UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ending March 31, 1995
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------------- ----------------------
Commission File Number: 0-15213
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WEBSTER FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1187536
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
First Federal Plaza, Waterbury, Connecticut 06720
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(Address of principal executive offices) (Zip Code)
(203) 753-2921
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal
year, if changed since last report.)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding for the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (par value $ .01) 5,487,300 Shares
------------------------------ ----------------------------------------
(Class) Issued and Outstanding at March 31, 1995
Webster Financial Corporation and Subsidiaries
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INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Consolidated Statements of Condition at March 31, 1995
and December 31, 1994 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Statements 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
2
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
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ASSETS
March 31, December 31,
1995 1994
---------- ----------
Cash and Due from Depository Institutions $ 34,374 $ 36,089
Interest-bearing Deposits 47,443 52,752
Securities (Market value: $145,267 in 1995;
$151,975 in 1994) (Note 4) 145,321 153,587
Mortgage-backed Securities (Market value: $671,666 in 1995;
$589,909 in 1994) (Note 4) 687,616 617,031
Loans Receivable, Net 1,642,197 1,656,022
Segregated Assets, Net 130,919 137,096
Accrued Interest Receivable 16,738 16,557
Premises and Equipment, Net 30,727 31,075
Other Real Estate Acquired Through Foreclosure, Net 21,832 25,636
Prepaid Expenses and Other Assets 28,921 35,619
---------- ----------
Total Assets $2,786,088 $2,761,464
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 2,171,305 $2,163,467
Federal Home Loan Bank Advances 382,000 367,000
Other Borrowings 43,130 43,675
Advance Payments by Borrowers for Taxes and Insurance 7,734 12,336
Accrued Expenses and Other Liabilities 38,527 37,045
------------ -----------
Total Liabilities 2,642,696 2,623,523
------------ -----------
Shareholders' Equity:
Cumulative Convertible Preferred Stock, Series B, 172,129
shares issued and outstanding at March 31, 1995
and December 31, 1994 2 2
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 5,958,074 shares at March 31, 1995
and 5,958,074 at December 31, 1994 60 60
Paid in Capital 96,481 96,476
Retained Earnings 56,037 52,573
Less Treasury Stock at Cost, 470,774 shares
at March 31, 1995 and 475,874 shares at December 31, 1994 (3,684) (3,692)
Less Employee Stock Ownership Plan Shares
Purchased with Debt (3,207) (3,675)
Unrealized Securities (Losses) Gains, Net (2,297) (3,803)
------------ -----------
Total Shareholders' Equity 143,392 137,941
------------ -----------
Total Liabilities and Shareholders' Equity $ 2,786,088 $2,761,464
============ ===========
3
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Share Data)
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Three Months Ended
March 31, 1995 March 31, 1994
-------------- --------------
Interest Income:
Loans and Segregated Assets $ 33,437 $ 27,682
Mortgage-backed Securities 10,348 7,567
Securities and Interest-bearing Deposits 2,400 1,799
-------- --------
Total Interest Income 46,185 37,048
-------- --------
Interest Expense:
Interest on Deposits 19,688 14,891
Interest on Borrowings 6,657 3,878
-------- --------
Total Interest Expense 26,345 18,769
-------- --------
Net Interest Income 19,840 18,279
Provision for Loan Losses 280 900
-------- --------
Net Interest Income After Provision for Loan Losses 19,560 17,379
-------- --------
Noninterest Income:
Fees and Service Charges 3,197 2,155
Gain on Sale of Loans, Securities and Mortgage-backed
Securities, Net 311 324
Other Noninterest Income 890 611
-------- --------
Total Noninterest Income 4,398 3,090
-------- --------
Noninterest Expenses:
Salaries and Employee Benefits 8,449 6,615
Occupancy Expense of Premises 1,414 1,298
Furniture and Equipment Expenses 1,378 979
Federal Deposit Insurance Premiums 1,262 1,111
Other Real Estate Owned Expenses and Provisions, Net (Note 6) 1,322 1,069
Other Operating Expenses 3,309 3,211
-------- --------
Total Noninterest Expenses 17,134 14,283
-------- --------
Income Before Income Taxes 6,824 6,186
Income Taxes 2,160 2,376
-------- --------
Net Income 4,664 3,810
Preferred Stock Dividends 324 469
-------- --------
Net Income Available to Common Shareholders $ 4,340 $ 3,341
======== ========
Net Income Per Common Share:
Primary $ 0.78 $ 0.77
Fully Diluted 0.71 0.66
Dividends Declared Per Common Share $ 0.16 $ 0.13
4
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
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Three Months Ended
March 31, 1995 March 31, 1994
-------------- --------------
OPERATING ACTIVITIES:
Net Income $ 4,664 $ 3,810
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 280 900
Provision for Other Real Estate Owned Losses 615 262
Provision for Depreciation and Amortization 992 931
Amortization of Securities Premiums, Net 161 165
Amortization of Core Deposit Intangible 182 343
Gains on Sale of Other Real Estate Owned (163) (74)
Loans and Securities Gains, Net (145) (126)
Gains on Sale of Trading Securities (167) (198)
Decrease (Increase) in Trading Securities 8,140 (8,390)
Loans Originated for Sale (63,221) (34,977)
Sale of Loans, Originated for Sale 34,021 66,485
(Increase) Decrease in Interest Receivable (108) 3,109
(Decrease) Increase in Interest Payable (537) 1,273
Increase in Accrued Expense and Other Liabilities, Net 1,939 205
Decrease in Prepaid Expenses and Other Assets, Net 5,960 132
---------- ----------
Net Cash (Used) Provided by Operating Activities (7,387) 33,850
---------- ----------
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (1,034) (41,427)
Purchases of Securities Held to Maturity (290) --
Maturities of Securities 93 7,338
Proceeds from Sales of Securities Available for Sale 9,929 --
Net Decrease (Increase) in Interest-bearing Deposits 5,309 (8,665)
Purchase of Loans -- (31,681)
Net Decrease (Increase) in Loans 43,743 (55,996)
Proceeds from Sales of OREO 2,654 2,918
Net Decrease in Segregated Assets 6,039 16,441
Purchase of Mortgage-backed Securities Available for Sale (27,503) (35,632)
Purchase of Mortgage-backed Securities Held to Maturity (76,535) --
Principal Collected on Mortgage-backed Securities 17,774 53,774
Proceeds from Sale of Mortgage-backed Securities Available For Sale 9,084 --
Purchase of Premises and Equipment (644) (1,572)
Purchase of FHLB Stock -- (1,201)
Net Cash and Cash Equivalents Received from Banking Institutions
Acquired -- 15,490
---------- ----------
Net Cash Used by Investing Activities (11,381) (80,213)
---------- ----------
FINANCING ACTIVITIES:
Net Increase in Deposits 7,838 52,399
Proceeds from Sale of Common Stock -- 21,923
Repayment of FHLB Advances and Other Borrowings (165,376) (247,286)
Proceeds from FHLB Advances and Other Borrowings 180,376 264,286
Cash Dividends to Common and Preferred Shareholders (1,200) (936)
Net Decrease in Advance Payments for Taxes And Insurance (4,602) (13,439)
Exercise of Stock Options 17 78
---------- ----------
Net Cash Provided by Financing Activities 17,053 77,025
---------- ----------
(Decrease) Increase in Cash and Cash Equivalents (1,715) 30,662
Cash and Cash Equivalents at Beginning of Period 36,089 17,833
---------- ----------
Cash and Cash Equivalents at End of Period $ 34,374 $ 48,495
========== ==========
Supplemental Disclosures:
Income Taxes Paid $ 3,100 $ 1,050
Interest Paid 26,237 21,878
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of Loans to Real Estate Acquired Through
Foreclosure $ 2,601 $ 4,012
5
Webster Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All adjustments
were of a normal recurring nature. The results of operations for the three-month
period ended March 31, 1995 are not necessarily indicative of the results which
may be expected for the year as a whole. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
Webster's 1994 Annual Report to shareholders.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Webster
Financial Corporation ("Webster") and its wholly owned subsidiaries First
Federal Bank, a federal savings bank ("First Federal") and Bristol Savings Bank
("Bristol"), a Connecticut capital stock savings bank (collectively the
"Banks").
NOTE 3 - ACQUISITIONS
SHORELINE BANK AND TRUST COMPANY
On December 16, 1994, Webster acquired Shoreline Bank and Trust
Company, a Connecticut chartered commercial bank with $51 million in assets
based in Madison, Connecticut. In connection with the acquisition, Webster
issued 266,500 shares of its common stock for all of the outstanding shares of
Shoreline common stock based on an exchange ratio of 1 share of Webster's common
stock for 2 shares of Shoreline's common stock. The acquisition was accounted
for as a pooling of interests and as such the consolidated financial statements
include Shoreline's financial data as if Shoreline had been combined as of the
beginning of the earliest period presented. As part of the acquisition,
Shoreline was merged into First Federal and its Madison banking office became a
full service office of First Federal.
BRISTOL SAVINGS BANK
On March 3, 1994, Bristol Savings Bank converted from a Connecticut
mutual savings bank to a Connecticut capital stock savings bank and concurrently
became a wholly-owned subsidiary of Webster and a sister bank to First Federal
(the "Bristol Acquisition"). Webster became a multiple holding company as a
result of the Bristol Acquisition. In connection with the conversion Webster
completed the sale of 1,150,000 shares of its common stock in related
subscription and public offerings. Webster invested in Bristol a total of $31.0
million, consisting of the net proceeds of approximately $21.9 million from the
subscription and public offerings plus existing funds from the holding company.
As a result of this investment, Bristol meets all ratios required by the FDIC
for a "well-capitalized" savings bank. The Bristol acquisition was accounted for
as a purchase and results of operations relating to Bristol are included in the
accompanying Consolidated Financial Statements only for the period subsequent to
the effective date of the acquisition.
6
Webster Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 4 - SECURITIES AND MORTGAGE-BACKED SECURITIES
On December 31, 1993, Webster adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement requires
securities to be classified into one of three categories. Securities with fixed
maturities that are classified as Held to Maturity are carried at cost, adjusted
for amortization of premiums and accretion of discounts over the estimated terms
of the securities utilizing a method which approximates the level yield method.
Securities that management intends to hold for indefinite periods of time
(including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory capital or
other similar factors) are classified as Available for Sale. All Equity
Securities are classified as Available for Sale. Securities Available for Sale
are carried at fair value with unrealized gains and losses recorded as
adjustments to shareholders' equity on a tax affected basis. Securities
classified as Trading Securities are carried at fair value with unrealized gains
and losses included in earnings. Gains and losses on the sales of securities are
recorded using the specific identification method.
A summary of securities follows (in thousands):
March 31, 1995 December 31, 1994
------------------------------ -----------------------------
Estimated Estimated
Book Fair Book Fair
Value Value Value Value
------------ ----------- ----------- ----------
Available for Sale Portfolio:
U.S. Treasury Notes:
Matures within 1 year $ 3,492 $ 3,481 $ 3,489 $ 3,451
U.S. Government Agency:
Matures in less than 5 years 32,882 32,377 32,880 31,265
Corporate Bonds and Notes:
Matures over 5 through 10 years 2,985 2,977 2,985 2,974
Equity Securities:
Mutual Funds 6,587 6,443 16,188 15,703
Stock in Federal Home Loan Bank of Boston 24,476 24,476 24,476 24,476
Other Equity Securities 12,645 13,083 11,811 11,456
Unrealized Securities Losses, Net (230) -- (2,504) --
---------- ---------- ---------- ----------
82,837 82,837 89,325 89,325
---------- ---------- ---------- ----------
Held to Maturity Portfolio:
U.S. Treasury Notes:
Matures within 1 year 2,809 2,772 3,318 3,248
U.S. Government Agency:
Matures within 1 year 1,117 1,114 -- --
Matures within 5 years 58,240 58,246 60,625 59,114
Corporate Bonds and Notes:
Matures over 5 through 10 years 318 298 319 288
---------- ---------- ---------- ----------
62,484 62,430 64,262 62,650
---------- ---------- ---------- ----------
Total $ 145,321 $ 145,267 $ 153,587 $ 151,975
========== ========== ========== ==========
7
Webster Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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NOTE 4 - SECURITIES AND MORTGAGE-BACKED SECURITIES - Continued
A summary of mortgage-backed securities follows (in thousands):
March 31, 1995 December 31, 1994
----------------------- ------------------------
Estimated Estimated
Book Fair Book Fair
Value Value Value Value
---------- ---------- ---------- ----------
Trading Securities:
Collateralized Mortgage Obligations $ 9,403 $ 9,403 $ 9,311 $ 9,311
GNMA 5,031 5,031 13,706 13,706
---------- ---------- ---------- ----------
14,434 14,434 23,017 23,017
---------- ---------- ---------- ----------
Available for Sale Portfolio:
Collateralized Mortgage Obligations 73,714 72,600 57,121 56,083
FNMA 11,192 11,578 11,316 11,560
Unrealized Securities Losses, Net (728) -- (794) --
---------- ---------- ---------- ----------
84,178 84,178 67,643 67,643
---------- ---------- ---------- ----------
Held to Maturity Portfolio:
FHLMC 73,028 70,844 74,951 70,622
FNMA 161,576 157,880 165,266 156,857
GNMA 1,856 1,911 1,919 1,922
Collateralized Mortgage Obligations 352,190 342,075 283,861 269,492
Other Mortgage-backed Securities 354 344 374 356
---------- ---------- ---------- ----------
589,004 573,054 526,371 499,249
---------- ---------- ---------- ----------
Total $ 687,616 $ 671,666 $ 617,031 $ 589,909
========== ========== ========== ==========
NOTE 5 - NET INCOME PER SHARE
Primary earnings per share on net income is calculated by dividing net
income less preferred stock dividend requirements by the weighted-average number
of shares of common stock and common stock equivalents outstanding, when
dilutive. The common stock equivalents consist of common stock options. Fully
diluted earnings per share on net income are calculated by dividing adjusted net
income by the weighted-average fully diluted common shares, including the effect
of common stock equivalents and the hypothetical conversion into common stock of
the Series B 7 1/2% Cumulative Convertible Preferred Stock. The weighted-average
number of shares used in the computation of primary and fully diluted earnings
per share for the March 31, 1995 quarter were 5,546,777 and 6,545,222, and for
the March 31, 1994 quarter were 4,338,823 and 5,773,357.
NOTE 6 - REAL ESTATE OWNED EXPENSES AND PROVISIONS, NET
Other real estate owned expenses and provisions, net are summarized as
follows (in thousands):
Three Months
Ended March 31,
1995 1994
-------- --------
Gain on sale of real estate acquired in settlement of loans, net $ (163) $ (74)
Provision for losses on other real estate owned 615 262
Rental income (144) (186)
Other real estate owned expenses 1,014 1,067
------- -------
Other real estate owned expenses and provisions, net $ 1,322 $ 1,069
======= =======
8
Webster Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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NOTE 7 - ACCOUNTING FOR IMPAIRED LOANS
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Under FAS No. 114, a loan is
considered impaired when it is probable that the creditor will be unable to
collect amounts due - both principal and interest - according to the contractual
terms of the loan agreement. This statement does not apply to large groups of
small-balance homogeneous loans that are collectively evaluated for impairment
such as residential and consumer loans. When a loan is impaired, a creditor has
a choice of ways to measure impairment. The measurement of impairment may be
based on, (1) the present value of expected future cash flows of the impaired
loan discounted at the loan's original effective interest rate, (2) the
observable market price of the impaired loan or (3) the fair value of the
collateral of a collateral-dependent loan. When a loan has been deemed to be
impaired, a valuation allowance is established for the amount of such
impairment.
Webster adopted FAS No. 114 during the quarter ended March 31, 1995 with no
impact on results of operations. At March 31, 1995, Webster had $18.3 million of
impaired loans of which $10.1 million had allowances for losses on impaired
loans of $680,439. The allowance for losses on impaired loans was established as
a result of an allocation from the allowance for losses on loans.
In October 1994, the Financial Accounting Standards Board issued SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure". This amendment to SFAS No. 114 allows institutions to use existing
methods for recognizing interest income on impaired loans. Webster's policy with
regard to the recognition of interest income on impaired loans includes an
individual assessment of each loan. Interest which is more than 90 days past due
is not accrued. When payments on impaired loans are received, Webster will
record interest income on a cash basis or apply the total payment to principal
based on an individual assessment of each loan. Interest income recognized on
impaired loans in the first quarter of 1995 amounted to $25,095.
9
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
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GENERAL
Webster, through its subsidiaries First Federal, and Bristol, is
primarily engaged in the business of attracting deposits from the general public
and investing these funds in loans for the purchase, construction or refinancing
of one-to-four family homes. Webster also provides commercial banking deposit
and loan services.
CHANGES IN FINANCIAL CONDITION
Total assets were $2.8 billion at March 31, 1995, an increase of $24.6
million from December 31, 1994. Net loans receivable amounted to $1.64 billion
at March 31, 1995 compared to $1.66 billion at December 31, 1994, a decrease of
$13.8 million. The decrease in net loans receivable is primarily attributable to
repayments of principal. Segregated Assets decreased from $137.1 million at
December 31, 1994 to $130.9 million at March 31, 1995 due primarily to $2.2
million of gross charge-offs and $4.0 million of principal repayments. Other
real estate owned ("OREO") was $21.8 million at March 31, 1995 compared to $25.6
million at December 31, 1994, a decrease of $3.8 million due primarily to $1.5
million in charge-offs and $1.7 million in OREO sales. Total liabilities at
March 31, 1995 increased $19.2 million from December 31, 1994 due primarily to
increases in deposits of $7.8 million and FHLB advances of $15.0 million which
were offset by decreases in escrow, other borrowings and other liabilities of
$3.7 million.
Shareholders' equity was $143.4 million at March 31, 1995 compared to
$137.9 million at December 31, 1994. First Federal Bank had core, tier 1
risk-based capital and total risk-based capital ratios of 5.59%, 12.20% and
13.43%, respectively, at March 31, 1995. Bristol's leveraged, tier 1 risk-based
capital and total risk-based capital ratios at March 31, 1995 were 8.70%, 13.91%
and 15.19% respectively. Both Banks meet the regulatory capital requirements for
a "well capitalized" institution.
ASSET QUALITY
Webster strives to maintain high asset quality. At March 31, 1995,
residential first mortgage and consumer loans comprised 90% of the loan
portfolio while commercial and industrial loans and commercial real estate loans
comprised 10%, excluding Segregated Assets. Most of Webster's securities are
obligations of the U.S. Treasury or U.S. Government Agencies. All other fixed
income securities must have an investment rating in the top two rating
categories by a major rating service at time of purchase.
A breakdown of loans receivable, net by loan type as of March 31, 1995 and
December 31, 1994 follows (in thousands):
March 31, 1995 December 31, 1994
------------ -----------
Residential Mortgage Loans $ 1,374,898 $ 1,390,995
Commercial Real Estate Loans 108,452 109,339
Commercial and Industrial Loans 58,385 58,679
Consumer Loans (Including Home Equity) 143,244 142,445
----------- -----------
Total Loans 1,684,979 1,701,458
Allowance for Loan Losses (42,782) (45,436)
----------- -----------
Loans Receivable, Net $ 1,642,197 $ 1,656,022
=========== ===========
Included above at March 31, 1995 and December 31, 1994 were loans held for
sale of $10.0 million and $24.7 million respectively. Loans held for sale at
March 31, 1995 and December 31, 1994 represented one-to-four family residential
mortgage loans.
10
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------
The following table details the nonaccrual loans and other real estate
owned at March 31, 1995 and December 31, 1994 (in thousands):
March 31, 1995 December 31, 1994
-------------- -----------------
Loans Accounted For on a Nonaccrual Basis:
Residential Real Estate $17,329 $17,124
Commercial Real Estate 15,090 15,201
Consumer 1,163 1,234
------- -------
Total Nonaccrual Loans 33,582 33,559
Real Estate Acquired Through Foreclosure:
Residential and Consumer 6,908 8,496
Commercial 14,924 17,140
------- -------
Total Nonaccrual Loans and OREO $55,414 $59,195
======= =======
The decrease in nonaccrual loans and OREO of $3.8 million at March 31, 1995
compared to December 31, 1994 is due primarily to sales and charge-offs.
At March 31, 1995, Webster's allowance for losses on loans of $42.8
million represented 127% of nonaccrual loans and its total allowances for losses
on loans and OREO of $44.4 million amounted to 78% of nonaccrual loans and OREO.
A detail of the changes in the allowances for losses on loans and OREO for the
three months ended March 31, 1995 follows (in thousands):
Allowances For Losses On Total
--------------------------------
Loans Impaired Loans OREO Allowances
-------- -------------- ------ ----------
Balance at December 31, 1994 $ 45,436 $ -- $ 2,473 $ 47,909
Provisions 280 -- 615 895
Allocation from General Allowance (1,013) 1,013 -- --
Losses Charged to Allowances (3,649) (333) (1,559) (5,541)
Recoveries Credited to Allowances 1,048 -- 111 1,159
-------- -------- -------- --------
Balance at March 31, 1995 $ 42,102 $ 680 $ 1,640 $ 44,422
======== ======== ======== ========
Segregated Assets, Net
Segregated Assets, Net at March 31, 1995 included the following assets
purchased from the FDIC in the First Constitution Acquisition which are subject
to a loss-sharing arrangement with the FDIC (in thousands):
March 31, 1995 December 31, 1994
-------------- -----------------
Commercial Real Estate Loans $ 95,836 $ 98,813
Commercial Loans 14,710 15,377
Multi-Family Real Estate Loans 18,296 18,124
Other Real Estate Owned 6,194 9,202
---------- ----------
135,036 141,516
Allowance for Segregated Assets Losses (4,117) (4,420)
---------- ----------
Segregated Assets, Net $ 130,919 $ 137,096
========== ==========
11
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
- -------------------------------------------------------------------------------
Under the Purchase and Assumption Agreement with the FDIC relating to the
First Constitution Acquisition during the first five years after October 2, 1992
(the "Acquisition Date"), the FDIC is required to reimburse Webster quarterly
for 80% of all net charge-offs (i.e., the excess of charge-offs over recoveries)
and certain permitted expenses related to the Segregated Assets acquired by
Webster.
During the sixth and seventh years after the Acquisition Date, Webster is
required to pay quarterly to the FDIC an amount equal to 80% of the recoveries
during such years on Segregated Assets which were previously charged off after
deducting certain permitted expenses related to those assets. Webster is
entitled to retain 20% of such recoveries during the sixth and seventh years
following the Acquisition Date and 100% thereafter.
Upon termination of the seven-year period after the Acquisition Date, if
the sum of net charge-offs on Segregated Assets for the first five years after
the Acquisition Date plus permitted expenses during the entire seven-year
period, less any recoveries during the sixth and seventh year on Segregated
Assets charged off during the first five years, exceeds $49.2 million, the FDIC
is required to pay Webster an additional 15% of any such excess over $49.2
million at the end of the seventh year. Reimbursements received for net
charge-offs and eligible expenses on Segregated Assets aggregated $2.0 million
in the first quarter of 1995.
A detail of changes in the allowance for Segregated Assets losses follows
(in thousands):
Balance at December 31, 1994 $ 4,420
Provisions Charged to Operations --
Charge-offs (440)
Recoveries 137
--------
Balance at March 31, 1995 $ 4,117
========
The following table details nonperforming Segregated Assets at March 31,
1995 and December 31, 1994 (in thousands):
March 31, 1995 December 31, 1994
-------------- -----------------
Segregated Assets accounted for on a
non-accrual basis:
Commercial Real Estate Loans $11,791 $13,795
Commercial Loans 3,315 3,678
Multi-Family Real Estate Loans 1,232 576
------- -------
Total Nonaccrual Loans 16,338 18,049
Real Estate Acquired Through Foreclosure:
Commercial Real Estate 4,774 7,753
Multi-Family Real Estate 1,420 1,449
------- -------
Total $22,532 $27,251
======= =======
ASSET/LIABILITY MANAGEMENT
The goal of Webster's asset/liability policy is to manage interest-rate
risk so as to maximize net interest income over time in changing interest-rate
environments. To this end, Webster's strategies for managing interest-rate risk
are responsive to changes in the interest-rate environment and to market demands
for particular types of deposit and loan products. Management measures
interest-rate risk using GAP, duration and simulation analyses. Based on
Webster's asset/liability mix at March 31, 1995, management's simulation
analysis of the effects of changing interest rates projects that an
instantaneous 200 basis point increase in interest rates would decrease the net
interest income by less than 10% at March 31, 1995. At March 31, 1995, Webster
had a .2% positive GAP position in the one year time horizon which means that
cumulative interest-rate sensitive assets exceed cumulative interest-rate
sensitive liabilities for that period. Management believes that its
interest-rate risk position represents a reasonable amount of interest-rate risk
at this point in time.
12
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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LIQUIDITY AND CAPITAL RESOURCES
Under regulations of the Office of Thrift Supervision, First Federal is
required to maintain assets which are readily marketable in an amount equal to
5% or more of its net withdrawable deposits plus short-term borrowings. At March
31, 1995, First Federal had a liquidity ratio of 6.2% and was in compliance with
applicable regulations. Bristol, as an FDIC regulated institution, has no such
specific liquidity requirement. At March 31, 1995, Webster had mortgage
commitments outstanding of $31.2 million and unused home equity credit lines of
$93.0 million.
RESULTS OF OPERATIONS
Comparison of the three-month period ended March 31, 1995 and 1994:
General
Net Income for the three-month period ended March 31, 1995 amounted to $4.7
million or $.71 per fully diluted share compared to net income of $3.8 million
or $.66 per fully diluted share for the same period in 1994. Earnings available
to common shareholders increased 30% in the first quarter of 1995 to $4.3
million from $3.3 million in the same period in 1994. The increases are
attributable primarily to the acquisition of Bristol on March 3, 1994.
NET INTEREST INCOME
Net Interest Income for the quarter ended March 31, 1995 was $19.8 million
compared to $18.3 million for the same period a year earlier. The increase is
primarily attributable to higher volumes of interest earning assets in the 1995
first quarter as compared to the same period a year earlier due to the
acquisition of Bristol. Partially offsetting such increases was a decrease in
the net interest rate spread to 3.06% for the quarter ended March 31, 1995 from
3.15% for the same period a year earlier. The decrease is primarily attributable
to the cost of funds increasing more than the yields on earning assets.
Interest Income for the three months ended March 31, 1995 amounted to $46.2
million compared to $37.0 million for the same period a year earlier. The
increase is due primarily to a higher amount of average earning assets and
higher yields on loans, mortgage-backed securities and investments, which
increased to 7.22% for the three months ended March 31, 1995 compared to 6.60%
for the same quarter during 1994.
Interest Expense for the three months ended March 31, 1995 amounted to
$26.3 million compared to $18.8 million for the same period a year earlier. This
increase is due primarily to a higher amount of average interest-bearing
liabilities and higher yields on deposits and Federal Home Loan Bank advances.
The cost of interest-bearing liabilities increased to 4.16% for the three months
ended March 31, 1995 compared to 3.45% for the same quarter during 1994.
Provision for Loan Losses
In the first quarter of 1995, Webster recorded provisions for loan losses
amounting to $280,000 as compared to $900,000 for the same period in 1994. At
March 31, 1995, the allowance for loan losses was $42.8 million and represented
127% of nonaccrual loans, compared with $54.7 million and 120% a year earlier.
Noninterest Income
Noninterest Income for the three months ended March 31, 1995 amounted to
$4.4 million compared to $3.1 million for the same quarter a year earlier.
Income from fees and service charges was $3.2 million for the first quarter of
1995 and $2.2 million for the same period in 1994. The increase is due primarily
to an increase in deposit product fees as a result of a larger deposit base
because of the acquisition of Bristol. There were $311,000 of gains on sale of
loans and securities for the three months ended March 31, 1995 versus gains of
$324,000 for the same period in 1994.
13
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
Noninterest Expenses
Noninterest expenses for the three months ended March 31, 1995 amounted to
$17.1 million compared to $14.3 million for the same period in 1994. The
increase is due primarily to higher salary and benefit expenses, occupancy
expenses, increased furniture and equipment expenses, and increased premiums for
federal deposit insurance because of a larger deposit base. OREO expenses and
provisions amounted to $1.3 million for the three months ended March 31, 1995
versus $1.1 million for the same period in 1994 due primarily to an increase in
provisions for OREO losses in the 1995 first quarter.
Income Taxes
Total Income tax expense amounted to $2.2 million for the first quarter of
1995 compared to $2.4 million in the same quarter of 1994. The decrease is due
primarily to benefits from the utilization of tax loss carryforwards and the
reduction of the deferred tax valuation allowance primarily relating to Bristol.
14
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - Not Applicable
Item 2. CHANGES IN SECURITIES - Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Registrant's annual meeting of shareholders was held on April
25, 1995.
(b) Not Applicable
(c) The following matters were voted upon and approved by the
Registrant's shareholders at the 1995 annual meeting: (i) the
re-election of three incumbent directors, each for a three-year
term (Proposal 1); (ii) ratification of the appointment of KPMG
Peat Marwick as independent auditors of Webster for the year
ending December 31, 1995 (Proposal 2). As to Proposal 1, Harold W.
Smith received 4,412,533 votes for election and 36,343 votes were
withheld, James C. Smith received 4,415,053 votes for election and
33,823 votes were withheld; Joel S. Becker received 4,409,219
votes for election and 39,657 votes were withheld. As to Proposal
2, shareholders cast 4,423,466 votes for, 14,442 votes against and
10,968 abstentions.
(d) Not Applicable
Item 5. OTHER INFORMATION - Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
15
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.
WEBSTER FINANCIAL CORPORATION
Registrant
Date: May 12, 1995 By: /s/ John V. Brennan
-------------------- --------------------
John V. Brennan
Executive Vice President,
Chief Financial Officer and Treasurer
Date: May 12, 1995 By: /s/ Peter J. Swiatek
---------------------- ---------------------
Peter J. Swiatek
Controller
16