WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
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Page
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Management's Report F-2
Independent Auditor's Report F-2
Consolidated Statements of Condition F-3
Consolidated Statements of Income F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Comprehensive Income F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
F-1
MANAGEMENT'S REPORT
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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 accounting
principles generally accepted in the United States of America and include
amounts that are based on the best estimates and judgment 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 /s/ Peter J. Swiatek
James C. Smith Peter J. Swiatek
Chairman and Chief Executive Officer Controller
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INDEPENDENT AUDITORS' REPORT
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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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
January 23, 2001
Hartford, Connecticut
F-2
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
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(In thousands, except share and per share data) 2000 1999
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ASSETS:
Cash and due from depository institutions $ 265,035 $ 245,783
Interest-bearing deposits 1,751 37,838
Securities: (Note 3 and 9)
Trading, at fair value 6 50,854
Available for sale, at fair value 3,143,327 2,700,585
Held to maturity, (fair value: $248,215 in 2000; $300,282 in 1999) 261,747 315,462
Loans receivable, net (Note 4) 6,819,209 6,022,236
Accrued interest receivable 69,733 58,918
Premises and equipment, net (Note 5) 94,263 103,403
Intangible assets 326,142 138,829
Cash surrender value of life insurance 174,295 148,252
Prepaid expenses and other assets (Note 6) 94,000 109,584
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Total assets $ 11,249,508 $ 9,931,744
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (Note 7) $ 6,941,522 $ 6,191,091
Federal Home Loan Bank advances (Note 8) 2,380,074 1,714,441
Securities sold under agreement to repurchase and other borrowings (Note 9) 650,151 1,074,004
Advance payments by borrowers for taxes and insurance 39,606 41,605
Accrued expenses and other liabilities 148,204 75,359
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Total liabilities $ 10,159,557 $ 9,096,500
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Corporation-obligated mandatorily redeemable capital securities
of subsidiary trusts (Note 18) $ 150,000 $ 150,000
Preferred stock of subsidiary corporation (Note 19) 49,577 49,577
SHAREHOLDERS' EQUITY: (NOTE 13)
Common stock, $.01 par value:
Authorized - 200,000,000 shares at December 31, 2000 and 1999;
Issued - 49,502,843 shares at December 31, 2000
and 45,243,770 shares at December 31,1999 495 452
Paid-in capital 416,334 301,336
Retained earnings 490,078 400,413
Less Treasury stock at cost, 563,417 shares at December 31,
2000 and 140,000 shares at December 31, 1999 (13,361) (3,274)
Unearned compensation (1,640) --
Less employee stock ownership plan shares purchased with debt (642) (1,127)
Accumulated other comprehensive loss (890) (62,133)
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Total shareholders' equity $ 890,374 $ 635,667
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Commitments and contingencies (Notes 4, 5 and 20)
Total liabilities and shareholders' equity $ 11,249,508 $ 9,931,744
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See accompanying notes to consolidated financial statements.
F-3
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
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(In thousands, except per share data) 2000 1999 1998
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INTEREST INCOME:
Loans $ 518,315 $ 435,326 $ 430,636
Securities and interest-bearing deposits 220,596 210,466 251,601
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Total interest income 738,911 645,792 682,237
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INTEREST EXPENSE:
Deposits (Note 7) 224,294 203,805 241,181
Borrowings 188,101 138,474 158,445
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Total interest expense 412,395 342,279 399,626
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Net interest income 326,516 303,513 282,611
Provision for loan losses (Note 4) 11,800 9,000 8,103
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Net interest income after provision for loan losses 314,716 294,513 274,508
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NONINTEREST INCOME:
Fees and service charges 60,059 49,523 37,543
Trust and investment services 18,184 10,246 6,045
Financial advisory services 1,290 -- --
Insurance commissions 14,360 7,167 3,662
Gain on sale of loans and loan servicing, net 3,956 4,434 5,754
Gain on sale of securities, net (Note 3) 8,445 4,248 17,015
Gain on sale of deposits 4,859 -- --
Increase in cash surrender value of life insurance 8,555 7,892 5,607
Other noninterest income 9,113 9,120 7,012
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Total noninterest income 128,821 92,630 82,638
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NONINTEREST EXPENSES:
Compensation and benefits 122,257 106,493 92,506
Occupancy expense 24,774 20,892 19,068
Furniture and equipment expense 26,302 22,302 19,335
Intangible amortization expense 22,400 13,780 10,033
Marketing expense 9,118 9,584 7,392
Professional services expense 7,399 9,144 10,257
Acquisition-related expenses (Note 16) -- 9,500 20,993
Capital securities expense (Note 18) 14,323 14,645 14,708
Dividends on preferred stock of subsidiary corporation (Note 19) 4,151 4,151 4,151
Other operating expenses 36,406 33,970 30,990
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Total noninterest expenses 267,130 244,461 229,433
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Income before income taxes 176,407 142,682 127,713
Income taxes (Note 12) 58,116 47,332 49,694
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NET INCOME $ 118,291 $ 95,350 $ 78,019
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NET INCOME PER COMMON SHARE (NOTE 14):
Basic $ 2.58 $ 2.14 $ 1.72
Diluted 2.55 2.10 1.69
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See accompanying notes to consolidated financial statements.
F-4
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Employee Accumulated
Stock Other
Ownership Compre-
Unearned Plan Shares hensive
Common Paid-in Retained Treasury Compen- Purchased Income
(In thousands, except per share data) Stock Capital Earnings Stock sation With Debt (Loss) Total
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Balance, December 31, 1997 $ 450 $ 302,469 $ 263,947 $ (1,116) $ -- $ (1,971) $ 21,824 $ 585,603
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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 -- -- 4,898 -- -- -- -- 4,898
Other, net 10 282 (1) 214 -- -- -- 505
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Balance, December 31, 1998 $ 457 $ 308,790 $ 325,805 $ (27,914) $ -- $ (1,339) $ 20,655 $ 626,454
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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)
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Balance, December 31, 1999 $ 452 $ 301,336 $ 400,413 $ (3,274) $ -- $ (1,127) $ (62,133) $ 635,667
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See accompanying notes to consolidated financial statements.
F-5
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
Employee Accumulated
Stock Other
Ownership Compre-
Unearned Plan Shares hensive
Common Paid-in Retained Treasury Compen- Purchased Income
(In thousands, except per share data) Stock Capital Earnings Stock sation With Debt (Loss) Total
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Net income for 2000 -- -- 118,291 -- -- -- -- 118,291
Dividends paid:
$.62 per common share -- -- (28,645) -- -- -- -- (28,645)
Allocation of ESOP shares -- 814 -- -- -- 485 -- 1,299
Exercise of stock options 9 13,299 -- -- -- -- -- 13,308
Common stock repurchased -- -- -- (110,797) -- -- -- (110,797)
Consideration granted for
purchase acquisitions 34 104,274 -- 99,758 -- -- -- 204,066
Restricted stock grants, net
of amortization (23) (35) 952 (1,640) -- -- (746)
Net unrealized gain on
securities available for
sale, net of taxes -- -- -- -- -- -- 61,243 61,243
Common stock retired for
purchase acquisitions (3,603) -- -- -- -- -- (3,603)
Other, net -- 237 54 -- -- -- -- 291
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Balance, December 31, 2000 $ 495 $ 416,334 $ 490,078 $ (13,361) $ (1,640) $ (642) $ (890) $ 890,374
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
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(In thousands) 2000 1999 1998
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Net Income $ 118,291 $ 95,350 $ 78,019
Other comprehensive income (loss), net of tax
Unrealized net holding gain (loss) on securities available for sale arising
during year (net of income tax effect of $44,297, $(54,370),
and $6,410 for 2000, 1999 and 1998, respectively) 67,973 (79,865) 9,407
Reclassification adjustment for net gains included in
net income (net of income tax effect of $3,315, $1,992
and $7,206 for 2000, 1999, and 1998, respectively) (6,730) (2,923) (10,576)
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Other comprehensive income (loss) 61,243 (82,788) (1,169)
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Comprehensive income $ 179,534 $ 12,562 $ 76,850
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See accompanying notes to consolidated financial statements.
F-6
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
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(In thousands) 2000 1999 1998
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OPERATING ACTIVITIES:
Net income $ 118,291 $ 95,350 $ 78,019
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 11,800 9,000 8,103
Provision for foreclosed property losses -- 100 330
Provision for depreciation on premises and equipment 20,606 13,190 14,131
(Accretion) amortization of securities and loan premiums, net (457) 4,753 7,371
Amortization of intangible assets 22,400 13,780 10,033
Amortization of hedging costs, net 3,985 4,696 4,669
Amortization of mortgage servicing rights 1,614 1,639 1,303
Gain on sale of deposits (4,859) -- --
Gain on sale of foreclosed properties, net (906) (906) (822)
Gain on sale of loans and servicing, net (3,956) (4,434) (5,754)
Gain on sale of securities, net (10,045) (4,722) (17,782)
Losses on trading securities, net 1,600 474 767
Decrease (increase) in trading securities 49,346 39,786 (7,132)
Loans originated for sale (187,921) (221,171) (106,156)
Proceeds from sale of loans, originated for sale 179,591 228,280 111,109
Other loan sales -- -- 46,400
(Increase) decrease in interest receivable (5,072) 3,734 (2,509)
(Increase) decrease in prepaid expenses and other assets (15,411) 3,847 15,430
Increase (decrease) in interest payable 9,294 (12,513) 2,890
Increase (decrease) in accrued expenses and other liabilities, net 31,194 (334) (8,006)
Increase in cash surrender value of life insurance, net (7,940) (7,193) (5,621)
Adjustment to conform Eagle's fiscal year end -- -- 4,898
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Net cash provided by operating activities 213,154 167,356 151,671
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INVESTING ACTIVITIES:
Purchases of securities, available for sale (1,294,590) (1,150,893) (2,501,136)
Purchases of securities, held to maturity -- (1,283) (152,662)
Principal collected on investment securities 293,263 648,648 988,390
Maturities of securities 13,872 446,910 253,893
Proceeds from sales of securities, available for sale 955,214 513,714 1,527,959
Proceeds from sales of securities, held to maturity -- 15,458 --
Decrease (increase) in interest-bearing deposits 48,087 (18,654) 76,856
Purchase of loans -- -- (66,173)
(Increase) decrease in loans, net (135,167) (325,366) 21,395
Proceeds from sale of foreclosed properties 10,376 10,081 16,383
Purchases of life insurance, net -- -- (122,700)
Purchase of premises and equipment, net (6,893) (16,339) (22,050)
Net cash received (paid) for purchase acquisitions
and sale transaction 221,625 16,706 (67)
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Net cash provided by investing activities 105,787 138,982 20,088
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FINANCING ACTIVITIES:
Net decrease in deposits (79,095) (405,124) (98,531)
Repayment of FHLB advances (3,290,442) (2,976,192) (4,425,651)
Proceeds from FHLB advances 3,629,171 2,888,794 4,688,547
Repayment of securities sold under agreement to repurchase
and other borrowings (24,620,062) (47,272,507) (19,133,606)
Proceeds from securities sold under agreement to repurchase
and other borrowings 24,195,676 47,567,986 18,858,140
Net proceeds from issuance of capital securities -- -- 5,000
Cash dividends to common and preferred shareholders (28,645) (20,729) (21,058)
Net (decrease) increase in advance payments for taxes and insurance (8,803) 6,894 1,629
Exercise of stock options 13,308 9,342 11,126
Common stock repurchased (110,797) (72,161) (39,873)
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Net cash used by financing activities (299,689) (273,697) (154,277)
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See accompanying notes to consolidated financial statements.
F-7
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
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(In thousands) 2000 1999 1998
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Increase in cash and cash equivalents 19,252 32,641 17,482
Cash and cash equivalents at beginning of year 245,783 213,142 195,660
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Cash and cash equivalents at end of year $ 265,035 $ 245,783 $ 213,142
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Years Ended December 31,
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(In thousands) 2000 1999 1998
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SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 49,230 $ 50,862 $ 39,324
Interest paid 405,502 353,414 395,806
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to foreclosed properties 7,577 9,022 5,498
Transfer of securities from held to maturity to
available for sale -- -- 2,492
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Assets acquired and liabilities assumed in purchase business combinations and
assets sold and liabilities extinguished in sale transaction were as follows:
Twelve Months Ended December 31,
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(In thousands) 2000 1999 1998
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Fair value of noncash assets acquired in purchase acquisitions $ 1,011,434 $ 283,609 $ 1,160
Fair value of liabilities assumed in purchase acquisitions 1,232,409 289,918 1,991
Common stock issued in purchase acquisitions 200,463 79,779 9,268
Fair value of net assets sold in sale transaction 45,591 -- --
Fair value of liabilities sold in sale transaction 35,795 -- --
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See accompanying notes to consolidated financial statements.
F-8
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
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 (the "Bank"), Damman Associates, Inc. ("Damman") and
Webster D&P Holdings, Inc. ("Duff & Phelps"), delivers financial services to
individuals, families and businesses primarily in Connecticut and financial
advisory services to public and private companies throughout the United States.
Webster provides business and consumer banking, mortgage lending, trust and
investment services and insurance services through 114 banking offices and other
offices, over 200 ATM's and the internet (www.websterbank.com). Webster's online
mortgage subsidiary Nowlending, LLC, at www.nowlending.com originates
residential mortgages throughout the United States. 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, as though this pooling of interests
merger had occurred at the beginning of the earliest period presented (see Note
2). The number of common shares has been restated for stock dividends and stock
splits (see Note 13). The Consolidated Financial Statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America and all significant intercompany transactions have been eliminated in
consolidation.
The preparation of the Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States of America
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 consist of properties acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure. These assets are recorded at the
lower of fair value of the asset acquired less estimated costs to sell or "cost"
(defined as the fair value at initial foreclosure). At the time of foreclosure,
or when foreclosure occurs in-substance, the excess, if any, of the loan over
fair market value of the assets received, less estimated selling costs, is
charged to the allowance for loan losses and any subsequent valuation writedowns
are charged to other expense. Operating costs associated with the properties are
charged to expense as incurred. Gains on sale of foreclosed properties are
included in income when title has passed and the sale has met minimum down
payment requirements prescribed by generally accepted accounting principles.
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. Loans are placed on nonaccrual status when timely
collection of principal and interest in accordance with contractual terms is
doubtful. Loans are transferred to a nonaccrual basis generally when principal
or interest payments become 90 days delinquent, unless the loan is well secured
and in process of collection, or sooner when management concludes circumstances
indicate that borrowers may be unable to meet contractual principal or interest
payments.
F-9
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrual of interest is discontinued if the loan is placed on nonaccrual status.
When a loan is transferred to nonaccrual status, unpaid accrued interest is
reversed and charged against income. If ultimate repayment of a nonaccrual loan
is expected, any payments received are applied in accordance with contractual
terms. If ultimate repayment is not expected or management judges it to be
prudent, any payment received on a nonaccrual loan is applied to principal until
ultimate repayment becomes expected. 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.
Commercial type loans are considered impaired when it is probable that the
borrower will not repay the loan according to the original contractual terms of
the loan agreement, and all loan types are considered impaired if the loan is
restructured in a troubled debt restructuring subsequent to January 1, 1995.
Impaired loans included in nonperforming loans generally are nonaccrual
commercial type loans, commercial type loans past due 90 days or more and still
accruing interest, and all loans restructured in a troubled debt restructuring
subsequent to January 1, 1995.
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 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.
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 fair 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.
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.
F-10
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 RETIREMENT 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.
F-11
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L) NET INCOME PER COMMON SHARE
Basic net income per common 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 common share is calculated by dividing
adjusted net income by the weighted-average diluted common shares, including the
effect of potential common stock. Potential common stock consists of common
stock options. 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 15.
Compensation expense in connection with the Company's ESOP is recorded based on
the 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, cash on hand and in banks is
reflected 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 servicing 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
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). At the Company,
comprehensive income represents net income plus other comprehensive income,
which consists of the net change in unrealized gains or losses in securities
available for sale, net of income taxes, for the period. Accumulated other
comprehensive income represents the net unrealized gains or losses on securities
available for sale, net of income taxes, as of the balance sheet dates.
R) RECLASSIFICATIONS
Certain financial statement balances as previously reported have been
reclassified to conform to the 2000 Consolidated Financial Statements
presentation.
F-12
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: BUSINESS COMBINATIONS
POOLING OF INTERESTS TRANSACTION
Since January 1, 1999, Webster has completed one acquisition which was accounted
for under the pooling of interests method of accounting and includes financial
data as if the business 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 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.
PURCHASE TRANSACTIONS
The following acquisitions, effective since January 1, 1999, were accounted for
as purchase transactions, and as such, results of operations are included in the
Consolidated Financial Statements subsequent to acquisition.
THE DUFF & PHELPS ACQUISITION
In November 2000, Webster, through its newly formed company Duff & Phelps,
acquired a 65% interest in Duff & Phelps, LLC, a privately-owned company which
has offices in Chicago, New York, Los Angeles, and Raleigh-Durham, NC. Duff &
Phelps provides expertise in middle-market mergers and acquisitions, private
placements, fairness opinions, valuations, ESOP and ERISA advisory services, and
special financial advisory services. Duff & Phelps is expected to add in excess
of $20 million of fee-based revenue on an annual basis, and further accelerates
progress toward the strategic objective of broadening commercial bank product
offerings and increasing revenue from fee-based services.
THE FLEETBOSTON BRANCH ACQUISITION
In August 2000, Webster purchased four Connecticut branches from FleetBoston
Financial Corporation that were divested as the result of the Fleet-BankBoston
merger. The branches had approximately $138 million in deposit balances at the
time of closing and 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. This transaction
strengthened and extended the Bank's retail franchise.
THE MECHANICS ACQUISITION
In June 2000, Webster acquired MECH Financial, Inc. ("Mechanics"), the holding
company for Mechanics Savings Bank, in a non taxable, stock-for-stock exchange.
Mechanics Savings Bank was 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 received 1.52 shares of Webster
common stock for each share of Mechanics common stock. The acquisition
strengthened Webster's market share in Hartford County, where Webster already
ranked second in deposit market share.
THE CHASE BRANCH ACQUISITION
In May 2000, Webster purchased six Connecticut branches from The Chase Manhattan
Bank, located in Cheshire, Middlebury, North Haven, Waterbury (2) and Watertown
with approximately $135 million in deposit balances. The transaction included
the purchase of consumer deposits, small business deposits and loans, and
brokerage and custody accounts associated with these branches. This transaction
strengthened and extended the Bank's retail franchise.
F-13
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE FOLLIS, WYLIE & LANE ACQUISITION AND THE LEVINE ACQUISITION
Webster also actively engaged during 2000 in building a dynamic statewide
insurance operation, purchasing the Louis Levine Agency, Inc. ("Levine") and
Follis Wylie & Lane, Inc. ("Follis"). Webster entered the insurance agency
business in 1998. Webster Insurance offers a full line of commercial and
personal insurance; risk management services; employee benefit plans; life
insurance and annuities, and writes in excess of $180 million in annual
premiums. In April 2000, Webster through its wholly-owned insurance subsidiary
Damman acquired Follis, a privately owned Hamden, Connecticut-based insurance
agency. Follis offers a full range of insurance services, including property and
casualty, life and health. In February 2000, through Damman, Webster acquired
Levine, a privately-owned Waterford and Norwich, Connecticut based insurance
agency. Founded in 1928, the company includes three entities: Louis Levine
Agency, Inc., Levine Financial Services, Inc. and Retirement Planning
Associates, Inc.
THE VILLAGE ACQUISITION
In May 1999, Webster acquired Village Bancorp, Inc. ("Village"), the holding
company for The Village Bank & Trust Company in a non taxable, stock-for-stock
exchange. Village had approximately $215 million in total assets and $200
million in deposits at six branches.
THE MARITIME ACQUISITION
In April 1999, Webster acquired Maritime Bank & Trust Company ("Maritime"), in a
non taxable, 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.
SALE TRANSACTION
THE OLDE PORT BANK & TRUST BRANCH SALE
On December 29, 2000, Webster completed the sale of its two branches that were
located in New Hampshire. The branches were sold to Granite Bank, a New
Hampshire state-chartered commercial bank. The branches had approximately $43
million of loans and $39 million of deposits at the date of sale.
PURCHASE TRANSACTIONS SUBSEQUENT TO DECEMBER 31, 2000
THE CENTER CAPITAL ACQUISITION
In March 2001, Webster acquired Center Capital Corporation ("Center Capital"), a
privately-owned Farmington, Connecticut-based equipment financing company with
assets of $260 million. Center Capital finances commercial and industrial
equipment including trucks, tractors, trailers, machine tools and other heavy
equipment through leasing programs to customers throughout the United States.
THE MUSANTE REIHL ACQUISITION
In January 2001, through Damman, Webster acquired Musante Reihl Associates
("Musante"), a privately-owned Cheshire, Connecticut based insurance agency.
Musante specializes in group benefits, long-term care and life insurance, has
seven employees and had revenues of $850,000 in 2000.
F-14
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: SECURITIES
A summary of securities follows:
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Estimated Amortized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
TRADING SECURITIES:
Securities (a) $ 6(b) $ -- $ -- $ 6 $ 50,854(b) $ -- $ -- $ 50,854
- -----------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes $ 11,042 $ 3 $ -- $ 11,045 $ 17,070 $ 18 $ (233) $ 16,855
U.S. Government Agency 46,246 3 (353) 45,896 92,733 -- (4,338) 88,395
Municipal bonds and notes 34,401 530 (47) 34,884 27,591 3 (1,463) 26,131
Corporate bonds and notes 73,265 -- (15,379) 57,886 75,068 -- (9,895) 65,173
Equity securities (c) 177,061 4,501 (5,877) 175,685 201,352 7,684 (11,060) 197,976
Mortgage-backed
securities (a) 2,796,365 29,852 (11,571) 2,814,646 2,379,491 6,330 (88,848) 2,296,973
Purchased interest-rate
contracts (Note 10) 6,317 -- (3,032) 3,285 10,874 -- (1,792) 9,082
- -----------------------------------------------------------------------------------------------------------------------------------
$3,144,697 $34,889 $(36,259) $3,143,327 $2,804,179 $14,035 $(117,629) $2,700,585
- -----------------------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes $ 3,786 $ 5 $ (2) 3,789 $ 10,396 $ -- $ (112) $ 10,284
U.S. Government Agency -- -- -- -- 1,520 -- (6) 1,514
Municipal bonds and notes 23,267 173 (31) 23,409 24,861 39 (783) 24,117
Corporate bonds and notes 135,404 -- (12,879) 122,525 135,476 405 (12,322) 123,559
Mortgage-backed
securities (a) 99,290 558 (1,356) 98,492 143,209 544 (2,945) 140,808
- -----------------------------------------------------------------------------------------------------------------------------------
$ 261,747 $ 736 $(14,268) $ 248,215 $ 315,462 $ 988 $ (16,168) $ 300,282
- -----------------------------------------------------------------------------------------------------------------------------------
Total $3,406,450 $35,625 $(50,527) $3,391,548 $3,170,495 $15,023 $(133,797) $3,051,721
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------------
Amortized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------
TRADING SECURITIES:
Securities (a) $ 91,114(b) $ -- $ -- $ 91,114
- ---------------------------------------------------------------------------------
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes $ 25,617 $ 400 $ -- $ 26,017
U.S. Government Agency 106,427 1,018 (109) 107,336
Municipal bonds and notes 27,874 776 (29) 28,621
Corporate bonds and notes 92,062 601 (2,178) 90,485
Equity securities (c) 244,670 8,107 (4,763) 248,014
Mortgage-backed
securities (a) 2,616,695 40,469 (5,299) 2,651,865
Purchased interest-rate
contracts (Note 10) 15,985 -- (3,437) 12,548
- ---------------------------------------------------------------------------------
$3,129,330 $51,371 $(15,815) $3,164,886
- ---------------------------------------------------------------------------------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes $ 2,955 $ 18 $ -- $ 2,973
U.S. Government Agency 7,399 24 -- 7,423
Municipal bonds and notes 15,339 477 -- 15,816
Corporate bonds and notes 151,801 2,631 (1,171) 153,261
Mortgage-backed
securities (a) 229,335 2,432 (1,044) 230,723
- ---------------------------------------------------------------------------------
$ 406,829 $ 5,582 $ (2,215) $ 410,196
- ---------------------------------------------------------------------------------
Total $3,627,273 $56,953 $(18,030) $3,666,196
- ---------------------------------------------------------------------------------
<FN>
(a) Includes mortgage-backed securities, which are guaranteed by Fannie Mae, Federal Home Loan Mortgage Corporation and Government
National Mortgage Association and represent participating interests in direct pass through pools of mortgage loans originated
and serviced by the issuers of the securities, short and long futures positions.
(b) Stated at fair value, including the effect of short and long futures positions.
(c) As of December 31, 2000, the fair value of equity securities consisted of Federal Home Loan Bank ("FHLB") stock of $125.3
million, preferred stock of $8.2 million and common stock of $42.2 million. 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.
</FN>
F-15
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of realized gains and losses follows:
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) Gains Losses Net Gains Losses Net Gains Losses Net
- -----------------------------------------------------------------------------------------------------------------------------------
TRADING SECURITIES:
Mortgage-backed securities $ 3,069 $ (2,273) $ 796 $ 2,006 $ (5,328) $ (3,322) $ 4,789 $ (3,548) $ 1,241
Futures and options contracts 10,505 (12,901) (2,396) 13,107 (10,259) 2,848 8,015 (10,023) (2,008)
- -----------------------------------------------------------------------------------------------------------------------------------
13,574 (15,174) (1,600) 15,113 (15,587) (474) 12,804 (13,571) (767)
- -----------------------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY:
Corporate debt -- -- -- -- (193) (193) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Mortgage-backed securities 2,857 (292) 2,565 2,704 (428) 2,276 7,149 (230) 6,919
U.S. Treasury Notes 13 (154) (141) 15 (5) 10 5 -- 5
U.S. Government Agencies 5 (849) (844) 38 (556) (518) 49 (6) 43
Corporate debt -- (71) (71) 210 (118) 92 -- (6) (6)
Mutual funds -- (640) (640) 263 (90) 173 1,156 -- 1,156
Other equity securities 9,644 (418) 9,226 3,456 (429) 3,027 9,627 (899) 8,728
Other -- (50) (50) 27 (172) (145) 982 (45) 937
- -----------------------------------------------------------------------------------------------------------------------------------
12,519 (2,474) 10,045 6,713 (1,798) 4,915 18,968 (1,186) 17,782
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 26,093 $ (17,648) $ 8,445 $ 21,826 $ (17,578) $ 4,248 $ 31,772 $ (14,757) $ 17,015
- -----------------------------------------------------------------------------------------------------------------------------------
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,
2000 and 1998.
Webster enters into short and long futures and options positions to minimize the
price volatility of certain assets held as trading securities and to profit from
trading opportunities. At December 31, 2000, Webster had 200 short and 200 long
contracts of 10 year Treasury note futures ($20.0 million notional amount for
each). At December 31, 1999, Webster had 321 short positions of Eurodollar
futures contracts ($321.0 million notional amount) and 310 short contracts of 5
year Treasury note futures ($310 million notional amount). Changes in the market
value of futures and options positions are recognized as a gain or loss in the
period for which the change occurred. All gains and losses resulting from
futures and options positions are reflected in gains (losses) on sale of
securities, net in the Consolidated Statements of Income.
F-16
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2000, 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, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING SECURITIES AVAILABLE FOR SALE HELD TO MATURITY
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 $ 6 $ 6 --% $ 10,797 $ 10,810 5.02% $ 8,458 $ 8,433 5.87%
After 1 but within
5 years -- -- -- 51,671 52,198 6.41 13,708 13,753 5.97
After 5 but within
10 years -- -- -- 466,674 466,346 6.51 28,987 29,032 6.39
After 10 years -- -- -- 2,432,177 2,435,003 6.69 210,594 196,997 7.67
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6 $ 6 --% $2,961,319 $2,964,357 6.65% $ 261,747 $ 248,215 7.38%
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, the Bank held securities with the following single issuers
whose aggregate book value exceeded ten percent of total stockholders' equity,
or $89.0 million.
At December 31, 2000
- ---------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Issuer (In thousands) Book Value Market Value
- ---------------------------------------------------------------------------------------------------------
FHLB $ 137,482 $ 137,353
FHLMC 887,538 898,567
FNMA 1,069,875 1,083,103
GNMA 118,973 120,996
Nomura Asset Security Corp 100,415 100,797
F-17
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LOANS RECEIVABLE, NET
A summary of loans receivable, net follows:
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Amount % Amount %
------ --- ------ ---
MORTGAGE LOANS SECURED BY REAL ESTATE:
Conventional, VA and FHA $ 3,802,169 55.7% $ 3,558,636 59.1%
Conventional, VA and FHA loans held for sale 17,730 0.3 7,022 0.1
Residential participation 28,795 0.4 15,895 0.3
Residential construction 433,489 6.4 427,186 7.1
Commercial construction 72,216 1.0 45,648 0.8
Other commercial 791,200 11.6 695,442 11.5
- ------------------------------------------------------------------------------------------------------------------------------------
5,145,599 75.4 4,749,829 78.9
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL LOANS:
Commercial loans 1,211,011 17.7 918,583 15.3
Commercial loans held for sale 3,410 0.1 -- 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
1,214,421 17.8 918,583 15.3
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS:
Home equity loans 605,673 8.9 489,257 8.1
Other consumer loans 88,229 1.3 46,737 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
693,902 10.2 535,994 8.9
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS LOANS RECEIVABLE 7,053,922 103.4 6,204,406 103.1
- ------------------------------------------------------------------------------------------------------------------------------------
Loans in process (136,090) (2.0) (129,665) (2.2)
Allowance for loan losses (90,809) (1.3) (72,658) (1.2)
(Discounts) premiums on loans purchased and
acquired, net (23,217) (0.3) 10,496 0.2
Deferred costs, net 15,403 0.2 9,657 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE, NET $ 6,819,209 100.0% $ 6,022,236 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
A detail of the changes in the allowances for loan losses for three years
follows:
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 72,658 $ 65,201 $ 71,599
Provisions charged to operations 11,800 9,000 8,103
Allowances from purchase transactions 10,980 3,647 --
Reclassification of allowance for segregated asset losses -- -- 2,623
Charge-offs (6,816) (7,406) (21,262)
Recoveries 2,187 2,216 4,138
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 90,809 $ 72,658 $ 65,201
- -------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, Webster had $21.3 million of impaired loans as defined by
SFAS No. 114, of which $14.2 million were measured based upon the expected fair
value of the underlying collateral and $7.1 million were measured based upon the
expected future cash flows of the impaired loans. The $14.2 million of impaired
loans have an allowance for loan losses of $1.2 million and $7.1 million of
impaired loans had an allowance for loan losses of $146,000. 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 had an allowance for loan losses of $1.5
million and the $3.3 million
F-18
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of impaired loans had an allowance for loan losses of $291,000. In 2000, 1999
and 1998, the average balance of impaired loans was $16.3 million, $13.1 million
and $18.3 million, respectively.
Webster's policy with regard to the recognition of interest income on commercial
impaired loans includes an individual assessment of each loan. Interest that is
more than 90 days past due is not accrued. When payments on commercial 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 commercial impaired loans for the years 2000, 1999 and 1998
amounted to $414,000, $782,000 and $603,000, respectively.
At December 31, 2000 and 1999, the Bank had total troubled debt restructurings
of approximately $5.7 million and $5.9 million, respectively. Interest income
booked for 2000 under the restructured terms totaled $469,000 as compared to
$813,000 that would have been booked had the restructured loans been under their
original terms during 2000. Interest income booked for 1999 under the
restructured terms totaled $421,000 as compared to $746,000 that would have been
booked had the restructured loans been under their original terms during 1999.
Webster's nonaccrual loans totaled $41.0 million and $38.4 million, respectively
at December 31, 2000 and 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" Item 7 - "Asset Quality" for
further information on nonaccrual loans and delinquencies.
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 include commitments
to extend credit and commitments to sell residential first mortgage loans and
commercial 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, 2000 and 1999. Future loan commitments represent
residential and commercial mortgage loan commitments, commercial loan
commitments, letters of credit, and unused home equity and commercial unused
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, 2000 and 1999, residential mortgage commitments totaled $75.3
million and $71.4 million, respectively. Residential commitments outstanding at
December 31, 2000 consisted of adjustable-rate and fixed-rate mortgages of $15.6
million and $59.7 million, respectively, at rates ranging from 6.5% to 10.7%.
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 5.3% to 11.5%. Commitments to originate
loans generally expire within 60 days. In addition, at December 31, 2000 and
1999, there were unused portions of home equity credit lines extended of $471.8
million and $367.3 million, respectively. Unused commercial lines of credit,
letters of credit, standby letters of credit and outstanding commercial new loan
commitments totaled $823.5 million and $610.6 million at December 31, 2000 and
1999, respectively.
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, 2000 and 1999, Webster had forward commitments to sell loans
totaling $27.8 million and $7.0 million, respectively, at rates between 6.0% and
8.4%, and 6.5% and 8.8%, respectively. The estimated fair value of commitments
to sell loans is considered insignificant at December 31, 2000 and 1999.
At December 31, 2000 and 1999, Webster serviced, for the benefit of others,
mortgage loans aggregating approximately $1.1 billion and $1.3 billion,
respectively.
F-19
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2000 and 1999, Webster capitalized mortgage servicing assets of $652,000
and $801,000, respectively, related to originating loans and selling them with
servicing retained. During 2000, Webster sold mortgage servicing rights with a
book value of $694,000. Amortization of mortgage servicing rights was $1.6
million for each of the 2000 and 1999 periods.
NOTE 5: PREMISES AND EQUIPMENT, NET
A summary of premises and equipment, net follows:
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Land $ 13,474 $ 15,841
Buildings and improvements 72,976 78,392
Leasehold improvements 14,428 10,182
Furniture, fixtures and equipment 103,242 87,240
- ---------------------------------------------------------------------------------------------------------------------------------
Total premises and equipment 204,120 191,655
Accumulated depreciation and amortization (109,857) (88,252)
- ---------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net $ 94,263 $ 103,403
- ---------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, 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 $8.9 million, $7.1 million and $6.3
million in 2000, 1999, and 1998, respectively. Webster is also entitled to
rental income under various non-cancelable operating leases for properties
owned. Rental income under these leases was $1.3 million, $2.4 million and $3.1
million in 2000, 1999 and 1998, respectively.
The following is a schedule of future minimum rental payments and receipts
required under these leases as of December 31, 2000:
(In thousands) Payments Receipts
- -----------------------------------------------------------------------------------------------------------------------------------
Years ending December 31:
2001 $ 11,299 $ 1,253
2002 10,388 909
2003 9,277 686
2004 7,521 438
2005 5,697 354
Later years 38,314 1,075
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 82,496 $ 4,715
- -----------------------------------------------------------------------------------------------------------------------------------
F-20
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: PREPAID EXPENSES AND OTHER ASSETS
A summary of prepaid expenses and other assets follows:
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax asset, net (Note 12) $ 33,917 $ 68,744
Venture capital investments 14,333 3,266
Receivables 13,534 7,782
Unsettled securities sales 8,334 --
Prepaids 6,764 6,166
Mortgage servicing rights, net 4,962 6,429
Foreclosed properties 3,295 4,909
Unamortized issuance costs 3,720 2,994
Income taxes receivable 104 2,077
Due from FDIC -- 679
Other assets 5,037 6,538
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets $ 94,000 $ 109,584
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE 7: DEPOSITS
The following table sets forth the deposit accounts of the Bank in dollar
amounts and as percentages of total deposits at the dates indicated.
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted % of Weighted % of Weighted % of
average total average total average total
(Dollars in thousands) rate Amount deposits rate Amount deposits rate Amount deposits
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE BY ACCOUNT TYPE:
Demand deposits --% $ 851,071 12.3% --% $ 675,449 10.9% --% $ 626,996 9.9%
NOW accounts .77 752,600 10.8 1.20 700,243 11.3 1.24 694,074 11.0
Regular savings and money
market deposit accounts 2.49 1,916,543 27.6 2.56 1,719,562 27.8 2.52 1,582,424 25.1
Time deposits 5.24 3,421,308 49.3 4.84 3,095,837 50.0 5.07 3,409,480 54.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total 3.35% $ 6,941,522 100.0% 3.26% $ 6,191,091 100.0% 3.53% $ 6,312,974 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense on deposits is summarized as follows:
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
NOW accounts $ 6,195 $ 14,587 $ 12,724
Regular savings and money market deposit accounts 44,746 34,655 35,935
Time deposits 173,353 154,563 192,522
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 224,294 $ 203,805 $ 241,181
- -----------------------------------------------------------------------------------------------------------------------------
F-21
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the amount of time deposits maturing during the
periods indicated:
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) Totals
- -----------------------------------------------------------------------------------------------------------------------------
Maturing:
January 1, 2001 to December 31, 2001 $ 2,545,806
January 1, 2002 to December 31, 2002 680,581
January 1, 2003 to December 31, 2003 104,686
January 1, 2004 to December 31, 2004 26,542
January 1, 2005 to December 31, 2005 36,817
January 1, 2006 and beyond 26,876
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 3,421,308
- -----------------------------------------------------------------------------------------------------------------------------
Time deposits of $100,000 or more amounted to $590.1 million and $493.6 million
and represented approximately 8.5% and 8.0% of total deposits at December 31,
2000 and 1999, respectively.
The following table represents the amount of time deposits of $100,000 or more
maturing during the periods indicated:
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands) Totals
- ----------------------------------------------------------------------------------------------------------------------------
Maturing:
January 1, 2001 to March 31, 2001 $ 236,928
April 1, 2001 to June 30, 2001 105,962
July 1, 2001 to December 31, 2001 102,024
January 1, 2002 and beyond 145,229
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 590,143
- ----------------------------------------------------------------------------------------------------------------------------
F-22
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Advances payable to the Federal Home Loan Bank are summarized as follows:
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Total Total
(In thousands) Outstanding Callable Outstanding Callable
- -------------------------------------------------------------------------------------------------------------------------------
FIXED RATE:
4.75% to 6.68% due in 2000 $ -- $ -- $ 833,860 $ --
5.39% to 8.20% due in 2001 1,377,405 -- 230,413 --
6.30% to 6.87% due in 2002 52,250 -- 2,250 --
5.78% to 6.67% due in 2003 214,350 -- 31,462 25,000
6.78% due in 2004 438 -- 200,540 200,000
5.91% to 6.25% due in 2005 103,571 100,000 14,296 10,000
5.97% to 6.31% due in 2006 3,054 -- 307,520 304,000
5.92% to 6.98% due in 2007 502,443 500,000 2,520 --
4.49% to 5.93% due in 2008 30,128 27,000 3,461 --
5.50% due in 2009 5,000 5,000 5,000 5,000
8.44% due in 2010 564 -- 602 --
6.60% due in 2011 2,364 -- 2,517 --
5.49% due in 2013 10,000 10,000 -- --
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,301,567 $ 642,000 $ 1,634,441 $ 544,000
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE:
6.81% due in 2004 80,000 -- 80,000 --
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,381,567 $ 642,000 $ 1,714,441 $ 544,000
- -------------------------------------------------------------------------------------------------------------------------------
Unamortized discount on FHLB advances (1,493) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Federal Home Loan Bank advances, net $ 2,380,074 $ 642,000 $ 1,714,441 $ 544,000
- -------------------------------------------------------------------------------------------------------------------------------
The Bank had additional borrowing capacity of approximately $2.0 billion from
the FHLB at December 31, 2000 and $1.4 billion at December 31, 1999. Advances
are secured by a blanket security agreement. This agreement requires the Bank to
maintain as collateral certain qualifying assets, principally mortgage loans and
securities. At December 31, 2000, the callable advances had call dates ranging
from October 3, 2000 to April 26, 2005. At December 31, 2000 and 1999, the Bank
was in compliance with the FHLB collateral requirements.
The unamortized discount on FHLB advances at December 31, 2000, is a result of
the Mechanics purchase acquisition in June 2000. The remaining balance of $1.5
million is scheduled to be amortized over a remaining life of 2 years.
F-23
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Securities sold under agreement to repurchase $ 489,434(a) $ 943,801(a)
Senior notes 126,000 40,000
Treasury tax and loan 32,918 41,187
Note payable 1,000 --
Lines of credit 442 39,000
ESOP borrowings 357 766
Federal funds purchased -- 9,250
- -----------------------------------------------------------------------------------------------------------------------------
Total (b) $ 650,151 $ 1,074,004
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Of the $489.4 million of securities sold under agreements to repurchase at December 31, 2000, none were structured
to be callable by the broker. Of the $943.8 million of securities sold under agreements to repurchase at December 31, 1999,
$75.0 million were structured so that the broker had the option to call the agreements in mid-2000.
(b) The weighted-average rates on these borrowings were 6.42% and 5.69% at December 31, 2000 and 1999, respectively.
</FN>
During 2000 and 1999, securities sold under agreements to repurchase
("repurchase agreements") were the primary source of borrowed funds with the
exception of FHLB advances (see Note 8). The average balance and
weighted-average rate for repurchase agreements were $822.9 million and 5.83%
for 2000 as compared to $786.5 million and 5.14% for 1999. Repurchase agreements
had an average balance that was 30% or more of the Bank's total equity at the
end of the 2000 and 1999 periods. Repurchase agreements were primarily
collateralized by U. S. Government agency mortgage-backed securities. The
collateral for these repurchase agreements, related to Webster's funding
operations, are delivered to broker/dealers. Repurchase agreements with
broker/dealers are limited to primary dealers in government securities. Webster
also enters into repurchase agreement transactions directly with commercial and
municipal customers through its treasury sales desk.
Information concerning repurchase agreements as of the end of the current period
is presented below:
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Balance at Book Value Market Value Average Average
Original maturity December 31, 2000 of Collateral of Collateral Rate Maturity
- ------------------------------------------------------------------------------------------------------------------------------
Up to 30 days $ 344,304 $ 344,589 $ 344,445 5.60% 4.2 days
31 to 90 days 2,440 2,447 2,481 5.43 2.0 months
Over 90 days 142,690 149,508 148,381 6.39 3.2 months
- ------------------------------------------------------------------------------------------------------------------------------
Totals $ 489,434 $ 496,544 $ 495,307 5.83% 1.9 months
- ------------------------------------------------------------------------------------------------------------------------------
F-24
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth certain information concerning short-term
borrowings under repurchase agreements at the dates and for the years indicated:
December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Average amount outstanding during the period $ 822,855 $ 786,536 $ 953,789
Amount outstanding at end of period 489,434 861,160 620,034
Highest month end balance 1,094,493 938,285 1,222,750
Weighted-average interest rate at end of period 5.83% 5.49% 5.00%
Weighted-average interest rate during the period 5.96% 5.14% 5.06%
During 2000 and 1999, Webster also borrowed under lines of credit with
correspondent banks and purchased federal funds, which are unsecured overnight
loans with banks. The Employee Stock Ownership Plan ("ESOP") loan borrowing is
from a correspondent bank at a floating rate based on the correspondent bank's
base (prime) rate and the interest rates at December 31, 2000 and 1999 were
9.50% and 8.50%, respectively. In January 2001, the remaining principal on the
ESOP borrowings was paid. Interest was paid quarterly and the borrowings were
guaranteed and secured by unallocated shares of Webster common stock under the
ESOP Plan.
In November 2000, Webster completed a private placement of $126.0 million of
8.72% unsecured Senior Notes due in 2007 (the "Senior Notes"). The net proceeds
from the note placement were generated for general corporate purposes. The
Senior Notes outstanding as of December 31, 1999, in the amount of $40.0 million
at 8.75%, originated from a 1993 offering that matured on June 30, 2000.
A note payable of $1.0 million at a fixed rate of 7.00% to Phoenix Duff & Phelps
was acquired as a result of the purchase acquisition of Duff & Phelps. The note
will mature June 30, 2001. Interest on the note is payable quarterly.
NOTE 10: INTEREST-RATE FINANCIAL INSTRUMENTS
Webster employs as part of its asset/liability management strategy various
interest-rate contracts including short and long futures and options 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, 2000 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.
F-25
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest-rate financial instruments are summarized as follows:
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Notional Fair Amortized Notional Fair Amortized
(In thousands) Amount Value Cost Amount Value Cost
- --------------------------------------------------------------------------------------------------------------------------------
Swap agreements $ 25,000 $ (7) $ -- $ 25,000 $ (1,226) $ --
Floor agreements 500,000 -- 159 500,000 137 2,154
Cap agreements 260,000 3,292 6,158 410,000 8,945 8,720
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 785,000 $ 3,285 $ 6,317 $ 935,000 $ 7,856 $ 10,874
- --------------------------------------------------------------------------------------------------------------------------------
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, 2000 and 1999, Webster had one interest-rate swap agreement,
hedging $25.0 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, 2000, 1999 and 1998, net income recorded on the deposit
swap was $57,000, $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 rate. At December 31,
2000 and 1999, Webster had three outstanding cap agreements with notional
amounts of $260.0 million related to the available for sale securities portfolio
with interest-rate caps ranging from 6.00% to 7.00%. At December 31, 2000, this
portfolio had $6.2 million of unamortized interest-rate cap balances and during
the 2000 period amortized $2.0 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, 2000, Webster had two outstanding interest-rate floor
agreements with notional amounts of $500.0 million and interest-rate floors of
5.25% and 5.75%. At December 31, 2000, Webster had $159,000 of unamortized floor
expense and during the 2000 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.
At December 31, 1999, Webster had five outstanding cap agreements with notional
amounts of $410.0 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. At
December 31, 1999, Webster had two outstanding interest-rate floor agreements
with notional amounts of $500.0 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.
F-26
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: SUMMARY OF ESTIMATED FAIR VALUES
A summary of estimated fair values consisted of the following:
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from depository institutions $ 265,035 $ 265,035 $ 245,783 $ 245,783
Interest-bearing deposits 1,751 1,751 37,838 37,838
Securities 3,401,795 3,388,263 3,057,819 3,042,639
Residential loans 4,146,780 4,193,086 3,898,943 3,869,912
Consumer loans 89,514 90,490 47,064 47,520
Home equity loans 609,293 615,163 492,684 492,106
Commercial loans 2,064,431 2,069,604 1,656,203 1,599,584
Allowance for loan losses (90,809) (90,809) (72,658) (72,658)
Interest-rate contracts 3,285 3,285 9,082 9,082
LIABILITIES:
Deposits other than time deposits $ 3,520,214 $ 3,520,214 $ 3,095,254 $ 3,095,254
Time deposits 3,421,308 3,419,898 3,095,837 3,115,113
Escrow 39,606 39,254 41,605 39,652
FHLB advances and other borrowings 3,030,225 3,054,731 2,788,445 2,778,170
Capital securities and preferred stock
of subsidiary corp. 199,577 208,271 199,577 194,344
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 a spread over
Libor 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.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at
F-27
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
one time Webster's entire holdings or any part of a particular financial
instrument. Because no market exists for a significant portion of Webster's
financial instruments, fair value estimates are based on judgements regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
factors are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision. Change
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, Webster has a substantial trust and
investment management operation that contributes net fee income annually. The
trust and investment operation is not considered a financial instrument, and its
value has not been incorporated into the fair value estimates. Other significant
assets and liabilities include the benefits resulting from the low-cost funding
of deposit liabilities as compared to the cost of borrowing funds in the market,
and premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimate of fair value.
NOTE 12: INCOME TAXES
Income taxes in the Consolidated Statements of Income comprises the following:
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
CURRENT:
Federal $ 54,720 $ 49,740 $ 35,788
State 100 494 1,821
- ------------------------------------------------------------------------------------------------------------------------------
54,820 50,234 37,609
- ------------------------------------------------------------------------------------------------------------------------------
DEFERRED:
Federal 3,296 (2,902) 1,104
State -- -- 10,981
- ------------------------------------------------------------------------------------------------------------------------------
3,296 (2,902) 12,085
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL:
Federal 58,016 46,838 36,892
State 100 494 12,802
- ------------------------------------------------------------------------------------------------------------------------------
$ 58,116 $ 47,332 $ 49,694
- ------------------------------------------------------------------------------------------------------------------------------
F-28
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense of $58.1 million, $47.3 million, and $49.7 million for the
years ended December 31, 2000, 1999 and 1998, respectively, differed from the
amounts computed by applying the federal income tax rate of 35% in 2000, 1999
and 1998 to pre-tax income as a result of the following:
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense $ 61,742 $ 49,939 $ 44,699
Increase (decrease) in income taxes resulting from:
Dividends received deduction (566) (1,091) (756)
State income taxes, net of federal income tax benefit
including change in state valuation allowance and tax rate 64 321 8,241
Tax exempt interest (822) (853) (178)
Goodwill 2,536 1,158 459
Acquisition-related expenses -- 781 1,520
Increase in cash surrender value of life insurance (3,372) (2,762) (1,963)
Other, net (1,466) (161) (2,328)
- ------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 58,116 $ 47,332 $ 49,694
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, Webster had a net deferred tax asset of $33.9 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.
Federal net operating loss carryforwards ("NOL's") total $2.1 million, expiring
in various tax years through 2011. State NOL's total $99.9 million ($33.5
million expiring in 2004, and $66.4 million in 2020). A 100% valuation allowance
has been applied to the state NOL's because Webster does not expect any state
taxable income for the foreseeable 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 foreseeable future.
F-29
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2000 and
1999 are presented below.
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Loan loss allowances and other allowances, net $ 35,214 $ 28,808
Loan discount 12,720 --
Accrued compensation and pensions 6,076 6,557
Deferred expenses 1,779 3,061
Unrealized loss on securities 546 41,463
Intangibles 7,329 6,946
Net operating loss carryforwards 5,632 1,696
Other 2,450 2,007
- ---------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 71,746 90,538
Less state valuation allowance, net of federal benefit (9,332) (4,329)
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax asset after valuation allowance 62,414 86,209
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Loan premium 4,685 3,777
Intangibles 18,563 9,177
Accrued dividends 1,064 809
Mortgage servicing rights 863 1,127
Other 3,322 2,575
- ---------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 28,497 17,465
- ---------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 33,917 $ 68,744
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE 13: SHAREHOLDERS' EQUITY
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, 2000 and 1999, 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, 2000 and 1999, the Bank was in
full compliance with all applicable capital requirements detailed as below:
F-30
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTS Minimum
Actual Capital Requirements Well Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000
Total capital (to risk-weighted assets) $ 773,773 11.45% $ 540,672 8.00% $ 675,839 10.00%
Tier 1 capital (to risk-weighted assets) 698,234 10.20 270,336 4.00 405,504 6.00
Tier 1 capital (to adjusted total assets) 698,234 6.39 431,200 4.00 539,000 5.00
Tangible capital (to adjusted total assets) 686,166 6.37 217,388 2.00 No Requirement
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
Regulatory rules currently impose limitations on all capital distributions by
savings institutions, including dividends, stock repurchases 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 Webster 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 to Webster amounting to $133.6 million, and $60.8 million for 2000 and
1999, respectively.
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.
Retained earnings at December 31, 2000 and 1999 included $50.0 million and $41.0
million of earnings of the Bank appropriated to bad debt reserves (pre-1988),
respectively, 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.
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.
F-31
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Bank has an ESOP that invests in Webster common stock as discussed in Notes
9 and 15 to the Consolidated Financial Statements. Webster has secured and
guaranteed the ESOP debt. The cost of unallocated shares held under the ESOP
represents unearned compensation expense, and is recorded as a reduction of
shareholders' equity. Both the loan obligation and the unearned compensation
expense are reduced for any loan repayments made by the ESOP. Principal
repayments totaled $409,575 and $601,275 during the years ended December 31,
2000 and 1999, respectively.
During 2000, Webster repurchased a total of 4,952,814 shares of its common
stock. The majority of the shares repurchased were the result of a purchase plan
in connection with the Mechanics acquisition. The Mechanics acquisition closed
during the second quarter of 2000. In connection with the Follis, Wylie & Lane
purchase acquisition that closed during the second quarter of 2000, 5,000 shares
of common stock were repurchased. In connection with the Levine purchase
acquisition that closed during the first quarter of 2000, 44,900 shares of
common stock were repurchased.
During 2000, the 1992 Stock Option Plan was amended to permit grants of
restricted stock. The amendment was approved at the Annual Shareholders meeting
held April 27, 2000. For the 2000 and 1999 year periods, there were a total of
92,717 shares of restricted common stock granted to senior management. The fair
value of the restricted stock grants is measured on the grant date and the
related unearned compensation cost is amortized over the respective vesting
periods.
NOTE 14: NET INCOME PER COMMON SHARE
The following tables reconcile the components of basic and diluted earnings per
share.
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Net income $ 118,291 $ 95,350 $ 78,019
- ------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 45,910,447 44,553,859 45,275,165
- ------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 2.58 $ 2.14 $ 1.72
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income $ 118,291 $ 95,350 $ 78,019
- ------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 45,910,447 44,553,859 45,275,165
Dilutive potential common stock:
Options 517,060 839,629 842,376
Total weighted-average diluted shares 46,427,507 45,393,488 46,117,541
- ------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 2.55 $ 2.10 $ 1.69
- ------------------------------------------------------------------------------------------------------------------------------
F-32
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 1999 and 1998, options to purchase 1,156,469, 711,097 and
664,423 shares of common stock at exercise prices from $23.25 to $35.38, $28.25
to $35.38 and $31.75 to $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 2000,
1999 and 1998, respectively.
NOTE 15: 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 $1.9 million, $1.6 million and $1.5 million for the
years ended December 31, 2000, 1999 and 1998, respectively, for employer
matching 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 eligible 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, 2000, there were 61,900 unallocated shares of
Webster common stock in the ESOP with 34,314 shares scheduled for release in
early 2001.
Subsequent to the release, 27,586 unallocated shares will remain in the ESOP for
future distributions. At December 31, 2000, the unallocated shares in the ESOP
had an aggregate market value of approximately $1.8 million. Operations were
charged with $1.4 million, $727,000 and $1.2 million for the year ended December
31, 2000, 1999 and 1998, respectively, for costs related to the ESOP. The 2000
ESOP charge includes $1.3 million of compensation expense and $59,000 of
administrative costs. For the 2000 year period, all interest payments due on the
ESOP loan principal balance were offset by dividend payments received on the
unallocated shares.
The Bank established an Employee Stock Purchase Plan ("ESPP") in April 2000. The
ESPP is governed by Section 423 of the Internal Revenue Code of 1986, as
amended, and administered by Webster's stock transfer agent. The ESPP provides
eligible employees the opportunity to invest up to 10% of their base
compensation to purchase Webster common stock at a discounted price. During
2000, participants in the ESPP were able to purchase Webster common stock at 85%
of the fair market value at the lower of the market price on either the first or
last day of each offering period.
F-33
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2000 and 1999.
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation-beginning of year $ 25,973 $ 26,751
Service cost 3,488 3,053
Interest cost 2,006 1,741
Actuarial liability loss (gain) 1,935 (3,328)
Benefits paid and administrative expenses (1,304) (2,244)
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation-end of year $ 32,098 $ 25,973
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Plan assets at fair value-beginning of year $ 27,365 $ 26,601
Actual return on plan assets 161 1,608
Employer contributions 4,789 1,400
Benefits paid and administrative expenses (1,304) (2,244)
- ----------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value-end of year $ 31,011 $ 27,365
- ----------------------------------------------------------------------------------------------------------------------------------
Funded status under (over) 1,087 (1,392)
Unrecognized prior service cost 1,055 1,131
Unrecognized net (loss) gain (1,320) 2,887
Unrecognized transition obligation (asset) 95 104
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued pension benefit cost liability $ 917 $ 2,730
- ----------------------------------------------------------------------------------------------------------------------------------
The pension plan held in its asset portfolio 62,000 shares of Webster common
stock as of December 31, 2000 and 1999. The Webster shares had an approximate
market value of $1.8 million and $1.5 million at December 31, 2000 and 1999,
respectively.
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 2000 and 1999.
Net pension expense for 2000, 1999 and 1998 included the following components.
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 3,488 $ 3,053 $ 2,257
Interest cost on projected benefit obligations 2,006 1,741 1,536
Expected return on plan assets (2,432) (2,412) (2,242)
Amortization of prior service cost and transition obligation (85) (83) (630)
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 2,977 $ 2,299 $ 921
- ------------------------------------------------------------------------------------------------------------------------------
F-34
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2000 and 1999:
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Accumulated post-retirement benefit
obligation-beginning of year $ 3,034 $ 3,743
Interest cost 210 202
Actuarial gain (443) (711)
Benefits paid (274) (200)
Plan amendments 960 --
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation-end of year $ 3,487 $ 3,034
- --------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets -- --
- --------------------------------------------------------------------------------------------------------------------------------
Funded status $ 3,487 $ 3,034
Unrecognized prior service cost (929) --
Unrecognized net gain 757 352
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit cost liability $ 3,315 $ 3,386
- --------------------------------------------------------------------------------------------------------------------------------
The discount rate used in determining the accumulated post-retirement benefit
obligation of 2000 and 1999 was 7.25%. The assumed healthcare cost-trend rate is
6.00% for 2000, decreasing 0.50% per year to 5.00% for 2002 and thereafter. An
increase of 1.00% in the assumed healthcare cost-trend rate would increase net
periodic post-retirement benefit cost by $15,000 and increase the accumulated
benefit obligation by $228,000. A decrease of 1.00% in the assumed healthcare
cost trend rate would decrease net periodic post-retirement cost by $14,000 and
decrease the accumulated benefit obligation by $200,000.
The components of post-retirement benefits cost were as follows:
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Service cost $ -- $ -- $ 11
Interest cost 210 202 277
Amortization of prior service cost and
net (gains) losses recognized (7) -- 112
- ------------------------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit cost $ 203 $ 202 $ 400
- ------------------------------------------------------------------------------------------------------------------------------
F-35
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME:
As reported $ 118,291 $ 95,350 $ 78,019
Pro forma 116,212 93,981 74,005
- ------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
As reported $ 2.58 $ 2.14 $ 1.72
Pro forma 2.53 2.11 1.63
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
As reported $ 2.55 $ 2.10 $ 1.69
Pro forma 2.50 2.07 1.60
- ------------------------------------------------------------------------------------------------------------------------------
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 2000: expected option term of 9.0
years, expected dividend yield of 2.35%, expected volatility of 39.02%, expected
forfeiture rate of 2.00%, and weighted risk-free interest rate of 6.76%. The
weighted-average assumptions used for grants issued during 1999 were: 9.0 years,
2.35%, 33.94%, 2.00% and 5.89%, respectively; and for 1998 were 8.7 years,
1.70%, 31.19%, 2.13% and 4.96%, respectively.
A summary of the status of the fixed stock option plans at December 31, 2000,
1999 and 1998 and changes during the years then ended is presented below:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of year 2,924,905 $ 19.00 3,036,414 $ 17.30 3,174,383 $ 13.23
Granted 686,193 22.81 340,147 25.56 627,350 31.92
Options issued in connection with
purchase acquisitions 399,249 13.43 136,166 7.98 -- --
Exercised (866,483) 12.02 (577,355) 11.51 (714,330) 11.63
Forfeited/canceled (47,577) 20.37 (10,467) 21.37 (50,989) 23.47
- -------------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 3,096,287 $ 21.14 2,924,905 $ 19.00 3,036,414 $ 17.30
- -------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 1,971,224 2,176,068 2,148,197
Weighted-average per share fair value
of options granted during the year $ 9.85 $ 9.87 $ 12.30
- -------------------------------------------------------------------------------------------------------------------------------
F-36
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about Webster's fixed stock option
plans by price range for options outstanding and exercisable at December 31,
2000:
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
- --------------------------------------------------------------------------------------------------------------------------
$ 3.55 - $ 7.08 122,445 1.1 $ 5.32 122,445 $ 5.32
$ 7.09 - $ 10.61 433,866 3.5 9.52 433,866 9.52
$ 10.62 - $ 14.15 368,276 4.6 12.23 368,276 12.23
$ 14.16 - $ 17.69 95,258 6.5 16.58 86,860 16.61
$ 17.70 - $ 21.23 268,214 6.2 18.95 260,714 18.91
$ 21.24 - $ 24.76 916,150 9.5 23.22 39,335 22.91
$ 24.77 - $ 28.30 182,971 8.0 26.48 15,521 26.34
$ 28.31 - $ 31.84 240,107 7.2 31.27 212,207 31.49
$ 31.85 - $ 35.38 469,000 7.4 33.77 432,000 33.80
- --------------------------------------------------------------------------------------------------------------------------
3,096,287 6.9 $ 21.14 1,971,224 $ 19.40
- --------------------------------------------------------------------------------------------------------------------------
Webster had nine active fixed stock option plans at December 31, 2000. Seven of
the option plans were acquired through the Mechanic's, NECB, Village, Maritime,
Eagle, People's and Derby acquisitions. The acquired plans had options
outstanding of 500,271 at December 31, 2000. Webster's 1992 Stock Option Plan
was amended in 2000 to permit grants of restricted stock and has been amended at
various times since its inception. 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 this Plan, 605 shares were issued to each of the thirteen directors
of Webster during 2000. The cost of the restricted shares was measured as of the
grant date using the fair market value of Webster's stock as of the grant date.
During 2000 and 1999, there were a total of 92,717 restricted common shares
granted to senior management under the 1992 Stock Option Plan. There were 39,093
and 15,908 restricted common shares granted during 1999 and 1997 under the 1992
Restricted Stock Plan and no restricted shares granted during 1998. 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 16: ACQUISITION-RELATED EXPENSES
A summary of acquisition-related expenses follows:
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Eagle $ -- $ -- $ 17,400
OPBT -- -- 207
BSW -- -- 3,386
NECB -- 9,500 --
- -----------------------------------------------------------------------------------------------------------------------------
Total $ -- $ 9,500 $ 20,993
- -----------------------------------------------------------------------------------------------------------------------------
Webster did not record any accrued liabilities for expenses related to
acquisitions accounted for under the pooling of interests method of accounting
during 2000. Webster recorded $9.5 million of expenses in connection with the
acquisition of NECB, which was completed on December 1, 1999. In 1998, Webster
recorded approximately $17.4 million of expenses in connection with the
acquisition of Eagle, which was completed on April 15, 1998. Webster also
recorded in 1998 expenses of $3.4 million and $207,000 in connection with the
acquisitions of BSW, which was completed on August 14, 1998, and OPBT, which was
completed on August 10, 1998.
F-37
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of the acquisition-related accrued
liabilities:
(In thousands) Derby People's Eagle NECB Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at December 31, 1998 $ 3,800 $ 1,600 $ 1,400 $ -- $ 6,800
- -----------------------------------------------------------------------------------------------------------------------------------
Additions/provisions -- -- -- 9,500 9,500
Payments and charges against the liabilities:
Compensation (severance and related costs) -- -- -- (3,000) (3,000)
Data processing contract termination (700) -- -- (400) (1,100)
Transaction costs (includes investment bankers, attorneys & accountants) -- -- (50) (1,300) (1,350)
Writedown of fixed assets and facilities costs (100) (1,100) (400) (700) (2,300)
Acquisition-related miscellaneous expenses -- (100) (175) (800) (1,075)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at December 31, 1999 $ 3,000 $ 400 $ 775 $ 3,300 $ 7,475
- -----------------------------------------------------------------------------------------------------------------------------------
Payments and charges against the liabilities:
Data processing contract termination (689) -- -- -- (689)
Transaction costs (includes investment bankers, attorneys & accountants) -- -- -- (193) (193)
Writedown of fixed assets and facilities costs (1,764) (205) (462) (238) (2,669)
Acquisition-related miscellaneous expenses (a) -- -- (22) (1,202) (1,224)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at December 31, 2000 $ 547 $ 195 $ 291 $ 1,667 $ 2,700
- -----------------------------------------------------------------------------------------------------------------------------------
The remaining total accrued liability of $2.7 million at December 31, 2000
includes $2.4 million in reserves for remaining lease payments and other
expenses of closed facilities. Disposition efforts for these closed facilities
are ongoing. The remaining $300,000 is for data processing contracts which will
expire in mid 2001.
NOTE 17: BUSINESS SEGMENTS
Webster has three segments for purposes of business segment reporting. These
segments include retail banking, business banking and treasury. The
organizational hierarchies that define the business segments are periodically
reviewed and revised. Results may be restated, when necessary, to reflect
changes in the organizational structure. The following table presents the
statement of operations and total assets for Webster's reportable segments.
Operating income and total assets by business segment are as follows:
YEAR ENDED DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) RETAIL BANKING BUSINESS BANKING TREASURY TOTAL SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 257,400 $ 51,702 $ 17,414 $ 326,516
Provision for loan losses 2,423 9,377 -- 11,800
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 254,977 42,325 17,414 314,716
Noninterest income 89,988 15,462 23,371 128,821
Noninterest expense 202,654 34,900 11,102 248,656
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 142,311 22,887 29,683 194,881
Income taxes 46,899 7,537 9,767 64,203
- ------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 95,412 $ 15,350 $ 19,916 $ 130,678
- ------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $5,641,529 $1,682,209 $3,925,770 $11,249,508
YEAR ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) RETAIL BANKING BUSINESS BANKING TREASURY TOTAL SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 240,202 $ 49,596 $ 13,715 $ 303,513
Provision for loan losses 5,109 3,891 -- 9,000
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 235,093 45,705 13,715 294,513
Noninterest income 60,585 15,132 16,913 92,630
Noninterest expense 169,785 33,016 13,364 216,165
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 125,893 27,821 17,264 170,978
Income taxes 41,760 9,236 5,727 56,723
- ------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 84,133 $ 18,585 $ 11,537 $ 114,255
- ------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $5,123,912 $1,316,305 $3,491,527 $9,931,744
F-38
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The retail banking segment includes investment and insurance services, 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 banking. The retail banking segment also
includes the Bank's investment in residential real estate loan origination,
servicing, secondary marketing activities and Webster Investment Services. 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 business deposits, cash management activities for business
banking, government finance and all trust activities including Webster Financial
Advisors. The treasury segment includes the Bank's investment in assets and
liabilities managed by Treasury and includes interest-bearing deposits,
investment securities, Federal Home Loan Bank advances, repurchase agreements
and other borrowings.
During 2000, as part of the management reorganization, Webster consolidated its
consumer banking and mortgage lending segments and investment and insurance
services which was previously included within the "all other" segment category,
into one segment called retail banking. The trust function and government
finance activities that were previously included within the "all other" segment
category were transferred into the business segment.
During 1999, Webster changed its internal funds transfer pricing methodology,
which charges or credits for the source or use of funds. This change effected
net interest income for all reported segments for 1999 and thereafter. As a
result of this change in methodology, there was an increase in interest income
allocated to retail banking and an increase in interest expense allocated to
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 that aggregate to net expenses of $12.8 million
for the year ended December 31, 2000 and $18.9 million for the year ended
December 31, 1999, that do not directly relate to segments. On a before tax
basis, the net expenses were $18.5 million for the year ended December 31, 2000
and $28.3 million for the year ended December 31, 1999. The major categories not
included in the segments for the year ended December 31, 2000, were (on a before
tax basis) $14.3 million of capital securities expense, $4.2 million of dividend
expense on the preferred stock of subsidiary corporation. For the year ended
December 31, 1999, the major categories not included in the segments were (on a
before tax basis) $14.6 million of capital securities expense, $4.2 million of
dividend expense on preferred stock of subsidiary corporation and $9.5 million
of acquisition-related expense.
NOTE 18: 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 $100.0 million underwritten public offering of 9.36%
Corporation-Obligated Mandatorily Redeemable Capital Securities of Webster
Capital Trust I ("capital securities"). The sole asset of Trust I is the $100.0
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 $50.0 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 $14.3 million, $14.6 million and $14.7
million for 2000, 1999 and 1998 respectively, inclusive of issuance cost
amortization. The expense associated with Trust I and Trust II is tax
deductible.
F-39
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Webster organized Webster Capital Trust III in June 1999 and to date the trust
has not been capitalized. Webster Capital Trust III was established for the sole
purpose of issuing trust securities and investing the proceeds in an equivalent
amount of subordinated debentures of Webster.
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 19: 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 $40.0
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 2000, 1999 and
1998, inclusive of issuance cost amortization, was $12.6 million. 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. The $40.0 million issued as Series A 7.375% cumulative redeemable
preferred stock was redeemed in January 2001.
NOTE 20: 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.
F-40
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21: PARENT COMPANY CONDENSED FINANCIAL INFORMATION
The Statements of Condition for 2000 and 1999 and the Statements of Income and
Cash Flows for the three-year period ended December 31, 2000 (parent only) are
presented below.
STATEMENTS OF CONDITION
- ---------------------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from depository institutions $ 55 $ 7,032
Interest-bearing deposits 40,321 300
Securities available for sale 95,031 118,584
Investment in subsidiaries 1,014,678 732,085
Due from subsidiaries 108 2
Accrued interest receivable 1,304 1,263
Venture capital investments 14,333 3,266
Deferred tax asset 5,241 4,419
Unamortized issuance costs 3,720 2,994
Other assets 56 --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,174,847 $ 869,945
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Senior notes $ 126,000 $ 40,000
Lines of credit -- 39,000
ESOP borrowings 357 766
Due to subsidiaries 104 36
Other liabilities 8,012 4,476
Corporation-obligated mandatorily redeemable capital securities of subsidiary trusts 150,000 150,000
Shareholders' equity 890,374 635,667
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,174,847 $ 869,945
- ---------------------------------------------------------------------------------------------------------------------------------
F-41
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from subsidiary $ 133,552 $ 50,806 $ 80,776
Interest on securities 7,535 8,088 5,750
Gain on sale of securities 8,293 1,834 8,039
Other noninterest income 1 1 24
Interest expense on borrowings 7,383 5,541 5,018
Capital securities expense 14,323 14,645 14,708
Other noninterest expenses 4,701 7,304 7,104
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed earnings of subsidiaries 122,974 33,239 67,759
Income tax benefit 4,335 6,524 3,856
- ------------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries 127,309 39,763 71,615
Equity in undistributed earnings of subsidiaries (9,018) 55,587 6,404
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 118,291 $ 95,350 $ 78,019
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 118,291 $ 95,350 $ 78,019
Increase in interest receivable (41) (72) (940)
(Increase) decrease in other assets (10,356) (1,500) 11,428
Gain on sale of securities (8,293) (1,834) (8,039)
Equity in undistributed earnings of subsidiaries 9,018 (55,587) (6,404)
Increase (decrease) in other liabilities 3,500 (2,557) (3,036)
Other, net -- 1,080 1,038
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 112,119 34,880 72,066
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of securities available for sale (354,560) (132,824) (265,132)
Sales and maturities of securities available for sale 382,742 148,852 176,688
(Increase) decrease in interest-bearing deposits (40,021) 435 2,158
Net cash paid for purchase acquisitions (27,187) -- --
Other, net -- (183) (1,265)
Distribution from bank subsidiary (527) 10,000 50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (39,553) 26,280 (37,551)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Repayment of borrowings (856,649) (151,607) (85,611)
Proceeds from borrowings 903,240 180,006 95,000
Net proceeds from issuance of capital securities -- -- 4,846
Exercise of stock options 13,308 9,342 10,816
Cash dividends to shareholders (28,645) (20,729) (20,848)
Common stock repurchases (110,797) (72,161) (39,861)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (79,543) (55,149) (35,658)
- ------------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (6,977) 6,011 (1,143)
Cash and cash equivalents at beginning of year 7,032 1,021 2,164
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 55 $ 7,032 $ 1,021
- ------------------------------------------------------------------------------------------------------------------------------------
F-42
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22: SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly data for 2000 and 1999 follows:
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
2000:
Interest income $ 169,643 $ 174,946 $ 197,600 $ 196,722
Interest expense 93,371 95,915 111,790 111,319
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 76,272 79,031 85,810 85,403
Provision for loan losses 2,200 3,200 3,200 3,200
Gain on sale of loans, loan servicing and securities, net 3,657 3,244 4,431 1,069
Gain on sale of deposits -- -- -- 4,859
Other noninterest income 23,928 27,419 28,738 31,476
Noninterest expenses 61,549 64,604 68,601 72,376
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 40,108 41,890 47,178 47,231
Income taxes 13,297 13,783 15,595 15,441
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 26,811 $ 28,107 $ 31,583 $ 31,790
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
Basic $ 0.61 $ 0.66 $ 0.65 $ 0.65
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted 0.61 0.66 0.64 0.64
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
The quarter ended December 31, 1999, includes $9.5 million of
acquisition-related charges related to the acquisition of NECB.
All periods presented have been retroactively restated to reflect the inclusion
of the results of NECB, which was acquired on December 1, 1999 and accounted for
using the pooling of interests method.
F-43