SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KA
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, 1996 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
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 29 pages.
The Exhibit Index is found at page 24.
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 28,
1997 was $52,066,519.
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 28, 1997
Common Stock, par value $1.00 per share 1,905,863
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
1996 Annual Report to Shareholders I and II
Proxy Statement for the 1997 Annual III
Meeting of Stockholders (to be filed
within 120 days of December 31, 1996)
(the "Proxy Statement")
TABLE OF CONTENTS
Page
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
PART I
Item 1 - Business
The principal executive offices of People's Savings Financial Corp. (the
"Company") and of Peoples Savings Bank & Trust (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 principal asset of the Company.
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 eight banking branches located in New Britain,
Southington, Newington, Rocky Hill, Plainville, and Meriden, Connecticut.
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.
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 through 1996. Many of theses adjustable rate loans are fixed over a
term of 3, 5, 7, or 10 years and then adjust annually after the fixed period.
Fixed rate mortgages and loans are originated with 8 to 30 year maturities. The
Bank sold the majority of the 30-year fixed rate mortgages which it originated
during 1994 through 1996 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 $385 million at December 31, 1996.
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 1996 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.
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 11 of the Company's 1996 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.
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, 1996, the commercial mortgage portfolio totaled approximately $8.0
million, representing 3.1% 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 nine of its offices. The Bank's
mortgage originations increased by 42% from 1995 to 1996; 1995 was a
historically low volume year. As of December 31, 1996 residential mortgage loans
were 78.0% 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. The Bank has sold a
significant portion of its 30-year and 20-year fixed-rate mortgage loans
originated during 1995 and 1996. Points are charged on all residential mortgage
loans unless the borrower elects to pay a higher interest rate to offset points.
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 34.5% of net loans as
of December 31, 1996, down from 37.3% as of December 31, 1995.
The volume of first mortgage loan originations since 1991 is shown in the
following table:
Year Ended Number of Total Loans
December 31, Loans Originated
1992 795 81,485,000
1993 721 73,072,000
1994 432 47,237,000
1995 305 35,338,000
1996 419 50,133,000
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, 1996, loans held for sale totaled
$1,150,000, with a market value of $1,143,000.
Commercial Loans. As of December 31, 1996, commercial loans totaled $888,000,
compared to $519,000 at December 31, 1995. Commercial loans constituted 0.3% of
the Bank's total loans as of December 31, 1996. The Bank is authorized to make
Small Business Administration (SBA) loans.
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, 1996 totaled $8.0 million, compared to
$5.9 million as of December 31, 1995. Commercial mortgage loans collateralized
by non-residential properties constituted 3.1% of total loans as of December 31,
1996. Loans made on multifamily homes constituted 1.4% of total loans, or $3.6
million, as of December 31, 1996, compared to $3.9
million at December 31, 1995. The Bank lends up to 80% of the appraised value of
commercial property. Generally, the average size of commercial mortgage loans is
approximately $500,000, with the current balance of the largest loan totaling
$720,000.
Construction Loans. As of December 31, 1996, residential construction loans
totaled approximately $4.2 million, or 1.6% of the Bank's total loans, compared
to $3.9 million, or 1.6% of total loans as of December 31, 1995. The Bank's
residential 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. As of December 31, 1996, commercial
construction loans totaled approximately $3.3 million, or 1.3% of total loans.
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.
Total consumer loans (excluding credit card loans) increased from $30.8 million
at December 31, 1995 to $35.7 million at December 31, 1996. 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
$2.2 million at December 31, 1996 and approximately $1.9 million at December 31,
1995. Credit card loans totaled $1.2 million at December 31, 1996 as compared to
$1.3 million at December 31, 1995.
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 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 15 and 16 of the Company's
1996 Annual Report to Shareholders under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and
isincorporated 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. 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 of the property are
capitalized; and holding costs are charged to foreclosed real estate expense in
the period in which they are incurred.
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 12
and 13 of the Company's 1996 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, 1996, 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, 1996, monitored loans not disclosed as non-
accrual, 90 days past due, or restructured that were
current totaled $567,000 ($305,000 residential real estate loans, and $262,000
commercial real estate loans); monitored loans 30 days delinquent totaled
$2,442,000 ($2,101,000 residential real estate loans, $268,000 second mortgage
loans, $53,000 commercial real estate loans, and $20,000 installment loans); and
monitored loans 60 day's delinquent totaled $1,183,000 ($1,127,000 residential
real estate loans, $33,000 second mortgage loans, and $23,000 installment
loans). Please see People's Savings Financial's 1996 Annual Report under the
section Management's Discussion an Analysis of Financial Condition and Results
of Operation beginning on page 9 for further discussion.
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 12 and 13 of the Company's 1996 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.
In 1996, Bank investment purchases totaled $118,535,504. The portfolio's
Mortgage Backed sector increased to $119,544,177, or 25% of assets, from 12% in
1995 with the purchase of $80,203,000 in fixed and adjustable securities.
Mortgage Backed Securities offer yields competitive in the current bond market,
with monthly cashflows of principal and interest making them more appealing than
bonds for liquidity purposes. The current weighted average life of the
entire Mortgage Backed portfolio is 7 years. In addition, $31,516,929 of Federal
Agency bonds were purchased increasing that portfolio to 59,387,551, or 12% of
assets, proportionate in composition to 1995. A majority of the purchases
consisted of higher yielding bonds with 3 to 5 year maturities and call options.
The Bank is compensated for call options by a higher yield.
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 and 11 of the Company's
1996 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, 1996, the Bank had invested approximately $15.6 million, or 3.2%
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 had net gains from the sale of equity securities of $7,000 in 1996. The
Bank sold no equity securities during 1995. 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.
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.
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 does borrow from the Federal Home Loan Bank and may rely on
borrowings form the FHLB in the future (if available), and repurchase
agreements, 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 1996 due to customer preference and the rate structure
of the Bank's deposit products, and represent the largest component of deposits
(representing 63.6% of total deposits at December
31, 1996). 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, 1996, the aggregate
amount of savings accounts at the Bank was $105.4 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 the Bank's market
area and contiguous communities. The Bank has not solicited deposits outside
Connecticut, nor has it solicited 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 14 of the Company's 1996 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 1995 to 1996 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 1995 to 1996 was the
result of customer preference and the rate structure of deposit products. The
overall increase in average rates paid on certificates of deposit from 1995 to
1996 is consistent with CD rates in the Bank's market area.
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 14 of the Company's 1996 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, 1996, the Bank had outstanding $49.8 million in loans
from the FHLB of Boston, an increase of $30.8 million from $19.0 million
outstanding at December 31, 1995. The primary reason for the increase was
borrowing to fund investment securities purchases. 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 $233 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 $1,513,000, $1,253,000, and
$1,455,000, for the years ended December 31, 1996, 1995 and 1994, respectively.
The Bank also has repurchase agreement lines totaling $70 million, of which it
had drawn $21.5 million. The $21.5 million was drawn in order to purchase
investment securities. At December 31, 1996 the Bank had $48.5 million in unused
repurchase agreement lines with various brokers.
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 has it obtained
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 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 interstate 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, 1996, the Company and the Bank employed 139 employees, 114 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, the sale of
annuities and, ususally through a subsidiary, the sale of securities products,
making loans on residential and other real estate, making consumer 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, 1996, approximately $2,529,000 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 in certain cases, 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.
See "Competition" above for a discussion of Connecticut interstate banking
statutes.
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, 1996, the Bank's leverage ratio was
approximately 9.50%, 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 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, 1996 was 18.46%. 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 Improvement Act increased the supervisory powers of the FDIC and the other
federal regulatory agencies with regard to undercapitalized depository
institutions, and changed 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 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 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
page 17 of the Company's 1996 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, 1996, the Bank held $.2 million of listed stocks and
registered shares.
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. 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
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 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 adopting
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 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 eight banking branches located in
New Britain, Southington, Newington, Rocky Hill, Plainville, and
Meriden, Connecticut. The Bank also maintains a trust office in Middletown,
Connecticut as well as in the Lafayette Square and the Meriden branch offices.
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 N/A
New Britain, CT 06050
Farmington Avenue 553 Farmington Avenue Owned N/A
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 N/A
Rocky Hill, CT 06067
Plainville Office 275C New Britain Avenue Leased June 2004
Plainville, CT 06062
Middletown Trust 49 Main Street Leased April 1998
Office Middletown, CT 06457
Meriden Office 834 Broad Street Leased November 2000
Meriden, CT 06450
Total lease payments for all of the Bank's leased offices for 1995 amounted to
$468,211.
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.
Item 4 - Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, 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 56, 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 1996
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 1996
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 28, 1997, the Company had 1,905,863 shares of Common Stock issued
and outstanding and approximately 1,312 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
pages 46 and 47 of the Company's 1996 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.
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 1996
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 22 of the
Company's 1996 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 44 of the Company's 1996 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 46 of the
Company's 1996 Annual Report to Shareholders are incorporated by reference
herein.
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 21,
1997 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 12 through 15 of the Company's definitive Proxy
Statement under the caption "Transactions with Management and Others", and is
incorporated by reference herein.
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
1996 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 28-46
2. Financial Statement Schedules:
All Schedules not required or inapplicable have been omitted.
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.
*10.6 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).
*10.9 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 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 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).
*10.29 Employment Agreement dated November 19, 1996 between the Bank
and Richard S. Mansfield.
*10.30 Employment Agreement dated November 19, 1996 between the Bank
and John G. Medvec.
*10.31 Employment Agreement dated November 19, 1996 between the Bank
and Teresa Sasinski.
*10.32 Change of Control Agreement, dated as of November 19, 1996
between the Bank and Richard S. Mansfield.
*10.33 Change of Control Agreement, dated as of November 19, 1996
between the Bank and John G. Medvec.
*10.34 Change of Control Agreement, dated as of November 19, 1996
between the Bank and Teresa Sasinski.
11 Statement Concerning Computation of Per Share Earnings
13 Annual Report to Shareholders for the Year Ended
December 31, 1996 (previously filed)
21 Subsidiaries of the Registrant
24 Consent of Independent Accountants
25 Power of Attorney
27 Financial Data Schedule
*Management contracts or compensatory plans, contracts or
arrangements.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the fourth
quarter of 1996.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a
separate part of this report.
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 18, 1997
Richard S. Mansfield Executive Officer
(Principal Executive
Officer)
/s/ John G. Medvec Executive Vice March 18, 1997
John G. Medvec President and
Treasurer (Principal
Financial Officer
and Principal
Accounting Officer)
* Director March 18, 1997
Joseph A. Welna
* Director March 18, 1997
Robert A. Gryboski
* Director March 18, 1997
Walter J. Liss
* Director March 18, 1997
Robert A. Story
* Director March 18, 1997
Walter D. Blogoslawski
* Director March 18, 1997
Stanley P. Filewicz
* Director March 18, 1997
Roland L. LeClerc
* Director March 18, 1997
Chester S. Sledzik
* Director March 18, 1997
Henry Poplaski
* Director March 18, 1997
A. Richard Puskarz, Jr.
By /s/ John G. Medvec
John G. Medvec
Attorney-in-Fact
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.
*10.6 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).
*10.9 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 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 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).
*10.29 Employment Agreement dated November 19, 1996 between
the Bank and Richard S. Mansfield.
*10.30 Employment Agreement dated November 19, 1996 between the Bank
and John G. Medvec.
*10.31 Employment Agreement dated November 19, 1996 between the Bank
and Teresa Sasinski.
*10.32 Change of Control Agreement, dated as of
13 Annual Report