 $62,637,638
============================================================================================
Held-to-Maturity
United States Government and
Agency obligations $28,377,684 $ 1,408,925 $26,968,759
Mortgage-backed securities 42,984,632 $ 3,138 3,276,368 39,711,402
- --------------------------------------------------------------------------------------------
$71,362,316 $ 3,138 $ 4,685,293 $66,680,161
============================================================================================
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Market Value
- --------------------------------------------------------------------------------
Available-for-Sale
Due in one year or less $ 9,230,374 $ 9,257,210
Due after one year through five years 42,657,909 42,768,548
Due after five years through ten years 2,000,000 2,005,000
- --------------------------------------------------------------------------------
53,888,283 54,030,758
Mortgage-backed securities 21,480,424 21,523,016
- --------------------------------------------------------------------------------
Total $75,368,707 $75,553,774
================================================================================
Held-to-Maturity
Due in one year or less $ 4,000,509 $ 3,987,500
Due after one year through five years 5,993,951 6,038,705
- --------------------------------------------------------------------------------
9,994,460 10,026,205
Mortgage-backed securities 28,466,441 28,232,883
- --------------------------------------------------------------------------------
Total $38,460,901 $38,259,088
================================================================================
During 1995, there were $22,949,000 of debt security sales from the
available-for-sale portfolio. Gross gains of $274,154 and gross losses of
$388,875 were realized on those sales. During 1994, there were $15,807,778 of
debt security sales from the available-for-sale portfolio. Gross gains of
$98,793 and gross losses of $729,638 were realized on those sales. There were
$3,636,769 of debt security sales during 1993. Gross gains of $45,206 were
realized on those sales. Net realized losses on marketable equity securities and
mutual funds were $54,882 for the year ended December 31, 1995. Net realized
gains on marketable equity securities and mutual funds were $758,562 and
$64,440, for the years ended 1994 and 1993, respectively. Net unrealized gains
on the trading account amounted to $10,014 at December 31, 1994. As permitted by
the Financial Accounting Standards Board, in a special one time opportunity, the
Bank transferred $18,789,280 of investment securities classified as
held-to-maturity to the available-for-sale category on
32 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
December 8, 1995. The Bank made the transfer to provide more flexibility in
managing the portfolio. At the time of the transfer there was a net unrealized
gain on the investments of $129,920.
At December 31, 1995, $1,009,000 of United States Government and Agency
obligations were pledged as collateral to secure public funds.
V LOANS
The carrying amounts of the Corporation's loan portfolio at December 31, 1995
and 1994 were as follows:
1995 1994
- --------------------------------------------------------------------------------
Carrying Carrying
Amount Amount
- --------------------------------------------------------------------------------
Real estate mortgage $201,389,246 $194,788,009
Real estate construction 4,048,186 3,110,501
Installment loans to individuals 32,178,447 29,340,700
Commercial 519,461 329,492
- --------------------------------------------------------------------------------
238,135,340 227,568,702
Nonaccrual loans 721,522 1,300,868
- --------------------------------------------------------------------------------
$238,856,862 $228,869,570
================================================================================
At December 31, 1995, $721,522 of the Bank's loan portfolio was on nonaccrual
status. The Bank's estimate of impairment due to collectibility concerns related
to these loans is included in the allowance for loan losses.
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $457,182, excluding
small-balance homogeneous loans. All of these loans have been evaluated for
impairment using the present values of future cash flows method. There was a
valuation allowance of $65,292 recorded for the impaired loans at December 31,
1995.
For the year ended December 31, 1995 the average balance of impaired loans was
approximately $172,000.
The Corporation generally recognizes interest income on impaired loans on a cash
basis. For the twelve month period ended December 31, 1995, the Corporation
recorded no interest on impaired loans.
At December 31, 1995 the Corporation had two restructured loans totaling
$500,000. One of these loans in the amount of approximately $431,000 was
restructured prior to the adoption of SFAS No. 114 and 118 and is therefore
accounted for in accordance with SFAS No. 15 "Accounting by Debtors and
Creditors for Troubled Debt Restructurings" and the other loan is considered a
smaller-balance homogeneous loan under SFAS No. 114 and 118.
Loans the Bank services for others were $66,833,079 and $67,834,944 at December
31, 1995 and 1994, respectively.
People's Savings Financial Corp. and Subsidiary 33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Information with respect to nonaccrual loans at December 31, 1995 and 1994 is as
follows:
December 31,
1995 1994
- --------------------------------------------------------------------------------
Nonaccrual loans $721,522 $1,300,868
Interest income that would have been recorded under
original terms 76,488 80,364
Interest income recorded during period 21,260 44,123
- --------------------------------------------------------------------------------
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,791,270 $2,223,472 $1,945,025
Provision charged to operations 100,974 128,657 1,010,000
Loans charged off (356,884) (642,371) (776,290)
Recoveries 42,187 81,512 44,737
- ---------------------------------------------------------------------------------------------
Balance at end of year $1,577,547 $1,791,270 $2,223,472
=============================================================================================
</TABLE>
VI BANK PREMISES AND EQUIPMENT
Cost and accumulated depreciation and amortization of the various categories of
premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
Accumulated Accumulated
Depreciation and Depreciation and
Cost Amortization Cost Amortization
<S> <C> <C> <C> <C>
Building and land $1,696,624 $ 672,938 $1,682,898 $ 618,271
Leasehold improvements 906,804 460,794 882,567 378,733
Furniture and equipment 3,336,039 2,435,369 2,935,068 2,093,302
- -------------------------------------------------------------------------------------------------
$5,939,467 $3,569,101 $5,500,533 $3,090,306
=================================================================================================
</TABLE>
VII DEPOSITS
An analysis of deposits follows:
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
Non-interest-bearing demand deposits $ 5,605,612 $ 4,945,976
Interest-bearing demand deposits 11,479,100 11,561,239
Money market deposit accounts 4,000,026 4,266,138
Savings deposits 109,215,508 127,057,525
Time deposits 209,064,523 173,870,764
- --------------------------------------------------------------------------------
$339,364,769 $321,701,642
================================================================================
The amount of individual certificates of deposit in excess of $100,000 included
in time deposits at December 31, 1995 and 1994 was $24,658,000 and $17,870,000,
respectively. The Bank paid interest on deposits and escrow accounts of
$13,271,552, $9,855,921 and $10,252,694 for the years ended December 31, 1995,
1994 and 1993, respectively.
34 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
VIII ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances from Federal Home Loan Bank of Boston consisted of the following:
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
5.57% due January 1995 $ 5,000,000
5.98% due February 1995 4,000,000
6.45% due March 1995 3,500,000
5.05% due April 1995 2,000,000
4.70% due January 1996 $ 1,000,000 1,000,000
4.56% due January 1996 1,000,000 1,000,000
4.32% due January 1996 3,000,000 3,000,000
6.94% due April 1996 3,000,000 3,000,000
5.90% due October 1996 4,000,000 4,000,000
5.01% due January 1997 1,300,000 1,300,000
4.87% due January 1997 1,300,000 1,300,000
5.20% due January 1998 2,000,000 2,000,000
8.19% due December 1998 700,000 700,000
5.70% due January 1999 750,000 750,000
5.54% due January 1999 750,000 750,000
4.00% due January 2008 150,000 150,000
- --------------------------------------------------------------------------------
$18,950,000 $33,450,000
================================================================================
The Bank had no overnight borrowings at December 31, 1995 and 1994.
The Bank paid interest on advances of $1,311,886, $1,344,952 and $471,773 for
the years ended December 31, 1995, 1994 and 1993, respectively.
In accordance with an agreement with the Federal Home Loan Bank of Boston
(FHLBB), the Bank is required to maintain qualified collateral, as defined in
the FHLBB Statement of Credit Policy, free and clear of liens, pledges and
encumbrances as collateral for the advances. The Bank maintains qualified
collateral as defined by the FHLBB in excess of the $26,992,000 required to
collateralize the outstanding advances and short-term borrowing facility at
December 31, 1995.
The FHLBB Statement of Credit Policy grants members the ability to borrow up to
a certain percentage of the value of their qualified collateral. At December 31,
1995 the Bank could borrow up to an additional $221,540,000. The Bank also
participates in the Ideal Way Line of Credit program with the FHLBB. These
advances are one day loans with automatic rollover. The Bank has a pre-approved
line of $8,042,000.
IX FEDERAL AND STATE TAXES ON INCOME
The Corporation adopted SFAS 109 on a prospective basis on January 1, 1993 as
explained in Note 1. The cumulative effect of adopting SFAS 109 resulted in a
benefit of $438,481, which is reported separately in the consolidated statement
of income. Prior years' financial statements have not been restated.
People's Savings Financial Corp. and Subsidiary 35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
The components of the income tax provision (benefit) for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Provision:
Federal $1,792,124 $1,501,990 $2,442,092
State 567,525 489,095 846,872
- -------------------------------------------------------------------------------------------
2,359,649 1,991,085 3,288,964
- -------------------------------------------------------------------------------------------
DEFERRED PROVISION (BENEFIT):
- -------------------------------------------------------------------------------------------
Federal (141,166) 319,823 (170,856)
State (34,199) 130,106 (27,986)
- -------------------------------------------------------------------------------------------
(175,365) 449,929 (198,842)
- -------------------------------------------------------------------------------------------
Total provision for income taxes $2,184,284 $2,441,014 $3,090,122
===========================================================================================
</TABLE>
The following is a reconciliation of the expected federal statutory tax to the
income tax provision for the years ended December 31:
1995 1994 1993
- --------------------------------------------------------------------------------
Income tax at statutory federal tax rate 34.00% 34.00% 34.00%
Connecticut Corporation Tax,
net of federal tax benefit 6.32 6.80 7.15
Dividends received deduction (0.91) (0.16) (0.27)
Change in state tax rate .19
Other (.40)
- --------------------------------------------------------------------------------
Effective income tax rates 39.20% 40.64% 40.88%
================================================================================
The components of the Corporation's net deferred tax assets at December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
Federal State Federal State
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Loan loss provision $ 482,348 $170,876 $ 540,605 $201,518
Net mortgage origination fees 8,040 2,848 83,025 30,949
Deferred directors fees 273,741 96,975 224,462 83,671
Accrued self-insurance 18,131 6,423 9,704 3,617
Accrued interest payable 34,718 12,299 12,866 4,796
Accrued pension expense 113,184 40,097 119,812 44,662
Security losses 31,613 11,199 31,441 11,720
Post-retirement benefits (SFAS 106) 107,778 38,181 119,645 44,599
Goodwill 29,277 10,372 3,753 1,399
Available-for-sale securities (SFAS 115) 1,183,689 441,236
Other 46,579 16,499
- ---------------------------------------------------------------------------------------------------------
Total deferred tax assets $1,145,409 $405,769 $2,329,002 $868,167
=========================================================================================================
Deferred tax liabilities:
Tax loan loss reserve in excess of base year$ $ 6,396 $ 2,266 $ 7,077 $ 2,638
Accrued dividends receivable 22,903 8,113 6,332 2,600
Bond discount accretion 12,324 4,365 87,913 32,771
Mark to market - Sec 481a adjustment 62,834 22,259 96,252 35,879
Fixed assets 18,465 6,541 42,021 15,664
Prepaid insurance 26,835 9,506 28,414 10,592
Available-for-sale securities(SFAS 115) 100,906 37,620
Other 22,818 8,267
- ---------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 250,663 90,670 290,827 108,411
- ---------------------------------------------------------------------------------------------------------
Net deferred tax assets 894,746 315,099 2,038,175 759,756
Valuation reserve 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
Net deferred tax assets after
valuation reserve $ 894,746 $315,099 $2,038,175 $759,756
=========================================================================================================
</TABLE>
36 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
The allocation of deferred tax expense (benefit) involving items charged to
current year income and items charged directly to stockholders' equity for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Federal State Federal State Federal State
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax expense (benefit)
allocated to stockholders' equity $ 1,284,595 $ 478,856 $(1,183,689) $(441,236)
Deferred tax expense (benefit)
allocated to income (141,166) (34,199) 319,823 130,106 $(170,856) $(27,986)
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit $ 1,143,429 $ 444,657 $ (863,866) $(311,130) $(170,856) $(27,986)
===============================================================================================================================
</TABLE>
The Corporation will only recognize a deferred tax asset when based upon
available evidence, realization is more likely than not. Accordingly, at
December 31, 1995, 1994 and 1993, the Corporation has recorded no valuation
allowances against deferred tax assets based on sufficient available federal
taxable income in the carryback period and anticipated future earnings for state
purposes.
The Corporation paid Federal and State income taxes totaling $1,820,800,
$2,238,000 and $3,020,000, in 1995, 1994 and 1993, respectively.
X RESTRICTIONS ON SUBSIDIARY DIVIDENDS,
LOANS OR ADVANCES
Dividends are paid by the Corporation from its assets which are mainly provided
by dividends from the Bank. However, certain restrictions exist regarding the
ability of the Bank to transfer funds to the Corporation in the form of cash
dividends, loans or advances. The approval by the Banking Commissioner of the
State of Connecticut (the Commissioner) is required to pay dividends in excess
of the Bank's net profits (as defined by Connecticut banking laws) in the
current year plus retained net profits for the preceding two years. The Bank has
approximately $666,000 available for payment of dividends to the Corporation,
without approval of the Commissioner, at December 31, 1995.
Under Federal Reserve regulation, the Bank also is limited as to the amount it
may loan to the Corporation, unless such loans are collateralized by specified
obligations. At December 31, 1995, the maximum amount available for transfer
from the Bank to the Corporation in the form of loans approximated 10% of
consolidated net assets.
On August 20, 1986, the Corporation's wholly-owned subsidiary converted from a
State Chartered Mutual Savings Bank to a State Chartered Stock Savings Bank
through the issuance of 2,444,324 shares of common stock. The Bank has
established a liquidation account for a ten year period in an amount equal to
its capital accounts as of August 31, 1986. The liquidation account is
maintained for the benefit of eligible account holders who maintain their
savings accounts with the Bank after conversion. In the event of a complete
liquidation (and only in such an event), each eligible account holder will be
entitled to receive a liquidation distribution from the liquidation account, in
the proportionate amount of the lowest adjusted balance as of any subsequent
annual closing date for savings accounts held, before any liquidation
distribution may be made with respect to common stock. The Bank may not declare
or pay a cash dividend on, or repurchase any of, its common stock if the effect
thereof would cause the capital accounts to be reduced below the amount required
for the liquidation account (approximately $913,000 at December 31, 1995).
A portion of retained earnings has been designated as a reserve for bad debts in
accordance with provisions of the Internal Revenue Code (the "Code") applicable
to savings banks. If the reserve were to be used for any purpose other than to
absorb losses on loans or if the Bank's qualifying assets as defined by the Code
are less than 60% of total assets, a federal and state income tax liability
could be incurred. It is not anticipated that the reserve will be made available
for other purposes, that qualifying assets will be less than 60% of total
assets, or that a tax liability will be incurred. The reserve amount was
$4,651,122 at December 31, 1995 and $4,637,371 at December 31, 1994. Legislation
has been introduced that would repeal the tax bad debts reserve method
applicable to savings banks and require savings banks to change their method of
tax accounting for bad debts to conform with that of commercial banks. The
proposed legislation could
People's Savings Financial Corp. and Subsidiary 37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
result in the Corporation having to pay tax on the post-1987 tax bad debt
reserves of approximately $21,000 and being forgiven for the pre-1988 tax bad
debt reserves of approximately $4,650,000. The Corporation has recorded a tax
liability for the post-1987 reserves and established no deferred tax liability
for the pre-1988 reserves in accordance with SFAS No. 109. No certainty exists
as to whether the proposed legislation will be enacted into law.
XI STOCK OPTION PLAN
The Corporation has a stock option and incentive plan for certain employees and
a stock option plan for directors under which options become exercisable upon
issuance. Options were granted during 1995, 1994 and 1993 with an exercise price
equal to the fair market value of common stock at the date of grant.
<TABLE>
<CAPTION>
Shares Under Option
- -------------------------------------------------------------------------------------------------------
Outside Option
Employee Director Price Range
Plan Plan Total Per Share
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 36,500 55,000 91,500 $9.125-$14.125
Granted during 1993 3,000 3,000 $18.25
Canceled during 1993 (1,000) (1,000) $10.00
Exercised during 1993 (15,500) (11,000) (26,500) $9.125-$12.50
- -------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 20,000 47,000 67,000 $9.125-$18.25
Granted during 1994 4,000 4,000 $18.00
Exercised during 1994 (3,000) (3,000) $10.25
- -------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 17,000 51,000 68,000 $9.125-$18.25
Granted during 1995 87,000 20,000 107,000 $17.5625-$18.25
Exercised during 1995 (1,000) (2,500) (3,500) $10.00-$10.25
- -------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 103,000 68,500 171,500 $9.125-$18.25
Exercisable at December 31, 1995
(expiring during the period from
August 20, 1996 through April 25, 2005) 103,000 68,500 171,500 $9.125-$18.25
Shares reserved for issuance at
December 31, 1995 166,000 168,500 334,500
- -------------------------------------------------------------------------------------------------------
Shares available for future options at
December 31:
1994 190,000 22,000 212,000
- -------------------------------------------------------------------------------------------------------
1995 63,000 100,000 163,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
XII EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially all of
its employees who qualify as to age, length of service and minimum hours per
year. The benefits are based on a covered employee's final average compensation,
primary social security benefit and credited service. The Corporation's funding
policy is to contribute amounts to the plan sufficient to meet ERISA 's minimum
funding requirements.
38 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's statement of financial position at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
December 31,
1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $1,633,785 in 1995 and $1,760,365 in 1994 $ 1,656,265 $ 1,783,872
- ------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $ 2,789,792 $ 2,667,227
Plan assets at fair value, primarily cash and cash
equivalents, US and other bonds and listed stocks 1,885,076 1,717,424
- ------------------------------------------------------------------------------------------
Projected benefit obligations in excess of plan assets 904,716 949,803
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (655,177) (692,430)
Unrecognized transition asset (liability) at December 31 124,574 140,184
- ------------------------------------------------------------------------------------------
Accrued pension cost included in other liabilities $ 374,113 $ 397,557
- ------------------------------------------------------------------------------------------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $239,153 $199,116 $189,295
Interest cost on projected benefit obligation 179,172 163,021 153,316
Actual return on plan assets (345,515) 50,401 (113,910)
Net amortization and deferral 193,564 (193,075) 9,552
- ----------------------------------------------------------------------------------------------
Net periodic pension cost $266,374 $219,463 $238,253
==============================================================================================
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.0% and 5.0%, respectively, at December 31, 1995 and December
31, 1994, the respective measurement dates. The expected long-term rate of
return on plan assets was 8.0% in 1995, 1994 and 1993.
Effective January 1, 1992, the Corporation adopted a defined contribution 401(k)
plan. All employees of the Corporation who have reached age 21 and have
completed one year of service are eligible to participate in the plan. Employees
may contribute up to 15% of their compensation not to exceed the maximum dollar
limit imposed by the Internal Revenue Service. The Corporation's matching
contribution is 50% of each participant's contribution up to 6% of the
participant's compensation. The Corporation's contribution expense was $63,694,
$56,360 and $49,630, respectively, for the years ended December 31, 1995, 1994
and 1993.
Effective January 1, 1993, the Corporation implemented, on the immediate
recognition basis, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-retirement Benefits Other Than Pensions" (SFAS
106), which requires that post-retirement benefits other than pensions be
accounted for using the accrual method. These benefits are unfunded and there
are no assets associated with the plan. Previously, post-retirement medical and
life insurance costs were expensed as claims and premiums were paid. The effect
of implementing SFAS 106 had an effect upon results of operations of the
Corporation in 1993 of $(153,988) net of taxes. The net periodic post-retirement
benefits expense was $50,080, $41,560 and $32,527, respectively, in 1995, 1994
and 1993. The post-retirement benefits liability was $355,177, $311,014 and
$281,343, respectively, at December 31, 1995, 1994 and 1993.
People's Savings Financial Corp. and Subsidiary 39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
XIII LEASES
Seven of the Bank's branch offices are leased under noncancelable operating
leases which expire at various dates through 2004. The rental payments on the
lease for one of the branches are subject to an escalating payment schedule. In
all instances, the leases contain renewal options which extend for periods of 5
through 15 years. The future minimum rental commitments as of December 31, 1995
for these leases are as follows:
1996 $ 428,735
1997 433,084
1998 434,251
1999 424,057
2000 368,904
Thereafter 404,819
- --------------------------------------------------------------------------------
$2,493,850
- --------------------------------------------------------------------------------
Rental expense for the branches amounted to $442,892 in 1995, $393,332 in 1994
and $372,907 in 1993.
XIV CONTINGENT LIABILITIES
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business in order to meet the financing needs of its customers.
These expose the Bank to credit risk in excess of the amount recognized in the
consolidated balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure related to these
items at December 31, 1995 and 1994 is summarized below:
1995 1994
Contract Amount Contract Amount
- --------------------------------------------------------------------------------
Loan commitments:
Approved mortgage and equity loan commitments $ 2,103,300 $ 3,227,700
Unadvanced portion of construction loans 2,925,864 2,346,299
Letters of credit 534,340 500,640
Unadvanced portion of:
Commercial line of credit 1,511,250 1,535,972
Home equity lines of credit 4,515,152 4,104,247
Overdraft line of credit 19,959 13,900
Credit cards 3,404,764 1,800,609
- --------------------------------------------------------------------------------
$15,014,629 $13,529,367
- --------------------------------------------------------------------------------
Commitments to extend credits are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained if deemed necessary by
the Bank upon extension of credit is based on management's credit evaluation of
the counterparty. Collateral held is primarily residential property. Interest
rates on home equity lines of credit are variable and are available for a term
of 10 years. All other commitments are a combination of fixed and variable with
maturities of one year or more.
40 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
XV SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Bank primarily grants loans to customers located within its primary market
area in the state of Connecticut. The majority of the Bank's loan portfolio,
including loans held for sale and commitments (97%) at December 31, 1995 and
1994, is comprised of loans collateralized by real estate located primarily in
central Connecticut. At December 31, 1995 and 1994 respectively, such loans and
commitments totaled approximately $243,400,000, and $235,700,000, of which
$227,300,000 and $223,400,000, is collateralized by owner occupied real estate.
The Bank lends up to 95% of the appraised value of owner-occupied property.
Residential borrowers are required to obtain private mortgage insurance covering
any excess on loans with over 80% loan-to-value ratios.
XVI LOANS TO RELATED PARTIES
Loans to executive officers and directors (including loans to members of their
immediate families and loans to companies of which a director is a principal
owner) considered to be related parties aggregated $2,358,389 and $2,518,799 at
December 31, 1995 and 1994, respectively. During 1995, the Bank made $177,309 in
new loans to related parties and received $337,719 in payments on related party
loans. Such related party loans were made in the ordinary course of business.
XVII FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS 107"), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Investment securities (including mortgage-backed securities): Fair values for
investment securities (held-to-maturity and available-for-sale portfolios) are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Trading account assets: Fair values for the Corporation's trading account
assets, which also are the amounts recognized in the balance sheet, are based on
quoted market prices where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans held for sale: The fair values for mortgage loans held for sale are based
on quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., one-to-four family residential)
and other consumer loans are based on quoted market prices of similar loans sold
in conjunction with securitization transactions, adjusted for differences in
loan characteristics. The fair values for other loans (e.g., commercial real
estate and rental property mortgage loans and commercial and
People's Savings Financial Corp. and Subsidiary 41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
industrial loans) are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest approximates
its fair value.
Foreclosed real estate: The carrying amount reported in the balance sheet for
foreclosed real estate are estimated by management to approximate those assets'
fair value.
Off-balance-sheet instruments: Fair values for the Corporation's
off-balance-sheet instruments (primarily lending commitments) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing
(guarantees, loan commitments).
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Advances from Federal Home Loan Bank of Boston: The fair values of the
Corporation's borrowings from the Federal Home Loan Bank of Boston are estimated
using discounted cash flow analyses, based on the Corporation's current
incremental borrowing rates for similar types of borrowing arrangements.
The following table presents a comparison of the carrying value and estimated
fair value of the Bank's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $6,815,738 $6,815,738 $9,537,883 $9,537,883
Short-term investments 21,346,359 21,346,359 9,876,312 9,876,312
Securities held-to-maturity 38,460,901 38,259,088 71,362,316 66,680,161
Securities available-for-sale 91,128,434 91,128,434 62,637,638 62,637,638
Federal Home Loan Bank stock 2,643,000 2,643,000 2,292,400 2,292,400
Trading account securities 5,461,095 5,461,095
Loans 238,135,340 239,832,317 227,568,702 216,870,000
Loans held for sale 927,034 927,034
Financial Liabilities:
Deposits with no stated maturity 130,300,246 130,300,246 147,830,878 147,830,878
Time deposits 209,064,523 211,671,000 173,870,764 173,971,000
Federal Home Loan Bank borrowings 18,950,000 18,959,000 33,450,000 32,573,000
==============================================================================================
</TABLE>
XVIII RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" ("FAS 121"), which the Bank
will adopt on January 1, 1996. FAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The adoption of this
standard is not expected to have a material impact on the Bank's financial
condition or its results of operations.
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights - an amendment of FASB Statement No. 65"
42 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
("FAS 122"), which the Bank will adopt on January 1, 1996. FAS 122 amends FASB
Statement No. 65, "Accounting for Certain Mortgage Banking Activities", to
provide that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others however those servicing rights are
acquired. It also requires the Bank to assess its capitalized mortgage servicing
rights for impairment based on the fair value of those rights. The adoption of
this standard is not expected to have a material impact on the Bank's financial
condition or its results of operations.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based compensation plans. FAS 123 defines a fair
value based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, FAS 123 also allows the
Bank to continue to measure compensation costs for stock-based compensation
plans using the intrinsic value based method of accounting prescribed by APB No.
25, "Accounting for Stock Issued to Employees" and make pro forma disclosures of
net income and earnings per share, as if the fair value based method of
accounting defined in FAS 123 had been applied. The Bank has elected not to
adopt the accounting requirements of FAS 123, and will continue to account for
stock-based compensation plans in accordance with APB No. 25. The Bank's fiscal
1996 financial statements will include the pro forma disclosure requirements of
FAS 123.
XIX PEOPLE'S SAVINGS FINANCIAL CORP.
(PARENT CORPORATION ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1995 1994
- --------------------------------------------------------------------------------
Assets
Advances to subsidiary $ 4,326,117 $ 1,827,336
Investment in subsidiaries 40,816,793 39,842,779
- --------------------------------------------------------------------------------
Total assets $45,142,910 $41,670,115
================================================================================
Liabilities
Dividends payable $ 429,520 $ 439,201
- --------------------------------------------------------------------------------
Total liabilities 429,520 439,201
Stockholders' equity 44,713,390 41,230,914
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $45,142,910 $41,670,115
================================================================================
Investment in subsidiaries are carried under the equity method of accounting.
People's Savings Financial Corp. and Subsidiary 43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 5,000,000 $2,600,000 $3,300,000
Investment securities gains 450,163
Other income 68,294 84,564 82,439
- -----------------------------------------------------------------------------------------------
Income before income taxes and equity
distributed in excess of income of subsidiary 5,068,294 3,134,727 3,382,439
Other expenses 151,501 130,245 152,320
Income taxes (credit) (34,489) 168,224 (29,064)
- -----------------------------------------------------------------------------------------------
117,012 298,469 123,256
- -----------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 4,951,282 2,836,258 3,259,183
Equity in undistributed net income
(loss) of subsidiaries (1,562,754) 728,614 1,492,590
- -----------------------------------------------------------------------------------------------
Net income $ 3,388,528 $3,564,872 $4,751,773
===============================================================================================
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 3,388,528 $3,564,872 $ 4,751,773
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed net (income)
loss of subsidiary 1,562,754 (728,614) (1,492,590)
Gain on sale of investment securities (430,163)
Other items, net 9
- -----------------------------------------------------------------------------------------------
Cash provided by operating activities 4,951,282 2,386,095 3,259,192
Investing activities
Sales of investment securities 614,376
Investment in subsidiary (50,000)
Net decrease (increase) in advances
to subsidiaries (2,498,682) (1,139,482) (76,049)
- -----------------------------------------------------------------------------------------------
Net cash used by investing activities (2,548,682) (525,106) (76,049)
Financing activities
Issuance of common stock 45,761 30,750 353,798
Acquisition of treasury stock (720,950) (135,600) (1,870,099)
Cash dividends (1,727,411) (1,756,139) (1,666,842)
- -----------------------------------------------------------------------------------------------
Net cash used by financing activities (2,402,600) (1,860,989) (3,183,143)
- -----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
===============================================================================================
</TABLE>
44 People's Savings Financial Corp. and Subsidiary
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------
XX QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994 (in thousands of dollars, except per share
data):
<TABLE>
<CAPTION>
Three months ended
March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income $6,505 $6,773 $7,058 $7,186
Interest expense 3,295 3,619 3,726 3,843
- -------------------------------------------------------------------------------------------------
Net interest income 3,210 3,154 3,332 3,343
Provision for loan losses 36 35 30 0
Net gain (loss) on securities transactions 4 (73) (1) (100)
Trading account gains (losses) 49 0 0 0
Other income 544 583 609 628
Other expenses 2,358 2,475 2,331 2,444
- -------------------------------------------------------------------------------------------------
Income before income taxes 1,413 1,154 1,579 1,427
Income taxes 577 447 618 542
- -------------------------------------------------------------------------------------------------
Net income $ 836 $ 707 $ 961 $ 885
=================================================================================================
Net income per common share $ .42 $ .36 $ .48 $ .45
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Interest income $6,100 $6,089 $6,360 $6,512
Interest expense 2,603 2,741 2,830 3,096
- ----------------------------------------------------------------------------------------------------
Net interest income 3,497 3,348 3,530 3,416
Provision for loan losses 19 60 50 0
Net gain (loss) on securities transactions (38) 788 0 (622)
Trading account gains (losses) (134) (78) 107 (179)
Other income 2 209 285 397
Other expenses 1,810 2,011 2,345 2,227
- ----------------------------------------------------------------------------------------------------
Income before income taxes 1,498 2,196 1,527 785
Income taxes 596 906 622 317
- ----------------------------------------------------------------------------------------------------
Net income $ 902 $1,290 $ 905 $ 468
====================================================================================================
Net income per common share $ .44 $ .64 $ .45 $ .23
====================================================================================================
</TABLE>
People's Savings Financial Corp. and Subsidiary 45
<PAGE>
STOCK INFORMATION
- -----------------
Common Stock Information
The Corporation's common stock is traded over the counter on the Nasdaq National
Market under the symbol "PBNB". There were 1,404 stockholders of record on
February 29, 1996. The following table sets forth for the periods indicated,
market price information regarding PBNB stock as reported by Nasdaq. Stock price
information includes high and low daily closing sales prices as reported by the
Nasdaq National Market.
Quarter ended LOW HIGH
- --------------------------------------------------------------------------------
March 31, 1994 18 19 1/4
June 30, 1994 17 1/4 20 5/8
September 30, 1994 17 3/4 21
December 31, 1994 17 18 1/2
March 31, 1995 17 1/2 18 3/4
June 30, 1995 18 19 1/2
September 30, 1995 19 1/4 22 1/2
December 31, 1995 19 20
- --------------------------------------------------------------------------------
Dividend Policy
The Board of Directors of People's Savings Financial Corp. expects to maintain
its regular quarterly dividend policy and it may authorize increases in
quarterly dividends or other special dividends in the future if warranted by the
Corporation's earnings and performance. Please see Note 10 - Restrictions on
Subsidiary Dividends, Loans or Advances on page 37 of this report.
The following table illustrates dividends that were declared:
Dividends Date Declared Date Payable Amount
- --------------------------------------------------------------------------------
March 15, 1994 April 29, 1994 .22
June 21, 1994 July 29, 1994 .22
September 20, 1994 October 31, 1994 .22
December 20, 1994 January 31, 1995 .22
March 21, 1995 April 28, 1995 .22
June 20, 1995 July 31, 1995 .22
September 19, 1995 October 31, 1995 .22
December 21, 1995 January 31, 1996 .22
- --------------------------------------------------------------------------------
Stockholder Information
The People's Savings Bank of New Britain and People's Savings Financial Corp.
People's Savings Bank is a savings bank chartered by the State of Connecticut.
People's Savings Financial Corp. is a Connecticut bank holding company. Both the
Bank and the Corporation are headquartered at 123 Broad Street, New Britain,
Connecticut and their telephone number is (860) 224-7771.
Stock Transfer Agent
People's Savings Financial Corp.
c/o Boston EquiServe
P.O. Box 8200
Boston, MA 02266-8200
1-800-426-5523
46 People's Savings Financial Corp. and Subsidiary
<PAGE>
STOCK INFORMATION (continued)
- -----------------------------
Annual Report on Form 10-K
The Corporation's annual report on Form 10-K, and the financial statement
schedules thereto, as required to be filed with the Securities and Exchange
Commission for 1995, will be provided without charge to any stockholder upon
written request of such stockholder. Requests should be addressed to Investor
Relations, People's Savings Financial Corp., 123 Broad Street, P.O. Box 2980,
New Britain, CT 06050-2980.
Independent Auditors
Coopers & Lybrand L.L.P.
100 Pearl Street
Hartford, CT 06103-4508
THIS ANNUAL REPORT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR
RELEVANCE, BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
People's Savings Financial Corp. and Subsidiary 47
<PAGE>
[PICTURE]
People's Savings Financial Corp.
Officers from left to right:
Teresa D. Sasinski, Senior Vice President
and Secretary; Richard S. Mansfield,
President and Chief Executive Officer;
John G. Medvec, Executive Vice
President and Treasurer
DIRECTORS AND OFFICERS
- ----------------------
Directors of People's Savings Financial Corporation and
The People's Savings Bank of New Britain
Joseph A. Welna, MD, Chairman of the Board
Obstetrician/Gynecologist
Walter J. Liss, Secretary of the Board
President of Liss Insurance Agency Inc.
Walter D. Blogoslawski
Owner of Investment Research and PHB Realty
Stanley P. Filewicz, MD
Orthopedic Surgeon
Robert A. Gryboski, MD
Otolaryngologist
Roland L. LeClerc
Retired Partner, LeClerc and Fortier,
Insurance and Realty
Richard S. Mansfield
President and Chief Executive Officer of The
People's Savings Bank of New Britain and
People's Savings Financial Corp.
Henry R. Poplaski
Owner and manager of
Hank's Automotive Serivce
A. Richard Puskarz
President and Chief Executive Officer of
Art Press Inc., Printers
Chester S. Sledzik
Partner in the law firm of Sledzik & McGuire
Robert A. Story
President of the Story Brothers Inc.,
Automotive Service
The People's Savings Bank of New Britain
Officers
Richard S. Mansfield
President and Chief Executive Officer
John G. Medvec
Executive Vice President and Treasurer
Lending
Earl T. Young
Senior Vice President
Robert J. Mendillo
Vice President
John J. Ancheff
Assistant Vice President
Mark A. Iadarola
Assistant Vice President
Donna M. Evans
Assistant Treasurer
Donna D. Mattson
Assistant Treasurer
Operations
Teresa D. Sasinski
Senior Vice President and Secretary
Geraldine F. Valuk
Assistant Vice President
Maurizio D'Oca
Assistant Treasurer
Jeffrey S. Gable
Assistant Treasurer
Alina M. Grabala
Assistant Treasurer
Laurie S. Mornhineway
Assistant Treasurer
Barbara Powojski
Assistant Treasurer
Accounting
Edward E. Bohnwagner, III
Vice President and Controller
Susan Carluccio Link
Assistant Controller
Jennifer A. Lodovico
Assistant Treasurer
Human Resources
Florence K. Gagnon
Vice President
Marketing
Joyce L. Petrisko
Assistant Treasurer
Management Information Systems
Stanley W. Styrczula
Assistant Vice President
Compliance
Lisa K. MacDonald
Vice President
Trust
Daniel A. Hurley, III
Senior Vice President
Lois A. Muraro
Vice President
Jeffrey F. Otis
Vice President
David J. Papallo
Vice President
Irma C. Sulewski
Vice President
Maria F. Del Sesto
Assistant Vice President
Annabell Priola
Assistant Vice President
Non-deposit Investment Products
Roger T. Helal
Vice President
48
<PAGE>
BANK AND TRUST LOCATIONS
- ------------------------
Bank Offices
Main Office Southington Office
123 Broad Street 405 Queen Street
New Britain, CT Southington, CT
860-224-7771 860-621-8901
Columbus Plaza Office Newington Office
150 Columbus Boulevard 36 Fenn Road
New Britain, CT Newington, CT
860-827-3660 860-666-8400
Lafayette Square Office Rocky Hill Office
450 Main Street 2270 Silas Deane Highway
New Britain, CT Rocky Hill, CT
860-224-7771 860-529-8161
Farmington Avenue Office Plainville Office
553 Farmington Avenue 2750 New Britain Avenue
New Britain, CT Plainville, CT
860-827-3656 860-793-6020
Opening in April 1996
Meriden Office
834 Broad Street
Meriden, CT
Trust Offices
New Britain Office Meriden Office
450 Main Street 834 Broad Street
New Britain, CT Meriden, CT
860-224-7771 203-235-4456
Middletown Office
49 Main Street
Middletown, CT
860-343-5987
<PAGE>
[LOGO] PSB
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PEOPLES SAVINGS BANK
MEMBER
FDIC
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
The People's Savings Bank of New Britain
123 Broad Street
New Britain, CT 06053
People's Savings Financial Services, Inc.
123 Broad Street
New Britain, CT 06053
<PAGE>
EXHIBIT 23
[Letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
People's Savings Financial Corp. and Subsidiary (the "Corporation") on Form S-8
(File Nos. 33-55936 and 33-55940) of our report dated January 19, 1996, on our
audit of the consolidated financial statements of the Corporation as of December
31, 1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993,
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 22, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We the undersigned officers and directors of People's Savings Financial Corp.,
hereby severally constitute Richard S. Mansfield, and John G. Medvec and each of
them singly, our true and lawful attorneys with full power of substitution, to
sign for us and in our names in the capacities indicated below, the Annual
Report on Form 10-K of People's Savings Financial Corp. for the fiscal year
ended December 31, 1995, and generally to do all such things in our name and
behalf in our capacities as officers and directors to enable People's Savings
Financial Corp. to comply with the provisions of the Securities Exchange Act of
1934, as amended, all requirements of the Securities and Exchange Commissioner,
and all requirements of any other applicable law or regulation, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to said Annual Report.
SIGNATURE TITLE DATE
/s/ RICHARD S. MANSFIELD President and Chief March 19, 1996
- -------------------------- Executive Officer
Richard S. Mansfield
/s/ JOHN G. MEDVEC Executive Vice March 19, 1996
- -------------------------- President
John G. Medvec
/s/ JOSEPH A. WELNA Chairman of the Board March 19, 1996
- -------------------------- and Director
Joseph A. Welna
