EXHIBIT 13
Portions of 1999 Annual Report to Shareholders
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MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (MD&A)
Introduction
Webster Financial Corporation ("Webster" or the "Company"), through its
subsidiaries, Webster Bank (the "Bank") and Damman Associates, Inc. ("Damman"),
delivers financial services to individuals, families and businesses primarily in
Connecticut. Webster emphasizes five business lines - consumer banking, business
banking, mortgage lending, trust and investment services, and insurance
services, each supported by centralized administration and operations. Webster
has grown significantly in recent years, primarily through a series of
acquisitions which have expanded and strengthened its franchise.
Assets at December 31, 1999 were $9.9 billion compared to $9.8 billion a year
earlier. Net loans receivable amounted to $6.0 billion at December 31, 1999 and
$5.5 billion at December 31, 1998. Deposits were $6.2 billion at December 31,
1999 and $6.3 billion at December 31, 1998.
Business Combinations
Pooling of Interests Transactions
All acquisitions accounted for under the pooling of interests method include
financial data as if the combination occurred at the beginning of the earliest
period presented.
The NECB Acquisition
On December 1, 1999, Webster acquired New England Community Bancorp., Inc.,
("NECB") a multi-bank holding company headquartered in Windsor, Connecticut.
Three of its wholly-owned bank subsidiaries, New England Bank and Trust, Equity
Bank and Community Bank, were located in the state of Connecticut and one, Olde
Port Bank and Trust, was located in New Hampshire. In connection with the merger
with NECB, Webster issued 7,298,788 shares of its common stock for all of the
outstanding shares of NECB's common stock. Under the terms of the merger
agreement, each outstanding share of NECB's common stock was converted into 1.06
shares of Webster common stock.
The Bank of South Windsor Acquisition
On August 14, 1998, Webster acquired Bank of South Windsor ("BSW") as a result
of its acquisition of NECB. In connection with the acquisition, Webster
effectively issued 1,346,200 shares of its common stock for all the outstanding
shares of BSW common stock after adjusting for the conversion factor related to
the NECB acquisition.
The Olde Port Acquisition
On July 10, 1998, Webster acquired Olde Port Bank and Trust Company ("Olde
Port") as a result of its acquisition of NECB. In connection with the
acquisition, Webster effectively issued 621,160 shares of its common stock for
all the outstanding shares of Olde Port common stock after adjusting for the
conversion factor related to the NECB acquisition.
The Eagle Acquisition
On April 15, 1998, Webster acquired Eagle Financial Corp. ("Eagle") and its
subsidiary, Eagle Bank, a $2.1 billion savings bank, headquartered in Bristol,
Connecticut. In connection with the merger with Eagle, Webster issued 10,615,156
shares of its common stock for all of the outstanding shares of Eagle common
stock. Under the terms of the agreement, each outstanding share of Eagle common
stock was converted into 1.68 shares of Webster common stock. Prior to the
acquisition, Eagle's fiscal year ended on September 30. In recording the pooling
of interests combination, Eagle's financial statements as of and for the twelve
months ended September 30, 1997 were combined with Webster's financial
statements as of and for the twelve months ended December 31, 1997. An
adjustment has been made in the 1998 Consolidated Statements of Shareholders'
Equity to include Eagle's unaudited net income for the period October 1, 1997 to
December 31, 1997 as a direct credit to retained earnings. Eagle's operating
results for this period included net interest income of $15.7 million and net
income of $4.9 million and are not included in the Consolidated Statement of
Income of the combined entity for the year ended December 31, 1998.
The First Bank of West Hartford Acquisition
On August 7, 1997, Webster acquired First Bank of West Hartford ("FBWH") as a
result of its acquisition of NECB. In connection with the purchase, Webster
effectively issued 1,054,700 shares of its common stock for all the outstanding
shares of FBWH common stock after adjusting for the conversion factor related to
the NECB acquisition.
The People's Acquisition
On July 31, 1997, Webster acquired People's Savings Financial Corp. ("People's")
and its subsidiary, People's Savings Bank & Trust, a $482 million in assets
savings bank headquartered in New Britain, Connecticut. In connection with the
merger with People's, Webster issued 3,151,992 shares of its common stock for
all the outstanding shares of People's common stock. Under the terms of the
agreement, each outstanding share of People's common stock was converted into
.85 shares of Webster common stock.
The MidConn Acquisition
On May 31, 1997, Webster acquired MidConn Bank ("MidConn") as a result of its
acquisition of Eagle. In connection with the merger, Webster effectively issued
2,869,440 shares of its common stock for all the outstanding shares of MidConn
common stock after adjusting for the conversion factor related to the Eagle
Acquisition.
The Derby Acquisition
On January 31, 1997, Webster acquired DS Bancor, Inc. ("Derby") and its
subsidiary, Derby Savings Bank, a $1.2 billion in assets savings bank
headquartered in Derby, Connecticut. In connection with the merger with Derby,
Webster issued 7,002,740 shares of its common stock for all the outstanding
shares of Derby common stock. Under the terms of the agreement each outstanding
share of Derby common stock was converted into 1.14158 shares of Webster common
stock.
Purchase Transactions
The following acquisitions were accounted for as purchase transactions, and as
such, results of operations are included in the Consolidated Financial
Statements subsequent to acquisition.
The Village Acquisition
On May 19, 1999, Webster acquired Village Bancorp, Inc. ("Village"), the holding
company for The Village Bank & Trust Company in a tax-free, stock-for-stock
exchange. Village had approximately $215 million in total assets and $200
million in deposits at six branches.
The Maritime Acquisition
On April 21, 1999, Webster acquired Maritime Bank & Trust Company ("Maritime")
in a tax-free, stock-for-stock exchange. Maritime had approximately $95 million
in total assets and $85 million in deposits at three branches.
The Access Acquisition
In January 1999, Webster completed its acquisition of Access National Mortgage,
Inc. ("Access"). Access was founded in 1996 as a privately held Internet-based
mortgage lender located in Wilmington, Massachusetts. In October 1999, Access
National Mortgage, LLC was renamed Nowlending, LLC. Nowlending, LLC originates
mortgages in 47 states.
The Damman Acquisition
On June 1, 1998, Webster completed its acquisition of Damman. Damman is a full
service Westport-based insurance agency, providing property-casualty, life and
group coverage to commercial and individual customers. Damman has offices in
Westport and Wallingford and approximately 50 employees. During 1998, Webster
began offering a full array of insurance services to its consumer and commercial
customer base.
The Community Savings Bank Acquisition
On December 31, 1997, Webster acquired Community Savings Bank ("Community Bank")
as a result of its acquisition of NECB. In connection with the purchase, Webster
effectively paid $5.62 in cash for each Community Bank common share outstanding.
The Sachem Acquisition
On August 1, 1997, Webster acquired Sachem Trust National Association ("Sachem
Trust"), a trust company headquartered in Guilford, Connecticut, in a tax-free
stock-for-stock exchange. Sachem Trust had approximately $300 million of trust
assets under management at the time of acquisition.
Purchase Transactions Pending Consummation at December 31, 1999
The Mechanics Acquisition
In December 1999, Webster announced a definitive agreement to acquire MECH
Financial, Inc. ("Mechanics"), the holding company for Mechanics Savings Bank,
in a tax free, stock-for-stock exchange. Mechanics Savings Bank is a
state-chartered, Hartford-based savings bank with $1.1 billion in assets and 16
branch offices in the capital region. Based on the terms of the agreement,
Mechanics shareholders will receive 1.52 shares of Webster common stock for each
share of Mechanics. Webster expects to close the transaction and complete the
conversion during the second quarter of 2000.
The Chase Branch Acquisition
In November 1999, Webster announced a definitive agreement to acquire six
Connecticut branches from The Chase Manhattan Bank. The branches are located in
Cheshire, Middlebury, North Haven, Waterbury (2) and Watertown and have
approximately $165 million in deposit balances. The transaction includes the
purchase of consumer deposits, small business deposits and loans, and brokerage
and custody accounts associated with these branches. Webster expects to close
the transaction and complete the acquisition during the second quarter of 2000.
The FleetBoston Branch Acquisition
In November 1999, Webster announced a definitive agreement with FleetBoston
Corporation to purchase four Connecticut branches that are being divested as the
result of the Fleet-BankBoston merger. The branches, with $163 million in
deposit balances, are located in Brookfield, Guilford, Meriden, and Thomaston.
The transaction includes the purchase of deposits and loans for individual and
small business customers associated with these branches. Webster expects to
close the transaction and complete the acquisition during the third quarter of
2000.
Purchase Transactions Subsequent to December 31, 1999
The Levine Acquisition
In February 2000, through Damman, Webster acquired the Levine companies
("Levine"), a privately owned Waterford and Norwich, Connecticut based insurance
agency. Founded in 1928, the group combines three entities; Louis Levine Agency,
Inc., Levine Financial Services, Inc. and Retirement Planning Associates, Inc.
Levine has 50 employees and wrote $41 million in premiums during 1999.
Asset Quality
Nonaccrual Assets
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans and aggressively
managing nonaccrual assets. The aggregate amount of nonaccrual assets increased
to $43.3 million at December 31, 1999 from $35.9 million at December 31, 1998
and increased as a percentage of total assets to .44% at December 31, 1999 from
.36% at December 31, 1998. Nonaccrual loans increased $7.7 million in 1999 and
foreclosed properties decreased $254,000. The allowance for loan losses at
December 31, 1999 was $72.7 million and represented 191% of nonaccrual loans and
1.2% of total loans. Total allowances for nonaccrual assets of $72.9 million
represented 167% of nonaccrual assets. The following table details nonaccrual
assets for the last five years.
December 31,
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(In thousands) 1999 1998 1997 1996 1995
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Nonaccrual Assets:
Loans accounted for on a nonaccrual basis:
Residential $ 11,490 $ 12,418 $ 34,731 $ 37,073 $ 41,508
Commercial 25,722 16,449 13,626 18,416 26,288
Consumer 1,182 1,852 3,624 6,143 6,904
Foreclosed Properties:
Residential and Consumer 2,698 1,715 8,804 11,099 12,757
Commercial 2,210 3,447 6,335 11,157 17,548
Total $ 43,302 $ 35,881 $ 67,120 $ 83,888 $ 105,005
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A summary of the activity in the allowance for loan losses for the last five
years follows:
For the Years Ended December 31,
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(Dollars in thousands) 1999 1998 1997 1996 1995
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Balance at beginning of period $ 65,201 $ 71,599 $ 63,047 $ 69,091 $ 73,615
Charge-offs:
Residential real estate (3,246) (13,662) (16,281) (21,218) (14,184)
Consumer (1,784) (3,556) (4,305) (4,350) (1,438)
Commercial (2,376) (4,044) (6,039) (8,895) (6,657)
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(7,406) (21,262) (26,625) (34,463) (22,279)
Recoveries:
Residential real estate 838 1,081 4,368 1,103 1,020
Consumer 299 302 555 416 1,068
Commercial 1,079 2,755 1,697 2,278 1,717
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Net charge-offs (5,190) (17,124) (20,005) (30,666) (18,474)
Allowances from purchase transactions 3,647 -- 2,108 8,881 1,961
Reclassification of allowance for segregated asset losses -- 2,623 -- -- --
Provisions charged to operations 9,000 8,103 26,449 15,741 11,989
Balance at end of period $ 72,658 $ 65,201 $ 71,599 $ 63,047 $ 69,091
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Ratio of net charge-offs to average loans outstanding 0.1% 0.3% 0.4% 0.6% 0.4%
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Net charge-offs decreased $11.9 million to $5.2 million in 1999 due primarily to
decreases in residential nonaccrual loans. Included in the 1998 charge-offs were
write-downs of $8.6 million related to the bulk sales of $26.3 million of
primarily nonaccrual and delinquent loans. Included in the 1997 charge-offs were
write-downs of $5.8 million related to a bulk sale of $17.7 million of
nonaccrual residential loans and foreclosed properties. The 1998 provisions
charged to operations include $1.5 million specifically related to the
acquisition of Eagle. See Note 12 to the Consolidated Financial Statements for a
summary of activity in the allowance for losses on foreclosed properties.
Management believes that the allowance for loan losses at December 31, 1999 is
adequate to cover expected losses in the portfolio.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
regulations adopted by the Office of Thrift Supervision ("OTS"). This
requirement, which may be varied by the OTS, is based upon a percentage of net
withdrawable deposits and short-term borrowings. The required liquidity ratio is
currently 4.00% and the Bank's liquidity ratio at December 31, 1999 exceeded the
requirement. Webster Bank is also required by regulation to maintain sufficient
liquidity to ensure safe and sound operations. Adequate liquidity as assessed by
the OTS may vary from institution to institution depending on such factors as
the institution's overall asset/liability structure, market conditions,
competition and the nature of the institution's deposit and loan customers. The
OTS considers both an institution's liquidity ratio as well as safety and
soundness issues in assessing whether an institution has sufficient liquidity.
Liquidity management allows Webster to meet cash needs at a reasonable cost
under various operating environments. Liquidity is actively managed and reviewed
in order to maintain stable cost effective funding to support the balance sheet.
Liquidity comes from a variety of sources such as the cash flow from operating
activities including principal and interest payments on loans and investments,
unpledged securities which can be sold or utilized to secure funding and by
maintaining the ability to attract new deposits. Webster's goal is to maintain a
strong base of core deposits to support its growing balance sheet.
Management monitors current and projected cash needs and adjusts liquidity as
necessary. Webster has a detailed liquidity contingency plan, which is designed
to respond to liquidity concerns in a prompt and comprehensive manner. It is
designed to provide early detection of potential problems and details specific
actions required to address liquidity risks.
Webster is a member of the Federal Home Loan Bank ("FHLB") system and has
additional borrowing capacity from the FHLB of $1.4 billion at December 31,
1999. At that date, the Bank had FHLB advances outstanding of $1.7 billion
compared to $1.8 billion at December 31, 1998. See Note 8 to the Consolidated
Financial Statements.
Webster's main sources of liquidity at the holding company level are dividends
from the Bank, investment income and net proceeds from capital offerings and
borrowings. The main uses of liquidity are purchases of available for sale
securities, the payment of dividends to preferred and common stockholders,
repurchases of Webster's common stock, and the payment of interest to holders of
Webster's senior notes and capital securities. $40 million of senior notes will
mature on June 30, 2000. Management is assessing alternatives to replace funding
provided by this debt. There are certain restrictions on the payment of
dividends by the Bank to Webster. See Note 14 to the Consolidated Financial
Statements. Webster also maintains $90 million in revolving lines of credit with
correspondent banks.
During 1999, Webster repurchased a total of 2,622,608 shares of its common stock
under three announced repurchase programs. See Note 14 to the Consolidated
Financial Statements for further information concerning the stock repurchases.
Applicable OTS regulations require the Bank, as a federal savings bank, to
satisfy certain minimum capital requirements, including a leverage capital
requirement and risk-based capital requirements. As an OTS regulated savings
institution, the Bank is also subject to a minimum tangible capital requirement.
At December 31, 1999, the Bank was in full compliance with all applicable
capital requirements. See Note 14 to the Consolidated Financial Statements.
Asset/Liability Management and Market Risk
Interest-rate risk is the sensitivity of the market value of Webster's
interest-sensitive assets and liabilities and the sensitivity of Webster's
earnings to changes in interest rates over short-term and long-term time
horizons. The primary goal of interest-rate risk management is to control risk
within limits approved by the Board of Directors. Webster's Asset & Liability
Management Committee manages interest-rate risk to maximize net interest income
and net market value over time in changing interest-rate environments.
Management measures interest-rate risk using simulation analyses with particular
emphasis on measuring changes in net market value and net interest income in
different rate environments. Market value is measured as the net present value
of future cash flows. Simulation analysis incorporates assumptions about balance
sheet changes such as asset and liability growth, loan and deposit pricing and
changes due to the mix of assets and liabilities. Key assumptions relate to the
behavior of interest rates and spreads, fluctuations in product balances,
prepayment speeds and decay rates on deposits. From such simulations,
interest-rate risk is quantified and appropriate strategies are formulated and
implemented.
Webster also uses as part of its asset/liability management strategy various
interest-rate contracts including futures and options, interest-rate swaps and
interest-rate caps and floors. Webster utilizes these financial instruments to
manage interest-rate risk by reducing net exposures. These interest-rate
financial instruments involve, to varying degrees, credit risk and market risk.
Credit risk is the possibility that a loss may occur if a counterparty to a
transaction fails to perform according to the terms of the contract. Market risk
is the effect of a change in interest rates on the value of the instruments. The
notional amount of interest-rate financial instruments is the amount upon which
interest and other payments under the contract are based. The notional amount is
not exchanged and therefore, the notional amounts should not be taken as a
measure of credit risk. See Notes 3 and 10 to the Consolidated Financial
Statements.
Webster holds futures and options positions and interest-rate contracts to
minimize the price volatility of certain assets held as Trading Securities.
Changes in the market value of these positions are recognized in the
Consolidated Statements of Income in the period for which the change occurred.
The following table summarizes the estimated market value of Webster's
interest-sensitive assets and interest-sensitive liabilities at December 31,
1999 and 1998, and the projected change to market values if interest rates
instantaneously increase or decrease by 100 basis points.
Book Market Estimated Market Value Impact
(Dollars in thousands) Value Value -100 BP +100 BP
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1999
Interest Sensitive Assets:
Trading $ 50,854 $ 50,854 $ 181 $ (479)
Non-trading 8,780,473 8,695,323 223,137 (256,650)
Interest Sensitive Liabilities 9,219,951 8,838,371 (139,222) 129,373
Net Impact 84,096 (127,756)
Net Impact as % of
interest sensitive assets 1.0% -1.5%
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1998
Interest Sensitive Assets:
Trading $ 91,114 $ 91,114 $ (84) $ (1,236)
Non-trading 8,872,123 9,012,443 148,515 (192,378)
Interest Sensitive Liabilities 8,890,959 9,043,869 (143,097) 137,806
Net Impact 5,334 (55,808)
Net Impact as % of
interest sensitive assets 0.1% -0.6%
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The tables above exclude interest-earning assets that are not directly impacted
by changes in interest rates. These assets include equity securities of $201.4
million at December 31, 1999 and $244.7 million at December 31, 1998 (see Note 3
to the Consolidated Financial Statements) and nonaccrual loans of $38.4 million
at December 31, 1999 and $30.7 million at December 31, 1998 (see "Asset Quality"
within the MD&A). Values for mortgage servicing rights have been included in the
tables above as movements in interest rates affect the valuation of the
servicing rights. Equity securities and nonaccrual assets not included in the
above tables are, however, subject to fluctuations in market value based on
other risks. The equity securities include $103.9 million of FHLB stock which is
insensitive to market fluctuations (see Note 3 to the Consolidated Financial
Statements). The remaining $97.5 million of equity securities had a net
unrealized loss of $3.4 million at December 31, 1999.
Interest-sensitive assets, net of interest-sensitive liabilities, when impacted
by a minus 100 basis point rate change, result in a favorable $84.1 million
change in net market values for 1999 compared to a favorable $5.3 million net
market value change in 1998. These changes represent 1.0% of interest-sensitive
assets in 1999 and 0.1% in 1998. A plus 100 basis point rate change results in
an unfavorable $127.8 million or 1.5% change in 1999 compared to an unfavorable
$55.8 million or 0.6% change in 1998.
Based on Webster's asset/liability mix at December 31, 1999, management
estimates that an instantaneous 100 basis point increase in interest rates would
decrease net interest income over the next twelve months by 3.4% compared to a
2.6% decrease at December 31, 1998. An instantaneous 100 basis point decline in
interest rates would increase net interest income by 5.0% compared to a decrease
in net interest income of 1.9% at December 31, 1998. These estimates assume that
management takes no action to mitigate any negative effects from changing
interest rates.
The market values and net interest income estimates are subject to factors that
could cause actual results to differ. Management believes that Webster's
interest-rate risk position at December 31, 1999, represents a reasonable level
of risk.
COMPARISON OF 1999 AND 1998 YEARS
General
For 1999, Webster reported net income of $95.4 million, or $2.10 per diluted
share. Included in the 1999 results are acquisition-related expenses of $9.5
million. Excluding the effect of acquisition-related expenses, net income for
the 1999 year would have been $102.2 million or $2.25 per diluted share. Net
income for 1998 amounted to $78.0 million or $1.69 per share on a diluted basis.
Included in the 1998 results are acquisition-related expenses of $21.0 million
and provisions for loan losses of $1.5 million specifically related to the Eagle
acquisition. Also, included in the 1998 results is a non-recurring net tax
expense of $3.2 million. Excluding the effect of acquisition-related expenses,
provisions for loan losses and non-recurring net tax expense, net income for the
1998 year would have been $97.0 million or $2.10 per diluted share.
Net Interest Income
Net interest income before provision for loan losses increased $20.9 million in
1999 to $303.5 million from $282.6 million in 1998. The increase is primarily
attributable to a reduction of the yield on interest-bearing liabilities. The
cost of interest-bearing liabilities was lower in 1999 due primarily to lower
rates on deposits. Interest-rate spread for the 1999 year increased to 3.18%
compared to 2.83% in 1998. The average balance for interest-bearing deposits was
$5.6 billion with a yield of 3.63% for the 1999 year compared to $5.8 billion
with a yield of 4.13% for 1998. The average balance for investment securities
was $3.3 billion with a yield of 6.30% for the 1999 year compared to $4.1
billion with a yield of 6.15% for 1998.
Interest Income
Total interest income for 1999 amounted to $645.8 million, a decrease of $36.4
million, or 5.3% compared to $682.2 million in 1998. The lower interest income
was due primarily to a decrease in the average volume of securities partially
offset by an increase in net loans.
Interest Expense
Interest expense for 1999 totaled $342.3 million, a decrease of $57.3 million
compared to $399.6 million in 1998. The lower interest expense was due primarily
to a decrease in the yield on interest-bearing deposits in 1999 compared to
1998.
The following table shows the major categories of average assets and average
liabilities together with their respective interest income or expense and the
rates earned or paid by Webster.
For the Years ended December 31,
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1999 1998 1997
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Yield Balance Interest Yield Balance Interest Yield
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Loans, net (a) $5,802,453 $435,326(b) 7.50% $5,416,531 $430,636(b) 7.95% $5,421,314 $429,154(b) 7.92%
Securities and
interest bearing
deposits 3,342,188 210,466 6.30(c) 4,098,608 251,601 6.15(c) 3,100,412 203,912 6.60(c)
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Total interest-
earning assets 9,144,641 645,792 7.06% 9,515,139 682,237 7.16% 8,521,726 633,066 7.43%
Other assets 600,483 564,689 420,328
Total assets $9,745,124 $10,079,828 $8,942,054
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Savings and escrow $1,477,856 $ 34,058 2.30% $1,399,519 $ 34,503 2.47% $1,374,974 $ 32,825 2.39%
Money market
savings,
NOW and DDA 1,519,929 15,185 1.00 1,346,043 13,798 1.03 1,311,117 15,945 1.22
Time deposits 3,228,480 154,562 4.79 3,651,017 192,880 5.28 3,653,467 192,637 5.27
FHLB advances 1,585,458 84,498 5.33 1,675,789 96,140 5.74 1,184,948 68,690 5.80
Repurchase agreements
and other borrowings 978,581 50,316 5.14 1,049,520 58,645 5.59 607,638 33,551 5.52
Senior notes 40,000 3,660 9.15 40,000 3,660 9.15 40,000 3,660 9.15
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Total interest-
bearing liabilities $8,830,304 $342,279 3.88% $9,161,888 $399,626 4.33% $8,172,144 $347,308 4.25%
Other liabilities 93,252 109,993 94,524
Capital securities
and minority
interest 199,577 199,577 122,630
Shareholders' equity 621,991 608,370 552,756
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Net interest income
and interest-rate
spread $303,513 3.18% $282,611 2.83% $285,758 3.18%
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Total liabilities
and shareholders'
equity $9,745,124 $10,079,828 $8,942,054
Net interest margin 3.32% 2.97% 3.35%
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(a) Interest on nonaccrual loans has been included only to the extent reflected
in the Consolidated Statements of Income. Nonaccrual loans, however, are
included in the average balances outstanding.
(b) Includes amortization of net deferred loan costs and premiums (net of
discounts) of: $469,000, $1.9 million and $4.2 million in 1999, 1998 and 1997,
respectively.
(c) Yields are adjusted to a fully tax equivalent basis.
Net interest income also can be analyzed in terms of the impact of changing
rates and changing volumes. The following table describes the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected Webster's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rates (changes in rates multiplied by prior volume) and (iii) the net change.
The change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
Years ended December 31, Years ended December 31,
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1999 v. 1998 1998 v. 1997
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Increase (Decrease) Due to Increase (Decrease) Due to
(In thousands) Rate Volume Total Rate Volume Total
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Interest on Interest-earning Assets:
Loans $ (17,729) $ 22,419 $ 4,690 $ 1,860 $ (378) $ 1,482
Securities 6,694 (47,829) (41,135) (12,446) 60,135 47,689
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Total $ (11,035) $ (25,410) $(36,445) $ (10,586) $ 59,757 $ 49,171
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Interest on Interest-bearing Liabilities
Deposits (31,096) (6,280) (37,376) (2,624) 2,398 (226)
FHLB advances and other borrowings (11,028) (8,943) (19,971) (891) 53,435 52,544
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Total $ (42,124) $ (15,223) $(57,347) $ (3,515) $ 55,833 $ 52,318
Net change in net interest income $ 31,089 $ (10,187) $ 20,902 $ (7,071) $ 3,924 $(3,147)
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Provision for Loan Losses
The provision for loan losses for 1999 was $9.0 million compared to $8.1 million
in 1998. The increase for 1999 is attributable to the increase in gross loans
and a shift within the loan portfolio to a higher concentration of commercial
loans. The allowance for losses on loans totaled $72.7 million and represented
189% of nonaccrual loans at December 31, 1999 versus $65.2 million or 212% of
nonaccrual loans at December 31, 1998.
Noninterest Income
Noninterest income for 1999 totaled $92.6 million, compared to $82.6 million in
1998. Fees and service charges were $66.9 million in 1999, an increase of $19.7
million, or 42% from 1998 due primarily to an increase in the customer base and
fees generated as a result of our expanded product offerings, including
insurance and trust and investment services. Gains on the sale of loans and
mortgage loan servicing rights decreased to $4.4 million in 1999 compared to
$5.8 million in 1998, due primarily to the 1998 sale of the credit card
portfolio. Gains on the sale of securities amounted to $4.2 million in 1999
compared to $17.0 million in 1998. Other noninterest income was $9.1 million in
1999, an increase of $2.1 million from $7.0 million in 1998. Noninterest
Expenses Noninterest expenses for 1999 were $244.5 million compared to $229.4
million in 1998. Included in the 1999 total are acquisition-related expenses
totaling $9.5 million for the NECB acquisition. The 1998 results include
acquisition-related expenses totaling $21.0 million which include: $17.4 million
for the Eagle acquisition, $3.4 million for the Bank of South Windsor
acquisition and $200,000 for the Olde Port acquisition. Excluding
acquisition-related expenses, noninterest expenses for 1999 increased $26.5
million compared to 1998. In 1998, salaries and benefits expenses included a
$1.5 million reduction in expenses related to the consolidation of the former
Eagle pension and post-retirement benefits plans into Webster's plans.
Income Taxes
Income tax expense for 1999 decreased to $47.3 million from $49.7 million in
1998. The decrease in income tax expense is due to a $3.2 million non-recurring
net tax expense in 1998, related primarily to the formation of a Connecticut
Passive Investment Company and the related reduction in Connecticut income tax
in 1999 (see "Tax Legislation").
Comparison of 1998 and 1997 Years
General
In 1998, Webster reported net income of $78.0 million, or $1.69 per share on a
diluted basis. Included in the 1998 results were acquisition-related expenses of
$21.0 million and provision for loan losses of $1.5 million, the latter
specifically related to the Eagle acquisition. Also included in the 1998 results
was a non-recurring net tax expense of $3.2 million. Excluding the net effects
of tax-effected acquisition-related expenses and non-recurring tax expense, net
income for the 1998 year would have been $97.0 million or $2.10 per diluted
share. Net income for 1997 amounted to $47.6 million, or $1.04 per share on a
diluted basis. Included in the 1997 results were acquisition-related expenses of
$32.0 million and provisions for loans losses of $9.9 million related to
acquisitions. Excluding the effect of tax-effected acquisition-related expenses
and provisions for loan losses, net income for the 1997 year would have been
$72.9 million or $1.59 per diluted share.
Net Interest Income
Net interest income before provision for loan losses decreased $3.2 million in
1998 to $282.6 million from $285.8 million in 1997. The decrease was primarily
attributed to a lower return on investment securities. The cost of
interest-bearing liabilities was higher in 1998 due primarily to a higher volume
of borrowings. Interest-rate spread for the 1998 year decreased to 2.83%
compared to 3.18% in 1997 due primarily to a higher level of average
interest-earning assets that yielded a return that was approximately
twenty-seven basis points lower than realized in 1997. The average balance for
investment securities was $4.1 billion with a yield of 6.15% for the 1998 year
compared to $3.1 billion with a yield of 6.60% for 1997.
Interest Income
Total interest income for 1998 amounted to $682.2 million, an increase of $49.1
million, or 7.8% compared to $633.1 million in 1997. The higher interest income
was due primarily to an increase in the average volume of securities partially
offset by decreases in net loans and interest-bearing deposits.
Interest Expense
Interest expense for 1998 totaled $399.6 million, an increase of $52.3 million
compared to $347.3 million in 1997. The higher interest expense was due
primarily to an increase in the average volume of borrowings in 1998 compared to
1997.
Provision for Loan Losses
The provision for loan losses for 1998 was $8.1 million compared to $26.4
million in 1997. The decrease for 1998 is attributable to approximately $8.4
million less in provisions related to acquisitions and an overall reduction in
nonaccrual loans. The provision for 1997 included $9.9 million related to
acquisitions. The allowance for losses on loans totaled $65.2 million and
represented 212% of nonaccrual loans at December 31, 1998 versus $71.6 million
and 138% at December 31, 1997.
Noninterest Income
Noninterest income for 1998 totaled $82.6 million, compared to $47.7 million in
1997. Fees and service charges were $47.3 million in 1998, an increase of $11.6
million or 32.5% from 1997 due primarily to an increase in the customer base and
fees generated as a result of the Damman and Sachem Trust acquisitions. Gains on
the sale of loans and mortgage loan servicing rights increased to $5.8 million
in 1998 compared to $1.7 million in 1997, due primarily to the sale of the
credit card portfolio. Gains on the sale of securities amounted to $17.0 million
in 1998 compared to $3.5 million in 1997. Other noninterest income increased to
$7.0 million from $6.9 million from 1998 to 1997.
Noninterest Expenses
Noninterest expenses for 1998 were $229.4 million compared to $229.5 million in
1997. Included in the 1998 total are acquisition-related expenses totaling $21.0
million. The 1997 results include acquisition-related expenses totaling $32.0
million. Excluding acquisition-related expenses, noninterest expenses for 1998
increased $10.9 million compared to 1997. Increased salaries and benefits,
furniture and equipment, intangible amortization, professional services
expenses, capital securities and other operating expenses were partially offset
by lower expenses for occupancy, federal deposit insurance, foreclosed property
and marketing expenses. Salaries and benefits expenses include a $1.5 million
reduction to expenses related to the consolidation of the former Eagle pension
and post-retirement benefits plans into Webster's plans.
Income Taxes
Income tax expense for 1998 increased to $49.7 million from $29.9 million in
1997. The increase in income tax expense is due primarily to a $50.2 million
increase in net income before taxes and a $3.2 million non-recurring net tax
expense related primarily to the planned formation of a Connecticut Passive
Investment Company (see "Tax Legislation").
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a banking institution are monetary in nature. As a result, interest rates have a
more significant impact on a banking institution's performance than the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods and services.
Recent Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. Under this
statement, an entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing the
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. SFAS No. 133, as amended
by SFAS No. 137, is now effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Upon adoption, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
Early adoption is permitted, however, retroactive application is prohibited.
Management is in the process of evaluating the impact of this statement on its
financial position and results of operations.
Tax Legislation
Federal tax law changes were enacted in August 1996 to eliminate the "thrift bad
debt" method of calculating bad debt deductions for tax years after 1995 and to
impose a requirement to recapture into taxable income (over a six-year period)
all bad debt reserves accumulated after 1987. Since Webster previously recorded
a deferred tax liability with respect to these post 1987 reserves, its total
income tax expense for financial reporting purposes will not be affected by the
recapture requirement. The tax law changes also provide that taxes associated
with the recapture of pre-1988 bad debt reserves would become payable under more
limited circumstances than under prior law. Under the tax laws, as amended,
events that would result in recapture of the pre-1988 bad debt reserves include
stock and cash distributions to the holding company from the Bank in excess of
specified amounts. Webster does not expect such reserves to be recaptured into
taxable income.
The State of Connecticut enacted tax law changes in May 1998, allowing for the
formation of a Passive Investment Company ("PIC") by financial institutions.
This legislation exempts Passive Investment Companies from state income taxation
in Connecticut, and exempts from inclusion in Connecticut taxable income the
dividends paid from a passive investment company to a related financial
institution. Webster Bank qualifies as a financial institution under the
statute, and has organized a PIC that began operations in the first quarter of
1999. The legislation is effective for tax years beginning on or after January
1, 1999. Webster's formation of a PIC has reduced its Connecticut tax expense in
1999 and, as a result of the PIC's formation, a deferred tax charge was taken in
the fourth quarter of 1998.
Year 2000 Disclosure Statement
There has been no disruption to the Company's operations as a result of the Year
2000 issue, which referred to the potential impact of the failure of computer
programs and equipment to give proper recognition of dates beyond December 31,
1999 and other issues related to the Year 2000 century date change. No
disruption is expected and the Company will continue to monitor its position.
Total expenses incurred by the Company in conducting its Year 2000 program were
about $1.0 million.
Forward Looking Statements
This annual report contains forward-looking statements within the meaning of the
Securities and Exchange Act of 1934, as amended. Actual results could differ
materially from those management expectations, projections and estimates.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of Webster's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting
Webster's operations, markets, products services and prices. Such developments
could have an adverse impact on Webster's financial position and results of
operations.
Consolidated Statements of Condition
December 31,
(In thousands, except share and per share data) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from depository institutions $245,783 $213,142
Interest-bearing deposits 37,838 17,819
Securities: (Note 3)
Trading, at fair value 50,854 91,114
Available for sale, at fair value 2,700,585 3,164,886
Held to maturity, (fair value: $300,282 in 1999; $410,196 in 1998) 315,462 406,829
Loans receivable, net (Note 4) 6,022,236 5,507,118
Accrued interest receivable 58,918 60,647
Premises and equipment, net (Note 5) 103,403 93,256
Foreclosed properties, net (Note 12) 4,909 5,162
Intangible assets (Note 2) 138,829 83,227
Cash surrender value of life insurance 148,252 141,059
Prepaid expenses and other assets (Note 6) 104,675 51,770
Total assets $9,931,744 $9,836,029
- -----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Deposits (Note 7) $6,191,091 $6,312,974
Federal Home Loan Bank advances (Note 8) 1,714,441 1,801,839
Securities sold under agreement to repurchase and other borrowings (Note 9) 1,074,004 773,769
Advance payments by borrowers for taxes and insurance 41,605 34,670
Accrued expenses and other liabilities 75,359 86,746
Total liabilities $9,096,500 $9,009,998
- -----------------------------------------------------------------------------------------------------------------
Corporation-obligated mandatorily redeemable capital securities
of subsidiary trusts (Note 19) $150,000 $150,000
Preferred stock of subsidiary corporation (Note 20) 49,577 49,577
Shareholders' Equity: (Note 14)
Common stock, $.01 par value:
Authorized - 200,000,000 shares at December 31, 1999 and
50,000,000 shares at December 31, 1998; Issued - 45,243,770 shares
at December 31, 1999 and 45,717,089 shares at December 31,1998 452 457
Paid-in capital 301,336 308,790
Retained earnings 400,413 325,805
Less Treasury stock at cost, 140,000 shares at December 31,
1999 and 1,026,770 shares at December 31, 1998 (3,274) (27,914)
Less employee stock ownership plan shares purchased with debt (1,127) (1,339)
Accumulated other comprehensive (loss) income (62,133) 20,655
Total shareholders' equity $635,667 $626,454
Commitments and contingencies (Notes 4, 5 and 21)
Total liabilities and shareholders' equity $9,931,744 $9,836,029
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
Years Ended December 31,
(In thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Interest Income:
Loans $435,326 $430,636 $ 429,154
Securities and interest-bearing deposits 210,466 251,601 203,912
Total interest income 645,792 682,237 633,066
- ---------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits (Note 7) 203,805 241,181 241,407
Borrowings 138,474 158,445 105,901
Total interest expense 342,279 399,626 347,308
- ---------------------------------------------------------------------------------------------------------------
Net interest income 303,513 282,611 285,758
Provision for loan losses (Note 4) 9,000 8,103 26,449
Net interest income after provision for loan losses 294,513 274,508 259,309
Noninterest Income:
Fees and service charges 66,936 47,250 35,651
Gain on sale of loans and loan servicing, net 4,434 5,754 1,676
Gain on sale of securities, net (Note 3) 4,248 17,015 3,517
Increase in cash surrender value of life insurance 7,892 5,607 --
Other noninterest income 9,120 7,012 6,879
Total noninterest income 92,630 82,638 47,723
- ---------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Salaries and employee benefits 106,493 92,506 87,694
Occupancy expense of premises 20,892 19,068 19,278
Furniture and equipment expenses 22,302 19,335 15,892
Intangible amortization 13,780 10,033 9,563
Marketing expenses 9,584 7,392 8,258
Professional services expenses 11,223 10,257 8,483
Acquisition-related expenses (Note 17) 9,500 20,993 31,989
Capital securities expense (Note 19) 14,645 14,708 11,368
Dividends on preferred stock of subsidiary corporation (Note 20) 4,151 4,151 85
Other operating expenses 31,891 30,990 36,923
Total noninterest expenses 244,461 229,433 229,533
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 142,682 127,713 77,499
Income taxes (Note 13) 47,332 49,694 29,887
Net Income $ 95,350 $ 78,019 $ 47,612
- ---------------------------------------------------------------------------------------------------------------
Net Income Per Common Share (Note 15):
Basic $ 2.14 $ 1.72 $ 1.06
Diluted 2.10 1.69 1.04
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(In thousands, except per share data)
Employee
Stock
Ownership Accumulated
Plan Shares Other
Preferred Common Paid-in Retained Treasury Purchased Comprehensive
Stock Stock Capital Earnings Stock With Debt Income (Loss) Total
--------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 $ 1 $ 450 $ 312,666 $ 243,035 $(18,801) $ (2,574) $ 310 $535,087
- ------------------------------------------------------------------------------------------------------------------------------
Net income for 1997 -- -- -- 47,612 -- -- -- 47,612
Dividends paid:
$.40 per common share -- -- -- (10,508) -- -- -- (10,508)
Cash dividends declared by
pooled companies prior to
mergers -- -- -- (7,133) -- -- -- (7,133)
Allocation of ESOP shares -- -- 166 -- -- 603 -- 769
Exercise of stock options -- 10 416 -- 5,058 -- -- 5,484
Conversion of preferred
Series B to common stock (1) -- (18,499) -- 18,500 -- -- --
Common stock repurchased -- -- -- -- (6,020) -- -- (6,020)
Common stock issued in
consideration for purchase
acquisitions -- 2 3,971 (1) -- -- -- 3,972
Pooling adjustments, net -- (53) (8,785) 2,909 -- -- -- (5,929)
Stock dividend granted by pooled
company and cash paid on
fractional shares -- 47 11,831 (11,906) -- -- -- (28)
Net unrealized gain on securities
available for sale, net of taxes -- -- -- -- -- -- 21,603 21,603
Other, net -- (6) 703 (61) 147 -- (89) 694
Balance, December 31, 1997 $ -- $ 450 $ 302,469 $ 263,947 $ (1,116) $ (1,971) $ 21,824 $585,603
- --------------------------------------------------------------------------------------------------------------------------
Net income for 1998 -- -- -- 78,019 -- -- -- 78,019
Dividends paid:
$.44 per common share -- -- -- (17,687) -- -- -- (17,687)
Cash dividends declared by
pooled companies prior to mergers-- -- -- (3,371) -- -- -- (3,371)
Allocation of ESOP shares -- -- 411 -- -- 632 -- 1,043
Exercise of stock options -- (1) 7,349 -- 3,778 -- -- 11,126
Common stock repurchased -- -- -- -- (39,873) -- -- (39,873)
Common stock issued in consideration
for purchase acquisitions -- -- 185 -- 9,083 -- -- 9,268
Pooling adjustments, net -- (2) (1,906) -- -- -- 133 (1,775)
Net unrealized loss on
securities available for
sale, net of taxes -- -- -- -- -- -- (1,302) (1,302)
Adjustment for the effect
of the change of Eagle's
fiscal year end (Note 2) -- -- -- 4,898 -- -- -- 4,898
Other, net -- 10 282 (1) 214 -- -- 505
Balance, December 31, 1998 $ -- $ 457 $ 308,790 $ 325,805 $(27,914) $ (1,339) $ 20,655 $626,454
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (Continued)
(In thousands, except per share data) Employee
Stock
Ownership Accumulated
Plan Shares Other
Preferred Common Paid-in Retained Treasury Purchased Comprehensive
Stock Stock Capital Earnings Stock With Debt Income (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------
Net income for 1999 -- -- -- 95,350 -- -- -- 95,350
Dividends paid:
$.47 per common share -- -- -- (17,532) -- -- -- (17,532)
Cash dividends declared by
pooled companies prior to
mergers -- -- -- (3,197) -- -- -- (3,197)
Allocation of ESOP shares -- -- 348 212 560
Exercise of stock options -- -- (3,130) -- 12,472 -- -- 9,342
Common stock repurchased -- -- -- -- (72,161) -- -- (72,161)
Common stock issued in
consideration for purchase
acquisitions -- (5) (4,672) -- 84,456 -- -- 79,779
Net unrealized loss on
securities available for
sale, net of taxes -- -- -- -- -- -- (82,788) (82,788)
Other, net -- -- -- (13) (127) -- -- (140)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ -- $ 452 $ 301,336 $ 400,413 $ (3,274) $ (1,127) $(62,133) $635,667
Consolidated Statements of Comprehensive Income
Years Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Net Income $ 95,350 $ 78,019 $ 47,612
Other comprehensive (loss) income, net of tax
Unrealized net holding gain (loss) on securities
available for sale arising
during year (net of income tax effect of $(54,370),
$6,410, and $16,052 for 1999, 1998 and 1997, respectively) (79,865) 9,407 23,558
Reclassification adjustment for net gains included in
net income (net of income tax effect of $1,992,
$7,206, and $1,333 for 1999, 1998 and 1997, respectively) (2,923) (10,576) (1,955)
Other comprehensive (loss) income 82,788) (1,169) 21,603
Comprehensive income $ 12,562 $ 76,850 $ 69,215
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 95,350 $ 78,019 $ 47,612
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 9,000 8,103 26,449
Provision for foreclosed property losses 100 330 1,637
Provision for depreciation on premises
and equipment 13,190 14,131 12,507
Amortization (accretion) of securities and
loan premiums, net 4,753 7,371 (1,626)
Amortization of intangible assets 13,780 10,033 9,563
Amortization of hedging costs, net 4,696 4,669 2,985
Amortization of mortgage servicing rights 1,639 1,303 930
Gains on sale of deposits -- -- (546)
Gains on sale of foreclosed properties, net (906) (822) (1,274)
Gains on sale of loans and securities, net (9,156) (23,536) (4,964)
Losses (gains) on sale of trading securities, net 474 767 (229)
Decrease (increase) in trading securities 39,786 (7,132) (40,952)
Loans originated for sale (221,171) (106,156) (60,578)
Proceeds from sales of loans, originated for sale 228,280 111,109 70,410
Other loan sales -- 46,400 --
Decrease (increase) in interest receivable 3,734 (2,509) (6,318)
Decrease (increase) in prepaid expenses and other assets 3,847 15,430 (5,397)
(Decrease) increase in interest payable (12,513) 2,890 18,389
(Decrease) increase in accrued expenses and other
liabilities, net (334) (8,006) 8,670
Increase in cash surrender value of life insurance (7,193) (5,621) --
Adjustment to conform Eagle's fiscal year end -- 4,898 --
Net cash provided by operating activities 167,356 151,671 77,268
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchases of securities, available for sale (1,150,893) (2,501,136) (2,231,443)
Purchases of securities, held to maturity (1,283) (152,662) (25,239)
Principal collected on investment securities 648,648 988,390 368,000
Maturities of securities 446,910 253,893 238,246
Proceeds from sales of securities, available for sale 513,714 1,527,959 204,228
Proceeds from sales of securities, held to maturity 15,458 -- --
Net (increase) decrease in interest-bearing deposits (18,654) 76,856 (40,648)
Purchase of loans -- (66,173) (191,078)
Net (increase) decrease in loans (325,366) 21,395 (84,450)
Proceeds from sale of foreclosed properties 10,081 16,383 41,538
Purchases of life insurance, net -- (122,700) (12,750)
Purchase of premises and equipment, net (16,339) (22,050) (12,107)
Net cash received (paid) through purchase acquisitions 16,706 (67) 7,924
Net cash provided (used) by investing activities 138,982 20,088 (1,737,779)
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net decrease in deposits (405,124) (98,531) (85,852)
Sale of deposits -- -- (9,179)
Repayment of FHLB advances (2,976,192) (4,425,651) (5,172,660)
Proceeds from FHLB advances 2,888,794 4,688,547 5,927,764
Repayment of securities sold under agreement
to repurchase and other borrowings (48,069,816)(19,133,606) (4,451,441)
Proceeds from securities sold under agreement to
repurchase and other borrowings 48,365,295 18,858,140 5,316,703
Net proceeds from issuance of capital securities -- 5,000 141,327
Net proceeds from preferred stock of subsidiary corporation -- -- 49,577
Cash dividends to common and preferred shareholders (20,729) (21,058) (17,641)
Net increase (decrease) in advance payments for
taxes and insurance 6,894 1,629 (7,747)
Exercise of stock options 9,342 11,126 5,484
Common stock repurchased (72,161) (39,873) (6,020)
Net cash (used) provided by financing activities 1,690,315 (273,697) (154,277)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 32,641 17,482 29,804
Cash and cash equivalents at beginning of year 213,142 195,660 165,856
Cash and cash equivalents at end of year $245,783 $213,142 $ 195,660
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Income taxes paid $ 50,862 $ 39,324 $ 30,962
Interest paid 353,414 395,806 334,679
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of loans to foreclosed properties 9,022 5,498 32,076
Transfer of securities from held to maturity to available for sale -- 2,492 109,329
- ------------------------------------------------------------------------------------------------------------------------------------
Assets acquired and liabilities assumed in purchase business combinations were
as follows:
Twelve Months Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of noncash assets acquired in purchase acquisitions $283,609 $ 1,160 $ 61,761
Fair value of liabilities assumed in purchase acquisitions 289,918 1,991 65,713
Common stock issued in purchase acquisitions 79,779 9,268 3,972
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Business
Webster Financial Corporation ("Webster" or the "Company"), through its
subsidiaries, Webster Bank and Damman Associates Inc. ("Damman"), delivers
financial services to individuals, families and businesses primarily in
Connecticut. Webster emphasizes five business lines - consumer banking, business
banking, mortgage lending, trust and investment services, and insurance
services, and each is supported by centralized administration and operations.
Webster Bank was founded in 1935 and converted from a federal mutual to a
federal stock institution in 1986.
b) Basis of Financial Statement Presentation
The Consolidated Financial Statements include the accounts of Webster and its
subsidiaries. The Consolidated Financial Statements and notes hereto have been
restated to include the accounts of New England Community Bancorp., Inc.
("NECB") acquired on December 1, 1999, Bank of South Windsor acquired on August
14, 1998 (through Webster's acquisition of NECB), Olde Port Bank and Trust
acquired on July 10, 1998 (through Webster's acquisition of NECB), Eagle
Financial Corp. ("Eagle") acquired on April 15, 1998, First Bank of West
Hartford acquired on August 7, 1997 (through Webster's acquisition of NECB),
People's Savings Financial Corp. ("People's") acquired on July 31, 1997, MidConn
Bank acquired on May 31, 1997 (through Webster's acquisition of Eagle) and DS
Bancor, Inc. ("Derby") acquired on January 31, 1997 as though these
pooling-of-interests mergers had occurred at the beginning of the earliest
period presented (see Note 2). The number of common shares have been restated
for stock dividends and stock splits (see Note 14). The Consolidated Financial
Statements have been prepared in conformity with generally accepted accounting
principles and all significant intercompany transactions have been eliminated in
consolidation.
The preparation of the consolidated 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, and
disclosure of contingent assets and liabilities, as of the date of the
consolidated financial statements and the reported amounts of revenues and
expenses for the periods presented. The actual results of Webster could differ
from those estimates. Material estimates that are susceptible to near-term
changes include the determination of the allowance for loan losses and the
valuation allowance for the deferred tax asset.
c) Foreclosed Properties
Foreclosed properties are acquired through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure. Foreclosed properties are reported at the
lower of fair value (less estimated selling expenses) or cost, with an allowance
for losses to provide for declines in value. Operating expenses are charged to
current period earnings and gains and losses upon disposition are reflected in
the Consolidated Statements of Income when realized.
d) Loans Receivable, Net
A significant portion of the Company's loans are secured by real estate in the
state of Connecticut. In addition, a substantial portion of foreclosed
properties are located in the state of Connecticut. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio, and the
recovery of the carrying amount of foreclosed properties are dependent on
economic and market conditions in Connecticut.
Loans receivable are stated at the principal amounts outstanding, net of
deferred loan fees and/or costs and an allowance for loan losses. Interest on
loans is credited to income as earned based on the rate applied to principal
amounts outstanding. Interest which is more than 90 days past due is not
accrued. Such interest when ultimately collected, if any, is credited to income
in the period received. Loans are removed from nonaccrual status when they
become current as to principal and interest or demonstrate a period of
performance under contractual terms and, in the opinion of management, are fully
collectible as to principal and interest.
Loan origination fees, net of certain direct origination costs and premiums and
discounts on loans purchased, are recognized in interest income over the lives
of the loans using a method approximating the interest method. Loans held for
sale are carried at the lower of cost or market value in the aggregate as
determined by outstanding loan commitments from investors or current market
prices for loans with no sale commitments. Net unrealized losses on loans held
for sale, if any, are recognized in a valuation allowance by charges to income.
The allowance for loan losses is maintained at a level estimated by management
to provide adequately for probable losses inherent in the loan portfolio.
Probable losses are estimated based upon a review of the loan portfolio, loss
experience, specific problem loans, economic conditions and other pertinent
factors which, in management's judgment, deserve current recognition in
estimating loan losses. The allowance is increased by provisions for loan losses
charged to operations.
A loan is considered impaired when it is probable that the borrower will be
unable to repay the loan according to the original contractual terms of the loan
agreement, or the loan is restructured in a troubled debt restructuring. These
standards are applicable principally to commercial real estate loans, however,
certain provisions related to restructured loans are applicable to all loan
types.
The allowance for loan losses related to impaired loans is based on discounted
cash flows using the loan's initial effective interest rate or the fair value of
the collateral for certain loans where repayment of the loan is expected to be
provided solely by the underlying collateral (collateral dependent loans). The
Company's impaired loans are generally collateral dependent. The Company
considers estimated costs to sell on a discounted basis, when determining the
fair value of collateral in the measurement of impairment if these costs are
expected to reduce the cash flows available to repay or otherwise satisfy the
loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Webster's allowance for loan
losses. Such agencies may require Webster to recognize additions to the
allowance for loan losses based on judgments different from those of management.
e) Securities
Securities are classified as either, available-for-sale, held-to-maturity or
trading. Management determines the appropriate classification of securities at
the time of purchase. Securities are classified as held-to-maturity when the
Company has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Securities classified
as trading are carried at fair value, with net unrealized gains and losses
recognized currently in income. Securities not classified as held-to-maturity or
trading are classified as available-for-sale and are stated at fair value.
Unrealized gains and losses, net of tax, on available-for-sale securities are
included in accumulated other comprehensive income (loss), net of income taxes -
a separate component of shareholders' equity. The value at which
held-to-maturity or available-for-sale securities are reported are adjusted for
amortization of premiums or accretion of discounts over the estimated terms of
the securities using a method which approximates the level yield method. Such
amortization and accretion is included in interest income from securities.
Unrealized losses on securities are charged to earnings when the decline in fair
value of a security is judged to be other than temporary. The specific
identification method is used to determine realized gains and losses on sales of
securities.
f) Interest-rate Instruments
Webster uses derivatives (swaps, caps, floors, futures and options) in
connection with its risk management strategies. These products are used to
reduce the volatility in earnings and market value arising from mismatches in
assets and liabilities during periods of changing interest rates.
Risk management strategies that meet the criteria for hedge accounting treatment
are designated as hedges and are accounted for as such. Interest income or
expense associated with derivative products are recorded as a component of net
interest income. Derivatives that hedge available-for-sale assets are marked to
fair value monthly with adjustments to shareholders' equity as a component of
accumulated other comprehensive income (loss), net of income taxes. Premiums
paid are amortized as an adjustment to interest income or expense of the asset
or liability being hedged. If the derivative is disposed of prior to the end of
the hedge period, any gain or loss is realized over the remainder of the period
that was being hedged. If the asset or liability is disposed of prior to the end
of the period being hedged, the related derivative is marked to fair value, with
any gain or loss recognized in current period income as an adjustment to the
gain or loss on the disposed asset or liability.
g) Interest-bearing Deposits
Interest-bearing deposits consist primarily of deposits in the Federal Home Loan
Bank ("FHLB") or other short-term investments. These deposits are carried at
cost which approximates market value.
h) Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation.
Depreciation of premises and equipment is accumulated on a straight-line basis
over the estimated useful lives of the related assets. Estimated lives are 15 to
40 years for buildings and improvements and 3 to 20 years for furniture,
fixtures and equipment. Amortization of leasehold improvements is calculated on
a straight-line basis over the terms of the related leases.
Maintenance and repairs are charged to expense as incurred and improvements are
capitalized. The cost and accumulated depreciation relating to premises and
equipment retired or otherwise disposed of are eliminated and any resulting
gains and losses are credited or charged to income.
i) Intangible Assets
Intangible assets consist of core deposit intangibles and goodwill. Intangible
assets equal the excess of the purchase price over the fair value of the
tangible net assets acquired in acquisitions accounted for using the purchase
method of accounting. The core deposit intangibles are being amortized on a
straight-line basis over a period of seven to ten years from the acquisition
dates. On a periodic basis, management assesses the recoverability of the core
deposit intangibles. Goodwill is being amortized on a straight-line basis over
periods up to twenty years from the acquisition dates. The Company also reviews
goodwill on a periodic basis for events or changes in circumstances that may
indicate that the carrying amount of goodwill may not be recoverable, and
impairment is recognized as a charge to income if a permanent loss in value is
indicated.
j) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing 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 which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance has been provided
for a portion of the deferred tax asset that may not be realized. The valuation
allowance is adjusted, by a charge or credit to tax expense, as facts and
circumstances warrant.
k) Employee Benefit Plans
The Bank has a noncontributory pension plan covering substantially all
employees. Pension costs are accrued in accordance with generally accepted
accounting principles and are funded in accordance with the requirements of the
Employee Retirement Income Security Act ("ERISA"). The Bank also accrues costs
related to post-retirement benefits. The provisions of SFAS No. 132, "Employers'
Disclosure about Pensions and Other Post-retirement Benefits," were adopted on
December 31, 1998. SFAS No. 132 revised disclosures about pension and other
post-retirement benefit plans; it did not change the measurement or recognition
of these plans. Prior period disclosures have been revised to conform with SFAS
No. 132.
l) Net Income Per Common Share
Basic net income per share is calculated by dividing net income available to
common shareholders by the weighted-average number of shares of common stock
outstanding. Diluted net income per share is calculated by dividing adjusted net
income by the weighted-average diluted common shares, including the effect of
potential common stock, and for the hypothetical conversion into common stock of
the Series B cumulative preferred stock. Potential common stock consists of
common stock options and warrants. Unallocated employee stock ownership plan
("ESOP") shares are not included in the weighted average number of common shares
outstanding for either basic or diluted earnings per share.
m) Stock Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages all
companies to adopt a new fair value based method of accounting for stock-based
employee compensation plans. Under the provisions of this statement, Webster has
elected to continue to measure compensation for its stock option plans using the
accounting method prescribed by Accounting Principles Board Opinion No. 25 ("APB
No. 25") "Accounting for Stock Issued to Employees." Entities electing to
continue to follow APB No. 25 must make pro forma disclosures for net income and
earnings per share as if the fair value based method of accounting had been
applied. See Note 16.
Compensation expense in connection with the Company's ESOP is recorded based on
average market value of the Company's common stock and the number of shares
committed to be released.
n) Statements of Cash Flows
For the purposes of the Statements of Cash Flows, Webster includes cash on hand
and in banks as cash and cash equivalents.
o) Loan Sales and Servicing Sales
Gains or losses on sales of loans are recognized at the time of sale. SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," requires that a mortgage banking entity
recognize as a separate asset the value of the right to service mortgage loans
for others, regardless of how those servicing rights are acquired. Fair values
are estimated considering loan prepayment predictions, historical prepayment
rates, interest-rates, and other economic factors. For purposes of impairment
evaluation and measurement, Webster stratifies mortgage servicing rights based
on predominate risk characteristics of the underlying loans including loan type,
interest-rate (fixed or adjustable) and amortization type. To the extent that
the carrying value of mortgage ser- vicing rights exceeds fair value by
individual stratum, a valuation allowance is established by a charge to
earnings. The allowance is adjusted for subsequent changes in fair value. The
cost basis of mortgage servicing rights is amortized into noninterest income
over the estimated period of servicing revenue.
p) Cash Surrender Value of Life Insurance
The investment in life insurance represents the cash surrender value of life
insurance policies on officers of the Bank. Increases in the cash surrender
value are recorded as other noninterest income. Decreases are the result of
collection on the policies due to the death of an insured.
q) Comprehensive Income
The provisions of SFAS No. 130, "Reporting Comprehensive Income," were adopted
as of January 1, 1998. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income
includes net income and any changes in equity from non-owner sources that bypass
the statements of income (such as changes in net unrealized gains and losses on
securities available for sale). The purpose of reporting comprehensive income is
to report a measure of all changes in equity of an enterprise that result from
recognized transactions and other economic events of the period other than
transactions with owners in their capacity as owners. The adoption of SFAS No.
130 resulted in a change in financial statement disclosures only and had no
effect on Webster's financial position or results.
r) Reclassifications
Certain financial statement balances as previously reported have been
reclassified to conform to the 1999 Consolidated Financial Statements
presentation.
NOTE 2: BUSINESS COMBINATIONS
Pooling of Interests Transactions
All acquisitions accounted for under the pooling of interests method include
financial data as if the combination occurred at the beginning of the earliest
period presented.
The NECB Acquisition
On December 1, 1999, Webster acquired New England Community Bancorp, Inc., a
multi-bank holding company headquartered in Windsor, Connecticut. Three of its
wholly-owned bank subsidiaries, New England Bank and Trust, Equity Bank and
Community Bank, were located in the state of Connecticut and one, Olde Port Bank
and Trust, was located in New Hampshire. In connection with the merger with
NECB, Webster issued 7,298,788 shares of its common stock for all of the
outstanding shares of NECB's common stock. Under the terms of the merger
agreement, each outstanding share of NECB's common stock was converted into 1.06
shares of Webster common stock.
The Bank of South Windsor Acquisition
On August 14, 1998, Webster acquired Bank of South Windsor ("BSW") as a result
of its acquisition of NECB. In connection with the acquisition, Webster
effectively issued 1,346,200 shares of its common stock for all the outstanding
shares of BSW common stock after adjusting for the conversion factor related to
the NECB acquisition.
The Olde Port Acquisition
On July 10, 1998, Webster acquired Olde Port Bank and Trust Company ("OPBT") as
a result of its acquisition of NECB. In connection with the acquisition, Webster
effectively issued 621,160 shares of its common stock for all the outstanding
shares of OPBT common stock after adjusting for the conversion factor related to
the NECB acquisition.
The Eagle Acquisition
On April 15, 1998, Webster acquired Eagle Financial Corp., ("Eagle") and its
subsidiary, Eagle Bank, a $2.1 billion savings bank, headquartered in Bristol,
Connecticut. In connection with the merger with Eagle, Webster issued 10,615,156
shares of its common shares for all of the outstanding shares of Eagle common
stock. Under the terms of the agreement, each outstanding share of Eagle common
stock was converted into 1.68 shares of Webster common stock. Prior to the
acquisition, Eagle's fiscal year ended on September 30. In recording the pooling
of interests combination, Eagle's financial statements as of and for the twelve
months ended September 30, 1997 were combined with Webster's financial
statements as of and for the twelve months ended December 31, 1997. An
adjustment has been made in the 1998 Consolidated Statement of Shareholders'
Equity to include Eagle's unaudited net income for the period October 1, 1997 to
December 31, 1997 as a direct credit to retained earnings. Eagle's operating
results for this period included net interest income of $15.7 million and net
income of $4.9 million and are not included in the Consolidated Statements of
Income of the combined entity for the year ended December 31, 1998.
The First Bank of West Hartford Acquisition
On August 7, 1997, Webster acquired First Bank of West Hartford ("FBWH") as a
result of its acquisition of NECB. In connection with the purchase, Webster
effectively issued 1,054,700 shares of its common stock for all the outstanding
shares of FBWH common stock after adjusting for the conversion factor related to
the NECB acquisition.
The People's Acquisition
On July 31, 1997, Webster acquired People's Savings Financial Corp. ("People's")
and its subsidiary, People's Savings Bank & Trust, a $482 million in assets
savings bank headquartered in New Britain, Connecticut. In connection with the
merger with People's, Webster issued 3,151,992 shares of its common stock for
all the outstanding shares of People's common stock. Under the terms of the
agreement, each outstanding share of People's common stock was converted into
.85 shares of Webster common stock.
The MidConn Acquisition
On May 31, 1997, Webster acquired MidConn as a result of its acquisition of
Eagle. In connection with the merger, Webster effectively issued 2,869,440
shares of its common stock for all the outstanding shares of MidConn common
stock after adjusting for the conversion factor related to the Eagle Acquisition
and subsequent common stock split.
The Derby Acquisition
On January 31, 1997, Webster acquired DS Bancor, Inc. ("Derby") and its
subsidiary, Derby Savings Bank, a $1.2 billion in assets savings bank
headquartered in Derby, Connecticut. In connection with the merger with Derby,
Webster issued 7,002,740 shares of its common stock for all the outstanding
shares of Derby common stock. Under the terms of the agreement each outstanding
share of Derby common stock was converted into 1.14158 shares of Webster common
stock.
Purchase Transactions
The following acquisitions were accounted for as purchase transactions, and as
such, results of operations are included in the Consolidated Financial
Statements subsequent to acquisition.
The Village Acquisition
On May 19, 1999, Webster acquired Village Bancorp, Inc. ("Village"), the holding
company for The Village Bank & Trust Company in a tax-free, stock-for-stock
exchange. Village had approximately $215 million in total assets and $200
million in deposits at six branches. In connection with the acquisition, Webster
issued 1,666,116 shares of its common stock for all the outstanding shares of
Village.
The Maritime Acquisition
On April 21, 1999, Webster acquired Maritime Bank & Trust Company ("Maritime")
in a tax-free, stock-for-stock exchange. Maritime had approximately $95 million
in total assets and $85 million in deposits at three branches. In connection
with the acquisition, Webster issued 778,855 shares of its common stock for all
the outstanding shares of Maritime.
The Access Acquisition
In January 1999, Webster completed its acquisition of Access National Mortgage,
Inc. ("Access"). Access was founded in 1996 as a privately held Internet-based
mortgage lender located in Wilmington, Massachusetts. In October 1999, Access
National Mortgage, LLC was renamed Nowlending, LLC. Nowlending, LLC originates
mortgages in 47 states. In connection with the acquisition, Webster issued
125,998 shares of its common stock for a majority ownership in Access.
The Damman Acquisition
On June 1, 1998, Webster completed its acquisition of Damman Insurance
Associates, Inc. ("Damman"). Damman is a full service Westport-based insurance
agency, providing property-casualty, life and group coverage to commercial and
individual customers. Damman has offices in Westport and Wallingford and
approximately 50 employees. During 1998, Webster began offering a full array of
insurance services to its consumer and commercial customer base. In connection
with the acquisition, Webster issued 274,609 shares of its common stock for 100%
ownership interest of Damman.
The Community Savings Bank Acquisition
On December 31, 1997, Webster acquired Community Savings Bank ("Community Bank")
as a result of its acquisition of NECB. In connection with the purchase, Webster
effectively paid $5.62 in cash for each Community Bank common share outstanding.
The acquisition was accounted for as a purchase, and therefore, results are
reported only for the periods subsequent to the acquisition.
The Sachem Acquisition
On August 1, 1997, Webster acquired Sachem Trust National Association ("Sachem
Trust"), a trust company headquartered in Guilford, Connecticut which had
approximately $300 million of trust assets under management, in a tax-free
stock-for-stock exchange.
Purchase Transactions Pending Consummation at December 31, 1999 (Unaudited)
The Mechanics Acquisition
In December 1999, Webster announced a definitive agreement to acquire MECH
Financial, Inc. ("Mechanics"), the holding company for Mechanics Savings Bank,
in a tax- free, stock-for-stock exchange. Mechanics Savings Bank is a
state-chartered, Hartford-based savings bank with $1.1 billion in assets and 16
branch offices in the capital region. Based on the terms of the agreement,
Mechanics shareholders will receive 1.52 shares of Webster common stock for each
share of Mechanics. Webster expects to close the transaction and complete the
conversion during the second quarter of 2000.
The Chase Branch Acquisition
In November 1999, Webster announced a definitive agreement to acquire six
Connecticut branches from The Chase Manhattan Bank. The branches are located in
Cheshire, Middlebury, North Haven, Waterbury (2) and Watertown and have
approximately $165 million in deposit balances. The transaction includes the
purchase of consumer deposits, small business deposits and loans, and brokerage
and custody accounts associated with these branches. Webster expects to close
the transaction and complete the acquisition during the second quarter of 2000.
The FleetBoston Branch Acquisition
In November 1999, Webster announced a definitive agreement with FleetBoston
Corporation to purchase four Connecticut branches that are being divested as the
result of the Fleet-BankBoston merger. The branches, with $163 million in
deposit balances, are located in Brookfield, Guilford, Meriden, and Thomaston.
The transaction includes the purchase of deposits and loans for individual and
small business customers associated with these branches. Webster expects to
close the transaction and complete the acquisition during the third quarter of
2000.
Purchase Transactions Subsequent to December 31, 1999 (Unaudited)
The Levine Acquisition
In February 2000, through Damman, Webster acquired the Levine companies
("Levine"), a privately owned Waterford and Norwich, Connecticut based insurance
agency. Founded in 1928, the group combines three entities; Louis Levine Agency,
Inc., Levine Financial Services, Inc. and Retirement Planning Associates, Inc.
Levine has 50 employees and wrote $41 million in premiums during 1999.
NOTE 3: SECURITIES
A summary of securities follows:
December 31,
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1999 1998
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Trading Securities:
Mortgage-backed securities(a)$50,854(b) $ -- $ -- $ 50,854 $91,114 (b) $-- $ -- $ 91,114
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Available for Sale Portfolio:
U.S. Treasury Notes $ 17,070 $ 18 $ (233) $ 16,855 $ 25,617 $ 400 $ -- $ 26,017
U.S. Government Agency 92,733 -- (4,338) 88,395 106,427 1,018 (109) 107,336
Municipal bonds and notes 27,591 3 (1,463) 26,131 27,874 776 (29) 28,621
Corporate bonds and notes 75,068 -- (9,895) 65,173 92,062 601 (2,178) 90,485
Equity securities (c) 201,352 7,684 (11,060) 197,976 244,670 8,107 (4,763) 248,014
Mortgage-backed
securities (a) 2,379,491 6,330 (88,848) 2,296,973 2,616,695 40,469 (5,299) 2,651,865
Purchased interest-rate
contracts (Note 10) 10,874 -- (1,792) 9,082 15,985 -- (3,437) 12,548
$2,804,179 $ 14,035 $(117,629) $2,700,585 $3,129,330 $ 51,371 $(15,815) $3,164,886
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Held to Maturity Portfolio:
U.S. Treasury Notes $ 10,396 $ -- $ (112) $ 10,284 $ 2,955 $ 18 $ -- $ 2,973
U.S. Government Agency 1,520 -- (6) 1,514 7,399 24 -- 7,423
Municipal bonds and notes 24,861 39 (783) 24,117 15,339 477 -- 15,816
Corporate bonds and notes 135,476 405 (12,322) 123,559 151,801 2,631 (1,171) 153,261
Mortgage-backed
securities (a) 143,209 544 (2,945) 140,808 229,335 2,432 (1,044) 230,723
315,462 988 (16,168) 300,282 406,829 5,582 (2,215) 410,196
Total $3,170,495 $ 15,023 $(133,797) $3,051,721 $3,627,273 $ 56,953 $(18,030) $ 3,666,196
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(a) Mortgage-backed securities, which are guaranteed by Fannie Mae, Federal
Home Loan Mortgage Corporation and Government National Mortgage Association,
represent participating interests in direct pass through pools of mortgage
loans originated and serviced by the issurers of the securities.
(b) Stated at fair value, including the effect of short futures positions.
(c) The fair value of equity securities at December 31, 1999 consisted of FHLB
stock of $103.9 million, mutual funds of $13.6 million, preferred stock of
$24.3 million and common stock of $56.2 million. As of December 31, 1998, the
fair value of equity securities consisted of FHLB stock of $102.5 million,
mutual funds of $35.1 million, preferred stock of $45.7 million and common
stock of $64.7 million.
A summary of realized gains and losses follows:
Years ended December 31,
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1999 1998 1997
(In thousands) Gains Losses Net Gains Losses Net Gains Losses Net
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Trading Securities:
Mortgage-backed securities $2,006 $ (5,328) $(3,322) $ 4,789 $(3,548) $ 1,241 $ 4,052 $ (2,647) $ 1,405
Futures and options contracts 13,107 (10,259) 2,848 8,015 (10,023) (2,008) 7,318 (8,494) (1,176)
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15,113 (15,587) (474) 12,804 (13,571) (767) 11,370 (11,141) 229
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Held to Maturity:
Corporate debt -- (193) (193) -- -- -- -- -- --
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Available for Sale:
Mortgage-backed securities 2,704 (428) 2,276 7,149 (230) 6,919 600 (119) 481
U.S. Treasury Notes 15 (5) 10 5 -- 5 15 (46) (31)
U.S. Government Agencies 38 (556) (518) 49 (6) 43 111 (222) (111)
Corporate debt 210 (118) 92 -- (6) (6) 81 (12) 69
Mutual funds 263 (90) 173 1,156 -- 1,156 1,210 (58) 1,152
Other equity securities 3,456 (429) 3,027 9,627 (899) 8,728 1,415 (21) 1,394
Other 27 (172) (145) 982 (45) 937 920 (586) 334
6,713 (1,798) 4,915 18,968 (1,186) 17,782 4,352 (1,064) 3,288
Total $21,826 $(17,578) $ 4,248 $31,772 $(14,757) $17,015 $15,722 $(12,205) $ 3,517
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During the first quarter of 1999, Webster sold $15.5 million of securities
classified as held to maturity, which resulted in a loss of $193,000. The
securities were sold due to a regulator's request that Webster divest of the
holdings as the securities did not meet regulatory guidelines published
subsequent to the acquisition of the securities. There were no sales of
securities from the held to maturity portfolio for the years ended December 31,
1998 and 1997.
On June 30, 1997 Eagle transferred securities with a book value of $109.3
million from held to maturity to available for sale. The transfer resulted in an
unrealized gain of approximately $299,000 which is net of income taxes of
approximately $200,000, being recorded as an increase to shareholders' equity.
The securities were transferred due to a change in intent with respect to
holding the securities to maturity precipitated by changes in the balance sheet
following the merger with MidConn.
Webster enters into short futures and long options positions to minimize the
price volatility of certain assets held as Trading Securities. At December 31,
1999, Webster had 321 short positions in Eurodollar futures contracts ($321.0
million notional amount) and 310 short positions in 5 year Treasury note futures
($31.0 million notional amount). Changes in the market value of short futures
positions are recognized as a gain or loss in the period for which the change
occurred. All gains and losses resulting from short futures positions are
reflected in gains (losses) on sale of securities, net in the Consolidated
Statements of Income.
The following is a summary of the amortized cost, estimated fair value and
weighted average yield (based on amortized cost) of debt securities at December
31, 1999, by contractual maturity. Mortgage backed securities are included by
final contractual maturity. Actual maturities will differ from contractual
maturities because certain issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
As of December 31, 1999
Trading Securities Available for Sale Held to Maturity
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Weighted Weighted Weighted
Amortized Estimated Average Amortized Estimated Average Amortized Estimated Average
(In thousands) Cost Fair Value Yield Cost Fair Value Yield Cost Fair Value Yield
- ------------------------------------------------------------------------------------------------------------------------------------
Within 1 year $ -- $ -- --% $ 217,320 $ 213,902 5.21% $14,181 $ 14,114 5.87%
After 1 but within
5 years -- -- -- 76,675 72,090 5.63 29,273 28,754 6.00
After 5 but within
10 years 4,740 4,740 6.55 459,165 430,160 6.52 32,759 31,712 6.41
After 10 years 46,114 46,114 5.90 2,051,019 1,984,433 6.76 239,249 225,702 7.29
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$50,854 $ 50,854 5.96% $2,804,179 $2,700,585 6.57% $315,462 $300,282 7.01%
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NOTE 4: LOANS RECEIVABLE, NET
A summary of loans receivable, net follows:
December 31,
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1999 1998
(Dollars in thousands) Amount % Amount %
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Mortgage loans secured by real estate:
Conventional, VA and FHA $3,558,636 59.1% $3,602,834 65.5%
Conventional, VA and FHA loans held for sale 7,022 0.1 9,409 0.2
Residential participation 15,895 0.3 55,820 1.0
Residential construction 427,186 7.1 294,542 5.3
Commercial construction 45,648 0.8 67,717 1.2
Other commercial 695,442 11.5 547,497 9.9
4,749,829 78.9 4,577,819 83.1
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Consumer loans:
Home equity loans 489,257 8.1 458,454 8.3
Other consumer loans 46,737 0.8 65,130 1.2
535,994 8.9 523,584 9.5
Commercial loans (a) 918,583 15.3 550,373 10.0
Gross loans receivable 6,204,406 103.1 5,651,776 102.6
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Less:
Loans in process 129,665 2.2 96,646 1.8
Allowance for loan losses 72,658 1.2 65,201 1.2
Premiums on loans purchased, deferred loan fees
and unearned discounts, net (20,153) (0.3) (17,189) (0.4)
Loans receivable, net $6,022,236 100.0% $5,507,118 100.0%
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(a) Commercial loans include syndicated loans and collateralized loan
obligations totaling $297 million and $105 million at December 31, 1999 and
1998, respectively.
At December 31, 1999, Webster had $8.1 million of impaired loans, of which $4.8
million were measured based upon the fair value of the underlying collateral and
$3.3 million were measured based upon the expected future cash flows of the
impaired loans. The $4.8 million of impaired loans have an allowance for loan
losses of $1.5 million and $3.3 million of impaired loans had no related
specific allowance for loan losses. At December 31, 1998, Webster had $19.4
million of impaired loans, of which $9.0 million were measured based upon the
expected fair value of the underlying collateral and $10.4 million were measured
based upon the expected future cash flows of the impaired loans. The $9.0
million of impaired loans have an allowance for loan losses of $2.2 million and
$10.4 million of impaired loans had no related specific allowance for loan
losses. In 1999, 1998 and 1997, the average balance of impaired loans was $13.1
million, $18.3 million and $37.4 million, respectively.
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, interest income is recorded on a cash basis or is applied to principal
based on an individual assessment of each loan. Cash basis interest income
recognized on impaired loans for the years 1999, 1998 and 1997 amounted to
$782,000, $603,000 and $733,000, respectively.
Webster's nonaccrual loans are $38.4 million and $30.7 million, respectively at
December 31, 1999 and 1998.
A detail of the changes in the allowances for loan losses for three years
follows:
December 31,
(In thousands) 1999 1998 1997
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Balance at beginning of period $ 65,201 $ 71,599 $ 63,047
Provisions charged to operations 9,000 8,103 26,449
Allowances from purchase transactions 3,647 -- 2,108
Reclassification of allowance for segregated asset losses -- 2,623 --
Charge-offs (7,406) (21,262) (26,625)
Recoveries 2,216 4,138 6,620
Balance at end of period $ 72,658 $ 65,201 $ 71,599
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Webster is a party to financial instruments with off-balance sheet risk to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments included commitments
to extend credit and commitments to sell residential first mortgage loans. These
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized on the Consolidated Statements of
Condition.
The estimated fair value of commitments to extend credit is considered
insignificant at December 31, 1999 and 1998. Future loan commitments represent
residential mortgage loan commitments, letters of credit, standby letters of
credit, as well as unused credit card lines and home equity and commercial
credit lines. Rates for these loans are generally established shortly before
closing. The rates on home equity lines of credit generally vary with the prime
rate.
As of December 31, 1999 and 1998, residential mortgage commitments totaled $71.4
million and $120.3 million, respectively. Residential commitments outstanding at
December 31, 1999 consisted of adjustable-rate and fixed-rate mortgages of $48.7
million and $22.7 million, respectively, at rates ranging from 5.25% to 11.5%.
Commitments to originate loans generally expire within 60 days. In addition, at
December 31, 1999 and 1998, there were unused portions of home equity credit
lines extended of $367.3 million and $355.0 million, respectively. Unused
commercial lines of credit, letters of credit, standby letters of credit and
outstanding commercial new loan commitments totaled $610.6 million and $342.4
million at December 31, 1999 and 1998, respectively. Unused credit card lines
were $3.7 million at December 31, 1998.
Webster uses forward commitments to sell residential mortgage loans, which are
entered into for the purpose of reducing the market risk associated with
originating loans held for sale. The types of risk that may arise are from the
possible inability of Webster or the other party to fulfill the contracts. At
December 31, 1999 and 1998, Webster had forward commitments to sell loans
totaling $7.0 million and $9.4 million, respectively, at rates between 6.5% and
8.75%, and 5.9% and 7.5%, respectively. The estimated fair value of commitments
to sell loans is considered insignificant at December 31, 1999 and 1998.
At December 31, 1999, 1998 and 1997, Webster serviced, for the benefit of
others, mortgage loans aggregating approximately $1.3 billion, $1.4 billion and
$1.4 billion, respectively.
During 1999 and 1998, Webster capitalized mortgage servicing assets of $801,000
and $1.4 million, respectively, related to originating loans and selling them
with servicing retained. Amortization of mortgage servicing rights was $1.6
million, $1.3 million and $930,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
NOTE 5: PREMISES AND EQUIPMENT, NET
A summary of premises and equipment, net follows:
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Land $ 15,841 $ 12,860
Buildings and improvements 78,392 68,876
Leasehold improvements 10,182 8,480
Furniture, fixtures and equipment 87,240 80,895
- -----------------------------------------------------------------------------------------------------------------------------------
Total premises and equipment 191,655 171,111
Accumulated depreciation and amortization (88,252) (77,855)
Premises and equipment, net $103,403 $ 93,256
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999, Webster was obligated under various non-cancelable
operating leases for properties used as branch office facilities. The leases
contain renewal options and escalation clauses which provide for increased
rental expense based primarily upon increases in real estate taxes over a base
year. Rental expense under leases was $7.1 million, $6.3 million and $6.0
million in 1999, 1998 and 1997, respectively. Webster is also entitled to rental
income under various non-cancelable operating leases for properties owned.
Rental income under these leases was $2.4 million, $3.1 million and $2.3 million
in 1999, 1998 and 1997, respectively.
The following is a schedule of future minimum rental payments and receipts
required under these leases as of December 31, 1999:
Years ending December 31,
(In thousands) Payments Receipts
- -----------------------------------------------------------------------------------------------------------------------------------
2000 $ 6,735 $ 1,449
2001 6,010 1,229
2002 5,217 1,003
2003 4,487 824
2004 3,996 770
Later years 34,635 1,960
Total $ 61,080 $ 7,235
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NOTE 6: PREPAID EXPENSES AND OTHER ASSETS
A summary of prepaid expenses and other assets follows:
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Due from FDIC $ 679 $ 769
Income taxes receivable 2,077 3,260
Deferred tax asset, net (Note 13) 68,744 15,707
Mortgage servicing rights, net 6,429 5,868
Other assets 26,746 26,166
Prepaid expenses and other assets $104,675 $ 51,770
- -----------------------------------------------------------------------------------------------------------------------------------
The $679,000 due from the Federal Deposit Insurance Corporation (FDIC) at
December 31, 1999 is net of a $499,000 payable amount that represents the FDIC's
80% reimbursement for fourth quarter 1999 recoveries less certain permitted
expenses on segregated assets which will be paid in the first quarter of 2000.
The $1.2 million receivable balance represents the additional 15% reimbursement
on net charge-offs and certain related expenses, which Webster expects to
receive during the first quarter of 2000.
NOTE 7: DEPOSITS
Deposits categories are summarized as follows:
December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average % of Average % of
(Dollars in thousands) Rate Balance Total Rate Balance Total
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits --% $ 675,449 10.9% --% $626,996 9.9%
NOW accounts 1.20 718,016 11.6 1.24 694,074 11.0
Regular savings and money market deposit accounts 2.56 1,701,789 27.5 2.52 1,582,424 25.1
Time deposits 4.84 3,095,837 50.0 5.07 3,409,480 54.0
Total deposits 3.26% $6,191,091 100.0% 3.53% $6,312,974 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense on deposits is summarized as follows:
December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
NOW accounts $ 14,587 $ 12,724 $ 10,446
Regular savings and money market deposit accounts 34,655 35,935 38,324
Time deposits 154,563 192,522 192,637
Total $203,805 $241,181 $ 241,407
- -----------------------------------------------------------------------------------------------------------------------------------
Time deposits of $100,000 or more amounted to $493.6 million and represented
7.97% of total deposits at December 31, 1999.
The following table represents the amount of time deposits maturing during the
periods indicated:
(In thousands) Totals
- -----------------------------------------------------------------------------------------------------------------------------------
Maturing:
January 1, 2000 to December 31, 2000 $2,139,820
January 1, 2001 to December 31, 2001 572,878
January 1, 2002 to December 31, 2002 290,791
January 1, 2003 to December 31, 2003 31,345
January 1, 2004 to December 31, 2004 31,377
January 1, 2005 and beyond 29,626
Total $3,095,837
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NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Advances payable to the Federal Home Loan Bank are summarized as follows:
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed Rate:
4.54% to 8.86% due in 1999 $ -- $1,322,435
4.75% to 6.68% due in 2000 833,860 232,554
5.39% to 8.20% due in 2001 230,413 31,143
6.30% to 6.87% due in 2002 2,250 7,040
5.69% to 6.14% due in 2003 31,462 32,477
5.25% to 6.78% due in 2004 200,540 657
5.25% to 6.01% due in 2005 14,296 10,632
4.85% to 6.31% due in 2006 307,520 3,748
6.98% due in 2007 2,520 3,156
5.93% due in 2008 3,461 25,239
5.50% due in 2009 5,000 83
8.44% due in 2010 602 14
6.60% due in 2011 2,517 2,661
$1,634,441 $1,671,839
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Rate:
5.07% to 5.09% due in 1999 -- 50,000
5.76% due in 2004 80,000 80,000
Total Federal Home Loan Bank advances (a) $1,714,441 $1,801,839
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Of the $1.7 billion FHLB advances at December 31, 1999, the FHLB holds the
option to call $539 million in 2000 and $5 million in 2004. In early 2000, the
FHLB called a total of $400 million.
At December 31, 1999, the Bank had additional borrowing capacity of $1.4 billion
from the FHLB, including a line of credit of approximately $41.3 million.
Advances are secured by the Bank's investment in FHLB stock and a blanket
security agreement. This agreement requires the Bank to maintain as collateral
certain qualifying assets, principally mortgage loans and securities. At
December 31, 1999 and 1998, the Bank was in compliance with the FHLB collateral
requirements.
NOTE 9: SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The following table summarizes securities sold under agreement to repurchase and
other borrowings:
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Securities sold under agreement to repurchase $ 943,801(a) $700,034
Senior notes 40,000 40,000
Bank lines of credit 39,000 10,000
Treasury tax and loan 41,187 11,368
ESOP borrowings 766 1,367
Federal funds purchased 9,250 11,000
Total (b) $ 1,074,004 $773,769
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Of the $943.8 million securities sold under agreements to repurchase, $75
million are structured so that the broker has the option to call the agreement
in mid-2000.
(b) The weighted average rates on these borrowings were 5.69% and 5.60% at
December 31, 1999 and 1998, respectively.
During 1999, securities sold under agreements to repurchase was the primary
source of borrowed funds with the exception of FHLB advance borrowings (see Note
8). The average balance and weighted average rate for securities sold under
agreement to repurchase for 1999 were $786.5 million and 5.1% as compared to
$953.8 million and 5.1% for 1998. Securities underlying the repurchase
transactions held as collateral are primarily U.S. Government agency securities
consisting of Fannie Mae, GNMA and FHLMC securities. Securities sold under
agreement to repurchase related to Webster's funding operations are delivered to
broker-dealers. Webster also enters into repurchase agreement transactions
directly with commercial and municipal customers through its treasury sales
desk.
Information concerning short-term and long-term borrowings under securities sold
under agreement to repurchase as of the end of the current period is as follows:
Weighted Weighted
Balance at Book Value Market Value Average Average
(Dollars in thousands) December 31, 1999 of Collateral of Collateral Rate Maturity
- ------------------------------------------------------------------------------------------------------------------------------
Maturity up to 30 days $220,612 $222,935 $222,558 4.80% 3.9 days
31 to 90 days 162,831 172,587 169,276 5.69 2.7 months
Over 90 days 560,360 597,807 585,870 5.77 10.8 months
Totals $943,803 $993,329 $977,704 5.53% 6.9 months
- ------------------------------------------------------------------------------------------------------------------------------------
While the Bank used several types of short-term borrowings as part of funding
its daily operations, only securities sold under agreement to repurchase
transactions had an average balance that was 30% or more of the Bank's total
equity at the end of the 1999 and 1998 periods. The following table sets forth
certain information as to the Bank's short-term securities sold under agreement
to repurchase borrowings at the dates and for the years indicated.
December 31,
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Average amount outstanding during the period $786,536 $953,789 $ 571,808
Amount outstanding at end of period 861,160 620,034 917,108
Highest month end balance 938,285 1,222,750 920,348
Weighted-average interest rate at end of period 5.49% 5.00% 5.69%
Weighted-average interest rate during the period 5.14% 5.06% 5.64%
- -----------------------------------------------------------------------------------------------------------------------------------
During 1999, Webster at times also used variable-rate lines of credit through
correspondent banks and purchased federal funds. The Employee Stock Ownership
Plan ("ESOP") borrowings are from a correspondent bank at a floating rate based
on the correspondent bank's base (prime) rate and the weighted average interest
rates at December 31, 1999 and 1998 were 8.5% and 7.75%, respectively. The terms
of the loan agreements call for the ESOP to make annual scheduled principal
repayments through the year 2004. Interest is paid quarterly and the borrowings
are guaranteed and secured by unallocated shares of Webster common stock under
the ESOP Plan.
In 1993, Webster completed a registered offering of $40 million of 8 3/4% Senior
Notes due 2000 (the "Senior Notes"). Webster used $18.3 million from the net
proceeds of the offering to redeem the remaining shares of Series A Stock issued
by Webster to the FDIC in connection with the First Constitution acquisition.
The Senior Notes may not be redeemed by Webster prior to the maturity date of
June 30, 2000, and are not exchangeable for any shares of Webster's common
stock.
NOTE 10: INTEREST-RATE FINANCIAL INSTRUMENTS
Webster employs as part of its asset/liability management strategy various
interest-rate contracts including short futures positions, interest-rate swaps
and interest-rate caps and floors. See Note 3 for disclosures on futures
positions. Webster uses financial instruments to hedge mismatches in maturities
to reduce exposure to movements in interest rates. These interest-rate financial
instruments involve, to varying degrees, credit risk and market risk. Credit
risk is the possibility that a loss may occur if a counterparty to a transaction
fails to perform according to the terms of the contract. Market risk is the
effect of a change in interest rates on the value of the financial instrument.
The notional amount of interest-rate financial instruments is the amount upon
which interest and other payments under the contract are based. For
interest-rate financial instruments, the notional amount is not exchanged and
therefore, the notional amounts should not be taken as a measure of credit or
market risk.
Fair value, which approximates the cost to replace the contract at current
market rates, is generally representative of market risk. Credit risk related to
the interest-rate swaps, interest-rate caps and floors at December 31, 1999 is
not considered to be significant due to counterparty ratings. In the event of a
default by a counterparty, the cost to Webster, if any, would be the replacement
cost of the contract at the current market rate.
Interest-rate financial instruments are summarized as follows:
December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Notional Fair Amortized Notional Fair Amortized
(In thousands) Amount Value Cost Amount Value Cost
- -----------------------------------------------------------------------------------------------------------------------------------
Swap agreements $ 25,000 $ (1,226) $ -- $ 25,000 $ (219) $ --
Floor agreements 500,000 137 2,154 500,000 8,501 4,148
Cap agreements 410,000 8,945 8,720 451,000 4,047 11,837
Total $ 935,000 $ 7,856 $ 10,874 $ 976,000 $ 12,329 $ 15,985
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-rate swap agreements involve the exchange of fixed and variable
interest payments based upon notional amounts paid to a maturity date. At
December 31, 1999, Webster had one interest-rate swap agreement, hedging $25
million of brokered certificates of deposit, in which Webster receives a fixed
rate of 6.65% and pays a variable rate based on Libor. For the years ended
December 31, 1999 and 1998, net income recorded on the deposit swap was $360,000
and $263,000, respectively.
Interest-rate cap agreements will result in cash payments to be received by
Webster only if index rates rise above a predetermined strike. At December 31,
1999, Webster had five outstanding cap agreements with notional amounts of $410
million related to the available for sale securities portfolio with
interest-rate caps ranging from 6.00% to 9.00%. At December 31, 1999, this
portfolio had $8.7 million of unamortized interest-rate cap balances and during
the 1999 period amortized $2.7 million as a reduction of interest income.
Similarly, interest-rate floor agreements will result in cash payments to be
received by Webster only if current interest rates fall below a predetermined
strike. At December 31, 1999, Webster had two outstanding interest-rate floor
agreements with notional amounts of $500 million and interest-rate floors of
5.25% and 5.75%. At December 31, 1999, Webster had $2.2 million of unamortized
floor expense and during the 1999 period amortized $2.0 million as a reduction
of available for sale interest income. The premium paid for caps and floors is
amortized over the life of the contract.
NOTE 11: SUMMARY OF ESTIMATED FAIR VALUES
A summary of estimated fair values consisted of the following:
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from depository institutions $ 245,783 $245,783 $ 213,142 $ 213,142
Interest-bearing deposits 37,838 37,838 17,819 17,819
Securities 3,057,819 3,042,639 3,650,281 3,653,648
Residential loans 3,898,943 3,869,912 3,880,319 4,013,742
Consumer loans 47,064 47,520 68,081 70,206
Home equity loans 492,684 492,106 458,981 478,339
Commercial loans 1,656,203 1,599,584 1,164,938 1,158,010
Allowance for loan losses (72,658) (72,658) (65,201) (65,201)
Interest-rate contracts 9,082 9,082 12,548 12,548
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits other than time deposits $3,095,254 $3,095,254 $2,903,494 $2,903,494
Time deposits:
Maturing in less than one year 2,143,180 2,149,981 2,849,755 2,850,601
Maturing in one year and beyond 952,657 965,132 559,725 570,504
Federal Home Loan Bank advances 1,714,441 1,706,299 1,801,839 1,809,011
Securities sold under agreement to repurchase and other borrowings 1,074,004 1,071,871 773,769 776,545
Capital securities and preferred stock of subsidiary corp. 199,577 194,344 199,577 215,326
- -----------------------------------------------------------------------------------------------------------------------------------
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires all entities to disclose the fair value
of financial instruments, including both assets and liabilities recognized and
not recognized in the statement of condition, for which it is practicable to
estimate fair value.
The carrying amounts for interest-bearing deposits other than time deposits
approximate fair value since they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of securities (see Note 3) is
estimated based on prices or quotations received from third parties or pricing
services. The fair value of interest-rate contracts was based on the amount
Webster could receive or pay to terminate the agreements. FHLB stock has no
active market and is required to be held by member banks. The estimated fair
value of FHLB stock equals the carrying amount.
In estimating the fair value of loans, portfolios with similar financial
characteristics were classified by type. Loans were segmented into four generic
types: residential, consumer, home equity and commercial. Residential loans were
further segmented into 15 and 30 year fixed-rate contractual maturities, with
the remaining classified as variable-rate loans. The fair value of each category
is calculated by discounting scheduled cash flows through estimated maturity
using market discount rates. Adjustments were made to reflect credit and rate
risks inherent in the portfolio.
The estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, regular savings, NOW accounts and money
market accounts, is equal to the amount payable on demand. The estimated fair
values of time deposits, FHLB advances, other borrowings, capital securities and
preferred stock of subsidiary corporation were calculated using the discounted
cash flow method. The discount rate for time deposits is based on rates
currently offered by Webster and the discount rates for FHLB advances and
securities sold under agreements to repurchase is based on Libor rates that
coincide with the remaining maturities. The discount rate used for the senior
notes was calculated using a spread over treasury notes consistent with the
spread used to price the senior notes at their inception. The discount rates
used for the capital securities and preferred stock of subsidiary corporation
liabilities were calculated using a spread over Libor that coincides with the
remaining maturities.
The calculation of fair value estimates of financial instruments is dependent
upon certain subjective assumptions and involves significant uncertainties,
resulting in variability in estimates with changes in assumptions. Potential
taxes and other expenses that would be incurred in an actual sale or settlement
are not reflected in the amounts disclosed. Fair value estimates are not
intended to reflect the liquidation value of the financial instruments.
NOTE 12: ALLOWANCE FOR LOSSES ON FORECLOSED PROPERTIES
Webster has an allowance for losses on foreclosed properties. A detail of the
changes in the allowance follows:
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 207 $ 1,222 $ 819
Provisions 100 330 1,637
Losses charged to allowance (81) (1,466) (1,355)
Recoveries credited to allowance 23 121 121
Balance at end of period $ 249 $ 207 $ 1,222
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE 13: INCOME TAXES
Income taxes in the Consolidated Statements of Income comprises the following:
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Current:
Federal $ 49,740 $ 35,788 $ 32,248
State 494 1,821 6,195
50,234 37,609 38,443
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (2,902) 1,104 (7,122)
State -- 10,981 (1,434)
(2,902) 12,085 (8,556)
- ------------------------------------------------------------------------------------------------------------------------------------
Total:
Federal 46,838 36,892 25,126
State 494 12,802 4,761
$ 47,332 $ 49,694 $ 29,887
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax expense of $47.3 million, $49.7 million and $29.9 million for the
years ended December 31, 1999, 1998 and 1997, respectively, differed from the
amounts computed by applying the Federal income tax rate of 35% in 1999, 1998
and 1997 to pre-tax income as a result of the following:
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense $ 49,939 $ 44,699 $ 27,125
Increase (decrease) in income taxes resulting from:
Dividends received deduction (1,091) (756) (412)
State income taxes, net of federal income tax benefit
including change in state valuation allowance and tax rate 321 8,241 2,834
Tax exempt interest (853) (178) (99)
Goodwill 1,158 459 29
Acquisition-related expenses 781 1,520 1,431
Increase in cash surrender value of life insurance (2,762) (1,963) --
Other, net (161) (2,328) (1,021)
Income taxes $ 47,332 $ 49,694 $ 29,887
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999, Webster had a net deferred tax asset of $68.7 million. In
order to fully realize the net deferred tax asset, Webster must either generate
future taxable income or incur tax losses to carry back. Based on Webster's
historical and current taxable earnings, management believes that Webster will
realize the net deferred tax asset. There can be no assurance, however, that
Webster will generate taxable earnings or a specific level of continuing taxable
earnings in the future.
A deferred tax valuation allowance has been established for the state portion of
temporary differences that may not be realized due to having no expected state
taxable income for the foreseable future.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below.
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Loan loss allowances and other allowances, net $ 28,808 $ 24,321
Accrued compensation and pensions 6,557 5,544
Deferred expenses 3,061 3,544
Unrealized loss on securities 41,463 --
Intangibles 6,946 5,812
Net operating loss carry forward 1,696 641
Other 2,007 1,686
- -----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 90,538 41,548
Less state valuation allowance, net of federal benefit (4,329) (5,000)
Deferred tax asset after valuation allowance 86,209 36,548
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Loan discount 3,777 2,837
Intangibles 9,177 --
Unrealized gain on securities __ 14,809
Mortgage servicing rights 1,127 810
Other 3,384 2,294
- -----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 17,465 20,750
Net deferred tax asset $ 68,744 $ 15,798
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE 14: SHAREHOLDERS' EQUITY
On April 6, 1998, Webster's common stock split two-for-one; the stock split was
effected in the form of a stock dividend. Basic and diluted common shares have
been restated for all periods presented as if the stock split took place at the
beginning of the earliest period shown. Also, shareholders' equity accounts for
all periods presented have been restated to give retroactive recognition of the
stock split.
Retained earnings at December 31, 1999 included $41.0 million of earnings of the
Bank appropriated to bad debt reserves (pre-1988), which were deducted for
federal income tax purposes. Tax law changes were enacted in August 1996 to
eliminate the "thrift bad debt" method of calculating bad debt deductions for
tax years after 1995 and to impose a requirement to recapture into taxable
income (over a six-year period) all bad debt reserves accumulated after 1987.
Since Webster previously recorded a deferred tax liability with respect to these
post-1987 reserves, its total income tax expense for financial reporting
purposes is not affected by the recapture requirement. The tax law changes also
provide that taxes associated with the recapture of pre-1988 bad debt reserves
would become payable under more limited circumstances than under prior law.
Under the tax laws, as amended, events that would result in recapture of the
pre-1988 bad debt reserves include stock and cash distributions to the holding
company from the Bank in excess of specified amounts. Webster does not expect
such reserves to be recaptured into taxable income.
Applicable OTS regulations require federal savings banks such as the Bank, to
satisfy certain minimum capital requirements, including a leverage capital
requirement (expressed as a ratio of core or Tier 1 capital to adjusted total
assets) and risk-based capital requirements (expressed as a ratio of core or
Tier 1 capital and total capital to total risk-weighted assets). As an OTS
regulated institution, the Bank is also subject to a minimum tangible capital
requirement (expressed as a ratio of tangible capital to adjusted total assets).
At December 31, 1999 and 1998, the Bank exceeded all OTS regulatory capital
requirements and met the FDIC requirements for a "well capitalized" institution.
In order to be considered "well capitalized" a depository institution must have
a ratio of Tier 1 capital to adjusted total assets of 5%, a ratio of Tier 1
capital to risk-weighted assets of 6% and a ratio of total capital to
risk-weighted assets of 10%. Failure to meet minimum capital requirements can
initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Webster's
Consolidated Financial Statements. Webster's capital amounts and classifications
are also subject to qualitative judgments by the OTS about components, risk
weightings, and other factors.
At December 31, 1999 and 1998, the Bank was in full compliance with all
applicable capital requirements as detailed below:
OTS Minimum
Capital
Actual Requirements Well Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999
Total capital (to risk-weighted assets) $727,399 12.30% $473,243 8.00% $591,554 10.00%
Tier 1 capital (to risk-weighted assets) 656,561 11.10 236,621 4.00 354,932 6.00
Tier 1 capital (to adjusted total assets) 656,561 6.73 390,374 4.00 487,967 5.00
Tangible capital (to adjusted total assets) 652,439 6.69 195,104 2.00 No Requirement
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1998
Total capital (to risk-weighted assets) $627,791 12.53% $400,978 8.00% $501,223 10.00%
Tier 1 capital (to risk-weighted assets) 567,614 11.32 200,489 4.00 300,734 6.00
Tier 1 capital (to adjusted total assets) 567,614 5.93 382,868 4.00 478,585 5.00
Tangible capital (to adjusted total assets) 562,438 5.88 191,331 2.00 No Requirement
- -----------------------------------------------------------------------------------------------------------------------------------
At the time of the respective conversions of the Bank and certain predecessors
from mutual to stock form, each institution established a liquidation account
for the benefit of eligible depositors who continue to maintain their deposit
accounts after conversion. In the event of a complete liquidation of the Bank,
each eligible depositor will be entitled to receive a liquidation distribution
from the liquidation account. The Bank may not declare or pay a cash dividend on
or repurchase any of its capital stock if the effect thereof would cause its
regulatory capital to be reduced below applicable regulatory capital
requirements or the amount required for its liquidation accounts.
Regulatory rules currently impose limitations on all capital distributions by
savings institutions, including dividends, stock repurchase and cash-out
mergers. Under current OTS capital distribution regulations, as long as the Bank
meets the OTS capital requirements before and after the payment of dividends and
meets the standards for expedited treatment of applications (including having
certain regulatory composite, compliance and Community Reinvestment Act
ratings), the Bank may pay dividends to the Company without prior OTS approval
equal to the net income to date over the calendar year, plus retained net income
over the preceding two years. In addition, the OTS has the discretion to
prohibit any otherwise permitted capital distribution on general safety and
soundness grounds, and must be given 30 days advance notice of all capital
distributions during which time it may object to any proposed distribution. The
Bank has paid dividends and made distributions to Webster amounting to $60.8
million and $130.8 million for 1999 and 1998, respectively.
The Bank has an ESOP that invests in Webster common stock as discussed in Notes
9 and 16. Since Webster has secured and guaranteed the ESOP debt, the
outstanding ESOP loan balance, which is considered unearned compensation
expense, is recorded as a reduction of shareholders' equity. Both the loan
obligation and the unearned compensation expense are reduced by the amount of
any loan repayments made by the ESOP. Principal repayments totaled $601,300,
$610,900 and $568,000 during the years ended December 31, 1999, 1998 and 1997,
respectively.
During 1999, Webster repurchased 2,622,608 shares of its common stock under
three repurchase programs that were announced in November 1998 and December
1999. The two plans announced in November 1998 were specifically related to the
purchase acquisitions of Maritime and Village that closed in the second quarter
of 1999. The plan announced in December 1999 is specifically related to the
purchase acquisition of Mechanics that is scheduled to close during the second
quarter of 2000.
In February 1996, Webster's Board of Directors adopted a stockholders' rights
plan in which preferred stock purchase rights have been granted as a dividend at
the rate of one right for each share of common stock held of record as of the
close of business on February 16, 1996. The plan is designed to protect all
Webster shareholders against hostile acquirers who may seek to take advantage of
Webster and its shareholders through coercive or unfair tactics aimed at gaining
control of Webster without paying all shareholders a fair price. Each right
initially would entitle the holder thereof to purchase under certain
circumstances one 1/1,000th of a share of a new Series C Preferred Stock at an
exercise price of $100 per share. The rights will expire in February 2006. The
rights will be exercisable only if a person or group in the future becomes the
beneficial owner of 15% or more of the common stock, or announces a tender or
exchange offer which would result in its ownership of 15% or more of the common
stock, or if the Board declares any person or group to be an "adverse person"
upon a determination that such person or group has acquired beneficial ownership
of 10% or more and that such ownership is not in the best interests of the
company.
NOTE 15: NET INCOME PER COMMON SHARE
The following tables reconcile the components of basic and diluted earnings per
share.
Year ended December 31,
(In thousands) 1999 1998 1997
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Basic Earnings Per Share:
Net income $ 95,350 $ 78,019 $ 47,612
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Weighted-average common shares outstanding 44,553,859 45,275,165 44,835,738
Basic earnings per share $ 2.14 $ 1.72 $ 1.06
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Diluted Earnings Per Share:
Net income $ 95,350 $ 78,019 $ 47,612
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Weighted-average common shares outstanding 44,553,859 45,275,165 44,835,738
Dilutive potential common stock:
Effect of conversion of preferred stock series B -- -- 34,106
Options 839,629 842,376 902,404
Warrant -- -- 194,088
Total weighted-average diluted shares 45,393,488 46,117,541 45,966,336
Diluted earnings per share $ 2.10 $ 1.69 $ 1.04
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At December 31, 1999 and 1998, options to purchase 711,097 and 664,423 shares of
common stock at exercise prices between $28.25 and $35.38 and $31.75 and $35.38,
respectively, were not considered in the computation of diluted potential common
stock since the options' exercise prices were greater than the average market
price of Webster common stock for 1999 and 1998, respectively.
NOTE 16: EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Bank has an employee investment plan under section 401(k) of the Internal
Revenue Code. Under the savings plan, the Bank will match $.50 for every $1.00
of the employee's contribution up to 6% of the employee's annual compensation.
Operations were charged with $1.6 million for the year ended December 31, 1999
and $1.5 million for the years ended December 31, 1998 and 1997, respectively,
for contributions to the investment plan.
The Bank's ESOP, which is noncontributory by employees, is designed to invest in
Webster common stock on behalf of employees of the Bank who meet certain minimum
age and service requirements. The Bank may make contributions to the ESOP in
such amounts as the Board of Directors may determine on an annual basis. To the
extent that the Bank's contributions are used to repay the ESOP loan, Webster
common stock is allocated to the accounts of participants in the ESOP. Stock and
other amounts allocated to a participant's account become fully vested after the
participant has completed five years of participation service under the ESOP. At
December 31, 1999, there were 108,831 unallocated shares of Webster common stock
in the ESOP with 46,931 shares scheduled for release in 2000. Subsequent to the
release, approximately 61,900 unallocated shares will remain in the ESOP for
future distributions. At December 31, 1999, the unallocated shares in the ESOP
had an aggregate market value of approximately $2.6 million. Total principal
reductions on the ESOP loan during 1999 and 1998 totaled $601,300 and $610,900,
respectively. Operations were charged with $727,000 for the year ended December
31, 1999 and $1.2 million for the years ended December 31, 1998 and 1997 for
costs related to the ESOP. The 1999 ESOP charge includes $560,000 of
compensation expense, $20,000 of interest payments (net of $58,000 of dividends
on unallocated ESOP shares) and $147,000 of administrative costs.
The Bank maintains a noncontributory pension plan for employees who meet certain
minimum service and age requirements. Pension benefits are based upon earnings
of covered employees during the period of credited service. The following tables
set forth changes in benefit obligation, changes in plan assets and the funded
status of the Bank's pension plan and amounts recognized in Webster's
Consolidated Statements of Condition at December 31, 1999 and 1998.
December 31,
(In thousands) 1999 1998
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Change in benefit obligation:
Accumulated benefit obligation-beginning of year $ 26,751 $ 20,829
Service cost 3,053 2,257
Interest cost 1,741 1,536
Plan amendment -- 114
Actuarial (gain) loss (3,328) 3,675
Acquisition-related -- 651
Benefits paid (2,244) (2,007)
Curtailment adjustments -- (304)
Accumulated benefit obligation-end of year $ 25,973 $ 26,751
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Change in plan assets:
Plan assets at fair value-beginning of year $ 26,601 $ 24,351
Actual return on plan assets 1,608 2,982
Contributions 1,400 624
Acquisition-related -- 651
Benefits paid (2,244) (2,007)
Settlements -- --
Plan assets at fair value-end of year $ 27,365 $ 26,601
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Funded status 1,392 $ (150)
Unrecognized prior service cost (1,131) (1,207)
Unrecognized net gain (2,887) (362)
Unrecognized net asset (104) (112)
Accrued pension liability $ (2,730) $ (1,831)
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The pension plan held in its asset portfolio 62,000 shares of Webster common
stock as of December 31, 1999 and 1998. The discount rate, the rate of increase
of future compensation levels and the expected long-term rate of return on
assets used in determining the actuarial present value of the projected benefit
obligation were 7.25%, 5.00% and 9.00%, respectively for 1999, and 6.25%, 4.50%
and 9.00% for 1998.
Net pension expense for 1999, 1998 and 1997 included the following components.
Years ended December 31,
(In thousands) 1999 1998 1997
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Service cost-benefits earned during the period $ 3,053 $ 2,257 $ 2,027
Interest cost on projected benefit obligations 1,741 1,536 1,554
Expected return on plan assets (2,412) (2,242) (2,476)
Amortization and deferral of unrecognized prior service cost,
transition and gains (losses) (83) (630) 516
Total $ 2,299 $ 921 $ 1,621
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The Bank also provides other post-retirement benefits to certain retired
employees. The following tables set forth the changes in benefit obligation and
the funded status of the plan at December 31, 1999 and 1998:
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Accumulated benefit obligation-beginning of year $ 3,743 $ 3,655
Service cost -- 11
Interest cost 202 277
Actuarial (gain) loss (711) 443
Benefits paid (200) (231)
Curtailment adjustments -- (412)
Accumulated benefit obligation-end of year $ 3,034 $ 3,743
Fair value of plan assets -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Funded status $ (3,034) $ (3,743)
Unrecognized prior service cost -- --
Unrecognized net (gain) loss (352) 359
Accumulated post-retirement liability $ (3,386) $ (3,384)
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The discount rate used in determining the accumulated other post-retirement
benefit obligation of 1999 and 1998 was 7.25% and 6.25%, respectively. The
assumed healthcare cost-trend rate is 6.00% for 2000, decreasing 0.5% per year
to 5.0% for 2002 and thereafter. An increase of 1% in the assumed healthcare
cost-trend rate would increase net periodic post-retirement benefit cost by
$14,537 and increase the accumulated benefit obligation by $226,657. A decrease
of 1% in the assumed healthcare cost trend rate would decrease net periodic
post-retirement cost by $12,717 and decrease the accumulated benefit obligation
by $198,531.
The components of post-retirement benefits cost were as follows:
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Service cost $ -- $ 11 $ 58
Interest cost 202 277 249
Amortization and deferral of unrecognized prior service cost,
transition and gains (losses) -- 112 (49)
Net periodic post-retirement benefit cost $ 202 $ 400 $ 258
- -----------------------------------------------------------------------------------------------------------------------------------
Webster maintains stock option plans (the "Option Plans") for the benefit of its
directors and officers. Webster applies the provisions of APB Opinion No. 25 and
related interpretations in accounting for the fixed stock option plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans in the Consolidated Statements of Income. Had compensation cost for
Webster's stock option based compensation plans been determined consistent with
SFAS No. 123 and recorded in the Consolidated Statements of Income, Webster's
net income and earnings per share would have been reduced to the pro forma
amounts indicated as follows:
Years ended December 31,
(Dollars in thousands, except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Net income:
As reported $ 95,350 $ 78,019 $ 47,612
Pro forma 93,981 74,005 45,885
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Basic earnings per share:
As reported $ 2.14 $ 1.72 $ 1.06
Pro forma 2.11 1.63 1.02
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Diluted earnings per share:
As reported $ 2.10 $ 1.69 $ 1.04
Pro forma 2.07 1.60 1.00
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Webster had eight active fixed stock option plans at December 31, 1999. Six of
the option plans were acquired through the NECB, Village, Maritime, Eagle,
People's and Derby acquisitions. The acquired plans had options outstanding of
470,046, 12,817, 89,026, 256,416, 24,476 and 11,322, respectively, at December
31, 1999. Webster's 1992 option plan was amended in 1999, 1998, 1996, 1994 and
1992. Stock appreciation rights ("SARS") were granted in tandem with stock
options issued under the Derby option plan. In accordance with generally
accepted accounting principles, compensation expense for the SARS is recorded
when the market value of Webster's common stock exceeds the SARS' strike price.
During 1999, there were no SARS transacted and there were no remaining SARS
outstanding at December 31, 1999. Compensation expense recorded for 1998 and
1997 was $89,695 and $229,000 respectively. During the years ended December 31,
1998 and 1997 the number of SARS exercised were 4,612, and 1,050 respectively.
Under the terms of the option plans, the exercise price of each option granted
equals the approximate market price of Webster's stock on the date of grant and
each option has a maximum contractual life of ten years.
The fair value of each option is estimated on the grant date using the
Black-Scholes Option-Pricing Model with the following weighted-average
assumptions used for grants issued during 1999: expected option term 9.0 years,
expected dividend yield 2.35%, expected volatility 33.94%, expected forfeiture
rate 2.00%, and weighted risk-free interest-rate of 5.89%. The weighted-average
assumptions used for grants issued during 1998 were: 8.7 years, 1.70%, 31.19%,
2.13% and 4.96%, respectively; and for 1997 were 8.6 years, 1.85%, 25.14%, 2.23%
and 5.83%.
A summary of the status of Webster's fixed stock option plans at December 31,
1999, 1998, and 1997 and changes during the years then ended is presented below:
1999 1998 1997
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Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of year 3,036,414 $ 17.30 3,174,383 $ 13.23 2,875,896 $ 9.66
Granted 340,147 25.56 627,350 31.92 922,337 21.18
Options acquired through purchase acquisitions 136,166 7.98 -- -- -- --
Exercised (577,355) 11.51 (714,330) 11.63 (591,492) 8.08
Forfeited/canceled (10,467) 21.37 (50,989) 23.47 (32,358) 16.08
Options outstanding at end of year 2,924,905 $ 19.00 3,036,414 $ 17.30 3,174,383 $ 13.23
- -----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 2,176,068 2,148,197 1,956,710
Weighted-average per share fair value
of options granted during the year $ 9.87 $ 12.30 $ 7.36
- -----------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about Webster's fixed stock option
plans by price range for options outstanding and exercisable at December 31,
1999:
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Number Contractual Life Exercise Number Exercise
Range of Exercise Prices Outstanding (in years) Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------------------
$ 3.54 and under 23,760 0.9 $ 2.27 23,760 $ 2.27
$ 3.55 - $7.08 249,102 1.7 5.68 249,102 5.68
$ 7.09 - $10.61 620,712 4.7 9.41 620,712 9.41
$ 10.62 - $14.15 341,397 5.4 12.40 341,397 12.40
$ 14.16 - $17.69 290,390 7.3 16.24 267,653 16.23
$ 17.70 - $21.23 230,958 6.9 18.82 214,958 18.81
$ 21.24 - $24.76 274,444 9.4 24.48 14,294 23.61
$ 24.77 - $28.30 185,545 9.0 26.49 695 26.50
$ 28.31 - $31.84 239,597 8.2 31.29 35,497 30.22
$ 31.85 - $35.38 469,000 8.4 33.77 408,000 33.84
2,924,905 6.5 $ 19.00 2,176,068 $16.16
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Webster also has two restricted stock plans consisting of a First Amended and
Restated Directors Retainer Fees Plan, which was established in 1996, and a
Restricted Stock Plan, which was established in 1992. Under the Directors
Retainer Fee Restricted Stock Plan, a total of 5,928 shares were issued to
thirteen directors in 1999 with each receiving 456 shares. These restricted
shares were reissued from treasury stock and the cost was measured as of the
grant date using the fair market value of Webster's stock as of the grant date.
There were 39,093 and 15,908 restricted shares granted during 1999 and 1997
under the 1992 Restricted Stock Plan. There were no restricted shares granted
during 1998 from the 1992 Restricted Stock Plan. During 1999, 52,900 restricted
shares were granted to management under the 1992 Stock Option Plan. The cost of
all restricted shares is amortized to compensation expense over the service or
vesting period and such expense is reflected in Webster's Consolidated
Statements of Income.
NOTE 17: ACQUISITION-RELATED EXPENSES
A summary of acquisition-related expenses follows:
Years ended December 31,
(In thousands) 1999 1998 1997
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Derby $ -- $ -- $ 19,858
MidConn -- -- 2,734
People's -- -- 7,200
FBWH -- -- 2,197
Eagle -- 17,400 --
OPBT -- 207 --
BSW -- 3,386 --
NECB 9,500 -- --
Total $ 9,500 $ 20,993 $ 31,989
- -----------------------------------------------------------------------------------------------------------------------------------
Webster recorded $9.5 million in acquisition-related expenses in connection with
the acquisition of NECB which was completed on December 1, 1999. In 1998,
Webster recorded approximately $17.4 million in acquisition-related expenses for
the acquisition of Eagle, which was completed on April 15, 1998. Webster also
recorded in 1998 acquisition-related expenses of $3.4 million and $207,000 in
connection with the purchases of BSW, which was completed on August 14, 1998,
and OPBT which was completed on August 10, 1998. In connection with the
acquisitions of Derby, MidConn, People's, and FBWH, which were completed on
January 31, 1997, May 31, 1997, July 31, 1997 and August 7, 1997, respectively,
Webster recorded approximately $32.0 million of acquisition-related expenses.
The following table presents a summary of the acquisition-related accrued
liabilities:
(In thousands) Derby People's Eagle OPBT BSW NECB
- -----------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at
December 31, 1997 $ 5,400 $ 2,400 $ -- $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Additions/provisions -- -- 17,400 207 3,386 --
Payments and charges against the liabilities:
Compensation (severance and related costs) (400) (300) (7,800) -- (1,650)
Data processing contract termination (600) -- (1,200) -- (1,000) --
Transaction costs (including investment bankers,
attorneys and accountants) -- -- (4,100) (207) (150) --
Writedown of fixed assets and facilities costs (150) (200) (500) -- --
Acquisition-related miscellaneous expenses (a) (450) (300) (2,400) -- (586) --
Balance of acquisition-related accrued liabilities at
December 31, 1998 $ 3,800 $ 1,600 $ 1,400 $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Additions/provisions -- -- -- -- -- 9,500
Payments and charges against the liabilities:
Compensation (severance and related costs) -- -- -- -- -- (3,000)
Data processing contract termination (700) -- -- -- -- (400)
Transaction costs (including investment bankers,
attorneys and accountants) -- -- (50) -- -- (1,300)
Writedown of fixed assets and facilities costs (100) (1,100) (400) -- -- (700)
Acquisition-related miscellaneous expenses (a) -- (100) (175) -- -- (800)
Balance of acquisition-related accrued liabilities at
December 31, 1999 $ 3,000 $ 400 $ 775 $ -- $ -- $ 3,300
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes customer retention, data conversion and supplies expenses.
The remaining total accrued liability of $7.5 million at December 31, 1999
represents, for the most part, an accrual for data processing contract
termination costs payable over future periods and the estimated loss on sale of
excess fixed assets due to consolidation of overlapping branch locations.
NOTE 18: BUSINESS SEGMENTS
Webster has four segments for business segment reporting purposes. These
segments include consumer banking, business banking, mortgage lending and
treasury. The organizational hierarchies that define the business segments are
periodically reviewed and revised. Results may be restated in future periods to
reflect changes in organizational structure. The following table presents the
statement of operations for Webster's reportable segments.
Operating income and total assets by business segment are as follows:
Year Ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 166,393 $ 47,413 $ 73,809 $ 13,715 $ 2,183 $ 303,513
Provision for loan losses 1,181 3,891 3,928 -- -- 9,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 165,212 43,522 69,881 13,715 2,183 294,513
Noninterest income 49,070 3,353 11,515 16,913 11,779 92,630
Noninterest expenses 137,476 34,190 17,609 13,364 13,526 216,165
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 76,806 12,685 63,787 17,264 436 170,978
Income taxes 25,480 4,208 21,160 5,727 148 56,723
Net income after taxes $ 51,326 $ 8,477 $ 42,627 $ 11,537 $ 288 $ 114,255
Total assets $1,150,354 $1,294,651 $3,973,558 $3,491,527 $ 21,654 $9,931,744
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 131,508 $ 47,816 $ 82,090 $ 20,879 $ 318 $ 282,611
Provision for loan losses 1,227 2,063 4,813 -- -- 8,103
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 130,281 45,753 77,277 20,879 318 274,508
Noninterest income 34,327 3,820 10,266 19,609 7,402 75,424
Noninterest expenses 117,671 28,351 26,452 12,122 9,137 193,733
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 46,937 21,222 61,091 28,366 (1,417) 156,199
Income taxes 17,373 7,884 22,607 10,540 (525) 57,879
Net income (loss) after taxes $ 29,564 $ 13,338 $ 38,484 $ 17,826 $ (892) $ 98,320
Total assets $ 770,704 $1,047,640 $3,771,493 $4,224,685 $ 21,507 $9,836,029
- -----------------------------------------------------------------------------------------------------------------------------------
The consumer banking segment includes consumer lending and the Bank's deposit
generation and direct banking activities, which include the operation of
automated teller machines and telebanking customer support, sales and small
business lending. The business banking segment includes the Bank's investment in
commercial and industrial loans and commercial real estate loans. The business
banking segment also includes deposits and cash management activities for
business banking. The mortgage lending segment includes the Bank's investment in
residential real estate loan origination, servicing and secondary marketing
activities. The treasury segment includes the Bank's investment in assets and
liabilities managed by Treasury and includes interest-bearing deposits,
securities, FHLB advances, repurchase agreements and other borrowings. All other
includes the results of Webster's trust and investment and insurance
subsidiaries, which offer products to both consumer and business customers.
During 1999 Webster changed its internal funds transfer pricing methodology,
which charges or credits for use or source of funds. This change effected net
interest income for all reported segments. As a result of the change in
methodology there was an increase in interest income allocated to Consumer
Banking and an increase in interest expense allocated to Business Banking,
Mortgage Lending and Treasury.
The allocations are subject to periodic adjustment as the internal management
accounting system is revised and business or product lines within the segments
change. Also, because the development and application of these methodologies is
a dynamic process, the financial results presented may be periodically revised.
Management allocates indirect expenses to its business segments. These expenses
include administration, finance, operations and other support related functions.
Net income (loss) after income taxes for the segments do not include certain
income and expense categories (net of taxes), that aggregate to net expenses of
$18.9 million for the year ended December 31, 1999 and $20.3 million for the
year ended December 31, 1998, that do not directly relate to segments. The major
categories not included in the segments for the year ended December 31, 1999,
were (on a before tax basis) $14.6 million of capital securities expense, $4.2
million of dividend expense on the preferred stock of subsidiary corporation and
$9.5 million of acquisition-related expenses. For the year ended December 31,
1998, the major categories not included in the segments were (on a before tax
basis) $14.7 million of capital securities expense, $4.2 million of dividend
expense on preferred stock and $21.0 million of acquisition-related expense.
NOTE 19: CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
During 1997, Webster formed a statutory business trust, Webster Capital Trust I
("Trust I"), of which Webster owns all of the common stock. Trust I exists for
the sole purpose of issuing trust securities and investing the proceeds in an
equivalent amount of subordinated debentures of the Corporation. On January 31,
1997, Trust I completed a $100 million underwritten public offering of 9.36%
Corporation-Obligated Manditorily Redeemable Capital Securities of Webster
Capital Trust I ("capital securities"). The sole asset of Trust I is the $100
million of Webster's 9.36% junior subordinated deferrable interest debentures
due in 2027 ("subordinated debt securities"), purchased by Trust I on January
30, 1997.
On April 1, 1997, Eagle Financial Capital Trust I, subsequently renamed Webster
Capital Trust II ("Trust II"), completed a $50 million private placement of
10.00% capital securities. Proceeds from the issue were invested by Trust II in
junior subordinated deferrable debentures issued by Eagle due in 2027. These
debentures represent the sole assets of Trust II.
Total expenses for Trusts I and II were $14.6 million, $14.7 million and $11.4
million for 1999, 1998 and 1997 respectively, inclusive of issuance cost
amortization. The expense associated with Trust I and Trust II is tax
deductible.
At December 31, 1997, Webster owned $5.0 million of Trust II securities which
were eliminated as a result of the pooling of interests. Subsequent to December
31, 1997 and prior to Webster's acquisition of Eagle, these securities were sold
to a third party and were outstanding at December 31, 1998.
The subordinated debt securities are unsecured obligations of Webster and are
subordinate and junior in right of payment to all present and future senior
indebtedness of Webster. Webster has entered into a guarantee, which together
with Webster's obligations under the subordinated debt securities and the
declaration of trust governing Trust I and Trust II, including its obligations
to pay costs, expenses, debts and liabilities (other than trust securities),
provides a full and unconditional guarantee of amounts on the capital
securities. The capital securities qualify as Tier I capital under regulatory
definitions.
NOTE 20: PREFERRED STOCK OF SUBSIDIARY CORPORATION
The Bank formed and incorporated Webster Preferred Capital Corporation ("WPCC")
in March 1997. WPCC was formed to provide a cost-effective means of raising
funds, including capital, on a consolidated basis for the Bank. WPCC's strategy
is to acquire, hold and manage real estate mortgage assets.
In December 1997, WPCC raised $50.0 million in a public offering in which $40
million was issued as Series A 7.375% cumulative redeemable preferred stock and
$10.0 million was issued as Series B 8.625% cumulative redeemable preferred
stock that is quoted under NASDAQ listing (WBSTP). All of WPCC's common stock is
owned by the Bank. Dividend expense on the preferred stock for 1999 and 1998,
inclusive of issuance cost amortization, was $4.2 million for each respective
period and $85,000 for 1997. The preferred shares are not exchangeable into
common stock or any other securities of the Bank or Webster, and will not
constitute regulatory capital of either the Bank or Webster.
NOTE 21: LEGAL PROCEEDINGS
Webster is party to various legal proceedings normally incident to the kind of
business conducted. Management believes that no material liability will result
from such proceedings.
NOTE 22: PARENT COMPANY CONDENSED FINANCIAL INFORMATION
The Statements of Condition for 1999 and 1998 and the Statements of Income and
Cash Flows for the three-year period ended December 31, 1999 (parent only) are
presented below.
Statements of Condition
December 31,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from depository institutions $ 7,032 $ 1,021
Interest-bearing deposits 300 735
Securities available for sale 118,584 146,534
Investment in subsidiaries 735,335 679,422
Due from subsidiaries 2 22
Accrued interest receivable 1,263 1,191
Other assets 7,429 5,929
Total assets $869,945 $834,854
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Senior notes due 2000 $ 40,000 $ 40,000
Lines of credit 39,000 10,000
ESOP borrowings 766 1,367
Due to subsidiaries 36 --
Other liabilities 4,476 7,033
Corporation-obligated mandatorily redeemable capital securities of subsidiary trusts 150,000 150,000
Shareholders' equity 635,667 626,454
Total liabilities and shareholders' equity $869,945 $834,854
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Income
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from subsidiary $ 50,806 $ 80,776 $ 52,895
Interest on securities 8,088 5,750 2,384
Gain on sale of securities 1,834 8,039 937
Other noninterest income 1 24 11
Interest expense on borrowings 5,541 5,018 3,812
Capital securities expense 14,645 14,708 11,368
Other noninterest expenses 7,304 7,104 8,062
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed earnings of subsidiaries 33,239 67,759 32,985
Income tax benefit 6,524 3,856 7,765
- -----------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries 39,763 71,615 40,750
Equity in undistributed earnings of subsidiaries 55,587 6,404 6,862
Net income $ 95,350 $ 78,019 $ 47,612
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Years ended December 31,
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 95,350 $ 78,019 $ 47,612
Increase in interest receivable (72) (940) (186)
(Increase) decrease in other assets (1,500) 11,428 (3,483)
Gains on sale of securities (1,834) (8,039) (937)
Equity in undistributed earnings of subsidiaries (55,587) (6,404) (6,862)
(Decrease) increase in other liabilities (2,557) (3,036) 587
Other, net 1,080 1,038 11,786
Net cash provided by operating activities 34,880 72,066 48,517
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of securities available for sale (132,824) (265,132) (114,819)
Decrease (increase) in interest-bearing deposits 435 2,158 (2,088)
Other, net (183) (1,265) (5,409)
Sales and maturities of securities available for sale 148,852 176,688 61,986
Distribution from (investment in) bank subsidiary 10,000 50,000 (93,793)
Net cash provided (used) by investing activities 26,280 (37,551) (154,123)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Repayment of borrowings (151,607) (85,611) (28,400)
Proceeds from borrowings 180,006 95,000 10,000
Net proceeds from issuance of capital securities -- 4,846 141,327
Exercise of stock options 9,342 10,816 5,808
Cash dividends to shareholders (20,729) (20,848) (17,477)
Common stock repurchases (72,161) (39,861) (6,020)
Net cash (used) provided by financing activities (55,149) (35,658) 105,238
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 6,011 (1,143) (368)
Cash and cash equivalents at beginning of year 1,021 2,164 2,532
Cash and cash equivalents at end of year $ 7,032 $ 1,021 $ 2,164
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NOTE 23: SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly data for 1999 and 1998 follows:
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
1999:
Interest income $160,026 $ 159,813 $162,179 $163,774
Interest expense 87,340 83,372 84,331 87,236
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 72,686 76,441 77,848 76,538
Provision for loan losses 2,165 2,268 2,245 2,322
Gain (loss) on sale of loans, loan servicing and securities, net 3,444 3,572 (499) 2,165
Other noninterest income 18,132 18,998 22,402 24,416
Noninterest expenses 55,646 58,272 59,136 71,407
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 36,451 38,471 38,370 29,390
Income taxes 12,478 13,121 11,973 9,760
Net income $ 23,973 $ 25,350 $ 26,397 $ 19,630
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic $ 0.55 $ 0.57 $ 0.58 $ 0.44
Diluted 0.54 0.56 0.57 0.43
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First Second Third Fourth
(Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
1998:
Interest income $174,300 $ 174,648 $167,185 $166,104
Interest expense 101,586 105,713 98,333 93,994
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 72,714 68,935 68,852 72,110
Provision for loan losses 2,339 2,266 1,887 1,611
Gain on sale of loans, loan servicing and securities, net 4,190 10,438 2,510 5,631
Other noninterest income 13,228 13,548 15,943 17,150
Noninterest expenses 52,321 70,218 56,355 50,539
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 35,472 20,437 29,063 42,741
Income taxes 13,255 8,908 8,900 18,631
Net income $ 22,217 $ 11,529 $ 20,163 $ 24,110
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Net income per common share:
Basic $ 0.49 $ 0.25 $ 0.44 $ 1.71
Diluted 0.47 0.25 0.44 0.53
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Quarters affected by acquisition-related charges include the quarter ended
December 31, 1999 with approximately $9.5 million of NECB expenses, the quarter
ended September 30, 1998 with approximately $3.6 million of BSW and OPBT
expenses and the quarter ended June 30, 1998 which includes $1.5 million of
provision for loan losses and $17.4 million of Eagle acquisition-related
expenses.
All periods presented have been retroactively restated to reflect the inclusion
of the results of NECB and Eagle, which were acquired on December 1, 1999 and
April 15, 1998, respectively, and were accounted for using the pooling of
interests method.
Management's Report
To Our Shareholders:
The management of Webster is responsible for the integrity and objectivity of
the financial and operating information contained in this annual report,
including the consolidated financial statements covered by the Independent
Auditors' Report. These statements were prepared in conformity with generally
accepted accounting principles and include amounts that are based on the best
estimates and judgments of management.
Webster has internal controls which provide management with reasonable assurance
that transactions are recorded and executed in accordance with its
authorizations, that assets are properly safeguarded and accounted for, and that
financial records are maintained so as to permit preparation of financial
statements in accordance with generally accepted accounting principles. The
internal control components include formal procedures, an organizational
structure that segregates duties, and a comprehensive program of periodic audits
by the internal auditors. Webster has also instituted policies which require
employees to maintain the highest level of ethical standards.
In addition, the Audit Committee of the Board of Directors, consisting solely of
independent outside directors, meets periodically with management, the internal
auditors and the independent auditors to review internal controls, audit results
and accounting principles and practices, and annually recommends to the Board of
Directors the selection of independent auditors.
/s/ James C. Smith
- ------------------------------------
James C. Smith
Chairman and Chief Executive Officer
/s/ Peter J. Swiatek
- ------------------------------------
Peter J. Swiatek
Controller
Independent Auditors' Report
The Board of Directors and Shareholders of Webster Financial Corporation
Waterbury, Connecticut
We have audited the accompanying consolidated statements of condition of Webster
Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 financial position of Webster Financial
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
- ---------------------
KPMG LLP
Hartford, Connecticut
January 28, 2000
Shareholder Information
Corporate Headquarters
Webster Financial Corporation and Webster Bank
Webster Plaza
Waterbury, CT 06702
(203) 753-2921
www.websterbank.com
Transfer Agent and Registrar
American Stock Transfer & Trust Co.
Shareholder Services
40 Wall Street
New York, NY 10005
1-800-937-5449
www.amstock.com
Dividend Reinvestment and Stock Purchase Plan
Stockholders wishing to receive a prospectus for the Dividend Reinvestment and
Stock Purchase Plan are invited to write to American Stock Transfer & Trust Co.
at the address listed above, or call 1-800-278-4353.
Stock Listing Information
The common stock of Webster is traded on the NASDAQ National Market System under
the symbol "WBST."
Investor Relations Contact:
James M. Sitro, CPA, Senior Vice President,
Investor Relations (203) 578-2399
jsitro@websterbank.com
Form 10-K and Other Reports
Our annual report to the Securities and Exchange Commission (Form 10-K),
additional copies of this report, and quarterly reports may be obtained free of
charge by accessing our Web site (www.websterbank.com) or by contacting James M.
Sitro, CPA, Senior Vice President, Investor Relations, Webster Plaza, Waterbury,
CT 06702.
Common Stock Dividends and Market Prices
The following table shows dividends declared and the market price per share by
quarter for 1999 and 1998.
Common Stock
(Per Share) Market Price
- -------------------------------------------------------------------------------
Cash
Dividends End of
1999 Declared Low High Period
- -------------------------------------------------------------------------------
Fourth $ .12 $ 21 7/8 $ 28 3/4 $ 23 9/16
Third .12 24 3/4 28 13/16 25 1/2
Second .12 26 3/16 32 27 1/8
First .11 27 7/16 31 1/8 28 7/8
- -------------------------------------------------------------------------------
Cash
Dividends End of
1998 Declared Low High Period
- -------------------------------------------------------------------------------
Fourth $ .11 $ 18 7/8 $ 28 1/8 $ 27 7/16
Third .11 20 5/8 34 5/8 24 3/8
Second .11 31 7/16 36 1/4 33 1/4
First .11 28 9/16 35 34 3/4
- -------------------------------------------------------------------------------
Market Makers:
Adams, Harkness & Hill, Inc.
Advest, Inc.
Bear, Stearns & Co., Inc.
First Albany Corporation
F.J. Morrissey & Co., Inc.
Fox-Pitt, Kelton, Inc.
Friedman, Billings, Ramsey & Co., Inc.
Herzog, Heine, Geduld, Inc.
Jeffries & Company, Inc.
J.P. Morgan Securities Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities, L.P.
Legg Mason Wood Walker Inc.
Lehman Brothers Inc.
Mayer & Schweitzer Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Paine Webber Inc.
Ryan Beck & Co., Inc.
Sandler O'Neill & Partners
Sherwood Securities Corp.
Salomon Smith Barney Inc.
Spear, Leeds & Kellogg
Troster Singer Corp.
Tucker Anthony Incorporated
USCC Trading, Div. Fleet Secs
Warburg Dillon Read, L.L.C.
Research Coverage:
Advest, Inc.
Duff & Phelps Credit Rating Co.
First Albany Corporation
Fitch IBCA, Inc.
Fox-Pitt, Kelton
Friedman, Billings, Ramsey & Co., Inc.
Keefe, Bruyette & Woods, Inc.
Johnston Lemon and Co.
Lehman Brothers, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Ryan Beck and Co.
Sandler O'Neil & Partners
Standard and Poor's
Tucker Cleary Incorporated
Value Line
Annual Meeting
The annual meeting of shareholders of Webster Financial Corporation will be held
on April 27, 2000 at 4:00 P.M. at the Courtyard by Marriott, 63 Grand Street,
Waterbury, Connecticut. As of February 28, 2000 there were 43,010,202 shares of
common stock outstanding and approximately 12,000 shareholders of record.
Webster Bank Information
For more information on Webster Bank products and services, call 1-800-325-2424,
or write:
Webster Bank
Customer Contact Center
P.O. Box 191
CH420
Waterbury, Connecticut 06720-0191
www.websterbank.com