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 June 30, 1995
--------------------------------------------------------
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
(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) 5,502,142 Shares
------------------------------ -------------------------------------
(Class) Issued and Outstanding at August 11, 1995
Webster Financial Corporation and Subsidiaries
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Statements of Condition at June 30, 1995
and December 31, 1994 3
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Statements 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
Webster Financial Corporation and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
ASSETS
June 30, December 31,
1995 1994
Cash and Due from Depository Institutions $ 23,828 $ 36,089
Interest-bearing Deposits 42,672 52,752
Securities (Market value: $129,361 in 1995;
$151,975 in 1994) (Note 4) 127,858 153,587
Mortgage-backed Securities (Market value: $818,431 in 1995;
$589,909 in 1994) (Note 4) 823,462 617,031
Loans Receivable, Net 1,650,074 1,656,022
Segregated Assets, Net 124,319 137,096
Accrued Interest Receivable 17,732 16,557
Premises and Equipment, Net 30,416 31,075
Other Real Estate Acquired Through Foreclosure, Net 20,664 25,636
Prepaid Expenses and Other Assets 30,424 35,619
----------- -----------
Total Assets $ 2,891,449 $ 2,761,464
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 2,198,628 $ 2,163,467
Federal Home Loan Bank Advances 402,000 367,000
Other Borrowings 43,130 43,675
Advance Payments by Borrowers for Taxes and Insurance 14,177 12,336
Accrued Expenses and Other Liabilities 83,940 37,045
----------- -----------
Total Liabilities 2,741,875 2,623,523
----------- -----------
Shareholders' Equity:
Cumulative Convertible Preferred Stock, Series B, 171,869 shares issued and
outstanding at June 30, 1995 and
172,129 shares issued and outstanding at December 31, 1994 2 2
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 5,959,566 shares at June 30, 1995
and 5,958,074 at December 31, 1994 60 60
Paid in Capital 97,009 96,476
Retained Earnings 59,532 52,573
Less Treasury Stock at Cost, 461,424 shares
at June 30, 1995 and 475,874 shares at December 31, 1994 (3,580) (3,692)
Less Employee Stock Ownership Plan Shares
Purchased with Debt (3,207) (3,675)
Unrealized Securities (Losses) Gains, Net (242) (3,803)
----------- -----------
Total Shareholders' Equity 149,574 137,941
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,891,449 $ 2,761,464
=========== ===========
3
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Share Data)
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Interest Income:
Loans and Segregated Assets $ 34,842 $ 31,593 $ 68,279 $ 59,274
Mortgage-backed Securities 12,113 9,697 22,461 17,264
Securities and Interest-bearing Deposits 2,363 2,437 4,763 4,236
---------- ---------- ---------- ----------
Total Interest Income 49,318 43,727 95,503 80,774
---------- ---------- ---------- ----------
Interest Expense:
Interest on Deposits 22,314 17,473 42,002 32,364
Interest on Borrowings 7,309 4,600 13,966 8,478
---------- ---------- ---------- ----------
Total Interest Expense 29,623 22,073 55,968 40,842
---------- ---------- ---------- ----------
Net Interest Income 19,695 21,654 39,535 39,932
Provision for Loan Losses 350 645 630 1,545
---------- ---------- ---------- ----------
Net Interest Income After Provision for Loan Losses 19,345 21,009 38,905 38,387
---------- ---------- ---------- ----------
Noninterest Income:
Fees and Service Charges 3,318 2,931 6,515 5,148
Gain on Sale of Loans, Securities and Mortgage-backed
Securities, Net 686 99 997 423
Other Noninterest Income 569 707 1,459 1,256
---------- ---------- ---------- ----------
Total Noninterest Income 4,573 3,737 8,971 6,827
---------- ---------- ---------- ----------
Noninterest Expenses:
Salaries and Employee Benefits 8,556 8,601 17,005 15,226
Occupancy Expense of Premises 1,431 1,397 2,845 2,695
Furniture and Equipment Expenses 1,383 1,460 2,761 2,463
Federal Deposit Insurance Premiums 1,263 1,347 2,525 2,458
Other Real Estate Owned Expenses and Provisions, Net (Note 6) 1,058 2,104 2,380 3,173
Other Operating Expenses 3,611 2,961 6,920 6,139
---------- ---------- ---------- ----------
Total Noninterest Expenses 17,302 17,870 34,436 32,154
---------- ---------- ---------- ----------
Income Before Income Taxes 6,616 6,876 13,440 13,060
Income Taxes 1,919 2,550 4,079 4,926
---------- ---------- ---------- ----------
Net Income 4,697 4,326 9,361 8,134
Preferred Stock Dividends 324 468 648 937
---------- ---------- ---------- ----------
Net Income Available to Common Shareholders $ 4,373 $ 3,858 $ 8,713 $ 7,197
========== ========== ========== ==========
Net Income Per Common Share:
Primary $ 0.78 $ 0.76 $ 1.56 $ 1.53
Fully Diluted 0.71 0.66 1.41 1.32
Dividends Declared Per Common Share: $ 0.16 $ 0.13 $ 0.32 $ 0.26
4
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
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Six Months Ended
------------------------------
June 30, 1995 June 30, 1994
---------- ----------
OPERATING ACTIVITIES:
Net Income $ 9,361 $ 8,134
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 630 1,545
Provision for Other Real Estate Owned Losses 986 1,550
Provision for Depreciation and Amortization 1,973 1,934
Amortization of Securities Premiums, Net 199 143
Amortization of Core Deposit Intangible 362 686
(Gains) Losses on Sale of Other Real Estate Owned (283) 170
Loans and Securities Gains, Net (967) (428)
(Gains) Losses on Sale of Trading Securities (30) 5
(Increase) Decrease in Trading Securities (11,819) 27,325
Loans Originated for Sale (103,388) (131,816)
Sale of Loans, Originated for Sale 50,032 130,972
(Increase) Decrease in Interest Receivable (1,064) 1,267
(Decrease) Increase in Interest Payable (724) 2,580
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 12,338 (50,057)
Decrease in Prepaid Expenses and Other Assets, Net 2,815 760
---------- ----------
Net Cash Used by Operating Activities (39,579) (5,230)
---------- ----------
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (7,939) (5,144)
Purchases of Securities Held to Maturity (1,151) (53,427)
Maturities of Securities 584 12,738
Proceeds from Sale of Securities Available for Sale 34,779 --
Net Decrease in Interest-bearing Deposits 10,080 31,060
Purchase of Loans -- (31,681)
Net Decrease (Increase) in Loans 58,671 (178,727)
Proceeds from Sale of Other Real Estate Owned 5,232 9,107
Net Decrease in Segregated Assets 12,208 32,200
Purchase of Mortgage-backed Securities Available for Sale (50,964) (59,626)
Purchase of Mortgage-backed Securities Held to Maturity (179,311) --
Principal Collected on Mortgage-backed Securities 40,100 94,304
Proceeds from Sale of Mortgage-backed Securities Available For Sale 36,503 --
Purchase of Premises and Equipment (1,314) (4,564)
Net Cash and Cash Equivalents Received from Banking Institutions Acquired -- 15,490
---------- ----------
Net Cash Used by Investing Activities (42,522) (138,270)
---------- ----------
FINANCING ACTIVITIES:
Net Increase in Deposits 35,161 39,636
Proceeds from Sale of Common Stock -- 21,967
Repayment of FHLB Advances and Other Borrowings (341,574) (582,723)
Proceeds from FHLB Advances and Other Borrowings 376,574 683,504
Cash Dividends to Common and Preferred Shareholders (2,401) (1,997)
Net Increase (Decrease) in Advance Payments for Taxes And Insurance 1,841 (8,283)
Exercise of Stock Options 239 94
---------- ----------
Net Cash Provided by Financing Activities 69,840 152,198
---------- ----------
(Decrease) Increase in Cash and Cash Equivalents (12,261) 8,698
Cash and Cash Equivalents at Beginning of Period 36,089 17,833
---------- ----------
Cash and Cash Equivalents at End of Period $ 23,828 $ 26,531
========== ==========
Supplemental Disclosures:
Income Taxes Paid $ 5,387 $ 7,512
Interest Paid 56,692 37,574
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of Loans to Real Estate Acquired Through Foreclosure $ 5,818 $ 16,242
Securitization of Residential Real Estate Loans -- 137,458
---------- ----------
Total Noncash Activities $ 5,818 $ 153,700
========== ==========
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 and
six month periods ended June 30, 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 state chartered 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 met all ratios required by the FDIC for
a "well-capitalized" institution. 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):
June 30, 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 $ 3,500 $ 3,499 $ 3,489 $ 3,451
U.S. Government Agency:
Matures in less than 5 years 12,894 12,785 32,880 31,265
Corporate Bonds and Notes:
Matures over 5 through 10 years 2,742 2,732 2,985 2,974
Equity Securities:
Mutual Funds 10,889 10,744 16,188 15,703
Stock in Federal Home Loan Bank of Boston 23,075 23,075 24,476 24,476
Other Equity Securities 12,023 14,086 11,811 11,456
Unrealized Securities Gains (Losses), Net 1,798 -- (2,504) --
--------- --------- --------- ---------
66,921 66,921 89,325 89,325
--------- --------- --------- ---------
Held to Maturity Portfolio:
U.S. Treasury Notes:
Matures within 1 year 2,554 2,553 3,318 3,248
U.S. Government Agency:
Matures within 1 year 1,013 1,017 -- --
Matures within 5 years 57,051 58,555 60,625 59,114
Corporate Bonds and Notes:
Matures over 5 through 10 years 319 315 319 288
--------- --------- --------- ---------
60,937 62,440 64,262 62,650
--------- --------- --------- ---------
Total $ 127,858 $ 129,361 $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):
June 30, 1995 December 31, 1994
----------------------- ------------------------
Estimated Estimated
Book Fair Book Fair
Value Value Value Value
---------- ---------- ---------- ----------
Trading Securities:
Collateralized Mortgage Obligations $ 9,458 $ 9,458 $ 9,311 $ 9,311
GNMA 5,039 5,039 13,706 13,706
FHLMC 20,075 20,075 -- --
Other 31 31 -- --
---------- ---------- ---------- ----------
34,603 34,603 23,017 23,017
---------- ---------- ---------- ----------
Available for Sale Portfolio:
Collateralized Mortgage Obligations 66,609 67,050 57,121 56,083
FNMA 17,396 17,462 11,316 11,560
FHLMC 10,128 10,223 -- --
Unrealized Securities Gains (Losses), Net 602 -- (794) --
---------- ---------- ---------- ----------
94,735 94,735 67,643 67,643
---------- ---------- ---------- ----------
Held to Maturity Portfolio:
FHLMC 71,434 71,325 74,951 70,622
FNMA 157,279 157,975 165,266 156,857
GNMA 1,801 1,865 1,919 1,922
Collateralized Mortgage Obligations 463,268 457,590 283,861 269,492
Other Mortgage-backed Securities 342 338 374 356
---------- ---------- ---------- ----------
694,124 689,093 526,371 499,249
---------- ---------- ---------- ----------
Total $823,462 $818,431 $ 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 earnings per share for the
June 30, 1995 three and six months ended were 5,597,126 and 5,570,853,
respectively and for the June 30, 1994 three and six months ended were 5,086,395
and 4,716,671, respectively. The weighted-average number of shares used in the
computation of fully diluted earnings per share for the June 30, 1995 three and
six months ended were 6,586,593 and 6,564,145, respectively and for the June 30,
1994 three and six months ended were 6,527,997 and 6,154,975, respectively.
8
Webster Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
NOTE 6 - OTHER REAL ESTATE OWNED EXPENSES AND PROVISIONS, NET
Other real estate owned expenses and provisions, net are summarized as
follows (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
------- ------- ------- -------
(Loss) Gain on sale of real estate acquired in settlement
of loans, net $ (120) $ 244 $ (283) $ 170
Provision for losses on other real estate owned 371 1,288 986 1,550
Rental income (180) (388) (324) (574)
Other real estate owned expenses 987 960 2,001 2,027
------- ------- ------- -------
Other real estate owned expenses and provisions, net $ 1,058 $ 2,104 $ 2,380 $ 3,173
======= ======= ======= =======
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 SFAS 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 June 30, 1995, Webster had $12.0 million of
impaired loans, of which $8.9 million had allowances for losses on impaired
loans of $664,248. 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 three months and six months ended June 30, 1995 amounted
to $13,965 and $39,060, respectively.
9
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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 $2.9 billion at June 30, 1995, an increase of $130.0
million from December 31, 1994. Net loans receivable amounted to $1.65 billion
at June 30, 1995 compared to $1.66 billion at December 31, 1994, a decrease of
$5.9 million. The decrease in net loans receivable is primarily attributable to
repayments of principal. Segregated assets decreased to $124.3 million at June
30, 1995 from $137.1 million at December 31, 1994 due primarily to $7.4 million
of principal repayments and $5.4 million of gross charge-offs. Other real estate
owned ("OREO") was $20.7 million at June 30, 1995 compared to $25.6 million at
December 31, 1994, a decrease of $5.0 million due primarily to $2.5 million in
charge-offs and $2.5 million in OREO sales. Total liabilities at June 30, 1995
increased $118.4 million from December 31, 1994. The net increase in liabilities
consisted of increases in deposits, FHLB advances, advance payments by borrowers
for taxes and insurance and other liabilities of $35.2 million, $35.0 million,
$1.8 million and $46.9 million, respectively. The increase of $46.9 million in
other liabilities is due primarily to unsettled mortgage-backed securities
purchased.
Shareholders' equity was $149.6 million at June 30, 1995 compared to $137.9
million at December 31, 1994. First Federal Bank had tier 1 leveraged, tier 1
risk-based and total risk-based capital ratios of 5.40%, 11.85% and 13.09%,
respectively, at June 30, 1995. Bristol's tier 1 leveraged, tier 1 risk-based
and total risk-based capital ratios at June 30, 1995 were 8.22%, 12.67% and
13.95%, respectively. Both Banks meet the regulatory capital requirements for a
"well capitalized" institution.
ASSET QUALITY
Webster strives to maintain high asset quality. At June 30, 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 type as of June 30, 1995 and
December 31, 1994 follows (in thousands):
June 30, 1995 December 31, 1994
------------ -----------
Residential Mortgage Loans $ 1,382,565 $ 1,390,995
Commercial Real Estate Loans 112,154 109,339
Commercial and Industrial Loans 54,068 58,679
Consumer Loans (Including Home Equity) 143,312 142,445
----------- -----------
Total Loans 1,692,099 1,701,458
Allowance for Loan Losses (42,025) (45,436)
Loans Receivable, Net $ 1,650,074 $ 1,656,022
=========== ===========
Included above at June 30, 1995 and December 31, 1994 were loans held for
sale of $19.6 million and $24.7 million, respectively and 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 June 30, 1995 and December 31, 1994 (in thousands):
June 30, 1995 December 31, 1994
Loans Accounted For on a Nonaccrual Basis:
Residential Real Estate $18,005 $17,124
Commercial Real Estate 16,003 15,201
Consumer 904 1,234
------- -------
Total Nonaccrual Loans 34,912 33,559
Real Estate Acquired Through Foreclosure:
Residential and Consumer 6,648 8,496
Commercial 14,016 17,140
------- -------
Total Nonaccrual Loans and OREO $55,576 $59,195
======= =======
The decrease in nonaccrual loans and OREO of $3.6 million at June 30, 1995
compared to December 31, 1994 is due primarily to sales and charge-offs of OREO.
At June 30, 1995, Webster's allowance for losses on loans of $42.0 million
represented 120.4% of nonaccrual loans and its total allowances for losses on
loans and OREO of $43.2 million amounted to 76.1% of nonaccrual loans and OREO.
A detail of the changes in the allowances for losses on loans, impaired loans
and OREO for the six months ended June 30, 1995 follows (in thousands):
Allowances For Losses On Total
--------------------------------
Loans Impaired Loans OREO Allowances for Losses
----- -------------- ------ ----------------------
Balance at December 31, 1994 $ 45,436 -- $ 2,473 $ 47,909
Provisions for Losses 630 -- 986 1,616
Allocation from General Allowance (997) 997 -- --
Losses Charged to Allowances (5,727) (333) (2,563) (8,623)
Recoveries Credited to Allowances 2,019 -- 231 2,250
-------- -------- -------- --------
Balance at June 30, 1995 $ 41,361 $ 664 $ 1,127 $ 43,152
======== ======== ======== ========
Segregated Assets, Net
- ----------------------
Segregated assets, net at June 30, 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):
June 30, 1995 December 31, 1994
------------- -----------------
Commercial Real Estate Loans $ 91,465 $ 98,813
Commercial Loans 13,699 15,377
Multi-Family Real Estate Loans 18,034 18,124
Other Real Estate Owned 4,688 9,202
----------- -----------
127,886 141,516
Allowance for Segregated Assets Losses (3,567) (4,420)
----------- -----------
Segregated Assets, Net $ 124,319 $ 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 second 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 (1,084)
Recoveries 231
--------
Balance at June 30, 1995 $ 3,567
========
The following table details nonperforming Segregated Assets at June 30,
1995 and December 31, 1994 (in thousands):
June 30, 1995 December 31, 1994
------------ -----------------
Segregated Assets accounted for on a nonaccrual basis:
Commercial Real Estate Loans $ 8,414 $ 13,795
Commercial Loans 2,690 3,678
Multi-Family Real Estate Loans 1,504 576
-------- --------
Total Nonaccrual Loans 12,608 18,049
Real Estate Acquired Through Foreclosure:
Commercial Real Estate 3,465 7,753
Multi-Family Real Estate 1,222 1,449
-------- --------
Total $ 17,295 $ 27,251
======== ========
ASSET/LIABILITY MANAGEMENT
- --------------------------
The goal of Webster's asset/liability management 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 simulation, price elasticity and
GAP analyses. Based on Webster's asset/liability mix at June 30, 1995,
management's simulation analysis of the effects of changing interest rates
projects that an instantaneous 200 basis point increase in interest rates would
increase net interest income by less than 3% at June 30, 1995. At June 30, 1995,
Webster had a 1.9% 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)
- -------------------------------------------------------------------------------
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 June
30, 1995, First Federal had a liquidity ratio of 5.3% and was in compliance with
applicable regulations. Bristol, as an FDIC regulated institution, has no such
specific liquidity requirement but maintains adequate liquidity for its
corporate needs. At June 30, 1995, Webster had mortgage commitments outstanding
of $48.6 million, unused home equity credit lines of $93.7 million and
commercial lines and letters of credit of $9.3 million.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the three and six month periods ended June 30, 1995 and 1994:
General
- -------
Net income for the three-month period ended June 30, 1995 amounted to $4.7
million or $.71 per fully diluted share compared to $4.3 million or $.66 per
fully diluted share for the same period in 1994. Net income available to common
shareholders increased 13% in the second quarter of 1995 to $4.4 million
compared to $3.9 million for the same period in 1994. Net income for the six
months ended June 30, 1995 amounted to $9.4 million or $1.41 per fully diluted
share compared to $8.1 million or $1.32 per fully diluted share for the same
period in 1994.
NET INTEREST INCOME
- -------------------
Net interest income for the three and six months ended June 30, 1995
amounted to $19.7 million and $39.5 million respectively compared to $21.7
million and $39.9 million for the respective periods in 1994. The decrease is
primarily attributable to the cost of funds increasing more than yields on
earning assets. Net interest rate spread for the three and six months ended June
30, 1995 was 2.83% and 2.93% compared to 3.27% and 3.17% for the same periods in
1994.
Interest income for the three and six months ended June 30, 1995 amounted
to $49.3 million and $95.5 million, respectively, compared to $43.7 million and
$80.8 million for the comparable periods in 1994. 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 7.37% and 7.28%
for the three and six months ended June 30, 1995 compared to 6.71% and 6.58% for
the same periods during 1994.
Interest expense for the three and six months ended June 30, 1995 amounted
to $29.6 million and $56.0 million, respectively, compared to $22.1 million and
$40.8 million for the same periods during 1994. This increase is due primarily
to a higher amount of average interest-bearing liabilities and an increase in
the cost of deposits and Federal Home Loan Bank advances. The cost of
interest-bearing liabilities increased to 4.54% and 4.35% for the three and six
months ended June 30, 1995 compared to 3.44% and 3.41% for the same periods
during 1994.
Provision for Loan Losses
- -------------------------
The provision for loan losses amounted to $350,000 and $630,000 for the
three and six month periods ended June 30, 1995 compared to $645,000 and $1.5
million for the respective periods in 1994. At June 30, 1995, the allowance for
loan losses was $42.0 million and represented 120.4% of nonaccrual loans,
compared to $52.1 million and 123.7% of nonaccrual loans a year earlier.
Noninterest Income
- ------------------
Noninterest income for the three and six months ended June 30, 1995
amounted to $4.6 million and $9.0 million, respectively, compared to $3.7
million and $6.8 million for the same periods in 1994. The increase is due
primarily to gains on sale of securities and to an increase in deposit product
fees as a result of a larger deposit base. There were $686,000 and $997,000 of
gains on sales of loans and securities for the three and six months ended June
30, 1995 compared to $99,000 and $423,000 for the same periods 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 June 30, 1995 amounted to
$17.3 million compared to $17.9 million for the same quarter in 1994. The
decrease is due primarily to lower salaries and employee benefits, furniture and
equipment expenses, federal deposit insurance premiums and OREO expenses and
provisions which were offset by increased occupancy and marketing expenses.
Noninterest expenses for the six months ended June 30, 1995 amounted to
$34.4 million compared to $32.2 million for the same period a year earlier. The
increase is due to higher salaries and employee benefit expenses, occupancy
expense, furniture and equipment expenses and marketing expenses which were
offset by lower OREO expenses and provisions. The decrease in OREO expenses for
both the three and six month periods in 1995 compared to the same periods a year
earlier is due primarily to lower provisions for losses on OREO. Operating
results for Bristol for the six months period ending June 30, 1994 are included
beginning March 3, 1994, the effective date of the Bristol Acquisition.
Income Taxes
- ------------
Total income tax expense for the three and six month periods ended June 30,
1995 amounted to $1.9 million and $4.1 million, respectively, compared to $2.6
million and $4.9 million for the same periods in 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) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
Item 5. OTHER INFORMATION
-----------------
Webster announced on June 21, 1995 that it had entered into a definitive
Agreement and Plan of merger, dated as of June 21, 1995 (the "Agreement"),
to acquire Shelton Bancorp, Inc. ("Shelton"). Under the terms of the
Agreement, shareholders of Shelton Bancorp will receive .92 of a share of
Webster common stock in a tax free exchange for each of their shares of
Shelton Bancorp common stock. The exchange ratio is not subject to market
price adjustment. The merger, which represents an aggregate transaction
value of $29.4 million or $21.85 per Shelton Bancorp share based on its
1,343,341 outstanding shares and the $23.75 closing price of Webster common
stock as of June 15, 1995.
Prior to the merger transaction with Shelton, Webster will cause Bristol to
be converted from a state to a federal charter under the name "Webster
Bank" and First Federal to be merged into Webster Bank, which will be
headquartered in Waterbury. The merger Agreement provides for the
acquisition of Shelton by Webster through the merger of Shelton into
Webster's subsidiary, merger sub, with Webster being the surviving
corporation. Immediately after the merger, Shelton will merge into
Webster, with Webster being the surviving holding company. Immediately
after the Holding Company merger, Webster will cause Shelton Savings Bank
to be merged into Webster Bank, as the surviving federal savings bank. The
Merger is subject to various regulatory approvals, including approval by
the Office of Thrift Supervision and the Connecticut Commissioner of
Banking. The common stock issuance by Webster will require approval by its
shareholders. The approval of the holders of two-thirds of Shelton's
outstanding common stock will be needed under Connecticut law for the
Merger. The merger agreement has been approved by the board of directors of
both Shelton Bancorp and Webster. In connection with the Agreement, Shelton
has granted Webster an option, exercisable under certain conditions, to
purchase newly issued shares of Shelton common stock equal to 19.9% of its
Outstanding Shares. The Agreement contains mutual provisions for expense
reimbursement and a breakup fee under certain circumstances.
Shelton Bancorp, Inc. is the holding company for Shelton Savings Bank, a
state chartered savings bank operating six banking offices in eastern
Fairfield and southwestern New Haven counties. At March 31, 1995, Shelton
had total assets of $295 million, deposit liabilities of $271 million and
shareholders' equity of $20 million. Shelton's net income for its fiscal
year ended June 30, 1994 was $2.3 million, or $1.71 per share. For the nine
months ended March 31, 1995, Shelton's net income was $1.7 million or $1.25
per fully diluted share. At March 31, 1995, its nonaccrual assets amounted
to 0.9% of total assets and its allowance for loan losses represented 79%
of nonaccrual loans.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on form 8-K
The Registrant filed the following reports on Form 8-K
during the quarter ended June 30, 1995.
Form 8-K/A dated July 26, 1995 (amending the
Registrant's Form 8-K dated June 30, 1995 pertaining to
the Shelton Acquisition).
Form 8-K dated June 30, 1995 pertaining to the Shelton
Acquisition.
Form 8-K dated March 1, 1995 (announcing the date for
the Registrant's Annual Meeting of Shareholders).
16
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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: August 11, 1995 By: /s/ John V. Brennan
-------------------- --------------------
John V. Brennan
Executive Vice President,
Chief Financial Officer and
Treasurer
Date: August 11, 1995 By: /s/ Peter J. Swiatek
--------------------- ---------------------
Peter J. Swiatek
Controller
17