As filed with the Securities and Exchange Commission on May 21, 1997
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6712 06-1187536
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
----------
Webster Plaza
Waterbury, Connecticut 06702
(203) 753-2921
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------
John V. Brennan
Executive Vice President,
Chief Financial Officer and Treasurer
Webster Financial Corporation
Webster Plaza
Waterbury, Connecticut 06702
(203) 578-2335
(Name, address, including zip code, and telephone
number, including area code, of registrant's agent
for service)
------------------------
Copies to:
Stuart G. Stein, Esq. William W. Bouton, III, Esq.
Hogan & Hartson L.L.P. Tyler Cooper & Alcorn
555 Thirteenth Street, N.W. CityPlace One, 35th Floor
Washington, D.C. 20004 Hartford, Connecticut 06103
(202) 637-8575 (860) 725-6210
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
--------------------
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price registration fee
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Common Stock, par 2,157,261 $32.625* $70,380,640.125* $21,327.47*
value $.01 per share
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
* Estimated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities
Act of 1933, as amended, based upon the average of the high and low prices
for shares of common stock of People's Savings Financial Corp. as reported
on The Nasdaq National Market calculated as of May 19, 1997 and the exchange
ratio prescribed by the Agreement and Plan of Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
PEOPLE'S SAVINGS FINANCIAL CORP.
123 BROAD STREET
NEW BRITAIN, CONNECTICUT 06053
__________ __, 1997
TO THE SHAREHOLDERS OF
PEOPLE'S SAVINGS FINANCIAL CORP.:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of People's Savings Financial Corp. ("People's Corp.")
to be held on __________ __, 1997, at ____ __.m. at ________________,
Connecticut.
As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting you will be asked to approve the Agreement and Plan of Merger, dated as
of April 4, 1997 (the "Merger Agreement"), by and among Webster Financial
Corporation ("Webster"), Webster Subsidiary Corporation and People's Corp., and
the merger (the "Merger") provided for therein, pursuant to which People's Corp.
will be acquired by Webster. Upon the Merger, each outstanding share of People's
Corp. common stock (other than dissenting and certain other shares) will be
converted into the equivalent of $34.00 of Webster common stock, subject to
adjustment under certain circumstances, plus cash to be paid in lieu of
fractional shares. It is intended that the conversion of People's Corp. common
stock into Webster common stock will qualify as a tax-free exchange for federal
income tax purposes.
Each share of People's common stock will entitle its holder to one
vote. Consummation of Webster's acquisition of People's Corp. is subject to
certain conditions, including approval of the Merger Agreement by at least
two-thirds of the issued and outstanding shares of People's common stock
entitled to be voted at the Special Meeting and the receipt of certain
regulatory approvals.
Advest, Inc., the financial advisor of People's Corp. in connection
with the Merger, has delivered its opinion to the Board of Directors of People's
Corp. that the exchange ratio in the Merger is fair from a financial point of
view to the holders of People's Corp. common stock. The updated written opinion
of Advest is reproduced in full as Appendix A to the accompanying Proxy
Statement/Prospectus.
YOUR BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND THE MERGER
PROVIDED FOR THEREIN AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
THE REQUIRED VOTE OF THE PEOPLE'S CORP. SHAREHOLDERS WITH RESPECT TO
THE MERGER AGREEMENT IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF
PEOPLE'S COMMON STOCK AND NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY
VOTED. THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL
MEETING OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE THE SAME EFFECT
AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER.
You are urged to carefully read the Proxy Statement/Prospectus, which
provides you with a description of the Webster common stock and the terms of the
Merger. A copy of the Merger Agreement (including each of the exhibits thereto)
and the other documents described in the accompanying Proxy Statement/Prospectus
will be provided without charge upon oral or written request to Lee A. Gagnon,
Executive Vice President, Chief Operating Officer and Secretary of Webster
Financial Corporation, Webster Plaza, Waterbury, Connecticut 06702, telephone
(203) 578-2217. IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS
SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
Sincerely,
RICHARD S. MANSFIELD
President and Chief Executive Officer
PEOPLE'S SAVINGS FINANCIAL CORP.
123 BROAD STREET
NEW BRITAIN, CONNECTICUT 06053
-------------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
__________ __, 1997
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of People's Savings Financial Corp. ("People's Corp.") will
be held on __________ __, 1997, at ____ __.m. at ______________________,
Connecticut for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of
April 4, 1997 (the "Merger Agreement"), among Webster
Financial Corporation ("Webster"), Webster Subsidiary
Corporation ("Merger Sub") and People's Corp. and the
merger provided for therein. As more fully described
in the accompanying Proxy Statement/ Prospectus, the
Merger Agreement provides for People's Corp. to be
acquired by Webster by merging Merger Sub, a
wholly-owned subsidiary of Webster formed for such
purpose, into People's Corp. (the "Merger"). As part
of the Merger, each outstanding share of People's
Corp. common stock (other than dissenting and certain
other shares) will be converted into the equivalent
of $34.00 of Webster common stock, plus cash to be
paid in lieu of fractional shares; and
2. To transact such other business as may properly come
before the Special Meeting, or any adjournments or
postponements thereof, including, without limitation,
a motion to adjourn the Special Meeting to another
time and/or place for the purpose of soliciting
additional proxies in order to approve the Merger
Agreement and the Merger provided for therein or
otherwise.
The Board of Directors of People's Corp. has fixed the close of
business on __________ __, 1997 as the record date for the determination of
shareholders of People's Corp. entitled to notice of and to vote at the Special
Meeting. Only holders of record of the People's common stock at the close of
business on that date will be entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
RICHARD S. MANSFIELD
President and Chief Executive Officer
New Britain, Connecticut
__________ __, 1997
WE URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED
IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT ANY
TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
WEBSTER FINANCIAL CORPORATION PEOPLE'S SAVINGS FINANCIAL CORP.
Webster Plaza 123 Broad Street
Waterbury, Connecticut 06702 New Britain, Connecticut 06053
PEOPLE'S SAVINGS FINANCIAL CORP.
PROXY STATEMENT
----------------------
WEBSTER FINANCIAL CORPORATION
PROSPECTUS
2,157,261 Shares of Common Stock
----------------------
This Proxy Statement/Prospectus is being furnished to shareholders of
People's Savings Financial Corp. ("People's Corp."); it relates to the special
meeting of shareholders of People's Corp. (the "Special Meeting") to be held on
__________ __, 1997, at ____ __.m. at _______________________, Connecticut, and
to any adjournments or postponements of the Special Meeting. This Proxy
Statement/Prospectus is first being mailed to shareholders of People's Corp. on
or about __________ __, 1997.
At the Special Meeting, the principal item of business will be to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger, dated as of April 4, 1997 (the "Merger Agreement"), by and among Webster
Financial Corporation ("Webster"), Webster Subsidiary Corporation ("Merger
Sub"), and People's Corp. and the merger provided for therein.
The Merger Agreement provides for People's Corp. to be acquired by
Webster through a merger of Merger Sub, a wholly-owned subsidiary of Webster
formed for such purpose, into People's Corp. (the "Merger"). As part of the
Merger and except as described herein, each issued and outstanding share of
People's Corp. common stock, par value $1.00 per share ("People's Common
Stock"), other than dissenting and certain other shares, will be converted into
a specified number of shares of Webster Common Stock, par value $0.01 per share
("Webster Common Stock") (the "Exchange Ratio"). Cash will be paid in lieu of
fractional shares. The Exchange Ratio will be determined by dividing $34.00 by
the Base Period Trading Price (defined below), computed to five decimal places.
The Exchange Ratio is subject to adjustment such that if the Base Period Trading
Price is greater than $40.00, the Exchange Ratio will be 0.85000 and if the Base
Period Trading Price is less than $34.00, the Exchange Ratio will be 1.00000.
Furthermore, if the Base Period Trading Price is less than $32.00, the Merger
Agreement may be terminated by People's Corp. unless Webster elects that the
Exchange Ratio shall equal 1.06250, which may require Webster to register
additional shares with the Securities and Exchange Commission (the "SEC").
The "Base Period Trading Price" is the average of the daily closing
prices per share for Webster Common Stock for the 15 consecutive trading days on
which shares of Webster Common Stock are actually traded (as reported on The
Nasdaq National Market) ending on the day preceding the receipt of the last
required federal bank regulatory approval. Based on the average of the daily
closing prices per share for Webster Common Stock for the 15 consecutive trading
days on which shares of Webster Common Stock were actually traded prior to
__, 1997 (the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus) of $ * , the Exchange Ratio would be * . Because the
-- --
market price of Webster Common Stock is subject to fluctuation, the Exchange
Ratio for the number of shares of Webster Common Stock that holders of
- ----------
* Data information to be calculated/provided immediately prior to
effectiveness of Registration Statement.
-1-
People's Common Stock will receive in the Merger may materially increase or
decrease prior to the Merger. No assurance can be given as to the market price
of Webster Common Stock at the time of the Merger. See "MARKET PRICES AND
DIVIDENDS." In connection with the Merger Agreement, People's Corp. has granted
Webster an irrevocable option (the "Option") to purchase up to 476,167 newly
issued shares of People's Common Stock at a purchase price of $25.00 per share
(which price is subject to adjustment) upon the occurrence of certain events.
The Merger is subject to various conditions, including approvals of applicable
federal and Connecticut regulatory authorities. People's Corp. and Webster
expect that the Merger will be consummated in the third quarter of 1997, or as
soon as possible after the receipt of all regulatory and shareholder approvals
and the expiration of all regulatory waiting periods. If the Merger is not
consummated by December 31, 1997, the Merger Agreement will be terminated unless
People's Corp. and Webster mutually consent to an extension. For a more detailed
description of the Merger and the Option, see "THE MERGER."
This Proxy Statement/Prospectus also constitutes a prospectus of
Webster with respect to up to 2,157,261 shares of Webster Common Stock subject
to issuance in connection with the acquisition of People's Corp. by Webster
pursuant to the Merger Agreement.
THE WEBSTER COMMON STOCK OFFERED HEREBY INVOLVES RISK. PEOPLE'S CORP.
SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCLOSED UNDER "RISK
FACTORS" BEGINNING AT PAGE 21 RELATING TO CERTAIN FACTORS RELEVANT TO AN
ASSESSMENT OF WEBSTER AND THE WEBSTER COMMON STOCK.
THE WEBSTER COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SEC, ANY STATE SECURITIES COMMISSION, THE OFFICE OF THRIFT SUPERVISION ("OTS"),
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), OR THE CONNECTICUT
COMMISSIONER OF BANKING (THE "CONNECTICUT COMMISSIONER"), NOR HAS THE SEC, ANY
STATE SECURITIES COMMISSION, THE OTS, THE FDIC, OR THE CONNECTICUT COMMISSIONER
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF WEBSTER
COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FDIC, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENTAL AGENCY.
The information set forth in this Proxy Statement/Prospectus concerning
People's Corp. has been furnished by People's Corp. The information concerning
Webster and Merger Sub has been furnished by Webster. The descriptions of the
Merger Agreement, the Option Agreement and the Stockholder Agreement (as defined
herein) and other documents in this Proxy Statement/Prospectus are qualified by
reference to the text of those documents, which are incorporated herein by
reference, copies of which will be provided without charge upon written or oral
request addressed to Lee A. Gagnon, Executive Vice President, Chief Operating
Officer and Secretary of Webster Financial Corporation, Webster Plaza,
Waterbury, Connecticut 06702, telephone (203) 578-2217.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS, OR
INCORPORATED BY REFERENCE HEREIN, IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY PEOPLE'S CORP. OR THE OFFERING OF WEBSTER COMMON STOCK MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY PEOPLE'S CORP. OR WEBSTER. THIS PROXY STATEMENT/
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY WEBSTER COMMON STOCK OFFERED BY THIS PROXY
-2-
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF THE WEBSTER COMMON STOCK
OFFERED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PEOPLE'S CORP. OR WEBSTER OR THE INFORMATION HEREIN OR THE DOCUMENTS
OR REPORTS INCORPORATED BY REFERENCE SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
----------------------
The date of this Proxy Statement/Prospectus is __________ __, 1997.
-3-
AVAILABLE INFORMATION
People's Corp. and Webster are both subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, and in accordance therewith
file reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information can be obtained at prescribed rates from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, such reports, proxy statements and other information
filed by People's Corp. and Webster may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611 and 7 World Trade Center, Suite 1300, New York, New York 10048.
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC's Web site is (http://www.sec.gov). Webster
Common Stock and People's Common Stock are traded on The Nasdaq National Market.
Reports, proxy statements and other information concerning Webster and People's
Corp. can be inspected at the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
Webster has filed with the SEC a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Webster Common Stock to be issued to the
shareholders of People's Corp. in connection with the acquisition of People's
Corp. by Webster pursuant to the Merger Agreement. As permitted by the rules and
regulations of the SEC, this Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. Such additional information
may be obtained from the SEC's principal office in Washington, D.C. as set forth
above. Statements contained in this Proxy Statement/Prospectus or in any
document incorporated by reference herein as to the contents of any contract or
other document are not necessarily complete and, in each instance where such
contract or document is filed as an exhibit to the Registration Statement,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
INFORMATION DELIVERED AND INCORPORATED BY REFERENCE
A copy of the Quarterly Report on Form 10-Q of People's Corp. for the
quarter ended March 31, 1997 ("People's 10-Q") and the annual report to
shareholders of People's Corp. for the year ended December 31, 1996 are included
in this Proxy Statement/Prospectus as Appendix C and Appendix D, respectively.
The following documents filed by Webster with the SEC (File No.
0-15213) under the Exchange Act are hereby incorporated in this Proxy
Statement/Prospectus by reference: (i) Webster's Annual Report on Form 10-K for
the year ended December 31, 1996; (ii) Webster's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997; and (iii) Webster's Current Reports on
Form 8-K filed with the SEC on January 2, 1997, February 14, 1997, February 21,
1997, April 14, 1997 and May 20, 1997.
The following documents filed by People's Corp. with the SEC (File No.
0-18162) under the Exchange Act are hereby incorporated in this Proxy
Statement/Prospectus by reference: (i) the Annual Report on Form 10-KA of
People's Corp. for the year ended December 31, 1996; (ii) the People's 10-Q; and
(iii) the Current Report on Form 8-K of People's Corp. filed with the SEC on
April 17, 1997.
All documents filed by People's Corp. or Webster pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus. In
lieu of incorporating by reference the description of the capital stock of
-4-
Webster which is contained in a registration statement filed under the Exchange
Act, such description is included in this Proxy Statement/Prospectus. See
"DESCRIPTION OF WEBSTER CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus. Webster will provide without charge to each person,
including any beneficial owner, to whom a copy of this Proxy
Statement/Prospectus is delivered, upon written or oral request of such person,
a copy of any or all of the documents incorporated herein by reference and not
delivered herewith (not including exhibits to the information incorporated by
reference unless such exhibits are specifically incorporated by reference into
the text of such documents).
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM: LEE A. GAGNON, EXECUTIVE VICE PRESIDENT, CHIEF
OPERATING OFFICER AND SECRETARY, WEBSTER FINANCIAL CORPORATION, WEBSTER PLAZA,
WATERBURY, CONNECTICUT 06702; TELEPHONE (203) 578-2217. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AS SOON AS
POSSIBLE, BUT NO LATER THAN __________ __, 1997. [5 BUSINESS DAYS PRIOR TO
SPECIAL MEETING]
-5-
TABLE OF CONTENTS
PAGE PAGE
---- ----
Available Information....................... Webster Common Stock...................
People's Common Stock..................
Information Delivered and Incorporated
by Reference........................... Description of Webster Capital Stock and
Comparison of Shareholder Rights.......
Merger Summary.............................. Webster Common Stock...................
The Parties............................ Webster Preferred Stock................
The Merger............................. Senior Notes...........................
Description of Webster Capital Stock Capital Securities.....................
and Comparison of Shareholder Rights.. Certificate of Incorporation and Bylaw
Market Prices of Common Stock.......... Provisions.........................
Comparative Per Share Data............. Applicable Law.........................
Summary Financial and Other
Data............................... Adjournment of Special Meeting..............
Risk Factors................................ Shareholder Proposals.......................
Growth through Acquisitions............
Legislative and General Regulatory Other Matters...............................
Developments.......................
Sources of Funds for Cash Dividends.... Experts.....................................
Effect of Interest Rate Fluctuations...
Legal Matters...............................
Special Meeting.............................
Matters to be Considered at the Appendix A
Special Meeting.................... Opinion of Advest, Inc................. A-1
Record Date and Voting................. Appendix B
Vote Required; Revocability of Sections 33-855 to 33-872 of the Connecticut
Proxies............................ General Statutes..................... B-1
Solicitation of Proxies................ Appendix C
Quarterly Report on Form 10-Q of People's
The Merger.................................. Corp. for the Quarter Ended March 31,
The Parties............................ 1997................................. C-1
Background of the Merger............... Appendix D
Recommendation of the People's Corp. Annual Report to Shareholders of
Board of Directors and Reasons for People's Corp. ...................... D-1
the Merger.........................
Purpose and Effects of the Merger......
Structure..............................
Exchange Ratio.........................
Options................................
Regulatory Approvals...................
Conditions to the Merger...............
Conduct of Business Pending
the Merger.........................
Third Party Proposals..................
Expenses; Breakup Fee..................
Opinion of People's Corp. Financial
Advisor............................
Certain Provisions of the Merger
Agreement..........................
Termination and Amendment of
the Merger Agreement...............
Certain Federal Income Tax
Consequences.......................
Accounting Treatment...................
Resales of Webster Common Stock
Received in the Merger.............
Dissenters' Appraisal Rights...........
Interests of Certain Persons in
the Merger -- Arrangements with
and Payments to People's Corp.
Directors and Executive Officers...
Indemnification........................
Option Agreement.......................
Pro Forma Combined Financial
Statements.............................
Market Prices and Dividends.................
-6-
MERGER SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. This summary is not intended to be
a complete description and is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement/Prospectus.
SHAREHOLDERS OF PEOPLE'S CORP. ARE URGED BEFORE VOTING TO GIVE CAREFUL
CONSIDERATION TO ALL OF THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS.
THE PARTIES
WEBSTER. Webster is a Delaware corporation and the holding company of
Webster Bank, its wholly-owned federal savings bank subsidiary, both of which
are headquartered in Waterbury, Connecticut. Deposits at Webster Bank are FDIC
insured. Through Webster Bank, Webster currently serves customers from 78
banking offices located in New Haven, Fairfield, Litchfield, Hartford and
Middlesex Counties in Connecticut. Webster's focus is on providing financial
services to individuals, families and businesses. Webster emphasizes three
business lines consumer banking, business banking and mortgage banking; each
supported by centralized administration, marketing, finance and operations.
Webster Bank's goal is to provide banking services that are fairly priced,
reliable and convenient.
At March 31, 1997, Webster had total consolidated assets of $5.6
billion, total deposits of $4.1 billion, and shareholders' equity of $283.5
million, or 5.1% of total assets. The Webster consolidated financial statements
as of March 31, 1997 include DS Bancor, which was acquired by Webster on January
31, 1997. Webster Common Stock is quoted on The Nasdaq National Market under the
symbol "WBST". The address of Webster's principal executive offices is Webster
Financial Corporation, Webster Plaza, Waterbury, Connecticut 06702, and its
telephone number is (203) 753-2921. See "THE MERGER -- The Parties."
On May 6, 1997, Webster announced that it had entered into an Agreement
and Plan of Merger by which Webster will acquire Sachem Trust National
Association ("Sachem"), a trust company headquartered in Guilford, Connecticut
with $300 million in trust assets, in a tax free stock-for-stock exchange. Under
the terms of the agreement, Sachem shareholders will receive 0.493 shares of
Webster Common Stock for each share of Sachem common stock. Webster will issue
up to 85,333 shares of Webster Common Stock in exchange for all 173,000
outstanding shares of Sachem. Ten percent of the consideration will be held in
escrow pending certain conditions and may be used by Webster to fund certain
expenses detailed in the agreement. Sachem is the largest independent trust
compay in Connecticut and operates trust offices in Guilford, Wesport and
Greenwich. The acquisition is expected to close in the third quarter of 1997 and
be accounted for as a purchase.
MERGER SUB. Merger Sub, a Delaware corporation, is a wholly-owned
subsidiary of Webster formed solely to facilitate the Merger. The separate
corporate existence of Merger Sub will terminate upon the Merger.
PEOPLE'S CORP. People's Corp. is a Connecticut corporation and the
holding company of People's Savings Bank & Trust ("PSB&T"), its wholly-owned
Connecticut-chartered savings bank subsidiary, both of which are headquartered
in New Britain, Connecticut. Deposits at PSB&T are FDIC insured. Through PSB&T,
People's Corp. is engaged primarily in the business of attracting deposits from
the public and using such deposits, with other funds, to make various types of
loans and investments. Through PSB&T, People's Corp. currently serves customers
from nine banking offices and three trust offices located primarily in Hartford
and New Haven Counties, Connecticut. Its principal market encompasses the City
of New Britain and the Towns of Berlin, Newington, Southington, Rocky Hill,
Plainville and Meriden.
At March 31, 1997, People's Corp. had total consolidated assets of
$479.1 million, total deposits of $359.9 million, and shareholders' equity of
$46.0 million, or 9.6% of total assets. People's Common Stock is quoted on The
Nasdaq National Market under the symbol "PBNB". The address of People's Corp.'s
principal executive offices is People's Savings Financial Corp., 123 Broad
Street,
-7-
New Britain, Connecticut 06053, and its telephone number is (203) 224-7771. See
"THE MERGER -- The Parties."
THE MERGER
GENERAL. The Merger Agreement provides for the acquisition of People's
Corp. by Webster through the merger of Merger Sub into People's Corp., with
People's Corp. as the surviving corporation (the "Surviving Corporation").
Immediately after the consummation of the Merger, (i) Webster intends that the
Surviving Corporation will be merged into Webster, with Webster being the
surviving holding company, and (ii) PSB&T will be merged into Webster Bank (the
"Bank Merger"), with Webster Bank as the surviving federal savings bank. Webster
Bank will remain headquartered in Waterbury, Connecticut as an FDIC insured
federally chartered savings bank.
At the Effective Time (as defined below) of the Merger, except as
discussed below, each outstanding share of People's Common Stock will be
converted into the equivalent of $34.00 of Webster Common Stock, plus cash to be
paid in lieu of fractional shares. Shares held as treasury stock or held,
directly or indirectly, by Webster, People's Corp. or any of their subsidiaries
(other than shares held in a fiduciary capacity ("Trust Account Shares") or in
respect of a debt previously contracted ("DPC Shares")) will be canceled.
Dissenting Shares (defined below) will not be converted into the right to
receive shares of Webster Common Stock unless and until such shareholders shall
have failed to perfect or shall have effectively withdrawn or lost their rights
of payment under applicable law. See "THE MERGER -- Exchange Ratio," "--
Dissenters' Appraisal Rights" and Appendix B.
The Merger will result in an expansion of Webster's primary market area
to include PSB&T's banking offices and trust offices in Hartford and New Haven
Counties in Connecticut. The assets and business of PSB&T's banking offices will
broaden Webster's existing operations in Hartford and New Haven Counties where
Webster currently has 67 banking offices. The addition of PSB&T's trust offices
will strengthen Webster's franchise by increasing market share and by the
addition of trust and investment management services, which will expand
Webster's ability to address the financial needs of its consumer and business
banking customers. Webster expects to achieve reductions in the current
operating expenses of PSB&T upon the consolidation of PSB&T's operations into
Webster Bank, which would cause the closing of certain of PSB&T's or Webster's
existing banking offices as well as certain reductions in administrative and
support personnel.
People's Corp. and Webster expect that the Merger will be consummated
in the third quarter of 1997, or as soon as possible after the receipt of all
regulatory and shareholder approvals and the expiration of all regulatory
waiting periods. If the Merger is not consummated by December 31, 1997, the
Merger Agreement will be terminated unless People's Corp. and Webster mutually
consent to an extension. See "THE MERGER -- Structure."
EXCHANGE RATIO. At the Effective Time, except as discussed below, each
issued and outstanding share of People's Common Stock will be converted
automatically at the Exchange Ratio into the equivalent of $34 of Webster Common
Stock. Cash will be paid in lieu of fractional shares. Shares held as treasury
stock or held directly or indirectly by People's Corp., Webster or any of their
subsidiaries (other than Trust Account Shares or DPC Shares) shall be canceled.
Dissenting Shares will not be converted into the right to receive shares of
Webster Common Stock unless and until such shareholders shall have failed to
perfect or shall have effectively withdrawn or lost their rights of payment
under applicable law. See "THE MERGER -- Dissenters' Appraisal Rights" and
Appendix B. The Exchange Ratio is determined by dividing $34.00 by the Base
Period Trading Price computed to five decimal places. The Exchange Ratio is
subject to adjustment such that if the Base Period Trading Price is greater than
$40.00, the Exchange Ratio will be 0.85000 and if the Base Period Trading Price
is less than $34.00, the Exchange Ratio will be 1.00000. Furthermore, if the
Base Period Trading Price is less than $32.00, the Merger Agreement may be
terminated by People's Corp. unless Webster elects that the Exchange Ratio shall
equal 1.06250.
-8-
Based on the $ * average of the daily closing prices per share for
--
Webster Common Stock for the 15 consecutive trading days on which shares of
Webster Common Stock were actually traded prior to _____________ _______, 1997
(the most recent practicable date prior to the date of this Proxy Statement/
Prospectus), the Exchange Ratio would be * . Because the market price of Webster
--
Common Stock is subject to fluctuation, the Exchange Ratio for the number of
shares of Webster Common Stock that holders of People's Common Stock will
receive in the Merger may materially increase or decrease prior to the Merger.
No assurance can be given as to the market price of Webster Common Stock at the
time of the Merger. See "MARKET PRICES AND DIVIDENDS." Such variance would not
alter the obligation of Webster or People's Corp. to consummate the Merger,
except as provided above. Based on the * shares of People's Common Stock
--
outstanding on _________________ ___, 1997 and the Exchange Ratio of * , Webster
--
would issue up to _______*________ shares of Webster Common Stock to the
People's Corp. shareholders in the Merger, plus cash in lieu of fractional
shares. These numbers do not reflect additional shares of Webster Common Stock
to be issued in the event of the exercise prior to the Merger of the *
--
existing options to purchase shares of People's Common Stock pursuant to the
stock option plans of People's Corp. held by directors, officers and employees
of People's Corp. (each, a "People's Option"). See "THE MERGER -- Exchange
Ratio."
OPTIONS. As of _________ __, 1997 (the "Record Date"), there were
outstanding People's Options to purchase _________ shares of People's Common
Stock, at an average exercise price of $____ per share. Under the Merger
Agreement, shares of People's Common Stock issued prior to consummation of the
Merger upon the exercise of outstanding People's Options held by directors,
officers and other employees of People's Corp. will be converted into People's
Common Stock at the Exchange Ratio, and each People's Option that is not
exercised immediately prior to the Effective Time will be converted
automatically into an option to purchase shares of Webster Common Stock, with
adjustment in the number of shares and exercise price to reflect the Exchange
Ratio. See "THE MERGER -- Options."
SPECIAL MEETING. The Special Meeting will be held on __________ __,
1997 at ____ __.m. at _____________________________, Connecticut, at which time
the holders of record of People's Common Stock at the close of business on the
Record Date will be asked to consider and vote upon: (i) a proposal to approve
and adopt the Merger Agreement and the Merger provided for therein, and (ii)
such other matters as may properly be brought before the Special Meeting or any
adjournments or postponements thereof. The affirmative vote of the holders of
two-thirds of the issued and outstanding shares of People's Common Stock
entitled to vote at the Special Meeting is required to approve and adopt the
Merger Agreement and the Merger provided for therein.
All of the directors and executive officers of People's Corp., who
beneficially owned as of the Record Date an aggregate of __________ shares of
People's Common Stock (excluding all People's Options) or approximately ____% of
the outstanding shares of People's Common Stock, have entered into a stockholder
agreement with Webster, dated as of April 4, 1997 (the "Stockholder Agreement"),
pursuant to which they have each agreed, among other things, to certain transfer
restrictions and to vote all shares of People's Common Stock with respect to
which they have the right to vote in favor of the Merger Agreement, the Merger
and the other transactions contemplated by the Merger Agreement and against any
third party merger proposal. No separate consideration was paid to any of the
directors or executive officers for entering into the Stockholder Agreement.
Webster required that the Stockholder Agreement be executed as a condition to
Webster entering into the Merger Agreement. See "SPECIAL MEETING."
The Board of Directors of People's Corp. believes that the terms of the
Merger Agreement are fair to, and in the best interests of, People's Corp. and
its shareholders. THE BOARD OF DIRECTORS OF PEOPLE'S CORP. APPROVED THE MERGER
AGREEMENT AND THE MERGER PROVIDED FOR THEREIN AND
- ----------
* Data information to be calculated/provided immediately prior to
effectiveness of Registration Statement
-9-
RECOMMENDS THAT HOLDERS OF PEOPLE'S COMMON STOCK VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. For a discussion of the factors
considered by the Board of Directors in reaching its decision, see "THE MERGER
- -- Background of the Merger" and "-- Recommendation of the People's Corp. Board
of Directors and Reasons for the Merger."
FAIRNESS OPINION. On April 4, 1997, Advest, Inc. ("Advest") delivered
its initial opinion to the Board of Directors of People's Corp. that the
Exchange Ratio is fair, from a financial point of view, to the shareholders of
People's Corp. The opinion of Advest describes the matters considered and the
scope of the review undertaken in rendering such opinion. Advest's opinion and
presentations to the People's Corp. Board of Directors, together with a review
by the People's Corp. Board of the assumptions used by Advest, were among the
factors considered by the People's Corp. Board in reaching its determination to
approve the Merger Agreement and the Merger. On April 4, 1997, the date that
Advest delivered its initial opinion, Webster Common Stock closed at $_____ per
share. See "THE MERGER -- Opinion of People's Corp. Financial Advisor." A copy
of Advest's updated opinion letter dated the date of this Proxy
Statement/Prospectus is attached as Appendix A to this Proxy
Statement/Prospectus and should be read by People's Corp. shareholders in its
entirety.
REGULATORY APPROVALS. Consummation of the Merger is conditioned upon
receipt of required regulatory approvals of the Connecticut Commissioner and the
OTS and the approval or waiver of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). Applications as to such approvals of the
Connecticut Commissioner and the OTS and a request for a waiver from the Federal
Reserve Board have been filed and are pending. No other regulatory approvals are
required to effect the Merger pursuant to the Merger Agreement. Neither People's
Corp. nor Webster is aware of any reason why all required regulatory approvals
or waivers should not be obtained. See "THE MERGER -- Regulatory Approvals."
ACCOUNTING TREATMENT. The Merger is intended to qualify as a
"pooling-of-interests" for accounting and financial reporting purposes.
Consummation of the Merger is conditioned upon the Merger so qualifying. See
"THE MERGER -- Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES. It is intended that the Merger will
qualify as a tax-free reorganization for federal income tax purposes and that
People's Corp. shareholders generally should not recognize gain or loss for
federal income tax purposes as a result of exchanging their People's Common
Stock for the Webster Common Stock issued in the Merger. See "THE MERGER --
Certain Federal Income Tax Consequences."
DISSENTERS' APPRAISAL RIGHTS. The holders of Webster Common Stock have
no dissenters' rights in connection with the Merger.
Under Connecticut law, holders of People's Common Stock are entitled to
dissenters' rights of appraisal in connection with the Merger. Shares of
People's Common Stock that are issued and outstanding immediately prior to the
Effective Time that are owned by shareholders who have properly dissented from
the Merger (collectively, "Dissenting Shares") pursuant to Sections 33-855 to
33-872, inclusive, of the Connecticut General Statutes (the "CGS"), shall not be
converted into the right to receive shares of Webster Common Stock, unless and
until such shareholders shall have failed to perfect or shall have effectively
withdrawn or lost their right of payment under applicable law. If any such
shareholder shall have failed to perfect or shall have effectively withdrawn or
lost such right of payment, the shares of People's Common Stock held by such
shareholder shall thereupon be deemed to have been converted into the right to
receive and become exchangeable for, at the Effective Time, shares of Webster
Common Stock pursuant to the Merger Agreement. See "THE MERGER -- Dissenters'
Appraisal Rights" and Appendix B to this Proxy Statement/Prospectus, which set
forth the steps to be taken by a holder of People's Common Stock who wishes to
exercise the right to dissent.
EFFECTIVE TIME. The Merger will become effective on the date and time
set forth in the certificates of merger to be filed with the Secretary of State
of the State of Connecticut and the
-10-
Secretary of State of the State of Delaware in accordance with applicable law
(the "Effective Time"). The certificates of merger will be filed (i) on the
fifth day after the last required regulatory approval is received and all
applicable waiting periods have expired, or (ii) such other time as the parties
may agree. People's Corp. and Webster expect that the Merger will be consummated
in the third quarter of 1997, or as soon as possible after the receipt of all
regulatory and shareholder approvals and the expiration of all regulatory
waiting periods.
TERMINATION. The Merger Agreement may be terminated at any time prior
to the Effective Time by the mutual consent of People's Corp. and Webster and by
either of them individually under certain specified circumstances, including if
the Merger is not consummated by December 31, 1997. See "THE MERGER --
Termination and Amendment of Merger Agreement."
EXCHANGE OF PEOPLE'S COMMON STOCK CERTIFICATES. Upon the Effective
Time, each holder of a certificate representing People's Common Stock issued and
outstanding immediately prior to the Merger will, upon the surrender thereof
(duly endorsed, if required) to Webster's transfer agent, American Stock
Transfer & Trust Company (the "Exchange Agent"), be entitled to receive a
certificate representing the number of whole shares of Webster Common Stock into
which such People's Common Stock will have been automatically converted as part
of the Merger. The Exchange Agent will mail a letter of transmittal with
instructions to all holders of record of People's Common Stock immediately after
the Effective Time for use in surrendering their certificates for People's
Common Stock in exchange for new certificates representing Webster Common Stock.
CERTIFICATES SHOULD NOT BE SURRENDERED BY PEOPLE'S CORP. SHAREHOLDERS UNTIL THE
LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. See "THE MERGER -- Exchange
Ratio."
OPTION AGREEMENT. As a condition of and inducement to Webster's
entering into the Merger Agreement, Webster and People's Corp. entered into an
option agreement, dated as of April 4, 1997 (the "Option Agreement"),
immediately after their execution of the Merger Agreement. The Option Agreement
is intended to discourage the making of alternative acquisition-related
proposals, even if such proposal is for a higher price per share for People's
Common Stock than the price per share consideration to be paid pursuant to the
Merger Agreement.
If the Option granted pursuant to the Option Agreement becomes
exercisable, Webster may purchase at a price of $25.00 per share up to 476,167
newly issued shares of People's Common Stock, or approximately 19.99% of the
People's Common Stock, giving effect to the exercise of the Option. The Option
would become exercisable primarily upon the occurrence of certain events that
result in a third party acquiring control of People's Corp. To the knowledge of
People's Corp., no event that would permit exercise of the Option has occurred
as of the date hereof. If the Option becomes exercisable, Webster or any
permitted transferee of Webster may, under certain circumstances, require
People's Corp. to repurchase, for a formula price, the Option (in lieu of its
exercise) or any shares of People's Common Stock purchased upon exercise of the
Option. See "THE MERGER -- Option Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- ARRANGEMENTS WITH AND
PAYMENTS TO PEOPLE'S CORP. DIRECTORS AND EXECUTIVE OFFICERS. The Merger
Agreement provides for one director of People's Corp. (selected by the Board of
Directors of Webster in consultation with People's Corp.) to be invited to serve
as an additional member of the Board of Directors of Webster Bank upon
consummation of the Merger for a term not to expire prior to Webster's 2000
annual meeting of shareholders. This director will receive director's fees on
the same basis as other non-employee directors of Webster Bank who are not
directors of Webster. In addition, the non-employee directors of People's Corp.
serving immediately prior to the Effective Time will be invited to serve on an
advisory board to Webster Bank after the Bank Merger for a period of up to 24
months, with their compensation as advisory directors to be based on a quarterly
retainer of $3,500 and a quarterly meeting attendance fee of $1,500. Such fees
will not be payable to the advisory director who also serves as a Webster Bank
director.
-11-
Pursuant to existing employment and severance agreements of PSB&T,
severance payments will be made upon consummation of the Merger to Richard S.
Mansfield, John G. Medvec and Teresa D. Sasinski. The payments to Messrs.
Mansfield and Medvec and Ms. Sasinski, which are limited to the maximum amount
that can be paid without adverse tax consequences under Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), will be based on three
times their respective average annual compensation includible in their gross
income for federal tax purposes for the calendar years 1992 through 1996,
including taxable income attributable to stock options exercised. On this basis,
the severance payable to Messrs. Mansfield and Medvec and Ms. Sasinski upon
consummation of the Merger would be approximately $494,000, $357,000, and
$197,000, respectively.
Webster has agreed to honor existing written deferred compensation,
employment, change of control and severance contracts with the directors and
employees of People's Corp. and PSB&T. The employment agreements of Messrs.
Mansfield and Medvec and Ms. Sasinski were amended in connection with the Merger
Agreement. As amended, those agreements provide that upon consummation of the
Merger, Webster Bank has agreed to employ Messrs. Mansfield and Medvec and Ms.
Sasinski for three years as officers of Webster Bank. Webster Bank will also
offer a position of at-will employment to each of PSB&T branch office personnel
in good standing at the Effective Time and will provide severence as well as
outplacement assistance to other employees of People's Corp. and PSB&T who are
not offered positions at the Effective Time. See "THE MERGER -- Interests of
Certain Persons in the Merger -- Arrangements with and Payments to People's
Corp. Directors and Executive Officers."
Webster has agreed to (i) indemnify the directors, officers and
employees of People's Corp. as to certain matters, and (ii) subject to the
conditions set forth in the Merger Agreement, use commercially reasonable
efforts to cause the persons serving as officers and directors of People's Corp.
immediately prior to the Effective Time to be covered by directors' and
officers' liability insurance for a period of at least one year. See "THE MERGER
- -- Indemnification."
DESCRIPTION OF WEBSTER CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, the holders of People's Common Stock will
become holders of Webster Common Stock. There are certain differences between
the rights of Webster shareholders and People's Corp. shareholders. For a
description of the capital stock of Webster and a summary of such differences in
shareholder rights, see "DESCRIPTION OF WEBSTER CAPITAL STOCK AND COMPARISON OF
SHAREHOLDER RIGHTS."
-12-
MARKET PRICES OF COMMON STOCK
Both Webster Common Stock and People's Common Stock are traded on The
Nasdaq National Market. The symbol for Webster Common Stock is "WBST". The
symbol for People's Common Stock is "PBNB".
The following table sets forth per share closing prices of the Webster
Common Stock and the People's Common Stock on The Nasdaq National Market as of
the dates specified and the pro forma equivalent market value of the Webster
Common Stock to be issued for the People's Common Stock in the Merger. See
"MARKET PRICES AND DIVIDENDS."
People's
Common Stock
Last Reported Sale Price Pro Forma
Webster People's Equivalent Market
Date Common Stock Common Stock Value (a)
- ---- ------------ ------------ ----------------
December 31, 1995....................... $29.50 $19.25 $*
December 31, 1996....................... 36.75 27.75 *
March 31, 1997.......................... 35.13 32.00 *
April 3, 1997 (b)....................... 35.50 32.00 *
_________ __, 1997 (c)..................
- ----------
(a) Determined by multiplying the respective closing prices of the Webster
Common Stock by the Exchange Ratio calculated based on the average of the
daily closing prices per share of Webster Common Stock for the 15
consecutive trading days on which shares of Webster Common Stock were
actually traded prior to _________ __, 1997 (the most recent practicable
date prior to the date of this Proxy Statement/Prospectus). See "THE MERGER
-- Exchange Ratio."
(b) Last trading date prior to announcement of the execution of the Merger
Agreement.
(c) The most recent practicable date prior to the date of this Proxy
Statement/Prospectus.
Shareholders are advised to obtain current market quotations for
Webster Common Stock. It is expected that the market price of Webster Common
Stock will fluctuate between the date of this Proxy Statement/Prospectus and the
date on which the Merger is consummated. No assurance can be given as to the
market price of Webster Common Stock at the time of the Merger.
COMPARATIVE PER SHARE DATA
Following are certain comparative selected historical per share data of
Webster and of People's Corp., pro forma combined per share data of Webster and
People's Corp., and equivalent pro forma per share data of People's Corp. The
financial data is based on, and should be read in conjunction with, the
historical consolidated financial statements and the notes thereto of Webster
and of People's Corp. and the pro forma combined financial statements and the
notes thereto appearing in or incorporated by reference elsewhere into this
Proxy Statement/Prospectus. All financial data presented for Webster prior to
December 31, 1996 has been restated to reflect the financial results of DS
Bancor. All per share data of Webster, People's Corp. and pro forma are
presented on a fully diluted basis and have been adjusted retroactively to give
effect to stock dividends. The pro forma data is not necessarily indicative of
results which will be obtained on a combined basis. The pro forma data has not
been adjusted to reflect any of the improvements in operating efficiencies that
Webster anticipates may occur in the future due to the Merger.
- ----------
* Data/information to be calculated/provided immediately prior to
effectiveness of Registration Statement.
-13-
At or for the Three
Months Ended
March 31, 1997 At or for the Year Ended December 31,
-------------- -------------------------------------
Net Income (loss) per fully diluted Common Share: 1996 1995 1994
---- ---- ----
Webster -- historical (a)..................... $ (.41) $ 2.70 $ 2.25 $ 2.19
People's Corp. -- historical................... .54 2.03 1.70 1.76
Pro Forma Combined (a) (b)..................... (.28) 2.64 2.20 2.12
People's Corp. Equivalent Pro Forma (c)........ * * * *
Cash Dividends per Common Share:
Webster -- historical......................... .18 .68 .64 .52
People's Corp. -- historical.................. .23 .91 .88 .88
Pro Forma Combined............................ .18 .68 .64 .52
People's Corp. Equivalent Pro Forma (c)....... * * * *
Book Value per Common Share:
Webster -- historical......................... 23.78 24.72 23.72 20.20
People's Corp. -- historical.................. 24.14 24.24 22.90 20.73
Pro Forma Combined (b)........................ 23.73 24.94 24.16 21.12
People's Corp. Equivalent Pro Forma (c)....... * * * *
- ----------
(a) Includes non-recurring expenses of $25.5 million ($19.9 million of merger
related costs and $5.6 million of provisions for loan losses related to the
DS Bancor, Inc. ("DS Bancor") acquisition), $500,000 of merger related
costs related to the acquisition of 20 banking offices of Shawmut Bank
Connecticut National Association (now Fleet National Bank of Connecticut)
("Shawmut Acquisition"), $5.2 million ($4.7 million for a special
assessment related to the recapitalization of the SAIF and $500,000 for
conversion costs related to the Shawmut acquisition), $6.4 million ($3.3
million of expenses related to the Shelton Bancorp, Inc. ("Shelton")
acquisition, $2.1 million of expenses related to changing the name of and
merging together Webster's banking subsidiaries, and $1.0 million of
expenses related to charges incurred in the preparation for the Shawmut
Acquisition), and $5.7 million ($5.0 million related to the write-down of
the First Constitution Bank ("First Constitution") core deposit intangible
asset and $700,000 of expenses related to the Shoreline Bank & Trust
Company ("Shoreline") acquisition) for the three months ended March 31,
1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994,
respectively.
(b) Pro forma combined amounts shown above reflect the proposed acquisition of
People's Corp. on a pooling-of-interests basis for each period shown as if
the Merger had occurred at the beginning of such period.
(c) People's Corp. equivalent pro forma per share amounts are calculated by
multiplying the pro forma combined amounts by the Exchange Ratio calculated
based on the average daily closing prices per share of Webster Common Stock
for the 15 consecutive trading days on which shares of Webster Common Stock
were actually traded prior to __________ ___, 1997 (the most recent
practicable date prior to the date of this Proxy Statement/Prospectus). See
"THE MERGER -- Exchange Ratio."
- ----------
* Data/information to be calculated/provided immediately prior to
effectiveness of Registration Statement.
-14-
SUMMARY FINANCIAL AND OTHER DATA
The following tables present summary historical financial and other
data for Webster and People's Corp. as of the dates and for the periods
indicated. This summary data is based upon, and should be read in conjunction
with, the historical and pro forma consolidated financial statements and notes
thereto of Webster and People's Corp. incorporated by reference or appearing
elsewhere herein. As to historical information, see "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." For pro forma information, see "-- Comparative Per
Share Data" above and "PRO FORMA COMBINED FINANCIAL STATEMENTS" appearing
elsewhere herein. The pro forma combined financial statements also include the
proposed acquisition of Sachem. All adjustments necessary for a fair
presentation of financial position and results of operations of interim periods
have been included. The pro forma amounts are not necessarily indicative of
results which will be obtained on a combined basis. The pro forma data has not
been adjusted to reflect any of the improvements in operating efficiencies that
Webster anticipates may occur in the future due to the Merger. All financial
data presented for Webster prior to December 31, 1996 has been restated to
reflect the financial results of DS Bancor.
SELECTED CONSOLIDATED FINANCIAL DATA - WEBSTER
FINANCIAL CONDITION
AND OTHER DATA - WEBSTER
(DOLLARS IN THOUSANDS) AT MARCH 31, AT DECEMBER 31,
----------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- ----------- --------
Total Assets........................ $ 5,583,619 $ 5,056,948 $ 5,126,278 $ 4,474,153 $ 4,276,541 $ 3,677,524 $ 3,558,429
Loans Receivable, Net............... 3,431,896 3,376,721 3,384,465 2,767,295 2,708,643 2,247,222 2,230,190
Securities.......................... 1,778,028 1,251,335 1,376,479 1,374,621 1,159,803 1,013,007 712,501
Segregated Assets, Net.............. 69,889 98,967 75,670 104,839 137,096 176,998 223,907
Core Deposit Intangible (a)......... 44,971 49,831 46,442 7,565 9,061 16,083 20,426
Deposits............................ 4,054,179 4,199,007 4,099,501 3,458,347 3,459,691 2,972,795 2,990,010
FHL Bank Advances and Other
Borrowings....................... 1,081,081 491,361 654,757 649,990 525,520 418,593 316,726
Shareholders' Equity................ 283,537 291,621 292,093 290,782 223,944 192,713 187,780
Number of Banking Offices........... 78 67 78 67 67 62 61
OPERATING DATA - WEBSTER AT OR FOR THE
(DOLLARS IN THOUSANDS) THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest Income..................... $ 92,026 $ 84,179 $ 355,937 $ 305,400 $ 268,102 $ 228,924 $ 165,165
Interest Expense.................... 50,655 49,302 200,993 183,108 141,282 124,619 93,090
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income................. 41,371 34,877 154,944 122,292 126,820 104,305 72,075
Provision for Loan Losses........... 7,025 1,650 8,850 5,625 5,480 7,072 6,949
Noninterest Income.................. 7,305 5,734 29,524 25,659 16,730 18,046 11,478
Noninterest Expenses:
Non-recurring Expenses........... 19,858 500 5,230 6,371 5,700 - -
Foreclosed Property Expenses, Net 437 1,393 3,389 5,801 9,853 9,886 9,882
Other Noninterest Expenses....... 30,564 24,786 112,122 90,955 89,352 72,224 45,168
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Noninterest Expenses..... 50,859 26,679 120,741 103,127 104,905 82,110 55,050
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) before Income Taxes... (9,208) 12,282 54,877 39,199 33,165 33,169 21,554
Income Taxes........................ (4,250) 4,594 20,390 13,266 8,770 13,943 10,300
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) before Cumulative
Change .......................... (4,958) 7,688 34,487 25,933 24,395 19,226 11,254
Cumulative Change (b)............... - - - - - 6,123 -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss)................... (4,958) 7,688 34,487 25,933 24,395 25,349 11,254
Preferred Stock Dividends........... - 324 1,149 1,296 1,716 2,653 581
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) Available to Common
Shareholders..................... $ (4,958) $ 7,364 $ 33,338 $ 24,637 $ 22,679 $ 22,696 $ 10,673
=========== =========== =========== =========== =========== =========== ===========
Loan Originations During Period..... $ 174,972 $ 151,283 $ 748,604 $ 556,103 $ 1,001,643 $ 657,492 $ 505,255
Net Increase (Decrease) in Deposits. (45,322) 740,660 641,154 (1,344) 486,896 (17,215) 1,477,776
Loans Serviced for Others........... 1,116,342 874,246 1,151,021 900,153 1,078,637 507,599 854,390
Capitalized Mortgage Loan
Servicing Rights................. 5,425 2,594 5,349 2,999 4,807 1,955 3,163
See footnotes on the following page
-15-
SIGNIFICANT STATISTICAL DATA - WEBSTER
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- --------- ---------- -----------
FOR THE PERIOD: (c)
Net Income (Loss) per Common Share:
Primary............................ $ (0.41)(d) $ 0.62(d) $ 2.82(d) $ 2.35(d) $ 2.31(d) $ 1.93(f) $ 1.29
Fully Diluted...................... $ (0.41)(d) $ 0.60(d) $ 2.70(d) $ 2.25(d) $ 2.19(d) $ 1.83(f) $ 1.28
Cash Dividends Paid per Common
Share.............................. $ 0.18 $ 0.16 $ 0.68 $ 0.64 $ 0.52 $ 0.50 $ 0.48
Return on Average Assets.............. (0.38)%(e) 0.65%(e) 0.68%(e) 0.60%(e) 0.61%(e) 0.54%(f) 0.51%
Return on Average Shareholders'
Equity............................. (6.97)%(e) 10.54%(e) 11.54%(e) 10.47%(e) 11.23%(e) 10.04%(f) 7.47%
Average Shareholders' Equity to
Average Assets..................... 5.40% 6.12% 5.90% 5.69% 5.44% 5.35% 6.79%
Interest Rate Spread.................. 3.20% 2.96% 3.13% 2.79% 3.16% 2.97% 3.26%
Net Yield on Average Earning Assets... 3.32% 3.09% 3.22% 2.92% 3.22% 3.05% 3.42%
Noninterest Expenses to Average
Assets............................. 3.93% 2.24% 2.39% 2.37% 2.62% 2.29%(f) 2.48%
Noninterest Expenses (Excluding
Foreclosed Property Expenses and
Provisions) to Average Assets (c).. 3.83%(e) 2.12%(e) 2.22%(e) 2.23%(e) 2.38%(e) 2.02% 2.04%
Ratio of Earnings to Fixed Charges.... 0.24x 2.14x 2.29x 1.80x 1.95x 2.32x 2.54%
AT END OF PERIOD:
Book Value per Common Share .......... $ 23.78 $ 24.05 $ 24.72 $ 23.72 $ 20.20 $ 19.88 $ 19.75
Tangible Book Value per Common
Share.............................. $ 19.95 $ 19.68 $ 20.66 $ 23.06 $ 19.32 $ 17.98 $ 17.27
Common Shares Outstanding (000's)..... 11,953 11,413 11,418 11,536 10,234 8,435 8,242
Shareholders' Equity to Total Assets.. 5.08% 5.77% 5.70% 6.50% 5.24% 5.24% 5.28%
Nonaccrual Assets to Total Assets..... 0.94% 1.45% 1.03% 1.62% 1.99% 2.42% 2.94%
Allowance for Loan Losses to
Nonaccrual Loans.................. 124.58% 102.59% 103.87% 94.37% 107.29% 98.14% 87.08%
Allowances for Nonaccrual Assets to
Nonaccrual Assets.................. 92.43% 72.69% 78.73% 67.72% 66.32% 60.92% 62.88%
(a) The increase in the core deposit intangible in 1996 is a result of certain
assets and liabilities purchased in the Shawmut acquisition.
(b) Reflects cumulative change in method of accounting for income taxes adopted
by Webster in 1993 in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 ("FASB 109").
(c) Includes non-recurring expenses of $25.5 million ($19.9 million of merger
related costs and $5.6 million of provisions for loan losses related to the
DS Bancor acquisition), $500,000 of merger related costs related to the
Shawmut Acquisition, $5.2 million ($4.7 million for a special assessment
related to the recapitalization of the SAIF and $500,000 for conversion
costs related to the Shawmut acquisition), $6.4 million ($3.3 million of
expenses related to the Shelton acquisition, $2.1 million of expenses
related to changing the name of and merging together Webster's banking
subsidiaries, and $1.0 million of expenses related to charges incurred in
the preparation for the Shawmut Acquisition), and $5.7 million ($5.0
million related to the write-down of the First Constitution core deposit
intangible asset and $700,000 of expenses related to the Shoreline
acquisition) for the three months ended March 31, 1997 and 1996 and for the
years ended December 31, 1996, 1995, and 1994, respectively.
(d) Net income per common share calculated on a primary and fully diluted
basis, excluding non-recurring expenses, was $.83 and $.82, respectively,
for the three months ended March 31, 1997, $.65 and $.62, respectively, for
the three months ended March 31, 1996, $3.08 and $2.94, respectively, for
the year ended December 31, 1996, $2.70 and $2.57, respectively, for the
year ended December 31, 1995 and $2.65 and $2.48, respectively, for the
year ended December 31, 1994.
(e) Return on average assets, excluding non-recurring expenses, was .76%, .67%,
.74%, .68% and .69% for the three months ended March 31, 1997 and 1996, and
for the years ended December 31, 1996, 1995 and 1994, respectively. Return
on average shareholders' equity, excluding non-recurring expenses, was
14.11%, 10.94%, 12.56%, 11.96%, and 12.75% for the three months ended March
31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994,
respectively. Noninterest expenses (excluding foreclosed property expenses
and provisions) to average assets, excluding non-recurring expenses, was
2.20%, 2.08%, 2.29%, 2.09%, and 2.23% for the three months ended March 31,
1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994,
respectively.
(f) Does not give effect to $6.1 million of additional income in 1993 resulting
from the cumulative change of Webster's adoption of FASB 109. Giving effect
to such cumulative change, (i) net income per common share for 1993 was
$2.60 on a primary basis and $2.43 on a fully diluted basis; (ii) return on
average assets for 1993 was .76%; and (iii) return on average shareholders'
equity for 1993 was 12.80%.
- 16 -
SELECTED CONSOLIDATED FINANCIAL DATA - PEOPLE'S CORP.
FINANCIAL CONDITION
AND OTHER DATA - PEOPLE'S CORP. AT MARCH 31, AT DECEMBER 31,
------------- -----------------------------------------------------
(Dollars in Thousands) 1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
Total Assets.......................... $ 479,099 $ 406,276 $ 482,394 $ 410,164 $ 402,089 $ 354,927 $ 335,396
Loans Receivable, Net................. 261,799 242,850 258,057 237,719 226,324 212,173 231,282
Securities............................ 194,891 129,601 202,916 132,232 141,753 122,161 76,452
Deposits.............................. 359,853 342,181 358,060 339,365 321,702 299,467 283,495
FHL Bank Advances and Other
Borrowings......................... 67,545 14,608 71,250 18,950 33,450 7,910 7,000
Shareholders' Equity.................. 46,025 43,925 46,201 44,713 41,321 42,438 40,275
Number of Banking Offices............. 9 9 9 8 8 6 6
OPERATING DATA - PEOPLE'S CORP. AT OR FOR THE THREE MONTHS
(DOLLARS IN THOUSANDS) ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
Interest Income....................... $ 8,516 $ 7,059 $ 30,521 $ 27,522 $ 25,062 $ 24,146 $ 25,366
Interest Expense...................... 4,654 3,772 16,428 14,483 11,270 10,666 12,552
------------------------------------------------------ --------------------
Net Interest Income................... 3,862 3,287 14,093 13,039 13,792 13,480 12,814
Provision for Loan Losses............. 240 64 938 101 129 1,010 1,255
Noninterest Income.................... 741 566 2,655 2,243 737 1,978 934
Noninterest Expenses:
Foreclosed Property Expenses, Net.. 35 (1) 118 453 253 527 713
Other Noninterest Expenses......... 2,577 2,369 9,696 9,156 8,141 6,364 5,561
--------- --------- --------- --------- --------- --------- ---------
Total Noninterest Expenses....... 2,612 2,368 9,814 9,609 8,394 6,891 6,274
--------- --------- --------- --------- --------- --------- ---------
Income before Income Taxes......... 1,751 1,421 5,996 5,572 6,006 7,557 6,219
Income Taxes.......................... 677 533 1,982 2,184 2,441 3,090 2,923
--------- --------- --------- --------- --------- --------- ---------
Net Income before Cumulative Change .. $ 1,074 $ 888 $ 4,014 $ 3,388 $ 3,565 $ 4,467 $ 3,296
Cumulative Change..................... 285
--------- --------- --------- --------- --------- --------- ---------
Net Income Available to Common
Shareholders....................... $ 1,074 $ 888 $ 4,014 $ 3,388 $ 3,565 $ 4,752 $ 3,296
========= ========= ========= ========= ========= ========= =========
Loan Originations During Period....... $ 15,881 $ 14,803 $ 68,975 $ 51,206 $ 64,177 $ 82,524 $ 93,858
Net Increase in Deposits.............. 1,793 2,816 18,695 17,663 22,235 15,972 32,727
Loans Serviced for Others............. 63,557 65,320 63,661 66,833 67,835 64,745 42,335
Capitalized Mortgage Loan
Servicing Rights................... 42 - 35 - - - -
- 17 -
SIGNIFICANT STATISTICAL DATA - PEOPLE'S CORP.
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- --------
FOR THE PERIOD:
Net Income per Common Share:
Primary............................ $ 0.54 $ 0.45 $ 2.05 $ 1.71 $ 1.76 $ 2.18 $ 1.60
Fully Diluted...................... $ 0.54 $ 0.45 $ 2.03 $ 1.70 $ 1.76 $ 2.18 $ 1.60
Cash Dividends Paid per Common
Share.............................. $ 0.23 $ 0.22 $ 0.91 $ 0.88 $ 0.88 $ 0.84 $ 0.74
Return on Average Assets ............. 0.90% 0.88% 0.93% 0.84% 0.92% 1.30% 1.04%
Return on Average Shareholders'
Equity............................. 9.09% 7.92% 8.91% 7.84% 8.38% 10.79% 8.42%
Average Shareholders' Equity to
Average Assets..................... 9.87% 11.09% 10.39% 10.74% 11.03% 12.02% 12.42%
Interest Rate Spread.................. 2.96% 3.00% 3.00% 3.02% 3.43% 3.73% 3.74%
Net Yield on Average Earning Assets... 3.33% 3.38% 3.41% 3.41% 3.74% 4.07% 4.22%
Noninterest Expenses to Average
Assets............................. 2.18% 2.34% 2.26% 2.39% 2.18% 2.00% 1.99%
Noninterest Expenses (Excluding
Foreclosed Property Expenses and
Provisions) to Average Assets...... 2.15% 2.34% 2.24% 2.28% 2.11% 1.85% 1.76%
Ratio of Earnings to Fixed Charges.... 2.56x 5.28x 3.44x 4.29x 4.25x 6.29x 9.07x
AT END OF PERIOD:
Book Value per Common Share .......... $ 24.14 $ 22.94 $ 24.24 $ 22.90 $ 20.73 $ 21.29 $ 19.48
Tangible Book Value per Common
Share.............................. $ 22.61 $ 21.22 $ 22.66 $ 21.21 $ 18.85 $ 21.29 $ 19.48
Common Shares Outstanding (000's) .... 1,907 1,915 1,906 1,952 1,989 1,993 2,067
Shareholders' Equity to Total Assets.. 9.61% 10.81% 9.58% 10.90% 10.25% 11.96% 12.01%
Nonaccrual Assets to Total Assets..... 0.36% 0.28% 0.37% 0.22% 0.48% 0.89% 1.40%
Allowance for Loan Losses to
Nonaccrual Loans .................. 126.82% 147.65% 101.81% 218.86% 137.77% 93.56% 53.06%
Allowances for Nonaccrual Assets to
Nonaccrual Assets.................. 105.64% 135.50% 89.00% 175.53% 92.89% 70.06% 41.42%
- 18 -
PRO FORMA COMBINED FINANCIAL DATA - UNAUDITED
FINANCIAL CONDITION
AND OTHER DATA - PRO FORMA
(DOLLARS IN THOUSANDS) AT MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- --------- --------- --------- --------- ---------
Total Assets..................... $6,062,790 $5,462,070 $5,607,210 $4,883,402 $4,677,859 $4,032,451 $3,893,825
Loans Receivable, Net............ 3,692,195 3,619,571 3,642,522 3,005,014 2,934,967 2,459,395 2,461,472
Securities....................... 1,971,046 1,379,741 1,577,702 1,505,919 1,300,793 1,135,168 788,953
Segregated Assets, Net........... 69,889 98,967 75,670 104,839 137,096 176,998 223,907
Core Deposit Intangible.......... 44,971 49,831 46,442 7,565 9,061 16,083 20,426
Deposits......................... 4,414,032 4,541,188 4,457,561 3,797,712 3,781,393 3,272,262 3,273,505
FHL Bank Advances and Other
Borrowings.................... 1,148,817 505,969 726,007 668,940 558,970 426,503 323,726
Shareholders' Equity............. 325,730 334,392 336,832 334,580 264,494 235,151 228,055
Number of Banking Offices........ 87 76 87 76 75 68 67
OPERATING DATA - PRO FORMA AT OR FOR THE THREE MONTHS
(DOLLARS IN THOUSANDS) ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- --------- --------- --------- --------- ---------
Interest Income.................. $ 100,542 $ 91,238 $ 386,458 $ 332,922 $ 293,164 $ 253,070 $ 190,531
Interest Expense................. 55,309 53,074 217,421 197,591 152,552 135,285 105,642
---------- --------- --------- --------- --------- --------- ---------
Net Interest Income.............. 45,233 38,164 169,037 135,331 140,612 117,785 84,889
Provision for Loan Losses........ 7,265 1,714 9,788 5,726 5,609 8,082 8,204
Noninterest Income............... 8,046 6,300 32,179 27,902 17,467 20,024 12,412
Noninterest Expenses:
Non-recurring Expenses........ 19,858 500 5,230 6,371 5,700 - -
Foreclosed Property Expenses, Net 472 1,392 3,507 6,254 10,106 10,413 10,595
Other Noninterest Expenses.... 33,141 27,155 121,818 100,111 97,493 78,588 50,729
---------- --------- --------- --------- --------- --------- ---------
Total Noninterest Expenses.. 53,471 29,047 130,555 112,736 113,299 89,001 61,324
---------- --------- --------- --------- --------- --------- ---------
Income (Loss) before Income Taxes (7,457) 13,703 60,873 44,771 39,171 40,726 27,773
Income Taxes..................... (3,573) 5,127 22,372 15,450 11,211 17,033 13,223
----------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) before Cumulative
Change ....................... (3,884) 8,576 38,501 29,321 27,960 23,693 14,550
Cumulative Change................ - - - - - 6,408 -
---------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)................ (3,884) 8,576 38,501 29,321 27,960 30,101 14,550
Preferred Stock Dividends........ - 324 1,149 1,296 1,716 2,653 581
---------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Available to
Common Shareholders........... $ (3,884) $ 8,252 $ 37,352 $ 28,025 $ 26,244 $ 27,448 $ 13,969
=========== ========= ========= ========= ========== ========= =========
Loan Originations During Period.. $ 190,853 $ 166,086 $ 817,579 $607,309 $1,065,820 $ 740,016 $ 599,113
Net Increase (Decrease) in Deposits (43,529) 743,476 659,849 16,319 509,131 (1,243) 1,510,503
Loans Serviced for Others........ 1,179,899 939,566 1,214,682 966,986 1,146,472 572,344 896,725
Capitalized Mortgage Loan
Servicing Rights.............. 5,467 2,594 5,384 2,999 4,807 1,955 3,163
- 19 -
SIGNIFICANT STATISTICAL DATA - PRO FORMA COMBINED - UNAUDITED
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- --------
FOR THE PERIOD: (a)
Net Income (Loss) per Common Share:
Primary............................ $ (0.28)(b) $ 0.60(b) $ 2.74(b) $ 2.27(b) $ 2.22(b) $ 2.01 $ 1.34
Fully Diluted...................... $ (0.28)(b) $ 0.58(b) $ 2.64(b) $ 2.20(b) $ 2.12(b) $ 1.92 $ 1.34
Cash Dividends Paid per Common
Share.............................. $ 0.18 $ 0.16 $ 0.68 $ 0.64 $ 0.52 $ 0.50 $ 0.48
Return on Average Assets ............. (0.27)%(c) 0.66%(c) 0.70%(c) 0.62%(c) 0.61%(c) 0.60% 0.57%
Return on Average Shareholders'
Equity............................. (4.68)%(c) 10.19%(c) 11.20%(c) 10.08%(c) 10.76%(c) 10.17% 7.66%
Average Shareholders' Equity to
Average Assets..................... 5.78% 6.51% 6.27% 6.11% 5.67% 5.93% 7.49%
Interest Rate Spread.................. 3.17% 2.96% 3.11% 2.80% 3.18% 3.03% 3.32%
Net Yield on Average Earning Assets... 3.32% 3.11% 3.23% 2.96% 3.27% 3.14% 3.52%
Noninterest Expenses to Average
Assets............................. 3.72% 2.25% 2.38% 2.37% 2.47% 2.27% 2.42%
Noninterest Expenses (Excluding
Foreclosed Property Expenses and
Provisions) to Average Assets...... 3.69%(c) 2.14%(c) 2.32%(c) 2.24%(c) 2.25%(c) 2.00% 2.00%
Ratio of Earnings to Fixed Charges.... 0.44x 2.24x 2.35x 1.97x 2.08x 2.47x 2.89x
AT END OF PERIOD:
Book Value per Common Share .......... $ 23.73 $ 24.18 $ 24.94 $24.16 $ 21.12 $ 20.47 $ 18.22
Tangible Book Value per Common
Share.............................. $ 20.06 $ 20.13 $ 21.17 $23.34 $ 20.03 $ 18.90 $ 16.21
Common Shares Outstanding (000's) .... 13,726 13,118 13,113 13,136 11,702 10,267 10,141
Shareholders' Equity to Total Assets.. 5.37% 6.12% 6.01% 6.85% 5.65% 5.83% 5.86%
Nonaccrual Assets to Total Assets..... 0.89% 1.36% 0.98% 1.53% 1.86% 2.29% 2.81%
Allowance for Loan Losses to
Nonaccrual Loans................... 128.39% 103.49% 103.80% 96.08% 108.06% 97.94% 85.46%
Allowances for Nonaccrual Assets to
Nonaccrual Assets.................. 95.60% 73.66% 79.06% 69.02% 66.90% 61.24% 61.96%
(a) Includes non-recurring expenses of $25.5 million ($19.9 million of merger
related costs and $5.6 million of provisions for loan losses related to the
DS Bancor acquisition), $500,000 of merger related costs related to the
Shawmut acquisition, $5.2 million ($4.7 million for a special assessment
related to the recapitalization of the SAIF and $500,000 for conversion
costs related to the Shawmut Acquisition), $6.4 million ($3.3 million of
expenses related to the Shelton acquisition, $2.1 million of expenses
related to changing the name of and merging together Webster's banking
subsidiaries, and $1.0 million of expenses related to charges incurred in
the preparation for the Shawmut Acquisition), and $5.7 million ($5.0
million related to the write-down of the First Constitution core deposit
intangible asset and $700,000 of expenses related to the Shoreline
acquisition) for the three months ended March 31, 1997 and 1996 and for the
years ended December 31, 1996, 1995, and 1994, respectively.
(b) Net income per common share calculated on a primary and fully diluted
basis, excluding non-recurring expenses, was $.80 and $.79, respectively,
for the three months ended March 31, 1997, $.60 and $.58, respectively, for
the three months ended March 31, 1996, $2.97 and $2.85, respectively, for
the year ended December 31, 1996, $2.57 and $2.48, respectively, for the
year ended December 31, 1995 and $2.50 and $2.37, respectively, for the
year ended December 31, 1994.
(c) Return on average assets, excluding non-recurring expenses, was .77%, .69%,
.76%, .69% and .68% for the three months ended March 31, 1997 and 1996 and
for the years ended December 31, 1996, 1995, and 1994, respectively. Return
on average shareholders' equity, excluding non-recurring expenses, was
13.39%, 10.54%, 12.08%, 11.35%, and 12.03% for the three months ended March
31, 1997, and 1996 and for the years ended December 31, 1996, 1995, and
1994, respectively. Noninterest expenses (excluding foreclosed property
expenses and provisions) to average assets, excluding non-recurring
expenses, was 2.31%, 2.10%, 2.22%, 2.10% and 2.13% for the three months
ended March 31, 1997 and 1996 and for the years ended December 31, 1996,
1995, and 1994, respectively.
- 20 -
RISK FACTORS
People's Corp. shareholders should consider, among other matters, the
following factors in voting upon the proposal to approve and adopt the Merger
Agreement and the Merger provided for therein, consummation of which will result
in holders of People's Common Stock receiving shares of Webster Common Stock.
GROWTH THROUGH ACQUISITIONS
Since 1991, Webster has experienced significant growth, primarily as a
result of acquisitions of other financial institutions. In September 1991,
Webster Bank acquired certain assets and liabilities of Suffield Bank from the
FDIC in an assisted transaction. In that acquisition, which was accounted for as
a purchase transaction, among other things, Webster Bank assumed $247 million of
deposit liabilities. In 1992, Webster Bank acquired most of the assets, all of
the deposits and certain other liabilities of First Constitution, New Haven,
Connecticut, from the FDIC in an assisted transaction. This acquisition
increased Webster Bank's assets by $1.3 billion and, at that time, doubled the
number of its banking offices. The First Constitution acquisition also was
accounted for as a purchase transaction.
In March 1994, Webster completed a conversion/acquisition of Bristol
Savings Bank ("Bristol"). Upon that acquisition, which was accounted for as a
purchase transaction, Webster acquired five full-service banking offices with
$453 million in deposits, as well as Bristol's mortgage banking subsidiary. Also
in 1994, Webster acquired Shoreline in a transaction accounted for as a
pooling-of-interests. Shoreline had total assets of $51 million, deposit
liabilities of $47 million and shareholders' equity of $4 million.
In November 1995, Webster acquired Shelton, the holding company of
Shelton Savings Bank, a state-chartered savings bank headquartered in Shelton,
Connecticut. In that transaction, which was accounted for as a
pooling-of-interests, Webster acquired from Shelton approximately $298 million
of assets, including $224 million of loans, and approximately $273 million of
deposits.
In February 1996, Webster acquired 20 branch banking offices from
Shawmut. In that transaction, which was accounted for as a purchase, Webster
Bank assumed approximately $845 million in deposits and acquired approximately
$586 million in loans.
In January 1997, Webster acquired DS Bancor, the holding company of
Derby Savings Bank, a state-chartered savings bank headquartered in Derby,
Connecticut. In that transaction, which was accounted for as a
pooling-of-interests, Webster acquired from DS Bancor approximately $1.2 billion
of assets, including $847 million of loans and approximately $970 million of
deposits.
On May 6, 1997, Webster announced that it had signed a definitive
merger agreement to acquire Sachem, a trust company headquartered in Guilford,
Connecticut. The Sachem acquisition will be accounted for as a purchase.
LEGISLATIVE AND GENERAL REGULATORY DEVELOPMENTS
Webster is registered with the OTS as a savings and loan holding
company. Webster Bank is, and following the Merger will continue to be, subject
to extensive regulation by the OTS as its primary federal regulator and also to
regulation as to certain matters by the FDIC. The OTS and FDIC have adopted
numerous regulations and undertaken other regulatory initiatives, and further
regulations and initiatives may be adopted. Future legislation or regulatory
developments could have an adverse effect on Webster Bank.
Under legislation enacted in September 1996, it is contemplated that
separate and distinct charters of banks and savings associations will be
abolished and a common charter will be developed for all federal and national
financial institutions. If legislation with respect to the development of a
- 21 -
common charter is enacted, Webster Bank may be required to convert its federal
savings bank charter to either a new federal type of bank charter or to a state
depository institution charter. Future legislation also may result in Webster
becoming regulated at the holding company level by the Federal Reserve Board
rather than by the OTS. Regulation by the Federal Reserve Board could subject
Webster to capital requirements that are not currently applicable to Webster as
a holding company under OTS regulation and may result in statutory limitations
on the type of business activities in which Webster may engage at the holding
company level, which business activities currently are not restricted. Webster
is unable to predict whether such legislation will be enacted.
SOURCES OF FUNDS FOR CASH DIVIDENDS
The principal sources of funds for Webster's payments of cash dividends
on the Webster Common Stock, as well as for the payment of principal and
interest on its $40 million principal amount of 8 3/4% Senior Notes due 2000
(the "Senior Notes") and the capital debentures (the "Capital Debentures") of
Webster issued in connection with the sale of capital securities, are cash
dividends from Webster Bank and liquid assets at the holding company level. At
March 31, 1997, at the holding company level, Webster had liquid investments of
$50.3 million. Webster Bank is, and following the Merger will be, subject to
certain regulatory requirements that affect its ability to pay cash dividends to
Webster. In addition, the Senior Notes and Capital Debentures contain certain
covenants that affect Webster's ability to pay cash dividends on the Webster
Common Stock. See "DESCRIPTION OF WEBSTER CAPITAL STOCK AND COMPARISON OF
SHAREHOLDER RIGHTS" and "MARKET PRICES AND DIVIDENDS."
EFFECT OF INTEREST RATE FLUCTUATIONS
Webster's consolidated results of operations depend to a large extent
on the level of its net interest income, which is the difference between
interest income from interest-earning assets (such as loans and investments) and
interest expense on interest-bearing liabilities (such as deposits and
borrowings). If interest-rate fluctuations cause Webster's cost of funds to
increase faster than the yield on its interest-bearing assets, net interest
income will be reduced. Webster measures its interest-rate risk using
simulation, price elasticity and other methods.
Based on Webster's asset/liability mix at March 31, 1997, management's
simulation analysis of the effects of changing interest rates projects that an
instantaneous +/-100 basis point fluctuation in interest rates would decrease
net interest income for the following twelve months by less than two percent.
Based on Webster's asset-liability mix at March 31, 1997, management of Webster
believes its interest risk is reasonable. Management of Webster also believes
that the addition of People's Corp.'s assets and liabilities does not
significantly alter the pro forma interest rate risk of Webster.
While Webster uses various monitors of interest-rate risk, Webster is
unable to predict future fluctuations in interest rates or the specific impact
thereof. The market values of most of its financial assets are sensitive to
fluctuations in market interest rates. Fixed-rate investments, mortgage-backed
securities and mortgage loans decline in value and fixed-rate liabilities rise
in value as interest rates rise. Although Webster's investment and
mortgage-backed securities portfolios have grown in recent quarters, most of the
growth has been in adjustable-rate securities or short-term securities with
durations of less than three years.
Changes in interest rates also can affect the amount of loans
originated by Webster, as well as the value of its loans and other
interest-earning assets and its ability to realize gains on the sale of such
assets and liabilities. The extent to which borrowers prepay loans also is
affected by prevailing interest rates. When interest rates increase, borrowers
are less likely to prepay their loans; whereas, when interest rates decrease,
borrowers are more likely to prepay loans. Funds generated by prepayments may be
invested at a lower rate. Prepayments may adversely affect the value of mortgage
loans, the levels of such assets that are retained in their portfolio, net
interest income and loan servicing income. Similarly, prepayments on
mortgage-backed securities also may affect adversely the value of these
securities and interest income.
- 22 -
Increases in interest rates may cause depositors to shift funds from
accounts that have a comparatively lower cost such as regular savings accounts
to accounts with a higher cost such as certificates of deposit. If the cost of
deposits increases at a rate that is greater than the increase in yields on
interest-earning assets, the interest-rate spread is negatively affected.
Changes in the asset and liability mix also affect the interest-rate spread.
SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
This Proxy Statement/Prospectus is first being mailed to the holders of
People's Common Stock on or about __________ __, 1997, and is accompanied by a
proxy card furnished in connection with the solicitation of proxies by the
People's Corp. Board of Directors for use at the Special Meeting. The Special
Meeting is scheduled to be held on __________ __, 1997, at ____ __.m., at
_____________________________________________, Connecticut. At the Special
Meeting, the holders of People's Common Stock will consider and vote upon: (i)
the proposal to approve and adopt the Merger Agreement and the Merger provided
for therein, and (ii) such other business as may properly come before the
Special Meeting, or any adjournments or postponements thereof including, without
limitation, a motion to adjourn the Special Meeting to another time and/or place
for the purpose of soliciting additional proxies in order to approve the Merger
Agreement and the Merger or otherwise.
RECORD DATE AND VOTING
The Board of Directors of People's Corp. has fixed the close of
business on __________ __, 1997 as the Record Date for the determination of the
holders of People's Common Stock entitled to receive notice of and to vote at
the Special Meeting. Only holders of record of People's Common Stock at the
close of business on that date will be entitled to vote at the Special Meeting
or at any adjournment or postponement thereof. At the close of business on the
Record Date, there were __________ shares of People's Common Stock outstanding
and entitled to vote at the Special Meeting, held by approximately _______
shareholders of record. No shares of preferred stock of People's Corp. are
issued and outstanding.
Each holder of People's Common Stock on the Record Date will be
entitled to one vote for each share held of record upon each matter properly
submitted at the Special Meeting or at any adjournment or postponement thereof.
The presence, in person or by proxy, of the holders of a majority of the shares
of People's Common Stock issued and outstanding and entitled to be voted at the
Special Meeting is necessary to constitute a quorum. Abstentions and broker
non-votes will be included in the calculation of the number of shares
represented at the Special Meeting for purposes of determining whether a quorum
has been achieved. Since approval of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of People's Common Stock entitled to be voted at the Special
Meeting, abstentions and broker non-votes will have the same effect as a vote
against the Merger Agreement.
If a quorum is not obtained, or if fewer shares of People's Common
Stock are voted in favor of the proposal for approval of the Merger Agreement
than the number required for approval, it is expected that the Special Meeting
will be adjourned for the purpose of allowing additional time for obtaining
additional proxies. In such event, proxies will be voted to approve an
adjournment, except for proxies as to which instructions have been given to vote
against the Merger Agreement. The holders of a majority of the shares present at
the Special Meeting would be required to approve any adjournment of the Special
Meeting.
If the enclosed proxy card is properly executed and received by
People's Corp. in time to be voted at the Special Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL
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BE VOTED "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER PROVIDED FOR THEREIN.
The Board of Directors of People's Corp. is not aware of any matters
other than the proposal to approve and adopt the Merger Agreement and the Merger
(or a proposal to adjourn or postpone the Special Meeting as necessary) that may
be properly brought before the Special Meeting. If any other matters properly
come before the Special Meeting, the persons named in the accompanying proxy
will vote the shares represented by all properly executed proxies on such
matters in such manner as shall be determined by a majority of the Board of
Directors of People's Corp.
PEOPLE'S CORP. SHAREHOLDERS SHOULD NOT FORWARD ANY PEOPLE'S COMMON
STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL WHICH WOULD BE SENT TO PEOPLE'S CORP. SHAREHOLDERS BY THE
EXCHANGE AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
VOTE REQUIRED; REVOCABILITY OF PROXIES
The affirmative vote of at least two-thirds of the issued and
outstanding shares of People's Common Stock entitled to be voted at the Special
Meeting is required in order to approve and adopt the Merger Agreement and the
Merger provided for therein.
THE REQUIRED VOTE OF THE PEOPLE'S CORP. SHAREHOLDERS WITH RESPECT TO
THE MERGER AGREEMENT IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF
PEOPLE'S COMMON STOCK AND NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY
VOTED. ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT
THE SPECIAL MEETING OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE THE
SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER.
All of the directors and executive officers of People's Corp., who
beneficially owned, as of the Record Date, an aggregate of __________ shares of
People's Common Stock (excluding all People's Options) or approximately ______%
of the outstanding shares of People's Common Stock, have entered into the
Stockholder Agreement with Webster pursuant to which they have each agreed,
among other things, to certain transfer restrictions and to vote all shares of
People's Common Stock with respect to which they have the right to vote (whether
owned as of the date of the Stockholder Agreement or thereafter acquired) in
favor of the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement and against any third party merger
proposal. No separate consideration was paid to any of the directors or the
executive officers for entering into the Stockholder Agreement. Webster required
that the Stockholder Agreement be executed as a condition to Webster entering
into the Merger Agreement.
The presence of a shareholder at the Special Meeting will not
automatically revoke such shareholder's proxy. However, a shareholder may revoke
a proxy at any time prior to its exercise by (i) delivering to Teresa D.
Sasinski, Senior Vice President and Secretary, People's Savings Financial Corp.,
123 Broad Street, New Britain, Connecticut 06053, a written notice of revocation
prior to the Special Meeting, (ii) delivering to People's Corp. prior to the
Special Meeting a duly executed proxy bearing a later date, or (iii) attending
the Special Meeting and voting in person.
The obligations of People's Corp. and Webster to consummate the Merger
Agreement are subject, among other things, to the condition that the Merger
Agreement and the Merger shall have been approved and adopted by the affirmative
vote of the holders of at least two-thirds of the issued and outstanding shares
of People's Common Stock entitled to vote thereon. See "THE MERGER -- Conditions
to the Merger."
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SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees
of People's Corp. may solicit proxies for the Special Meeting from shareholders
personally or by telephone or telegram without additional remuneration therefor.
The cost of soliciting proxies will be paid by People's Corp. In addition,
People's Corp. has retained D.F. King & Co., Inc., a proxy solicitation firm, to
assist in such solicitation. The fee to be paid to such firm is $4,000, plus
reasonable out-of-pocket expenses. Such fee will be paid by Webster. People's
Corp. will also make arrangements with brokerage firms and other custodians,
nominees and fiduciaries to send proxy materials to their principals and will
reimburse such parties for their expenses in doing so.
THE MERGER
The information in this Section is qualified in its entirety by
reference to the full text of the Merger Agreement (including each of the
exhibits thereto), the Stockholder Agreement and the Option Agreement, all of
which are incorporated herein by reference and the material features of which
are described in this Proxy Statement/Prospectus. A copy of the Merger Agreement
(including each of exhibits thereto) and the other documents described in this
Proxy Statement/Prospectus will be provided promptly without charge upon oral or
written request addressed to Lee A. Gagnon, Executive Vice President, Chief
Operating Officer and Secretary, Webster Financial Corporation, Webster Plaza,
Waterbury, Connecticut 06702, telephone (203) 578-2217.
THE PARTIES
The Merger Agreement was entered into among Webster, Merger Sub and
People's Corp. The Merger Agreement provides for, among other things, Webster's
acquisition of People's Corp. through the merger of Merger Sub, a wholly-owned
subsidiary of Webster, into People's Corp.
WEBSTER. Webster is a Delaware corporation and the holding company of
Webster Bank, its wholly-owned federal savings bank subsidiary, both of which
are headquartered in Waterbury, Connecticut. Deposits at Webster Bank are FDIC
insured. Through Webster Bank, Webster currently serves customers from 78
banking offices located in New Haven, Fairfield, Litchfield, Hartford and
Middlesex Counties in Connecticut. Webster's focus is on providing financial
services to individuals, families and businesses. Webster emphasizes three
business lines consumer banking, business banking and mortgage banking; each
supported by centralized administration, marketing, finance and operations.
Webster Bank's goal is to provide banking services that are fairly priced,
reliable and convenient.
At March 31, 1997, Webster had total consolidated assets of $5.6
billion, total deposits of $4.1 billion, and shareholders' equity of $283.5
million or 5.1% of total assets. The Webster consolidated financial statements
as of March 31, 1997 include DS Bancor, which was acquired by Webster on January
31, 1997. At March 31, 1997, Webster had loans receivable, net of $3.4 billion,
which included $2.6 billion in residential mortgage loans, $269.5 million in
commercial real estate loans, $180.7 million in commercial and industrial loans
and $392.5 million in consumer loans (consisting primarily of home equity
loans). In addition, Segregated Assets, net were $69.9 million at March 31,
1997, which were comprised of commercial and industrial, commercial real estate
and multi-family loans. At March 31, 1997, nonaccrual loans and other real
estate owned ("OREO") were $52.2 million. At that date, Webster's allowance for
loan losses was $48.2 million, or 124.6% of nonaccrual loans, and its total
allowance for loan and OREO losses was $48.8 million, or 92.4% of nonaccrual
loans and OREO. Additional information regarding Webster is incorporated herein
by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Webster, as a holding company, is regulated by the OTS. Webster Bank,
as a federal savings bank, also is regulated by the OTS and as to certain
matters by the FDIC.
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MERGER SUB. Merger Sub, a Delaware corporation, is a wholly-owned
subsidiary of Webster formed solely to facilitate the Merger. The separate
corporate existence of Merger Sub will terminate upon the Merger.
PEOPLE'S CORP. People's Corp. is a Connecticut corporation and the
holding company of PSB&T, its wholly-owned Connecticut-chartered savings bank
subsidiary, both of which are headquartered in New Britain, Connecticut.
Deposits at PSB&T are FDIC insured. Through PSB&T, People's Corp. is engaged
primarily in the business of attracting deposits from the public and using such
deposits, with other funds, to make various types of loans and investments.
Through PSB&T, People's Corp. currently serves customers from nine banking
offices and three trust offices located primarily in Hartford and New Haven
Counties, Connecticut. Its principal market area encompasses the City of New
Britain and the Towns of Berlin, Newington, Southington, Rocky Hill, Plainville
and Meriden.
At March 31, 1997, People's Corp. had total consolidated assets of
$479.1 million, total deposits of $359.9 million, and shareholders' equity of
$46.0 million, or 9.6% of total assets. At March 31, 1997, People's Corp. had
loans receivable, net of $261.8 million, which included $208.7 million in
residential mortgage loans, $15.6 million in commercial real estate loans, $1.8
million in commercial loans and $37.8 million in home equity credit lines and
consumer installment loans. At March 31, 1997, nonperforming loans and OREO were
$1.7 million. At that date, People's Corp.'s allowance for loan losses was $1.8
million, or 126.8% of nonperforming loans, and its total allowance for loan
losses and OREO was $1.8 million, or 105.6% of nonperforming loans and OREO.
Additional information regarding People's Corp. is incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
People's Corp., as a holding company, is regulated primarily by the
Federal Reserve Board at the federal level and by the Connecticut Commissioner.
PSB&T, as a state-chartered savings bank, is regulated by the Connecticut
Commissioner and by the FDIC.
BACKGROUND OF THE MERGER
People's Corp. was incorporated in 1989 as the bank holding company of
PSB&T, three years following the conversion of PSB&T from mutual to stock form.
The Board of Directors and management of People's Corp. have periodically
reviewed the objectives of People's Corp. and various strategic alternatives
available to People's Corp. These reviews involved evaluation of the existing
franchise of People's Corp. and opportunities to enhance shareholder value
through expansion. People's Corp. considered and pursued various expansion
opportunities, including the purchase of other financial institutions, both on a
government-assisted basis as well as through private negotiations. In 1994,
People's Corp. purchased the trust assets of New Meriden Trust and Safe Deposit
Company from the FDIC.
More recently, the Board of Directors of People's Corp. became
concerned about the ability of People's Corp. to enhance shareholder value
because of the stagnant economy of the City of New Britain, its core market,
PSB&T's heavy reliance on the very competitive residential mortgage market, and
the lack of attractive and affordable expansion opportunities. In the fall of
1996, representatives of People's Corp. were contacted by representatives of
Webster and informal discussions were held. Although those discussions did not
result in serious negotiations or an offer from Webster, they did result in the
Board of Directors of People's Corp. determining to attempt to ascertain the
value of the People's Corp. franchise from a merger and acquisition perspective,
as compared to remaining independent. People's Corp. engaged Advest as its
financial advisor to assist in that evaluation.
In early 1997, Advest compiled a package of relevant materials about
People's Corp. and distributed the package to a group of eight potential
acquirors identified by People's Corp. and Advest. That effort resulted in
responses by four parties, one of which was withdrawn shortly
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thereafter for reasons unrelated to People's Corp. The remaining three parties
were asked to perform due diligence before finalizing their proposals.
Over the next three weeks, each of the parties performed a detailed due
diligence investigation of People's Corp., including an examination of the books
and records of People's Corp., and meetings with management officials. Upon
completion of the due diligence, the three parties were asked to submit final
proposals on March 27, 1997. The proposals included a cash acquisition of
People's Corp., an acquisition for a combination of cash and equity securities
(either common stock or convertible preferred stock) and Webster's proposal for
an all stock merger. Following a detailed evaluation of each of the proposals,
including a review of strategic alternatives with its financial advisor, the
Board of Directors of People's Corp. authorized its financial advisor to pursue
negotiations for a strategic merger with Webster. Those negotiations continued
through April 3, 1997 whereupon the Board of Directors approved the definitive
Merger Agreement and the Merger provided for therein.
RECOMMENDATION OF THE PEOPLE'S CORP. BOARD OF DIRECTORS AND REASONS FOR THE
MERGER
The Board of Directors of People's Corp. has approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, People's Corp. and its shareholders. THE PEOPLE'S CORP. BOARD OF
DIRECTORS RECOMMENDS THAT HOLDERS OF PEOPLE'S COMMON STOCK VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT AND THE MERGER PROVIDED FOR THEREIN. The People's
Corp. Board of Directors believes that the Merger will enable holders of
People's Common Stock to realize increased value due to the premium over market
price, net income per share and book value per share of People's Common Stock.
The Board also believes that the Merger may enable People's Corp. shareholders
to participate in opportunities for appreciation of Webster Common Stock. See
"-- Opinion of People's Corp. Financial Advisor" below. In reaching its decision
to approve the Merger Agreement, the Board consulted with its outside counsel
regarding the legal terms of the Merger and the Board's fiduciary obligations in
its consideration of the proposed merger, its financial advisor, Advest,
regarding the financial aspects and fairness of the proposed Merger Agreement,
as well as with management of People's Corp. and, without assigning any relative
or specific weight, considered the following, which are all of the material
factors considered, both from a short-term and long-term perspective:
(i) The People's Corp. Board's familiarity with, and
review of, the business, financial condition,
results of operations and prospects of People's
Corp., including, but not limited to, its potential
growth, development, productivity and profitability
and the business risks associated therewith;
(ii) The current and prospective environment in which
People's Corp. operates, including national and
local economic conditions, the highly competitive
environment for financial institutions generally,
the increased regulatory burden on financial
institutions, and the trend toward consolidation in
the financial services industry;
(iii) The potential appreciation in market and book value
of People's Common Stock on both a short- and
long-term basis, as a stand alone entity;
(iv) The proposals of the two other interested parties;
(v) Information concerning the business, financial
condition, results of operations, asset quality and
prospects of Webster including the long-term growth
potential of Webster Common Stock, the future growth
prospects of Webster, combined with People's Corp.
following the proposed Merger, and the potential
synergies expected from the Merger and the business
risks associated therewith;
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(vi) The fact that Webster's offer of Webster Common
Stock in exchange for People's Common Stock can be
effected on a tax-free basis for People's Corp.
shareholders, and the potential for appreciation and
growth for the market and book value of Webster
Common Stock following the proposed Merger;
(vii) The oral presentation and opinion of Advest that the
terms of the Merger Agreement are fair to the
holders of People's Common Stock from a financial
point of view (see "-- Opinion of People's Corp.
Financial Advisor" below);
(viii) The advantages and disadvantages of People's Corp.
remaining as an independent institution or
affiliating with a larger institution;
(ix) The short- and long-term interests of People's Corp.
and its shareholders, the interests of the
employees, customers, creditors and suppliers of
People's Corp., and the interests of the People's
Corp. community that may be served to advantage by
an appropriate affiliation with a larger institution
with increased economies of scale, and with a
greater capacity to serve all of the banking needs
of the community; and
(x) The compatibility with respect to businesses and
management philosophies of People's Corp. and
Webster and Webster's strong commitment to the
communities it serves.
On the basis of these considerations, the Merger Agreement was
approved, and the Board of Directors recommends that the shareholders vote for
the approval of the Merger Agreement and the Merger provided for therein.
PURPOSE AND EFFECTS OF THE MERGER
The purpose of the Merger is to enable Webster to acquire the assets
and business of People's Corp. and PSB&T. After the Merger, certain of PSB&T's
nine banking offices will be operated as banking offices of Webster Bank and
certain of such offices will be consolidated with Webster Bank offices.
The Merger will result in an expansion of Webster's primary market area
to include PSB&T's banking offices and trust offices in Hartford and New Haven
Counties in Connecticut. The assets and business of PSB&T's banking offices will
broaden Webster's existing operations in Hartford and New Haven Counties where
Webster currently has 67 banking offices. The addition of PSB&T's trust offices
will strengthen Webster's franchise by increasing market share and by the
addition of trust and investment management services, which will expand
Webster's ability to address the financial needs of its consumer and business
banking customers. Webster expects to achieve reductions in the current
operating expenses of PSB&T upon the consolidation of PSB&T's operations into
Webster Bank, which would cause the closing of certain of PSB&T's or Webster's
existing banking offices as well as certain reductions in administrative and
support personnel. Upon consummation of the Merger, the issued and outstanding
shares of People's Common Stock will automatically be converted into Webster
Common Stock based on the Exchange Ratio. See "-- Exchange Ratio."
STRUCTURE
The Merger will be effected by merging Merger Sub, a wholly-owned
subsidiary of Webster formed to facilitate the Merger, into People's Corp.,
which will be the Surviving Corporation. Immediately after the consummation of
the Merger, (i) Webster intends that the Surviving Corporation, a wholly-owned
subsidiary of Webster, will be merged into Webster, with Webster being the
surviving holding company, and (ii) PSB&T (which will then be a wholly-owned
subsidiary of Webster) will be merged into Webster Bank. Webster Bank will be
the federal savings bank resulting from the Bank Merger.
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Upon consummation of the Merger, except as discussed below, each
outstanding share of People's Common Stock will be converted into the equivalent
of $34.00 of Webster Common Stock, plus cash to be paid in lieu of fractional
shares. Shares held as treasury stock or held directly or indirectly by People's
Corp., Webster or any of their subsidiaries (other than Trust Account Shares and
DPC Shares) shall be canceled. Dissenting Shares will not be automatically
converted. See "--Dissenters' Appraisal Rights."
People's Corp. and Webster expect that the Merger will be consummated
in the third quarter of 1997, or as soon as possible after the receipt of all
regulatory and shareholder approvals and the expiration of all regulatory
waiting periods. If the Merger is not consummated by December 31, 1997, the
Merger Agreement will be terminated unless People's Corp. and Webster mutually
consent to an extension.
Notwithstanding any provision of the Merger Agreement to the contrary,
Webster may elect to modify the structure of the transactions contemplated by
the Merger Agreement as noted therein so long as (i) there are no material
adverse federal income tax consequences to the People's Corp. shareholders as a
result of such modification, (ii) the consideration to be paid to People's Corp.
shareholders under the Merger Agreement is not thereby changed or reduced in
amount, and (iii) such modification will not be reasonably likely to delay
materially or jeopardize receipt of any required regulatory approvals. Webster
presently has no intent to modify the structure.
EXCHANGE RATIO
The Merger Agreement provides that at the Effective Time, except as
discussed below, each issued outstanding share of People's Common Stock will be
converted automatically into the equivalent of $34 of Webster Common Stock at
the Exchange Ratio. Shares held as treasury stock and shares held directly or
indirectly by People's Corp., Webster or any of their subsidiaries (other than
Trust Account Shares and DPC Shares) shall be canceled. Dissenting Shares will
not be converted into the right to receive shares of Webster Common Stock unless
and until such shareholders shall have failed to perfect or shall have
effectively withdrawn or lost their right to payment under applicable law. See
"--Dissenters' Appraisal Rights" and Appendix B. The Exchange Ratio is
determined by dividing $34.00 by the Base Period Trading Price, computed to five
decimal places. The Exchange Ratio is subject to adjustment such that if the
Base Period Trading Price is greater than $40.00, the Exchange Ratio will be
0.85000 and if the Base Period Trading Price is less than $34.00, the Exchange
Ratio will be 1.00000. Furthermore, if the Base Period Trading Price is less
than $32.00, the Merger Agreement may be terminated by People's Corp. unless
Webster elects that the Exchange Ratio shall equal 1.06250.
Based on the $ * average of the daily closing prices per share for
--
Webster Common Stock for the 15 consecutive trading days on which shares of
Webster Common Stock were actually traded prior to __________ __, 1997 (the most
recent practicable date prior to the date of this Proxy Statement/ Prospectus),
the Exchange Ratio would be * . Because the market price of Webster Common Stock
--
is subject to fluctuation, the Exchange Ratio for the number of shares of
Webster Common Stock that holders of People's Common Stock will receive in the
Merger may materially increase or decrease prior to the Merger. No assurance can
be given as to the market price of Webster Common Stock at the time of the
Merger. See "MARKET PRICES AND DIVIDENDS." Such variance would not alter the
obligation of Webster or People's Corp. to consummate the Merger, except as
provided above. Based on the __________ shares of People's Common Stock
outstanding on ___________ __, 1997 and the Exchange Ratio of * , Webster would
--
issue up to __________ shares of Webster Common Stock to People's Corp.
shareholders in the Merger, plus cash in lieu of
- ----------
* Data/information to be calculated/provided immediately prior to effectiveness
of Registration Statement.
- 29 -
fractional shares. These numbers do not reflect the additional shares of Webster
Common Stock to be issued in the event of the exercise prior to the Merger of
the * existing People's Options.
--
Certificates for fractions of shares of Webster Common Stock will not
be issued. Under the Merger Agreement, in lieu of a fractional share of Webster
Common Stock, each holder of People's Common Stock will be entitled to receive
an amount of cash equal to the fraction of a share of Webster Common Stock to
which such holder would otherwise be entitled multiplied by the average (without
respect to the number of shares traded) of the daily closing prices of Webster
Common Stock, as reported on The Nasdaq National Market, for the 15 consecutive
trading days ending on the third day preceding the closing date of the Merger.
Following consummation of the Merger, no holder of People's Common Stock will be
entitled to any dividends or any other rights in respect of any such fraction.
The aggregate number of shares of Webster Common Stock, along with any cash to
be paid in lieu of a fraction of a share of Webster Common Stock, payable to
each holder of People's Common Stock, is hereinafter referred to as the
"Purchase Price."
The conversion of People's Common Stock held by shareholders of
People's Corp. into shares of Webster Common Stock at the Exchange Ratio will
occur automatically upon the Merger. Pursuant to the Merger Agreement, after the
Effective Time, Webster will cause the Exchange Agent to make payment of the
Purchase Price to each holder of shares of People's Common Stock who surrenders
the certificate or certificates representing such shares to the Exchange Agent,
together with a duly executed letter of transmittal.
As soon as practicable after the Effective Time, the Exchange Agent
will mail a letter of transmittal and instructions for use in surrendering
certificates to each holder of record of People's Common Stock immediately prior
to the Effective Time. Webster will cause to be deposited with the Exchange
Agent certificates representing the aggregate number of shares of Webster Common
Stock to be issued to People's Corp. shareholders, along with the cash to be
paid in lieu of fractional shares. The Exchange Agent shall not be obligated,
however, to deliver or cause to be delivered the Purchase Price to which any
holder of People's Common Stock would otherwise be entitled as a result of the
Merger until such holder surrenders the certificate or certificates representing
the shares of People's Common Stock for exchange, or, if not available, an
appropriate affidavit of loss and indemnity agreement and/or a bond as may be
required by Webster. Likewise, no dividends or distributions with respect to
Webster Common Stock payable to any such holder will be paid until such holder
surrenders the certificate or certificates representing the shares of People's
Common Stock for exchange. No interest will be paid or accrued to the
shareholders of People's Corp. on cash in lieu of fractional shares or unpaid
dividends and distributions, if any.
If any certificate representing shares of Webster Common Stock is to be
issued in a name other than that in which the certificate for such shares
surrendered in exchange is registered, it shall be a condition of such issuance
that the certificate so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such exchange shall
either (i) pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a certificate to a person other than the
registered holder of the certificate surrendered or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable. After the close of business of the day immediately prior to the
Effective Time, there shall be no transfers on the stock transfer books of
People's Corp. of the shares of People's Common Stock outstanding immediately
prior to the Effective Time and any such shares presented to the Exchange Agent
at or after the Effective Time shall be canceled and exchanged for the Purchase
Price.
ANY PORTION OF THE PURCHASE PRICE MADE AVAILABLE TO THE EXCHANGE AGENT
THAT REMAINS UNCLAIMED BY THE SHAREHOLDERS OF PEOPLE'S CORP. FOR SIX MONTHS
AFTER THE EFFECTIVE TIME WILL BE RETURNED TO WEBSTER. ANY SHAREHOLDER OF
PEOPLE'S CORP. WHO HAS NOT EXCHANGED SHARES OF PEOPLE'S COMMON STOCK FOR THE
PURCHASE PRICE IN ACCORDANCE WITH THE MERGER AGREEMENT PRIOR TO THAT TIME SHALL
THEREAFTER LOOK ONLY TO WEBSTER FOR PAYMENT OF THE PURCHASE PRICE IN RESPECT OF
SUCH SHARES AND ANY UNPAID DIVIDENDS OR DISTRIBUTIONS. NOTWITHSTANDING THE
FOREGOING, NONE OF WEBSTER, PEOPLE'S CORP., THE
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EXCHANGE AGENT OR ANY OTHER PERSON WILL BE LIABLE TO ANY SHAREHOLDER OF PEOPLE'S
CORP. FOR ANY AMOUNT PROPERLY DELIVERED TO A PUBLIC OFFICIAL PURSUANT TO
APPLICABLE ABANDONED PROPERTY, ESCHEAT OR SIMILAR LAWS.
STOCK CERTIFICATES FOR SHARES OF PEOPLE'S COMMON STOCK SHOULD NOT BE
RETURNED TO PEOPLE'S CORP. WITH THE ENCLOSED PROXY CARD AND SHOULD ONLY BE
FORWARDED TO THE EXCHANGE AGENT AFTER RECEIPT OF THE LETTER OF TRANSMITTAL.
OPTIONS
As of the Record Date, there were outstanding People's Options to
purchase _______ shares of People's Common Stock at an average exercise price of
$______ per share. These options are held as follows: options for ________
shares by non-employee directors; options for ____ shares by Messrs. Mansfield
and Medvec and Ms. Sasinski, respectively; options for ____ shares by retired
officers and directors; and options for ____ shares by other officers and
employees. Under the Merger Agreement, shares of People's Common Stock issued
prior to consummation of the Merger upon the exercise of outstanding People's
Options will also be converted into Webster Common Stock at the Exchange Ratio.
Each People's Option that is not exercised immediately prior to the Effective
Time of the Merger will be converted automatically into an option to purchase
shares of Webster Common Stock, with adjustment in the number of shares and
exercise price to reflect the Exchange Ratio. The adjustment will be and is
intended to be effective in a manner consistent with Section 424(a) of the Code.
The duration and other terms of the People's Options will otherwise be
unchanged.
REGULATORY APPROVALS
Consummation of the Merger is conditioned upon the receipt of required
regulatory approvals of the Connecticut Commissioner and the OTS and the
approval of waiver of the Federal Reserve Board. Applications as to such
approvals of the Connecticut Commissioner and the OTS and a request for a waiver
from the Federal Reserve Board have been filed and are pending. No other
regulatory approvals are required to effect the Merger pursuant to the Merger
Agreement. Neither People's Corp. nor Webster is aware of any reason why all
required regulatory approvals or waivers should not be obtained. See "--
Conditions to the Merger."
CONDITIONS TO THE MERGER
The respective obligations of the parties under the Merger Agreement to
consummate the Merger are subject to the satisfaction of the following
conditions: (i) the Merger Agreement shall not have been terminated on or before
the Effective Time; (ii) the Merger Agreement and the Merger shall have been
approved by the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of People's Common Stock entitled to vote thereon
at the Special Meeting; (iii) the Webster Common Stock which shall be issued in
the Merger (including the shares that may be issued upon the exercise of
People's Options prior to the Effective Time) shall have been authorized for
quotation on The Nasdaq National Market; (iv) all required regulatory approvals
shall have been obtained and shall remain in full force and effect, all
statutory waiting periods in respect thereof shall have expired, and no such
regulatory approvals shall contain a non-customary condition that Webster
reasonably deems to be burdensome or otherwise alters the benefits for which
Webster bargained in the Merger Agreement; (v) the Registration Statement shall
have become effective and shall not be subject to a stop order or any threatened
stop order; (vi) no injunction preventing consummation of the Merger or any of
the other transactions contemplated by the Merger Agreement or the certificate
of merger shall be in effect and such consummation continues to be legal; and
(vii) a favorable tax opinion from Webster's special counsel shall have been
received by Webster.
The obligations of Webster and Merger Sub under the Merger Agreement to
consummate the Merger are subject further to the satisfaction or waiver of
certain conditions, including the following: (i) the representations and
warranties of People's Corp. contained in the Merger Agreement shall be
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true and correct when made on the date of the Merger Agreement and as of the
Effective Time, except where such failure or failures would not have a material
adverse effect on People's Corp.; (ii) People's Corp. shall have performed in
all material respects all covenants and agreements contained in the Merger
Agreement to be performed by People's Corp. at or prior to the Effective Time;
(iii) People's Corp. shall have obtained the consent, approval or waiver of
other persons whose consent or approval is required to permit the succession by
the Surviving Bank under any lease or other agreement, except where such failure
or failures would not have a material adverse effect on the Surviving Bank; (iv)
no proceeding initiated by any governmental entity seeking an injunction shall
be pending; (v) specified legal opinions of the counsel of People's Corp. and a
comfort letter of the independent public accountants of People's Corp. shall
have been received by Webster; and (vi) Webster shall have received a favorable
accounting opinion from Webster's independent accountants, KPMG Peat Marwick
LLP, as to the Merger being accounted for as a pooling-of-interests.
The obligations of People's Corp. under the Merger Agreement to
consummate the Merger are subject further to the satisfaction or waiver of
certain conditions, including the following: (i) the representations and
warranties of Webster contained in the Merger Agreement shall be true and
correct when made on the date of the Merger Agreement and as of the Effective
Time, except where such failure or failures would not have a material adverse
effect on Webster; (ii) Webster and Merger Sub each shall have performed in all
material respects all covenants and agreements contained in the Merger Agreement
required to be performed by it at or prior to the Effective Time; (iii) Webster
shall have obtained the consent, approval or waiver of other persons in
connection with the transactions contemplated by the Merger Agreement that is
required under any lease or other agreement to which Webster or Merger Sub is a
party or otherwise bound; (iv) no proceeding initiated by any governmental
entity seeking an injunction shall be pending; and (v) specified legal opinions
of Webster's special counsel shall have been received by People's Corp.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains various restrictions on the operations of
People's Corp. and the subsidiaries of People's Corp. prior to the Effective
Time. In general, the Merger Agreement obligates People's Corp. and each of its
subsidiaries to continue to carry on their respective businesses in the ordinary
course consistent with past practices and with prudent banking practices, with
certain specific limitations on the lending activities of People's Corp. and
other operations. People's Corp. and each of its subsidiaries also are
prohibited by the Merger Agreement from declaring any dividends or other
distributions on their capital stock other than specified dividends on People's
Common Stock and dividends to People's Corp.; splitting, combining or
reclassifying any of their capital stock; issuing or authorizing or proposing
the issuance of any securities, other than the issuance of additional shares of
People's Common Stock upon exercise of certain existing People's Options or the
Option held by Webster; or repurchasing certain specified shares of capital
stock. Also, under the terms of the Merger Agreement, People's Corp. and each of
its subsidiaries may not amend their certificates of incorporation or bylaws,
nor may they change their methods of accounting in effect at December 31, 1996,
except as required by changes in regulatory or generally accepted accounting
principles. In addition, the Merger Agreement restricts People's Corp. and PSB&T
from increasing employee or director benefit arrangements or compensation other
than the grant of certain special options to directors and normal annual
increases in pay for employees consistent with past practices, including the
granting of stock options and entering into any new employment or severance
agreements, or paying any bonuses.
THIRD PARTY PROPOSALS
The Merger Agreement provides generally that People's Corp. and each of
its subsidiaries shall not authorize or permit any of their officers, directors,
employees or agents, to solicit, initiate or encourage any inquiries relating
to, or the making of, any third party takeover proposal. There is a similar
prohibition as to any discussion or negotiation of any third party takeover
proposal, or providing third parties with information relating to such inquiry
or proposal, unless the Board of
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Directors of People's Corp., following receipt of written advice of counsel,
reasonably determines in the exercise of its fiduciary duty that such
discussions or negotiations must be commenced or such information must be
furnished.
EXPENSES; BREAKUP FEE
The Merger Agreement generally provides for Webster and People's Corp.
to pay their own expenses relating to the Merger Agreement, with Webster paying
the filing and other fees paid to the SEC, the Connecticut Commissioner and the
OTS. However, if the Merger Agreement is terminated by Webster or People's Corp.
as a result of a material breach of a representation, warranty, covenant or
other agreement contained therein by the other party, or if Webster terminates
the Merger Agreement by reason of People's Corp. (i) failing to hold the Special
Meeting on a timely basis; (ii) failing to recommend to its shareholders
approval of the Merger Agreement and the transactions contemplated thereby;
(iii) failing to oppose any third party takeover proposal; or (iv) as a result
of People's Corp. violating the restrictions on third party takeover proposals,
the Merger Agreement provides for the non-terminating party to pay all
reasonable expenses of the terminating party up to $500,000, plus a breakup fee
of $500,000. If the Merger Agreement is terminated by Webster as a result of
People's Corp. failing to obtain the approval of its shareholders necessary to
consummate the Merger, Webster is entitled to have all of its reasonable
expenses up to $500,000 paid by People's Corp. Certain events described above
that would permit Webster to terminate the Merger Agreement would also
constitute Preliminary Purchase Events (as defined) under the Option. See "--
Option Agreement."
OPINION OF PEOPLE'S CORP. FINANCIAL ADVISOR
By an engagement letter dated January 14, 1997, the Board of Directors
of People's Corp. retained the services of Advest as the financial advisor of
People's Corp. and Advest agreed to render a fairness opinion regarding the
consideration to be received in an acquisition transaction by shareholders if so
requested by People's Corp.
Advest is a nationally recognized investment banking firm and, as part
of its investment banking business, is regularly engaged in the valuation of
bank, bank holding company and thrift institution securities in connection with
mergers, acquisitions and other securities transactions. As the financial
advisor to People's Corp., Advest was involved in the discussions with various
financial institutions that resulted in the offer by Webster, as well as the
negotiations with Webster that resulted in the Merger Agreement.
Advest delivered its initial opinion to the Board of Directors of
People's Corp. on April 4, 1997, which stated that the Exchange Ratio is fair,
from a financial point of view, to the shareholders of People's Corp. There were
no limitations imposed by People's Corp. on Advest in connection with its
rendering of the fairness opinion. Advest is a market maker in People's Common
Stock.
The full text of Advest's updated fairness opinion, dated the date of
this Proxy Statement/Prospectus, which sets forth the assumptions made and
matters considered in rendering the opinion, is attached as Appendix A to this
Proxy Statement/Prospectus. PEOPLE'S CORP. SHAREHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY. Advest's opinion is directed only to the consideration
offered in the Merger and does not constitute a recommendation to any People's
Corp. shareholder as to how such shareholder should vote at the Special Meeting.
The summary information regarding Advest's opinion and the procedures followed
in rendering such opinion set forth in this Proxy Statement/Prospectus are
qualified in their entirety by reference to the full text of the opinion.
In arriving at the opinion, Advest reviewed, among other things: (i)
the Merger Agreement; (ii) the audited consolidated financial statements and
managements' discussion and analysis of financial condition and results of
operations of Webster and People's Corp. for each of the fiscal years ended
December 31, 1996, 1995 and 1994; (iii) the unaudited consolidated financial
statements and
- 33 -
estimated results of operations for the interim period ending March 31, 1997 for
Webster and People's Corp.; (iv) certain financial information as filed with
federal banking agencies for each of the years ended December 31, 1996, 1995 and
1994 for both People's Corp. and Webster; (v) financial analyses and forecasts
of People's Corp. prepared by and/or reviewed with management of People's Corp.;
(vi) the views of senior management of each of People's Corp. and Webster of
their respective past and current business operations, results thereof,
financial condition and future prospects; (vii) the reported price and trading
activity for People's Common Stock and Webster Common Stock, including a
comparison of certain financial and stock market information for People's Corp.
and Webster with similar information for certain other companies, the securities
of which are publicly traded; (viii) comparative financial and operating data on
the banking industry and certain institutions which were deemed to be reasonably
similar to both companies; (ix) certain bank mergers and acquisitions on a
state, regional and nationwide basis for institutions which were deemed to be
reasonably similar to People's Corp. and a comparison of the proposed financial
consideration in the Merger with the consideration paid in other relevant
mergers and acquisitions; (x) the pro forma impact of the Merger on Webster and
People's Corp.; and (xi) other financial information, studies and analyses.
Advest performed such other investigations and took into account such other
matters as Advest deemed appropriate.
In performing its review, Advest assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with
Advest. Advest did not make any independent evaluation or appraisal of specific
assets, the collateral securing the assets or the liabilities of People's Corp.
or Webster or any of their subsidiaries, or the collectibility of any such
assets (relying, where relevant, on the analyses and estimates of People's Corp.
and Webster). With respect to the financial projections reviewed with
management, Advest assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of each
of People's Corp. and Webster. Advest also assumed that there has been no
material change in the assets, financial condition, results of operations,
business or prospects of People's Corp. and Webster since the date of the last
financial statements made available to Advest.
In connection with rendering its fairness opinion to the Board of
Directors of People's Corp., Advest performed a variety of financial analyses.
The following is a summary of such analyses, but does not purport to be a
complete description of the Advest analyses. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. Advest
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying Advest's opinion.
In performing its analyses, Advest made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
People's Corp., Webster or Advest. Any estimates contained in Advest's analyses
are not necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may actually be sold. No company or
transaction utilized in Advest's analyses was identical to People's Corp. or
Webster or the Merger. Because such estimates are inherently subject to
uncertainty, Advest assumes no responsibility for their accuracy.
Stock Trading History
Advest examined the history of trading prices for both People's Common
Stock and Webster Common Stock for the periods from December 31, 1994 through
the date of this Proxy Statement/Prospectus. From year-end 1994 until August
1996, People's Common Stock slowly traded up from a low of $17.50 to a high of
$22.50. With the exception of the month of July 1995, the rise was fairly slow
and steady. In July
- 34 -
1995, the stock jumped from a trading range of $18.00 to $19.00 per share in
June 1995 to a range of $21.00 to $22.50. However, between August 1995 and March
1996, People's Common Stock fell back to a trading range between $19.00 and
$20.00 per share. In August 1996, People's Common Stock rapidly rose to a high
of $30.25, on record of volume of 626,900 shares reported traded. Since year-end
1994, the previous highest monthly volume was 129,200 shares reported traded in
July 1995. From September 1996 to November 1996, People's Common Stock slowly
fell to a low of $26.00 on November 5, 1996. Over the next several months the
stock rose to a high of $32.75 on February 25, 1997. From the end of February
until the announcement of the transaction on April 4, 1997, People's Common
Stock tended to trade between $31.00 and $32.00. Since the announcement of the
transaction, People's Common Stock has traded steady at around $32.00.
Webster Common Stock steadily rose from a low of $18.50 at year-end
1994 to a high of $41.38 on February 13, 1997. With the exception of the month
of September 1995, when Webster Common Stock rose quickly to $31.00 from a
trading range between $24.00 and $26.00, the rise in Webster Common Stock has
been strong and steady. From February 14, 1997 until March 26, 1997, the stock
slowly fell to $37.50. From March 27, 1997 until April 2, 1997, Webster Common
Stock rapidly fell to a low of $34.88. The closing price of Webster Common Stock
on April 3, 1997 was $35.50. Since the announcement of the Merger, the stock has
tended to trade between $36.00 and $38.00 per share. However, the stock did hit
a high of $39.50 on May 8, 1997.
Contribution Analysis
Advest prepared a contribution analysis showing the percentage
contributed by People's Corp. to the combined company on a pro forma basis of
assets, deposits and common equity at March 31, 1997, and net income for the
twelve months ended December 31, 1996 and three months ended March 31, 1997 for
People's Corp. and Webster. Advest then compared these percentages to People
Corp. shareholders' pro forma ownership of Webster. This analysis showed that as
of March 31, 1997, People's Corp. would contribute 8.6% of pro forma
consolidated assets, 8.8% of pro forma consolidated deposits, and 14.1% of pro
forma consolidated equity.
During the quarter ended March 31, 1997, Webster completed the
acquisition of DS Bancor. As part of the consolidation related to the
acquisition of DS Bancor, Webster incurred a non-recurring merger expense of $15
million (after tax). After adjusting the net income of Webster for the
non-recurring expense, the contribution analysis for the three months ended
March 31, 1997 shows that People Corp.'s would contribute 10.7% of pro forma
consolidated net income. During the twelve months ended December 31, 1996,
Webster incurred a non-recurring SAIF assessment of $5.23 million (before tax)
and People's Corp. received non-recurring income of $300,000 (before tax). The
contribution analysis for the twelve months ended December 31, 1996, adjusted
for all non-recurring items, shows that People's Corp. would contribute 10.1% of
pro forma consolidated net income.
Based on an average price of $36.00 per share for Webster Common Stock,
People's Corp. shareholders would hold 15.7% of the pro forma ownership of the
combined company.
Comparable Company Analysis
In its analysis, Advest compared the financial condition and financial
operating performance of People's Corp. with a peer group of eight savings banks
in Connecticut with between $250 to $750 million in assets. The review
considered asset size, return on average assets and equity, the equity to assets
ratio and the ratio of nonperforming assets to total assets, among other
information. Compared to People's Corp., which had a return on average assets of
.90%, and a return on average equity of 9.22%, based on the three months ended
March 31, 1997 operating results, and an equity to assets ratio of 9.61% and a
nonperforming assets to total assets ratio of .54% at March 31, 1997, the peer
group had a median return on average assets of 1.17%, and a return on average
equity of 12.52%, based on three months ended March 31, 1997 operating results,
and an equity to average
- 35 -
assets ratio of 7.52% and a nonperforming assets to total assets ratio of 1.77%
at March 31, 1997. In summary, the peer group reported a higher return on
average assets and equity and level of nonperforming assets to People's Corp.
and a comparable equity to assets ratio.
Analysis of Selected Merger Transactions
Advest reviewed certain financial data related to 115 acquisitions of
thrift institutions nationwide with assets between $250 to $750 million
announced since January 1, 1993, 49 of which were announced since January 1,
1995. Advest also reviewed selected regional acquisitions, including the
following most recent transactions in the New England region (identified by
acquiror/acquiree): Eagle Financial Corp./MidConn Bank, MASSBANK
Corporation/Glendale Co-Op Bank, Citizens Financial Group/Grove Bank and Farmers
& Mechanics Savings Bank, CFX Corporation/Portsmouth Bank Shares, Vermont
Financial Services/Eastern Bancorp Inc., Webster Financial Corporation/DS Bancor
and Shelton, First Union Corp/Center Financial Corporation and Center Financial
Corporation/Great Country Bank.
Advest calculated median price as a multiple of the target's earnings
for the last four quarters (trailing 12 months) and as a percentage of stated
book value and tangible book value, and calculated tangible premium as a
percentage of core deposits. For nationwide thrift transactions announced since
January 1, 1995, the calculations yielded, as of the date of the announcement of
these transactions, the following averages: (i) price offered as a multiple of
earnings 17.9 times (15.0 times for regional transactions), compared with a
multiple of 16.8 times for the Webster proposal; (ii) price offered as a
percentage of book value of 147% (151% for regional transactions), compared with
140% for the Webster proposal; (iii) price offered as a percentage of tangible
book value of 151% (160% for regional transactions), compared with 150% for the
Webster proposal; and (iv) premium as a percentage of core deposits of 7.33%
(7.10% for regional transactions), compared to 7.51% for the Webster proposal.
No company or transaction used as a comparison in the above analysis is
identical to People's Corp., Webster or the Merger. Accordingly, an analysis of
the results of the foregoing is not a mathematical analysis, rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition value of the companies to which they are being compared.
Impact Analysis
Advest analyzed the changes in the amount of fully diluted earnings per
share and book value represented by the issuance of .944 shares (based on a
$36.00 price per share) of Webster Common Stock for each share of People's
Common Stock. The analysis evaluated, among other things, possible dilution or
accretion in fully diluted earnings per share and book value per share for
Webster. The analysis was based upon (i) March 31, 1997 balance sheet data; (ii)
latest three months earnings for the period ended March 31, 1997; and (iii)
latest twelve months earnings for the period ended December 31, 1996. Both
companies' earnings excluded any non-recurring items incurred.
As of March 31, 1997, these pro forma analyses indicated that the
Merger would be approximately 4.50% dilutive to Webster's fully diluted earnings
per share and approximately .05% dilutive to Webster's book value per share and
1.53% accretive to Webster's tangible book value per share.
Advest also analyzed the impact of the Merger on certain pro forma
March 31, 1997 Webster values per share of People's Common Stock based on an
Exchange Ratio of .944 shares of Webster Common Stock for one share of People's
Common Stock. That analysis, which was based on certain assumptions made by
Advest, found that, based on the proposed Exchange Ratio, Webster's equivalent
earnings per share would be $0.74 per share or 36.82% greater than the existing
People's Corp. earnings per share; that Webster's equivalent book value per
share would be $22.38 or 7.28%
- 36 -
less than the existing People's Corp. book value per share; and that Webster's
equivalent quarterly dividend income would be $.17 per share.
The Advest engagement letter, as amended, provides that People's Corp.
will pay Advest a transaction fee in connection with the Merger, a substantial
portion of which is contingent upon consummation of the Merger. Under its terms,
People's Corp. will pay Advest a fee equal to 1% of the aggregate consideration
paid to People's Corp. shareholders and option holders in the Merger, or
approximately $677,000 (assuming a market price of $36 for Webster Common
Stock), net of $175,000 in fees already paid to Advest in relation to the
Merger. Total fees to be paid include $25,000 to be paid upon acceptance of the
engagement letter, $75,000 to be paid upon execution of the Merger Agreement and
$100,000 to be paid upon delivery of Advest's initial written fairness opinion).
The total fees for Advest's engagement by People's Corp., excluding
reimbursement for reasonable out-of-pocket expenses, will not exceed 1% of the
market value of the aggregate consideration in the Merger. People's Corp. has
also agreed to indemnify Advest against certain liabilities related to the
Merger. While the payment of all or a significant portion of fees related to
financial advisory services provided in connection with an arms-length merger or
other business combination transaction upon consummation of such transaction, as
is the case with the Merger, might be viewed as giving such financial advisor a
financial interest in the successful completion of the transaction, such
compensation arrangements are standard and customary for transactions of the
size and type of the Merger.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Under the Merger Agreement, People's Corp. has made certain
representations and warranties to Webster and Merger Sub. The material
representations and warranties of People's Corp. are those with regard to (i)
the organization and good standing of People's Corp. and PSB&T; (ii) insurance
of deposit accounts of PSB&T; (iii) capitalization; (iv) corporate power and
authority; (v) the execution and delivery of the Merger Agreement and the Option
Agreement; (vi) consents and approvals required for the Merger and the Bank
Merger; (vii) loan portfolio and reports; (viii) financial statements and books
and records; (ix) broker's fees; (x) absence of any material adverse change in
People's Corp.; (xi) legal proceedings; (xii) tax matters; (xiii) employee
benefit plans; (xiv) certain contracts; (xv) certain regulatory matters; (xvi)
state takeover laws and charter takeover provisions; (xvii) environmental
matters; (xviii) loss reserves; (xix) properties and assets; (xx) insurance
matters; (xxi) liquidation account of PSB&T; (xxii) compliance with applicable
laws; (xxiii) loan information; (xxiv) agreements with directors, executive
officers and affiliates; (xxv) ownership of Webster Common Stock; and (xxvi)
receipt of the fairness opinion of Advest.
Under the Merger Agreement, Webster has made certain representations
and warranties to People's Corp. The material representations and warranties of
Webster are those with regard to (i) the organization and good standing of
Webster and Merger Sub and the chartering of Webster Bank; (ii) capitalization;
(iii) the corporate power and authority of Webster, Merger Sub and Webster Bank;
(iv) the execution and delivery of the Merger Agreement and the Option
Agreement; (v) consents and approvals required for the Merger and the Bank
Merger; (vi) financial statements and books and records; (vii) the absence of
any material adverse change in Webster; (viii) compliance with applicable laws;
(ix) ownership of People's Common Stock; (x) employee benefit plans; and (xi)
certain regulatory matters.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by Webster or People's Corp.
(provided the terminating party is not in violation of the Merger Agreement) as
summarized below:
(i) by mutual written consent of Webster and People's
Corp.;
(ii) by Webster or People's Corp. if (a) 30 days after any
required regulatory approval is denied or regulatory
application is withdrawn at a regulator's
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request, unless action is timely taken for a
rehearing or to file an amended application; (b) the
Merger has not occurred on or before December 31,
1997; or (c) the shareholders of People's Corp. fail
to approve the Merger Agreement;
(iii) by Webster, in the event of a breach of any
representation, warranty, covenant or agreement
contained in the Merger Agreement by People's Corp.,
if such breach or breaches would have a material
adverse effect on People's Corp.;
(iv) by People's Corp., in the event of a breach of any
representation, warranty, covenant or agreement
contained in the Merger Agreement by Webster, if such
breach or breaches would have a material adverse
effect on Webster;
(v) by Webster, if People's Corp. or its Board of
Directors (a) fails to hold the Special Meeting on a
timely basis; (b) fails to recommend to the
shareholders of People's Corp. the approval of the
Merger Agreement and the transactions contemplated
thereby; (c) fails to oppose any third party takeover
proposals; or (d) violates the covenant relating to
third party proposals; and
(vi) by People's Corp., if the Base Period Trading Price
is less than $32.00 unless Webster elects that the
Exchange Ratio shall be 1.06250.
The Merger Agreement also provides that subject to applicable law, the
Board of Directors of the parties may (i) amend the Merger Agreement (except as
provided below); (ii) extend the time for the performance of any of the
obligations or other acts of the other parties thereto; (iii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant thereto; or (iv) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. After approval of the Merger Agreement by the shareholders of
People's Corp., no amendment of the Merger Agreement may be made without further
shareholder approval if the amendment would reduce the amount or change the form
of the consideration to be delivered to the shareholders of People's Corp. under
the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable U.S.
Treasury Regulations thereunder, administrative rulings and judicial authority,
all as of the date hereof. All of the foregoing are subject to change, and any
such change could affect the continuing validity of this summary. The summary
assumes that the holders of shares of People's Common Stock hold such shares as
a capital asset. The summary does not address the tax consequences that may be
applicable to a particular People's Corp. shareholder subject to special tax
rules, such as tax-exempt organizations, dealers in securities, financial
institutions, insurance companies, non-United States persons, shareholders who
acquired shares of People's Common Stock pursuant to the exercise of options or
otherwise as compensation or through a qualified retirement plan and
shareholders who hold shares of People's Common Stock as part of a "straddle,"
"hedge," or "conversion transaction." This summary also does not address any
consequences arising under the tax laws of any state, locality, or foreign
jurisdiction.
Consummation of the Merger is subject to the prior receipt by Webster
of an opinion from Hogan & Hartson L.L.P., its special counsel, that the Merger
will be treated for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368 of the Code. The opinion of Hogan & Hartson
L.L.P. will be based on the Code, the U.S. Treasury Regulations promulgated
thereunder, the administrative interpretations thereof and the judicial
decisions with respect thereto, all as in effect as of the Effective Time of the
Merger, on the assumption that the Merger takes place as described in the Merger
Agreement, and on certain certificates and representations provided and to be
provided by People's Corp. and certain shareholders of People's Corp. regarding
- 38 -
the satisfaction of certain requirements to a reorganization within the meaning
of Section 368(a) of the Code (including the absence of any plan or intention by
certain holders of People's Common Stock to sell, exchange or otherwise dispose
of shares of Webster Common Stock to be received by such person upon the
Merger). Unlike a ruling from the Internal Revenue Service ("IRS"), an opinion
of counsel is not binding on the IRS and there can be no assurance that the IRS
will not take a position contrary to one or more of the positions reflected in
such opinion or that such positions will be upheld by the courts if challenged
by the IRS. If such opinion is not received, or if the material tax consequences
described therein materially differ from those as stated below, People's Corp.
will resolicit shareholders.
If, as concluded in the opinion of counsel, the Merger qualifies as a
tax-free reorganization within the meaning of Section 368 of the Code, then:
(1) Except as discussed in (4) below with respect to cash
received in lieu of a fractional share of Webster
Common Stock, a People's Corp. shareholder will
recognize no gain or loss upon the exchange of
People's Common Stock for Webster Common Stock
pursuant to the Merger.
(2) The tax basis of the Webster Common Stock received by
a People's Corp. shareholder in the Merger will be
the same as the shareholder's tax basis in the
People's Common Stock surrendered in exchange
therefor.
(3) The holding period of the Webster Common Stock
received by a People's Corp. shareholder in the
Merger will include the holding period of the
People's Common Stock surrendered in exchange
therefor (assuming the People's Common Stock was held
as a capital asset).
(4) The receipt by a People's Corp. shareholder of cash
in lieu of fractional shares of Webster Common Stock
will be treated as if the fractional shares were
distributed as part of the Merger and then were
redeemed by Webster. These cash payments will be
treated as distributions in full payment in exchange
for the stock redeemed, as provided in Section 302(a)
of the Code.
(5) Neither Webster, Merger Sub, nor People's Corp. will
recognize any gain or loss as a result of the Merger.
The shareholders of People's Corp. are urged to consult their own tax
advisors as to the specific tax consequences to them of the Merger, including
tax return reporting requirements, the applicability and effect of federal,
state, local and other applicable tax laws, and the effect of any proposed
changes in the tax laws.
As described above (see "-- Options"), holders of People's Options will
have such People's Options converted into options to purchase shares of Webster
Common Stock. The assumption of the options by Webster should not be a taxable
event and former holders of People's Options who hold options to purchase
Webster Common Stock after the Merger should be subject to the same federal
income tax treatment upon exercise of such options as would have applied had
they exercised their People's Options.
Holders of People's Options are urged to consult their own tax advisors
as to the specific tax consequences to them of the Merger, including tax return
reporting requirements, available elections, the applicability and effect of
federal, state, local and other applicable tax laws, and the effect of any
proposed changes in the tax laws.
- 39 -
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under the pooling-of-interests
method of accounting, the recorded assets and liabilities of People's Corp. will
be carried forward to Webster at their recorded amounts. Revenues and expenses
of Webster will include revenues and expenses of People's Corp. for the entire
fiscal year of Webster in which the Merger occurs, and the reported revenues and
expenses of People's Corp. for prior periods will be combined with those of
Webster, whose financial statements will then be restated.
It is a condition to the Merger that Webster receive an opinion of its
independent accountants, KPMG Peat Marwick LLP, to the effect that the Merger
will be accounted for as a pooling-of-interests. See "-- Conditions to the
Merger."
RESALES OF WEBSTER COMMON STOCK RECEIVED IN THE MERGER
The shares of Webster Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any People's Corp. shareholder who
may be deemed to be an "affiliate" of People's Corp. for purposes of Rule 145
under the Securities Act. Affiliates may not sell their shares of Webster Common
Stock acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares, in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Proxy Statement/Prospectus does not
cover any resales of Webster Common Stock received by persons who may be deemed
to be affiliates of People's Corp. Persons who may be deemed to be affiliates of
People's Corp. generally include individuals or entities who control, are
controlled by or are under common control with People's Corp., and may include
certain officers or directors, as well as principal shareholders of People's
Corp.
DISSENTERS' APPRAISAL RIGHTS
The holders of Webster Common Stock do not have dissenters' rights in
connection with the Merger.
Section 33-856 of the CGS provides that, in connection with a merger
for which shareholder approval is required by Section 33-817 of the CGS, any
shareholder of a constituent bank who dissents from the merger is entitled to
assert dissenters' rights under Sections 33-855 to 33-872, inclusive, of the CGS
(collectively such rights, "Dissenters' Rights"). In accordance with Sections
33-855 through 33-872, inclusive, of the CGS, if the proposed Merger is approved
and consummated, holders of shares of People's Common Stock who do not vote in
favor of the Merger will have the right to demand the purchase of their shares
at their "fair value" immediately before effectuation of the Merger (exclusive
of any appreciation or depreciation in anticipation of the Merger) if they fully
comply with the provisions of Sections 33-855 to 33-872 of the CGS.
The following is a brief summary of the procedures set forth in
Sections 33-855 to 33-872 which are required to be followed by holders of shares
of People's Common Stock who wish to dissent from the Merger and demand the
purchase of their shares at their fair value. This summary is qualified in its
entirety by reference to Sections 33-855 to 33-872, inclusive, the complete
texts of which are attached to this Proxy Statement/Prospectus as Appendix B.
Dissenting shareholders are advised to seek independent counsel with respect to
exercising their dissenters' rights. This Proxy Statement/Prospectus constitutes
notice to holders of shares of People's Common Stock concerning the availability
of Dissenters' Rights under Sections 33-855 to 33-872 of the CGS.
Dissenting shareholders must satisfy all of the conditions of Sections
33-855 to 33-872. Each dissenting shareholder must, before the taking of the
vote on the adoption of the Merger at the Special Meeting, give written notice
to the Secretary of People's Corp. (together with Webster, the
- 40 -
"Corporation") of such shareholder's intent to demand payment for his shares if
the Merger is effectuated. This notice must be in addition to and separate from
any abstention or any vote, in person or by proxy, cast against approval of the
Merger.
NEITHER VOTING "AGAINST," ABSTAINING FROM VOTING, OR FAILING TO VOTE ON
THE ADOPTION OF THE MERGER WILL CONSTITUTE NOTICE OF INTENT TO DEMAND PAYMENT OR
DEMAND FOR PAYMENT OF FAIR VALUE WITHIN THE MEANING OF SECTIONS 33-855 TO
33-872, INCLUSIVE.
A Dissenting shareholder must NOT vote for approval and adoption of the
Merger. If a holder of shares of People's Common Stock returns a signed proxy
but does not specify therein a vote "AGAINST" adoption of the Merger Agreement
and the Merger provided for therein or an instruction to abstain, the proxy will
be voted "FOR" adoption of the Merger Agreement and the Merger, which will have
the effect of waiving the rights of that holder of shares of People's Common
Stock to have his shares purchased at fair value. Abstaining from voting or
voting against the adoption of the Merger Agreement and the Merger will NOT
constitute a waiver of such shareholder's rights.
After the vote is taken at the Special Meeting, if the Merger is
approved, and in any event no later than 10 days after consummation of the
Merger, a "Dissenters' Notice" shall be sent to each dissenting shareholder who
has given the written notice described above and did not vote in favor of the
Merger. The Dissenters' Notice will state the results of the vote on the Merger
Agreement, where the payment demand must be sent, where and when certificates
must be deposited and will set a date, not fewer than thirty nor more than sixty
days after delivery of such notice, by which the payment demand must be received
from the dissenting shareholder. Such notice will include a form for demanding
payment that will require that the dissenting shareholder certify whether or not
such shareholder acquired beneficial ownership of the shares before April 3,
1997. (PLEASE NOTE THAT SHARES ACQUIRED AFTER April 3, 1997 ("AFTER ACQUIRED
SHARES"), MAY BE SUBJECT TO DIFFERENT TREATMENT IN ACCORDANCE WITH SECTION
33-867 OF THE CGS THAN ARE SHARES ACQUIRED PRIOR TO SUCH DATE). The Dissenters'
Notice will also include a copy of Sections 33-855 to 33-872, inclusive, of the
CGS. A dissenting shareholder who receives a Dissenters' Notice must comply with
the terms of such notice. A dissenting shareholder who does so by demanding
payment, depositing his certificates in accordance with the terms of the notice
and certifying that beneficial ownership was acquired before April 3, 1997 will
retain all other rights of a shareholder until such rights are canceled or
modified by the Merger. A dissenting shareholder who receives a Dissenters'
Notice and does not comply with the terms therein is not entitled to payment for
his shares under Sections 33-855 to 33-872 of the CGS.
Dissenters' Rights under Sections 33-855 through 33-872 may be asserted
by either a beneficial shareholder or record shareholder. A record shareholder
may assert Dissenters' Rights as to fewer than every share registered in his
name only if he dissents with respect to all shares beneficially owned by any
one person. A beneficial shareholder may assert Dissenters' Rights as to shares
held on his behalf only if he submits the record shareholder's written consent
prior to or at the time he asserts Dissenters' Rights and he does so with
respect to all shares of which he is beneficial owner or over which he has the
power to direct the vote.
After the Merger is consummated, or upon receipt of a payment demand,
the Corporation shall pay each dissenting shareholder who complied with the
terms of the Dissenters' Notice the amount the Corporation estimates to be the
fair value of the shares, plus accrued interest. Within 30 days of such payment,
if a dissenting shareholder believes that the amount paid is less than the fair
value of the shares or that the interest due is incorrectly calculated, such
shareholder may notify the Corporation in writing of his own estimate of the
fair value of the shares and interest due. If such a claim is made by a
dissenting shareholder, and it cannot be settled, the Corporation will within 60
days after receiving the payment demand, petition the court to determine the
fair value of the shares and accrued interest.
- 41 -
The costs and expenses of any such court proceeding shall be determined
by the court and shall be assessed against the Corporation, but such costs and
expenses may be assessed as the court shall deem equitable against any or all
dissenting shareholders who are parties to the proceeding if the court finds the
action of such dissenting shareholders in failing to accept the Corporation's
offer was arbitrary or vexatious or not in good faith. Such expenses may include
the fees and expenses of counsel and experts employed by the respective parties.
All written notices of intent to demand payment of fair value should be
sent or delivered to Teresa D. Sasinski, Senior Vice President and Secretary,
People's Savings Financial Corp., 123 Broad Street, New Britain, Connecticut
06053. People's Corp. suggests that shareholders use registered or certified
mail, return receipt requested, for this purpose.
HOLDERS OF SHARES OF PEOPLE'S COMMON STOCK CONSIDERING DEMANDING THE
PURCHASE OF THEIR SHARES AT FAIR VALUE SHOULD KEEP IN MIND THAT THE FAIR VALUE
OF THEIR SHARES DETERMINED UNDER SECTIONS 33-855 TO 33-872, INCLUSIVE, COULD BE
MORE, THE SAME, OR LESS THAN THE MERGER CONSIDERATION THEY ARE ENTITLED TO
RECEIVE PURSUANT TO THE MERGER IF THEY DO NOT DEMAND THE PURCHASE OF THEIR
SHARES AT FAIR VALUE.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT
OF THE PROVISIONS OF THE CGS RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
OF SHARES OF PEOPLE'S COMMON STOCK AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SECTIONS 33-855 THROUGH 33-872 OF THE CGS, WHICH ARE INCLUDED AS APPENDIX B
TO THIS PROXY STATEMENT/PROSPECTUS. HOLDERS OF SHARES OF PEOPLE'S COMMON STOCK
INTENDING TO DEMAND THE PURCHASE OF THEIR SHARES AT FAIR VALUE ARE URGED TO
REVIEW CAREFULLY APPENDIX B AND TO CONSULT WITH LEGAL COUNSEL SO AS TO BE IN
STRICT COMPLIANCE THEREWITH.
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- ARRANGEMENTS WITH AND PAYMENTS TO
PEOPLE'S CORP. DIRECTORS AND EXECUTIVE OFFICERS
The Merger Agreement provides for one director of People's Corp.
(selected by the Board of Directors of Webster in consultation with People's
Corp.) to be invited to serve as an additional member of the Board of Directors
of Webster Bank upon consummation of the Merger for a term not to expire prior
to Webster's 2000 annual meeting of shareholders. This director will receive
director's fees on the same basis as other non-employee directors of Webster
Bank who are not directors of Webster, which fees are based on an annual
retainer of $10,000 (payable in shares of Webster Common Stock, in accordance
with the Directors Retainer Fees Plan of Webster) and $750 per meeting attended.
In addition, the non-employee directors of People's Corp. serving immediately
prior to the Effective Time will be invited to serve on an advisory board to
Webster Bank after the Bank Merger for a period of up to 24 months, with their
compensation as advisory directors to be based on a quarterly retainer of $3,500
and a quarterly meeting attendance fee of $1,500. Such fees will not be payable
to the advisory director who also serves as a Webster Bank director.
Pursuant to existing employment and severance agreements of PSB&T,
severance payments will be made upon consummation of the Merger to Richard S.
Mansfield, John G. Medvec and Teresa D. Sasinski. The payments to Messrs.
Mansfield and Medvec and Ms. Sasinski, which are limited to the maximum amount
that can be paid without adverse tax consequences under Section 280G of the
Code, will be based on three times their respective average annual compensation
includible in their gross income for federal tax purposes for the calendar years
1992 through 1996, including taxable income attributable to stock options
exercised. On this basis, the severance payable to Messrs. Mansfield and Medvec
and Ms. Sasinski upon consummation of the Merger would be approximately
$494,000, $357,000 and $197,000, respectively.
- 42 -
Webster has agreed to honor existing written deferred compensation,
employment, change of control and severance contracts with the directors and
employees of People's Corp. and PSB&T. The employment agreements of Messrs.
Mansfield and Medvec and Ms. Sasinski were amended in connection with the Merger
Agreement. As amended, those agreements provide that upon consummation of the
Merger, Webster Bank has agreed to employ Messrs. Mansfield and Medvec and Ms.
Sasinski for three years as officers of Webster Bank. Mr. Mansfield's salary
will be $90,000 per year with an annual bonus of up to 20% of his annual salary,
of which $10,000 per year is guaranteed. Mr. Medvec's salary will be $75,000 per
year with an annual bonus, of which $7,500 will be guaranteed. Ms. Sasinski's
salary will be $60,000 per year with an annual bonus, of which $6,000 is
guaranteed. Messrs. Mansfield and Medvec and Ms. Sasinski also will be eligible
to participate in certain employee benefit plans, and, except for the employee
stock ownership plan, their previous service with PSB&T will be included in
determining their eligibility for those plans. Webster Bank also will offer a
position of at-will employment to each of PSB&T branch office personnel in good
standing at the Effective Time and will provide severance as well as
outplacement assistance to other employees of People's Corp. and PSB&T who are
not offered positions at the Effective Time.
INDEMNIFICATION
In the Merger Agreement, Webster has agreed to indemnify, defend and
hold harmless each person who is, has been, or becomes prior to the Effective
Time, a director, officer or employee of People's Corp. to the fullest extent
permitted under applicable law and Webster's Restated Certificate of
Incorporation and Bylaws or the Certificate of Incorporation and Bylaws of
Merger Sub, as applicable, with respect to any claims made against such person
because he or she is or was a director, officer or employee of People's Corp. or
in connection with the Merger Agreement. In the Merger Agreement, Webster has
also agreed to use commercially reasonable efforts to cover the officers and
directors of People's Corp. under a directors' and officers' liability insurance
policy for a period of at least one year after the Effective Time.
OPTION AGREEMENT
As a condition of and inducement to Webster's entering into the Merger
Agreement, Webster and People's Corp. entered into the Option Agreement
immediately after the execution of the Merger Agreement. Pursuant to the Option
Agreement, People's Corp. granted Webster the Option, which entitles Webster to
purchase, subject to the terms thereof, up to 476,167 fully paid and
nonassessable shares of People's Common Stock, or approximately 19.99% of the
shares of People's Common Stock then outstanding, under the circumstances
described below, at a price per share of $25.00, subject to adjustment in
certain circumstances. The Option is intended to discourage the making of
alternative acquisition-related proposals and to significantly increase the cost
to a potential third party of acquiring People's Corp., under specified
circumstances, compared to its cost had People's Corp. not entered into the
Option Agreement and, therefore, is likely to discourage third parties from
proposing a competing offer to acquire People's Corp., even if such offer
involves a higher price per share for the People's Common Stock than the per
share consideration to be paid pursuant to the Merger Agreement.
The following brief summary of certain provisions of the Option
Agreement is qualified in its entirety by reference to the Option Agreement. A
copy of the Option Agreement, as well as the other documents described in this
Proxy Statement/Prospectus, will be provided without charge upon oral or written
request to Lee A. Gagnon, Executive Vice President, Chief Operating Officer and
Secretary of Webster Financial Corporation, Webster Plaza, Waterbury,
Connecticut 06702, telephone (203) 578-2217.
Subject to applicable law and regulatory restrictions, Webster may
exercise the Option, in whole or in part, following the occurrence of a
"Purchase Event" (as defined below), provided that the Option shall not have
first terminated upon the occurrence of an "Exercise Termination Event" (as
defined below). "Purchase Event" means, in substance, either (i) the acquisition
by any third party of beneficial ownership of 25% or more of the outstanding
People's Common Stock or (ii) the entry by
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People's Corp. into a letter of intent or definitive agreement to engage in an
Acquisition Transaction (as defined below) with any third party, or the
recommendation by the Board of Directors of People's Corp. that its shareholders
approve or accept any Acquisition Transaction with any third party.
For purposes of the Option Agreement, "Acquisition Transaction" means
(x) a merger, consolidation or other business combination, involving People's
Corp., (y) a purchase, lease or other acquisition of all or substantially all of
the assets of People's Corp., or (z) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of beneficial
ownership of 25% or more of the voting power of People's Corp. as to a Purchase
Event (described above) or 10% as to a Preliminary Purchase Event (defined
below).
The Option Agreement defines an "Exercise Termination Event" to mean
the earliest to occur of the following: (i) the time immediately prior to the
Effective Time of the Merger; (ii) 12 months after the first occurrence of a
Purchase Event; (iii) 12 months after the termination of the Merger Agreement
following the occurrence of a Preliminary Purchase Event (unless clause (vii) is
applicable); (iv) upon the termination of the Merger Agreement, prior to the
occurrence of a Purchase Event or Preliminary Purchase Event, (A) by People's
Corp., if the Base Period Trading Price of Webster Common Stock is less than
$32.00 unless Webster takes certain specified action; (B) by both parties, if
the Merger Agreement is terminated by mutual consent; (C) by either Webster or
People's Corp., if the Merger Agreement has been terminated as a result of
regulatory denial or requested withdrawal of a regulatory application, if the
Merger has not occurred by December 31, 1997; or (D) by People's Corp., if the
Merger Agreement is terminated as a result of a material breach of any
representation, warranty, covenant or other agreement by Webster; (v) 12 months
after the termination of the Merger Agreement, if the People's Corp.
shareholders have failed to approve the Merger Agreement and no Purchase Event
or Preliminary Purchase Event has occurred prior to the Special Meeting; (vi) 12
months after the termination of the Merger Agreement by Webster as a result of a
material breach or breaches of any representation, warranty, covenant or other
agreement by People's Corp., if such breach or breaches were not willful or
intentional by People's Corp.; or (vii) 24 months after the termination of the
Merger Agreement by Webster (A) as a result of a willful or intentional material
breach or breaches of any representation, warranty, covenant or agreement by
People's Corp.; or (B) as a result of a failure of People's Corp. or its Board
of Directors to hold the Special Meeting on a timely basis, to recommend to
People's Corp.'s shareholders that they approve the Merger Agreement, or to
oppose any third party takeover proposal, or based on a violation by People's
Corp. of the covenant on third party takeover proposals.
"Preliminary Purchase Event", as defined in the Option Agreement,
includes (i) the entry by People's Corp. into a letter of intent or definitive
agreement to engage in an Acquisition Transaction with any third party, or the
recommendation by the Board of Directors of People's Corp. that its shareholders
approve or accept any Acquisition Transaction with any third party; (ii) an
acquisition by any third party of beneficial ownership of 10% or more of the
outstanding shares of People's Common Stock; (iii) the making of a bona fide
proposal for an Acquisition Transaction by any third party to People's Corp., or
a public announcement or written communication that is publicly disclosed to
People's Corp.'s shareholders as to a third party engaging in an Acquisition
Transaction and the shareholders of Peoples Corp. do not approve the Merger;
(iv) a willful or intentional material breach by People's Corp. of any
representation, warranty, covenant or agreement that would entitle Webster to
terminate the Merger Agreement; (v) a failure by the People's Corp. shareholders
to approve the Merger Agreement, a failure to recommend or a withdrawal or
modification in any manner adverse to Webster by People's Corp.'s Board of
Directors of its approval or recommendation as to the Merger Agreement, or a
failure by People's Corp. or its Board of Directors to oppose any third party
takeover proposal; or (vi) a filing by any third party of an application or
notice with any regulatory authority for approval to engage in an Acquisition
Transaction.
The Option may not be assigned by Webster to any other person without
the express written consent of People's Corp., except that Webster may assign
its rights under the Option Agreement to a wholly-owned subsidiary or may assign
its rights in whole or in part after the occurrence of a
- 44 -
Preliminary Purchase Event. People's Corp. also has agreed to prepare and file a
registration statement if the Option is exercised with respect to the shares to
be issued upon exercise of the Option under applicable federal and state
securities laws. Upon the occurrence of a Purchase Event prior to an Exercise
Termination Event, at the request of Webster, People's Corp. will be obligated
to repurchase the Option, and any shares of People's Common Stock theretofore
purchased pursuant to the Option, at prices determined as set forth in the
Option Agreement, except to the extent prohibited by applicable law, regulation
or administrative policy.
In the event that prior to an Exercise Termination Event, People's
Corp. enters into a letter of intent or definitive agreement (i) to consolidate
or merge with any third party, and People's Corp. is not the continuing or
surviving corporation in such consolidation or merger; (ii) to permit any third
party to merge into People's Corp., and People's Corp. is the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of People's Common Stock will be changed into or exchanged for stock or
other securities of any third party or cash or any other property or the then
outstanding shares of People's Common Stock will after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company; or (iii) to sell or otherwise transfer all or substantially all of its
assets to any third party, then, and in each such case, the agreement governing
such transaction must make proper provision so that the Option shall, upon the
consummation of such transaction, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Webster, of either (x) the
acquiring corporation or (y) any person that controls the acquiring corporation.
The Substitute Option will be exercisable for shares of the issuer's common
stock in such number and at such exercise price as is set forth in the Option
Agreement and will otherwise have the same terms as the Option, except that the
number of shares subject to the Substitute Option may not exceed 19.99% of the
issuer's outstanding shares of common stock.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Pro Forma Combined Statement of Condition as of March 31,
1997 combines the historical consolidated statements of financial condition of
Webster, People's Corp. and Sachem as if the Merger had occurred on March 31,
1997, after giving effect to the pro forma adjustments described in the
accompanying notes. The Pro Forma Combined Statements of Income for the three
months ended March 31, 1997 and 1996, and for the years ended December 31, 1996,
1995 and 1994 are presented as if the Merger had been consummated at the
beginning of each period presented.
The pro forma combined financial statements should be read in
conjunction with the separate historical consolidated financial statements and
notes of Webster and People's Corp. incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The pro forma combined
financial statements are not necessarily indicative of the consolidated
financial position or results of future operations of the combined entity or of
the actual results that would have been achieved had the Merger been consummated
prior to the periods indicated.
- 45 -
WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
SACHEM TRUST NATIONAL ASSOCIATION
PRO FORMA COMBINED STATEMENT OF CONDITION
MARCH 31, 1997
(UNAUDITED)
SACHEM
(HISTORICAL
WEBSTER PEOPLE'S CORP. PRO FORMA AND PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS ADJUSTMENTS) COMBINED
------------ ------------ ----------- ------------ --------
ASSETS (In Thousands)
Cash and Due from Depository
Institutions........................ $ 90,578 $5,081 $ - $ 36 $ 95,695
Interest-Bearing Deposits.............. 23,702 4,934 - - 28,636
Securities:
Trading Securities at Fair Value.... 62,440 - - - 62,440
Available for Sale, at Market Value. 1,243,123 168,272 (1,952) (a) 79 1,409,522
Held to Maturity (Market:
$489,466)......................... 472,465 26,619 - - 499,084
Loans Receivable, Net.................. 3,431,896 261,799 (1,500) (c) - 3,692,195
Accrued Interest Receivable............ 30,942 4,484 - 33 35,459
Premises and Equipment, Net............ 56,108 2,071 (1,100) (c) 220 57,299
Segregated Assets, Net................. 69,889 - - - 69,889
Foreclosed Properties, Net............. 13,519 287 - - 13,806
Core Deposit Intangible................ 44,971 - - - 44,971
Goodwill............................... - 2,910 - 2,520 (f) 5,430
Prepaid Expenses and Other Assets...... 43,986 2,642 340 (b) 1,396 48,364
----------- ----------- ----------- ---------- ----------
TOTAL ASSETS...................... $5,583,619 $ 479,099 $ (4,212) $4,284 $6,062,790
========== ========== ========== ====== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits............................... $4,054,179 $ 359,853 $ - $ - $4,414,032
Federal Home Loan Bank Advances........ 660,945 46,045 - - 706,990
Other Borrowings....................... 420,136 21,500 - 191 441,827
Advanced Payments by Borrowers for
Taxes and Insurance................. 11,953 1,621 - - 13,574
Accrued Expenses and Other
Liabilities......................... 52,869 4,055 2,500 (c) 1,213 60,637
----------- ----------- ----------- ----- ----------
Total Liabilities...................... 5,200,082 433,074 2,500 1,404 5,637,060
Corporation-Obligated Mandatorily
Redeemable Capital Securities of
Subsidiary Trust.................... 100,000 - - - 100,000
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common Stock........................ 120 2,544 (2,527) (d) - 137
Paid-in Capital..................... 153,541 22,293 (7,455) (a,d) 2,880 (f) 171,259
Retained Earnings................... 133,270 30,337 (5,100) (b,c) - 158,507
Less Treasury Stock at Cost......... (1,710) (8,839) 8,839 (d) - (1,710)
Unrealized Gains (Losses), Net...... 287 (310) (469) (a) - (492)
Less Employee Stock Ownership Plan
Shares Purchased with Debt........ (1,971) - - - (1,971)
------------ ----------- ----------- ----------- ------------
Total Shareholders' Equity............. 283,537 46,025 (6,712) 2,880 325,730
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................ $5,583,619 $ 479,099 $($4,212) $4,284 $ 6,062,790
========== =========== ======== ====== ===========
The pro forma combined statement of condition has not been adjusted to
reflect any of the improvements in operating efficiencies that Webster
anticipates may occur in the future due to the Merger.
See accompanying notes to pro forma combined financial statements.
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WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Webster People's Corp. Pro Forma
(historical) (historical) Combined
------------ ------------ --------
INTEREST INCOME:
Loans and Segregated Assets............................. $ 67,338 $ 5,120 $ 72,458
Securities.............................................. 24,688 3,396 28,084
------------- ----------- -------------
Total Interest Income................................ 92,026 8,516 100,542
INTEREST EXPENSE:
Interest on Deposits.................................... 39,315 3,641 42,956
Interest on Borrowings.................................. 11,340 1,013 12,353
------------- ----------- -------------
Total Interest Expense............................... 50,655 4,654 55,309
Net Interest Income.................................. 41,371 3,862 45,233
Provision for Loan Losses............................... 7,025 240 7,265
------------- ----------- -------------
Net Interest Income after Provision for Loan Losses..... 34,346 3,622 37,968
NONINTEREST INCOME:
Fees and Service Charges................................ 5,603 655 6,258
Gain on Sale of Loans and Securities, Net............... 537 5 542
Other Noninterest Income................................ 1,165 81 1,246
------------- ----------- -------------
Total Noninterest Income.............................. 7,305 741 8,046
------------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits.......................... 14,596 1,295 15,891
Occupancy Expense of Premises........................... 2,949 275 3,224
Furniture and Equipment Expenses........................ 2,701 254 2,955
Federal Deposit Insurance Premiums...................... 247 5 252
Foreclosed Property Expenses and
Provisions, Net...................................... 437 35 472
Core Deposit Amortization............................... 1,471 - 1,471
Marketing Expenses...................................... 1,494 70 1,564
Non-Recurring Expenses.................................. 19,858 - 19,858
Capital Securities Expenses............................. 1,648 - 1,648
Other Operating Expenses................................ 5,458 678 6,136
------------- ----------- -------------
Total Noninterest Expenses............................ 50,859 2,612 53,471
------------- ----------- -------------
Income (Loss) before Income Taxes......................... (9,208) 1,751 (7,457)
Income Taxes.............................................. (4,250) 677 (3,573)
-------------- ----------- --------------
NET INCOME (LOSS) $ (4,958) $ 1,074 $ (3,884)
============== =========== ==============
NET INCOME (LOSS) PER COMMON SHARE:(e)
Primary.............................................. $ (0.41) $ 0.54 $ (0.28)
=============== ========== ==============
Fully Diluted........................................ $ (0.41) $ 0.54 $ (0.28)
=============== ========== ==============
The pro forma combined statement of income has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the Merger.
See accompanying notes to pro forma combined financial statements.
- 47 -
WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Webster People's Corp. Pro Forma
(historical) (historical) Combined
------------ ------------ --------
INTEREST INCOME:
Loans and Segregated Assets............................. $ 62,608 $ 4,781 $ 67,389
Securities.............................................. 21,571 2,278 23,849
------------- ----------- -------------
Total Interest Income................................ 84,179 7,059 91,238
INTEREST EXPENSE:
Interest on Deposits.................................... 39,480 3,557 43,037
Interest on Borrowings.................................. 9,822 215 10,037
------------- ----------- -------------
Total Interest Expense............................... 49,302 3,772 53,074
Net Interest Income.................................. 34,877 3,287 38,164
Provision for Loan Losses............................... 1,650 64 1,714
------------- ----------- -------------
Net Interest Income after Provision for Loan Losses..... 33,227 3,223 36,450
NONINTEREST INCOME:
Fees and Service Charges................................ 3,987 578 4,565
Gain (Loss) on Sale of Loans and Securities, Net........ 697 (89) 608
Other Noninterest Income................................ 1,050 77 1,127
------------- ----------- -------------
Total Noninterest Income.............................. 5,734 566 6,300
------------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits.......................... 13,380 1,249 14,629
Occupancy Expense of Premises........................... 2,698 268 2,966
Furniture and Equipment Expenses........................ 1,905 221 2,126
Federal Deposit Insurance Premiums...................... 526 1 527
Foreclosed Property Expenses and
Provisions, Net...................................... 1,393 (1) 1,392
Core Deposit Intangible................................. 913 - 913
Marketing Expenses...................................... 1,422 25 1,447
Non-Recurring Expenses.................................. 500 - 500
Other Operating Expenses................................ 3,942 605 4,547
------------- ----------- -------------
Total Noninterest Expenses............................ 26,679 2,368 29,047
------------- ----------- -------------
Income before Income Taxes................................ 12,282 1,421 13,703
Income Taxes.............................................. 4,594 533 5,127
------------- ----------- -------------
NET INCOME 7,688 888 8,576
Preferred Stock Dividends................................. 324 - 324
------------- ----------- -------------
Net Income Available to Common Shareholders............... $ 7,364 $ 888 $ 8,252
============= =========== =============
NET INCOME PER COMMON SHARE:(e)
Primary.............................................. $ 0.62 $ 0.45 $ 0.60
============= ========== =============
Fully diluted........................................ $ 0.60 $ 0.45 $ 0.58
============= ========== =============
The pro forma combined statement of income has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the Merger.
See accompanying notes to pro forma combined financial statements.
- 48 -
WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Webster People's Corp. Pro Forma
(historical) (historical) Combined
------------ ------------ --------
INTEREST INCOME:
Loans and Segregated Assets............................. $ 266,056 $ 19,558 $ 285,614
Securities.............................................. 89,881 10,963 100,844
------------- ----------- -------------
Total Interest Income................................ 355,937 30,521 386,458
INTEREST EXPENSE:
Interest on Deposits.................................... 159,498 14,436 173,934
Interest on Borrowings.................................. 41,495 1,992 43,487
------------- ----------- -------------
Total Interest Expense............................... 200,993 16,428 217,421
Net Interest Income.................................. 154,944 14,093 169,037
Provision for Loan Losses............................... 8,850 938 9,788
------------- ----------- -------------
Net Interest Income after Provision for Loan Losses..... 146,094 13,155 159,249
NONINTEREST INCOME:
Fees and Service Charges................................ 19,790 2,452 22,242
Gain (Loss) on Sale of Loans and Loan Servicing, Net.... 783 (46) 737
Gain (Loss) on Sale of Securities, Net.................. 4,153 (20) 4,133
Other Noninterest Income................................ 4,798 269 5,067
------------- ----------- -------------
Total Noninterest Income.............................. 29,524 2,655 32,179
------------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits.......................... 55,778 4,924 60,702
Occupancy Expense of Premises........................... 11,285 1,052 12,337
Furniture and Equipment Expenses........................ 10,216 960 11,176
Federal Deposit Insurance Premiums...................... 1,575 2 1,577
Other Real Estate Owned Expenses and
Provisions, Net...................................... 3,389 118 3,507
Core Deposit Intangible Amortization.................... 5,338 - 5,338
Marketing Expenses...................................... 5,634 266 5,900
Non-Recurring Expenses.................................. 5,230 - 5,230
Other Operating Expenses................................ 22,296 2,492 24,788
------------- ----------- -------------
Total Noninterest Expenses............................ 120,741 9,814 130,555
------------- ----------- -------------
Income Before Income Taxes................................ 54,877 5,996 60,873
Income Taxes.............................................. 20,390 1,982 22,372
------------- ----------- -------------
NET INCOME 34,487 4,014 38,501
Preferred Stock Dividends................................. 1,149 - 1,149
------------- ----------- -------------
Net Income Available to Common Shareholders............... $ 33,338 $ 4,014 $ 37,352
============= =========== =============
NET INCOME PER COMMON SHARE:(e)
Primary.............................................. $ 2.82 $ 2.05 $ 2.74
============= ========== =============
Fully Diluted........................................ $ 2.70 $ 2.03 $ 2.64
============= ========== =============
The pro forma combined statement of income has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the Merger.
See accompanying notes to pro forma combined financial statements.
- 49 -
WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Webster People's Corp. Pro Forma
(historical) (historical) Combined
------------ ------------ --------
INTEREST INCOME:
Loans and Segregated Assets............................. $ 219,636 $ 18,297 $ 237,933
Securities.............................................. 85,764 9,225 94,989
------------- ----------- -------------
Total Interest Income................................ 305,400 27,522 332,922
INTEREST EXPENSE:
Interest on Deposits.................................... 144,402 13,229 157,631
Interest on Borrowings.................................. 38,706 1,254 39,960
------------- ----------- -------------
Total Interest Expense............................... 183,108 14,483 197,591
Net Interest Income.................................. 122,292 13,039 135,331
Provision for Loan Losses............................... 5,625 101 5,726
------------- ----------- -------------
Net Interest Income after Provision for Loan Losses..... 116,667 12,938 129,605
NONINTEREST INCOME:
Fees and Service Charges................................ 15,644 2,131 17,775
Gain on Sale of Loans and Loan Servicing, Net........... 4,615 29 4,644
Gain (Loss) on Sale of Securities, Net.................. 653 (121) 532
Other Noninterest Income................................ 4,747 204 4,951
------------- ----------- -------------
Total Noninterest Income.............................. 25,659 2,243 27,902
------------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits.......................... 48,167 4,558 52,725
Occupancy Expense of Premises........................... 8,204 928 9,132
Furniture and Equipment Expenses........................ 7,362 893 8,255
Federal Deposit Insurance Premium....................... 5,508 380 5,888
Other Real Estate Owned Expenses and
Provisions, Net...................................... 5,801 453 6,254
Core Deposit Intangible Amortization.................... 1,444 - 1,444
Marketing Expenses...................................... 4,603 226 4,829
Non-Recurring Expenses.................................. 6,371 - 6,371
Other Operating Expenses................................ 15,667 2,171 17,838
------------- ----------- -------------
Total Noninterest Expenses............................ 103,127 9,609 112,736
------------- ----------- -------------
Income before Income Taxes................................ 39,199 5,572 44,771
Income Taxes.............................................. 13,266 2,184 15,450
------------- ----------- -------------
NET INCOME 25,933 3,388 29,321
Preferred Stock Dividends................................. 1,296 - 1,296
------------- ----------- -------------
Net Income Available to Common Shareholders............... $ 24,637 $ 3,388 $ 28,025
============= =========== =============
NET INCOME PER COMMON SHARE:(e)
Primary.............................................. $ 2.35 $ 1.71 $ 2.27
============= ========== =============
Fully Diluted........................................ $ 2.25 $ 1.70 $ 2.20
============= ========== =============
The pro forma combined statement of income has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the acquisition of People's Corp.
See accompanying notes to pro forma combined financial statements.
- 50 -
WEBSTER FINANCIAL CORPORATION
PEOPLE'S SAVINGS FINANCIAL CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Webster People's Corp. Pro Forma
(historical) (historical) Combined
------------ ------------ --------
INTEREST INCOME:
Loans and Segregated Assets............................. $ 196,450 $ 16,297 $ 212,747
Securities.............................................. 71,652 8,765 80,417
------------- ----------- -------------
Total Interest Income................................ 268,102 25,062 293,164
INTEREST EXPENSE:
Interest on Deposits.................................... 112,843 9,815 122,658
Interest on Borrowings.................................. 28,439 1,455 29,894
------------- ----------- -------------
Total Interest Expense............................... 141,282 11,270 152,552
Net Interest Income.................................. 126,820 13,792 140,612
Provision for Loan Losses............................... 5,480 129 5,609
------------- ----------- -------------
Net Interest Income after Provision for Loan Losses..... 121,340 13,663 135,003
NONINTEREST INCOME:
Fees and Service Charges................................ 13,554 1,071 14,625
Gain (Loss) on Sale of Loans and Loan Servicing, Net.... 360 (376) (16)
Gain (Loss) on Sale of Securities, Net.................. (894) (156) (1,050)
Other Noninterest Income................................ 3,710 198 3,908
------------- ----------- -------------
Total Noninterest Income.............................. 16,730 737 17,467
------------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits.......................... 45,075 3,556 48,631
Occupancy Expense of Premises........................... 7,790 844 8,634
Furniture and Equipment Expenses........................ 7,015 707 7,722
Federal Deposit Insurance Premium....................... 8,512 696 9,208
Other Real Estate Owned Expenses and
Provisions, Net...................................... 9,853 253 10,106
Core Deposit Intangible Amortization.................... 2,082 - 2,082
Marketing Expenses...................................... 3,392 215 3,607
Non-Recurring Expenses.................................. 5,700 - 5,700
Other Operating Expenses................................ 15,486 2,123 17,609
------------- ----------- -------------
Total Noninterest Expenses............................ 104,905 8,394 113,299
------------- ----------- -------------
Income before Income Taxes................................ 33,165 6,006 39,171
Income Taxes.............................................. 8,770 2,441 11,211
------------- ----------- -------------
NET INCOME 24,395 3,565 27,960
Preferred Stock Dividends................................. 1,716 - 1,716
------------- ----------- -------------
Net Income Available to Common Shareholders............... $ 22,679 $ 3,565 $ 26,244
============= =========== =============
NET INCOME PER COMMON SHARE:(e)
Primary.............................................. $ 2.31 $ 1.76 $ 2.22
============= ========== =============
Fully Diluted........................................ $ 2.19 $ 1.76 $ 2.12
============= ========== =============
The pro forma combined statement of income has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the Merger.
See accompanying notes to pro forma combined financial statements.
- 51 -
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Represents the conversion to treasury stock and subsequent retirement
of 61,000 shares of People's Common Stock owned by Webster.
(b) Represents the reversal of the tax effect of the gain on People's
Common Stock currently owned by Webster.
(c) Represents the estimated merger related costs that will be incurred by
Webster and People's Corp. These costs are not reflected in the Pro
Forma Combined Statements of Income since these items do not have a
continuing impact upon Webster. The following table summarizes the
financial impact of the additional accruals as reflected in the Pro
Forma Combined Statement of Condition (in thousands):
Credit Related:
Additions to allowances for loan losses
to conform to Webster credit policies $ 1,500
Merger Related Costs:
Compensation (severance and related costs) 2,500
Writedown of fixed assets in preparation for sale 1,100
Facilities (lease buyouts) 750
Transaction costs (including investment bankers,
attorneys and accountants) 1,100
Miscellaneous expenses 1,750
-----------
Total merger related costs 7,200
-----------
Total pre-tax adjustments 8,700
Income tax effect (3,600)
-----------
Net after-tax adjustments $ 5,100
===========
The above estimated Merger-related costs that will be incurred by
Webster and People's Corp. include only those expenses that are
estimated to be incurred from the transaction. Compensation costs
include estimated severance to People's Corp. employees and other
related expenses as a result of merging administrative staff and
consolidating overlapping branch locations. The writedown of fixed
assets represents the estimated loss on the sale of excess fixed assets
due to consolidation of overlapping branch locations.
(d) Represents the elimination of the historical aggregate $1.00 per share
par value of $2.5 million of People's Corp., the issuance of Webster
Common Stock at the aggregate $0.01 per share par value of $17,000, the
elimination of the treasury stock of People's Corp. and the net effect
on paid-in capital.
(e) Pro Forma Combined Webster and People's Corp. Net Income per Common
Share data have been determined based upon (i) the combined historical
net income of Webster and People's Corp. and (ii) the combined
historical weighted average common equivalent shares of Webster and
People's Corp. For the purposes of this determination, the historical
weighted average common shares outstanding of People's Corp. were
multiplied by an assumed .91892 Exchange Ratio. See "THE MERGER --
Exchange Ratio."
(f) Represents the issuance of 76,800 shares net of a holdback of 8,500
shares based on an estimated market price of $37.50 of Webster Common
Stock in exchange for Sachem stock and the corresponding goodwill
recorded in the purchase business combination.
- 52 -
MARKET PRICES AND DIVIDENDS
WEBSTER COMMON STOCK
The following sets forth the range of high and low sale prices of
Webster Common Stock as reported on The Nasdaq National Market, as well as cash
dividends paid during the periods indicated:
Market Price Cash
------------ ----
High Low Dividends Paid
---- --- --------------
Quarter Ended:
March 31, 1995 $22.25 $18.00 $0.16
June 30, 1995 26.00 21.25 0.16
September 30, 1995 31.00 23.00 0.16
December 31, 1995 29.50 24.50 0.16
March 31, 1996 30.25 27.50 0.16
June 30, 1996 29.38 26.75 0.16
September 30, 1996 35.75 28.00 0.18
December 31, 1996 38.25 33.50 0.18
March 31, 1997 41.00 35.13 0.18
(through _______ __, 1997)
On April 3, 1997, the last trading day prior to the public announcement
of the Merger, the closing price of Webster Common Stock on The Nasdaq National
Market was $35.50. On __________ __, 1997 (the most recent practicable date
prior to the printing of this Proxy Statement/Prospectus), the closing price of
Webster Common Stock on The Nasdaq National Market was $_____.
PEOPLE'S COMMON STOCK
Market Price Cash
------------ ----
High Low Dividends Paid
---- --- --------------
Quarter Ended:
March 31, 1995 $18.75 $17.50 $ 0.22
June 30, 1995 19.50 18.00 0.22
September 30, 1995 22.50 19.25 0.22
December 31, 1995 20.00 19.00 0.22
March 31, 1996 20.75 19.00 0.22
June 30, 1996 22.38 20.25 0.23
September 30, 1996 30.20 21.75 0.23
December 31, 1996 29.00 26.25 0.23
March 31, 1997 32.88 27.50 0.23
(through _______ __, 1997)
On April 3, 1997, the last trading day prior to the public announcement
of the Merger, the closing price of People's Common Stock on The Nasdaq National
Market was $32.00. On __________ __, 1997 (the most recent practicable date
prior to the printing of this Proxy Statement/Prospectus), the closing price of
People's Common Stock on The Nasdaq National Market was $____.
- 53 -
DESCRIPTION OF WEBSTER CAPITAL STOCK AND
COMPARISON OF SHAREHOLDER RIGHTS
Set forth below is a description of Webster's capital stock, as well as
a summary of the material differences between the rights of holders of People's
Common Stock and their prospective rights as holders of Webster Common Stock. If
the Merger Agreement is approved and adopted and the Merger is consummated, the
holders of People's Common Stock will become holders of Webster Common Stock. As
a result, Webster's Restated Certificate of Incorporation and Bylaws, and the
applicable provisions of the Delaware General Corporation Law, as amended (the
"DGCL"), will govern the rights of current shareholders of People's Common
Stock. The rights of those shareholders are currently governed by the
Certificate of Incorporation and Bylaws of People's Corp., and the applicable
provisions of the State of Connecticut Stock Corporation Act, as amended (the
"Connecticut Corporation Law").
The following comparison is based on the current terms of the governing
documents of Webster and People's Corp. and on the provisions of the DGCL and
the Connecticut Corporation Law. The discussion is intended to highlight
important similarities and differences between the rights of holders of Webster
Common Stock and People's Common Stock.
WEBSTER COMMON STOCK
Webster is authorized to issue 30,000,000 shares of Webster Common
Stock. As of the Record Date, __________ shares of Webster Common Stock were
issued and outstanding and Webster had outstanding stock options granted to
directors, officers and other employees for __________ shares of Webster Common
Stock. Webster has issued a warrant to Fleet Financial Group, Inc. for 300,000
shares of Webster Common Stock. Each share of Webster Common Stock has the same
relative rights and is identical in all respects to each other share of Webster
Common Stock. The Webster Common Stock is non-withdrawable capital, is not of an
insurable type and is not insured by the FDIC or any other governmental entity.
Holders of Webster Common Stock are entitled to one vote per share on
each matter properly submitted to shareholders for their vote, including the
election of directors. Holders of Webster Common Stock do not have the right to
cumulate their votes for the election of directors, and they have no preemptive
or conversion rights with respect to any shares that may be issued. Webster
Common Stock is not subject to additional calls or assessments by Webster, and
all shares of Webster Common Stock currently outstanding are fully paid and
nonassessable. For a discussion of the voting rights of Webster Common Stock,
classification of Webster's Board of Directors and provisions of Webster's
Restated Certificate of Incorporation and Bylaws that may prevent a change in
control of Webster or that would operate only with respect to an extraordinary
corporate transaction involving Webster or its subsidiaries, see "-- Certificate
of Incorporation and Bylaw Provisions."
Holders of Webster Common Stock and any class or series of stock
entitled to participate therewith are entitled to receive dividends when and as
declared by the Board of Directors of Webster out of any assets legally
available for distribution. No such dividends or other distributions may be
declared or paid, however, unless all accumulated dividends and any sinking
fund, retirement fund or other retirement payments have been paid, declared or
set aside on any class of stock having preference as to payments of dividends
over the Webster Common Stock. In addition, as described below, the Indenture
(as defined below) for the Senior Notes places certain restrictions on Webster's
ability to pay dividends on Webster Common Stock. See "-- Senior Notes."
In the unlikely event of any liquidation, dissolution or winding up of
Webster, the holders of Webster Common Stock and any class or series of stock
entitled to participate therewith would be entitled to receive, after payment or
provision for payment of all debts and liabilities of Webster and after the
liquidation preferences of all outstanding shares of any class of stock having
preference over the Webster Common Stock have been fully paid or set aside, all
remaining assets of Webster available for distribution, in cash or in kind.
- 54 -
WEBSTER PREFERRED STOCK
Webster's Restated Certificate of Incorporation authorizes its Board of
Directors, without further shareholder approval, to issue up to 3,000,000 shares
of serial preferred stock for any proper corporate purpose. In approving any
issuance of serial preferred stock, the Board of Directors has broad authority
to determine the rights and preferences of the serial preferred stock, which may
be issued in one or more series. These rights and preferences may include
voting, dividend, conversion and liquidation rights that may be senior to the
Webster Common Stock.
Webster's Series A Cumulative Perpetual Preferred Stock ("Series A
Stock") was issued in connection with the First Constitution acquisition. See
"RISK FACTORS -- Growth through Acquisitions." All of the shares of Series A
Stock that were authorized and issued have been redeemed. Webster's Series B 7
1/2% Cumulative Convertible Preferred Stock ("Series B Stock") was issued in
part to redeem shares of Webster's Series A Stock. All of the shares of Series B
Stock that were authorized and issued have been redeemed. Webster's Series C
Participating Preferred Stock ("Series C Stock") was authorized in connection
with a Rights Agreement, which was adopted in February 1996. Webster adopted the
Rights Agreement to protect shareholders in the event of an inadequate takeover
offer or to deter coercive or unfair takeover tactics. Each right entities a
holder to purchase 1/1,000th of a share of Series C Stock upon the occurrence of
certain specified events. As of the date of this Proxy Statement/Prospectus, no
shares of Series C Stock have been issued.
SENIOR NOTES
The 8 3/4% Senior Notes due 2000 were issued by Webster in an aggregate
principal amount of $40,000,000 pursuant to an Indenture (the "Indenture"),
dated as of June 15, 1993, between Webster and Chemical Bank, as trustee (the
"Trustee"). Certain provisions of the Indenture are summarized below because of
their impact on the Webster Common Stock. The Senior Notes bear interest at 8
3/4% payable semi-annually on each June 30 and December 30 until maturity on
June 30, 2000. The Senior Notes are unsecured general obligations only of
Webster and not of its subsidiaries. The Senior Notes may not be redeemed by
Webster prior to maturity. This provision is not expected to have an
anti-takeover effect since the Notes would be assumed by any acquirer of
Webster. The Indenture contains covenants that limit Webster's ability at the
holding company level to incur additional Funded Indebtedness (defined below),
to make Restricted Distributions (defined below), to engage in certain
dispositions affecting Webster Bank or its voting stock, to create certain liens
upon Webster's assets at the holding company level (including a negative pledge
clause), and to engage in mergers, consolidations, or a sale of substantially
all of Webster's assets unless certain conditions are satisfied. The Indenture
also requires that Webster maintain a specified level of liquid assets at the
holding company level.
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS. The Indenture limits the
amount of Funded Indebtedness which Webster may incur or guarantee at the
holding company level. Funded Indebtedness includes any obligation of Webster
with a maturity in excess of one year for borrowed money, for the deferred
purchase price of property or services, for capital lease payments, or related
to the guarantee of such obligations. Webster may not incur or guarantee any
Funded Indebtedness if, immediately after giving effect thereto, the amount of
Funded Indebtedness of Webster at the holding company level, including the
Senior Notes, would be greater than 90% of Webster's consolidated net worth. As
of March 31, 1997, Webster's consolidated net worth was $325.7 million and it
had $42.0 million of Funded Indebtedness.
RESTRICTED DISTRIBUTIONS. Under the Indenture, Webster may not,
directly or indirectly, make any Restricted Distribution, except in capital
stock of Webster, if, at the time or after giving effect thereto: (a) an event
of default shall have occurred and be continuing under the Indenture; (b)
Webster Bank would fail to meet any of the applicable minimum capital
requirements under OTS regulations; (c) Webster would fail to maintain
sufficient liquid assets to comply with the terms of the covenant described
under "Liquidity Maintenance" below; or (d) the aggregate amount of all
Restricted Distributions subsequent to March 31, 1993 would exceed the sum of
(i) $5 million, plus
- 55 -
(ii) 75% of Webster's aggregate consolidated net income (or if such aggregate
consolidated net income shall be a deficit, minus 100% of such deficit) accrued
on a cumulative basis in the period commencing on June 30, 1993 and ending on
the last day of the fiscal quarter immediately preceding the date of the
Restricted Distribution, and plus (iii) 100% of the net proceeds received by
Webster from any capital stock issued by Webster (other than to a subsidiary)
subsequent to March 31, 1993. As of March 31, 1997, Webster had the ability to
pay $113.4 million in Restricted Distributions.
Restricted Distribution means: (a) any dividend, distribution or other
payment (except for dividends, distributions or payments payable in capital
stock or dividends on the Series B Stock, which was previously redeemed) on the
capital stock of Webster or any subsidiary (other than a wholly owned
subsidiary); (b) any payment to purchase, redeem, acquire or retire any capital
stock of Webster (other than the Series A Stock, which was previously redeemed)
or the capital stock of any subsidiary (other than a wholly-owned subsidiary);
and (c) any payment by Webster of principal (whether a prepayment, redemption or
at maturity) of, or to acquire, any indebtedness for borrowed money issued or
guaranteed by Webster (other than the Senior Notes or pursuant to a guarantee by
Webster of any borrowing by any employee stock ownership plan established by
Webster or a wholly owned subsidiary), except that any such payment of, or to
acquire, any such indebtedness for borrowed money that is not subordinated to
the Senior Notes will not constitute a Restricted Distribution if such
indebtedness was issued or guaranteed by Webster at a time when the Senior Notes
were rated in the same or higher rating category as the rating assigned to the
Senior Notes by Standard & Poor's ("S&P") at the time the Senior Notes were
issued.
LIQUIDITY MAINTENANCE. The Indenture requires that Webster maintain at
all times, on an unconsolidated basis, liquid assets in an amount equal to or
greater than 150% of the aggregate interest expense on the Senior Notes and all
other indebtedness for borrowed money of Webster for 12 full calendar months
immediately following each determination date under the Indenture, provided that
Webster will not be required to maintain such liquid assets once the Senior
Notes have been rated "BBB-" or higher by S&P for six calendar months and remain
rated in such category.
CAPITAL SECURITIES
In January 1996, Webster raised $100 million through the sale of
capital securities that will be used for general corporate purposes. Webster
formed a business trust for the purpose of issuing capital securities and
investing the net proceeds in the Capital Debentures.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
GENERAL. Certain provisions included in Webster's Restated Certificate
of Incorporation and Bylaws may serve to entrench current management and to
prevent a change in control of Webster even if desired by a majority of
shareholders. These provisions are designed to encourage potential acquirers to
negotiate directly with the Board of Directors of Webster and to discourage
other takeover attempts. The following discussion is a general summary of
certain provisions of Webster's Restated Certificate of Incorporation and
Bylaws, and a comparison of those provisions to similar types of provisions in
the Certificate of Incorporation and Bylaws of People's Corp. The discussion is
necessarily general and, with respect to provisions contained in Webster's
Restated Certificate of Incorporation and Bylaws, reference should be made to
the document in question, each of which is an exhibit to Webster's registration
statement.
DIRECTORS. Certain provisions of Webster's Restated Certificate of
Incorporation and Bylaws will impede changes in majority control of Webster's
Board of Directors. The Restated Certificate of Incorporation provides that the
Board of Directors will be divided into three classes, with directors in each
class elected for three-year staggered terms. The Restated Certificate of
Incorporation further provides that the size of the Board of Directors shall be
within a 7 to 15 range. The Bylaws currently provide that there shall be 12
directors.
- 56 -
Webster's Restated Certificate of Incorporation and Bylaws provide that
a vacancy occurring in the Board of Directors, including a vacancy created by
any increase in the number of directors, shall be filled for the remainder of
the unexpired term by a majority vote of the directors then in office. Webster's
Restated Certificate of Incorporation provides that a director may be removed
only for cause and then only by the affirmative vote of at least two-thirds of
the total votes eligible to be voted at a duly constituted meeting of
shareholders called for that purpose and that 30 days' written notice must be
provided to any director or directors whose removal is to be considered at a
shareholders' meeting.
The provisions of the Certificate of Incorporation and Bylaws of
People's Corp. with regard to directors are similar to those of Webster. The
Certificate of Incorporation of People's Corp. provides that the number of
directors shall not be less than 3 and the Bylaws provide that the range as to
the number of directors shall be 10 to 16. The Bylaws of People's Corp. provide
that for any fiscal year, the number of positions on the Board of Directors may
be increased by no more than two. The Certificate of Incorporation and Bylaws of
People's Corp. provide that any director may be removed without cause by the
affirmative vote of the holders of at least 80% of the voting power of the
issued and outstanding shares entitled to vote thereon at a meeting of
shareholders called for such purpose; provided, however, that if there is an
Interested Shareholder (defined below), such 80% vote must include the
affirmative vote of at least two-thirds of the voting power of the issued and
outstanding shares entitled to vote thereon (excluding shares held by an
Interested Shareholder). The Bylaws further provide that any director may be
removed with cause by a majority vote of the Board of Directors.
Webster's Bylaws impose certain restrictions on the nomination by
shareholders of candidates for election to the Board of Directors and the
proposal by shareholders of business to be acted upon at an annual meeting of
shareholders. The Bylaws of People's Corp. contain a similar restriction on
shareholder nominations but do not contain a provision concerning the proposal
by shareholders of other business to the acted upon at a meeting. Webster's
Bylaws provide that to be eligible for nomination as a director, a nominee must
be a resident of the State of Connecticut at the time of his nomination or, if
not then a resident, have been previously a resident for at least three years.
Webster's Bylaws further provide that each director is required to own not less
than 100 shares of Webster Common Stock. Webster's Bylaws also provide that more
than three consecutive absences from regular meetings of the Board of Directors,
unless excused by a Board resolution, shall automatically constitute a
resignation. The Bylaws of People's Corp. provide that a director's failure to
maintain an attendance record of 75% at Board meetings for two consecutive years
shall automatically result in the vacation of such office. The Bylaws of
People's Corp. further provide that no person shall be eligible for election or
re-election as a director after such person reaches the age of 70 years, and
that such office will become vacant at the next annual meeting of shareholders.
Webster's Bylaws also contain a provision prohibiting certain contracts and
transactions between Webster and its directors and officers and certain other
entities unless certain procedural requirements are satisfied.
CALL OF SPECIAL MEETINGS. Webster's Restated Certificate of
Incorporation provides that a special meeting of shareholders may be called at
any time but only by the Chairman, the President or by the Board of Directors.
Shareholders are not authorized to call a special meeting. The Certificate of
Incorporation and Bylaws of People's Corp. provide that except as otherwise
required by law, a special meeting of shareholders may be called at any time by
the Chairman, the President or the Board of Directors, or by a vote of the
holders of 35% of the issued and outstanding shares entitled to vote at a
meeting of shareholders.
SHAREHOLDER ACTION WITHOUT A MEETING. Webster's Restated Certificate of
Incorporation provides that shareholders may act by unanimous written consent.
The Certificate of Incorporation of People's Corp. provides that any action
required or permitted to be taken by shareholders must be taken at a duly called
annual or special meeting and not by any consent in writing.
- 57 -
LIMITATION ON LIABILITY OF DIRECTORS. Webster's Restated Certificate of
Incorporation provides that no director shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director other than liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any payment of a dividend or approval of a stock
repurchase that is illegal under Section 174 of the DGCL, or (iv) for any
transaction from which a director derived an improper personal benefit. The
Bylaws of People's Corp. provide that the corporation shall indemnify, to the
fullest extent permitted by the Connecticut Corporation Law, its officers,
directors, employees and other persons specified in such statute, and authorize
the corporation to obtain insurance with respect to such liabilities.
CUMULATIVE VOTING. Webster's Restated Certificate of Incorporation
denies cumulative voting rights in the election of directors. The Certificate of
Incorporation of People's Corp. requires a certain shareholder vote for the
addition of cumulative voting. See "-- Amendment of Certificate of Incorporation
and Bylaws."
NOTICE OF SHAREHOLDER MEETINGS. Webster's Bylaws require that notice be
given not less than 20 nor more than 50 days prior to each annual or special
meeting of shareholders. The Bylaws of People's Corp. require that notice of
each annual or special meeting be mailed or delivered no less than seven nor
more than 50 days prior to a meeting.
QUORUM. Webster's Bylaws provide that the holders of one-third of the
capital stock issued and outstanding and entitled to vote at a meeting
constitutes a quorum. The Bylaws of People's Corp. provide that the holders of a
majority of the shares of issued and outstanding stock entitled to vote at a
meeting constitutes a quorum.
GENERAL VOTE. Except as otherwise required by law or Webster's Restated
Certificate of Incorporation or Bylaws, Webster's Bylaws provide that any matter
brought before a meeting of shareholders shall be decided by the affirmative
vote of a majority of the votes cast on the matter. The Bylaws of People's Corp.
provide that except as otherwise provided by law, the Certificate of
Incorporation or the Bylaws, all questions shall be decided by vote of the
holders of a majority of the shares present at a meeting.
RECORD DATE. Webster's Bylaws provide that the record date for
determination of shareholders entitled to notice of or to vote at a meeting and
for certain other specified purposes shall not be less than 20 nor more than 50
days before the date of such meeting or other action. The Bylaws of People's
Corp. provide that the record date shall be not less than 10 nor more than 70
days prior to the date of the meeting or other action.
AUTHORIZED AND OUTSTANDING COMMON STOCK. See "-- Webster Common Stock"
as to authorized and currently outstanding shares of Webster Common Stock. The
Certificate of Incorporation of People's Corp. authorizes 10,000,000 shares of
People's Common Stock, of which _________ shares were outstanding as of the
Record Date. In addition, as of the Record Date, there were outstanding People's
Options granted to directors, officers and other employees of People's Corp. for
__________ shares of People's Common Stock, plus the Option for 476,167 shares
of People's Common Stock granted to Webster in connection with the Merger.
AUTHORIZED AND OUTSTANDING SERIAL PREFERRED STOCK. See "-- Webster
Preferred Stock" as to the authorized shares of serial preferred stock of
Webster. The Certificate of Incorporation of People's Corp. authorizes 1,000,000
shares of serial preferred stock, without par value, of which no shares have
been issued and are outstanding.
DIVIDEND AND LIQUIDATION RIGHTS. For a description of the provisions of
Webster's Restated Certification of Incorporation with respect to dividends and
liquidation rights, see "-- Webster Common Stock." The Certificate of
Incorporation of People's Corp. provides that dividends on outstanding shares of
preferred stock shall be paid, declared or set aside prior to the payment of
- 58 -
any dividends on People's Common Stock with respect to the same dividend period.
In the event of a liquidation, dissolution or winding up, the Certificate of
Incorporation of People's Corp. provides that if the assets available for
distribution to the preferred stock of all series are insufficient to pay the
full preferential amounts owing, assets available for distribution shall be
distributed ratably among the holders of the shares of preferred stock in
accordance with the respective preferential amounts payable with respect
thereto. Once such preferential amounts are satisfied, the remaining assets
shall be distributed pro rata among the holders of shares of People's Common
Stock in accordance with their respective interests.
APPROVALS FOR ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE CONTROL.
Webster's Restated Certificate of Incorporation prohibits any person (whether an
individual, company or group acting in concert) from acquiring beneficial
ownership of 10% or more of Webster's voting stock, unless the acquisition has
received the prior approval of at least two-thirds of the outstanding shares of
voting stock at a duly called meeting of shareholders held for such purpose and
of all required federal regulatory authorities. Furthermore, no person may make
an offer to acquire 10% or more of Webster's voting stock without obtaining
prior approval of the offer by at least two-thirds of Webster's Board of
Directors or, alternatively, before the offer is made, obtaining approval of the
acquisition from the OTS. These provisions do not apply to the purchase of
shares by underwriters in connection with a public offering or employee stock
ownership plan or other employee benefit plan of Webster or any of its
subsidiaries, and the provisions remain effective only so long as an insured
institution is a majority-owned subsidiary of Webster. Shares acquired in excess
of these limitations are not entitled to vote or take other shareholder action
or be counted in determining the total number of outstanding shares in
connection with any matter involving shareholder action. These excess shares are
also subject to transfer to a trustee, selected by Webster, for the sale on the
open market or otherwise, with the expenses of the trustee to be paid out of the
proceeds of such sale. The Certificate of Incorporation of People's Corp. does
not contain a similar provision.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. Webster's Restated
Certificate of Incorporation requires that certain business combinations between
Webster (or any majority-owned subsidiary thereof) and a 10% or more shareholder
or its affiliates or associates (collectively, the "Interested Shareholder")
either (i) be approved by at least 80% of the total number of outstanding shares
of voting stock of Webster, or (ii) be approved by at least two-thirds of
Webster's continuing directors (persons unaffiliated with the Interested
Shareholder and serving prior to the Interested Shareholder becoming such) or
meet certain price and procedure requirements that provide for consideration per
share generally equal to that paid by the Interested Shareholder when it
acquired its block of stock. The types of business combinations with an
Interested Shareholder covered by this provision include: any merger,
consolidation and share exchange; any sale, lease, exchange, mortgage, pledge or
other transfer of assets other than in the usual and regular course of business;
an issuance or transfer of equity securities having an aggregate market value in
excess of 5% of aggregate market value of Webster's outstanding shares; the
adoption of any plan or proposal of liquidation proposed by or on behalf of an
Interested Shareholder; and any reclassification of securities, recapitalization
of Webster or any merger or consolidation of Webster with any of its
subsidiaries or any other transaction which has the effect of increasing the
proportionate ownership interest of the Interested Shareholder. The Certificate
of Incorporation of People's Corp. contains similar provisions as to business
combinations, except that it provides that in addition to approval by the Board
of Directors and the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of voting stock, the affirmative
vote of the holders of at least two-thirds of the voting power of the
outstanding shares of voting stock is also required (excluding all shares of
voting stock beneficially owned by an Interested Shareholder). Also, the
Certificate of Incorporation of People's Corp. provides that for mergers,
consolidations and share exchanges, such voting requirements do not apply if the
business combination is approved by the Board of Directors prior to the time the
Interested Shareholder becomes such or if certain fair price and procedure
requirements are satisfied. For other business combinations, only the
requirement with respect to Board approval described in the preceding sentence
must be satisfied. Webster's Restated Certificate of Incorporation excludes
employee stock purchase plans and other employee benefit plans of Webster and
any of its subsidiaries from the definition of "Interested Shareholder." The
Certificate of
- 59 -
Incorporation of People's Corp. includes certain persons who acquired voting
stock from an Interested Shareholder within a two year period other than in a
public offering within the meaning of the Securities Act and does not exclude
employee benefit plans from the definition of "Interested Shareholder."
ANTI-GREENMAIL. Webster's Restated Certificate of Incorporation
requires approval by a majority of the outstanding shares of voting stock before
Webster may directly or indirectly purchase or otherwise acquire any voting
stock beneficially owned by a holder of 5% percent or more of Webster's voting
stock, if such holder has owned the shares for less than two years. Any shares
beneficially held by such person are required to be excluded in calculating
majority shareholder approval. This provision would not apply to a pro rata
offer made by Webster to all of its shareholders in compliance with the Exchange
Act and the rules and regulations thereunder or a purchase of voting stock by
Webster if the Board of Directors has determined that the purchase price per
share does not exceed the fair market value of such voting stock. The
Certificate of Incorporation of People's Corp. contains a similar provision,
except that the applicable percentage is 3%, it does not contain the market
value exception described above, it excludes employee stock ownership plans, and
it applies to certain affiliates of the corporation and certain assignees.
CRITERIA FOR EVALUATING OFFERS. Webster's Restated Certificate of
Incorporation provides that the Board of Directors, when evaluating any
acquisition offers, shall give due consideration to all relevant factors,
including, without limitation, the economic effects of acceptance of the offer
on depositors, borrowers and employees of its insured institution subsidiaries
and on the communities in which such subsidiaries operate or are located, as
well as on the ability of such subsidiaries to fulfill the objectives of insured
institutions under applicable federal statutes and regulations. The Certificate
of Incorporation of People's Corp. contains a similar provision which also
applies to transactions involving a subsidiary and which requires the Board of
Directors to consider the long-term and short-term interests of the companies,
the economic effect on other customers, suppliers and creditors, and the
long-term and short-term interests of the shareholders of the corporation or any
subsidiary, including the possibility that those interests may best be served by
the continued independence of the corporation.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to
Webster's Restated Certificate of Incorporation must be approved by at least
two-thirds of Webster's Board of Directors at a duly constituted meeting called
for such purpose and also by shareholders by the affirmative vote of at least a
majority of the shares entitled to vote thereon at a duly called annual or
special meeting; provided, however, that approval by the affirmative vote of at
least two-thirds of the shares entitled to vote thereon is generally required
for certain provisions. In addition, the provisions regarding certain business
combinations may be amended only by the affirmative vote of at least 80% of the
shares entitled to vote thereon. Webster's Bylaws may be amended by the
affirmative vote of at least two-thirds of the Board of Directors or by
shareholders by at least two-thirds of the total votes eligible to be voted, at
a duly constituted meeting called for such purpose. The Certificate of
Incorporation of People's Corp. provides that the affirmative vote of the
holders of at least 80% of the voting power of the issued and outstanding shares
entitled to vote thereon is required to approve amendments to certain provisions
of the Certificate of Incorporation (the provisions regarding amendment of the
Certificate of Incorporation, directors, certain business combinations, the
calling of special meetings of shareholders, vacancies on the Board of
Directors, removal of directors, notice of nominations of directors other than
by the Board or committee, shareholder action without a meeting, greenmail and
the criteria for evaluating certain offers, as well as the addition of
cumulative voting); provided, however, that if there is an Interested
Shareholder, such 80% vote most include the affirmative vote of not less that
two-thirds of the voting power held by shareholders other than the Interested
Shareholder. The Certificate of Incorporation of People's Corp. provides that
the Bylaws may be amended by the Board of Directors or the shareholders. The
Bylaws of People's Corp. provide that amendment by shareholders requires at
least a majority of the voting power of the shares entitled to vote thereon. The
Certificate of Incorporation and Bylaws provide that amendments to certain
provisions of the Bylaws (the provisions related to the calling of special
meetings of shareholders, directors, shareholder
- 60 -
nomination of directors and amendments to the Bylaws) require the vote of at
least 80% of the voting power of the issued and outstanding shares entitled to
vote thereon at a duly constituted meeting called for such purpose, which 80%
vote must include the affirmative vote of at least two-thirds of the voting
power of the issued and outstanding shares entitled to vote thereon held by
shareholders other than an Interested Shareholder.
APPLICABLE LAW
The following discussion is a general summary of certain provisions of
Delaware, Connecticut and federal statutory and regulatory provisions that may
be deemed to have an "anti-takeover" effect.
DELAWARE TAKEOVER STATUTE. Section 203 of the DGCL (the "Delaware
Takeover Statute") applies to Delaware corporations with a class of voting stock
listed on a national securities exchange, authorized for quotation on the NASDAQ
Stock Market, or held of record by 2,000 or more persons, and restricts
transactions which may be entered into by such a corporation and certain of its
shareholders. The Delaware Takeover Statute provides, in essence, that a
shareholder acquiring more than 15% of the outstanding voting stock of a
corporation subject to the statute and such person's affiliates and associates
(each, an "Interested Person") but less than 85% of such shares may not engage
in certain "Business Combinations" (as defined) with the corporation for a
period of three years subsequent to the date on which the shareholder became an
Interested Person unless (i) prior to such date the corporation's board of
directors approved either the Business Combination or the transaction in which
the shareholder became an Interested Person or (ii) the Business Combination is
approved by the corporation's board of directors and authorized by a vote of at
least two-thirds of the outstanding voting stock of the corporation not owned by
the Interested Person.
The Delaware Takeover Statute defines the term "Business Combination"
to include a wide variety of transactions with or caused by an Interested Person
in which the Interested Person receives or could receive a benefit on other than
a pro rata basis with other shareholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Person,
transactions with the corporation which increase the proportionate interest of
the Interested Person or transactions in which the Interested Person receives
certain other benefits.
CONNECTICUT REGULATORY RESTRICTIONS ON ACQUISITIONS OF STOCK.
Connecticut banking statutes prohibit any person from directly or indirectly
offering to acquire or acquiring voting stock of a Connecticut-chartered savings
bank (such as PSB&T), a federal savings bank having its principal office in
Connecticut (such as Webster Bank) or a holding company of any such entity (such
as Webster or People's Corp.), that would result in such person becoming,
directly or indirectly, the beneficial owner of more than 10% of any class of
voting stock of such entity unless such person had previously filed an
acquisition statement with the Connecticut Commissioner and such offer or
acquisition has not been disapproved by the Connecticut Commissioner.
FEDERAL LAW. Federal law provides that, subject to certain exemptions,
no person acting directly or indirectly or through or in concert with one or
more other persons may acquire "control" of an insured institution or holding
company thereof, without giving at least 60 days prior written notice providing
specified information to the appropriate federal banking agency (i.e., the OTS
in the case of Webster and Webster Bank, the Federal Reserve Board in the case
of People's Corp. and the FDIC in the case of PSB&T). "Control" is defined for
this purpose as the power, directly or indirectly, to direct the management or
policies of an insured institution or to vote 25 percent or more of any class of
voting securities of an insured institution. Control is presumed to exist where
the acquiring party has voting control of at least 10 percent of any class of
the institution's voting securities which is registered under Section 12 of the
Exchange Act and is actively traded. The term "actively traded" is defined in
the regulation to mean securities that are either listed on a securities
exchange or quoted on The Nasdaq National Market. The OTS or FDIC may prohibit
the acquisition of control if such agency finds, among other things, that (i)
the acquisition would result in a monopoly or substantially lessen competition;
(ii) the financial condition of the acquiring person might jeopardize the
financial stability of the institution;
- 61 -
or (iii) the competence, experience or integrity of any acquiring person or any
of the proposed management personnel indicates that it would not be in the
interest of the depositors or the public to permit the acquisition of control by
such person.
ADJOURNMENT OF SPECIAL MEETING
The holders of People's Common Stock will be asked to approve, if
necessary, the adjournment of the Special Meeting to solicit further votes in
favor of the Merger Agreement. The proxies of People's Corp. shareholders voting
against the Merger Agreement may not be used by management to vote in favor of
an adjournment pursuant to its discretionary authority.
SHAREHOLDER PROPOSALS
Any proposal which a Webster shareholder wishes to have included in the
proxy materials of Webster with respect to Webster's 1998 Annual Meeting must be
received by Webster at Webster's principal executive offices at Webster Plaza,
Waterbury, Connecticut 06702 no later than December 1, 1997.
If the Merger Agreement is approved and adopted and the Merger is
consummated, there will not be an annual meeting of the shareholders of People's
Corp. in 1998. However, if the Merger is not consummated, People's Corp.
anticipates that its 1998 annual meeting will be held in April 1998. Any
proposal intended to be presented by a People's Corp. shareholder for inclusion
in the proxy statement of People's Corp. for its 1998 annual meeting must be
received by People's Corp. at its principal executive offices at 123 Broad
Street, New Britain, Connecticut 06053 no later than November 21, 1997.
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement/Prospectus will be brought before the Special Meeting. If any
other matters are presented, however, it is the intention of the persons named
in the People's Corp. proxy to vote such proxy in accordance with the
determination of a majority of the Board of Directors of People's Corp.,
including, without limitation, a motion to adjourn or postpone the Special
Meeting to another time and/or place for the purpose of soliciting additional
proxies in order to approve the Merger Agreement or otherwise.
EXPERTS
The consolidated financial statements of Webster (as restated to
include DS Bancor) at December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, incorporated by reference into this
Proxy Statement/Prospectus, have been so incorporated in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing in the incorporated materials and given upon the authority of that
firm as experts in accounting and auditing.
The separate consolidated financial statements of Webster (excluding DS
Bancor) at December 31, 1996 and 1995, and for each of the years in the three
year period ended December 31, 1996, incorporated by reference into this Proxy
Statement/Prospectus, have been so incorporated in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing in
the incorporated materials and given upon the authority of that firm as experts
in accounting and auditing.
The consolidated financial statements of DS Bancor at December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996,
incorporated by reference into this Proxy Statement/Prospectus, have been so
incorporated in reliance upon the report of Friedberg, Smith & Co., P.C.,
independent certified public accountants, appearing in the incorporated
materials and given the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of People's Corp. at December 31,
1996 and 1995, and for each of the years in the three year period ended December
31, 1996, incorporated by reference into this Proxy Statement/Prospectus, have
been incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
- 62 -
LEGAL MATTERS
The validity of the Webster Common Stock to be issued in the Merger has
been passed upon by Hogan & Hartson L.L.P., Washington, D.C. Hogan & Hartson
L.L.P. will be passing upon certain tax matters in connection with the Merger.
- 63 -
Appendix A
----------
ADVEST
ADVEST, INC.
A subsidiary of The Advest Group, Inc. FINANCIAL INSTITUTIONS GROUP
- --------------------------------------------------------------------------------
Serving Investors Since 1898 ONE ROCKEFELLER PLAZA
NEW YORK, NY 10020
TEL.: (212) 584-4270
FAX: (212) 584-4292
________ __, 1997
Board of Directors
People's Savings Financial Corp.
123 Broad Street
New Britain, CT 06053
Members of the Board:
People's Savings Financial Corp. ("People's"), Webster Financial
Corporation ("Webster") and Webster Subsidiary Corporation ("Merger Sub"), a
wholly owned subsidiary of Webster have entered into an Agreement and Plan of
Merger dated as of April 4, 1997 (the "Agreement"), pursuant to which People's
will be acquired by Webster through the merger of Merger Sub with and into
People's (the "Merger").
The Agreement provides that each outstanding share of People's common
stock, par value $1.00, will be converted into and exchangeable for that number
of shares of Webster Common Stock, par value $.01 per share, determined by
dividing $34.00 by the Base Period Trading Price (as defined below), as may be
adjusted as provided below, computed to five decimal places (the "Exchange
Ratio"). The Exchange Ratio will be determined by dividing $34.00 by the Base
Period Trading Price, computed to five decimal places. The Exchange Ratio is
subject to adjustment such that if the Base Period Trading Price is greater than
$40.00, the Exchange Ratio will be 0.85000 and if the Base Period Trading Price
is less than $34.00, the Exchange Ratio will be 1.00000. Furthermore, if the
Base Period Trading Price is less than $32.00, the Merger Agreement may be
terminated by People's unless Webster elects that the Exchange Ratio shall equal
1.06250, which may require Webster to register additional shares with the
Securities and Exchange Commission. For purposes of the Agreement, the term
"Base Period Trading Price" shall mean the average of the daily closing prices
per share for Webster Common Stock for the 15 consecutive trading days on which
shares of Webster Common Stock are actually traded, ending on the day preceding
the receipt of the last required federal bank regulatory approval. The terms of
the proposed transaction are described in more detail in the Agreement.
In connection with executing the Agreement, People's entered into an
Option Agreement (the "Option Agreement") dated April 4, 1997, pursuant to which
People's granted Webster an irrevocable option to acquire up to 476,167 newly
issued shares (19.99%) of People's common stock at a price of $25.00 per share,
exercisable upon the occurrence of certain events specified in the Option
Agreement. The Agreement also provides for the payment of certain expenses and a
$500,000 fee to Webster upon the occurrence of certain events specified in the
Agreement in the event that the Merger is not consummated. The Agreement is
expected to be considered by the shareholders of People's at a shareholders'
meeting and consummated shortly after the receipt of shareholder and state and
federal regulatory approvals.
You have asked us whether, in our opinion, the Exchange Ratio is fair,
from a financial point of view, to the shareholders of People's.
A-1
Board of Directors
______ __, 1997
Page 2
In arriving at the opinion set forth below, we have among other things:
reviewed the Agreement and the exhibits and schedules thereto; reviewed the
Annual Reports on Form 10-K for People's and Webster for 1996, 1995 and 1994
fiscal years, and earnings press releases for the period preceding the date of
this letter; reviewed certain financial information as filed with federal
banking agencies for the years 1996, 1995 and 1994 for each of People's and
Webster; reviewed comparative financial and operating data on the banking
industry and certain institutions which we deemed to be comparable to each of
the companies; reviewed the historical market prices and trading activity for
the common stock of each of People's and Webster and compared them with certain
publicly-traded companies which we deemed to be comparable to each company;
reviewed certain bank mergers and acquisitions on a state, regional and
nationwide basis for institutions which we deemed to be comparable to People's
and compared the proposed consideration with the consideration paid in such
other mergers and acquisitions which we deemed relevant; conducted limited
discussions with members of senior management of each of People's and Webster
concerning the financial condition, business, and prospects of each respective
company; and reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we deemed
necessary.
In preparing this opinion we have assumed and relied upon the accuracy
and completeness of all financial and other information reviewed by us for
purposes of this opinion, and we have not independently verified such
information nor have we undertaken an independent evaluation of the assets or
liabilities of People's or Webster. Advest has been retained by the Board of
Directors of People's to act as financial advisor to People's with respect to
the Merger and will receive a fee for its services including a fee for this
opinion. This opinion is necessarily based upon circumstances and conditions as
they exist and can be evaluated by us as of the date of this letter. Our opinion
is directed to the Board of Directors of People's and does not constitute a
recommendation of any kind to any shareholder of People's as to how such
shareholder should vote at the shareholders' meeting to be held in connection
with the Merger. We have assumed for purposes of this opinion that there has
been no material change in the financial condition of either People's or Webster
from that existing on December 31, 1996.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the shareholders of People's.
Very truly yours,
Advest, Inc.
By:
------------------------
Thomas G. Rudkin
Managing Director
A-2
Appendix B
----------
SECTIONS 33-855 TO 33-872 OF THE CONNECTICUT GENERAL STATUTES
SECTION 33-855. DEFINITIONS
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by section 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 33-856. RIGHT TO DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation
is a party (A) if shareholder approval is required for the merger by section
33-817 or the certificate of incorporation and the shareholder is entitled to
vote on the merger or (B) if the corporation is a subsidiary that is merged with
its parent under section 33-818;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(4) An amendment of the certificate of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it: (A) Alters or abolishes a preferential right of the shares; (B)
creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares;
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(C) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar voting
rights; or (E) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under section 33-668; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent the certificate of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
SECTION 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
SECTIONS 33-858, 33-859. RESERVED FOR FUTURE USE
SECTION 33-860. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under section 33-855 to 33-872, inclusive, and be accompanied
by a copy of said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
SECTION 33-861. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (1) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (2) shall not vote his shares
in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
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SECTION 33-862. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more than sixty days
after the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872,
inclusive.
SECTION 33-863. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
SECTION 33-864. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SECTION 33-865. PAYMENT
(a) Except as provided in section 33-867, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied
B-3
with section 33-863 the amount the corporation estimates to be the fair value of
his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
SECTION 33-866. FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
SECTION 33-867. AFTER-ACQUIRED SHARES
(a) A corporation may elect to withhold payment required by section
33-865 from a dissenter unless he was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
SECTION 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section
33-865 or offered under section 33-867 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865
within sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty days after the date
set for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
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SECTIONS 33-869, 33-870. RESERVED FOR FUTURE USE
SECTION. 33-871. COURT ACTION
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
for the judicial district where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
SECTION 33-872. COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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Appendix C
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 1997
Commission File Number 34-0-18162
PEOPLE'S SAVINGS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Connecticut 06-1259026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 Broad Street, New Britain, CT 06053
(Address of principal executive offices) (ZIP Code)
(860) 224-7771
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,545,824 shares issued and
outstanding, (including
636,961 shares in treasury)
as of April 30, 1997
Common Stock, par value $1.00 per share
C-1
PEOPLE'S SAVINGS FINANCIAL CORP.
Table of Contents
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Financial Statements (Unaudited)
(a) Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
(b) Condensed Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 4
(c) Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996; 5
(d) Notes to the Condensed Consolidated Financial
Statements - March 31, 1997 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
C-2
Part I. Financial Information
Item 1. Financial Statements
PEOPLE'S SAVINGS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
March 31, December 31,
1997 1996
(Unaudited)
Non-interest bearing deposits and cash $5,081 $5,113
Federal funds sold and FHLB overnight deposits 4,934 4,509
Cash and Cash Equivalents 10,015 9,622
Investment securities
Available for sale (at market) 164,689 171,667
Held to maturity (market value: $25,619 at
March 31, 1997 and $28,015 at
December 31, 1996) 26,619 28,513
Capital stock of the Federal Home Loan Bank 3,583 2,736
Loans held for sale 432 1,143
Loans, net (allowance for loan losses
1997-$1,816; 1996-$1,577) 261,367 256,913
Bank premises and equipment 2,071 2,136
Foreclosed real estate 287 223
Accrued income receivable 4,484 4,030
Goodwill 2,910 3,006
Other assets 2,642 2,405
Total Assets $479,099 $482,394
Liabilities and Shareholders' Equity
Liabilities
Non-interest bearing demand deposits $7,515 $8,301
Interest bearing deposits 352,338 349,759
Total deposits 359,853 358,060
Mortgagors' escrow accounts 1,621 2,659
Advances from Federal Home Loan Bank of Boston 46,045 49,750
Securities sold under repurchase agreements 21,500 21,500
Accrued expenses 1,483 1,548
Other liabilities 2,572 2,676
Total Liabilities 433,074 436,193
Shareholders' Equity
Common stock, ($1.00 par value), 10,000,000
shares authorized; 2,543,824, and 2,542,824
shares issued and outstanding at March 31,
1997 and December 31, 1996, respectively
(including shares in treasury of 636,961 at
March 31, 1997 and December 31, 1996,
respectively) 2,544 2,543
Additional paid in capital 22,293 22,140
Retained earnings 30,337 29,701
Unrealized gains (losses) on securities available
for sale, net of taxes (310) 656
Cost of treasury stock (8,839) (8,839)
Total Shareholders' Equity 46,025 46,201
Total Liabilities and Shareholders' Equity $479,099 $482,394
See notes to the condensed consolidated financial statements.
C-3
PEOPLE'S SAVINGS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
unaudited
Three Months Ended
March 31,
1997 1996
Interest Income:
Loans, including fees $5,120 $4,781
Investment Securities 3,371 2,101
Short-term Investments 25 177
Total Interest Income 8,516 7,059
Interest Expense:
Interest on deposits 3,641 3,557
Interest on borrowings 1,013 215
Total Interest Expense 4,654 3,772
Net Interest Income 3,862 3,287
Provision for Loan Losses 240 64
Net Interest Income after Provision
for Loan Losses 3,622 3,223
Other Income:
Service charges and fees 237 260
Trust fees 418 318
Net Investment Securities Gains
(Losses) 10 (20)
Trading Account Gains - -
Gains (Losses) on Loans Sold (5) (69)
Other Operating Income 81 77
Total Other Income 741 566
Other Expenses:
Salaries and Benefits 1,295 1,249
Occupancy 275 268
Furniture and Equipment 254 221
FDIC Deposit Insurance 5 1
Other Real Estate Expenses 35 (1)
Other Operating Expenses 748 630
Total Other Expenses 2,612 2,368
Income Before Income Taxes 1,751 1,421
Income Taxes 677 533
Net Income $1,074 $888
Per Share Data:
Primary
Net Income $0.54 $0.45
Weighted Average Common Shares
Outstanding 1,978,934 1,963,923
Fully Diluted
Net Income $0.54 $0.45
Weighted Average Common Shares
Outstanding 1,967,826 1,968,574
Dividends Declared Per Share $0.23 $0.22
See notes to condensed consolidated financial statements.
C-4
PEOPLE'S SAVINGS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited) Three months ended
March 31,
1997 1996
Operating activities
Net Income $1,074 $888
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation 128 122
Accretion and amortization of bond premiums
and discounts, net 104 30
Provision for loan losses 240 64
Amortization of net deferred loan fees 4 (43)
Decrease in loans held for sale 961 -
Realized investment securities (gains) losses (10) 20
Writedowns on foreclosed real estate - 8
Goodwill amortization 96 96
Increase (decrease) in accrued expenses (65) 43
Other items, net (124) (741)
Net cash provided by operating activities 2,408 487
Investing activities
Purchases of available-for-sale securities (2,492) (14,366)
Proceeds from sale of available-for-sale securities 315 14
Proceeds from maturities of available-for-sale
securities 7,438 14,364
Purchases of held-to-maturity securities - -
Proceeds from maturities of held-to-maturity securities 1,880 2,157
Purchases of Federal Home loan Bank stock (847) -
Net increase in loans (5,061) (5,327)
Purchases of premises and equipment, net (63) (73)
Foreclosed real estate sold 49 176
Net cash provided (used) by investing activities 1,219 (3,055)
Financing activities
Net increase (decrease) in demand deposits, NOW accounts,
savings accounts, and mortgagors' escrow accounts 102 (141)
Net increase in time deposits 653 2,000
Net decrease in borrowings from
the Federal Home Loan Bank of Boston (3,705) (4,342)
Cash Dividends paid (438) (423)
Acquisition of treasury stock - (936)
Issuance of Common Stock 154 95
Net cash used by financing activities (3,234) (3,747)
Increase (decrease) in cash and cash equivalents 393 (6,315)
Cash and cash equivalents at January 1 9,622 28,162
Cash and cash equivalents at March 31 10,015 21,847
Non-cash investing and financing activities
Increase (decrease) in net unrealized holding gains
(losses) on securities carried at market (1,637) (700)
Transfer of loans to foreclosed real estate 113 97
See notes to condensed consolidated financial statements.
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PEOPLE'S SAVINGS FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Note A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996.
Certain 1996 amounts have been reclassified to conform with the 1997
presentation. These reclassifications had no impact on net income.
Note B - CHANGES IN ACCOUNTING PRINCIPLES
On January 1, 1997, the Corporation adopted 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 adoption of this standard did not have a
material impact on the Corporation's financial condition or its results of
operations.
Note C - SECURITIES
The amortized cost and estimated market values of investment securities for
March 31, 1997 and December 31, 1996 are as follows.
Net
Estimated Gross Gross Unrealized
(in thousands) Amortized Market Unrealized Unrealized Gains/
March 31, 1997 Cost Value Gains Losses (Losses)
Available for sale
United States Government
and agency obligations $53,511 $52,711 $- $800 ($800)
Corporate securities 5,592 5,585 - 7 (7)
Mortgage-backed securities 91,362 91,089 - 273 (273)
Total debt securities 150,465 149,385 - 1,080 (1,080)
Marketable equity
securities 5,927 6,415 488 - 488
Mutual funds 8,819 8,889 70 - 70
$165,211 $164,689 $558 $1,080 ($522)
Held to maturity
United States Government
and agency obligations $2,999 $2,966 $- $33 ($33)
Mortgage-backed securities 23,620 22,647 - 973 (973)
$26,619 $25,613 $- $1,006 (1,006)
C-6
Net
Estimated Gross Gross Unrealized
(in thousands), Amortized Market Unrealized Unrealized Gains/
December 31, 1996 Cost Value Gains Losses (Losses)
Available for sale
United States Government
and agency obligations $55,522 $55,389 $177 $310 ($133)
Corporate securities 5,640 5,650 12 2 10
Mortgage-backed securities 94,439 95,029 785 195 590
Total debt securities 155,601 156,068 974 507 467
Marketable equity
securities 5,906 6,243 358 21 337
Mutual funds 9,045 9,356 311 - 311
$170,552 $171,667 $1,643 $528 $1,115
Held to maturity
United States Government
and agency obligations $3,998 $3,995 $13 $16 ($3)
Mortgage-backed securities 24,515 24,020 13 508 (495)
$28,513 $28,015 $26 $524 ($498)
Note D - LOANS
The following table shows the Corporation's loan distribution at the end of the
three month period ended March 31, 1997 compared to December 31, 1996.
March 31, 1997 December 31, 1996
($ in thousands) Balance % of Total Balance % of Total
Real Estate Loans:
1 to 4 family residential 205,053 78% 203,055 78%
Multifamily (5 or more units) 3,680 1% 3,574 1%
Home equity credit lines 7,094 3% 6,427 2%
Construction and land
development 6,399 3% 7,274 3%
Second mortgages 24,651 9% 24,520 10%
Commercial mortgages 9,222 3% 8,029 3%
Total real estate loans 256,099 97% 252,879 97%
Consumer installment 4,898 2% 5,091 2%
Credit cards 1,142 0% 1,218 1%
Commercial 1,800 1% 788 0%
Total loans 263,939 100% 259,976 100%
Less: Loans held for sale 432 1,143
Allowance for loan losses 1,816 1,577
Deferred fees 324 343
Net loans 261,367 256,913
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Note E - NON-PERFORMING ASSETS
The following table illustrates the composition of the non-performing assets as
of March 31, 1997 and December 31, 1996.
March 31, 1997 December 31, 1996
($ dollars in thousands) # of loans Amount # of loans Amount
Loans past due 90 days or more:
Residential 21 $1,413 16 $1,326
Installment 4 19 7 223
Total non-performing loans 25 1,432 23 1,549
Foreclosed real estate:
Residential 4 287 6 223
Total foreclosures 4 287 6 223
Repossessed assets - - - -
Total non-performing assets $1,719 $1,772
Non-performing assets to total
loans and OREO 0.65% 0.68%
Allowance for loans losses to
non-performing loans 126.82% 101.81%
As a percent of total loans:
Loans past due 90 days or more 0.54% 0.60%
Allowance for loan losses 0.69% 0.61%
Note F - LOAN LOSS RESERVE
The following table summarizes the Corporation's loan loss reserve as of the
three months ended March 31, 1997 and 1996.
(in thousands) Three months ended March 31, 1997 1996
Beginning balance 1,577 1,578
Provision charged to expense 240 64
Net charge-offs 1 74
Ending balance $1,816 $1,568
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. The adequacy of the
allowance is determined by management's evaluation of known and inherent risks
in the loan portfolio and prevailing economic conditions and the Bank's loss
experience. The allowance is increased by provisions for loan losses charged
against income.
NOTE G - EARNINGS PER SHARE
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
128"). SFAS 128 provides accounting and reporting standards for the calculation
of earnings per share intended to simplify the computation by replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. The Corporation will be required to adopt SFAS 128 in the fourth
quarter of 1997. Had earnings per share for the quarter ended March 31, 1997
been computed in accordance with SFAS 128 basic earnings per share would have
been $.56 and diluted earnings per share would have been $.54. Basic and diluted
earnings per share would have been .46 and .45, respectively, for the quarter
ended March 31, 1996.
C-8
NOTE H - SUBSEQUENT EVENTS
On April 4, 1997, People's Savings Financial Corp. announced that it had entered
into an Agreement and Plan of Merger pursuant to which People's Savings
Financial Corp. ("PSFC") will merge with and into a newly formed subsidiary of
Webster Financial Corporation in a tax free stock-for-stock exchange valued at
$34.00 per PSFC share.
The merger must be approved by PSFC shareholders and by federal and state bank
regulatory authorities and is subject to customary closing conditions. The
merger agreement has been approved by the boards of directors of both Webster
and PSFC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
This section presents management's discussion and analysis of the consolidated
results of operations for People's Savings Financial Corp. (the "Corporation")
and Peoples Savings Bank & Trust (the "Bank") for the three month period ended
March 31, 1997 and 1996, and its financial condition as of March 31, 1997. In
order to understand this section in context, it should be read in conjunction
with the consolidated financial statements and notes thereto.
Financial Condition
At March 31, 1997 total assets were $479.10 million, a decrease of $3.30 million
(or .7%) from total assets of $482.39 million at December 31, 1996. The decrease
in assets was primarily due to a decrease in investment securities available for
sale and investment securities held to maturity, primarily due to maturities and
principal repayments. The decrease in assets was partially offset by an increase
in loans. The maturities of investments and an increase of deposits of $1.8
million allowed the Bank to repay $3.7 million in borrowings. The Corporation
had unrealized losses on securities available for sale, net of taxes, of $.31
million at March 31, 1997, a decrease of $.97 million from a gain of $.66
million at December 31, 1996.
CAPITAL
The Corporation's and the Bank's Tier 1 leverage capital ratios at March 31,
1997 were 9.12% and 8.85% respectively. The Corporation's and the Bank's total
risk-based capital ratios at March 31, 1997 were 19.23% and 18.67% respectively.
The Corporation's and the Bank's Tier 1 risk-based capital ratios at March 31,
1997 were 18.45% and 17.90%, respectively. All of the Corporation's and the
Bank's ratios as of March 31, 1997 were well above applicable minimums. As of
March 31, 1997, the Corporation and the Bank fall within the highest capital
category of "well capitalized" under the rules of the Federal Reserve Board and
the Federal Deposit Insurance Corporation.
C-9
RESULTS OF OPERATIONS
Net income for the three month period ended March 31, 1997 was $1,074,000, an
increase of $186,000 as compared to $888,000 for the comparable period in 1996.
Net interest income for the three month period ended March 31, 1997 increased by
$575,000 primarily due to the increase in interest income on investment
securities from the arbitrage transactions the Bank entered into in 1996. The
increase in net interest income for the three month period ended March 31, 1997
was partially offset by increases in the provision for loan losses, salaries and
employee benefits, and other operating expenses. Trust income increased by
$100,000 to $418,000 as of March 31, 1997, from $318,000 as of March 31, 1996.
AVERAGE BALANCES, INTEREST, YIELDS AND RATES
The following table presents condensed daily average statements of condition,
which include non-accrual loans, the components of net interest income and
selected statistical data.
Three months ended
March 31,
(dollars in
thousands)
Annualized Variance
Average Balance Average rate Interest Inc. due to
1997 1996 1997 1996 1997 1996 (dec) Vol. Rate
Loans $261,574 $240,688 7.83% 7.95% $5,120 $4,781 $339 $408 ($69)
Investment
secur-
ities(a) 202,054 148,086 6.80% 6.29% 3,396 2,278 1,118 891 227
Total(a) 463,628 388,774 7.38% 7.31% 8,516 7,059 1,457 1,299 158
Other assets 15,253 15,492
Total
assets $478,881 $404,266
Deposits $352,082 $335,492 4.14% 4.24% 3,641 3,557 84 167 (83)
Borrowings 68,694 14,672 5.90% 5.86% 1,013 215 798 797 1
Total 420,776 350,164 4.42% 4.31% 4,654 3,772 882 964 (82)
Demand
deposits 7,101 5,174
Other
liabilities 3,753 4,076
Stockholders'
equity 47,251 44,852
Total
liabilities
and
stock-
holders'
equity $478,881 $404,266
Net interest income $3,862 $3,287 $575 $335 $240
Net interest rate spread(a) 2.96% 3.00%
Net interest rate margin(a) 3.33% 3.38%
(a) tax adjusted yield
The average balances, interest, yields and rates table shows that for the three
month period ended March 31, 1997 compared to the same period in 1996 there was
an increase in interest income caused primarily by increased volume of
investments and loans and increased yield on investments offset by lower yields
on loans. The comparison of interest expense for the three month period ended
March 31, 1997 compared to the same period in 1996 shows that interest expense
increased primarily due to increased volume of borrowings and increased volume
of deposits, partially offset by a decrease in the rate on deposits. This
activity is consistent with the changes in the Corporation's balance sheet and
changes in interest rates from one year ago.
C-10
Net interest rate spread decreased during the three month period ended March 31,
1997 when compared to the same period last year. The decrease during the three
month period was due to the Bank's cost of funds increasing greater than the
yield on earning assets. The increase in the yield on earning assets for the
three month period was due primarily to an increase in the yield on investments
partially offset by a decrease in yield on loans. The rate the Bank pays on its
interest bearing liabilities increased in the three month period ended March 31,
1997 when compared to the same period last year primarily due to higher interest
rates on the Bank's borrowings, partially offset by decreased deposit rates. The
net interest rate margin decreased for the three month period ended March 31,
1997 when compared to the same period in 1996, primarily due to net interest
income increasing less than the increase in average earning assets. Net interest
income for the three month period ended March 31, 1997 increased primarily due
to the increased volume of earning assets.
OTHER INCOME, OTHER EXPENSE, AND TAXES
The following table details the significant increases and decreases in other
income for the three month period ended March 31.
Three Months ended
Other income March 31,
(dollars in thousands) 1997 1996 Inc(dec) %
Service charges and fees $237 $260 $(23) (8.9%)
Trust fees 418 318 100 31.5
Net investment securities gains (losses) 10 (20) 30 (150.0)
Gains (losses) on loans sold (5) (69) 64 (92.8)
Other operating income 81 77 4 5.2
Total other income $741 $ 566 $ 175 30.9%
Other income for the three month period ended March 31, 1997 increased by
$175,000 as compared to the same period in 1996. The increase was primarily due
to increased trust income and a decrease in losses on loans sold.
The following table details the significant increases and decreases in other
expenses for the three month period ended March 31.
Three Months ended
Other expenses March 31,
(dollars in thousands) 1997 1996 Inc(dec) %
Salaries and benefits $1,295 $1,249 $46 3.7%
Occupancy 275 268 7 2.6
Furniture and equipment 254 221 33 14.9
FDIC deposit insurance 5 1 4 400.0
Other real estate expenses 35 (1) 36 N/M
Other operating expenses 748 630 118 18.7
Total other expenses $2,612 $2,368 $ 244 10.3%
Non-interest expense increased for the three month period ended March 31 1997,
from the comparable period of 1996. The increase was primarily due to increased
salaries and benefit expenses, increased furniture and equipment expenses, and
increased other operating expenses, caused primarily by the Bank's continued
growth.
The effective tax rate for the three month period ended March 31, 1997 increased
to 38.7% from 37.5% for the same period in 1996. The increase was primarily due
to a decrease in dividend income which qualifies for the Federal and State
dividend received deduction partially offset by a decrease in the State of
Connecticut tax rate to 10.25% from 10.75%.
C-11
PEOPLE'S SAVINGS FINANCIAL CORP.
Part II Other Information
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Corporation or its
subsidiary is a party, or of which any of their property is the subject, other
than ordinary routine litigation in the normal course of business.
Item 2. Changes in Securities
During the first quarter of 1997, there were no changes which would materially
modify the rights of the holders of the Corporation's registered securities.
Item 3. Defaults Upon Senior Securities
The Corporation and its subsidiary are not in default with respect to the
payment of principal or interest related to any outstanding borrowing.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
11.1 Computation of net income per common share.
27 Financial data schedule.
(B) Reports on Form 8-K:
On April 17, 1997 the Corporation filed a report on Form 8-K dated April 4,
1997. On April 4, 1997, People's Savings Financial Corp. announced that it
had entered into an Agreement and Plan of Merger pursuant to which People's
Savings Financial Corp. will merge with and into a newly formed subsidiary
of Webster Financial Corporation in a tax free stock- for-stock exchange.
C-12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLE'S SAVINGS FINANCIAL CORP.
Date: May 9, 1997 By: /s/ Richard S. Mansfield
-------------------------
Richard S. Mansfield
President and Chief Executive
Officer
Date: May 9, 1997 By: /s/ John G. Medvec
-------------------
John G. Medvec
Executive Vice President and
Treasurer
C-13
Appendix D
-----------------------------------
PEOPLES SAVINGS BANK AND TRUST
-----------------------------------
A New Name.
A Familiar Face.
People's Savings
Financial Corporation
1996 Annual Report
D-1
- --------------------
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
D-2
- -------------------------------
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.
D-3
- -------------------
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
D-4
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
D-5
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.
D-6
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).
D-7
[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.
D-8
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:
D-9
[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
D-10
- --------------------------------------------------------------------------------
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.
D-11
- --------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------
D-12
- --------------------------------------------------------------------------------
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
==========================================================================================
D-13
- --------------------------------------------------------------------------------
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.
D-14
- --------------------------------------------------------------------------------
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 to
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%
===================================================================================================================================
D-15
- --------------------------------------------------------------------------------
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.
D-16
- --------------------------------------------------------------------------------
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%
=========================================================================================================
D-17
- --------------------------------------------------------------------------------
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
D-18
- --------------------------------------------------------------------------------
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 defclared 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
D-19
- --------------------------------------------------------------------------------
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
D-20
- --------------------------------------------------------------------------------
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.
D-21
- --------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------
D-22
- --------------------------------------------------------------------------------
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 tafx 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
D-23
- --------------------------------------------------------------------------------
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.
D-24
- ---------------------------------
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
D-25
- ---------------------------
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.
People's Savings Financial Corp, and Subsidiary
D-26
- --------------------------------------
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
D-27
- -----------------------------------------------
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.
People's Savings Financial Corp. and Subsidiary
D-28
- --------------------------------------
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 (35,970,000) (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
D-29
- ------------------------------------------
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.
People's Savings Financial Corp. and Subsidiary
D-30
- ------------------------------------------
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
D-31
- ------------------------------------------
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.
People's Savings Financial Corp. and Subsidiary
D-32
- ------------------------------------------
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
D-33
- --------------------------------------------
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
======================================================================================
People's Savings Financial Corp. and Subsidiary
D-34
- --------------------------------------------
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
D-35
- -----------------------------------------
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.
People's Savings Financial Corp. and Subsidiary
D-36
- --------------------------------------------
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
D-37
- --------------------------------------------
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%
- --------------------------------------------------------------------------------------------------
People's Savings Financial Corp. and Subsidiary
D-38
- --------------------------------------------
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
D-39
- ------------------------------------------
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
D-40
- ------------------------------------------
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
D-41
- ------------------------------------------
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
D-42
- ------------------------------------------
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
D-43
- ------------------------------------------
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
People's Savings Financial Corp. and Subsidiary
D-44
- ------------------------------------------
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
D-45
- ------------------------------------------
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
- -------------------------------------------------------------------------------------------------
People's Savings Financial Corp. and Subsidiary
D-46
- ------------------------------------------
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
D-47
- ------------------------------------------
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.
People's Savings Financial Corp. and Subsidiary
D-48
- -----------------
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
D-49
- ----------------------
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
D-50
- -----------------------------
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
D-51
[LOGO OF PSB & T]
Peoples SAVING BANK & TRUST
[LOGO OF PEOPLES SAVINGS BANK & TRUST APPEARS HERE]
D-52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL sets forth certain circumstances under which
directors, officers, employees and agents may be indemnified against liability
that they may incur in their capacity as such. Section 145 of the DGCL, which is
filed as Exhibit 99.1 to this Registration Statement, is incorporated herein by
reference.
Article IX of Webster's Bylaws, entitled "Indemnification," provides
for indemnification of Webster's directors, officers, trustees, employees and
agents under certain circumstances.
Webster also has the power to purchase and maintain insurance on behalf
of its directors and officers. Webster has in effect a policy of liability
insurance covering its directors and officers, the effect of which is to
reimburse the directors and officers of Webster against certain damages and
expenses resulting from certain claims made against them caused by their
negligent act, error or omission.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Webster
pursuant to the foregoing provisions, or otherwise, Webster has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Webster of expenses incurred or paid by a director, officer or
controlling person of Webster in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Webster will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
Exhibit
No. Exhibit
--- -------
2.1 Agreement and Plan of Merger, dated as of April 4, 1997, by and
among Webster Financial Corporation ("Webster"), Webster
Subsidiary Corporation and People's Savings Financial Corp.
("People's Corp.) (incorporated herein by reference to Exhibit
2.1 to Webster's Current Report on Form 8-K filed with the SEC
on April 14, 1997).
II-1
2.2 Option Agreement, dated as of April 4, 1997, between People's
Corp. and Webster (incorporated herein by reference to Exhibit
2.2 to Webster's Current Report on Form 8-K filed with the SEC
on April 14, 1997).
2.3 Form of amended and restated People's Savings Financial Corp.
Stockholder Agreement, dated as of April 4, 1997, by and among
Webster and the stockholders of People's Corp. identified
therein.
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of that
firm.
8 Form of opinion of Hogan & Hartson L.L.P as to certain tax
matters, including consent of that firm. *
23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5
and Exhibit 8).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Friedberg, Smith & Co., P.C.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Advest, Inc.
99.1 Section 145 of the Delaware General Corporation Law.
99.2 Form of People's Corp. proxy card.
- -----------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) Webster hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar
value of the securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the
estimated maximum offering range may be
reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) (ss.
230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price
represent no more than a 20% change in the
maximum aggregate
II-2
offering price set forth in the "Calculation
of the Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective
amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) Webster hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of
Webster's annual report pursuant to section 13(a) or section
15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be
a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(c) Webster hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) Webster undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Act and is used in connection with an offering of securities
subject to Rule 415 (ss. 230.415 of this chapter), will be
filed as a part of an amendment to the Registration Statement
and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) The undertaking concerning indemnification is included as part
of the response to Item 20.
(f) Webster hereby undertakes to respond to requests for
information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the
request.
II-3
(g) Webster hereby undertakes to supply by means of a
post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration
Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waterbury,
State of Connecticut, on the 21st day of May, 1997.
WEBSTER FINANCIAL CORPORATION
By: /s/ James C. Smith
---------------------------------
James C. Smith
Chairman, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below appoints James C. Smith or John V. Brennan, jointly and severally,
each in his own capacity, his true and lawful attorneys-in-fact, with full power
of substitution for him and in his name, place and stead, in any and all
capacities to sign any amendments to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 21st day of May, 1997.
Signature Title
- --------- -----
/s/ James C. Smith Chairman, President and Chief Executive Officer
- ------------------------------ (Principal Executive Officer)
James C. Smith
/s/ John V. Brennan Executive Vice President, Chief
- ------------------------------ Financial Officer and Treasurer
John V. Brennan (Principal Financial Officer and
Principal Accounting Officer)
/s/ Achille A. Apicella Director
- ------------------------------
Achille A. Apicella
/s/ Joel S. Becker Director
- ------------------------------
Joel S. Becker
/s/ O. Joseph Bizzozero, Jr. Director
- ------------------------------
O. Joseph Bizzozero, Jr.
II-5
/s/ John J. Crawford Director
- ------------------------------
John J. Crawford
/s/ Harry P. DiAdamo Director
- ------------------------------
Harry P. DiAdamo
/s/ Robert A. Finkenzeller Director
- ------------------------------
Robert A. Finkenzeller
/s/ Walter R. Griffin Director
- ------------------------------
Walter R. Griffin
/s/ J. Gregory Hickey Director
- ------------------------------
J. Gregory Hickey
/s/ C. Michael Jacobi Director
- ------------------------------
C. Michael Jacobi
/s/ Harold W. Smith Director
- ------------------------------
Harold W. Smith
/s/ Marguerite F. Waite Director
- ------------------------------
Sr. Marguerite F. Waite, C.S.J.
II-6
EXHIBIT INDEX
Exhibit
No. Exhibit
--- -------
2.1 Agreement and Plan of Merger, dated as of April 4, 1997, by and
among Webster Financial Corporation ("Webster"), Webster
Subsidiary Corporation and People's Savings Financial Corp.
("People's Corp.) (incorporated herein by reference to Exhibit
2.1 to Webster's Current Report on Form 8-K filed with the SEC
on April 14, 1997).
2.2 Option Agreement, dated as of April 4, 1997, between People's
Corp. and Webster (incorporated herein by reference to Exhibit
2.2 to Webster's Current Report on Form 8-K filed with the SEC
on April 14, 1997).
2.3 Form of amended and restated People's Savings Financial Corp.
Stockholder Agreement, dated as of April 4, 1997, by and among
Webster and the stockholders of People's Corp. identified
therein.
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of that
firm.
8 Form of opinion of Hogan & Hartson L.L.P as to certain tax
matters, including consent of that firm. *
23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5
and Exhibit 8).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Friedberg, Smith & Co., P.C.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Advest, Inc.
99.1 Section 145 of the Delaware General Corporation Law.
99.2 Form of People's Corp. proxy card.
- ------------
* To be filed by amendment.
II-7