-----------------------------------
PEOPLES SAVINGS BANK AND TRUST
-----------------------------------
A New Name.
A Familiar Face.
People's Savings
Financial Corporation
1996 Annual Report
- --------------------
TABLE OF CONTENTS
- --------------------
Selected Financial Highlights.............................................. 1
To Our Shareholders........................................................ 2
Banking...Business to Business, Person to Person........................... 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
- -------------------------------
SELECTED FINANCIAL HIGHLIGHTS
- -------------------------------
(dollars in thousands, except per share data)
December 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
Financial Data At Year End:
Total Assets $482,394 $410,164 $402,089 $354,92 7 $335,396
Loans:
Mortgages Fixed-Rate, net 88,722 88,208 92,334 93,511 97,053
Mortgages Adjustable-Rate, net 128,695 116,265 104,644 93,479 92,404
Consumer and Other Loans, net 39,497 32,319 29,346 24,792 29,235
- ------------------------------------------------------------------------------------------------
Total Loans, net 256,914 236,792 226,042 211,782 218,692
Investments (including FHLB stock and 207,425 153,579 151,629 126,862 88,749
federal funds)
Deposits 358,060 339,365 321,702 299,467 283,495
Advances from FHLB 49,750 18,950 33,450 7,910 7,000
Repurchase agreements 21,500 - - - -
Capital 46,201 44,713 41,231 42,438 40,275
- ------------------------------------------------------------------------------------------------
Operating Data For the Year Ended:
Interest Income, including loan fees $ 30,521 $ 27,522 $ 25,061 $ 24,146 $ 25,366
Interest Expense 16,428 14,483 11,270 10,666 12,552
- ------------------------------------------------------------------------------------------------
Net Interest Income 14,093 13,039 13,791 13,480 12,814
Provision for Loan Losses 938 101 129 1,010 1,255
Other Income 1,256 1,235 702 1,288 878
Gains (Losses) on Sale of Securities (20) (170) 128 110 (7)
Trust Fees 1,419 1,129 191 1
Trading Account Gains (Losses) 49 (284) 579 63
Other Expenses 9,814 9,608 8,393 6,890 6,274
- ------------------------------------------------------------------------------------------------
Income before Income Taxes 5,996 5,573 6,006 7,558 6,219
Income Taxes 1,982 2,184 2,441 3,090 2,923
- ------------------------------------------------------------------------------------------------
Income before the Cumulative Effect
of Changes in Accounting Principles: $ 4,014 $ 3,389 $ 3,565 $ 4,468 $ 3,296
Cumulative Effect of Changes in
Accounting Principles:
Post-Retirement Benefits (154)
Income Taxes 438
- ------------------------------------------------------------------------------------------------
Net Income $ 4,014 $ 3,389 $ 3,565 $ 4,752 $ 3,296
- ------------------------------------------------------------------------------------------------
Per Share Data:
Net Income Per Share - Primary $ 2.05 $ 1.71 $ 1.76 $ 2.18 $ 1.60
Net Income Per Share - Fully Diluted $ 2.03 $ 1.70 $ 1.76 $ 2.18 $ 1.60
After Cumulative Effect of Changes in
Accounting Principles - Fully Diluted $ 2.03 $ 1.70 $ 1.76 $ 2.32 $ 1.60
Book Value Per Share 24.24 22.90 20.73 21.29 19.48
Cash Dividend Declared .91 .88 .88 .84 .74
- ------------------------------------------------------------------------------------------------
Selected Statistical Data:*
Return on Average Assets 0.93% 0.84% 0.92% 1.38% 1.04%
Return on Average Equity 8.91 7.84 8.38 11.48 8.42
Leverage Capital Ratio 10.18 10.33 10.27 11.78 12.01
Dividend Payout Ratio 43.22 50.69 49.28 35.61 45.95
Net Interest Rate Spread (1) 3.00 3.01 3.43 3.73 3.74
Net Interest Rate Margin (2) 3.41 3.41 3.74 4.09 4.22
- ------------------------------------------------------------------------------------------------
* 1993 information is after the cumulative effect of changes in accounting
principles.
(1) Return on average earning assets less cost of interest-bearing liabilities.
(2) Net interest income divided by average earning assets.
1
- -------------------
TO OUR SHAREHOLDERS
- -------------------
[PHOTO OF RICHARD S. MANSFIELD APPEARS HERE]
Since 1907 our Bank's name has been The People's Savings Bank of New Britain.
The name served us well because all of our branches were located in New Britain
and, through these branches, we offered deposit and residential loan services.
We now have four branches in New Britain and five others in towns throughout
central Connecticut. To reflect our expansion into surrounding communities, we
shortened our name in our marketing materials to People's Savings Bank.
In 1993 we became part of the state's $25 billion-asset personal and
institutional trust industry. Our growth has diversified our business, allowing
us to offer new trust services as well as the traditional deposit and lending
services.
Our marketing efforts of trust services were assisted by the recent mergers of
several banking institutions, creating "mega-banks" that perform their services
from impersonal, remote locations. This was our opportunity to fill the need for
community-based, person-to-person trust services.
[LOGO OF PEOPLES SAVINGS BANK & TRUST APPEARS HERE]
In 1994 People's Savings Bank purchased $176 million of trust assets of the New
Meriden Trust Company from the FDIC. The phenomenal growth in trust assets to
$385 million has made our trust operations a major part of the organization. We
felt that it was only natural to recognize "trust" in our name. Therefore, the
new name of our Bank is Peoples Savings Bank & Trust.
Net income for the year ended December 31, 1996 was $4,014,000, up $625,000 or
18% over the $3,389,000 earned in 1995. Fully diluted net income per share was
$2.03 for the year ended December 31, 1996 compared to $1.70 per share earned in
1995. Net income for 1996 includes a one-time tax refund of $304,000 or $.16 per
share. Without this tax refund, net income for 1996 would be $3,710,000, up
$321,000 or 9.5% over the $3,389,000 earned in 1995 and fully diluted net income
per share would be $1.87.
Asset quality remains good, with non-performing assets (loans 90 days or more
delinquent and foreclosed real estate), totaling $1.8 million, or .37% of total
assets as of December 31, 1996. From December 31, 1995 to December 31, 1996 non-
performing assets had increased although they are still below our peer group
averages.
The increase in non-performing assets to current levels influenced us to
increase this year's loan losses provision to $938,000 from $101,000 in 1995.
The increase was due to higher charge-offs of residential loans and our
continuing concern over declining values of collateral in certain areas of our
loan portfolio. While the timing of the charge-offs cannot be anticipated, we
were
2
disappointed -- but not surprised -- by their occurrence in the fourth quarter.
The level of the allowance and the provision for this quarter reflects
management's continuing policy of aggressively managing our loan portfolio.
Net interest income increased to $14,093,000 in 1996 from $13,039,000 in 1995, a
$1,054,000 or 8.1% increase. The net interest margin in 1996 was 3.41%,
unchanged from 1995. Return on average assets increased to .93% of assets
compared to .84% for 1995, and the return on average equity increased to 8.91%
from 7.84% for 1995.
DIVIDENDS DECLARED PER SHARE
YEARS 1992 1993 1994 1995 1996
DOLLARS $ .74 .84 .88 .88 .91
Consumer and commercial loan volume in 1996 represented a marked improvement
over 1995's level of production, boosted by better economic conditions in
Connecticut. The Bank's loan production in 1996 was up 35% to $68.9 million from
$51.2 million in 1995, despite increased competition from other banks and
mortgage companies. These results show that PSB&T can compete effectively within
our market. Our growth has been, and will continue to be, based on a strong
referral network and our customers' desire to do business with a knowledgeable,
professional and competitive community bank.
BOOK VALUE PER SHARE
YEAR 1992 1993 1994 1995 1995
DOLLARS 19.48 21.29 20.73 22.90 24.24
Our focus over the next several years will be to provide the banking services of
the future. PSB&T is implementing new technology to allow the computerized
banking services that a growing sector of our customer base demands, while still
offering the person-to-person service on which our reputation was built. We
also have added the convenience of a home page on the Internet, from which our
current and future customers can receive information about our services and
products.
More important than the investment we make in new technology is the investment
we make in our employees. They are our first line of customer contact, and they
are the people who make the lasting impression on all customers. To many of our
customers, these employees are the bank. On-going training programs give our
employees the knowledge and information they need to serve our customers more
efficiently.
As Peoples Savings Bank & Trust continues to grow and prosper, we are committed
to serving our local communities with the same personal and quality service as
we have since we opened our doors in 1907. We are grateful to our employees,
officers and directors who share the vision of our Bank, and to our shareholders
whose continued investment is deeply appreciated.
[PHOTO OF PEOPLE'S SAVINGS FINANCIAL CORP. OFFICERS APPEARS HERE]
Sincerely,
/s/ Richard S. Mansfield
Richard S. Mansfield
President and Chief Executive Officer
3
BANKING... BUSINESS TO BUSINESS, PERSON TO PERSON
[FOUR-COLOR GRAPHICS APPEAR HERE]
Behind the
scenes and on
the front lines,
our friendly and
knowledgeable
staff works as a
customer service
team, always
looking for new
ways to help
you.
A NEW NAME, A FAMILIAR FACE
The current environment for banking is anything but timeless. What we are seeing
today in the industry is a rapid and dramatic change; the friendly bank teller
is being replaced by the ATM; the helpful voice at the end of the bank's
telephone line now comes from a computer. The convenient neighborhood branch is
vanishing and familiar banks are disappearing, merging into larger and
unfamiliar institutions. Banking customers are receiving less of the personal
touch, and realize that their formerly free services are now available only for
a fee.
A generation ago, most people relied on a single bank for all their financial
products; today, customers often maintain accounts in several banks. Bankers are
being challenged to win new customers who demand the ultimate in convenience,
while serving the more traditional -- and often profitable -- customer segment
that thrives on face-to-face, personal interaction.
The strategy at Peoples Savings Bank & Trust is to concentrate on small
businesses and retail customers who are turned off by the impersonal and
bureaucratic nature of the larger banks. We feel we are big enough to meet your
business needs, yet small enough to offer personal service. And although the
name on our building has changed to reflect our expanding services and
technologies, our commitment to that personal touch remains as strong as our
history.
BRANCHING OUT TO SERVE OUR CUSTOMERS
We also have made a commitment to the communities we serve, and we are working
hard to earn your approval. Our branch offices and the people who work in them
are the pillars of our success.
[4/C PHOTOSHOP IMAGE APPEARS HERE]
Joyce Petrisko, Marketing Manager, keeps the public informed about products the
Bank offers. Joyce, a New Britain native, firmly believes that a "volunteer can
make a difference," and she has proven this time and time again. Her volunteer
efforts have reached nearly every corner of her community, from the YWCA to the
Main Street USA Committee and Dozynki Polish Harvest Festival to the March of
Dimes Walk America and the Retired Senior and Volunteer Program (RSVP).
5
[4/C PHOTOSHOP IMAGE APPEARS HERE]
Gerry Valuk introduces new tellers to our customers service standards - creating
a welcoming environment and responding to individual customer needs. Enhancing
interpersonal skills, as well as understanding our products and services, is an
integral part of employee development as we strive to create a professional
caring and competent staff:
In April, 1996 we opened our ninth full service branch office in central
Connecticut. Along with the new Meriden branch office, PSB&T has four locations
in New Britain and one each in Southington, Rocky Hill, Newington and
Plainville. Our successful expansion efforts are the result of a thorough
evaluation of each potential location and how the Bank can best serve the
community.
Personalized service is the key to our success and your satisfaction. Our
dedicated staff works as a customer services team, always looking for new ways
to help you. With each transaction, our employees strive to earn your trust and
offer the highest possible level of service. Continuous training in current
banking developments, new products and improved customer service gives our
employees the ability to assist our customers in the Bank's full range of
products and services.
Although you may not be able to see them, our "behind the scenes" staff is as
dedicated to serving your needs as the teller or branch manager. Our staff in
the checking department supports all aspects of our checking services, such as
check clearing, automatic payments, third party payments, phone transfers and
ATM transactions. In our loan/mortgage department, our staff provides a myraid
of services to our borrowing customers. The accounting department maintains
strict control over the Bank's daily cash flows, including investments, bill
paying and general money management, wire transfers, safe deposit billing and
savings bonds. The accounting department ensures that your wire transfers and
savings bond purchases are promptly and accurately placed through the Federal
Reserve System.
We believe the investment we make in our employees is also an investment in the
Bank's future.
6
THE FUTURE IS TODAY AT PSB&T
As fast as the banking industry is changing, our customer's needs are changing
even faster PSB&T is striving to keep pace with those needs by offering several
advanced service features for today's busy lifestyle.
Pick up your touch-tone phone and do your banking from anywhere. With PSB&T
24Hour Telebanking, customers can transfer funds, make loan payments, and obtain
account balances any time of the day or night with complete security and
privacy. Soon we will provide our customers the opportunity to also pay bills
by phone.
While on your next Internet web surfing excursion, check out our new home page
at www.psbnet.com. We are excited to be able to provide this web site as a
resource center for our current and future customers. Site features include
current mortgage rates, deposit rates, loan and trust information, and general
information on the Bank's services.
THE TRUST DEPARTMENT -- AT YOUR SERVICE
During 1996, the PSB&T trust department continued to benefit from the
Connecticut banking climate. As larger bank mergers were announced and offices
consolidated, our trust department perserved in its efforts to invite those
customers who felt disenfranchised to look at our ability to provide local,
face-to-face trust services. Those dedicated efforts helped our trust assets
grow to more than $384,780,000 from $310,121,000 at year end 1995, an increase
in excess of 24.07% over last year.
The trust department believes that the concept of trust is best achieved when
the customer is able to meet frequently and personally with our officers,
Nameless,
[4/C PHOTOSHOP IMAGE APPEARS HERE]
We're on the Web! Current and future customers may access the Bank's mortgage
rates; deposit rates, loan information and trust services through our home pages
on the World Wide Web: Find us at www.psbnet.com:
7
[4/C PHOTOSHOP IMAGE APPEARS HERE]
Along with the other members of the trust department team, Dan Hurley, Senior
V.P and Inna Sulewski, V.P. and Trust Operations Officer, are well versed in all
aspects of trust operations and are ready to provide quality, expert service to
any Bank customer.
faceless out-of-state trust committees are unable to provide the level of
personal service required and expected by trust customers.
Meetings may be held at one of our trust offices, a branch office, the attorney
or other advisors office, or at the customer's workplace or residence -- and
always at the customers' convenience. All of our trust officers have the ability
to respond to customer needs and questions, and are empowered to make those
decisions necessary for the administration of trust accounts.
Our trust department has expended its capabilities to deliver quality service.
Each of PSB&T trust offices, located in New Britain, Meriden and Middletown, are
staffed with seasoned officers, well known and respected in their communities.
These three officers, as well as our joint venture with Glastonbury Bank &
Trust, will provide a level of service and expertise that is all too rare in
other banks.
The Bank's trust department has $385 million in assets under management, making
it the second largest trust operation conducted by a savings bank in the State
of Connecticut. Some of our trust services include:
. Trustee Under Agreement
. Trustee Under Will
. Investment Management Agency
. Custody
. Escrow Services
. Employee Benefit Services
. Charitable Accounts
. Estate Planning & Settlement
8
- ---------------------------------------------------------------------------
MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ---------------------------------------------------------------------------
GENERAL
People's Savings Financial Corp., New Britain (the "Corporation") created in
1989, is the parent company of Peoples Savings Bank & Trust (the "Bank"), a
state savings bank chartered in 1907 as The People's Savings Bank of New
Britain, and converted to a stock savings bank in 1986. The Bank changed its
name in November 1996 to Peoples Savings Bank & Trust for marketing purposes.
The Corporation's assets on December 31, 1996 were $482,394,000.
Peoples Savings Bank & Trust provides a variety of services to the communities
located in the central Connecticut region. We offer a diversified product line
including: residential, consumer and commercial loans, a variety of deposit
products, investment brokerage services and full trust services. In April 1996,
the Bank opened a full service branch in Meriden, CT.
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 in general increased
during the first two quarters of 1996 and then decreased slightly during the
last two quarters. This resulted in a steepening of the yield curve. On
January 1, 1996 the difference between the 120 day treasury bill and the 30 year
treasury bond was 78 basis points; on December 31, 1996 it was 145 basis points.
A steeper yield curve can be beneficial to Bank's net interest spread.
Net interest income increased to $14,093,000 in 1996 from $13,039,000 in 1995, a
$1,054,000 or 8.1% increase. During 1996 the average yield on earning assets
increased from 7.15% in 1995 to 7.34% in 1996. The average cost of funds also
increased in 1996 from 4.13% to 4.34% in 1996. The net interest rate spread
decreased slightly in 1996 to 3.00% from 3.02%, while the net interest margin
remained at the 1995 level of 3.41%. The increased net interest income can be
attributed to an increase in Bank borrowing from the Federal Home Loan Bank,
through repurchase agreements, and purchasing a variety of investments with
those funds. The increase in the Bank's average cost of funds is partially due
to interest rates on the borrowed funds being higher than our average cost of
deposits.
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 other
services offered by the Bank. Trust fees increased to $1,419,000 or 25.7% over
the $1,129,000 earned last year. Other fees increased to $1,302,000 or 8.0%
over the $1,205,000 in 1995.
The profitability and financial condition of the Corporation are affected by
general economic conditions. Economic conditions in central Connecticut lagged
behind the slight rebound of economic activity that was experienced in other
sections of the state. Connecticut as a whole hasn't fully recovered from the
late 1980's, early 1990's recession. The general economic effect of this is
constrained personal income growth, tightened consumer spending decreasing
property values and higher delinquency rates. Delinquency prior to 1996 drifted
downward and bottomed out December 31, 1995. Since then they have increased due
increased unemployment and personal bankruptcies in our market area.
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.
9
- ---------------------------------------------------------------------------
MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ---------------------------------------------------------------------------
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.
INVESTMENT PORTFOLIO
Investment securities increased by $70,591,000, or 54.5% to $200,180,000 on
December 31, 1996 from $129,589,000 on December 31, 1995. The available-for-sale
portfolio increased by $80,539,000 or 88.4% to $171,667,000 from $91,128,000 in
1995. Assets totaling $119,085,000 were purchased for the available-for-sale
portfolio and sales and maturities totaled $38,867,000 during 1996. The Bank
has increased the available-for-sale portfolio to be able to have more
flexibility in managing the investments in the portfolio. The held-to-maturity
portfolio decreased by $9,948,000 or 25.9%. The decrease in the held-to-maturity
category consisted primarily of maturities and principal repayments of
$9,878,000.
There is little credit risk associated with both portfolios since 88% 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
December 31,
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Available-for-Sale (At Market):
United States Government and Agency Obligations $ 55,389 $ 44,552 $ 39,562
Connecticut State Taxable Obligations - 1,251 1,237
Mortgage-Backed Securities 95,029 21,523 4,714
Other Bonds, Notes and Debentures 5,650 8,227 11,241
Marketable Equity Securities and Mutual Funds 15,044 15,046 5,393
Short-Term Mutual Funds 555 529 491
- -----------------------------------------------------------------------------------------------------
Total Investments Available-for-Sale $171,667 $ 91,128 $ 62,638
- -----------------------------------------------------------------------------------------------------
Investment Held-for-Trading (At Market):
Trading Account $ - $ - $ 5,461
- -----------------------------------------------------------------------------------------------------
Held-to-Maturity (At Cost):
United States Government and Agency Obligations $ 3,998 $ 9,994 $ 28,378
Mortgage-Backed Securities 24,515 28,467 42,984
- -----------------------------------------------------------------------------------------------------
Total Investments Held-to-Maturity $ 28,513 $ 38,461 $ 71,362
- -----------------------------------------------------------------------------------------------------
Total Investment Securities $200,180 $129,589 $139,461
- -----------------------------------------------------------------------------------------------------
Investments as a Percent of Assets 41.50% 31.59% 34.68%
- -----------------------------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------
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, 1996 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):
(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
- ----------------------------------------------------------------------------------------------------------------------------------
Available-for-Sale (At Market):
United States Government and Agency Obligations $50,449 6.34% $4,940 6.81%
Mortgage-Backed Securities 4,548 6.08 7,486 7.19 $ 82,995(a) 7.31%
Other Bonds, Notes and Debentures 5,650 6.45
Marketable Equity Securities and Mutual Funds $15,044 10.28%
Short-Term Mutual Funds 555 5.56
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments Available-for-sale $15,599 $60,647 $12,426 $ 82,995
- ----------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity (At Cost):
United States Government and Agency Obligations $ 1,000 6.62% $ 2,998 6.10%
Mortgage-Backed Securities 6,226 5.99 $ 18,289(b) 6.40%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments Held-to-Maturity $ 1,000 $ 9,224 $ 18,289
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments $16,599 $69,871 $12,426 $101,284
- ----------------------------------------------------------------------------------------------------------------------------------
(a) The current estimated weighted average life of these mortgage-backed
securities is 8.57 years.
(b) The current estimated weighted average life of these mortgage-backed
securities is 4.54 years.
Loan Portfolio
Gross loans, including loans held for sale, increased by $20,191,000, or 8.4%,
to $259,975,000 on December 31, 1996 up from $239,784,000 on December 31, 1995.
The net increase in loans at the end of the year was accomplished through an
increase in loan originations of $17,769,000 to $68,975,000 an increase of
34.7% from the $51,206,000 originated in 1995, and also advances taken on lines
of credit extended prior to 1996. Mortgage loan and commercial mortgage loan
originations in 1996 were $50,133,000, up 41.9% from the $35,338,000 originated
in 1995. During the same period, installment loans to consumers, including
credit cards and commercial loans, increased by 18.7% to $18,842,000 from
$15,868,000 in 1995.
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 50.0% 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:
December 31,
- ------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
Real Estate Mortgage (1-4 Family) $201,923 $192,434 $187,914 $179,727 $180,634
Real Estate Construction 7,499 3,933 3,110 2,247 3,205
Real Estate Multifamily (5 or more units) 3,574 3,856 3,899 3,676 4,024
Real Estate Commercial 8,029 5,937 4,177 3,936 4,117
Installment Loans to Individuals 35,702 30,832 28,955 24,656 29,033
Credit Cards 1,218 1,346 486
Commercial Loans 888 519 329 433 576
- ------------------------------------------------------------------------------------------
Total Loans $258,833 $238,857 $228,870 $214,675 $221,589
==========================================================================================
11
- --------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------
The majority of mortgage loans that were originated in 1996 were adjustable rate
mortgages which are normally held by the Bank and not sold. During 1996, the
Bank sold $4,134,000 of fixed rate loans, an increase of 27.0% from the
$3,256,000 sold in 1995. 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 with a goal of building a conservative,
high quality commercial loan portfolio.
The following table shows the maturity of loans (excluding real estate mortgage
loans and installment loans to individuals) outstanding as of December 31, 1996.
Also provided are the amounts due after one year, classified according to the
sensitivity to changes in interest rates:
Maturing
--------------------------------------
Within After One but After
(dollars in thousands) One Year Within Five Years Five Years Total
- ----------------------------------------------------------------------------------------
Real Estate Construction $6,603 $ 786 $110 $7,499
Commercial Loans 123 596 169 888
- ----------------------------------------------------------------------------------------
Total $6,726 $1,382 $279 $8,387
========================================================================================
Loans Maturing After One Year With:
Fixed Interest Rates $ 774
Variable Interest Rates 608 $279
- ----------------------------------------------------------------------------------------
Total $1,382 $279
========================================================================================
At December 31, 1996 all loans past due 90 days were treated as non accrual
loans. Total non-performing loans and foreclosed real estate aggregated
$1,772,000 or .37% of total assets up from the $899,000 or .22% of total assets
on December 31, 1995.
The Bank has four restructured loans totaling $686,000. Interest and principal
payments on these loans are current. Interest income that would have been
recorded in the year ended December 31, 1996 on non accrual loans under the
original terms was $124,168. Interest income actually recorded on these loans in
1996 was $74,505. 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.
Non-performing assets increased to $1,772,000 at December 31, 1996, up from
$899,000 at December 31, 1995, but lower than non-performing asset levels of
$1,928,000, $3,173,000, and $4,696,000 at December 31, 1994, 1993, and 1992,
respectively. Non-performing assets at the end of 1995 were at the lowest
levels since the 1980's. The allowance for loan losses has been maintained at a
level to absorb potential charge-offs. During 1996 charge-offs increased due to
higher levels of bankruptcies and our continuing concern over declining values
of collateral in certain areas of the Bank's loan portfolio. The provision for
loan losses was increased in 1996, due to higher levels of non-performing loans
and the increase in charge offs, to keep the allowance for loan losses at a
level determined to be adequate to absorb future potential charge-offs.
12
- --------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------
Allowance for Loan Losses and Summary of Loan Loss Experience
Year ended December 31,
- --------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
Balance at Beginning of Period $1,578 $1,791 $2,223 $1,945 $1,164
Charge Offs:
Real Estate Mortgage Loans 515 209 524 384 295
Real Estate Construction Loans
Commercial Real Estate Loans 245 70 56 125
Installment Loans to Individuals 146 59 119 337 116
Credit Cards 92 18
- --------------------------------------------------------------------------------------
Total Charge Offs 998 356 643 777 536
- --------------------------------------------------------------------------------------
Recoveries:
Real Estate Mortgage Loans 36 37 7 7
Real Estate Construction Loans 5
Commercial Real Estate Loans 2 37
Installment Loans to Individuals 3 5 75 45 13
Credit Cards 18
- --------------------------------------------------------------------------------------
Total Recoveries 59 42 82 45 62
- --------------------------------------------------------------------------------------
Net Charge Offs 939 314 561 732 474
Provision for Loan Losses 938 101 129 1,010 1,255
- --------------------------------------------------------------------------------------
Balance at End of Period $1,577 $1,578 $1,791 $2,223 $1,945
==================================================================================== -
Ratio of Net Charge Offs During Period 0.38% 0.13% 0.26% 0.32% 0.20%
to Average Loans Outstanding
====================================================================================
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, 1996, monitored loans not
disclosed as non accrual, 90 days past due, or restructured that were current
totaled $567,000 and monitored loans 30 days delinquent totaled $2,442,000, and
60 days delinquent totaled $1,183,000.
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,
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Non accruing Loans $1,549 $ 721 $ 1,300 $2,376 $ 3,666
Foreclosed Real Estate 223 178 628 797 1,030
- --------------------------------------------------------------------------------
Total $1,772 $ 899 $ 1,928 $3,173 $ 4,696
================================================================================
The following table illustrates the allocation of allowance for loan losses to
the appropriate loan category:
(dollars in thousands) December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans
Amount Total Amount Total Amount Total Amount Total Amount Total
Loans Loans Loans Loans Loans
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate
Mortgage Loans $ 555 79.40% $ 511 82.17% $ 661 83.41% $ 623 85.23% $ 535 83.33%
Installment Loans
to Individuals 185 13.92 175 12.91 250 13.24 400 11.64 360 13.10
Real Estate
Construction
Loans 110 2.81 100 1.65 135 1.36 125 1.06 125 1.45
Commercial Real
Estate Loans 350 3.10 340 2.49 320 1.83 500 1.86 450 1.86
Commercial Loans 85 0.30 80 0.22 75 0.16 75 0.21 75 0.26
Credit Cards 42 .47 22 .56
Unallocated 250 N/A 350 n/a 350 n/a 500 n/a 400 n/a
- -----------------------------------------------------------------------------------------------------------------------------------
Total Allowance for Loan
Losses $1,577 100.00% $1,578 100.00% $1,791 100.00% $2,223 100.00% $1,945 100.00%
===================================================================================================================================
13
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
DEPOSITS AND BORROWINGS
Deposits increased by $18,695,000 or 5.5% to $358,060,000 on December 31, 1996
from $339,365,000 on December 31, 1995. The Bank increased FHLB borrowings by
$30,800,000 during 1996. The balance of FHLB borrowings at December 31, 1996 was
$49,750,000 compared to $18,950,000 on December 31, 1995. The Bank also entered
into repurchase agreements totaling $21,500,000 at December 31, 1996.
The average daily amount of deposits and rates paid on such deposits for the
past three years are summarized in the following table:
Deposits
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
AMOUNT RATE Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
Noninterest-bearing Demand Deposits $ 6,535 $ 5,021 $ 3,761
Interest-bearing Demand Deposits 11,373 1.35% 10,769 1.80% 10,029 1.82%
Money Market Deposit Accounts 4,540 2.25 3,907 2.25 4,186 2.27
Savings Deposits 108,988 2.02 114,556 2.02 131,429 2.04
Time Deposits 218,044 5.46 197,309 5.36 160,704 4.23
- -----------------------------------------------------------------------------------------------------------------
Total $349,480 $331,562 $310,109
=================================================================================================================
Maturities of time certificates of deposits in amounts of $100,000 or more
outstanding at December 31, 1996 are summarized as follows:
(dollars in thousands) Time Certificates of Deposit
- --------------------------------------------------------------------------------
3 months or less $ 5,668
Over 3 through 6 months 4,099
Over 6 through 12 months 6,249
Over 12 months 9,193
- --------------------------------------------------------------------------------
Total $25,209
================================================================================
ASSET/LIABILITY AND LIQUIDITY MANAGEMENT
The purpose of asset/liability management is profit management. We do not
believe it is possible to reliably predict interest rates and therefore our
policies and procedures for asset/liability management are to manage the Bank's
interest rate risk within certain parameters and to provide adequate earnings in
all plausible future interest rate environments. The Bank also recognizes the
importance of liquidity/funds management in effectively managing its balance
sheet and related earnings stream.
The primary objective of the Bank's asset/liability management process is to
maximize earnings and return on capital within the following acceptable levels
of risk:
Interest Rate Risk (IRR)-impact on earnings from potential short and long term
changes in interest rates.
Liquidity-sufficiency of funds available to respond to the needs of depositors
and borrowers; and to access unanticipated earning enhancement opportunities.
Capital-adequacy relative to regulatory and internal guidelines as well as
impact on asset size and resultant earnings capacity.
Credit-implications of asset mix on risk-based capital; and asset quality on
ability to leverage the Bank's capital.
14
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
During 1996 the Bank engaged a consultant to assist management in
asset/liability and liquidity management. The Bank now utilizes several methods
to measure interest rate risk. Prior to 1996, the Bank relied heavily on the
GAP (interest rate sensitivity) report to measure interest rate risk. The GAP
report is still utilized but less importance is placed on it as a measurement of
interest rate sensitivity. The Bank now relies more heavily on a dynamic
simulation model that measures interest rate risk based on three different
interest rate scenarios; rates rising 200 basis points, a flat interest rate
scenario and rates falling 200 basis points. The Bank also uses a static GAP
matrix report to demonstrate how investments are matched to liabilities.
The GAP report on xx page shows that the Bank is liability sensitivity in the 0-
3 year time horizon. This means that in a rising interest rate environment, net
interest income would decrease and in a falling interest rate environment net
interest income will increase. This is measured with managements estimate that
12% of regular savings is interest rate sensitive and split equally into the
"within 0-180 days" category and the "within 181 to 365 day category, the
remainder of the regular savings balance has been included in the "within 1-3
year" category. Contrary to the GAP report, the simulation model shows a slight
decrease in net interest income if there is a 200 basis point increase or
decrease to interest rates. The simulation model shows a slight decrease in net
interest income if there is a 200 basis point increase or decrease to interest
rates. The simulation model takes into account that if interest rates fell 200
basis points, mortgages would prepay at a faster rate and call-able bonds would
be called and both would be reinvested at lower rates while certificates of
deposits would stay at the same rate until they mature sometime in the future.
The GAP report does not take this into account.
The following table sets forth certain information at December 31, 1996
regarding the rate sensitivity of the Corporation's earning assets and sources
of funds:
Interest Rate Sensitivity
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
0-180 181-365 1-3 3-5
(dollars in thousands) Days Days Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Subject to Interest Rate Adjustment:
Short Term Investments $ 4,509
Investment Securities (at cost) 38,319 $ 9,541 $ 30,131 $ 37,258
Adjustable Rate Mortgages (a) 39,921 36,247 14,483 10,953
Fixed Rate Mortgages 4,125 3,122 4,817 4,691
Installment and Commercial Loans 10,889 1,780 5,610 5,265
Loans Held for Sale 1,143
Estimated Principal payments Mortgage Backed Securities 1,418 1,418
- ------------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Assets $ 100,324 $ 52,108 $ 55,041 $ 58,167
====================================================================================================================================
Liabilities Subject to Interest Rate Adjustment:
Interest Bearing NOW $ 12,244
Regular Savings * 5,989 5,989 87,841
Money Market Passbook 5,560
Money Market Deposits 4,331
Time Certificates of Deposits 123,539 $ 60,006 $ 28,026 $ 16,234
Advances from FHLB 27,900 4,500 13,700 3,500
Repurchase agreements 1,500 5,500 14,500
- ------------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Liabilities $ 181,063 $ 75,995 $ 144,067 $ 19,734
====================================================================================================================================
INCLUDING REGULAR SAVINGS:
Excess (deficiency) of Rate Sensitive Assets over
Rate Sensitive Liabilities ($80,739) ($23,887) ($89,026) $ 38,433
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) ($80,739) ($104,626) ($193,652) ($155,219)
====================================================================================================================================
Cumulative Rate Sensitive Assets as a percentage of
Cumulative Rate Sensitive Liabilities 55.4% 59.3% 51.7% 63.1%
Cumulative excess (deficiency) as a percentage of Total Assets (16.7%) (21.7%) (40.1%) (32.2%)
====================================================================================================================================
December 31, 1996
- ---------------------------------------------------------------------------------------------------------
After
(dollars in thousands) Five Years Total
- ---------------------------------------------------------------------------------------------------------
Assets Subject to Interest Rate Adjustment:
Short Term Investments $ 4,509
Investment Securities (at cost) $ 83,817 199,066
Adjustable Rate Mortgages (a) 27,908 129,512
Fixed Rate Mortgages 72,551 89,306
Installment and Commercial Loans 16,471 40,015
Loans Held for Sale 1,143
Estimated Principal payments Mortgage Backed Securities 2,836
- ---------------------------------------------------------------------------------------------------------
Total Rate Sensitive Assets $200,747 $466,387
=========================================================================================================
Liabilities Subject to Interest Rate Adjustment:
Interest Bearing NOW $ 12,244
Regular Savings * 99,819
Money Market Passbook 5,560
Money Market Deposits 4,331
Time Certificates of Deposits 227,805
Advances from FHLB $ 150 49,750
Repurchase agreements 21,500
- ---------------------------------------------------------------------------------------------------------
Total Rate Sensitive Liabilities $ 150 $421,009
=========================================================================================================
INCLUDING REGULAR SAVINGS:
Excess (deficiency) of Rate Sensitive Assets over
Rate Sensitive Liabilities $200,597 $ 45,378
- ---------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $ 45,378
=========================================================================================================
Cumulative Rate Sensitive Assets as a percentage of
Cumulative Rate Sensitive Liabilities 110.8%
Cumulative excess (deficiency) as a percentage of Total Assets 9.4%
=========================================================================================================
15
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
Interest Rate Sensitivity (Continued)
December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
0-180 181-365 1-3
(dollars in thousands) Days Days Years
- --------------------------------------------------------------------------------------------------------------------------
EXCLUDING REGULAR SAVINGS:
Excess (deficiency) of Rate Sensitive Assets over
Rate Sensitive Liabilities ($74,750) ($17,898) ($1,185) $ 38,433
- --------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) ($74,750) $ (92,648) ($93,833) ($55,400)
==========================================================================================================================
Cumulative Rate Sensitive Assets as a percentage
of Cumulative Rate Sensitive Liabilities 57.3% 62.2% 68.9% 82.8%
Cumulative excess (deficiency) as a percentage of Total Assets (15.5%) (19.2%) (19.5%) (11.5%)
==========================================================================================================================
December 31, 1996
- ---------------------------------------------------------------------------------------------------------
After
(dollars in thousands) Five Years Total
- ---------------------------------------------------------------------------------------------------------
EXCLUDING REGULAR SAVINGS:
Excess (deficiency) of Rate Sensitive Assets over
Rate Sensitive Liabilities $200,597 $145,197
- ---------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $145,197
=========================================================================================================
Cumulative Rate Sensitive Assets as a percentage
of Cumulative Rate Sensitive Liabilities 145.2%
Cumulative excess (deficiency) as a percentage of Total Assets 30.1%
=========================================================================================================
(a) Based on actual maturities.
(b) Included with adjustable rate mortgages are loans that are fixed for a
period of 3, 5, 7, and 10 years, and then after the fixed period, convert
to a one year adjustable mortgage.
(c) 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. Therefore management has estimated that
12% of regular savings is interest rate sensitive and split equally into
the "within 0-180 days" category and the "within 181 to 365 day category,
the remainder of the regular savings balance has been included in the
"within 1-3 year" category. The GAP analysis reflects a static analysis of
interest rate sensitivity which may not reflect the true movement of
interest rates.
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, 1996
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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management is the Bank's ability to raise cash when it needs it at a
reasonable cost and with a minimum of loss. Given the uncertain nature of our
customers' demands as well as the Bank's desire to take advantage of earnings
enhancement opportunities, the Bank must have available adequate sources of on
and off balance sheet funds that can be acquired in time of need. Accordingly,
in addition to the liquidity provided by balance sheet cash-flows, liquidity
must be supplemented with additional sources such as credit lines with the
Federal Home Loan Bank (FHLB). Other funding alternatives are available and
appropriate for use by the Bank from time to time, including: wholesale and
retail repurchase agreements; brokered certificates of deposits; and large
certificates of deposits.
As of December 31, 1996 the Bank borrowed $49,750,000 from the FHLB and has
sufficient qualified collateral to borrow an additional $233,470,000 from the
FHLB. The Bank also has repurchase agreement lines with various brokers
totaling $70,000,000. If the Bank drew $70,000,000 on its repurchase agreement
lines then it would only be able to borrow $163,470,000 from the FHLB, since it
used that portion of collateral as collateral for the repurchase agreement. As
of December 31, 1996 the Bank used $21,500,000 of the repurchase agreements and
has an additional $48,500,000 available to borrow. Total immediate credit lines
available to the Bank at year end were $8,042,000. The Bank's method of
measuring liquidity is called the Basic Surplus/Deficit method. This method
takes into account liquid assets, investment maturities and the total amount
that can be raised by pledging
16
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDIOION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
investments and obtaining FHLB borrowings less short-term liabilities. On
December 31, 1996 the Basic Surplus amounted to $137,380,000 or 28.5% of assets.
CAPITAL
During 1996 the total dividends paid to shareholders was $1,726,000, as compared
to $1,727,000 paid in 1995. The per share annual dividend was $.91 in 1996 and
$.88 in 1995. Funds were also used to purchase 77,500 shares or $1,589,000 of
the Corporation's common stock. Funds amounting to $337,000, including tax
benefits, were received on the exercise by Officers and Directors of 31,000
stock options.
Stockholders' equity and book value per share were $46,201,000 and $24.24
respectively, at December 31, 1996. The increase in equity and book value was
due to the net income of $4,014,000 in 1996 and an increase in net unrealized
holding gains on securities available-for-sale, net of taxes of $460,000 from a
gain of $196,000 at December 31, 1995, to a gain of $656,000 at December 31,
1996. The increase was partially offset by dividends declared of $1,735,000.
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, 1996 all of the Bank's capital ratios exceeded minimum regulatory
capital requirements and places it as "well capitalized", the highest rating of
five regularity 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) 1996 1995
- ------------------------------------------------------------------------------------
Bank's capital components:
Tier 1 capital (Stockholders' equity) $40,928 $37,279
Tier 2 capital (Allowance for loan losses) 1,577 1,578
- ------------------------------------------------------------------------------------
Bank's total risk-based capital $42,505 $38,857
Bank's capital ratios:
Total risk-based 18.46% 18.38%
Tier 1 risk-based 17.78% 17.63%
Tier 1 leverage 9.50% 9.35%
====================================================================================
Corporation's capital components:
Tier 1 capital (Stockholders' equity) $42,539 $41,217
Tier 2 capital (Allowance for loan losses) 1,577 1,578
- ------------------------------------------------------------------------------------
Corporation's total risk-based capital $44,116 $42,795
Corporation's capital ratios:
Total risk-based 19.16% 20.24%
Tier 1 risk-based 18.47% 19.49%
Tier 1 leverage 9.88% 10.33%
====================================================================================
Impact of Inflation and Other Items
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
17
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
industrial companies, the majority 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 loan
charge-offs and losses on real estate acquired. Inflation, or disinflation,
could continue to significantly affect the Corporation's earnings in future
periods.
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The Bank will be required
to adopt SFAS 125 for transfers and servicing of financial assets and
extinguishment of liabilites ocurring after December 31, 1996, on a prospective
basis. The adoption of this standard is not expected to have a material impact
on the Bank's financial condition or its results of operations.
As the year 2000 approaches, a critical issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. In brief, many existing application software products in the marketplace
were designed to only accommodate a two digit date position which represents the
year (e.g., '95' is stored on the system and represents the year 1995). As a
result, the year 1999 (i.e. '99') could be the maximum date value these systems
will be able to accurately process. Management is in the process of working with
its software vendors to assure that the Bank is prepared for the year 2000.
Management does not anticipate that the Corporation will incur operating
expenses or be required to invest heavily in computer system improvements to be
year 2000 compliant.
Results of Operations
Comparison of years ended December 31 1996 and 1995.
NET INCOME: Net income increased by $625,000 or 18.4% to $4,014,000 for the year
ended December 31, 1996 from $3,389,000 in 1995. The increase for 1996 was
primarily attributable to an increase in net interest income, increased total
other income (primarily increased trust fees), and a state tax refund on prior
taxes paid. These increases were partially offset by an increase in the
provision for loan losses and increases in operating expenses primarily related
to the Corporation's expansion of products and branches.
INTEREST INCOME: Interest income for the year ended December 31, 1996 was
$30,521,000, an increase of $2,999,000 from the $27,522,000 for the same period
in 1995. The increase in interest income can be attributed to an increase in
average earning assets of $31,415,000 to $418,269,000 from $386,854,000 in 1995,
and an increase in the yield on earning assets of 19 basis points in 1996 to
7.34% from 7.15% in 1995. The majority of the increase in interest income was
from the investment portfolio. The increase in the volume of investments
increased interest income by $1,030,000 and the increase in yield on investments
increased interest income by $812,000. The increase in the volume of loans
increased interest income by $1,245,000. These increases are consistent with
changes in the Bank's balance sheet and increased longer term interest rates
from a year ago. During 1996, the Bank took advantage of investment
opportunities in the market place and entered into four investment arbitrages.
In accordance with the Bank's investment objectives, high quality Mortgage
Backed Securities were selected as the investment vehicle and to utilize its
capital more efficiently, the Bank leveraged it's position through a series of
borrowings and repurchase agreements. The initial transaction occurred in June
1996 with purchases totaling $20,170,734 with an estimated yield of 7.86% funded
by borrowings and repurchase agreements of varied terms totaling $20,070,000 at
a cost of 6.31%, for a net interest spread of 155 basis points. In August 1996,
the Bank invested a total of $20,448,552 with an estimated yield of 7.09% funded
18
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
by borrowings and repurchase agreements of varied terms totaling $20,070,000 at
a cost of 6.31%, for a net interest spread of 155 basis points. In August 1996,
the Bank invested a total of $20,448,552 with an estimated yield of 7.09% funded
by borrowings and repurchase agreements totaling $20,000,000 at a cost of 5.69%,
for a net interest spread of 140 basis points. The final two arbitrages took
place in November 1996. Bank purchases totaled $20,622,374 with an estimated
yield of 6.99% funded by borrowings and repurchase agreements totaling
$20,200,000 at a cost of 5.53%, for a net interest spread of 146 basis points.
The total growth of the investment portfolio for all combined strategies was
$61,241,660 with a weighted average life of 5.87 years, based on a constant
prepayment rate of 13.33. These investments were financed by borrowings and
repurchase agreements of varied terms totaling $60,270,000 with a weighted
average maturity of 15.2 months. The initial estimated annualized pretax profit
of the combined transactions is $887,660.
The following table summarizes the components of the Corporation's net interest
income, net interest rate spread, and net interest rate margin:
Yield and Rate/Volume Analysis
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE Average Average
(dollars in thousands) BALANCE INTEREST YIELD/RATE Balance Interest Yield/Rate Balance Interest Yield/Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning Assets
Loans(1,2) $249,576 $19,557 7.84% $233,684 $18,297 7.83% $219,909 $16,297 7.41%
Investment Securities(5) 159,577 10,479 6.68 143,298 8,637 6.14 145,700 8,480 5.88
Other Interest-earning 9,116 485 5.32 9,872 588 5.96 5,515 284 5.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets(5) $418,269 $30,521 7.34% $386,854 $27,522 7.15% $371,124 $25,061 6.78%
Noninterest-earning Assets 15,425 15,358 14,377
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $433,694 $402,212 $385,501
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders'
Equity
Interest-bearing Liabilities
Savings Deposits $108,988 $ 2,198 2.02% $114,556 $ 2,314 2.02% $131,429 $ 2,675 2.04%
Interest-bearing Demand
Deposits 11,373 154 1.35 10,769 194 1.80 10,029 183 1.82
Money Market Deposit Accounts 4,540 102 2.25 3,907 88 2.25 4,186 95 2.27
Certificates of Deposit 218,044 11,911 5.46 197,309 10,576 5.36 160,704 6,805 4.23
Mortgagors' Escrow 1,772 71 4.01 1,794 58 3.23 1,887 57 3.02
Borrowed Funds 26,029 1,512 5.81 22,080 1,253 5.67 28,137 1,455 5.17
Repurchase Agreements 7,351 480 6.53 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities $378,097 $16,428 4.34% $350,415 $14,483 4.13% $336,372 $11,270 3.35%
Noninterest-bearing
Demand Deposits 6,535 5,021 3,761
Noninterest-bearing Liabilities 4,007 3,572 2,842
Stockholders' Equity 45,055 43,204 42,526
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities
and Stockholders' Equity $433,694 $402,212 $385,501
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $14,093 $13,039 $13,791
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Rate Spread(3)(5) 3.00% 3.02% 3.43%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Rate Margin(4)(5) 3.41% 3.41% 3.74%
- -----------------------------------------------------------------------------------------------------------------------------------
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 $160,094, $395,269, and
$389,387, for the years ended December 31, 1996, 1995, and 1994,
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 $182,226, $158,915 and $85,771,
for the years ended December 31, 1996, 1995, and 1994.
19
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
INTEREST EXPENSE: Interest expense increased in 1996 by $1,945,000 to
$16,428,000 from $14,483,000 in 1995. During 1996, the Bank experienced an
increase in its overall cost of funds of 21 basis points to 4.34% from 4.13% in
1995. The average balance in interest-bearing liabilities increased by
$27,682,000 in 1996 to $378,097,000 from $350,415,000 in 1995. The majority of
the increase in interest expense was due to certificates of deposit, FHLB
borrowings and repurchase agreements, partially offset by a reduction in
interest expense on savings deposits. Interest expense on certificates of
deposit increased by $1,335,000, of which $1,129,000 was due to increased volume
and $206,000 was due to increased rate. Interest expense on savings deposits
decreased by $116,000 primarily due to decreased volume. Interest expense on
borrowings and repurchase agreements increased due to volume. These changes are
consistent changes in the Bank's balance sheet with a shift in deposits from
regular savings to certificates of deposit, customers preferring certificates of
deposit over regular savings accounts and also the Bank's increase in borrowings
and repurchase agreements.
NET INTEREST INCOME: Net interest income increased by $1,054,000, or 8.08%, to
$14,093,000 for the year ended December 31, 1996 from $13,039,000 for 1995 as
the increase in the volume of earning assets more than offset the decrease in
the net interest rate. The net interest rate spread decreased by 2 basis points,
from 3.02% in 1995, to 3.00% for the year ended December 31, 1996, due
primarily to the Bank's cost of funds increasing slightly more than the yield on
the Bank's earning assets.
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:
1996 COMPARED TO 1995 1995 Compared to 1994
(dollars in thousands) INCREASE (DECREASE) DUE TO Increase (Decrease) due to
- -----------------------------------------------------------------------------------------------------
VOLUME RATE NET VOLUME RATE NET
- -----------------------------------------------------------------------------------------------------
INTEREST EARNED ON:
Loans $1,245 $ 15 $1,260 $1,051 $ 949 $2,000
Investment Securities 1,030 812 1,842 (136) 293 157
Other Interest-earning (43) (60) (103) 254 50 304
- -----------------------------------------------------------------------------------------------------
Total 2,232 767 2,999 1,169 1,292 2,461
- -----------------------------------------------------------------------------------------------------
INTEREST PAID ON:
Savings Deposits (112) ( 4) (116) (341) (20) (361)
Interest-bearing
Demand Deposits 12 (52) (40) 13 (2) 11
Money Market Deposit
Accounts 14 - 14 (6) (1) (7)
Certificates of Deposit 1,129 206 1,335 1,740 2,031 3,771
Mortgagors' Escrow (1) 14 13 (2) 3 1
Borrowed Funds 229 30 259 (369) 167 (202)
Repurchase Agreements 480 - 480 - - -
- -----------------------------------------------------------------------------------------------------
Total 1,751 194 1,945 1,035 2,178 3,213
- -----------------------------------------------------------------------------------------------------
CHANGES IN NET INTEREST INCOME $ 481 $573 $1,054 $ 134 $ (886) $ (752)
- -----------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME AND SERVICE FEES: The following table details the
significant increases and decreases in other income for the year ended December
31, 1996:
(dollars in thousands) 1996 1995 Inc (dec) %
- -----------------------------------------------------------------------------------------------------
Service charges and fees $ 1,032 $ 1,001 $ 31 3.1%
Trust fees 1,419 1,129 290 25.7
Net investment securities gains (losses) (20) (170) 150 (88.2)
Trading account gains (losses) - (49) (49) (100.0)
Net gains (losses) on sales of mortgages (46) 29 (75) (258.6)
Other operating income 270 205 65 31.7
- -----------------------------------------------------------------------------------------------------
Total other income $ 2,655 $ 2,243 $ 412 18.4%
- -----------------------------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
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 $290,000 from
$1,129,000 at December 31, 1995, to $1,419,000 at December 31, 1996, primarily
due to new accounts generated during 1996. Trust assets under management
increased to $385 million at December 31, 1996 from $310 million at December 31,
1995, an increase of 24%. The Bank recorded losses on the sale of mortgages of
$46,000 in 1996 compared to gains of $29,000 in 1995, primarily due to a small
increase in mortgage interest rates in the first half of 1996.
OTHER EXPENSES: The following table details the significant increases and
decreases in other expense for the year ended December 31, 1996:
(dollars in thousands) 1996 1995 Inc (dec) %
- ---------------------------------------------------------------
Salaries and benefits $4,924 $4,558 $ 366 8.0%
Occupancy 1,052 928 124 13.4
Furniture and equipment 960 893 67 7.5
FDIC deposit insurance 2 380 (378) (99.5)
Foreclosed real estate 118 453 (335) (74.0)
Other operating expenses 2,758 2,397 361 15.1
- ---------------------------------------------------------------
Total other expenses $9,814 $9,609 $ 205 2.1%
- ---------------------------------------------------------------
Other expenses increased by $205,000 to $9,814,000 in 1996 from $9,609,000 in
1995. Salary and employee benefit expenses increased to $4,924,000 in 1996, a
$366,000 or 8.0% increase over the $4,558,000 expensed in 1995. The primary
reason for the increase was a full year of expense for the commercial loan
department, staffing of our Meriden, Connecticut branch that opened in April of
1996, and a slight increase in employee benefit costs. Full-time employee
equivalents ("FTE") increased to 127 at December 31, 1996 from 122 at December
31, 1995 and 112 at December 31, 1994. FDIC deposit insurance expenses decreased
to $2,000 in 1996, a decrease of $378,000 compared to $380,000 in 1995. The FDIC
decreased the rate the Bank pays for deposit insurance to $.00 per $100.00 in
deposits, except for a small base charge, effective January 1996, from a rate of
$.04 per $100 in deposits. The FDIC had previously reduced the rate in June of
1995, from a rate of $.23 per $100.00 in deposits. Occupancy and furniture and
equipment expenses were up $191,000 or 10.5% to $2,012,000 from $1,821,000 in
1995 due to our expansion efforts. Operating expenses for foreclosed real estate
decreased by $335,000 or 74.0% to $118,000 for the year ended December 31, 1996
from $453,000 in 1995. The decrease was due to a lower number of properties in
foreclosed real estate during the year.
INCOME TAXES: The effective tax rate for 1996 was 33.05%, a decrease of 6.15%
from 39.20% in 1995. The decrease was primarily due to a state tax refund on
prior taxes paid, an increase in dividend income eligible for the dividend
received deduction, and a slight decrease in the State of Connecticut tax rate
of 50 basis points to 10.75% in 1996 from 11.25% in 1995.
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.
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
21
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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.
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 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.
OTHER OPERATING INCOME AND SERVICE FEES: 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: 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 late1994.
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 39.24%, a decrease of 140
basis points from 40.64% in 1994. The decrease was primarily due to an increase
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.
22
- ---------------------------------
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, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of 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, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
January 21, 1997
23
- ---------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 2):
Non-interest bearing deposits and cash $ 5,113,253 $ 6,815,738
Short-term investments (Note 3) 4,508,950 21,346,359
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 9,622,203 28,162,097
Securities (Note 4):
Available-for-sale (at market) 171,666,791 91,128,434
Held-to-maturity (market value: $28,015,243 at December 31, 1996;
$38,259,088 at December 31, 1995) 28,513,493 38,460,901
Federal Home Loan Bank stock 2,736,100 2,643,000
Loans held for sale (at market ) 1,142,510 927,034
Loans (Note 5):
Real estate mortgage 213,525,322 202,225,544
Real estate construction 7,498,893 3,933,410
Installment 36,920,096 32,178,447
Commercial 888,658 519,461
- ------------------------------------------------------------------------------------------------------------------------
Total loans 258,832,969 238,856,862
Less:
Deferred loan fees and unearned income (342,678) (487,392)
Allowance for loan losses (1,576,649) (1,577,547)
- ------------------------------------------------------------------------------------------------------------------------
Net loans 256,913,642 236,791,923
Bank premises and equipment (Note 6) 2,136,119 2,370,366
Foreclosed real estate 223,402 177,538
Accrued income receivable 4,029,682 3,747,646
Goodwill 3,006,178 3,299,902
Other assets 2,403,676 2,455,589
- ------------------------------------------------------------------------------------------------------------------------
Total assets $482,393,796 $410,164,430
- ------------------------------------------------------------------------------------------------------------------------
lIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 7) $358,059,926 $339,364,769
Advances from Federal Home Loan Bank of Boston (Note 8) 49,750,000 18,950,000
Securities sold under agreements to repurchase (Note 8) 21,500,000
Mortgagors' escrow accounts 2,658,993 2,490,394
Accrued expenses 1,548,331 1,239,131
Other liabilities 2,675,397 3,406,746
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 436,192,647 365,451,040
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
2,542,824 at December 31, 1996 and 2,511,824 at December 31, 1995,
including shares in treasury of 636,961 at December 31, 1996
and 559,461 at December 31, 1995 2,542,824 2,511,824
Additional paid-in capital 22,140,106 21,833,981
Retained earnings 29,701,051 27,421,569
Cost of treasury stock (8,839,261) (7,249,861)
Unrealized gains on securities available for sale, net of taxes 656,429 195,877
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 46,201,149 44,713,390
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $482,393,796 $410,164,430
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
24 People's Savings Financial Corp, and Subsidiary
- --------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $19,557,980 $18,297,183 $16,297,104
Interest and dividends on investments:
Interest income 9,848,116 8,157,176 8,075,009
Dividend income 630,703 433,030 189,206
Trading account - 46,174 215,658
Other interest income 484,599 588,358 284,318
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 30,521,398 27,521,921 25,061,295
=====================================================================================================================
Interest expense:
Interest on deposits 14,435,714 13,229,587 9,814,662
Interest on FHLB borrowings 1,512,612 1,253,007 1,455,176
Interest repurchase agreements 479,611 - -
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 16,427,937 14,482,594 11,269,838
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 14,093,461 13,039,327 13,791,457
Provision for loan losses 938,357 100,974 128,657
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 13,155,104 12,938,353 13,662,800
Other income:
Investment securities gains (losses) (19,915) (169,603) 127,717
Trading account gains (losses) - 49,168 (283,890)
Gain (loss) on sale of mortgages (45,967) 29,472 (375,529)
Trust fees 1,419,005 1,129,325 190,642
Service charges and fees 1,032,030 1,001,236 879,792
Other operating income 269,550 203,787 198,326
- ---------------------------------------------------------------------------------------------------------------------
Total other income 2,654,703 2,243,385 737,058
- ---------------------------------------------------------------------------------------------------------------------
15,809,807 15,181,738 14,399,858
Other expenses:
Salaries and employee benefits (Note 12) 4,924,156 4,558,419 3,555,996
Occupancy expense 1,051,711 927,646 844,120
Furniture and equipment expense 959,566 892,512 707,125
Advertising 266,373 225,763 215,256
FDIC deposit insurance 2,000 380,429 696,171
Lawsuit settlement - - 550,000
Goodwill amortization 382,851 382,521 62,183
Foreclosed real estate expenses 117,742 452,682 253,273
Other operating expenses 2,109,249 1,788,954 1,509,848
- ---------------------------------------------------------------------------------------------------------------------
Total other expenses 9,813,648 9,608,926 8,393,972
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,996,159 5,572,812 6,005,886
Income taxes (Note 9):
Current $ 2,402,771 $ 2,359,649 $ 1,991,085
Deferred (credit) (421,068) (175,365) 449,929
- ---------------------------------------------------------------------------------------------------------------------
Total income taxes 1,981,703 2,184,284 2,441,014
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 4,014,456 $ 3,388,528 $ 3,564,872
- ---------------------------------------------------------------------------------------------------------------------
Per share data:
Primary
Weighted-average shares outstanding and common stock equivalents 1,954,953 1,986,737 2,022,280
Net income per share $ 2.05 $ 1.71 $ 1.76
Fully Diluted
Weighted-average shares outstanding and common stock equivalents 1,974,891 1,989,360 2,022,280
Net income per share $ 2.03 $ 1.70 $ 1.76
=====================================================================================================================
See notes to consolidated Financial statements.
People's Savings Financial Corp. and Subsidiary
- -----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
Net
Unrealized
Holding Gains
Outstanding (Losses)On Securities
Shares of Additional Carried at
Common Common Paid-In Retained Treasury Market, Net
Stock Stock Capital Earnings Stock of Taxes
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 25,750,678 $(6,528,911) $ (2,290,898)
Net income 3,388,528
Dividends declared, $.88 per share (1,717,637)
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
====================================================================================================================================
YEAR ENDED DECEMBER 31, 1996
Balance at beginning of year 1,952,363 $2,511,824 $21,833,981 $ 27,421,569 $(7,249,861) $ 195,877
Net income 4,014,456
Dividends declared, $.91 per share (1,734,974)
Stock options exercised 31,000 31,000 306,125
Acquisition of treasury stock (77,500) (1,589,400)
Net unrealized gains on securities
available for sale, net of taxes 460,552
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR 1,905,863 $2,542,824 $22,140,106 $ 29,701,051 $(8,839,261) $ 656,429
====================================================================================================================================
See notes to consolidated financial statements.
28 People's Savings Financial Corp. and Subsidiary
- --------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,014,456 $ 3,388,528 $ 3,564,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 515,213 478,794 426,437
Accretion and amortization of bond
premiums and discounts, net 190,024 62,431 55,709
Provision for loan losses 938,357 100,974 128,657
Amortization of net deferred loan fees (67,505) (305,641) (226,485)
Deferred income tax (credit) (421,068) (175,365) 449,929
Decrease in trading account securities - 5,461,095 76,262
Decrease (increase) in loans held for sale (215,476) (927,034) 390,780
Realized investment securities losses (gains) 19,915 169,603 (127,717)
Write-downs on foreclosed real estate 46,820 346,486 231,273
Amortization of goodwill 293,724 382,521 62,183
Increase in accrued expenses 309,200 74,643 120,641
Increase (decrease) in other, net (549,230) 1,563,271 (1,145,093)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,074,430 $ 10,620,306 $ 4,007,448
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 13,500 22,949,049 22,129,184
Proceeds from maturities of
available-for-sale securities 38,853,915 16,273,552 11,662,635
held-to-maturity securities 9,877,685 15,298,572 2,545,640
Purchases of
available-for-sale securities (119,085,436) (44,821,086) (29,057,588)
held-to-maturity securities - (1,265,000) (31,859,522)
Purchases of Federal Home Loan Bank stock (93,100) (350,600)
Net increase (decrease) in loans (21,488,155) (11,378,262) (14,699,139)
Foreclosed real estate sold 402,900 1,218,400 1,457,407
Purchases of premises and equipment (net) (280,966) (438,933) (1,041,364)
Intangibles resulting from acquisition of New Meriden (3,807,133)
Trust Co.
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES $ (91,799,657) $ (2,514,308) $ (42,669,880)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts (45,480) (17,530,631) (520,825)
Net increase in certificates of deposit 18,740,637 35,193,758 22,755,483
Increase (decrease) in mortgage escrow accounts 168,599 (118,623) 155,685
Net increase (decrease) in overnight borrowings
from the Federal Home Loan Bank of Boston - - (760,433)
Proceeds from long-term borrowings 16,500,000 - 11,800,000
Proceeds from short-term borrowings 62,270,000 - 49,900,000
Principal payments on long-term borrowings (12,000,000) - -
Principal payments on short-term borrowings (39,970,000) (14,500,000) (35,400,000)
Proceeds from securites sold under agreements to 21,500,000 - -
repurchase
Cash dividends paid (1,726,148) (1,727,411) (1,756,139)
Acquisition of treasury stock (1,589,400) (720,950) (135,600)
Issuance of common stock (under stock option plans) 337,125 45,761 30,750
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,185,333 641,904 46,068,921
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,539,894) 8,747,902 7,406,489
Cash and cash equivalents at beginning of year 28,162,097 19,414,195 12,007,706
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,622,203 $ 28,162,097 $ 19,414,195
- ------------------------------------------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Change in unrealized gains (loss) on available for sale $ 779,983 4,256,502 (5,052,824)
securities
Transfer of loans to foreclosed real estate 740,901 1,114,810 537,713
Transfer of investment securities from held-to-maturity
to available for sale - 18,789,280 -
- ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. 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 (95%) 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.
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 judgment 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.
INVESTMENT SECURITIES: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.
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.
28 People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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" ("FAS 122"), which the Bank
adopted 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
Company to assess its capitalized mortgage servicing rights for impairment based
on the fair value of those rights.
FAS 122 requires that a portion of the cost of originating a mortgage loan that
is sold with servicing rights retained be allocated to the mortgage servicing
right, based on its fair value relative to the loan as a whole. To determine
the fair value of the servicing rights, the Corporation uses a valuation model
that calculates the present value of future cash flows to determine the fair
value of the servicing rights. Certain assumptions, such as estimates of the
cost of servicing per loan, discount rate, and prepayment were used in the
calculation which was done on an aggregate loan basis.
Mortgage servicing rights are amortized in proportion to, and over the period
of, estimated net servicing income.
FAS 122 also requires a periodic assessment of the fair value of mortgage
servicng rights. In determining fair value, the servicng rights are
disaggregated into the predominant risk characteristics, which are currently
loan type and interest rate. These segments are then valued using the same
model used to originally determine the fair value at origination, using current
assumptions. The new value is then compared to the book value to determine if a
reserve for impairment is required.
At December 31, 1996 the Bank had recorded $35,000 as the fair value of its
mortgage servicing rights.
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
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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 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 straightline
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 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: 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.
EARNINGS PER SHARE: Primary earnings per share was computed using the weighted-
average common shares outstanding during the year, including common stock
equivalents, when dilutive. The computation of fully diluted earnings per
share is calculated in the same way as primary earnings per share, except that
the higher of the ending market price or average market price is used to
determine the dilutive effect of common stock equivalents. The shares used in
the computations for the three years ended December 31, 1996 were as follows:
1996 1995 1994
- -----------------------------------------------------------
Primary 1,954,953 1,986,737 2,022,280
Fully diluted 1,974,891 1,989,360 2,022,280
- -----------------------------------------------------------
CASH FLOWS: Cash and cash equivalents include cash, amounts due from banks and
short-term investments.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS: The Corporation accounts for post-
retirement benefits other than pensions using the accrual method. These benefits
are unfunded and there are no assets associated with the plan.
30 People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
RECLASSIFICATIONS: Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation. These reclassifications had no effect on
earnings in the years presented.
2. RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserves against certain deposit transaction
accounts. At December 31, 1996 the Bank was required to have cash and liquid
assets of approximately $413,000 to meet these requirements.
3. SHORT-TERM INVESTMENTS
Short-term investments consisted of:
December 31,
1996 1995
- ------------------------------------------------------------------
Federal funds sold $4,500,000 $19,610,000
Money market accounts 8,950 1,736,359
- ------------------------------------------------------------------
$4,508,950 $21,346,359
==================================================================
4. INVESTMENT SECURITIES
Securities available-for-sale (carried at fair value) and held-to-maturity
(carried at amortized cost) at December 31, 1996 and 1995 were as follows:
December 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
Available-for-Sale
United States Government and
Agency obligations $ 55,522,324 $ 176,878 $310,037 $ 55,389,165
Corporate securities 5,640,365 12,400 2,803 5,649,962
Mortgage-backed securities 94,438,775 785,010 194,715 95,029,070
- ---------------------------------------------------------------------------------------------------
Total debt securities 155,601,464 974,288 507,555 156,068,197
Marketable equity securities 5,905,584 357,956 20,812 6,242,728
Mutual funds 9,045,356 310,510 - 9,355,866
- ---------------------------------------------------------------------------------------------------
170,552,404 $1,642,754 $528,367 $171,666,791
===================================================================================================
Held-to-Maturity
United States Government and
Agency obligations $ 3,998,386 $ 13,176 $ 16,090 $ 3,995,472
Mortgage-backed securities 24,515,107 12,942 508,278 24,019,771
- ---------------------------------------------------------------------------------------------------
$ 28,513,493 $ 26,118 $524,368 $ 28,015,243
===================================================================================================
People's Savings Financial Corp. and Subsidiary
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
December 31, 1995
- -------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
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 0 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 0 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
======================================================================================
The amortized cost and estimated market value of debt securities at December 31,
1996, 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 $ 500,000 $ 504,062
Due after one year through five years 55,652,530 55,595,095
Due after five years through ten years 5,010,159 4,939,970
Due after ten years 0 0
- --------------------------------------------------------------------------------------
61,162,689 61,039,127
Mortgage-backed securities 94,438,775 95,029,070
- --------------------------------------------------------------------------------------
Total $155,601,464 $156,068,197
======================================================================================
Held-to-Maturity
Due in one year or less $ 999,667 $ 1,000,000
Due after one year through five years 2,998,719 2,995,472
Due after five years through ten years 0 0
- --------------------------------------------------------------------------------------
3,998,386 3,995,472
Mortgage-backed securities 24,515,106 24,019,772
- --------------------------------------------------------------------------------------
Total $ 28,513,492 $ 28,015,244
======================================================================================
32 People's Savings Financial Corp. and Subsidiary
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
During 1996 there were no debt security sales from the available-for-sale
portfolio. 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. Net realized gains on marketable equity
securities and mutual funds were $6,950 for the year ended December 31, 1996.
Net realized gains and (losses) on marketable equity securities and mutual funds
were ( $54,882) and $758,562, for the years ended 1995 and 1994, respectively.
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 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, 1996, $1,000,000 of United States Government and Agency
obligations were pledged as collateral to secure public funds.
At December 31, 1996, $23,971,000 of mortgage-backed securities were pledged
under repurchase agreements.
5. Loans
The carrying amounts of the Corporation's loan portfolio at December 31, 1996
and 1995 were as follows:
1996 1995
- ---------------------------------------------------------------------
Real estate mortgage $212,199,248 $201,504,022
Real estate construction 7,498,893 3,933,410
Installment loans to individuals 36,696,902 32,178,447
Commercial 888,658 519,461
- ---------------------------------------------------------------------
257,283,701 238,135,340
Non-accrual loans 1,549,268 721,522
- ---------------------------------------------------------------------
$258,832,969 $238,856,862
=====================================================================
At December 31, 1996, $ 1,549,268 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, 1996, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $602,747, excluding
small-balance homogeneous loans. The majority of these loans, $443,011, have
been evaluated for impairment using estimated market value of the collateral.
One loan totaling $159,736 was evaluated for impairmentusing the present values
of future cash flows method. There was a valuation allowance of $65,149
recorded for the impaired loans at December 31, 1996.
For the year ended December 31, 1996 the average balance of impaired loans was
approximately $678,000.
The Corporation generally recognizes interest income on impaired loans on a cash
basis. For the twelve month period ended December 31, 1996, the Corporation
recorded $46,123 in interest on impaired loans.
At December 31, 1996 the Corporation had four restructured loans totaling
$686,000. One of these loans in the amount of approximately $392,000 was
restructured prior to the adoption of SFAS No. 114 and 118
People's Savings Financial Corp. and Subsidiary
- -----------------------------------------
NOTES CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------
and is therefore accounted for in accordance with SFAS No. 15 "Accounting by
Debtors and Creditors for Troubled Debt Restructurings" and the other loans are
considered smaller-balance homogeneous loans under SFAS No. 114 and 118.
Loans the Bank services for others were $63,660,941 and $66,833,079 at December
31, 1996 and 1995, respectively.
Information with respect to nonaccrual loans at December 31, 1996 and 1995 is
as follows:
December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------
Nonaccrual $1,549,268 $ 721,522
Interest income that would have been recorded under
original terms 124,168 76,488
Interest income recorded during period 74,505 21,260
========================================================================================================
Changes in the allowance for loan losses were as follows:
Year ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------
Balance at beginning of year $1,577,547 $1,791,270 $2,223,472
Provision charged to operations 938,357 100,974 128,657
Loans charged off (998,202) (356,884) (642,371)
Recoveries 58,947 42,187 81,512
- ----------------------------------------------------------------------------------------------
Balance at end of year $1,576,649 $1,577,547 $1,791,270
- ----------------------------------------------------------------------------------------------
6. Bank Premises and Equipment
Cost and accumulated depreciation and amortization of the various categories of
premises and equipment were as follows:
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
Accumulated Accumulated
Depreciation and Depreciation and
Cost Amortization Cost Amortization
- -------------------------------------------------------------------------------------------------------------------------
Building and land $ 1,737,077 $ 731,985 $1,696,624 $ 672,938
Leasehold improvements 922,787 546,635 906,804 460,794
Furniture and equipment 3,560,570 2,805,695 3,336,039 2,435,369
- -------------------------------------------------------------------------------------------------------------------------
$ 6,220,434 $ 4,084,315 $5,939,467 $3,569,101
=========================================================================================================================
7. Deposits
An analysis of deposits follows:
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------
Non-interest-bearing demand deposits $ 8,301,154 $ 5,605,612
Interest-bearing demand deposits 12,247,163 11,479,100
Money market deposit accounts 4,327,022 4,000,026
Savings deposits 105,379,428 109,215,508
Time deposits 227,805,159 209,064,523
- -------------------------------------------------------------------------------------------------
$358,059,926 $339,364,769
=================================================================================================
The amount of individual certificates of deposit in excess of $100,000 included
in time deposits at December 31, 1996 and 1995 was $25,209,000 and $24,658,000,
respectively. The Bank paid interest on deposits and escrow accounts of
$14,493,370, $13,271,552 and $9,855,921 for the years ended December 31, 1996,
1995 and 1994, respectively.
34 People's Savings Financial Corp. and Subsidiary
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
8. Advances from Federal Home Loan Bank of Boston and Securities Sold Under
Agreements to Repurchase
Advances from Federal Home Loan Bank of Boston consisted of the following:
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------
4.70% due January 1996 $ 1,000,000
4.56% due January 1996 1,000,000
4.32% due January 1996 3,000,000
6.94% due April 1996 3,000,000
5.90% due October 1996 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
5.52% due January 1997 800,000 -
5.44% due February 1997 700,000 -
5.44% due February 1997 4,000,000 -
5.46% due March 1997 3,700,000 -
5.47% due May 1997 3,700,000 -
5.47% due May 1997 4,000,000 -
6.09% due June 1997 1,000,000 -
5.46% due June 1997 4,400,000 -
5.54% due June 1997 3,000,000 -
5.52% due September 1997 2,000,000 -
5.67% due December 1997 2,500,000 -
5.20% due January 1998 2,000,000 2,000,000
6.40% due June 1998 2,500,000 -
6.07% due October 1998 4,000,000 -
8.19% due December 1998 700,000 700,000
6.01% due December 1998 1,000,000 -
5.70% due January 1999 750,000 750,000
5.54% due January 1999 750,000 750,000
6.71% due June 1999 2,000,000 -
6.87% due June 2000 1,500,000 -
6.96% due June 2000 1,000,000 -
6.69% due August 2001 1,000,000 -
4.00% due January 2008 150,000 150,000
- ---------------------------------------------------------------------------------
$49,750,000 $18,950,000
=================================================================================
The Bank had no overnight borrowings at December 31, 1996 and 1995.
The Bank paid interest on advances of $1,403,200, $1,311,886 and $1,344,952 for
the years ended December 31, 1996, 1995 and 1994, 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 $57,792,000 required to
collateralize the outstanding advances and short-term borrowing facility at
December 31, 1996.
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,
1996 the Bank could borrow up to an additional
People's Savings Financial Corp. and Subsidiary
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
$233,470,000. 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.
Securities Sold Under Agreements to Repurchase consisted of the following:
December 31, 1996
- ------------------------------------------------------------------
6.10% due June 1997 1,500,000
5.79% due August 1997 2,000,000
5.58% due November 1997 3,500,000
6.47% due June 1998 3,000,000
6.08% due August 1998 3,000,000
5.80% due November 1998 3,500,000
6.70% due June 1999 3,000,000
6.29% due August 1999 2,000,000
- ------------------------------------------------------------------
$21,500,000
==================================================================
The Bank paid interest on repurchase agreements of $351,656 for the year ended
December 31, 1996.
9. Federal and State Taxes on Income
The components of the income tax provision (benefit) for the years ended
December 31, are as follows:
1996 1995 1994
- ---------------------------------------------------------------------------------
Current Provision:
Federal $1,917,314 $1,792,124 $1,501,990
State 485,457 567,525 489,095
- ---------------------------------------------------------------------------------
2,402,771 2,359,649 1,991,085
- ---------------------------------------------------------------------------------
Deferred Provision (Benefit):
Federal (1,754) (141,166) 319,823
State (419,314) (34,199) 130,106
- ---------------------------------------------------------------------------------
(421,068) (175,365) 449,929
- ---------------------------------------------------------------------------------
Total provision for income taxes $1,981,703 $2,184,284 $2,441,014
=================================================================================
The following is a reconciliation of the expected federal statutory tax to the
income tax provision for the years ended December 31:
1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Income tax at statutory federal tax rate 34.00% 34.00% 34.00%
Connecticut Corporation Tax, net of federal tax benefit 5.88% 6.32% 6.80%
State tax refund on prior taxes paid (5.15%) - -
Dividends received deduction (2.83%) (0.91%) (0.16%
Change in state tax rate .34% .19 -
Other .81% (.40%) -
- --------------------------------------------------------------------------------------------------
Effective income tax rate 33.05% 39.20% 40.64%
- --------------------------------------------------------------------------------------------------
36 People's Savings Financial Corp. and Subsidiary
- --------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------
The components of the Corporation's net deferred tax assets at December 31,
1996, 1995 and 1994 are as follows:
1996 1995 1994
Federal State Federal State Federal State
- ----------------------------------------------------------------------------------------------------------
Deferred tax assets:
State tax credits - $382,949 - - - -
Loan loss provision $ 479,774 165,548 $ 482,348 $170,876 $ 540,605 $201,518
Net mortgage origination fees - - 8,040 2,848 83,025 30,949
Deferred directors fees 290,634 100,284 273,741 96,975 224,462 83,671
Accrued self-insurance 29,681 10,241 18,131 6,423 9,704 3,617
Accrued interest payable 16,500 5,693 34,718 12,299 12,866 4,796
Accrued pension expense 98,338 33,932 113,184 40,097 119,812 44,662
Securities losses 31,701 10,939 31,613 11,199 31,441 11,720
Post-retirement benefits
(SFAS 106) 123,148 42,493 107,778 38,181 119,645 44,599
Fixed assets 19,839 6,846 - - - -
Goodwill 55,033 18,989 29,277 10,372 3,753 1,399
Available-for-sale securities
(SFAS 115) - - - - 1,183,689 441,236
Other 60,692 20,941 46,579 16,499 - -
- ----------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,205,340 798,855 1,145,409 405,769 2,329,002 868,167
- ----------------------------------------------------------------------------------------------------------
Deferred tax liabilities
State tax credits 130,203 - - - - -
Tax loan loss reserve
in excess of base year - - 6,396 2,266 7,077 2,638
Net mortgage origination fees 8,039 2,774 - - - -
Accrued dividends receivable 3,598 1,242 22,903 8,113 6,332 2,600
Bond discount accretion 7,491 2,585 12,324 4,365 87,913 32,771
Mark to market - Sec 481a
adjustment 31,505 10,871 62,834 22,259 96,252 35,879
Fixed assets - - 18,465 6,541 42,021 15,664
Prepaid insurance 27,098 9,350 26,835 9,506 28,414 10,592
Available-for-sale securities
(SFAS 115) 338,161 119,797 100,906 37,620 - -
Other - - - - 22,818 8,267
- -----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 546,095 146,619 250,663 90,670 290,827 108,411
- -----------------------------------------------------------------------------------------------------------
Net deferred tax assets 659,245 652,236 894,746 315,099 2,038,175 759,756
Valuation reserve - - - - - -
- -----------------------------------------------------------------------------------------------------------
Net deferred tax assets after
valuation reserve $ 659,245 $652,236 $ 894,746 $315,099 $2,038,175 $759,756
===========================================================================================================
The allocation of deferred tax expense (benefit) involving items charged to
current year income and items charged directly to stockholders' equity for the
year ended December 31, are as follows:
1996 1995 1994
Federal State Federal State Federal State
- ---------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit)
allocated to shareholders' equity $237,255 $ 82,177 $1,284,595 $478,856 $(1,183,689) $(441,236)
Deferred tax expense (benefit)
allocated to income (1,754) (419,314) (141,166) (34,199) 319,823 130,106
- ---------------------------------------------------------------------------------------------------------------
Total deferred tax expense
(benefit) $235,501 $(337,137) $1,143,429 $444,657 $ (863,866) $(311,130)
===============================================================================================================
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
The Corporation will only recognize a deferred tax asset, when based upon
available evidence, realization is more likely than not. Accordingly, at
December 31, 1996, 1995 and 1994, 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 $2,165,000 and
$1,820,800 and $2,238,000, in 1996, 1995 and 1994, respectively.
Pursuant to the Small Business Job Protection Act of 1996, the Corporation is
required to change its method of accounting with respect to its bad debt
reserves. The change results in taxable income of approximately $21,000 which
will be recognized ratably over a six year period. A deferred tax liability has
been established for the unrecognized portion relating to the change in tax
method of accounting.
The Corporation has not provided deferred taxes for the tax reserve for bad
debts that arose in tax years beginning before 1988 because it is expected that
the requirements of Section 593, as amended by the Small Business Job Protection
Act of 1996, will be met in the foreseeable future. If the requirements of
Section 593 are not met, a potential tax liability could be incurred of
approximately $1,900,000 relating to the pre-1988 tax bad debt reserve of
$4,600,000.
- ------------------------------------------------------------------------
10. STOCKHOLDER'S EQUITY, 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 $2,529,000 available for payment of dividends to the Corporation,
without approval of the Commissioner, at December 31, 1996.
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, 1996, the maximum amount available for transfer
from the Bank to the Corporation in the form of loans approximated 10% of
consolidated net assets.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets of 8.0%, and 4.0%, respectively, and of Tier 1
capital to average assets of 4.0%. Quantitative measures established by
regulation to be classified as "well capitalized" require the Bank to maintain
minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets
of 10.0%, and 6.0%, respectively, and of Tier 1 capital to average assets of
5.0%. At December 31, 1996 all of the Bank's capital ratios exceeded minimum
regulatory capital requirements and places it as "well capitalized", the highest
rating of five regularity capital classifications.
People's Savings Financial Corp. and Subsidiary
38
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
The following table illustrates the capital resources of the Bank and the
Corporation and their capital ratios as of December 31:
(dollars in thousands) 1996 1995
- -----------------------------------------------------------------
Bank's capital components:
Tier 1 capital (Stockholders' equity) $40,928 $37,279
Tier 2 capital (Allowance for loan losses) 1,577 1,578
- -----------------------------------------------------------------
Bank's total risk-based capital $42,505 $38,857
- -----------------------------------------------------------------
Bank's capital ratios:
Total risk-based 18.46% 18.38%
Tier 1 risk-based 17.78% 17.63%
Tier 1 leverage 9.50% 9.35%
- -----------------------------------------------------------------
Corporation's capital components:
Tier 1 capital (Stockholders' equity) $42,539 $41,217
Tier 2 capital (Allowance for loan losses) 1,577 1,578
- -----------------------------------------------------------------
Corporation's total risk-based capital $44,116 $42,795
- -----------------------------------------------------------------
Corporation's capital ratios:
Total risk-based 19.16% 20.24%
Tier 1 risk-based 18.47% 19.49%
Tier 1 leverage 9.88% 10.33%
- -----------------------------------------------------------------
- ---------------------
11. STOCK OPTION PLAN
- ---------------------
The Corporation has a stock option and incentive plan for certain employees and
a stock option plan for directors under which the Corporation may grant options
to its employees for up to 150,000 shares of common stock and may grant options
to its directors for up to 100,000 shares of its common stock. Under the plans
the exercise price of each option equals the market price of the Corporation's
stock on the date of the grant and an option's maximum term is ten years.
Options are granted upon approval of the Board of Directors and become
exercisable upon issuance. Options were granted during 1996, 1995 and 1994 with
an exercise price equal to the fair market value of common stock at the date of
grant.
On January 1, 1996 the Corporation adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As
permitted by SFAS 123, the Corporation has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its Plans. Had compensation cost for the Corporation's Plans
been determined based on the fair value at the grant dates for awards under the
Plans consistent with the method of SFAS 123, the Corporation's net income and
fully diluted net income per share would have been reduced to the pro forma
amounts indicated below.
1996 1995 1994
- ----------------------------------------------------------------------------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
- ----------------------------------------------------------------------------------------------
Net Income $4,014,456 $3,985,019 $3,388,528 $3,107,779 $3,564,872 $3,555,817
Net Income per share
(fully diluted) $ 2.03 $ 2.02 $ 1.70 $ 1.56 $ 1.76 $ 1.76
- ----------------------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grant in 1996; dividend yield of 4.49%, expected volatity
of 22.68%, risk free interest rate of 5.25%, and expected term of options of 10
years.
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 171,500 15.316 68,000 11.313 67,000 10.867
Granted 27,500 20.500 107,000 17.691 4,000 18.000
Exercised 31,000 10.875 3,500 10.179 3,000 10.250
Forfeited 1,500 17.563 - - - -
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 166,500 16.978 171,500 15.316 68,000 11.313
- ----------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 166,500 171,500 68,000
- -----------------------------------------------------------------------------------------------------------------
The following table summarizes information about the Plan's stock options at
December 31, 1996:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------
Number Weighted-Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- --------------------------------------------------------------------------------------------------------
9.125-20.500 166,500 7.415 16.978 166,500 16.978
- --------------------------------------------------------------------------------------------------------
- --------------------------
12. 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.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's statement of financial position at December 31, 1996 and
1995:
December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $1,567,849 in 1996 and $1,633,785 in 1995 $1,654,618 $1,656,265
- ---------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $2,787,510 $2,789,792
Plan assets at fair value, primarily cash and cash
equivalents, US and other bonds and listed stocks 2,038,059 1,885,076
- ---------------------------------------------------------------------------------------------------
Projected benefit obligations in excess of plan assets 749,451 904,716
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions (534,249) (655,177)
Unrecognized transition asset at December 31 108,964 124,574
- ---------------------------------------------------------------------------------------------------
Accrued pension cost included in other liabilities $ 324,166 $ 374,113
- ---------------------------------------------------------------------------------------------------
Net pension cost included the following components:
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 317,995 $ 239,153 $ 199,116
Interest cost on projected benefit obligation 172,843 179,172 163,021
Actual return on plan assets (273,891) (345,515) 50,401
Net amortization and deferral 93,737 193,564 (193,075)
- ---------------------------------------------------------------------------------------------------
Net periodic pension cost $ 310,684 $ 266,374 $ 219,463
- ---------------------------------------------------------------------------------------------------
People's Savings Financial Corp. and Subsidiary
40
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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 7.5% and 7.0%, respectively, at December 31, 1996 and December
31, 1995, the respective measurement dates. The expected long-term rate of
return on plan assets was 8.0% in 1996, 1995 and 1994
The Corporation has 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 $79,119, $63,694 and $56,360,
respectively, for the years ended December 31, 1996, 1995and 1994.
The Corporation offers Post-retirement benefits and life insurance benefits
which are accounted for using the accrual method. These benefits are unfunded
and there are no assets associated with the plan. The net periodic post-
retirement benefits expense was $63,031, $50,080 and $41,560, respectively, in
1996, 1995 and 1994. The post-retirement benefits liability was $402,499,
$355,177, and 311,014, respectively, at December 31, 1996, 1995, and 1994. The
discount rate used to compute the post-retirement benefits liability was 7.50%
during 1996. A 1% increase in the assumed health care cost trend rates would
have increased the expenses by $21,163.
- ----------
13. 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, 1996
for these leases are as follows:
1997 $ 438,283
1998 435,100
1999 427,417
2000 368,904
2001 274,176
Thereafter 95,067
- ----------------------------------------------------------------------------
$2,038,947
- ----------------------------------------------------------------------------
Rental expense for the branches amounted to $468,211 in 1996, $442,892 in 1995
and $393,332 in 1994.
- --------------------------
14. 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
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
as it does for on-balance-sheet instruments. Total credit exposure related to
these items at December 31, 1996 and 1995 is summarized below:
1996 1995
Contract Amount Contract Amount
- ------------------------------------------------------------------------------------------
Loan commitments:
Approved mortgage and equity loan commitments $ 783,250 $ 2,103,300
Unadvanced portion of construction loans 4,169,707 2,925,864
Letters of credit 534,340 534,340
Unadvanced portion of:
Commercial line of credit 1,453,977 1,511,250
Home equity lines of credit 7,008,210 4,515,152
Overdraft line of credit 35,487 19,959
Credit cards 3,458,312 3,404,764
- ------------------------------------------------------------------------------------------
$17,443,283 $15,014,629
- ------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------
15. 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 (95%) at December 31, 1996 and
(97%) at December 31, 1995, is comprised of loans collateralized by real estate
located primarily in central Connecticut. At December 31, 1996 and 1995
respectively, such loans and commitments totaled approximately $276,101,000, and
$243,400,000, of which $243,117,000 and $227,300,000, 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.
- ----------------------------
16. 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 $2,618,633 and $2,521,121 at
December 31, 1996 and 1995, respectively. During 1996, the Bank made $388,950 in
new loans to related parties and received $291,438 in payments on related party
loans. Such related party loans were made in the ordinary course of business.
- ---------------------------------------
17. 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
42 People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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.
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 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.
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.
Securities Sold Under Agreements to Repurchase: The fair values of the
Corporation's repurchase agreements are estimated using discounted cash flow
analyses, based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements.
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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:
1996 1995
- -----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 5,113,253 $ 5,113,253 $ 6,815,738 $ 6,815,738
Short-term investments 4,508,950 4,508,950 21,346,359 21,346,359
Securities held-to-maturity 28,513,493 28,015,244 38,460,901 38,259,088
Securities available-for-sale 171,666,791 171,666,791 91,128,434 91,128,434
Federal Home Loan Bank stock 2,736,100 2,736,100 2,643,000 2,643,000
Loans 257,283,701 XX,000,000 238,135,340 239,832,317
Loans held for sale 1,142,510 1,142,510 927,034 927,034
Financial Liabilities:
Deposits with no stated maturity 130,254,767 130,254,767 130,300,246 130,300,246
Time deposits 227,805,159 230,066,000 209,064,523 211,671,000
Federal Home Loan Bank
borrowings 49,750,000 49,784,000 18,950,000 18,959,000
Repurchase Agreements 21,500,000 21,609,839
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------
18. RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The Bank will be
required to adopt SFAS 125 for transfers and servicing of financial assets and
extinguishment of liabilites ocurring after December 31, 1996, on a prospective
basis. The adoption of this standard is not expected to have a material impact
on the Bank's financial condition or its results of operations.
- ------------------------------------------------------------------
19. PEOPLE'S SAVINGS FINANCIAL CORP. (PARENT CORPORATION ONLY)
FINANCIAL INFORMATION
- ------------------------------------------------------------------
Balance Sheets
December 31,
1996 1995
- -------------------------------------------------------------------------------------------------
Assets
Advances to subsidiary $ 2,021,474 $ 4,326,117
Investment in subsidiaries 44,614,563 40,816,793
- -------------------------------------------------------------------------------------------------
Total assets $46,636,037 $45,142,910
- -------------------------------------------------------------------------------------------------
Liabilities
Dividends payable/other liabilities $ 434,888 $ 429,520
- -------------------------------------------------------------------------------------------------
Total liabilities 434,888 429,520
Stockholders' equity 46,201,149 44,713,390
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $46,636,037 $45,142,910
- -------------------------------------------------------------------------------------------------
44 People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Statements of Income
Year ended December 31,
1995 1995 1994
- -------------------------------------------------------------------------------------------------------------
Dividends from subsidiary $ 700,000 $ 5,000,000 $ 2,600,000
Investment securities gains 450,163
Other income 136,765 68,294 84,564
- -------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
distributed in excess of income of subsidiary 836,765 5,068,294 3,134,727
Other expenses 173,532 151,501 130,245
Income taxes (credit) (15,109) (34,489) 168,224
- -------------------------------------------------------------------------------------------------------------
158,423 117,012 298,469
- -------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 678,342 4,951,282 2,836,258
Equity in undistributed net income
(loss) of subsidiaries 3,336,114 (1,562,754) 728,614
- -------------------------------------------------------------------------------------------------------------
Net income $ 4,014,456 $ 3,388,528 $ 3,564,872
- -------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Year ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Operating activities
Net income $ 4,014,456 $ 3,388,528 $ 3,564,872
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed net (income)
loss of subsidiary (3,336,114) 1,562,754 (728,614)
Gain on sale of investment securities - - (450,163)
Other items, net (4,562) - -
- -------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 673,780 4,951,282 2,386,095
- -------------------------------------------------------------------------------------------------------------
Investing activities
Sales of investment securities - - 614,376
Investment in subsidiary - (50,000) -
Net decrease (increase) in advances
to subsidiaries 2,304,643 (2,498,682) (1,139,482)
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) 2,304,643 (2,548,682) (525,106)
by investing activities
- -------------------------------------------------------------------------------------------------------------
Financing activities
Issuance of common stock 337,125 45,761 30,750
Acquisition of treasury stock (1,589,400) (720,950) (135,600)
Cash dividends (1,726,148) (1,727,411) (1,756,139)
- -------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (2,978,423) (2,402,600) (1,860,989)
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents - - -
Cash and cash equivalents at beginning of year - - -
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------
People's Savings Financial Corp. and Subsidiary
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995 (in thousands of dollars, except per share
data):
Three months ended
March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------------------
1996
Interest income $7,059 $7,195 $7,781 $8,486
Interest expense 3,772 3,766 4,268 4,622
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 3,287 3,429 3,513 3,864
- ---------------------------------------------------------------------------------------------------------------------
Provision for loan losses 64 95 95 684
Net gain (loss) on securities transactions (20) - - -
Other income 586 630 729 730
Other expenses 2,368 2,506 2,486 2,454
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,421 1,458 1,661 1,456
Income taxes 533 249 640 560
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 888 $1,209 $1,021 $ 896
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $ .45 $ .62 $ .52 $ .45
- ---------------------------------------------------------------------------------------------------------------------
Three months ended
March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------------------
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 -
Net gain (loss) on securities transactions 4 (73) (1) (100)
Trading account gains (losses) 49 - - -
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
- ---------------------------------------------------------------------------------------------------------------------
- -----------------
STOCK INFORMATION
- -----------------
Common Stock Information
People's Savings Bank of New Britain (the "Bank") common stock began trading
over the counter on the Nasdaq National Market System in August of 1986 under
the symbol "PBNB". Effective upon the Bank's formation of a holding company on
July 31, 1989, People's Savings Financial Corp. succeeded to the Bank's listing
symbol "PBNB" on the National Market System. There were 1,312 stockholders of
record on February 28, 1997. 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 System.
46 People's Savings Financial Corp. and Subsidiary
- -----------------
STOCK INFORMATION
- -----------------
Quarter ended LOW HIGH
- -------------------------------------------------------------------------------
March 31, 1995 17 1/2 18
June 30, 1995 18 19 1/2
September 30, 1995 19 1/4 22 1/2
December 31, 1995 19 20
March 31, 1996 19 20 3/4
June 30, 1996 20 1/4 22 3/8
September 30, 1996 21 3/4 30 3/16
December 31, 1996 26 1/4 29
- -------------------------------------------------------------------------------
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- Stockholders Equity
Restrictions on Subsidiary Dividends, Loans or Advances on page XX of this
report.
The following table illustrates dividends that were declared:
Dividends Date Declared Date Payable Amount
- -------------------------------------------------------------------------------
March 22, 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
March 19, 1996 April 30, 1996 .22
May 22, 1996 July 31, 1996 .23
September 17, 1996 October 31, 1996 .23
December 17, 1996 January 31, 1997 .23
- -------------------------------------------------------------------------------
Stockholder Information
Peoples Savings Bank & Trust and People's Savings Financial Corp.
Peoples Savings Bank & Trust 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 06050 and their telephone number is (860) 224-
7771.
Stock Transfer Agent
People's Savings Financial Corp.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-426-5523
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 1996, 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
- ----------------------
DIRECTORS AND OFFICERS
- ----------------------
DIRECTORS OF PEOPLE'S SAVINGS FINANCIAL CORPORATION
AND PEOPLES SAVINGS BANK & TRUST
Joseph A. Welna, M.D., Chairman of the Board Richard S. Mansfield
Obstetrician/Gynecologist President and Chief Executive Officer
Walter J. Liss, Secretary of the Board Peoples Savings Bank & Trust and People's
President of Liss Insurance Agency Inc. Savings Financial Corp.
Walter D. Blogoslawski Henry R. Poplaski
Owner of Investment Research and PHB Realty Owner and manager of Hank's
Stanley P. Filewicz, M.D. Automotive Services
Orthopedic Surgeon A Richard Puskarz
Robert A. Gryboski, M.D. President and Chief Executive Officer of
Otolaryngologist Art Press Inc., Printers
Roland L. LeClerc Chester S. Sledzik
Retired Partner, LeClerc and Fortier, Partner in the law firm of Sledzik & McGuire
Insurance and Realty Robert A. Story
President of Story Brothers Inc.,
Automotive Service
PEOPLES SAVINGS BANK & TRUST
Officers Accounting
Richard S. Mansfield Edward E. Bohnwagner, III
President and Chief Executive Officer Vice President & Controller
John G. Medvec Janina M. Chlus
Executive Vice President and Treasurer Assistant Controller
Lending Jennifer A. Lodovico
Earl T. Young Assistant Treasurer
Senior Vice President Marketing
Robert J. Mendillo Joyce L. Petrisko
Vice President Assistant Treasurer
Mark A. Iadarola Management Information Systems
Assistant Vice President Jay Mongillo
Richard J. Frey Assistant Vice President & Systems Officer
Commercial Loan Officer Compliance
Donna M. Evans Jodi J. Michaud
Assistant Treasurer Compliance/Audit Officer
Donna D. Mattson Trust
Assistant Treasurer Daniel A. Hurley, III
Hanna M. Jarzebowski Senior Vice President
Assistant Treasurer Lois A. Muraro
Operations Vice President
Teresa D. Sasinski Jeffrey F. Otis
Senior Vice President & Secretary Vice President
Diane C. Rudy David J. Papallo
Vice President Vice President
Geraldine F. Valuk Irma C. Sulewski
Assistant Vice President Vice President
Maurizio D'Oca Robert E. Dell
Assistant Treasurer Vice President
Alina M. Grabala Maria F. Del Sesto
Assistant Treasurer Assistant Vice President
Laurie S. Mornhineway Annabell Priola
Assistant Treasurer Assistant Vice President
Barbara Powojski Elaine A. Niland
Assistant Treasurer Trust Officer
Non-deposit Investment Products
Roger T. Helal
Vice President
48
- -----------------------------
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 275C New Britain Avenue
New Britain, CT Plainville, CT
860-827-3656 860-793-6020
Meriden Office
834 Broad Street
Meriden, CT
203-317-3932
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
[LOGO OF PSB & T]
Peoples SAVING BANK & TRUST
[LOGO OF PEOPLES SAVINGS BANK & TRUST APPEARS HERE]