2
DIRECTORS
JAMES C. SMITH, Chairman and Chief Executive Officer
ACHILLE A. APICELLA, President, Apicella, Testa & Company, P.C.
JOEL S. BECKER, Chairman and Chief Executive Officer, Torrington Supply Company
Co., Inc.
O. JOSEPH BIZZOZERO, Jr., M.D., President, Bizzozero Assoc. P.C.
JOHN J. CRAWFORD, President and Chief Executive Officer, South Central
Connecticut Regional Water Authority and Chairman and Chief Executive
Officer, Aristotle Corporation
HARRY P. DIADAMO, Former President, Derby Savings Bank
ROBERT A. FINKENZELLER, President, Eyelet Crafters, Inc.
WALTER R. GRIFFIN, Esq., Griffin, Griffin & O'Brien, P.C.
J. GREGORY HICKEY, Retired Managing Partner of Hartford Office of Ernst & Young,
LLP
C. MICHAEL JACOBI, President and Chief Executive Officer, Timex Corporation
J. ALLEN KOSOWSKY*, J. Allen Kosowsky, CPA, P.C.
Sr. MARGUERITE WAITE, President, Chief Executive Officer and Treasurer, St.
Mary's Hospital
JOSEPH A. WELNA*, M.D., New Britain Obstetrical & Gynecological Group
SENIOR MANAGEMENT GROUP
JAMES C. SMITH, Chairman and Chief Executive Officer
JOHN V. BRENNAN, Executive Vice President, Chief Financial Officer and Treasurer
WILLIAM T. BROMAGE, Executive Vice President, Business Banking
GEORGE M. BROPHY*, Executive Vice President, Information Technologies
JEFFREY N. BROWN*, Executive Vice President, Marketing and Communications
STEPHEN M. CARTA, President, Webster Trust Company, N.A.
PETER K. MULLIGAN, Executive Vice President, Consumer and Small Business Banking
RENEE P. SEEFRIED*, Executive Vice President, Human Resources
ROSS M. STRICKLAND, Executive Vice President, Mortgage Banking
HARRIET MUNRETT WOLFE, Senior Vice President, Counsel and Secretary
*Webster Bank only
1
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
At or For the
Year Ended
Dollars in thousands, expect share data 1997 1996 1995
- ------------------------------------------------------------------------------------------
FOR THE YEAR:
Net interest income $191,925 $169,037 $135,331
Noninterest income 35,990 32,179 27,902
Merger and acquisition expenses 27,058 500 4,271
Other noninterest expenses 131,489 130,055 108,465
Net income 33,798 38,501 29,321
Operating net income(a) 53,844 41,534 33,016
PER COMMON SHARE:
Diluted earnings $ 2.44 $ 2.66 $ 2.22
Diluted operating earnings(a) 3.89 2.87 2.50
Book value (year-end) 27.99 25.18 24.41
Tangible book value (year-end) 24.41 21.61 23.57
Annual dividend 0.80 0.68 0.64
AT YEAR-END:
Total assets $7,019,621 $5,607,210 $4,883,402
Loans receivable,net 3,824,602 3,642,522 3,005,014
Securities 2,787,240 1,577,702 1,505,919
Intangible assets 48,919 49,448 10,865
Deposits 4,365,756 4,457,561 3,797,712
Shareholders' equity 382,186 336,832 334,580
Diluted weighted average shares 13,828 14,460 13,202
Market price 66.50 36.75 29.50
OPERATING RATIOS:
Net interest margin 3.17% 3.23% 2.96%
Return on average shareholders' equity 9.72 11.20 10.08
Operating return on average shareholders' 15.48 12.08 11.35
equity(a)
Efficiency ratio(a)(b) 54.81 58.93 61.65
Noninterest expense to average assets 2.50 2.38 2.37
Operating noninterest expense to
average assets(c) 1.89 2.22 2.14
(a) Excludes merger and acquisition expenses including provisions for loan
losses related to mergers and acquisitions of $34.2 million, $500,000, and $4.3
million for the periods ended December 31, 1997, 1996 and 1995, respectively.
Also excludes Savings Association Insurance Fund ("SAIF") assessment of $4.7
million for the period ended December 31, 1996 and name change and subsidiary
merger expense of $2.1 million for the period ended December 31, 1995.
(b) Excludes intangible amortization and foreclosed property expenses.
(c) Excludes the following: merger and acquisition expenses, the SAIF assessment
in 1996, name change and subsidiary merger expense in 1995 and capital
securities and dividends on preferred stock of subsidiary corporation expense in
1997.
2
GLOSSARY OF TERMS
Allowance for Loan Losses: A reserve for estimated loan losses at a particular
balance sheet date.
Capital Components and Ratios for Webster Bank:
Leverage Ratio: Tier 1 capital as a percentage of adjusted total assets.
Risk-Weighted Assets: The sum of risk-weighted assets plus the
risk-weighted credit equivalent amounts of off-balance sheet items, less
core deposit intangibles and certain other non-qualifying intangible assets
and the non-qualifying portion of the allowance for loan losses.
Tier 1 Capital: The sum of common shareholders' equity (excluding net
unrealized gains or losses on securities, except for net unrealized
gains/losses on marketable equity securities) less other non-qualifying
intangible assets.
Tier 1 Risk-Weighted Capital Ratio: The ratio of Tier 1 capital to net
risk-weighted assets.
Total Capital: The sum of Tier 1 capital plus the qualifying portion of the
allowance for loan losses.
Total Risk-Weighted Capital Ratio: The ratio of total capital to net
risk-weighted assets.
Core Deposit Intangible: The excess of the purchase price over the fair value of
the tangible net assets acquired in a purchase transaction that represents the
estimated value of the deposit base.
Derivatives: Interest-rate or currency swaps, futures, forwards, option
contracts, interest-rate caps and floors or other off-balance sheet financial
instruments used for asset/liability management or trading purposes. These
instruments derive their values or contractually determined cash flows from the
price of an underlying asset or liability, reference rate, index or other
security.
EVA: Economic Value Added. A measure of financial performance to maximize
long-term growth and profitability.
Foreclosed Properties: Real estate acquired in foreclosure or comparable
proceedings under which possession of the collateral has been taken.
Interest-Earning Assets: The sum of loans, segregated assets, mortgage loans
held for sale, securities and short-term investments.
Interest-Bearing Liabilities: The sum of interest-bearing deposits, securities
sold under agreements to repurchase and other borrowings.
Interest-Rate Spread: The difference between the average yields earned on
interest-earning assets and the average rates paid interest-bearing liabilities.
Net Interest Margin: Net interest income as a percentage of average
interest-earning assets.
Nonaccrual Assets: The sum of nonaccrual loans plus foreclosed properties.
Nonaccrual Loans: The sum of loans on nonaccrual status for purposes of interest
income recognition.
Operating Net Income: Net income excluding merger and acquisition expenses,
provisions for loan losses related to mergers and acquisitions, Savings
Association Insurance Fund ("SAIF") assessment and costs associated with
changing the name of and merging together subsidiary banks.
Operating Return on Average Equity: Operating net income as a percentage of
average shareholders' equity.
Operating Noninterest Expenses to Average Assets: Noninterest expenses excluding
merger and acquisition expenses, SAIF assessment and costs associated with
changing the name of and merging together subsidiary banks as a percentage of
average assets.
Reserve Coverage: Allowance for loan losses divided by nonaccrual loans.
Return on Average Equity: Net income as a percentage of average shareholders'
equity.
3
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (MD&A)
INTRODUCTION
- --------------------------------------------------------------------------------
Webster Financial Corporation, ("Webster"), through its subsidiary, Webster Bank
(the "Bank"), delivers financial services to individuals, families and
businesses throughout Connecticut. The Bank is organized along four business
lines - consumer, business, mortgage banking, and trust and investment
management services, each supported by centralized administration and
operations. The Corporation has grown significantly in recent years, primarily
through a series of acquisitions which have expanded and strengthened its
franchise.
Assets at December 31, 1997 were $7.0 billion compared to $5.6 billion a year
earlier. Net loans receivable amounted to $3.8 billion at December 31, 1997
compared to $3.6 billion a year ago. Deposits were $4.4 billion at December 31,
1997 compared to $4.5 billion at December 31, 1996.
BUSINESS COMBINATIONS SUBSEQUENT TO DECEMBER 31, 1997
- --------------------------------------------------------------------------------
During the second quarter of 1998, Webster expects to acquire by merger Eagle
Financial Corp. ("Eagle") and its subsidiary, Eagle Bank, a $2.1 billion savings
bank with headquarters in Bristol, Connecticut. In connection with the merger
with Eagle, Webster expects to issue 5.1 million shares of its common shares for
all the outstanding shares of Eagle common stock. Under the terms of the
agreement, each outstanding share of Eagle common stock is expected to be
converted into .84 shares of Webster common stock. This acquisition will be
accounted for as a pooling of interests, and as such, future consolidated
financial statements will include Eagle's financial data as if Eagle had been
combined at the beginning of the earliest period presented.
BUSINESS COMBINATIONS
- --------------------------------------------------------------------------------
The Sachem Acquisition
On August 1, 1997, Webster acquired Sachem Trust National Association ("Sachem
Trust"), a trust company headquartered in Guilford, Connecticut with $300
million of assets under management, in a tax-free stock-for-stock exchange.
Under the terms of the agreement, Webster issued 83,385 shares of Webster common
stock for all 173,000 outstanding shares of Sachem Trust. This acquisition was
accounted for as a purchase.
The People's Acquisition
On July 31, 1997, Webster acquired People's Savings Financial Corp. ("People's")
and its subsidiary, People's Savings Bank & Trust, based in New Britain,
Connecticut which had $482 million of assets. In connection with the merger with
People's, Webster issued 1,575,996 shares of its common stock for all the
outstanding shares of People's common stock. Under the terms of the merger
agreement each outstanding share of People's common stock was converted into .85
shares of Webster common stock. This acquisition was accounted for as a pooling
of interests, and as such, Consolidated Financial Statements include People's
financial data as if People's had been combined at the beginning of the earliest
period presented.
The Derby Acquisition
On January 31, 1997, Webster acquired DS Bancor, Inc. ("Derby") and its
subsidiary, Derby Savings Bank, based in Derby, Connecticut which had $1.2
billion of assets. In connection with the merger with Derby, Webster issued
3,501,370 shares of its common stock for all the outstanding shares of Derby
common stock. Under the terms of the merger agreement each outstanding share of
Derby common stock was converted into 1.14158 shares of Webster common stock.
This acquisition was accounted for as a pooling of interests, and as such,
Consolidated Financial Statements include Derby's financial data as if Derby had
been combined at the beginning of the earliest period presented.
4
The Shawmut Transaction
On February 16, 1996, Webster Bank acquired 20 branches in the Greater Hartford
market from Shawmut Bank Connecticut National Association (the "Shawmut
Transaction"), as part of a divestiture in connection with the merger of Shawmut
and Fleet Bank. In the branch purchase, Webster Bank acquired approximately $845
million in deposits and $586 million in loans. As a result of this transaction,
Webster recorded $44.2 million as a core deposit intangible asset. In connection
with the Shawmut Transaction, Webster raised net proceeds of $32.1 million
through the sale of 1,249,600 shares of its common stock in an underwritten
public offering in December 1995. The Shawmut Transaction was accounted for as a
purchase, therefore transaction results are reported only for the periods
subsequent to the consummation of the Shawmut Transaction.
Prior to the Shawmut Transaction in 1996, Webster completed five acquisitions as
follows:
- --------------------------------------------------------------------------------
Date Assets Acquired Accounting Treatment
- --------------------------------------------------------------------------------
1995 Shelton Bancorp $295 million Pooling of Interests
1994 Shoreline Bank & Trust $ 51 million Pooling of Interests
1994 Bristol Savings Bank $486 million Purchase
1992 First Constitution Bank $1.1 billion Purchase
1991 Suffield Bank $264 million Purchase
- --------------------------------------------------------------------------------
ASSET QUALITY
- --------------------------------------------------------------------------------
General
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans, aggressively
managing nonaccrual assets and maintaining adequate reserve coverage on
nonaccrual assets. At year end 1997, residential and consumer loans comprised
over 87% of the total loan portfolio. All investments are either U.S. Government
or Agency securities or have an investment rating in the top two rating
categories by a major rating service at time of purchase.
Nonaccrual Assets
The aggregate amount of nonaccrual assets decreased to $45.9 million at December
31, 1997 from $54.8 million at December 31, 1996 and declined as a percentage of
total assets to .65% at December 31, 1997 from .98% at December 31, 1996.
Nonaccrual loans decreased $3.9 million in 1997 and foreclosed properties
decreased $5.0 million due to write-downs and sales of foreclosed properties.
The allowance for loan losses at December 31, 1997 was $49.8 million and
represented 132.09% of nonaccrual loans. Total allowances for nonaccrual assets
of $50.3 million represented 108.40% of nonaccrual assets. The following table
details nonaccrual assets for the last five years.
December 31,
----------------------------------------------------------
(In thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Nonaccrual Assets:
Loans accounted for on a nonaccrual basis:
Residential real estate $ 23,651 $ 25,393 $ 28,522 $27,712 $ 43,652
Commercial 11,563 12,874 20,355 20,935 7,347
Consumer 2,451 3,339 3,455 2,590 3,249
Foreclosed Properties:
Residential and Consumer 5,091 5,305 7,850 11,063 24,766
Commercial 3,098 7,909 13,216 21,909 11,098
- -----------------------------------------------------------------------------------------------------------------
Total $ 45,854 $ 54,820 $ 73,398 $ 84,209 $90,112
- -----------------------------------------------------------------------------------------------------------------
5
A summary of the activity in the allowance for loan losses for the last five
years follows:
For the Years Ended December 31,
--------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Balance at beginning of period $43,185 $50,281 $55,366 $54,370 $65,662
Charge-offs:
Residential real estate (9,302) (14,466) (8,667) (14,512) (10,395)
Consumer (3,098) (3,649) (894) (1,452) (2,433)
Commercial (2,516) (6,750) (4,438) (4,394) (3,447)
- -----------------------------------------------------------------------------------------------------------------
(14,916) (24,865) (13,999) (20,358) (16,275)
Recoveries:
Residential real estate 3,872 670 870 437 413
Consumer 470 332 1,032 1,822 815
Commercial 1,307 1,979 1,286 1,042 246
- -----------------------------------------------------------------------------------------------------------------
Net charge-offs (9,267) (21,884) (10,811) (17,057) (14,801)
Allowances for purchase transactions - 5,000 - 12,819 -
Acquired allowance adjustment - - - - (5,963)
Transfer from allowance for losses
for loans held for sale - - - - 2,390
Provisions charged to operations 15,835 9,788 5,726 5,234 7,082
- -----------------------------------------------------------------------------------------------------------------
Balance at end of period $49,753 $ 43,185 $ 50,281 $55,366 $ 54,370
=================================================================================================================
Ratio of net charge-offs to
average loans outstanding 0.2% 0.6% 0.4% 0.6% 0.6%
=================================================================================================================
Net charge-offs decreased $12.6 million to $9.3 million in 1997 due primarily to
decreases in the residential and commercial portfolios. Included in the 1996
loan charge-offs were write-downs of $6.3 million related to a bulk sale of
$18.0 million of nonaccrual residential loans and foreclosed properties. The
1997 provisions charged to operations include $7.2 million specifically related
to the Derby and People's acquisitions. See Note 13 to the Consolidated
Financial Statements for a summary of activity in the allowance for losses on
foreclosed properties. Management believes that the allowance for loan losses at
December 31, 1997 is adequate to cover expected losses in the portfolio.
SEGREGATED ASSETS
- --------------------------------------------------------------------------------
Segregated Assets consist of all commercial real estate, commercial, and
multi-family loans acquired from the Federal Deposit Insurance Corporation
("FDIC") in the First Constitution Bank ("First Constitution") acquisition.
Segregated Assets, before the allowance for losses of $2.6 million, totaled
$43.6 million at December 31, 1997, down from $256.6 million at acquisition in
1992. Segregated Assets are subject to a loss-sharing arrangement with the FDIC.
The FDIC was required to reimburse the Bank quarterly for 80% of the total net
charge-offs and certain related expenses on Segregated Assets through December
1997, with such reimbursement increasing to 95% (less recoveries in years six
and seven) as to such charge-offs and expenses in excess of $49.2 million (with
payment at the end of the seventh year as to such excess). During 1998 and 1999,
the Bank is required to pay quarterly to the FDIC an amount equal to 80% of the
recoveries during such years on Segregated Assets which were previously
charged-off after deducting certain permitted expenses related to those assets.
The Bank is entitled to retain 20% of such recoveries during the sixth and
seventh years following the First Constitution acquisition and 100% thereafter.
During the second quarter of 1997, the Bank sold approximately $13.7 million in
multi-family loans that included all multi-family Segregated Asset loans. Any
losses incurred on the sale of these segregated multi-family loans were
reimbursed under the loss-sharing arrangement and the transaction had no impact
on the Consolidated Statements of Income. At December 31, 1997, cumulative net
charge-offs and expenses aggregated $58.9 million. During the first quarter of
1996, Webster began recording the additional 15% reimbursement (the difference
between the 80% and 95% reimbursement levels) as a receivable from the FDIC. The
Bank's share of charge-offs reduces the allowance for losses on the Segregated
Assets which was established in conjunction with the First Constitution
acquisition. Management believes that the allowance for losses on Segregated
Assets is adequate to cover expected losses on this portfolio. See Note 5 to the
Consolidated Financial Statements.
Reimbursable net charge-offs and eligible expenses of Segregated Assets
aggregated $4.9 million for 1997. During 1997, the Bank received $4.5 million as
reimbursement for eligible charge-offs and related net expenses in accordance
with the loss-sharing arrangement described above. Payments due from the FDIC
for charge-offs and related expenses are recorded as receivables. Such
reimbursements are made on a quarterly basis to the Bank by the FDIC and when
received are invested in interest-earning assets. Such reimbursements have no
immediate impact on the Consolidated Statements of Income.
6
A detail of changes in the allowance for Webster's share of losses for
Segregated Assets follows:
For the Years Ended December 31,
--------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------
Balance at beginning of period $2,859 $3,235
Charge-offs (267) (621)
Recoveries 31 245
- ---------------------------------------------------------------------------------------------------
Balance at end of period $2,623 $ 2,859
===================================================================================================
At December 31, 1997 and 1996, nonaccrual Segregated Assets were classified as
follows:
- ---------------------------------------------------------------------------------------------------
December 31,
-------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------
Segregated Assets accounted for on a nonaccrual basis:
Commercial real estate loans $2,912 $ 3,337
Commercial loans 500 192
Multi-family real estate loans - 495
Foreclosed Properties:
Commercial real estate 281 269
Multi-family real estate - 138
- ---------------------------------------------------------------------------------------------------
Total $3,693 $ 4,431
===================================================================================================
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Bank is required to maintain minimum levels of liquid assets as defined by
regulations adopted by the Office of Thrift Supervision ("OTS"). This
requirement, which may be varied by the OTS, is based upon a percentage of net
withdrawable deposits and short-term borrowings. The required liquidity ratio as
revised by the OTS is currently 4.00% and the Bank's liquidity ratio at December
31, 1997 exceeded the requirement. Webster Bank is also required by regulation
to maintain sufficient liquidity to ensure safe and sound operations. Adequate
liquidity as assessed by the OTS may vary from institution to institution
depending on such factors as the institution's overall asset/liability
structure, market conditions, competition and the requirements of the
institution's deposit and loan customers. The OTS considers both an
institution's adherence to the liquidity ratio requirement, as well as safety
and soundness issues, in assessing whether an institution has sufficient
liquidity.
The primary sources of liquidity for Webster are net cash flows provided from
operating, investing and financing activities. Net cash flows from operating
activities primarily include net income, the sale of loans originated for sale,
trading account net changes, net changes in other assets and liabilities and
adjustments for noncash items such as depreciation, investment securities net
amortization and accretion and the provisions for loan losses and foreclosed
properties. Net cash flows from investing activities primarily include the
purchase, sale, maturity and paydowns of investment securities and
mortgage-backed securities that are classified as available for sale or held to
maturity, the net change in loans, interest-bearing deposits and Segregated
Assets. Net cash flows from financing activities primarily include proceeds and
repayments related to Federal Home Loan Bank ("FHL Bank") advances and other
borrowings, the net change in deposits, minority interest and net changes in
capital generally related to stock issuances, repurchases and dividend payments.
While scheduled loan amortization, maturing securities, short-term investments
and securities paydowns generally are predictable sources of funds, loan and
mortgage-backed securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. One of the inherent risks
of investing in loans and mortgage-backed securities is the ability of such
instruments to incur prepayments of principal prior to maturity at rates
different than those estimated at the time of purchase. This generally occurs
because of changes in market interest rates. The market values of fixed-rate
loans and mortgage-backed securities are sensitive to fluctuations in market
interest rates, declining in value as interest rates rise. If interest rates
decrease, the market value of fixed-rate loans and mortgage-backed securities
generally will tend to increase with the level of prepayments also normally
increasing. Lower yields on such loans and mortgage-backed securities may be
offset by a lower cost of funds. Material changes in the level of nonaccrual
assets held also affect liquidity. The utilization of particular sources of
funds depends on comparative costs and availability. The Bank has, from
7
time to time, chosen not to pay rates on deposits as high as certain
competitors, and when necessary, supplements deposits with various borrowings.
The Bank manages the prices of its deposits to maintain a stable, cost-effective
deposit base as a source of liquidity.
The Bank had additional borrowing capacity from the FHL Bank of $1.7 billion at
December 31, 1997. At that date, the Bank had FHL Bank advances outstanding of
$1.1 billion compared to $559.9 million at December 31, 1996. See Note 9 to the
Consolidated Financial Statements.
Webster's main sources of liquidity at the holding company level are dividends
from the Bank and net proceeds from capital offerings and borrowings, while the
main outflows are the payment of dividends to preferred and common stockholders,
repurchases of Webster's common stock, and the payment of interest to holders of
Webster's 8 3/4% Senior Notes and Webster's 9.36% Capital Trust I Capital
Securities. There are certain restrictions on the payment of dividends by the
Bank to Webster. See Note 15 to the Consolidated Financial Statements. Webster
also maintains a $20 million line of credit with a correspondent bank. On
January 31, 1997, Webster completed the sale of $100 million of Webster Capital
Trust I Capital Securities further increasing its capital resources. The Capital
Trust I Capital Securities are further discussed in Note 19 to the Consolidated
Financial Statements.
On November 19, 1996, Webster completed a previously announced common stock
repurchase program which resulted in total repurchases of 549,800 shares and
also announced its intention to repurchase up to 300,000 additional shares. The
purpose of the announced repurchase plan was to offset future dilution from
shares of common stock that were issued in January 1997, in connection with
conversions of preferred stock or issued upon exercise of options under
Webster's stock option plans. At December 31, 1996, shares totaling 255,100 had
been repurchased under the new repurchase plan with the remaining 44,900 shares
under the plan repurchased in January 1997. On September 4, 1997, Webster
completed the repurchase of 85,333 common shares under a repurchase plan
announced in May 1997. The repurchased shares under the plan were reissued in
connection with the purchase of Sachem Trust.
Applicable OTS regulations require the Bank, as a federal savings 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 savings institution, the Bank also is subject to a minimum tangible
capital requirement (expressed as a ratio of tangible capital to adjusted total
assets). At December 31, 1997, the Bank was in full compliance with all
applicable capital requirements detailed as follows:
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
Tier 1 Tier 1 Total
Tangible Capital Core Capital Risk-Based Capital Risk-Based Capital
Requirement Requirement Requirement Requirement
----------------------------------------------------------------------------------------
(Dollars in thousands) Amount % Amount % Amount % Amount %
- ----------------------------------------------------------------------------------------------------------------------------
Capital for regulatory purposes $ 380,896 5.54% $ 385,599 5.61% $ 385,599 12.15% $ 425,398 13.41%
Minimum regulatory requirement 103,046 1.50 206,234 3.00 126,915 4.00 253,829 8.00
- ----------------------------------------------------------------------------------------------------------------------------
Excess over requirement $ 277,850 4.04% $ 179,365 2.61% $ 258,684 8.15% $ 171,569 5.41%
============================================================================================================================
ASSET/LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
Interest-rate risk is the sensitivity of the market value of assets and
liabilities to changes in interest rates over short-term and long-term time
horizons. The market values of certain financial assets and liabilities of
Webster are sensitive to fluctuations in market interest rates. Changes in
interest rates can affect the number of loans originated by the Bank, as well as
the value of its loans and other interest-earning assets. Also, increases in
interest rates may cause depositors to shift funds from accounts that have a
comparatively lower cost such as regular savings accounts to accounts with a
higher cost such as certificates of deposit. If the cost of interest-bearing
liabilities increases at a rate that is greater than the increase in yields on
interest-earning assets, the interest-rate spread would be negatively affected.
Changes in Webster's asset and liability mix also affects interest-rate spread.
Webster is unable to predict fluctuation in interest rates.
8
The primary goal of interest-rate risk management is to control this risk within
limits approved by the Board of Directors and narrower guidelines established by
the Asset/Liability Committee while managing interest-rate risk so as to
maximize net interest income and net market value over time in changing
interest-rate environments. To this end, Webster's strategies for controlling
interest-rate risk are responsive to changes in the interest-rate environment
and market demands for particular types of deposit and loan products. Management
measures interest-rate risk using simulation, duration, and GAP analyses with
particular emphasis on measuring changes in the market value of portfolio equity
and changes in net interest income in different interest-rate environments.
Market value is measured as the net present value of future cash flows. The
simulation analyses incorporate assumptions about balance sheet changes such as
asset and liability growth, loan and deposit pricing and changes due to the mix
and maturity of such assets and liabilities. The key assumptions relate to the
behavior of interest rates and spreads, the fluctuations in product balances,
and prepayment and decay rates on loans and deposits. From such simulations,
interest-rate risk is quantified and appropriate strategies are formulated. The
overall interest-rate risk position is reviewed on an ongoing basis by the
Asset/Liability Committee, which includes Executive Management and has
representation by members of each line of business. Strategies employed during
1997 to improve the interest-rate sensitive position included, (i) promotion of
adjustable-rate mortgage loans, particularly three-year adjustable rate mortgage
loans which have lower prepayment speeds than one-year adjustable rate mortgage
loans, (ii) emphasis on the origination of variable-rate home equity credit
lines and commercial loans, (iii) emphasis on the purchase of short duration
mortgage-backed securities, (iv) the purchase of prepayment protected
mortgage-backed securities, and (v) emphasis on deposits and borrowed funds that
meet asset/liability management objectives.
Webster also uses as part of its asset/liability management strategy various
interest-rate contracts including short futures positions, interest-rate swaps
and interest-rate caps and floors. Webster utilized interest-rate financial
instruments to hedge mismatches in interest-rate 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 or currency rates on the value of the financial
instruments. 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.
Webster holds short futures positions to minimize the price volatility of
certain adjustable-rate assets held as Trading Securities. Changes in the market
value of short futures positions are recognized as a gain or loss in the
Consolidated Statements of Income in the period for which the change occurred.
The following table summarizes the estimated market value of Webster's
interest-sensitive assets and interest-sensitive liabilities at December 31,
1997, and the projected change to market values if interest rates
instantaneously increase or decrease by 100 basis points.
Estimated Market Value Impact
Book Market ----------------------------
(In thousands) Value Value -100 BP +100BP
- -------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
Trading $84,749 $84,749 $(438) $ (399)
Non-Trading 6,451,488 6,540,286 81,174 (122,591)
Interest-Sensitive Liabilities 6,566,843 6,583,018 (35,540) 36,305
The table above excludes earning assets that are not directly impacted by
changes in interest rates. These assets include equity securities of $204.9
million (See Note 3 to Consolidated Financial Statements) and nonaccrual loans
of $41.1 million (See "Asset Quality" and "Segregated Assets" within the MD&A).
Values for mortgage servicing rights have been included in the table above as
movement in interest rates affect the valuation of the servicing rights. Equity
securities and nonaccrual assets not included in the above table are however,
subject to fluctuations in market value based on other risks.
9
Based on Webster's asset/liability mix at December 31, 1997, management's
sensitivity analysis of the effects of changing interest rates estimates that an
instantaneous 100 basis point increase in interest rates would decrease net
interest income over the next twelve months by about 4.1% and an instantaneous
100 basis point decline in interest rates would increase net interest income
over the next twelve months by about 1.8%. The estimated market values in the
above table are subject to factors that could cause actual results to differ
from such projections and estimates.
The following table sets forth the estimated maturity/repricing structure of
Webster's interest-earning assets and interest-bearing liabilities at December
31, 1997. Repricing for mortgage loans is based on contractual repricing and
projected prepayments and repayments of principal. Deposit liabilities without
fixed maturities are assumed to decay over the periods presented based on
industry standards and internal projections. At December 31, 1997, Webster was
primarily liability sensitive in the 0-3 year time horizon and asset sensitive
in the 3-20 year time horizon. In a declining interest-rate environment, a
liability sensitive position would primarily result in a favorable effect on net
interest income and in an increasing interest-rate environment net interest
income would be adversely affected. Management believes that Webster's
interest-rate risk position at December 31, 1997, presents a reasonable level of
risk.
- ------------------------------------------------------------------------------------------------------------------------------------
More than More than More than More than More than
(Dollars in thousands) 6 Months 6 Months 1 Year 3 Years 5 Years 10 Years More than
or less to 1 Year to 3 Years to 5 Years to 10 Years to 20 Years 20 Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Loans $ 1,397,800 $ 633,340 $ 658,338 $ 370,492 $ 376,020 $ 304,279 $ 136,389 $ 3,876,658
Securities 1,173,251 670,698 304,095 142,141 218,904 202,019 106,636 2,817,744
- ------------------------------------------------------------------------------------------------------------------------------------
Total Rate-Sensitive Assets $ 2,571,051 $1,304,038 $ 962,433 $ 512,633 $ 594,924 $ 506,298 $ 243,025 $ 6,694,402
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $ 1,552,479 $ 861,853 $1,222,305 $ 257,865 $ 107,573 $ 582 $ 363,099 $ 4,365,756
Borrowings 1,875,989 109,700 24,820 41,000 - - - 2,051,509
- ------------------------------------------------------------------------------------------------------------------------------------
Total Rate-
Sensitive Liabilities $ 3,428,468 $ 971,553 $1,247,125 $ 298,865 $ 107,573 $ 582 $ 363,099 $ 6,417,265
====================================================================================================================================
Consolidated GAP $ (857,417) $ 332,485 $ (284,692) $ 213,768 $ 487,351 $ 505,716 $ (120,074) N/A
GAP to Total Assets Percent (12.21)% 4.74% (4.06)% 3.05% 6.94% 7.20% (1.71)% N/A
Cumulative GAP $ (857,417) $ (524,932) $ (809,624) $ (595,856) $ (108,505) $ 397,211 $ 277,137 N/A
Cumulative GAP to Total
Assets Percent (12.21)% (7.48)% (11.53)% (8.49)% (1.55)% 5.66% 3.95% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,019,621 $7,019,621 $7,019,621 $7,019,621 $7,019,621 $7,019,621 $7,019,621
====================================================================================================================================
COMPARISON OF 1997 AND 1996 YEARS
- --------------------------------------------------------------------------------
GENERAL. For 1997, Webster reported net income of $33.8 million, or $2.44 per
share on a diluted basis. Included in the 1997 results are merger and
acquisition expenses of $27.1 million and provisions for loan losses of $7.2
million specifically related to the Derby and People's acquisitions. Excluding
the effect of merger and acquisition expenses and additional provisions for loan
losses, net income for the 1997 year would have been $53.8 million or $3.89 per
diluted share. Net income for 1996 amounted to $38.5 million, or $2.66 per share
on a diluted basis. Included in the 1996 results are expenses of $4.7 million
related to a special assessment associated with the recapitalization of the
Savings Association Insurance Fund ("SAIF") and $500,000 of acquisition related
charges for the Shawmut Transaction. Excluding the effects of these expenses,
net income for the 1996 year would have been $41.5 million or $2.87 per diluted
share. Results for the Shawmut Transaction are included in the accompanying
Consolidated Financial Statements from the date of acquisition on February 16,
1996.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $22.9 million in 1997 to $191.9 million from $169.0 million in 1996.
The increase is primarily attributable to an increased volume of average
interest-earning assets and interest-bearing liabilities as a result of balance
sheet growth. The balance sheet growth was due in part to the utilization of the
proceeds of the Capital Trust I Capital Securities offering in January 1997,
which supported increases in interest-earning assets and interest-bearing
liabilities. See Note 19 to Consolidated Financial Statements. The interest-rate
spread for the 1997 year decreased to 3.02% compared to 3.12% in 1996 due
primarily to the change in mix of interest-earning assets and interest-bearing
10
liabilities. During 1997, the average balance of securities increased $660.6
million and the average balance of borrowings increased $759.7 million from the
year earlier period.
INTEREST INCOME. Total interest income for 1997 amounted to $445.8 million, an
increase of $59.3 million, or 15.3% compared to $386.5 million in 1996. This
improvement was due primarily to an increase in the average volume of loans and
securities offset by a decrease in the average cost of funds on all
interest-earning assets to 7.34% in 1997 from 7.39% in 1996.
INTEREST EXPENSE. Interest expense for 1997 totaled $253.9 million, an increase
of $36.5 million compared to $217.4 million in 1996. The higher interest expense
was due primarily to an increase in the average volume of borrowings and an
increase in the average cost of funds on all interest-bearing liabilities to
4.32% in 1997 from 4.27% in 1996. The following table shows the major categories
of average assets and average liabilities together with their respective
interest income or expense and the rates earned and paid by Webster.
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Yield Balance Interest Yield Balance Interest Yield
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net (a) $3,758,448 $293,925(b) 7.82% $ 3,566,695 $ 279,143(b) 7.83% $ 3,014,715 $228,341(b) 7.57%
Segregated Assets, net (a) 59,500 5,133 8.63 93,034 6,470 6.95 123,293 9,592 7.78
Securities 2,187,351 143,267 6.55(c) 1,526,736 98,568 6.46(c) 1,428,377 92,945 6.51(c)
Interest-Bearing Deposits 61,256 3,523 5.75 39,679 2,277 5.64 43,472 2,044 4.64
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets 6,066,555 445,848 7.34 5,226,144 386,458 7.39 4,609,857 332,922 7.22
Other Assets 287,599 259,704 149,748
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $6,354,154 $ 5,485,848 $ 4,759,605
================================================================================================================================
Savings and Escrow $992,806 24,721 2.49% $ 966,205 21,813 2.26% $ 805,099 17,785 2.21%
Money Market Savings,
NOW and DDA 841,286 10,952 1.30 904,136 16,101 1.78 753,398 20,480 2.72
Time Deposits 2,539,857 132,917 5.23 2,510,975 136,020 5.42 2,292,391 119,367 5.21
FHL Bank Advances 856,520 49,672 5.72 527,414 31,765 6.02 522,884 33,333 6.37
Repurchase Agreements
and Other Borrowings 575,126 32,001 5.49 144,543 8,062 5.58 49,945 2,966 5.94
Senior Notes 40,000 3,660 9.15 40,000 3,660 9.15 40,000 3,660 9.15
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-
Bearing Liabilities 5,845,595 253,923 4.32 5,093,273 217,421 4.27 4,463,717 197,591 4.42
Other Liabilities 160,754 48,773 4,953
Shareholders' Equity 347,805 343,802 290,935
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and
Interest-Rate Spread $191,925 3.02% $169,037 3.12% $135,331 2.80%
==================================================================================================================================
Total Liabilities and
Shareholders' Equity $6,354,154 $5,485,848 $ 4,759,605
==================================================================================================================================
Net Interest Margin 3.17% 3.23% 2.96%
==================================================================================================================================
(a) Interest on nonaccrual loans has been included only to the extent reflected
in the Consolidated Statements of Income. Nonaccrual loans, however, are
included in the average balances outstanding.
(b) Includes amortization of net deferred expense (income) of: $4.0 million,
$1.6 million and ($869,000) in 1997, 1996 and 1995, respectively.
(c) Yields are adjusted to a fully tax equivalent basis.
11
Net interest income also can be analyzed in terms of the impact of changing
rates and changing volumes. The following table describes the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected Webster's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rates (changes in rates multiplied by prior volume), and (iii) the net change.
The change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
Years Ended December 31, Years Ended December 31,
1997 v. 1996 1996 v. 1995
- --------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
(In thousands) Rate Volume Total Rate Volume Total
- --------------------------------------------------------------------------------------------------------------
Interest on interest-earning assets:
Loans and Segregated Assets $ 1,055 $ 12,390 $ 13,445 $ 7,137 $ 40,543 $ 47,680
Securities 1,430 44,515 45,945 (232) 6,088 5,856
- --------------------------------------------------------------------------------------------------------------
Total 2,485 56,905 59,390 6,905 46,631 53,536
- --------------------------------------------------------------------------------------------------------------
Interest on interest-bearing liabilities:
Deposits (5,049) (295) (5,344) (4,572) 20,874 16,302
FHL Bank advances and other
borrowings (2,087) 43,933 41,846 (2,264) 5,792 3,528
- --------------------------------------------------------------------------------------------------------------
Total (7,136) 43,638 36,502 (6,836) 26,666 19,830
- --------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 9,621 $ 13,267 $ 22,888 $ 13,741 $ 19,965 $ 33,706
==============================================================================================================
PROVISION FOR LOAN LOSSES. The provision for loan losses for 1997 was $15.8
million compared to $9.8 million in 1996. The increase for 1997 is attributable
to $7.2 million in provisions made at the time of the acquisitions of Derby and
People's. The allowance for losses on loans totaled $49.8 million and
represented 132.1% of nonaccrual loans at December 31, 1997 versus $43.2 million
or 103.8% of nonaccrual loans at December 31, 1996.
NONINTEREST INCOME. Noninterest income for 1997 totaled $36.0 million, compared
to $32.2 million in 1996. Fees and service charges were $27.7 million in 1997,
an increase of $5.4 million, or 24.5% from 1996 due primarily to an increase in
the customer base. Gains on the sale of loans and mortgage loan servicing rights
amounted to $669,000 in 1997 compared to $737,000 in 1996. Gains on the sale of
securities amounted to $3.2 million in 1997 compared to $4.1 million in 1996.
Other noninterest income was $4.5 million for 1997 and $5.1 million for 1996.
NONINTEREST EXPENSES. Noninterest expenses for 1997 were $158.5 million compared
to $130.6 million in 1996. Included in the 1997 results are merger and
acquisition expenses totaling $27.1 million which include: $19.9 million related
to the Derby acquisition and $7.2 million related to the People's acquisition.
Other components of the increase were higher occupancy, furniture and equipment,
intangible amortization, Capital Securities and other operating expenses.
Offsetting such increases were lower salaries and employee benefits due to
decreases in pension and post-retirement benefits and decreased foreclosed
property expenses and provisions due to fewer foreclosed properties. Included in
the 1996 results are expenses of $4.7 million related to a special assessment
associated with the recapitalization of the SAIF and $500,000 related to the
Shawmut Transaction. Also included in the 1996 results were benefits from the
Bank Insurance Fund ("BIF") and SAIF related to deposit premium reductions. At
December 31, 1997, approximately 81% of the Bank's deposits are assessed
premiums at the BIF rate and 19% at the SAIF rate.
INCOME TAXES. Income tax expense for 1997 decreased to $19.7 million from $22.4
million in 1996. The decrease in income tax expense is due primarily to merger
and acquisition expenses and to lower state income tax rates. Included in the
1997 and 1996 results are $1.1 million and $2.0 million, respectively, of
benefits from the reduction of the deferred tax asset valuation allowance. The
decrease in the valuation allowance was due to favorable reassessments of known
risks during 1997 and 1996.
12
COMPARISON OF 1996 AND 1995 YEARS
- --------------------------------------------------------------------------------
GENERAL. For 1996, Webster reported net income of $38.5 million, or $2.66 per
share on a diluted basis. Included in the 1996 results are expenses of $4.7
million related to a special assessment associated with the recapitalization of
the SAIF and $500,000 of acquisition related charges for the Shawmut
Transaction. Excluding the effect of these expenses, net income for the 1996
year would have been $41.5 million or $2.87 per diluted share. Net income for
1995 amounted to $29.3 million, or $2.22 per share on a diluted basis. Included
in the 1995 results are expenses of $3.3 million related to the Shelton
acquisition, $2.1 million related to changing the name of and merging together
Webster's banking subsidiaries, and $1.0 million related to the Shawmut
Transaction. Excluding the effects of these expenses, net income for the 1995
year would have been $33.0 million or $2.50 per diluted share. Results for the
Shawmut Transaction are included in the accompanying Consolidated Financial
Statements only from the date of acquisition on February 16, 1996.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $33.7 million in 1996 to $169.0 million from $135.3 million in 1995.
The increase is primarily due to an increased volume of average interest-earning
assets and interest-bearing liabilities related to the Shawmut Transaction.
Interest-rate spread for the 1996 year increased to 3.12% compared to 2.80% in
1995 also due primarily to lower costing liabilities acquired in the Shawmut
Transaction.
INTEREST INCOME. Total interest income for 1996 amounted to $386.5 million, an
increase of $53.6 million, or 16.1% compared to $332.9 million in 1995. The
higher interest income was due primarily to an increase in the average volume of
loans and securities and to a higher average yield on all interest-earning
assets which rose to 7.39% in 1996 from 7.22% in 1995.
INTEREST EXPENSE. Interest expense for 1996 totaled $217.4 million, an increase
of $19.8 million compared to $197.6 million in 1995. The higher interest expense
was due primarily to an increase in the average volume of deposits and
borrowings partially offset by a decrease in the average yield on all
interest-bearing liabilities to 4.27% in 1996 from 4.42% in 1995. The lower
average yield on interest-bearing liabilities is due primarily to the higher
number of noninterest bearing and other deposits acquired in the Shawmut
Transaction.
PROVISION FOR LOAN LOSSES. The provision for loan losses for 1996 was $9.8
million compared to $5.7 million in 1995. The increased provision for the 1996
year is attributable to an increase in the balance of outstanding loans and the
change in portfolio mix. The allowance for losses on loans was $43.2 million and
represented 103.8% of nonaccrual loans at December 31, 1996 versus $50.3 million
or 96.1% of nonaccrual loans at December 31, 1995.
NONINTEREST INCOME. Noninterest income for 1996 was $32.2 million, compared to
$27.9 million in 1995. Fees and service charges totaled $22.2 million in 1996,
an increase of $4.5 million, or 25.1% from 1995 due primarily to the increase in
customers from acquisitions. Gains on the sale of loans and mortgage loan
servicing rights were $737,000 in 1996 compared to $4.6 million in 1995. The
1995 results included gains on the sale of mortgage loan servicing rights of
$2.1 million. Gains on the sale of securities were $4.1 million in 1996 compared
to $532,000 in 1995. Other noninterest income was $5.1 million for 1996 and $5.0
million for 1995.
NONINTEREST EXPENSES. Noninterest expenses for 1996 amounted to $130.6 million
compared to $112.7 million in 1995. The increase of $17.9 million is due
primarily to increased salaries and employee benefits, occupancy, furniture and
equipment, core deposit intangible amortization, marketing, and other operating
expenses with all such increases related primarily to the Shawmut Transaction.
Offsetting such increases were lower foreclosed property expenses and provisions
due to a decrease in the outstanding balance of foreclosed properties. Included
in the 1996 results are expenses of $4.7 million related to a special assessment
associated with the recapitalization of the SAIF and $500,000 related to the
Shawmut Transaction. Also, included in the 1996 results were benefits from the
BIF and SAIF related to deposit premium reductions. At December 31, 1996,
approximately 81% of the Bank's deposits were assessed premiums at the BIF rate
and 19% at the SAIF rate. Included in the 1995 results were expenses of $3.3
million related to the Shelton acquisition, $2.1 million related to changing the
name and merging Webster's banking subsidiaries, and $1.0 million related to the
Shawmut Transaction.
13
INCOME TAXES. Income tax expense for 1996 increased to $22.4 million from $15.5
million in 1995. The increase in income tax expense is due primarily to an
increase in income before taxes. Included in the 1996 and 1995 results are $2.0
million and $2.3 million, respectively, of benefits from the reduction of the
deferred tax asset valuation allowance. The decrease in the valuation allowance
was due to favorable reassessments of known risks during 1996 and 1995.
IMPACT OF INFLATION AND CHANGING PRICES
- --------------------------------------------------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a banking institution are monetary in nature. As a result, interest rates have a
more significant impact on a banking institution's performance than the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods and services. In
the current interest-rate environment, the maturity structure of Webster's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
RECENT FINANCIAL ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes standards
for the method in which public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
reports issued to shareholders. This statement requires that public business
enterprises report quantitative and qualitative information about its reportable
segments, including profit or loss, certain specific revenue and expense items
and segment assets. Webster plans to report segment information along its four
business lines: consumer, business, mortgage banking and trust and investment
management services. This statement also requires reconciliations of total
segment revenues, total segment profit or loss, total segment assets and other
amounts disclosed for segments to corresponding amounts in the Consolidated
Financial Statements. This statement is effective for financial statements for
periods beginning after December 15, 1997 and in the initial year of
application, comparative information for earlier years is required. Comparative
interim information is required in the year subsequent to the adoption.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The objective of this statement is to report a measure of all changes in equity
of an enterprise that result from transactions and other economic events of the
period other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. This statement is
effective for fiscal years beginning after December 15, 1997 and
reclassification of financial statements of earlier periods for comparative
purposes is required.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure." This statement establishes standards for disclosing
information about an entity's capital structure. This statement is effective for
financial statements issued for periods ending after December 15, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement simplifies the standards for computing and presenting earnings per
share previously found in APB Opinion No. 15 and makes them comparable to
international standards. It replaces the presentation of primary earnings per
share with a presentation of basic earnings per share and requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Webster implemented this statement in the
fourth quarter of 1997. See Notes 1 and 16.
14
RECENT TAX LEGISLATION
- --------------------------------------------------------------------------------
Tax law changes were enacted in August 1996 to eliminate the "thrift bad debt"
method of calculating bad debt deductions for tax years after 1995 and to impose
a requirement to recapture into taxable income (over a six-year period) all bad
debt reserves accumulated after 1987. Since Webster previously recorded a
deferred tax liability with respect to these post 1987 reserves, its total
income tax expense for financial reporting purposes will not be affected by the
recapture requirement. The tax law changes also provide that taxes associated
with the recapture of pre-1988 bad debt reserves would become payable under more
limited circumstances than under prior law. Under the tax laws, as amended,
events that would result in recapture of the pre-1988 bad debt reserves include
stock and cash distributions to the holding company from the Bank in excess of
specified amounts. Webster does not expect such reserves to be recaptured into
taxable income.
YEAR 2000 IMPACT
- --------------------------------------------------------------------------------
The "Year 2000" issue refers to the potential impact of the failure of computer
programs and equipment to give proper recognition of dates beyond December 31,
1999 and other issues related to the Year 2000 century date change. Webster has
completed its assessment of Year 2000 issues and has developed and began
implementing a plan to modify or replace software and hardware systems to ensure
proper date recognition. The Corporation is utilizing internal and external
resources for this purpose. The total cost of the Year 2000 project is estimated
to be $1.5 million.
Webster has initiated formal communications with all significant vendors to
determine the extent to which vendors will be Year 2000 compliant. Webster
requires compliance as a condition of future business. Contingency plans for
vendor failure to comply are incorporated in Webster's Year 2000 plan. There can
be no guarantee that the systems on which Webster relies will be in compliance.
The estimated cost of the Year 2000 project is based on management's best
estimates which could differ from actual results.
15
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands, except share data)
December 31,
-----------------------
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Due from Depository Institutions $ 122,267 $ 105,226
Interest-bearing Deposits 30,504 4,536
Securities: (Note 3)
Trading at Fair Value 84,749 59,331
Available for Sale, at Fair Value 2,290,254 983,699
Held to Maturity, (Market Value: $412,061 in 1997; $528,473 in 1996) 412,237 534,672
Loans Receivable, Net (Note 4) 3,824,602 3,642,522
Segregated Assets, Net (Note 5) 41,038 75,670
Accrued Interest Receivable 40,755 35,430
Premises and Equipment, Net (Note 6) 58,640 58,711
Foreclosed Properties, Net (Note 13) 8,189 13,214
Intangible Assets (Note 2) 48,919 49,448
Prepaid Expenses and Other Assets (Note 7) 57,467 44,751
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,019,621 $ 5,607,210
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Deposits (Note 8) $ 4,365,756 $ 4,457,561
Federal Home Loan Bank Advances (Note 9) 1,071,620 559,880
Reverse Repurchase Agreements and Other Borrowings (Note 10) 956,554 166,127
Advance Payments by Borrowers for Taxes and Insurance 23,335 31,106
Accrued Expenses and Other Liabilities 70,593 55,704
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 6,487,858 5,270,378
- ----------------------------------------------------------------------------------------------------------------------------
Corporation-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust (Note 19) 100,000 --
Preferred Stock of Subsidiary Corporation (Note 20) 49,577 --
SHAREHOLDERS' EQUITY: (NOTES 15, 16 AND 17)
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Convertible Preferred Stock, Series B:
0 shares issued and outstanding at December 31, 1997 and
98,084 shares issued and outstanding at December 31, 1996 -- 1
Common Stock, $.01 par value:
Authorized - 30,000,000 shares;
Issued - 13,676,136 shares at December 31, 1997 and 13,561,540 shares in 1996 137 136
Paid-in Capital 171,659 186,451
Retained Earnings 193,267 169,637
Less Treasury Stock at cost, 22,958 shares at December 31, 1997 and
575,274 shares at December 31, 1996 (1,116) (18,801)
Less Employee Stock Ownership Plan Shares Purchased with Debt (1,971) (2,574)
Unrealized Gains on Securities, Net 20,210 1,982
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 382,186 336,832
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 4, 6 and 21)
Total Liabilities and Shareholders' Equity $ 7,019,621 $ 5,607,210
============================================================================================================================
See accompanying notes to consolidated financial statements
16
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------------
(Dollars in thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans and Segregated Assets $299,058 $285,614 $237,933
Securities and Interest-bearing Deposits 146,790 100,844 94,989
- -------------------------------------------------------------------------------------------------
Total Interest Income 445,848 386,458 332,922
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits (Note 8) 168,590 173,934 157,631
Interest on Borrowings 85,333 43,487 39,960
- -------------------------------------------------------------------------------------------------
Total Interest Expense 253,923 217,421 197,591
- -------------------------------------------------------------------------------------------------
Net Interest Income 191,925 169,037 135,331
Provision for Loan Losses (Note 4) 15,835 9,788 5,726
- -------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 176,090 159,249 129,605
- -------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Fees and Service Charges 27,685 22,242 17,775
Gain on Sale of Loans and Loan Servicing, Net (Note 4) 669 737 4,644
Gain on Sale of Securities, Net (Note 3) 3,152 4,133 532
Other Noninterest Income 4,484 5,067 4,951
- -------------------------------------------------------------------------------------------------
Total Noninterest Income 35,990 32,179 27,902
- -------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and Employee Benefits 57,651 60,702 52,725
Occupancy Expense of Premises 12,807 12,337 9,132
Furniture and Equipment Expenses 12,140 11,176 8,255
Federal Deposit Insurance Premiums 993 1,577 5,888
SAIF Recapitalization Expense -- 4,730 --
Foreclosed Property Expenses
and Provisions, Net (Note 13) 2,150 3,507 6,254
Intangible Amortization 6,262 5,338 1,444
Marketing Expenses 5,730 5,900 4,829
Merger and Acquisition Expenses (Note 18) 27,058 500 4,271
Name Change and Subsidiary Merger Expense -- -- 2,100
Capital Securities Expense (Note 19) 8,845 -- --
Dividends on Preferred Stock of Subsidiary Corporation (Note 20) 85 -- --
Other Operating Expenses 24,826 24,788 17,838
- -------------------------------------------------------------------------------------------------
Total Noninterest Expenses 158,547 130,555 112,736
- -------------------------------------------------------------------------------------------------
Income Before Income Taxes 53,533 60,873 44,771
Income Taxes (Note 14) 19,735 22,372 15,450
- -------------------------------------------------------------------------------------------------
NET INCOME 33,798 38,501 29,321
Preferred Stock Dividends -- 1,149 1,296
- -------------------------------------------------------------------------------------------------
Net Income Available to Common Shareholders $ 33,798 $ 37,352 $ 28,025
=================================================================================================
NET INCOME PER COMMON SHARE (NOTE 16):
Basic $ 2.51 $ 2.82 $ 2.35
Diluted 2.44 2.66 2.22
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Employee
Stock
(In thousands, except per share data) Ownership Unrealized
Plan Shares Gains (Losses)
Preferred Common Paid-In Retained Treasury Purchased On Securities,
Stock Stock Capital Earnings Stock With Debt Net Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $ 2 $ 124 $ 158,251 $ 125,329 $ (3,692) $(3,675) $(11,935) $ 264,404
Net Income for 1995 -- -- -- 29,321 -- -- -- 29,321
Dividends Paid:
$.64 Per Common Share -- -- -- (4,382) -- -- -- (4,382)
Cash Dividends Declared by
Pooled Companies Prior
to Mergers -- -- -- (1,718) -- -- -- (1,718)
Dividends Paid or Accrued:
Preferred Series B -- -- -- (1,296) -- -- -- (1,296)
Allocation of ESOP Shares -- -- (3) -- -- 468 -- 465
Fractional Shares Paid -- -- (13) -- -- -- -- (13)
Exercise of Stock Options -- -- 1,331 -- 402 -- -- 1,733
Proceeds from Sale
of Common Stock -- 12 32,100 -- -- -- -- 32,112
Stock Dividends Declared by
Pooled Companies Prior
to Mergers -- -- 6,950 (6,960) -- -- -- (10)
Pooling Adjustments, Net -- -- (829) -- -- -- (37) (866)
Net Unrealized Gain on
Securities Available for
Sale, Net of Taxes -- -- -- -- -- -- 14,830 14,830
Other, Net -- (1) 1 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 2 $ 135 $ 197,788 $ 140,294 $ (3,290) $(3,207) $ 2,858 $ 334,580
==================================================================================================================================
Net Income for 1996 -- -- -- 38,501 -- -- -- 38,501
Dividends Paid:
$.68 Per Common Share -- -- -- (5,546) -- -- -- (5,546)
Cash Dividends Declared by
Pooled Companies Prior
to Mergers -- -- -- (2,463) -- -- -- (2,463)
Dividends Paid or Accrued:
Preferred Series B -- -- -- (1,149) -- -- -- (1,149)
Allocation of ESOP Shares -- -- 94 -- -- 633 -- 727
Exercise of Stock Options -- 1 614 -- 3,351 -- -- 3,966
Conversion of Preferred
Series B to Common Stock (1) -- (8,724) -- 8,725 -- -- --
Common Stock Repurchased -- -- -- -- (27,611) -- -- (27,611)
Pooling Adjustments, Net -- -- (3,216) -- -- -- (1,365) (4,581)
Net Unrealized Gain on
Securities Available for
Sale, Net of Taxes -- -- -- -- -- -- 489 489
Other, Net -- -- (105) -- 24 -- -- (81)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 1 $ 136 $ 186,451 $ 169,637 $(18,801) $(2,574) $ 1,982 $ 336,832
==================================================================================================================================
Net Income for 1997 -- -- -- 33,798 -- -- -- 33,798
Dividends Paid:
$.80 Per Common Share -- -- -- (9,037) -- -- -- (9,037)
Cash Dividends Declared by
Pooled Companies Prior
to Mergers -- -- -- (1,069) -- -- -- (1,069)
Allocation of ESOP Shares -- -- 166 -- -- 603 -- 769
Exercise of Stock Options -- 3 (590) -- 5,058 -- -- 4,471
Conversion of Preferred
Series B to Common Stock (1) -- (18,499) -- 8,500 -- -- --
18
Employee
Stock
(In thousands, except per share data) Ownership Unrealized
Plan Shares Gains (Losses)
Preferred Common Paid-In Retained Treasury Purchased On Securities,
Stock Stock Capital Earnings Stock With Debt Net Total
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock Repurchased -- -- -- -- (6,020) -- -- (6,020)
Common Stock Issued in
Consideration for Sachem Trust -- 1 3,971 -- -- -- -- 3,972
Net Unrealized Gain on
Securities Available for
Sale, Net of Taxes -- -- -- -- -- -- 18,576 18,576
Other, Net -- (3) 160 (62) 147 -- (348) (106)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $-- $ 137 $ 171,659 $ 193,267 $ (1,116) $(1,971) $ 20,210 $ 382,186
================================================================================================================================
See accompanying notes to consolidated financial statements
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $ 33,798 $ 38,501 $ 29,321
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 15,835 9,788 5,726
Provision for Foreclosed Property Losses 746 1,866 3,532
Provision for Depreciation and Amortization 9,503 8,598 6,097
(Accretion) Amortization of Securities Premiums, Net (3,148) 4,110 1,513
Amortization and Write-down of Intangibles 6,262 5,338 1,444
Amortization of Hedging Costs 2,985 780 250
Mortgage Servicing Rights Amortization and Provision 1,101 491 715
Gains on Sale of Foreclosed Properties (1,240) (1,354) (735)
Gains on Sale of Loans and Securities (3,592) (4,019) (4,697)
Gains on Sale of Trading Securities (229) (851) (479)
(Increase) Decrease in Trading Securities (40,952) 7,587 (14,211)
Loans Originated for Sale (44,819) (70,955) (105,720)
Sale of Loans, Originated for Sale 56,649 84,838 147,154
(Increase) Decrease in Interest Receivable (5,325) 316 (3,792)
Increase (Decrease) in Interest Payable 17,353 (747) 976
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 13,200 (17,610) 6,044
(Increase) Decrease in Prepaid Expenses and Other Assets (25,890) (10,651) 543
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 32,237 56,026 73,681
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of Securities, Available for Sale (1,719,047) (602,853) (298,409)
Purchases of Securities, Held to Maturity (21,347) (100,426) (317,786)
Maturities of Securities 185,038 153,489 115,775
Proceeds from Sales of Securities, Available for Sale 126,223 292,594 216,774
Net (Increase) Decrease in Interest-bearing Deposits (25,968) 45,132 19,026
Purchase of Loans (187,815) (77,440) (99,235)
Net Increase in Loans (36,262) (10,530) (15,420)
Proceeds from Sale of Foreclosed Properties 20,520 21,017 16,269
Net Decrease in Segregated Assets 20,932 29,169 28,941
Sale of Segregated Assets 13,700 -- --
Principal Collected on Mortgage-Backed Securities 279,281 191,064 118,174
Purchase of Premises and Equipment, Net (9,432) (11,454) (9,608)
Net Cash and Cash Equivalents Received from Bank Acquisition -- 113,551 --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities (1,354,177) 43,313 (225,499)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits (91,225) (91,561) 16,103
Net Proceeds from Sale of Common Stock -- -- 32,112
Repayment of FHL Bank Advances (3,316,780) (1,676,469) (1,122,986)
Proceeds from FHL Bank Advances 3,828,520 1,737,423 1,106,618
Repayment of Other Borrowings (4,424,506) (1,439,207) (61,193)
Proceeds from Other Borrowings 5,215,701 1,436,048 188,077
Net Proceeds from Issuance of Capital Securities 97,700 -- --
Net Proceeds from Preferred Stock of Subsidiary Corporation 49,577 -- --
Cash Dividends to Common and Preferred Shareholders (10,106) (9,158) (7,396)
Net (Decrease) Increase in Advance Payments for Taxes and Insurance (8,351) 2,987 249
Exercise of Stock Options 4,471 3,966 1,733
Common Stock Repurchased (6,020) (27,611) --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 1,338,981 (63,582) 153,317
- ---------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 17,041 35,757 1,499
Cash and Cash Equivalents at Beginning of Period 105,226 69,469 67,970
- ---------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 122,267 $ 105,226 $ 69,469
=====================================================================================================================
See accompanying notes to consolidated financial statements
20
Years Ended December 31,
---------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ 24,581 $ 24,749 $ 14,401
Interest Paid 242,467 215,097 196,873
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of Loans to Foreclosed Properties 26,058 19,788 20,162
Transfer of Securities from Held to Maturity to Available for Sale -- -- 340,613
Assets acquired and liabilities assumed in 1996 purchase business combinations
were as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended
(In thousands) December 31, 1996
- -----------------------------------------------------------------------------------------------------------------
ASSETS ACQUIRED:
Loans $ 586,235
Premises and Equipment 6,327
Other Assets 3,059
- -----------------------------------------------------------------------------------------------------------------
Total Assets Acquired 595,621
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES ASSUMED:
Deposits 846,412
Less Deposits Exchanged (95,163)
- -----------------------------------------------------------------------------------------------------------------
Net Deposits Assumed 751,249
Other Liabilities 922
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities Assumed 752,171
- -----------------------------------------------------------------------------------------------------------------
Net Liabilities Assumed 156,550
Net Premium Paid for Deposits (42,999)
- -----------------------------------------------------------------------------------------------------------------
Net Cash and Cash Equivalents Received from Bank Acquisition $ 113,551
=================================================================================================================
See accompanying notes to consolidated financial statements
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
a) Business
Webster Financial Corporation, ("Webster"), through its subsidiary, Webster Bank
(the "Bank"), delivers financial services to individuals, families and
businesses throughout Connecticut. Webster Bank is organized along four business
lines - consumer, business, mortgage banking, and trust and investment services,
each supported by centralized administration and operations. Webster has grown
significantly in recent years, primarily through a series of acquisitions which
have expanded and strengthened its franchise in Connecticut. 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
retroactively restated to include the accounts of People's Savings Financial
Corp. ("People's") acquired on July 31, 1997, DS Bancor, Inc. ("Derby") acquired
on January 31, 1997, Shelton Bancorp, Inc. ("Shelton") acquired on November 1,
1995 and Shoreline Bank and Trust Company ("Shoreline") acquired on December 16,
1994 as if the mergers had occurred at the beginning of the period of the
earliest date presented (See Note 2). The financial statements have been
prepared in conformity with generally accepted accounting principles and all
significant intercompany transactions have been eliminated in consolidation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported assets and liabilities as of the date
of the balance sheets and 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, the valuation allowance of the deferred tax asset and
the valuation of foreclosed property.
c) Allowance for Loan Losses
An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, current and anticipated
economic conditions and other pertinent factors which, in management's judgment,
deserve current recognition in estimating loan losses. Effective January 1,
1995, Webster adopted Statement of Financial Accounting Standard ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118. Under this standard, commercial and commercial real estate loans are
considered impaired when it is probable that Webster will not collect all
amounts due in accordance with the contractual terms of the loan. Certain loans
are exempt from the provisions of SFAS No. 114, including large groups of
smaller balance homogenous loans that are collectively evaluated for impairment,
such as consumer and residential mortgage 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.
d) Foreclosed Properties
Foreclosed properties are acquired through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure. Foreclosed properties are reported at the
lower of fair value less estimated selling expenses or cost with an allowance
for losses to provide for declines in value. Operating expenses are charged to
current period earnings and gains and losses upon disposition are reflected in
the Consolidated Statements of Income when realized.
e) Loans
Loans are stated at the principal amounts outstanding. Interest on loans is
credited to income as earned based on the rate applied to principal amounts
outstanding. Interest which is more than 90 days past due is not accrued. Such
interest ultimately collected, if any, is credited to income in the period
eceived. 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.
22
Loans held for sale are carried at the lower of cost or market value in
aggregate. Net unrealized losses on loans held for sale, if any, are recognized
in a valuation allowance by charges to income.
f) Securities
Securities are classified into one of three categories. Securities with fixed
maturities that management has the intent and ability to hold to maturity are
classified as Held to Maturity and are carried at cost, adjusted for
amortization of premiums and accretion of discounts over the estimated terms of
the securities using a method which approximates the level yield method.
Securities that management intends to hold for indefinite periods of time,
including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory capital or
other similar factors, are classified as Available for Sale. All Equity
Securities are classified as Available for Sale. Securities Available for Sale
are carried at fair value with unrealized gains and losses recorded as
adjustments to shareholders' equity on a tax-effected basis. Securities
classified as Trading Securities are carried at fair value with unrealized gains
and losses included in earnings. Gains and losses on the sales of securities are
recorded using the specific identification method.
Mortgage-backed securities, which include collateralized mortgage obligations
("CMOs"), are either U.S. Government Agency securities or are rated in at least
the top two ratings categories by at least one of the major rating agencies at
the time of purchase. One of the risks inherent when investing in
mortgage-backed securities and CMOs is the ability of such instruments to incur
prepayments of principal prior to maturity. Because of prepayments, the
weighted-average yield of these securities may also change, which could affect
earnings.
g) Interest-rate Instruments
Webster uses as part of its asset/liability management strategy various
interest-rate contracts including short futures positions, interest-rate swaps
and interest-rate caps and floors. Webster holds short futures positions to
minimize the price volatility of certain adjustable rate assets held as Trading
Securities. Changes in the market value of short futures positions are
recognized as a gain or loss in the Consolidated Statements of Income in the
period for which the change occurred.
Interest-rate caps, interest-rate floors and interest-rate swaps are entered
into as hedges against future interest rate fluctuations. Webster does not trade
in speculative interest-rate contracts. Those agreements meeting the criteria
for hedge accounting treatment are designated as hedges and are accounted for as
such. If a contract is terminated, any unrecognized gain or loss is deferred and
amortized as an adjustment to the yield of the related asset or liability over
the remainder of the period that was being hedged. If the linked asset or
liability is disposed of prior to the end of the period being managed, the
related interest-rate contract is marked to fair value, with any resulting gain
or loss recognized in current period income as an adjustment to the gain or loss
on the disposal of the related asset or liability. Interest income or expense
associated with interest-rate caps and swaps is recorded as a component of net
interest income. Interest-rate instruments that hedge Available for Sale assets
are marked to fair value monthly with adjustments to shareholders' equity on a
tax-effected basis.
h) Interest-bearing Deposits
Interest-bearing Deposits consist primarily of deposits in the Federal Home Loan
Bank ("FHL Bank") or other short-term overnight investments. These deposits are
carried at cost which approximates market value.
i) Premises and Equipment
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 from the accounts and
any resulting gains and losses are credited or charged to income.
23
j) Segregated Assets
Segregated Assets represent commercial, commercial real estate and multi-family
loans acquired in the October 1992, First Constitution Bank ("First
Constitution") acquisition. In addition, Segregated Assets contain foreclosed
properties that have been so classified subsequent to the acquisition date.
These assets are subject to a loss-sharing arrangement with the Federal Deposit
Insurance Corporation ("FDIC") as discussed in Notes 2 and 5.
Interest on Segregated Assets is credited to income earned on loans and
Segregated Assets based on the rate applied to principal amounts outstanding.
Interest which is more than 90 days contractually past due is not accrued. Such
interest ultimately collected, if any, is credited to income in the period
received.
k) Intangible Assets
Intangible assets consist of core deposit intangibles and goodwill. Core deposit
intangible is the excess of the purchase price over the fair value of the
tangible net assets acquired in bank acquisitions accounted for using the
purchase accounting method and allocated to deposits. The core deposit
intangibles are being amortized on a straight-line basis over a period of ten
years from the acquisition dates. On a periodic basis, management assesses the
recoverability of the core deposit intangibles. Such assessments encompass a
projection of future earnings from the deposit base as compared to the original
expectations, based upon a discounted cash flow analysis. If an assessment of
the core deposit intangibles indicates that they are impaired, a charge to
income for the most recent period is recorded for the amount of the impairment.
Goodwill is the excess of cost over the fair value of tangible net assets
acquired in bank acquisitions accounted for using the purchase accounting method
and not allocated to any specific asset or liability category. Goodwill is being
amortized on a straight-line basis over periods up to fifteen years from the
acquisition date. The Corporation 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.
l) 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 as facts and circumstances warrant.
m) Employee Benefit Plans
The Bank has a noncontributory pension plan covering substantially all
employees. Pension costs are accrued in accordance with generally accepted
accounting principles and are funded in accordance with the requirements of the
Employee Retirement Income Security Act ("ERISA"). The Bank also accrues costs
related to post-retirement benefits.
n) Net Income Per Share
Basic net income per share is calculated by dividing net income available to
common shareholders by the weighted-average number of shares of common stock
outstanding. Diluted net income per share is calculated by dividing adjusted net
income by the weighted-average diluted common shares, including the effect of
common stock equivalents and the hypothetical conversion into common stock of
the Series B cumulative convertible preferred stock. The common stock
equivalents consist of common stock options and warrants. The weighted-average
number of shares used in the computation of basic earnings per share for the
years ended December 31, 1997, 1996 and 1995 were 13,474,117, 13,252,237 and
11,936,050 respectively, and diluted earnings per share were 13,828,499,
14,459,953 and 13,202,259 for the same periods, respectively.
o) Stock 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 Principal Board Opinion No. 25 ("APB
No. 25") "Accounting for Stock Issued to Employees." Entities electing to
maintain accounting standards under 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 17.
24
p) Statements of Cash Flows
For purposes of the Statements of Cash Flows, Webster considers cash on hand and
in banks to be cash equivalents.
q) Loan Sales and Servicing Sales
Gains or losses on sales of loans are recognized at the time of the sale. During
the 1995 second quarter, Webster elected early adoption of SFAS No. 122
"Accounting for Mortgage Servicing Rights," that was superseded by SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS No. 122 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
and amortization type (fixed or adjustable). To the extent that the carrying
value of mortgage servicing rights exceeds fair value by individual stratum, a
valuation allowance is established. The allowance may be adjusted for changes in
fair value. The cost basis of mortgage servicing rights is amortized into
noninterest income over the estimated period of servicing revenue. See Note 7.
When loans sold have an average contractual interest rate, adjusted for normal
servicing costs, which differs from the agreed yield to the purchaser, gains or
losses are recognized equal to the present value of such differential over the
estimated remaining life of such loans. Any resulting net premium is amortized
over the same estimated life using a method approximating the interest method.
The aggregate of unamortized excess servicing rights arising from gains on loan
sales is included in the accompanying Consolidated Statements of Condition as a
component of Prepaid Expenses and Other Assets and is periodically reviewed and
adjusted for changed circumstances.
r) Reclassifications
Certain financial statement balances as previously reported have been
reclassified to conform to the 1997 Consolidated Financial Statements
presentation.
NOTE 2: BUSINESS COMBINATIONS
- --------------------------------------------------------------------------------
POOLING OF INTEREST TRANSACTION PENDING CONSUMMATION IN 1998 (Unaudited)
During the second quarter of 1998, Webster expects to acquire Eagle Financial
Corp. ("Eagle") and its subsidiary, Eagle Bank, a $2.1 billion savings bank,
headquartered in Bristol, Connecticut. In connection with the merger with Eagle,
Webster expects to issue 5.1 million shares of its common shares for all the
outstanding shares of Eagle common stock. Under the terms of the agreement, each
outstanding share of Eagle common stock will be converted into .84 shares of
Webster common stock. This acquisition will be accounted for as a pooling of
interests, and as such, future Consolidated Financial Statements will include
Eagle's financial data as if Eagle had been combined at the beginning of the
earliest period presented.
The pro forma combined amounts in the table below are presented for
informational purposes and are not necessarily indicative of the results of
operations of the combined company that would have actually occurred had the
merger been consummated as of the earliest period presented. The pro forma
combined amounts are not necessarily indicative of future results of the
combined company. In particular, Webster expects to achieve significant
operating cost savings as a result of the merger. No adjustment has been
included in the pro forma combined company financial statements for anticipated
operating cost savings. Webster's fiscal year ends December 31 and Eagle's
fiscal year ends September 30. The unaudited pro forma combined financial data
combines the financial information of Webster at and for the fiscal years ended
December 31, 1997, 1996 and 1995 with the financial information of Eagle for the
fiscal years ended September 30, 1997, 1996 and 1995, respectively.
25
The following table sets forth unaudited pro forma results of operations of the
combining entities:
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1997
------------------------------------
(In thousands, except per share data) Webster Eagle Combined
- ------------------------------------------------------------------------------------------
Net Interest Income $191,925 $ 59,125 $251,050
Provision for Loan Losses 15,835 8,978 24,813
Net Income 33,798 7,315 41,113
Diluted Earnings Per Share $2.44 $1.12 $2.15
==========================================================================================
Year Ended December 31, 1996
-------------------------------------
(In thousands, except per share data) Webster Eagle Combined
- ------------------------------------------------------------------------------------------
Net Interest Income $169,037 $ 53,081 $222,118
Provision for Loan Losses 9,788 3,266 13,054
Net Income 38,501 15,493 53,994
Diluted Earnings Per Share $2.66 $2.42 $2.72
==========================================================================================
Year Ended December 31, 1995
-------------------------------------------
(In thousands, except per share data) Webster Eagle Combined
- -------------------------------------------------------------------------------------------
Net Interest Income $135,331 $ 53,315 $188,646
Provision for Loan Losses 5,726 4,138 9,864
Net Income 29,321 12,046 41,367
Diluted Earnings Per Share $2.22 $1.92 $2.24
==========================================================================================
POOLING OF INTERESTS TRANSACTIONS
- --------------------------------------------------------------------------------
All acquisitions accounted for under the pooling of interests method include
financial data as if the combination occurred at the beginning of the earliest
period presented.
THE PEOPLE'S ACQUISITION
On July 31, 1997, Webster acquired People's and its subsidiary, People's Savings
Bank & Trust, a $482 million savings bank headquartered in New Britain,
Connecticut. In connection with the merger with People's, Webster issued
1,575,996 shares of its common stock for all the outstanding shares of People's
common stock. Under the terms of the agreement, each outstanding share of
People's common stock was converted into .85 shares of Webster common stock.
THE DERBY ACQUISITION
On January 31, 1997, Webster acquired Derby and its subsidiary, Derby Savings
Bank, a $1.2 billion savings bank headquartered in Derby, Connecticut. In
connection with the merger with Derby, Webster issued 3,501,370 shares of its
common stock for all the outstanding shares of Derby common stock. Under the
terms of the agreement each outstanding share of Derby common stock was
converted into 1.14158 shares of Webster common stock.
THE SHELTON ACQUISITION
On November 1, 1995, Webster acquired Shelton and its subsidiary, Shelton
Savings Bank, a $295 million savings bank headquartered in Shelton, Connecticut.
In connection with the acquisition, Webster issued 1,292,549 shares of its
common stock for all of the outstanding shares of Shelton common stock, based on
an exchange ratio of .92 shares of Webster common stock for each of Shelton's
outstanding shares of common stock.
THE SHORELINE ACQUISITION
On December 16, 1994, Webster acquired Shoreline, based in Madison, Connecticut
which had $51 million of assets. In connection with the acquisition of
Shoreline, Webster issued 266,500 shares of its common stock for all of the
outstanding shares of Shoreline common stock, based on an exchange ratio of 1
share of Webster's common stock for 2 shares of Shoreline's common stock.
26
PURCHASE TRANSACTIONS
- --------------------------------------------------------------------------------
The following acquisitions were accounted for as purchase transactions, and as
such, results of operations are included in the Consolidated Financial
Statements subsequent to acquisition.
THE SACHEM ACQUISITION
On August 1, 1997, Webster acquired Sachem Trust National Association ("Sachem
Trust"), a trust company headquartered in Guilford, Connecticut which had
approximately $300 million of trust assets under management, in a tax- free
stock-for-stock exchange. Under the terms of the agreement, Webster issued
83,385 shares of Webster common stock for all 173,000 outstanding shares of
Sachem Trust. As a result of this transaction ,Webster recorded $5.8 million as
goodwill.
THE SHAWMUT TRANSACTION
On February 16, 1996, Webster Bank acquired 20 branches in the Hartford market
from Shawmut Bank Connecticut National Association, as part of a divestiture in
connection with the merger of Shawmut and Fleet Bank (the "Shawmut
Transaction"). In the branch purchase, Webster Bank acquired approximately $845
million in deposits and $586 million in loans. As a result of this transaction,
Webster recorded $44.2 million as a core deposit intangible asset. In connection
with the Shawmut Transaction, Webster raised net proceeds of $32.1 million
through the sale of 1,249,600 shares of its common stock in an underwritten
public offering in December 1995.
BRISTOL SAVINGS BANK ACQUISITION
On March 3, 1994, Bristol Savings Bank ("Bristol") converted from a Connecticut
mutual savings bank to a Connecticut capital stock savings bank and concurrently
became a wholly-owned subsidiary of Webster. Bristol had 5 banking offices in
Hartford County. In connection with the conversion, Webster completed the sale
of 1,150,000 shares of its common stock in related subscription and public
offerings. Negative goodwill of $2.3 million represented the net effect of all
purchase accounting adjustments and is recorded as a reduction of premises and
equipment and is being amortized over a 10 year period. Bristol was merged with
the Bank in November 1995.
FDIC ASSISTED ACQUISITIONS
Webster significantly expanded its retail banking operations through assisted
acquisitions of First Constitution Bank ("First Constitution") in October 1992
and Suffield Bank ("Suffield") in September 1991 from the FDIC. These
acquisitions involved financial assistance from the FDIC and extended Webster's
retail banking operations into new market areas by adding 21 branch offices,
$1.5 billion in retail deposits and approximately 150,000 customer accounts. See
Note 5 to the Consolidated Financial Statements for additional information
concerning the terms of these assisted acquisitions.
27
NOTE 3: SECURITIES
- --------------------------------------------------------------------------------
A summary of securities follows:
December 31,
---------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Estimated Amortized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Trading Securities:
Mortgage-Backed Securities $ 84,749(a) $ -- $ -- $ 84,749 $ 59,331(a) $ -- $ -- $ 59,331
- ----------------------------------------------------------------------------------------------------------------------------
84,749 -- -- 84,749 59,331 -- -- 59,331
- ----------------------------------------------------------------------------------------------------------------------------
Available for Sale Portfolio:
U.S. Treasury Notes 6,507 31 (3) 6,535 2,508 40 (4) 2,544
U.S. Government Agency 42,229 201 (24) 42,406 78,105 277 (381) 78,001
Corporate Bonds and Notes 6,662 4 (201) 6,465 10,299 13 (7) 10,305
Equity Securities 183,560 21,914 (609) 204,865(b) 96,078 4,419 (144) 100,353
Mortgage-Backed Securities 2,001,372 27,339 (6,545) 2,022,166 786,723 8,559 (6,822) 788,460
Purchased Interest-Rate
Contracts 15,079 - (7,262) 7,817 5,460 -- (1,424) 4,036
- ----------------------------------------------------------------------------------------------------------------------------
2,255,409 49,489 (14,644) 2,290,254 979,173 13,308 (8,782) 983,699
- ----------------------------------------------------------------------------------------------------------------------------
Held to Maturity Portfolio:
U.S. Treasury Notes 2,447 28 -- 2,475 944 12 -- 956
U.S. Government Agency 32,274 14 (65) 32,223 39,453 948 (340) 40,061
Municipal Bonds and Notes 12,500 93 (1) 12,592 -- -- -- --
Corporate Bonds and Notes 1,199 3 -- 1,202 1,577 6 (8) 1,575
Money Market Preferred Stock 1,000 -- -- 1,000 8,000 -- -- 8,000
Mortgage-Backed Securities 362,817 2,533 (2,781) 362,569 484,698 2,110 (8,927) 477,881
- ----------------------------------------------------------------------------------------------------------------------------
412,237 2,671 (2,847) 412,061 534,672 3,076 (9,275) 528,473
- ----------------------------------------------------------------------------------------------------------------------------
Total $2,752,395 $52,160 $(17,491) $2,787,064 $1,573,176 $16,384 $(18,057) $1,571,503
============================================================================================================================
(a) Stated at fair market value.
(b) Equity securities at December 31, 1997, consisted of FHL Bank stock of $64.3
million, mutual funds of $37.5 million, preferred stock of $46.5 million and
common stock of $56.6 million.
28
A summary of realized gains and losses follows:
Years Ended December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------- -------------------------------- ------------------------------
(In thousands) Gains Losses Net Gains Losses Net Gains Losses Net
- ----------------------------------------------------------------- -------------------------------- ------------------------------
Trading Securities:
Mortgage-Backed Securities $ 4,052 $ (2,647) $ 1,405 $ 2,962 $ (2,712) $ 250 $ 1,901 $ (194) $ 1,707
U.S. Treasury Notes -- -- -- -- -- -- 18 (5) 13
U.S. Government Agencies -- -- -- -- -- -- 3 -- 3
Futures and Options Contracts 7,318 (8,494) (1,176) 10,704 (10,434) 270 3,517 (5,333) (1,816)
Equity Securities -- -- -- 366 (35) 331 708 (123) 585
- ----------------------------------------------------------------- -------------------------------- ------------------------------
11,370 (11,141) 229 14,032 (13,181) 851 6,147 (5,655) 492
- ----------------------------------------------------------------- -------------------------------- ------------------------------
Available for Sale:
Mortgage-Backed Securities 532 -- 532 1,211 (590) 621 1,127 (891) 236
U.S. Treasury Notes 6 -- 6 -- (7) (7) 363 -- 363
U.S. Government Agencies 13 -- 13 11 (28) (17) -- (1,886) (1,886)
Corporate Debt -- -- -- -- -- -- 37 (555) (518)
Mutual Funds 1,179 (58) 1,121 227 (174) 53 3 (199) (196)
Other Equity Securities 938 (21) 917 2,773 (197) 2,576 2,042 (1) 2,041
Other 920 (586) 334 56 -- 56 -- -- --
- ----------------------------------------------------------------- -------------------------------- ------------------------------
3,588 (665) 2,923 4,278 (996) 3,282 3,572 (3,532) 40
- ----------------------------------------------------------------- -------------------------------- ------------------------------
Total $ 14,958 $(11,806) $ 3,152 $ 18,310 $ (14,177) $4,133 $ 9,719 $(9,187) 532
================================================================= ================================ ==============================
There were no sales of securities from the held to maturity portfolio for the
years ended December 31, 1997, 1996 and 1995. During the 1995 fourth quarter,
the Bank elected, under guidelines issued by the Financial Accounting Standards
Board ("FASB"), to transfer certain securities from the held to maturity to the
available for sale portfolio. These securities had an approximate book value of
$340.6 million and fair market value of $339.2 million. Under this one-time
provision, the Bank was able to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassifications at fair market value. The Bank reclassified certain securities
to allow greater flexibility in managing interest-rate risk and to enhance its
ability to react to changes in market conditions.
Webster holds short futures positions to minimize the price volatility of
certain adjustable-rate assets held as Trading Securities. At December 31, 1997,
Webster held 237 short positions in Eurodollar futures contracts ($237.0 million
notional amount) and 385 short positions in 5 and 10 year Treasury note futures
($38.5 million notional amount). Changes in the market value of short futures
positions are recognized as a gain or loss in the period for which the change
occurred. All gains and losses resulting from short futures positions are
reflected in gains (losses) on sale of securities, net in the Consolidated
Statements of Income.
29
The following table sets forth the contractual maturities of the Bank's
securities and mortgage-backed securities at December 31, 1997 and the
weighted-average yields of such securities (based upon the financial statement
carrying amount of such securities).
Due After One, Due After
Due Within But Within Five, But
One Year Five Years Within 10 Years
- ------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
(Dollars in thousands) Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------
Trading Portfolio:
Mortgage-Backed Securities $ -- --% $ -- --% $ -- --%
- ------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
Available For Sale Portfolio:
U.S. Treasury Notes 3,504 6.08 3,031 6.42 -- --
U.S. Government Agency 9,986 5.44 24,664 6.58 5,031 6.95
Corporate Bonds and Notes 4,411 5.96 2,054 6.16 -- --
Equity Securities 204,865 3.86 -- -- -- --
Mortgage-Backed Securities 973 5.50 42,399 5.90 137,128 7.17
Purchased Interest-Rate Contracts -- -- 2,115 -- 5,702 --
- ------------------------------------------------------------------------------------------------------
223,739 4.01 74,263 5.98 147,861 6.89
- ------------------------------------------------------------------------------------------------------
Held to Maturity Portfolio:
U.S. Treasury Notes 443 5.13 2,004 6.25 -- --
U.S. Government Agencies 24,775 5.55 6,999 5.56 500 6.40
Municipal Bonds and Notes(a) -- -- -- -- 12,500 6.68
Corporate Bonds and Notes 749 5.57 350 6.54 -- --
Money Market Preferred Stock 1,000 5.68 -- -- -- --
Mortgage-Backed Securities 6,307 5.90 48,131 6.09 3,299 7.98
- ------------------------------------------------------------------------------------------------------
33,274 5.61 57,484 6.03 16,299 6.93
- ------------------------------------------------------------------------------------------------------
Totals $257,013 4.22% $131,747 6.01% $164,160 6.89%
======================================================================================================
Due
After 10 Years Total
-------------------------------------- ----------------------------------------
Weighted Weighted
Average Average
(Dollars in thousands) Amount Yield Amount Yield
-------------------------------------- --------------------------------------
Trading Portfolio:
Mortgage-Backed Securities $ 84,749 5.79% $ 84,749 5.79%
-------------------------------------------------------------------------------
84,749 5.79 84,749 5.79
------------------------------------------------------------------------------
Available For Sale Portfolio:
U.S. Treasury Notes -- -- 6,535 6.23
U.S. Government Agency 2,725 7.18 42,406 6.39
Corporate Bonds and Notes -- -- 6,465 6.02
Equity Securities -- -- 204,865 3.86
Mortgage-Backed Securities 1,841,666 6.48 2,022,166 6.52
Purchased Interest-Rate Contracts -- -- 7,817 --
-------------------------------------- ----------------------------------------
1,844,391 6.49 2,290,254 6.25
-------------------------------------- ----------------------------------------
Held to Maturity Portfolio:
U.S. Treasury Notes -- -- 2,447 6.05
U.S. Government Agencies -- -- 32,274 5.56
Municipal Bonds and Notes(a) -- -- 12,500 6.68
Corporate Bonds and Notes 100 6.29 1,199 5.91
Money Market Preferred Stock -- -- 1,000 5.68
Mortgage-Backed Securities 305,080 7.33 362,817 7.15
- --------------------------------------------------------------------------------
305,180 7.33 412,237 7.00
- --------------------------------------------------------------------------------
Totals $2,234,320 6.57% $2,787,240 6.35%
================================================================================
(a)Adjusted to a fully tax equivalent basis.
The above table shows contractual maturities of securities. At December 31, 1997
the duration of the trading, available for sale and held to maturity portfolios,
are approximately less than one month, 1.7 years, and 1.6 years, respectively.
30
NOTE 4: LOANS RECEIVABLE, NET
- --------------------------------------------------------------------------------
A summary of loans receivable, net follows:
December 31,
-------------------------------------------------
(Dollars in THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------------------------------
Amount % Amount %
------ --- ------ ---
Loans Secured by Mortgages on Real Estate:
Conventional, VA and FHA $ 2,849,827 74.5% $2,689,005 73.8%
Conventional, VA and FHA Loans Held for Sale 1,685 0.1 5,075 0.1
Residential Participation 12,244 0.3 16,394 0.5
Residential Construction 100,524 2.6 94,596 2.6
Commercial Construction 22,203 0.6 23,383 0.6
Other Commercial 249,164 6.5 258,456 7.1
- -------------------------------------------------------------------------------------------------------------
3,235,647 84.6 3,086,909 84.7
- --------------------------------------------------------------------------------------------------------------
Consumer Loans:
Home Equity Loans 381,151 10.0 339,885 9.3
Other Consumer Loans 37,020 1.0 68,651 1.9
Credit Cards 33,112 0.8 14,893 0.4
- --------------------------------------------------------------------------------------------------------------
451,283 11.8 423,429 11.6
- --------------------------------------------------------------------------------------------------------------
Commercial Non-Mortgage Loans 220,450 5.8 195,643 5.4
- --------------------------------------------------------------------------------------------------------------
Gross Loans Receivable 3,907,380 102.2 3,705,981 101.7
Less:
Loans in Process 51,263 1.4 35,924 1.0
Allowance for Losses on Loans 49,753 1.3 43,185 1.2
Premiums on Loans Purchased, Deferred Loan Fees
and Unearned Discounts, Net (18,238) (0.5) (15,650) (0.5)
- --------------------------------------------------------------------------------------------------------------
Loans Receivable, Net $3,824,602 100.0% $3,642,522 100.0%
==============================================================================================================
Webster adopted SFAS No. 114 "Accounting by Creditors for Impairment of a Loan,"
on January 1, 1995 as amended by SFAS No. 118, with no impact on its results of
operations. At December 31, 1997, Webster had $13.5 million of impaired loans,
of which $7.3 million were measured based upon the fair value of the underlying
collateral and $6.2 million were measured based upon the expected future cash
flows of the impaired loans. In 1997, 1996 and 1995, the average balance of
impaired loans was $20.0 million, $26.3 million and $27.6 million, respectively.
Webster's policy with regard to the recognition of interest income on impaired
loans includes an individual assessment of each loan. Interest which is more
than 90 days past due is not accrued. When payments on impaired loans are
received, interest income is recorded on a cash basis or is applied to principal
based on an individual assessment of each loan. Cash basis interest income
recognized on impaired loans for the twelve months ended December 31, 1997, 1996
and 1995 amounted to $355,986, $120,746 and $50,362, respectively.
A detail of the changes in the allowances for loan losses for the three years
follows:
December 31,
------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
Impaired Total Total Total
(In thousands) Loans Loans Allowance Allowance Allowance
- -------------------------------------------------------------------------------------------
Balance at Beginning of Period $ 42,629 $556 $ 43,185 $ 50,281 $ 55,366
Provisions Charged to Operations 15,535 300 15,835 9,788 5,726
Acquired Allowance for Purchased Loans -- -- -- 5,000 --
Charge-offs (14,916) -- (14,916) (24,865) (13,999)
Recoveries 5,649 -- 5,649 2,981 3,188
- -------------------------------------------------------------------------------------------
Balance at End of Period $ 48,897 $856 $ 49,753 $ 43,185 $ 50,281
===========================================================================================
31
Webster is a party to financial instruments with off-balance sheet risk to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments included commitments
to extend credit and commitments to sell residential first mortgage loans. These
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized on the balance sheet.
The estimated fair value of commitments to extend credit is considered
insignificant at December 31, 1997 and 1996. Future loan commitments represent
residential mortgage loan commitments, letters of credit, standby letters of
credit, credit card lines and unused home equity 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.
At December 31, 1997 and 1996, residential mortgage commitments outstanding
totaled $74.1 million and $51.9 million, respectively. Residential commitments
outstanding at December 31, 1997 consisted of adjustable-rate and fixed-rate
mortgages of $29.8 million and $44.3 million, respectively, at rates ranging
from 4.9% to 8.3%. Commitments to originate loans generally expire within 60
days. In addition, at December 31, 1997 and 1996, there were unused portions of
home equity credit lines extended of $273.4 million and $257.9 million,
respectively. Unused commercial lines of credit, letters of credit, standby
letters of credit and outstanding commercial new loan commitments totaled $114.9
million and $104.5 million at December 31, 1997 and 1996, respectively.
Additionally, unused credit card lines were $102.3 million and $36.5 million at
December 31, 1997 and 1996, respectively.
Webster uses forward commitments to sell residential first 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, 1997 and 1996, Webster had forward commitments to sell loans
totaling $1.7 million and $4.8 million, respectively, at rates between 5.75% and
8.0% and 5.75% and 9.0%, respectively. The estimated fair value of commitments
to sell loans is considered insignificant at December 31, 1997 and 1996.
At December 31, 1997, 1996 and 1995, Webster serviced, for the benefit of
others, mortgage loans aggregating approximately $1.1 billion, $1.2 billion and
$967.0 million, respectively.
NOTE 5: SEGREGATED ASSETS, NET
- --------------------------------------------------------------------------------
Segregated Assets, Net are certain assets purchased from the FDIC in the First
Constitution acquisition which are subject to a loss-sharing arrangement with
the FDIC:
December 31,
--------------------------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------
Amount % Amount %
- -------------------------------------------------------------------------------------
Commercial Real Estate Loans $ 39,063 89.5% $58,745 74.8%
Commercial Loans 4,317 9.9 6,606 8.4
Multi-Family Real Estate Loans -- -- 12,772 16.3
Foreclosed Properties 281 0.6 406 0.5
- ------------------------------------------------------------------------------------
43,661 100.0% 78,529 100.0%
Allowance for Segregated Asset Losses (2,623) (2,859)
- -------------------------------------------------------------------------------------
Segregated Assets, Net $ 41,038 $75,670
=====================================================================================
The FDIC was required to reimburse the Bank quarterly through December 31, 1997
for 80% of all net charge-offs (i.e., the excess of charge-offs over recoveries)
and certain permitted expenses related to the Segregated Assets.
During 1998 and 1999, the Bank is required to pay quarterly to the FDIC an
amount equal to 80% of the recoveries during such years on Segregated Assets
which were previously charged-off after deducting certain permitted expenses
related to those assets. The Bank is entitled to retain 20% of such recoveries
during the sixth and seventh years following the First Constitution acquisition
and 100% thereafter.
32
Upon termination of the seven-year period after the First Constitution
acquisition (December 1999), if the sum of the Bank's 20% share of net
charge-offs on Segregated Assets for the first five years after the acquisition
date plus permitted expenses during the entire seven-year period, less any
recoveries during the sixth and seventh year on Segregated Assets charged-off
during the first five years, exceeds $49.2 million, the FDIC is required to pay
the Bank an additional 15% of any such excess over $49.2 million at the end of
the seventh year. At December 31, 1997, cumulative net charge-offs and expenses
aggregated $58.9 million. During the first quarter of 1996, the Bank began
recording the additional 15% reimbursement as a receivable from the FDIC (See
Note 7). As of December 31, 1997, the Bank had received a total of $46.7 million
in reimbursements for net charge-offs and permitted expenses from the FDIC and
the amount due from the FDIC totals $1.7 million. At December 31, 1997 and 1996,
the Bank had allowances for losses of $2.6 million and $2.9 million,
respectively, to cover its portion of Segregated Assets losses.
During the second quarter of 1997, the Bank sold approximately $13.7 million in
multi-family loans including all multi-family Segregated Asset Loans. Any losses
incurred on the sale of these segregated multi-family loans was covered under
the loss-sharing arrangement with the FDIC and the transaction had no impact on
the Consolidated Statements of Income.
A detail of changes in the allowance for Webster's share of losses for
Segregated Assets follows:
December 31,
----------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
Balance at Beginning of Period $ 2,859 $ 3,235
Charge-offs (267) (621)
Recoveries 31 245
- --------------------------------------------------------------------------------------------------------
Balance at End of Period $ 2,623 $ 2,859
========================================================================================================
At December 31, 1997 and 1996, nonperforming Segregated Assets are classified as
follows:
December 31,
--------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
Commercial Real Estate Loans $ 2,912 $ 3,337
Commercial Loans 500 192
Multi-Family Real Estate Loans -- 495
Foreclosed Property:
Commercial Real Estate 281 269
Multi-Family Real Estate -- 138
- --------------------------------------------------------------------------------------------------------
Total $ 3,693 $ 4,431
========================================================================================================
NOTE 6: PREMISES AND EQUIPMENT, NET
- --------------------------------------------------------------------------------
A summary of premises and equipment, net follows:
- --------------------------------------------------------------------------------------------------------
December 31,
----------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
Land $ 9,294 $ 8,138
Buildings and Improvements 43,447 44,685
Leasehold Improvements 4,425 4,801
Furniture, Fixtures and Equipment 46,069 41,966
- --------------------------------------------------------------------------------------------------------
Total Premises and Equipment 103,235 99,590
Accumulated Depreciation and Amortization 44,595 40,879
- --------------------------------------------------------------------------------------------------------
Premises and Equipment, Net $ 58,640 $ 58,711
========================================================================================================
At December 31, 1997, 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 $3.5 million, $3.4 million and $2.0
million in 1997, 1996 and 1995, respectively. Webster is also entitled to rental
income under various non-cancelable operating leases for properties owned.
Rental income under these leases was $2.0 million, $1.9 million and $1.7 million
in 1997, 1996 and 1995, respectively.
33
The following is a schedule of future minimum rental payments and receipts
required under these leases as of December 31, 1997:
- ---------------------------------------------------------------------------
(In thousands) Payments Receipts
- ---------------------------------------------------------------------------
Years ending December 31:
1998 $ 3,957 $ 843
1999 3,251 645
2000 2,621 551
2001 2,171 373
2002 1,963 235
Later years 7,555 1,034
- ---------------------------------------------------------------------------
Total $21,518 $ 3,681
===========================================================================
NOTE 7: PREPAID EXPENSES AND OTHER ASSETS
- ---------------------------------------------------------------------------
A summary of prepaid expenses and other assets follows:
December 31,
--------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------------------
Due from FDIC $ 1,660 $ 1,420
Income Taxes Receivable 4,641 6,913
Deferred Tax Asset, Net (Note 14) 16,318 20,411
Mortgage Servicing Rights, Net 5,342 5,607
Bank Owned Life Insurance 12,750 --
Other Assets 16,756 10,400
- ---------------------------------------------------------------------------
Prepaid Expenses and Other Assets $ 57,467 $44,751
===========================================================================
Of the $1.7 million due from FDIC at December 31, 1997, $387,000 represents
Webster's 80% reimbursement for fourth quarter net charge-offs and expenses on
Segregated Assets which will be received in the first quarter of 1998. The
remaining $1.3 million represents the additional 15% reimbursement for
charge-offs and expenses which Webster will receive at the end of 1999 (See Note
5). Other Assets are primarily comprised of prepaid expenses and various
miscellaneous assets.
During the 1995 second quarter, Webster adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights," superseded by SFAS 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement 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. Amortization of mortgage servicing rights
was $797,000, $491,000 and $715,000 for the years ended December 31, 1997, 1996
and 1995, respectively. During 1997 and 1996, Webster capitalized mortgage
servicing assets of $895,000 and $508,000, respectively, related to originating
loans and selling them servicing retained. Also, during 1996, Webster purchased
mortgage loan servicing assets with a principal balance of $272.5 million and
recorded a mortgage loan servicing asset of $2.8 million. In 1996, Webster
established an allowance to provide for the decrease in value of mortgage
servicing rights due to declining interest rates and an increased rate of
prepayments. At December 31, 1997 and 1996, the allowance totaled $458,000 and
$95,000, respectively. During 1997 and 1996, provisions to this allowance
totaled $363,000 and $95,000, respectively.
34
NOTE 8: DEPOSITS
- --------------------------------------------------------------------------------
Deposits categories are summarized as follows:
December 31,
---------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
% of % of
(Dollars in thousands) Balance Total Balance Total
- -------------------------------------------------------------------------------------------------
Demand Deposits and NOW Accounts $ 784,850 18.0% $ 711,498 16.0%
Regular Savings and Money Market Deposit Accounts 1,060,050 24.3 1,144,244 25.6
Time Deposits 2,520,856 57.7 2,601,819 58.4
- -------------------------------------------------------------------------------------------------
Total Deposits $4,365,756 100.0% $4,457,561 100.0%
==================================================================================================
Interest expense on deposits is summarized as follows:
Years Ended December 31,
---------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------
NOW Accounts $ 8,332 $ 6,123 $ 3,933
Regular Savings and Money Market Deposit Accounts 27,341 31,719 34,274
Time Deposits 132,917 136,092 119,424
- ----------------------------------------------------------------------------------
Total $168,590 $173,934 $157,631
==================================================================================
Time deposits of $100,000 or more amounted to $345.7 million and represented
7.92% of total deposits at December 31, 1997. The following table presents the
amount of these deposits maturing during the periods indicated:
(In thousands)
- ----------------------------------------------------------
Maturing Amount
- ----------------------------------------------------------
January 1, 1998 to March 31, 1998 $ 98,141
April 1, 1998 to June 30, 1998 68,689
July 1, 1998 to December 31, 1998 90,403
January 1, 1999 and beyond 88,433
- ----------------------------------------------------------
Total $345,666
==========================================================
NOTE 9: FEDERAL HOME LOAN BANK ADVANCES
- --------------------------------------------------------------------------------
Advances payable to the Federal Home Loan Bank are summarized as follows:
December 31,
------------------------
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------
Fixed Rate:
4.82% to 9.80% Due 1997 $ -- $414,590
5.20% to 6.40% Due 1998 1,050,800 76,800
5.54% to 8.86% Due 1999 6,400 6,400
6.31% to 9.16% Due 2000 13,420 13,420
6.69% Due in 2001 1,000 1,000
4.00% Due in 2008 -- 150
- -----------------------------------------------------------------------------
1,071,620 512,360
- -----------------------------------------------------------------------------
Variable Rate:
- -----------------------------------------------------------------------------
7.32% Due in 1997 -- 47,520
- -----------------------------------------------------------------------------
Total Federal Home Loan Bank Advances $1,071,620 $559,880
=============================================================================
35
The following table sets forth certain information as to the Bank's FHL
Bank short-term borrowings at the dates and for the years indicated.
December 31,
-----------------------------------------
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------
Average amount outstanding during the period $ 788,928 $379,969 $ 374,910
Amount outstanding at end of period 1,050,800 462,110 392,366
Highest month end balance 1,050,800 475,693 493,340
Weighted-average interest rate at end of period 5.76% 5.71% 5.94%
Weighted-average interest rate during the period 5.66% 5.61% 6.01%
===========================================================================================
At December 31, 1997, the Bank had additional borrowing capacity of over $1.7
billion from the FHL Bank, including a line of credit of approximately $41.3
million. Advances are secured by the Bank's investment in FHL Bank stock and a
blanket security agreement. This agreement requires the Bank to maintain as
collateral certain qualifying assets, principally mortgage loans and securities.
At December 31, 1997 and 1996, the Bank was in compliance with the FHL Bank
collateral requirements.
NOTE 10: REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS
- --------------------------------------------------------------------------------
The following table summarizes reverse repurchase agreements and other
borrowings:
December 31,
---------------------------
(In thousands) 1997 1996
- -----------------------------------------------------------------------
Reverse Repurchase Agreements $ 904,576 $ 99,085
Senior Notes 40,000 40,000
Bank Line of Credit 10,000 18,000
ESOP Borrowings 1,978 2,546
Other Borrowings - 6,496
- -----------------------------------------------------------------------
Total $ 956,554 $ 166,127
=======================================================================
The weighted-average rates for other borrowed funds for the 1997 and 1996 year
periods were 5.73% and 6.26%, respectively.
During 1997, reverse repurchase agreement transactions inclusive of dollar roll
transactions were the primary source of borrowed funds with the exception of FHL
Bank advance borrowings (See Note 9). The average balance and weighted- average
rate for reverse repurchase agreements for the 1997 year period were $556.6
million and 5.65% as compared to $132.7 million and 5.53% for the 1996 year
period. Securities underlying the reverse repurchase transactions held as
collateral are primarily U.S. government agency securities consisting of FNMA,
GNMA and FHLMC securities. Securities for reverse repurchase agreements related
to Webster's funding operations are delivered to broker-dealers who arrange the
transactions. Webster also enters into reverse repurchase agreement transactions
directly with certain customers through its money desk operations.
36
Information concerning short-term and long-term borrowings under reverse
repurchase agreements as of the end of the current period is summarized below:
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
Balance at Weighted Average Weighted Average Book Value Market Valuee
December 31, 1997 Rate Maturity Date of Collateral of Collateral
- -------------------------------------------------------------------------------------------------------
$904,576 5.80% 3.1 months $895,965 $906,340
While the Bank used several types of short-term borrowings as part of funding
its daily operations, only reverse repurchase agreement transactions had an
average balance that was 30% or more of the Bank's total equity at the end of
the 1997 and 1996 periods. The following table sets forth certain information as
to the Bank's reverse repurchase agreement short-term borrowings at the dates
and for the years indicated.
December 31,
-------------------
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------
Average amount outstanding during the period $556,364 $132,666
Amount outstanding at end of period 899,577 99,085
Highest month end balance 899,577 202,204
Weighted-average interest rate at end of period 5.80% 5.52%
Weighted-average interest rate during the period 5.65% 5.53%
=======================================================================================================
During 1997, Webster at times also used a variable-rate $20 million line of
credit through a correspondent bank and purchased federal funds. Webster has
established multiple sources of funding and uses the most favorable source under
the circumstances in conjunction with asset and liability management strategies.
The Employee Stock Ownership Plan ("ESOP") borrowings are from a correspondent
bank at a floating rate based on the correspondent bank's base (prime) rate and
the weighted rates at December 31, 1997 and 1996 were 8.26% and 7.90%,
respectively. The terms of the loan agreements call for the ESOP to make annual
scheduled principal repayments through the year 2004. Interest is paid quarterly
and the borrowings are guaranteed and secured by unallocated shares of Webster
common stock under the ESOP Plan.
On June 29, 1993, Webster completed a registered offering of $40 million of 8
3/4% Senior Notes due 2000 ("the Senior Notes"). Webster used $18.25 million
from the net proceeds of the offering to redeem the remaining shares of Series A
Stock issued by Webster to the FDIC in connection with the First Constitution
acquisition. The Senior Notes may not be redeemed by Webster prior to maturity
and are not exchangeable for any shares of Webster's common stock.
37
NOTE 11: INTEREST-RATE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Webster employs as part of its asset/liability management strategy various
interest-rate contracts including short futures positions, interest-rate swaps
and interest-rate caps and floors. See Note 3 for disclosures on futures
positions. Webster used interest-rate financial instruments to hedge mismatches
in interest-rate 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 or currency
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.
The fair value, which approximates the cost to replace the contract at the
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, 1997 is not considered to be significant due to counterparty ratings. In the
event of a default by a counterparty, the cost to Webster, if any, would be the
replacement cost of the contract at the current market rate.
Interest-rate financial instruments are summarized as follows:
- -------------------------------------------------------------------------------------------------------------------------------
Fair Market
Notional Amount Value Amortized Cost
------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Interest-rate swap agreements $ 50,000 $ 50,000 $ (18) $ (15) $ - $ -
Interest-rate floor agreements 100,000 100,000 954 1,602 1,138 1,482
Interest-rate cap agreements 460,000 225,000 6,881 2,449 13,941 3,978
- -------------------------------------------------------------------------------------------------------------------------------
Total (Classified in available for
sale securities) 610,000 375,000 7,817 4,036 15,079 5,460
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate swap agreements
(Classified in time reports) 25,000 - 309 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 635,000 $ 375,000 $ 8,126 $ 4,036 $ 15,079 $ 5,460
===============================================================================================================================
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, 1997, Webster had two interest-rate swap agreements, one hedging
available for sale securities and the other hedging $25 million of brokered
certificates of deposit. The swap, classified as a hedge of available for sale
securities, has Webster paying a fixed rate of 6.04% while receiving a variable
rate based on LIBOR. The swap, classified as a hedge of brokered certificates of
deposit, has Webster receiving a fixed rate of 6.65% while paying a variable
rate based on LIBOR. For the year ended December 31, 1997, net expense recorded
on the available for sale swap was $25,000 and net revenue recorded on the
brokered certificates of deposit swap was $18,000.
Interest-rate cap agreements will result in cash payments to be received by
Webster only if current interest rates rise above a predetermined interest rate.
At December 31, 1997, Webster had six outstanding cap agreements with
interest-rate caps ranging from 6.00% to 9.00%. The amount paid for entering
into the interest-rate cap is amortized over the life of the agreement as an
adjustment to mortgage-backed securities available for sale interest income. At
December 31, 1997, Webster had $13.9 million of unamortized interest-rate cap
balances and during the 1997 period amortized $2.6 million as a reduction of
available for sale 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 interest rate. At December 31, 1997, Webster
had one outstanding interest-rate floor agreement with a floor of 5.75%. The
amount paid for entering into an interest-rate floor agreement is amortized over
the life of the agreement as an adjustment to mortgage-backed securities
available for sale interest income. At December 31, 1997, Webster had $1.1
million of unamortized floor costs and during the 1997 period amortized $344,000
as a reduction of available for sale interest income.
38
NOTE 12: SUMMARY OF ESTIMATED FAIR VALUES
- --------------------------------------------------------------------------------
A summary of estimated fair values consisted of the following:
December 31,
----------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------
Assets:
Cash and Due from Depository Institutions $ 122,267 $ 122,267 $ 105,226 $ 105,226
Interest-bearing Deposits 30,504 30,504 4,536 4,536
Securities 2,779,423 2,779,247 1,573,666 1,567,467
Residential Loans 2,925,591 3,001,667 2,785,592 2,852,213
Consumer Loans 70,680 71,168 141,291 141,478
Home Equity Loans 384,274 398,352 285,912 293,104
Commercial Loans 493,810 490,920 472,912 469,098
Less Allowance for Loan Losses 49,753 - 43,185 -
Segregated Assets, Net 41,038 42,417 75,670 75,670
Interest-rate Contracts 7,817 7,817 4,036 4,036
Mortgage Servicing Rights, Net 5,342 7,808 5,607 6,433
Other Assets 208,628 208,628 195,947 195,947
Liabilities:
Deposits Other than Certificates $1,844,900 $ 1,844,900 $1,855,742 $1,855,742
Time Deposits:
Maturing in Less than One Year 1,872,462 1,877,962 1,628,618 1,631,181
Maturing in One Year and Beyond 648,394 650,671 973,201 974,182
Federal Home Loan Bank Advances 1,071,620 1,071,863 559,880 560,421
Other Borrowings 956,554 956,903 166,127 166,175
Other Liabilities 93,928 93,928 86,810 86,810
Capital Securities and Preferred Stock of
Subsidiary Corp. 149,577 157,384 -- --
===================================================================================================================
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires all entities to disclose the fair value
of financial instruments, including both assets and liabilities recognized and
not recognized in the statement of financial position, for which it is
practicable to estimate fair value.
The carrying amounts for interest-bearing 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 published
in financial newspapers or quotations received from securities dealers or
pricing services. The fair value of interest-rate contracts was based on the
amount Webster would receive or pay to terminate the agreements. FHL Bank stock
has no active market and is required to be held by member banks. The estimated
fair value of FHL Bank 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, FHL Bank advances, and other borrowings were calculated
using the discounted cash flow method. The discount rate is estimated using
rates currently offered for deposits and FHL Bank advances of similar 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
minority interest liabilities were calculated using market rates for current
instruments with similar terms.
39
The calculation of fair value estimates of financial instruments is dependent
upon certain subjective assumptions and involves significant uncertainties,
resulting in variability in estimates with changes in assumptions. Potential
taxes and other expenses that would be incurred in an actual sale or settlement
are not reflected in the amounts disclosed. Fair value estimates are not
intended to reflect the liquidation value of the financial instruments.
NOTE 13: FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET AND ALLOWANCE FOR
LOSSES ON FORECLOSED PROPERTIES
- --------------------------------------------------------------------------------
Foreclosed property expenses and provisions, net are summarized as follows:
Years Ended December 31,
---------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
(Gain) on Sale of Foreclosed Properties
Acquired in Settlement of Loans, Net $ (1,240) $ (1,354) $ (735)
Provision for Losses on Foreclosed Properties 746 1,866 3,532
Rental Income (86) (262) (782)
Foreclosed Property Expenses 2,730 3,257 4,239
- ----------------------------------------------------------------------------------------------------------------------
Total $ 2,150 $ 3,507 $ 6,254
======================================================================================================================
Webster has an allowance for losses on foreclosed properties. A detail of the
changes in the allowance follows:
Years Ended December 31,
----------------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Balance at Beginning of Period $ 740 $ 1,233 $ 2,943
Provisions 746 1,866 3,532
Losses Charged to Allowance (1,033) (2,503) (5,524)
Recoveries Credited to Allowance 121 144 282
- -----------------------------------------------------------------------------------------------------------------------
Balance at End of Period $ 574 $ 740 $ 1,233
=======================================================================================================================
NOTE 14: INCOME TAXES
- -----------------------------------------------------------------------------------------------------------------------
Charges for income taxes in the Consolidated Statements of Income are comprised
of the following:
Years Ended December 31,
---------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Current:
Federal $ 25,233 $ 18,774 $ 16,034
State 3,615 4,025 5,156
- ----------------------------------------------------------------------------------------------------------------------
28,848 22,799 21,190
- ----------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (7,758) (1,781) (4,526)
State (1,355) 1,354 (1,214)
- ----------------------------------------------------------------------------------------------------------------------
(9,113) (427) (5,740)
- ----------------------------------------------------------------------------------------------------------------------
Total:
Federal 17,475 16,993 11,508
State 2,260 5,379 3,942
- ----------------------------------------------------------------------------------------------------------------------
$ 19,735 $ 22,372 $ 15,450
======================================================================================================================
40
Income tax expense of $19.7 million, $22.4 million and $15.5 million for the
years ended December 31, 1997, 1996 and 1995, respectively, differed from the
amounts computed by applying the Federal income tax rate of 35% in 1997, 1996
and 1995 to pre-tax income as a result of the following:
Years Ended December 31,
--------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Computed "Expected" Tax Expense $ 18,737 $ 21,246 $ 15,615
Reduction in Income Taxes Resulting From:
Dividends Received Deduction (364) (603) (324)
State Income Taxes, Net of Federal Income Tax Benefit,
Including Change in Valuation Allowance and Rate 1,469 3,822 2,581
Adjustment to Deferred Tax Assets and Liabilities:
Change in Valuation Allowance (Federal) (1,100) (2,000) (2,294)
Merger Related Costs 1,225 -- --
Other, Net (232) (93) (128)
- ----------------------------------------------------------------------------------------------------------------------
Income Taxes $ 19,735 $ 22,372 $ 15,450
=====================================================================================================================
At December 31, 1997, Webster had a net deferred tax asset of $16.3 million. In
order to fully realize the net deferred tax asset, Webster must either incur tax
losses to carryback or generate future taxable income. 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.
The deferred tax valuation allowance is principally for a portion of temporary
differences that may be subject to review by taxing authorities. The net
decreases in the valuation allowance in 1997, 1996 and 1995 were due to
favorable reassessments of known risks and resulted in reductions of income tax
expense in these years.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are presented below.
December 31,
-----------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Loan Loss Allowances & Other Allowances, Net $ 26,224 $ 21,657
Accrued Compensation and Pensions 3,256 3,620
Deferred Expenses 3,671 -
Intangibles 4,598 3,743
Other 2,106 3,362
- ------------------------------------------------------------------------------------------------------
Total Gross Deferred Tax Assets 39,855 32,382
Less Valuation Allowance (5,107) (6,207)
- ------------------------------------------------------------------------------------------------------
Deferred Tax Asset after Valuation Allowance 34,748 26,175
- ------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Loan Discount 2,665 2,826
Unrealized Gain on Securities 14,635 1,427
Other 1,130 1,511
- ------------------------------------------------------------------------------------------------------
Total Gross Deferred Tax Liabilities 18,430 5,764
- ------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ 16,318 $ 20,411
======================================================================================================
41
NOTE 15: SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shareholders' equity increased $45.4 million to $382.2 million at December 31,
1997 from $336.8 million at December 31, 1996 due primarily to net income of
$33.8 million and the tax-effected unrealized gain on securities available for
sale of $18.6 million.
On July 31, 1997, Webster acquired People's (see Note 2). In connection with the
acquisition, Webster issued 1,575,996 shares of its common stock for all the
outstanding shares of People's common stock. Under the terms of the agreement,
People's shareholders received .85 shares of Webster common stock in a tax-free
exchange for each of their shares of People's common stock
On January 31, 1997, Webster acquired Derby (see Note 2). In connection with the
acquisition, Webster issued 3,501,370 shares of its common stock for all the
outstanding shares of Derby common stock. Under the terms of the agreement,
Derby shareholders received 1.14158 shares of Webster common stock in a tax-free
exchange for each of their shares of Derby common stock.
In December 1995, Webster completed the sale of 1,249,600 shares of common stock
in an underwritten public offering raising $32.1 million of additional capital,
net of expenses, which was invested in the Bank to facilitate its completion of
the Shawmut Transaction and to have the Bank remain well capitalized for
regulatory purposes.
On November 1, 1995, Webster acquired Shelton (See Note 2). In connection with
the acquisition, Webster issued 1,292,549 shares of its common stock for all the
outstanding shares of Shelton common stock. Under the terms of the agreement,
Shelton shareholders received .92 of a share of Webster common stock in a
tax-free exchange for each of their shares of Shelton common stock
Retained earnings at December 31, 1997 included $27.2 million of earnings of the
Bank appropriated to bad debt reserves (pre-1988), which were deducted for
federal income tax purposes. Tax law changes were enacted in August 1996 to
eliminate the "thrift bad debt" method of calculating bad debt deductions for
tax years after 1995 and to impose a requirement to recapture into taxable
income (over a six-year period) all bad debt reserves accumulated after 1987.
Since Webster previously recorded a deferred tax liability with respect to these
post-1987 reserves, its total income tax expense for financial reporting
purposes will not be affected by the recapture requirement. The tax law changes
also provide that taxes associated with the recapture of pre-1988 bad debt
reserves would become payable under more limited circumstances than under prior
law. Under the tax laws, as amended, events that would result in recapture of
the pre-1988 bad debt reserves include stock and cash distributions to the
holding company from the Bank in excess of specified amounts. Webster does not
expect such reserves to be recaptured into taxable income.
Applicable Office of Thrift Supervision ("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, 1997, 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.
42
At December 31, 1997, the Bank was in full compliance with all applicable
capital requirements as detailed below:
- ------------------------------------------------------------------------------------------------------------------------------------
OTS
Minimum Capital Well
Actual Requirements Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997
- --------------------
Total Capital (to Risk-Weighted Assets) $ 425,398 13.41% $253,829 8.00% $317,286 10.00%
Tier 1 Capital (to Risk-Weighted Assets) 385,599 12.15 126,915 4.00 190,372 6.00
Tier 1 Capital (to Adjusted Total Assets) 385,599 5.61 206,234 3.00 343,723 5.00
Tangible Capital (to Adjusted Total Assets) 380,896 5.54 103,046 1.50 No Requirement
At December 31, 1996
- --------------------
Total Capital (to Risk-Weighted Assets) $ 364,951 12.40% $235,423 8.00% $294,278 10.00%
Tier 1 Capital (to Risk-Weighted Assets) 330,306 11.22 117,711 4.00 176,557 6.00
Tier 1 Capital (to Adjusted Total Assets) 330,306 6.00 165,096 3.00 275,160 5.00
Tangible Capital (to Adjusted Total Assets) 325,905 5.92 82,547 1.50 No Requirement
At the time of the respective conversions of the Bank and certain predecessors
from mutual to stock form, each institution established a liquidation account
for the benefit of eligible depositors who continue to maintain their deposit
accounts after conversion. In the event of a complete liquidation of the Bank,
each eligible depositor will be entitled to receive a liquidation distribution
from the liquidation account. The Bank may not declare or pay a cash dividend on
or repurchase any of its capital stock if the effect thereof would cause its
regulatory capital to be reduced below applicable regulatory capital
requirements or the amount required for its liquidation accounts.
The OTS capital distribution regulations establish three tiers of institutions
for purposes of determining the level of dividends that can be paid. Since the
Bank's capital levels exceeded all fully phased-in OTS capital requirements at
December 31, 1997, it is considered a Tier 1 Institution. Tier 1 Institutions
generally are able to pay dividends up to an amount equal to one-half of their
excess capital at the beginning of the year plus all income for the calendar
year. In accordance with the OTS capital distribution regulations, the Bank must
provide a 30 day notice prior to the payment of any dividends to Webster. As of
December 31, 1997, the Bank had $128.2 million available for the payment of
dividends under the OTS capital distribution regulations. The Bank has paid
dividends to Webster amounting to $42.7 million and $21.5 million for 1997 and
1996, respectively. Under the prompt corrective action regulations adopted by
the OTS and the FDIC, the Bank is precluded from paying any dividends if such
action would cause it to fail to comply with applicable minimum capital
requirements.
The Bank has an ESOP that invests in Webster common stock as discussed in Notes
10 and 17. Since Webster has secured and guaranteed the ESOP debt, the
outstanding ESOP loan balance which is considered unearned compensation expense,
is recorded as a reduction of shareholders' equity. Both the loan obligation and
the unearned compensation expense are reduced by the amount of any loan
repayments made by the ESOP. Principal repayments totaled $568,025, $583,000 and
$545,000 during the years ended December 31, 1997, 1996 and 1995, respectively.
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.
43
NOTE 16: EARNINGS PER SHARE
- --------------------------------------------------------------------------------
On February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement simplifies the standards for computing and presenting earnings per
share previously found in APB Opinion No. 15 and makes them comparable to
international standards. It replaces the presentation of primary earnings per
share with basic earnings per share and replaces fully diluted earnings per
share with diluted earnings per share. SFAS No. 128 requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures.
The following tables reconcile the components of basic and diluted earnings per
share.
Years Ended December 31,
-----------------------------------------
(Dollars in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
BASIC EPS:
Net income $ 33,798 $ 38,501 $ 29,321
Preferred stock dividends -- 1,149 1,296
- ------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders $ 33,798 $ 37,352 $ 28,025
========================================================================================================================
Weighted-average common shares outstanding 13,474,117 13,252,237 11,936,050
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $2.51 $2.82 $2.35
========================================================================================================================
DILUTED EPS:
Net income $ 33,798 $ 38,501 $ 29,321
========================================================================================================================
Weighted-average common shares outstanding 13,474,117 13,252,237 11,936,050
Dilutive common stock equivalents:
Effect of conversion of preferred stock series B 17,053 888,086 986,403
Common stock equivalents due to dilutive effect
of options 240,285 284,936 279,806
Common stock equivalents due to dilutive effect
of warrant 97,044 34,694 --
- ------------------------------------------------------------------------------------------------------------------------
Total weighted-average diluted shares 13,828,499 14,459,953 13,202,259
========================================================================================================================
Diluted earnings per share $2.44 $2.66 $2.22
========================================================================================================================
At December 31, 1997, options to purchase 119,700 shares of common stock at
exercise prices between $49.63 and $64.50 were not included in the computation
of diluted earnings per share since the options' exercise price was greater than
the average market price of Webster common shares for 1997.
NOTE 17: EMPLOYEE BENEFIT AND STOCK OPTION PLANS
- --------------------------------------------------------------------------------
The Bank maintains a noncontributory pension plan for employees who meet certain
minimum service and age requirements. Pensions are based upon earnings of
covered employees during the period of credited service. The Bank also 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 $1.0 million, $909,000 and $593,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, for contributions to the
investment plan.
The Bank's ESOP, which is noncontributory by employees, is designed to invest on
behalf of employees of the Bank who meet certain minimum age and service
requirements in Webster common stock. 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. Operations were charged with $870,000, $847,000 and $848,000 for the
44
years ended December 31, 1997, 1996 and 1995, respectively, for costs related to
the ESOP. The 1997 ESOP charge includes $568,025 for principal payments, $55,513
of interest payments (net of $31,387 of dividends on unallocated ESOP shares)
and $46,178 of administrative costs. As required under the Accounting Standards
Executive Committee's Statement of Position 93-6, "Employers Accounting for
Stock Ownership Plans," additional compensation expense of approximately
$200,284 was recorded for the 1997 period.
The following table sets forth the funded status of the Bank's pension plan and
amounts recognized in Webster's Consolidated Statements of Condition at December
31, 1997 and 1996.
December 31,
---------------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 13,484 $ 15,266
Nonvested benefit obligation 1,369 1,380
- ------------------------------------------------------------------------------------------
Accumulated benefit obligation 14,853 16,646
Effect of projected future compensation levels 4,094 4,155
- ------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 18,947 20,801
Plan assets at fair value, primarily listed
stocks and U.S. bonds 22,179 18,694
- ------------------------------------------------------------------------------------------
Excess (Deficiency) of plan assets over
benefit obligation 3,232 (2,107)
Items not yet recognized in earnings:
Unrecognized prior service cost (1,403) (2,221)
Unrecognized net gain (loss) (3,531) 1,878
Unrecognized net asset at January 1, 1987
being recognized over 20.9 years (121) (313)
- -------------------------------------------------------------------------------------------
Unfunded Accrued Pension Liability $ (1,823) $ (2,763)
===========================================================================================
The reduction in the unfunded accrued pension liability balance at December 31,
1997, as compared to the December 31, 1996 balance, as shown in the above table
is due primarily to favorable curtailment adjustments realized in 1997 that were
directly related to the Derby and People's acquisitions. The following table
summarizes the components of the net change in the unfunded accrued pension
liability balance.
(In thousands)
- -----------------------------------------------------------------
Balance at December 31, 1996 $(2,763)
Acquisition-Related Net Curtailments 1,577
Contributions 702
Net Periodic Cost (1,339)
- -----------------------------------------------------------------
Balance at December 31, 1997 $(1,823)
=================================================================
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 7.0%, 4.75% and 9.0% for
1997 and 7.25%, 5.0% and 9.0% for 1996.
Net pension expense for 1997, 1996 and 1995 included the following components:
December 31,
-----------------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Service cost benefits earned during the period $ 1,759 $ 1,961 $ 1,286
Interest cost on projected benefit obligations 1,320 1,394 1,225
Return on plan assets (5,381) (2,038) (3,153)
Amortization and deferral 3,641 338 1,704
- -----------------------------------------------------------------------------------------------------------------
Total $ 1,339 $ 1,655 $ 1,062
=================================================================================================================
45
The following table sets forth the status of Webster's accumulated
post-retirement benefit obligation:
December 31,
------------------------------------
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $(1,912) $(3,818)
Unrecognized transition obligation - 1,748
Unrecognized net (loss) gain 273 (998)
- ----------------------------------------------------------------------------------------------------------------------
Unfunded Accrued Post-Retirement Liability $(1,639) $(3,068)
======================================================================================================================
The reduction in the unfunded accrued post-retirement liability balance at
December 31, 1997, as compared to the December 31, 1996 balance, as shown in the
above table is due primarily to favorable curtailment adjustments realized in
1997 that were directly related to the Derby and People's acquisitions. The
following table summarizes the components of the net change in the unfunded
accrued post-retirement liability position:
(In thousands)
- --------------------------------------------------------------------------------
Balance at December 31, 1996 $(3,068)
Acquisition-Related Net Curtailments 1,495
Contributions 126
Net Periodic Costs (192)
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $(1,639)
================================================================================
The discount rate used in determining the accumulated post-retirement benefit
obligation was 7.0% and the assumed healthcare cost-trend rate was 5.0% for
1997. An increase of 1% in the assumed healthcare cost-trend rate would result
in an increase in the accumulated benefit obligation by $133,400. The discount
rate and healthcare cost-trend rate for 1996 were 7.25% and 4.25%, respectively.
The components of post-retirement benefits cost were as follows:
Years Ended December 31,
--------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Service cost $ 40 $ 258 $ 238
Interest cost 140 256 250
Amortization 12 78 68
- --------------------------------------------------------------------------------------------------------------------
Net Periodic Post-Retirement Benefit Cost $ 192 $ 592 $ 556
====================================================================================================================
Webster maintains stock option plans (the "Option Plans") for the benefit of its
directors and officers. In October 1995, the FASB issued SFAS No. 123
"Accounting for Stock-Based Compensation." This statement establishes financial
accounting and reporting standards for stock-based employee and non-employee
compensation plans. Under the provisions of this statement, Webster has elected
to continue to measure compensation for its option plans using the accounting
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees."
Disclosure information requirements are effective for financial statements for
fiscal years beginning after December 15, 1995, or for an earlier fiscal year
for which this statement is initially adopted for recognizing compensation cost.
Pro forma disclosures required for entities that elect to continue to measure
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years that begin after December 31, 1994.
46
At December 31, 1997, Webster had multiple fixed stock option based compensation
plans, which are described below. Webster applies the provisions of APB Opinion
No. 25 and related interpretations in accounting for these 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 to the Consolidated Statements of Income, Webster's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
Year December 31,
----------------------------------------------
(Dollars in thousands, except per share data) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Net Income:
As Reported $ 33,798 $ 38,501 $ 29,321
Pro Forma 33,151 37,740 27,592
Basic Earnings Per Share:
As Reported $ 2.51 $ 2.82 $ 2.35
Pro Forma 2.46 2.76 2.20
Diluted Earnings Per Share:
As Reported $ 2.44 $ 2.66 $ 2.22
Pro Forma 2.40 2.61 2.09
============================================================================================================================
Webster's five fixed stock option plans were established in 1995, 1994, 1992,
1986 and 1985. The 1995, 1994 and 1985 plans were acquired through bank
acquisitions. Under these plans, the number of shares that may be granted are
212,500, 286,650, 780,500, 385,085 and 312,069, respectively, after having been
adjusted for a 10% stock dividend that occurred in 1993 that affected the number
of shares under the plans and amendments to the 1992 plan. The 1992 plan was
amended in April 1994 and 1996 to increase shares under the Plan by an
additional 235,000 and 375,000 shares, respectively. Stock appreciation rights
("SARS") were granted in tandem with stock options by Derby under the 1985
option plan. In accordance with generally accepted accounting principles,
compensation expense is recorded when the market value of Webster's common stock
exceeds the SARS' strike price. Compensation expense recorded for 1997, 1996 and
1995 was $229,000, $18,800 and $177,900. During the years ended December 31,
1997, 1996 and 1995, the number of SARS exercised for each respective period
were: 525, 1,102 and 19,634, respectively. Under the terms of the plans, the
exercise price of each option granted equals the approximate market price of
Webster's stock on the date of grant and each option has a maximum contractual
life of ten years. The tables that follow provide disclosures and information
required under SFAS No. 123 and summarize stock compensation activity for the
years 1997, 1996 and 1995 for which Consolidated Statements of Income are
presented.
The fair value of each option grant is estimated based on the date of grant
using the Black-Scholes Option-Pricing Model with the following weighted-average
assumptions used for grants issued during 1997: expected option term 8.6 years,
expected dividend yield 1.85%, expected volatility 25.14%, expected forfeiture
rate 2.33%, and risk-free interest rate of 5.83% and the following
weighted-average assumptions were used for grants issued during 1996: 10 years,
1.91%, 21.0%, 1.14% and 6.42%, respectively.
47
A summary of the status of Webster's fixed stock option plans at December 31,
1997, 1996, and 1995 and changes during the years ended on those dates is
presented below:
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------------------
Options Outstanding at Beginning of Year 812,029 $ 21.75 1,196,024 $ 17.37 889,297 $ 14.50
Granted 156,153 56.18 194,729 31.19 394,361 22.89
Exercised (154,326) 19.03 (569,199) 15.75 (80,734) 12.48
Forfeited/Canceled (14,100) 33.71 (9,525) 22.41 (6,900) 18.75
- --------------------------------------------------------------------------------------------------------------------------
Options Outstanding at End of Year 799,756 $ 28.78 812,029 $ 21.75 1,196,024 $ 17.37
==========================================================================================================================
Options Exercisable at Year End 483,906 498,929 973,474
Weighted Average Per Share Fair Value
of Options Granted During the Year $ 21.58 $ 11.91 $ 9.77
==========================================================================================================================
The following table summarizes information about Webster's fixed stock option
plans by price range for options that are outstanding and exercisable at
December 31, 1997:
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
- ---------------------------------------------------------------------------------------------------------------------
$4.55 - $6.45 12,980 2.9 $4.55 12,980 $4.55
$6.46 - $12.90 69,350 2.9 9.87 69,350 9.87
$12.91 - $19.35 156,107 5.5 17.97 156,107 17.97
$19.36 - $25.80 220,325 6.5 21.29 171,275 21.29
$25.81 - $32.25 96,973 7.9 27.86 48,123 27.65
$32.26 - $38.70 121,821 9.0 37.80 26,071 37.64
$38.71 - $45.15 2,500 9.1 39.38 - -
$45.16 - $51.60 15,000 9.6 49.75 - -
$51.61 - $58.05 2,000 9.6 51.75 - -
$58.06 - $64.50 102,700 10.0 63.52 - -
- ---------------------------------------------------------------------------------------------------------------------
799,756 7.0 $28.78 483,906 $19.63
=====================================================================================================================
Webster also has two restricted stock plans consisting of a Director Fee
Retainer Restricted Stock Plan, which was established in 1996 and a Restricted
Stock Plan, which was established in 1992. Under the Director Fee Restricted
Stock Plan, a total of 4,260 shares were issued to twelve directors in 1997 with
each receiving 355 shares. These restricted shares were reissued from treasury
stock and the cost was measured as of the grant date using the fair market value
of Webster's stock as of the grant date. There were no shares granted in 1997,
1996 and 1995 under the Restricted Stock Plan. The cost of all restricted shares
are amortized to compensation expense over the contractual service period and
such expense is reflected in Webster's Consolidated Statements of Income.
48
NOTE 18: MERGER AND ACQUISITION EXPENSES
- -------------------------------------------------------------------------------------------------------------
A summary of merger and acquisition expenses follows:
Years Ended December 31,
--------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Shawmut Transaction $ - $ 500 $ 1,000
Shelton - - 3,271
Derby 19,858 - -
People's 7,200 - -
- -------------------------------------------------------------------------------------------------------------
Total $27,058 $ 500 $ 4,271
=============================================================================================================
In connection with the acquisitions of Derby and People's, that were completed
on January 31, 1997 and July 31, 1997, Webster recorded approximately $27.1
million of merger-related charges. The following table presents a summary of the
merger-related accrued liabilities:
(In thousands) Derby People's
- --------------------------------------------------------------------------------------------------------------
Balance of merger-related accrued liabilities at December 31, 1996 $ -- $ --
Additions 19,900 7,200
Compensation (severance and related costs) (6,700) (2,400)
Data processing contract termination (1,600) --
Write-down of fixed assets (1,200) --
Transaction costs (including investment bankers, attorneys and accountants) (2,200) (1,300)
Merger-related and miscellaneous expenses (2,800) (1,100)
- --------------------------------------------------------------------------------------------------------------
Balance of merger-related accrued liabilities at December 31, 1997 $ 5,400 $ 2,400
==============================================================================================================
The remaining accrued liability of $7.8 million represents, for the most part,
an accrual for data processing contract termination costs payable over a future
period, the estimated loss on sale of excess fixed assets due to consolidation
of overlapping branch locations and compensation costs related to severance.
NOTE 19: CAPITAL SECURITIES OF SUBSIDIARY TRUST
- --------------------------------------------------------------------------------
During 1997, Webster formed a statutory business trust, Webster Capital Trust I
("Trust I"), of which Webster owns all of the common stock. Trust I exists for
the sole purpose of issuing trust securities and investing the proceeds in an
equivalent amount of subordinated debentures of the Corporation. On January 31,
1997, Trust I completed a $100 million underwritten public offering of 9.36%
Corporation-Obligated Manditorily Redeemable Capital Securities of Webster
Capital Trust I ("capital securities"). The sole asset of Trust I is the $100
million of Webster's 9.36% junior subordinated deferrable interest debentures
due in 2027 ("subordinated debt securities"), purchased by Trust I on January
30, 1997. 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, 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.
NOTE 20: PREFERRED STOCK OF SUBSIDIARY CORPORATION
- --------------------------------------------------------------------------------
The Bank formed and incorporated Webster Preferred Capital Corporation ("WPCC")
in March 1997. WPCC was formed to provide a cost-effective means of raising
funds, including capital, on a consolidated basis for the Bank. WPCC's strategy
is to acquire, hold and manage real estate mortgage assets.
49
In December 1997, WPCC raised $50 million in a public offering in which $40
million was issued as Series A 7.375% cumulative redeemable preferred stock and
$10 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. The preferred shares are not exchangeable into common stock or any
other securities of the Bank or Webster, and will not constitute regulatory
capital of either the Bank or Webster .
NOTE 21: LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Webster is party to various legal proceedings normally incident to the kind of
business conducted. Management believes that no material liability will result
from such proceedings.
NOTE 22: PARENT COMPANY CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Statements of Condition for 1997 and 1996 and the Statements of Income and
Cash Flows for the three-year period ended December 31, 1997 (parent only) are
presented below.
STATEMENTS OF CONDITION
December 31,
----------------------------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Assets
Cash and Due from Depository Institutions $ 1,830 $ 2,248
Securities Available for Sale 85,819 17,072
Investment in Subsidiaries 439,308 374,747
Due from Subsidiaries - 2,138
Other Assets 5,317 2,482
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 532,274 $ 398,687
========================================================================================================================
Liabilities and Shareholders' Equity
Senior Notes due 2000 $ 40,000 $ 40,000
Line of Credit - 18,400
ESOP Borrowings 1,978 2,546
Due to Subsidiaries 2,691 -
Other Liabilities 5,419 909
Corporation-Obligated Mandatorily Redeemable Capital Securities
of Subsidiary Trust 100,000 -
Shareholders' Equity 382,186 336,832
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 532,274 $ 398,687
========================================================================================================================
50
STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Dividends from Subsidiary $ 42,671 $ 21,526 $ 18,072
Interest on Securities 1,821 984 1,148
Gain on Sale of Securities 937 1,520 503
Other Noninterest Income 11 139 70
Interest Expense on Borrowings 3,812 3,780 3,660
Capital Securities Expense 8,845 - -
Other Noninterest Expenses 5,936 3,124 3,752
- ------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and
Equity in Undistributed Earnings of Subsidiaries 26,847 17,265 12,381
Income Tax Benefit 5,984 1,597 2,504
- ------------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 32,831 18,862 14,885
Equity in Undistributed Earnings of Subsidiaries 967 19,639 14,436
- ------------------------------------------------------------------------------------------------------------------------
Net Income 33,798 38,501 29,321
Preferred Stock Dividends - 1,149 1,296
- ------------------------------------------------------------------------------------------------------------------------
Income Available to Common Shareholders $ 33,798 $ 37,352 $ 28,025
========================================================================================================================
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $ 33,798 $ 38,501 $ 29,321
(Increase) Decrease in Interest Receivable (186) 42 (16)
(Increase) Decrease in Other Assets (2,570) 117 2,048
Gains on Sale of Securities (937) (1,520) (503)
Equity in Undistributed Earnings of Subsidiaries (967) (19,639) (14,436)
Other, Net 10,453 (6,281) (1,722)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 39,591 11,220 14,692
- ------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchases of Securities Available for Sale (119,640) (35,076) (45,168)
Sales of Securities Available for Sale 61,986 76,465 4,445
- ------------------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities (57,654) 41,389 (40,723)
- ------------------------------------------------------------------------------------------------------------------
Financing Activities:
Repayment of Borrowings (28,400) (7,584) (545)
Proceeds from Borrowings 10,000 25,400 -
Net Proceeds from Issuance of Capital Securities 97,700 - -
Net Proceeds from Sale of Common Stock - - 32,112
Exercise of Stock Options 4,471 12,929 1,733
Cash Dividends to Shareholders (10,106) (9,158) (7,396)
Common Stock Repurchases (6,020) (29,200) (721)
Investment in Subsidiary (50,000) (44,000) (50)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 17,645 (51,613) 25,133
- ------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (418) 996 (898)
Cash and Cash Equivalents at Beginning of Year 2,248 1,252 2,150
- ------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,830 $ 2,248 $ 1,252
==================================================================================================================
51
NOTE 23: SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
Selected quarterly data for 1997 and 1996 follows:
First Second Third Fourth
(Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
1997:
Interest Income $ 100,542 $109,799 $ 116,088 $ 119,419
Interest Expense 55,309 61,068 66,482 71,064
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income 45,233 48,731 49,606 48,355
Provision for Loan Losses 7,265 2,645 3,550 2,375
Gain on Sale of Loans and Securities, Net 542 425 1,412 1,442
Other Noninterest Income 7,504 7,542 8,305 8,818
Noninterest Expenses 53,471 32,824 39,795 32,457
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Taxes (7,457) 21,229 15,978 23,783
Income Taxes (3,573) 8,042 6,288 8,978
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (3,884) 13,187 9,690 14,805
Preferred Stock Dividends - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Income Available to Common Shareholders $ (3,884) $ 13,187 $ 9,690 $ 14,805
=============================================================================================================================
Net Income Per Share:
Basic $ (0.29) $ 0.98 $ 0.72 $ 1.09
=============================================================================================================================
Diluted $ (0.28) $ 0.94 $ 0.70 $ 1.06
=============================================================================================================================
1996:
Interest Income $ 91,238 $ 96,487 $ 98,839 $ 99,894
Interest Expense 53,074 53,386 55,079 55,882
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income 38,164 43,101 43,760 44,012
Provision for Loan Losses 1,714 2,145 2,345 3,584
Gain on Sale of Loans and Securities, Net 608 904 871 2,487
Other Noninterest Income 5,692 7,221 7,372 7,024
Noninterest Expenses 29,047 31,999 36,824 32,685
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 13,703 17,082 12,834 17,254
Income Taxes 5,127 6,007 4,613 6,625
- -----------------------------------------------------------------------------------------------------------------------------
Net Income 8,576 11,075 8,221 10,629
Preferred Stock Dividends 323 321 283 222
- -----------------------------------------------------------------------------------------------------------------------------
Income Available to Common Shareholders $ 8,253 $ 10,754 $ 7,938 $ 10,407
=============================================================================================================================
Net Income Per Share:
Basic $ 0.62 $ 0.81 $ 0.60 $ 0.79
=============================================================================================================================
Diluted $ 0.59 $ 0.76 $ 0.56 $ 0.75
=============================================================================================================================
All periods presented have been retroactively restated to reflect the inclusion
of the results of People's and Derby, which were acquired on July 31, 1997 and
January 31, 1997, respectively, and were accounted for using the pooling of
interests method.
52
MANAGEMENT'S REPORT
- --------------------------------------------------------------------------------
To Our Shareholders:
The management of Webster is responsible for the integrity and objectivity of
the financial and operating information contained in this annual report,
including the consolidated financial statements covered by the Report of
Independent Auditors. These statements were prepared in conformity with
generally accepted accounting principles and include amounts that are based on
the best estimates and judgments of management.
Webster has a system of internal accounting controls which provides 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. This system includes 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
outside directors, meets periodically with management, the internal auditors and
the independent auditors to review internal accounting 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/ John V. Brennan
James C. Smith John V. Brennan
Chairman and Chief Executive Officer Executive Vice President,
Chief Financial Officer and Treasurer
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders of
Webster Financial Corporation
Waterbury, Connecticut
We have audited the accompanying consolidated statements of condition of Webster
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
January 20, 1998
53
Annual Meeting
The annual meeting of shareholders of Webster Financial Corporation will be held
on April 23, 1998 at 4:00 P.M. at the Four Points Sheraton, 3580 East Main
Street, Waterbury, Connecticut. As of February 28, 1998, there were 13,672,899
shares of common stock outstanding and approximately 4,792 shareholders of
record.
Corporate Headquarters
Webster Financial Corporation and Webster Bank
Webster Plaza
Waterbury, CT 06702
(203) 753-2921
Transfer Agent and Registrar
American Stock Transfer & Trust Co.
Shareholder Services
40 Wall Street
New York, NY 10005
1-800-937-5449
Dividend Reinvestment and Stock Purchase Plan
Stockholders wishing to receive a prospectus for the Dividend Reinvestment and
Stock Purchase Plan are invited to write to American Stock Transfer & Trust Co.
at the address listed above, or call 1-800-278-4353.
Stock Listing Information
The common stock of Webster is traded over-the-counter on the NASDAQ National
Market System under the symbol "WBST." Investor Relations Contact: James M.
Sitro, Vice President, Investor Relations (203) 578-2399
Form 10K and Other Reports
Our annual report to the Securities and Exchange Commission (Form 10K),
additional copies of this report, and quarterly reports may be obtained free of
charge by contacting James M. Sitro, Vice President, Investor Relations, Webster
Plaza, Waterbury, CT 06702.
54
Common Stock Dividends and Market Prices
The following table shows dividends declared and the market price per share by
quarter for 1997 and 1996.
- --------------------------------------------------------------------------------
Common Stock (Per Share)
- --------------------------------------------------------------------------------
Market Price
- --------------------------------------------------------------------------------
Cash
Dividends End of
1997 Declared Low High Period
- --------------------------------------------------------------------------------
Fourth $ .20 $57 $67 3/4 $ 66 1/2
Third .20 43 3/8 59 3/4 58 3/4
Second .20 34 5/8 45 3/4 45 1/2
First .20 35 1/8 41 3/8 35 1/8
Cash
Dividends End of
1996 Declared Low High Period
- --------------------------------------------------------------------------------
Fourth $ .18 $33 1/2 $38 1/4 $ 36 3/4
Third .18 28 35 3/4 35 1/4
Second .16 26 3/4 29 3/8 28
First .16 27 1/2 30 1/4 28
- --------------------------------------------------------------------------------
MARKET MAKERS:
Advest, Inc.
Bear, Sterns & Co. Inc.
First Albany Corporation
Fox-Pitt, Kelton, Inc.
Friedman Billings Ramsey & Co.
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Legg Mason Wood Walker Inc.
Lehman Brothers Inc.
M.A. Schapiro & Co., Inc.
MacAllister Pitfield MacKay
Mayer & Schweitzer Inc.
Merrill Lynch, Pierce & Fenner
OTA Limited Partnership
Paine Webber Inc.
Ryan Beck & Co., Inc.
Sandler O'Neill & Partners
Sherwood Securities Corp.
Smith Barney Inc.
Troster Singer Corp.
Tucker Anthony Incorporated
ELECTRONIC COMMUNICATIONS NETWORK:
Inc Trading Corporation
Island Systems
B-Trade Services
Spear, Leeds & Kellogg
Webster Bank Information
For more information on Webster Bank products and services, call 1-800-325-2424,
or write:
55
Webster Bank
Telebanking Center
P.O. Box 191
CH420
Waterbury, Connecticut 06720-0191
Worldwide Web Site
www.websterbank.com
56