UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to _______ .
Commission File Number: 0-15213
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1187536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Webster Plaza, Waterbury, Connecticut 06702
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (203) 753-2921
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Based upon the closing price of the registrant's common stock as of
March 25, 1999, the aggregate market value of the voting common stock held by
non-affiliates of the registrant is $999,797,953. Solely for purposes of this
calculation, the shares held by directors and executive officers of the
registrant have been excluded because such persons may be deemed to be
affiliates. This reference to affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common Stock, par value $.01 per share
Issued and Outstanding at March 25, 1999: 35,899,359
DOCUMENTS INCORPORATED BY REFERENCE
Part I and II: Portions of the Annual Report to Shareholders
for fiscal year ended December 31, 1998
Part III: Portions of the Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 22, 1999.
WEBSTER FINANCIAL CORPORATION
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
-----
PART I
Item 1. Business 3
General 3
Business Combinations Pending at December 31,1998 3
Business Combinations 4
Lending Activities 4
Investment Activities 10
Trust Activities 10
Insurance Activities 11
Sources of Funds 11
Bank Subsidiaries 13
Employees 13
Market Area and Competition 13
Regulation 14
Taxation 14
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition &
Results of Operations 17
Item 7a.Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 18
PART III
Item 10.Directors and Executive Officers of the Registrant 18
Item 11.Executive Compensation 18
Item 12.Security Ownership of Certain Beneficial Owners and Management 18
Item 13.Certain Relationships and Related Transactions 18
PART IV
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
Signatures 20
Exhibit Index 22
2
PART I
Item 1. Business
General
Webster Financial Corporation ("Webster" or the "Corporation"), through
its subsidiaries, Webster Bank (the "Bank") and Damman Associates, Inc.
("Damman"), delivers financial services to individuals, families and businesses
throughout Connecticut. Webster emphasizes five business lines - consumer and
small business banking, business banking, mortgage banking, trust and investment
services, and insurance services, each supported by centralized administration
and operations. Webster has grown significantly in recent years, primarily
through a series of acquisitions which have expanded and strengthened its
franchise.
Assets at December 31, 1998 were $9.0 billion compared to $9.1 billion
a year earlier. Net loans receivable amounted to $5.0 billion at December 31,
1998 and 1997. Deposits were $5.7 billion at December 31, 1998 and 1997.
At December 31, 1998, the assets of the Corporation, on an
unconsolidated basis, consisted primarily of its investment in the Bank and
$149.1 million of cash and investment securities. The principal sources of
Webster's revenues on an unconsolidated basis are dividends from the Bank and
interest and dividend income from other investments. See Note 22 to Webster's
Consolidated Financial Statements for parent-only financial statements.
The Bank's deposits are federally insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is a Bank Insurance Fund ("BIF") member
institution and at December 31, 1998, approximately 74% of the Bank's deposits
were subject to BIF assessment rates and 26% were subject to Savings Association
Insurance Fund ("SAIF") assessment rates. (See "Regulation").
Webster, as a holding company, and the Bank are subject to
comprehensive regulation, examination and supervision by the Office of Thrift
Supervision (the "OTS"), as the primary federal regulator. Webster is also
subject to regulation, examination and supervision by the FDIC as to certain
matters. Webster's executive offices are located at Webster Plaza, Waterbury,
Connecticut, 06702. Its telephone number is (203) 753-2921.
Business Combinations Pending At December 31, 1998
The Access Acquisition. In a transaction accounted for as of January 1,
1999, Webster purchased the internet mortgage lending business of Access
National Mortgage, Inc. The internet mortgage lending activities are conducted
through an 80% owned indirect subsidiary of Webster Bank, Access National
Mortgage, LLC (www.discountmortgages.com). The other 20% equity interest is
owned by principals of the former Access National Mortgage, Inc. This new
subsidiary will initially continue to sell all originated mortgage loans. The
company was founded in 1996 as a privately held Internet-based mortgage lender
located in Wilmington, Massachusetts. This acquisition was accounted for as a
purchase.
The Village Acquisition. On November 11, 1998, Webster announced a
definitive agreement to acquire Village Bancorp, Inc. ("Village"), the holding
company for Village Bank & Trust Company for $23.50 per share in a tax-free,
stock-for-stock exchange. At the time of the original announcement, Village,
based in Ridgefield, Connecticut, had approximately $230 million in total
assets, $152 million in loans and $215 million in deposits at six branches.
Webster expects to consummate the acquisition in the second quarter of 1999 and
expects to account for this transaction as a purchase.
The Maritime Acquisition. On November 4, 1998, Webster announced a
definitive agreement to acquire Maritime Bank & Trust Company ("Maritime") for
$26.67 per share in a tax-free, stock-for-stock exchange. At the time of the
original announcement, Maritime, based in Essex, Connecticut, had approximately
$100 million in total assets and $90 million in deposits at three branches.
Webster expects to consummate the acquisition in the second quarter of 1999 and
expects to account for this transaction as a purchase.
3
Business Combinations
The Damman Acquisition. On June 1, 1998, Webster completed its
acquisition of Damman. Damman is a full service insurance agency, providing
property-casualty, life and group coverage to commercial and individual
customers and is headquartered in Westport with an additional office in
Wallingford, Connecticut. Under the terms of the merger agreement, Webster
issued 274,609 shares of common stock and recorded goodwill of $10 million. The
transaction was accounted for as a purchase and therefore results are reported
only for the periods subsequent to the acquisition.
The Eagle Acquisition. On April 15, 1998, Webster acquired Eagle
Financial Corp. ("Eagle") and its subsidiary, Eagle Bank, a $2.1 billion savings
bank with headquarters in Bristol, Connecticut. In connection with the merger
with Eagle, Webster issued 10,615,156 shares of its common stock for all the
outstanding shares of Eagle common stock. Under the terms of the agreement, each
outstanding share of Eagle common stock was converted into 1.68 shares of
Webster common stock. This acquisition was accounted for as a pooling of
interests, and as such, the Consolidated Financial Statements include Eagle's
financial data as if Eagle had been combined at the beginning of the earliest
period presented. Prior to the acquisition, Eagle's fiscal year ended on
September 30. In recording the pooling of interests business combination,
Eagle's financial statements as of and for the twelve months ended September 30,
1997, were combined with Webster's financial statements as of and for the twelve
months ended December 31, 1997.
Lending Activities
General. Webster originates residential, consumer and business loans.
Total loans receivable, before the allowance for loan losses, net of fees and
costs, were $5.0 billion at December 31, 1998 and $5.1 billion at December 31,
1997. At December 31, 1998, first mortgage loans secured by one-to-four family
properties comprised 74.3% of the Corporation's loan portfolio.
See "Management's Discussion and Analysis of Financial Condition &
Results of Operations" ("MD&A") contained in the Annual Report to Shareholders
incorporated herein by reference. Portions of the Annual Report are filed as an
exhibit hereto. Also see "Business -- Lending Activities --Nonaccrual Assets and
Delinquencies" for more information about Webster's asset quality, allowance for
loan losses and provisions for loan losses.
Nonaccrual loans, which include loans delinquent 90 days or more, were
$25.4 million at December 31, 1998, compared to $42.1 million at December 31,
1997. The ratio of nonaccrual loans to total loans was 0.5% and 0.8% at December
31, 1998 and 1997, respectively. Nonaccrual assets, which include nonaccrual
loans and foreclosed properties were $28.9 million and $54.1 million at December
31, 1998 and 1997, respectively.
One-to-Four Family First Mortgage Loans. Webster originates both
fixed-rate and adjustable-rate residential mortgage loans. At December 31, 1998,
approximately 49% of Webster's total residential mortgage loans were
adjustable-rate loans. Webster offers adjustable-rate mortgage loans at initial
interest rates discounted from the fully indexed rate. Adjustable-rate loans
originated during 1998, when fully indexed, will be 2.75% above the constant
maturity one-year U.S. Treasury yield index.
At December 31, 1998, $1.9 billion or approximately 51% of Webster's
total residential mortgage loans before net items had fixed rates. Webster sells
mortgage loans in the secondary market when such sales are consistent with its
asset/liability management objectives. At December 31, 1998, Webster had $1.7
million of adjustable and fixed-rate mortgage loans held for sale.
Commercial and Commercial Real Estate Mortgage Loans. Webster had
$818.0 million, or 16.4% of its total loans receivable in commercial and
commercial real estate loans outstanding as of December 31, 1998, compared to
$627.7 million or 12.6% at December 31, 1997.
Consumer Loans. At December 31, 1998, consumer loans were $481.5
million or 9.64% of Webster's total loans. Consumer loans consist primarily of
home equity credit lines, home improvement loans, passbook loans and other
consumer loans. The allowance for losses on consumer loans was $6.1 million at
December 31, 1998.
4
The following table sets forth the composition of Webster's loan
portfolio in dollar amounts and in percentages at the dates shown.
At December 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995
----------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount %
----------------------------------------------------------------------------------------------------
(Dollars in thousands)
Residential mortgage loans:
1-4 family units $ 3,548,046 71.05% $ 3,737,201 74.81% $ 3,589,459 74.57% $ 3,197,537 78.32%
Multi-family units 689 0.01 16,736 0.33 39,257 0.82 48,369 1.18
Construction 200,417 4.01 117,619 2.35 109,923 2.28 75,09 1.84
Total residential
mortgage loans 3,749,152 75.08 3,871,556 77.50 3,738,639 77.67 3,321,002 81.35
Commercial and commercial real
estate loans:
Commercial real estate 372,348 7.46 312,799 6.26 297,846 6.19 199,459 4.89
Commercial construction 43,855 0.88 34,974 0.70 19,780 0.41 19,193 0.47
Commercial non-mortgage 401,772 8.05 238,868 4.78 212,387 4.41 74,930 1.84
Segregated assets -- -- 41,038 0.82 75,670 1.57 104,839 2.57
Total commercial loans 817,975 16.38 627,679 12.56 605,683 12.58 398,421 9.76
Consumer loans:
Home equity credit lines 439,369 8.80 474,995 9.51 431,493 8.96 341,773 8.37
Other consumer 42,122 0.84 81,139 1.62 91,430 1.90 81,260 1.99
--------------------- -------------------- ---------------------- ----------------------
Total consumer loans 481,491 9.64 556,134 11.13 522,923 10.86 423,033 10.36
Loans receivable (net of fees
and costs) 5,048,618 101.10 5,055,369 101.19 4,867,245 101.12 4,142,456 101.47
Allowance for loan losses (55,109) (1.10) (59,518) (1.19) (53,692) (1.12) (59,892) (1.47)
Loans receivable, net $ 4,993,509 100.0% $ 4,995,851 100.0% $ 4,813,553 100.0% $ 4,082,564 100.0%
December 31,
--------------------------
1994
--------------------------
Amount %
--------------------------
(Dollars in thousands)
Residential mortgage loans:
1-4 family units $ 3,307,141 79.78%
Multi-family units 26,531 0.64
Construction 80,723 1.95
Total residential
mortgage loans 3,414,395 82.37
Commercial and commercial real
estate loans:
Commercial real estate 189,066 4.56
Commercial construction 11,639 0.28
Commercial non-mortgage 71,397 1.72
Segregated assets 137,096 3.31
Total commercial loans 409,198 9.87
Consumer loans:
Home equity credit lines 326,726 7.88
Other consumer 60,687 1.46
----------------------
Total consumer loans 387,413 9.35
Loans receivable (net of fees
and costs) 4,211,006 101.58
Allowance for loan losses (65,671) (1.58)
Loans receivable, net $ 4,145,335 100.0%
5
The following table sets forth the contractual maturity and
interest-rate sensitivity of residential and commercial construction loans and
commercial loans at December 31, 1998.
Contractual Maturity
-----------------------------------------------------------
More Than
One Year One to More Than
or Less Five Years Five Years Total
------------------------------------------------------------
(In thousands)
Contractual Maturity:
Construction loans:
Residential mortgage $ 200,417 $ -- $ -- $ 200,417
Commercial mortgage 6,566 14,718 22,571 43,855
Commercial non-mortgage loans 185,371 132,476 83,925 401,772
------------------------------------------------------------
Total $ 392,354 $ 147,194 $ 106,496 $ 646,044
============================================================
Interest-Rate Sensitivity:
Fixed rates $ 181,308 $ 70,755 $ 69,513 $ 321,576
Variable rates 211,046 76,439 36,983 324,468
------------------------------------------------------------
Total $ 392,354 $ 147,194 $ 106,496 $ 646,044
============================================================
Purchase and Sale of Loans and Loan Servicing. Webster has been a
seller and purchaser of whole loans and participations in the secondary market.
Webster, in general, sells fixed-rate mortgage loans and retains servicing for
the loans sold whenever possible. During the 1998 period, Webster reduced its
level of mortgage loans sold as it retained both fixed and variable-rate loans
for its own loan portfolio. Loans purchased in the secondary market by Webster
are typically adjustable-rate mortgage loans and purchased, in most cases, with
serving retained by the seller.
The following table sets forth information as to Webster's mortgage
loan servicing portfolio at the dates shown.
At December 31,
-----------------------------------------------------------------------------
1998 1997 1996
---------------------- ----------------------- -------------------------
Amount % Amount % Amount %
(Dollars in thousands)
Loans owned and serviced $ 3,471,092 73.2% $ 3,483,077 71.4% $ 4,349,471 72.4%
Loans serviced for others 1,273,530 26.8 1,393,353 28.6 1,656,674 27.6
----------------------- ------------------------ ------------------------
Total loans serviced by Webster $ 4,744,622 100.0% $ 4,876,430 100.0% $ 6,006,145 100.0%
======================= ======================== =======================
6
The table below shows mortgage loan origination, purchase, sale and
repayment activities of Webster for the periods indicated.
Year ended December 31,
-----------------------------------------------
1998 1997 1996
----------------------------------------------
(In thousands)
First mortgage loan originations and purchases:
Permanent:
Mortgage loans originated $ 800,322 $ 539,362 $ 548,405
Construction:
1-4 family units 291,833 194,772 99,547
----------- ----------- -----------
Total permanent and construction loans originated 1,092,155 734,134 647,952
Loans and participations purchased 66,173 191,078 113,582
Loans acquired through acquisition -- -- 22,233
----------- ----------- -----------
Total loans originated and purchased 1,158,328 925,212 783,767
----------- ----------- -----------
First mortgage loan sales and principal reductions:
Loans sold 100,952 91,304 190,158
Loan principal reductions 1,167,861 341,989 463,998
Reclassified to foreclosed properties 11,919 12,602 15,775
----------- ----------- -----------
Total loans sold and principal reductions 1,280,732 445,895 669,931
----------- ----------- -----------
(Decrease) Increase in mortgage loans receivable $ (122,404) $ 479,317 $ 113,836
=========== =========== ===========
Nonaccrual Assets and Delinquencies. When an insured institution
classifies problem assets as either "substandard" or "doubtful," it is required
to establish general allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the asset so classified or to charge-off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional valuation allowances. See "Classification
of Assets" below.
Interest on nonaccrual loans that would have been recorded as
additional income for the years ended December 31, 1998, 1997 and 1996 had the
loans been current in accordance with their original terms approximated
$2,617,000, $4,333,000, and $6,455,000, respectively.
See Management's Discussion and Analysis ("MD&A") and Note 1(e) to the
Consolidated Financial Statements contained in the 1998 Annual Report to
Shareholders incorporated herein by reference for further nonaccrual loan
information and a description of Webster's nonaccrual loan policy.
7
The following table sets forth information as to loans delinquent 30-89
days and still accruing interest.
At December 31
-----------------------------------------------------
1998 1997
-----------------------------------------------------
Principal Principal
Balances % Balances %
-----------------------------------------------------
(Dollars in thousands)
Past due 30-89 days and still accruing:
Residential real estate $ 25,424 0.50% $ 33,724 0.67%
Commercial 16,037 0.31 12,689 0.25
Consumer 5,961 0.12 7,477 0.15
------------------------- ------------------------
Total $ 47,422 0.93% $ 53,890 1.07%
======================= ========================
Classification of Assets. Under the OTS' problem assets classification
system, a savings institution's problem assets are classified as "substandard,"
"doubtful" or "loss" (collectively "classified assets"), depending on the
presence of certain characteristics. An asset is considered "substandard" if
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the institution will sustain
"some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified "substandard"
with the added characteristic that the weaknesses that are present make
"collection or liquidation in full" on the basis of currently existing facts,
conditions and values, "highly questionable and improbable." Assets classified
"loss" are those considered "uncollectible" and of such little value that to
continue to report them as assets without the establishment of a specific loss
reserve is not warranted. In addition, assets that do not currently warrant
classification in one of the foregoing categories but which are deserving of
management's close attention are designated as "special mention" assets.
At December 31, 1998, the Bank's classified loans totaled $40.9
million, consisting of $39.0 million in loans classified as "substandard," $1.9
million in loans classified as "doubtful" and none classified as "loss". At
December 31, 1997, the Bank's classified loans totaled $91.1 million, consisting
of $82.3 million in loans classified as "substandard," $2.9 million in loans
classified as "doubtful" and none classified as "loss." In addition, at December
31, 1998 and 1997, the Bank had $29.3 million and $12.9 million, respectively,
of special mention loans.
Allowance for Loan Losses. Webster's allowance for loan losses at
December 31, 1998 totaled $55.1 million. See MD&A "Asset Quality" and
"Comparison of 1998 and 1997 Years" contained in the 1998 Annual Report to
Shareholders incorporated herein by reference. In assessing the specific risks
inherent in the portfolio, management takes into consideration the risk of loss
on Webster's nonaccrual loans, classified loans and watch list loans including
an analysis of the collateral for the loans. Other factors considered are
Webster's loss experience, loan concentrations, local economic conditions and
other factors.
8
The following table presents an allocation of Webster's allowance for
loan losses at the dates indicated and the related percentage of loans in each
category to Webster's loan receivable portfolio.
December 31,
--------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995
----------------- -------------------- ------------------- -------------------------
Amount % Amount % Amount % Amount %
----------------- -------------------- ------------------- -------------------------
Balance at End of Period
Applicable to:
Residential mortgage loans $ 21,539 74.26% $ 27,349 77.47% $ 19,909 77.01% $ 31,310 81.47%
Commercial mortgage loans 17,087 8.24 13,159 6.83 13,860 7.63 13,570 6.29
Commercial non-mortgage loans 10,426 7.96 9,076 4.75 11,117 4.43 4,298 1.77
Consumer loans 6,057 9.54 9,934 10.95 8,806 10.93 10,714 10.47
------------------ -------------------- ------------------- ---------------------
Total $ 55,109 100.00% $ 59,518 100.00% $ 53,692 100.00% $ 59,892 100.00%
================== ==================== =================== =====================
December 31,
----------------------------
(Dollars in thousands) 1994
---------------
Amount %
---------------- -----------
Balance at End of Period
Applicable to:
Residential mortgage loans $ 38,770 83.40%
Commercial mortgage loans 12,436 5.44
Commercial non-mortgage loans 4,350 1.66
Consumer loans 10,115 9.50
----------------------
Total $ 65,671 100.00%
=======================
9
Investment Activities
Webster, the holding company of the Bank, as a Delaware corporation,
has the authority to invest in any type of investment permitted under Delaware
law. As a unitary holding company, however, its investment activities are
subject to certain regulatory restrictions.
The Bank has the authority to acquire, hold and transact various types
of investment securities that are in accordance with applicable federal
regulations, state statutes and within the guidelines of the Bank's internal
investment policy. The types of investments that the Bank may invest in include
in general: interest-bearing deposits of federal insured banks, federal funds,
U.S. government treasuries and agencies including agency mortgage-backed
securities ("MBS") and collateralized mortgage obligations ("CMOs"), private
issue MBS and CMOs, municipal securities, corporate debt, commercial paper,
banker's acceptances, structured notes, MBS principal and interest strips, trust
preferred securities (investment grade only) and mutual funds and equities
subject to restrictions applicable to federally chartered institutions.
Investment types acquired by Webster and the Bank are subject to parameters set
by internal corporate investment policy that include limitations in regard to:
total dollar amount per issuer, aggregate exposure based on percentage of assets
and/or flat dollar amount and credit quality ratings. The corporation's
asset/liability management objectives also influence investment activities at
both the holding company and bank levels. The Bank is required to maintain
liquid assets at regulatory minimum levels which vary from time to time. The
Bank uses various investments as permitted by regulation for meeting its
liquidity requirement. See "Regulation" section within this report.
Webster, directly or through its bank subsidiary, maintains an
investment portfolio that is primarily structured to provide a source of
liquidity for operating demands, generate net interest income as well as provide
a means to balance interest rate sensitivity. In accordance with generally
accepted accounting principals, the investment portfolio is classified into
three major categories consisting of: held to maturity, available for sale and
trading securities. Consulting services as authorized by internal policy may be
retained to achieve optimal investment portfolio performance. Rated securities
purchased by the Bank are limited to the top three rating categories of a rating
service that is recognized by the Connecticut Banking Commissioner. Non-rated
securities and securities not rated in the top three categories held by Webster
are subject to review by the Board of Directors on a periodic basis. The pricing
services of an asset-backed securities group are used to value the Bank's
mortgage-backed securities, and other securities that cannot be priced through
this service are priced by Bloomberg, the Bank's primary safekeeping agent or by
Smith Breeden and Associates. Webster's and the Bank's investment portfolios are
priced on a monthly basis. The investment portfolios of Webster and the Bank are
reviewed periodically to identify any "permanent" impairment that is other than
temporary. Permanent impairments are handled as required by generally accepted
accounting principles and in conjunction with internal policy.
The Bank uses interest-rate financial instruments within internal
policy guidelines to hedge and manage interest-rate risk as part of its
asset/liability strategy. The Bank does not enter into speculative positions in
these instruments. See Note 10 to the Consolidated Financial Statements in the
1998 Annual Report to Shareholders incorporated herein by reference.
At December 31, 1998, the combined investment portfolios of Webster and
the Bank totaled $3.5 billion, with $3.3 billion and $148 million held by the
Bank and Webster, respectively. Webster's portfolio was all classified as
available for sale and consisted primarily of bank equities, mutual funds and
corporate trust securities. The Bank's portfolio consisted of primarily of
mortgage backed securities and other debt securities.
The investment portfolios of Webster and the Bank are managed by the
corporation's Treasury Department in accordance with established corporate
investment policy. A report on investment activities is presented to the Board
of Directors monthly. See Notes 3 and 10 to the Consolidated Financial
Statements in the 1998 Annual Report to Shareholders incorporated herein by
reference.
Trust Activities
The Bank, through its wholly-owned subsidiary trust company, Webster
Trust, manages the assets of and provides a comprehensive range of trust,
custody, estate and administrative services to individuals, small to medium size
companies and not-for-profit organizations (endowments and foundations). At
December 31, 1998, approximately $680 million in trust assets were under
management.
Additional information related to the trust company is included in the
MD&A and Notes to Consolidated Financial Statements contained in the 1998 Annual
Report to Shareholders incorporated herein by reference.
10
Insurance Activities
Webster, through its wholly-owned subsidiary, Damman, offers a full
range of insurance plans to both individuals and businesses. The insurance
subsidiary is a regional insurance brokerage with three operating divisions:
individual and family insurance, financial services, and business and
professional insurance.
Additional information, related to the subsidiary, is included in the
MD&A and Notes to Consolidated Financial Statements contained in the 1998 Annual
Report to Shareholders incorporated herein by reference.
Sources of Funds
Deposits, loan repayments, securities payments and maturities, as well
as earnings, are the primary sources of the Bank's funds for use in its lending
and investment activities. While scheduled loan repayments and securities
payments are a relatively stable source of funds, deposit flows and loan
prepayments are influenced by prevailing interest rates and local economic
conditions. The Bank also derives funds from Federal Home Loan Bank ("FHL Bank")
advances and other borrowings, as necessary, when the cost of these alternative
sources of funds are favorable.
Webster's main sources of liquidity are dividends from the Bank and net
proceeds from capital offerings and borrowings, while the main outflows are the
payments of dividends to common stockholders, capital securities expense and the
payment of interest to holders of Webster's 8 3/4% Senior Notes.
Webster attempts to control the flow of funds in its deposit accounts
according to its need for funds and the cost of alternative sources of funds.
Webster controls the flow of funds primarily by the pricing of deposits, which
is influenced to a large extent by competitive factors in its market area and
overall asset/liability management strategies.
Deposit Activities. Webster has developed a variety of innovative
deposit programs that are designed to meet depositors needs and attract both
short-term and long-term deposits from the general public. Webster's checking
account programs offer a full line of accounts with varying features that
include non-interest-bearing and interest-bearing account types. Webster's
savings account programs include statement and passbook accounts, money market
savings accounts, club accounts and certificate of deposit accounts that offer
short and long-term maturity options. Webster offers IRA savings and certificate
of deposit accounts that earn interest on a tax-deferred basis. Webster also
offers special rollover IRA accounts for individuals who have received lump-sum
distributions. Webster's checking and savings deposit accounts have several
features that include: ATM Card and Check Card use, direct deposit, combined
statements, 24 hour automated telephone banking services, bank by mail services
and overdraft protection. Deposit customers can access their accounts in a
variety of ways including ATMs, PC banking, telephone banking or by visiting a
nearby branch. Webster had $25.0 million of brokered certificate of deposit
accounts at December 31, 1998.
Webster receives retail and commercial deposits through its 100 full
service banking offices. Webster relies primarily on competitive pricing
policies and effective advertising to attract and retain deposits while
emphasizing the objectives of quality customer service and customer convenience.
The WebsterOne Account is a banking relationship that affords customers the
opportunity to avoid fees, receive free checks, earn premium rates on savings
and simplify their bookkeeping with one combined account statement that links
account balances. Webster's Check Card can be used at over twelve million Visa
merchants worldwide to pay for purchases with money in a linked checking
account. The Check Card also serves as an ATM Card for receiving cash, for
processing deposits and transfers, and to obtain account balances 24 hours per
day. Customer services also include ATM facilities that use state-of-the-art
technology with membership in NYCE and PLUS networks and provide 24 hour access
to linked accounts. The Bank's PC Banking service allows customers the ability
to transfer money between accounts, review statements, check balances and pay
bills through personal computer use. The Bank's First Call telephone banking
service provides automated customer access to account information 24 hours per
day, seven days per week and also to service representatives at certain
established hours. Customers can transfer account balances, process stop
payments and address changes, place check reorders, open deposit accounts,
inquire about account transactions and request general information about
Webster's products and services. Webster's services provide for automatic loan
payment features from its accounts as well as for direct deposit of Social
Security, payroll, and other retirement benefits.
Additional information concerning the deposits of Webster is included
in Note 7 of the Consolidated Financial Statements contained in the 1998 Annual
Report to Shareholders incorporated herein by reference.
11
The following table sets forth the deposit accounts of Webster in
dollar amounts and as percentages of total deposits at the dates indicated.
At December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ --------------------------- -----------------------
Weighted % of Weighted % of Weighted % of
average total average total average total
rate Amount deposits rate Amount deposits rate Amount deposits
(Dollars in thousands)
Balance by account type:
Demand deposits and NOW accounts 1.23% $1,070,814 18.9% 1.19% $ 948,589 16.6% 1.49% $ 865,631 14.9%
Regular savings and money market
deposit accounts 2.55 1,429,271 25.3 2.47 1,400,325 24.5 2.47 1,505,718 25.8
Time deposits 5.04 3,151,188 55.8 5.35 3,370,116 58.9 5.40 3,454,915 59.3
------------------------------ --------------------------- -----------------------
Total 3.69% $5,651,273 100.0% 3.86% $5,719,030 100.0% 3.97% $5,826,264 100.0%
============================== =========================== =======================
Borrowings. The FHL Bank system functions in a reserve credit capacity
for savings institutions and certain other home financing institutions. Members
of the FHLB system are required to own capital stock in the FHL Bank. Members
are authorized to apply for advances on the security of such stock and certain
home mortgages and other assets (principally securities which are obligations
of, or guaranteed by, the United States Government) provided certain
creditworthiness standards have been met. Under its current credit policies, the
FHL Bank limits advances based on a member's assets, total borrowings and net
worth.
The Bank uses long-term and short-term FHL Bank advances as a primary
source of funding to meet liquidity and planning needs when the cost of these
funds are reasonable as compared to alternate funding sources. At December 31,
1998, FHLB advances totaled $1.8 billion and represented 71% of total
outstanding borrowed funds.
Additional sources of funding through borrowing transactions were
available to the Bank through reverse repurchase agreements, purchased federal
funds and a line of credit with a correspondent bank. Webster, in general,
utilizes various lines of credit with correspondent banks when the need for
borrowed funds arises. Borrowings through reverse repurchase agreement
transactions are originated through the Bank's Funding and Money Desk
operations. Outstanding reverse repurchase agreement borrowings totaled $669.4
million at December 31, 1998 and represented approximately 26% of total
outstanding borrowed funds.
Additional information concerning FHL Bank advances, reverse repurchase
agreements and other borrowings is included in Notes 8 and 9 to the Consolidated
Financial Statements contained in the 1998 Annual Report to Shareholders
incorporated herein by reference.
Bank Subsidiaries
The Bank's direct investment in its service corporation subsidiary,
Webster Investment Services, Inc., totaled $786,000 at December 31, 1998. The
activities of the service corporation subsidiary consisted primarily of the
selling of mutual funds and annuities through a third party provider. The
service corporation receives a portion of the sales commissions generated and
rental income for the office space leased to the provider.
The Bank's direct investment in its trust subsidiary corporation,
Webster Trust, totaled $9.1 million at December 31, 1998. The trust had
approximately $680.0 million in trust assets under management at December 31,
1998.
The Bank's direct investment in its operating subsidiary corporation,
FCB Properties, Inc., totaled $1.9 million at December 31, 1998. The primary
function of this operating subsidiary is the disposal of foreclosed properties.
The Bank's direct investment in its real estate investment trust
("REIT") operating subsidiary corporation, Webster Preferred Capital
Corporation, totaled $920.1 million at December 31, 1998. The primary function
of the REIT is to provide a cost effective means of raising funds, including
capital, on a consolidated basis for the Bank. The REIT's strategy is to
acquire, hold and manage real estate mortgage assets.
Employees
At December 31, 1998, Webster had 1,864 employees (including 342
part-time employees), none of whom were represented by a collective bargaining
group. Webster maintains a comprehensive employee benefit program providing,
among other benefits, group medical and dental insurance, life insurance,
disability insurance, a pension plan, an employee investment plan and an
employee stock ownership plan. Management considers Webster's relations with its
employees to be good.
Market Area and Competition
The Bank is headquartered in Waterbury, Connecticut (New Haven County)
and conducts business from its home office in downtown Waterbury and 100 branch
offices in Waterbury, Ansonia, Bethany, Branford, Cheshire, Derby, East Haven,
Hamden, Madison, Milford, Naugatuck, New Haven, North Haven, Orange, Oxford,
Prospect, Seymour, Southbury Wallingford and West Haven (New Haven County);
Torrington, Watertown and Winsted (Litchfield County); Fairfield, Shelton,
Stratford and Trumbull (Fairfield County); Avon, Berlin, Bloomfield, Bristol,
Canton, East Hartford, East Windsor, Enfield, Farmington, Forestville,
Glastonbury, Hartford, Kensington, Meriden, New Britain, Newington, Plainville,
Rocky Hill, Simsbury, Southington, Suffield, Terryville, West Hartford,
Wethersfield, Windsor and Windsor Locks (Hartford County); and Cromwell and
Middletown (Middlesex County). Waterbury is approximately 30 miles southwest of
Hartford and is located on Route 8 midway between Torrington and the New Haven
and Bridgeport metropolitan areas. Most of the Bank's depositors live, and most
of the properties securing its mortgage loans are located, in the same area or
the adjoining counties. The Bank's market area has a diversified economy with
13
the workforce employed primarily in manufacturing, financial services, health
care, industrial and technology companies.
The Bank faces substantial competition for deposits and loans
throughout its market areas. The primary factors stressed by the Bank in
competing for deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations, automated
services and office hours. Competition for deposits comes primarily from other
savings institutions, commercial banks, credit unions, mutual funds and other
investment alternatives. The primary factors in competing for loans are interest
rates, loan origination fees, the quality and range of lending services and
personalized service. Competition for origination of first mortgage loans comes
primarily from other savings institutions, mortgage banking firms, mortgage
brokers, commercial banks and insurance companies. The Bank faces competition
for deposits and loans throughout its market area not only from local
institutions but also from out-of-state financial institutions which have opened
loan production offices or which solicit deposits in its market area.
Webster has trust offices located in the towns of Greenwich and
Kensington. The trust company manages the assets of and provides a comprehensive
range of trust, custody, estate and administrative services to individuals,
small to medium size companies and non-profit organizations.
Regulation
Webster, as a savings and loan holding company, and Webster Bank, as a
federally chartered savings bank, are subject to extensive regulation,
supervision and examination by the OTS as their primary federal regulator.
Webster Bank is also subject to regulation, supervision and examination by the
FDIC and as to certain matters by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). See MD&A and Notes to Consolidated
Financial Statements, incorporated herein by reference in the 1998 Annual Report
to Shareholders, as to the impact of certain laws, rules and regulations on the
operations of the Corporation and Webster Bank. Set forth below is a description
of certain regulatory developments.
Legislation was enacted in September 1996 to address the
undercapitalization of the SAIF of the FDIC (the "SAIF Recapitalization
Legislation"). The SAIF Recapitalization Legislation, in addition to providing
for a special assessment to recapitalize the insurance fund, also contemplated
the merger of the SAIF with the BIF, of which Webster Bank is a member, and
which generally insures deposits in national and state-chartered banks. As a
condition to the combined insurance fund, however, no insured depository
institution can be chartered as a savings association (such as Webster Bank).
Several proposals for abolishing the federal thrift charter have been introduced
in Congress to address financial services modernization. If legislation is
passed abolishing the federal thrift charter, Webster Bank may be required to
convert its federal charter to either a new federal type of bank charter or
state depository institution charter. Such future legislation also may result in
the Corporation becoming regulated as a bank holding company by the Federal
Reserve Board rather than a savings and loan holding company regulated by the
OTS. Regulation by the Federal Reserve Board could subject the Corporation to
capital requirements that are not currently applicable to the Corporation as a
holding company under OTS regulation and may result in statutory limitations on
the type of business activities in which the Corporation may engage at the
holding company level, which business activities currently are not restricted.
The Corporation and Webster Bank are unable to predict whether such legislation
will be enacted.
Webster Bank is subject to substantial regulatory restrictions on its
ability to pay dividends to Webster. Under OTS capital distribution regulations
that became effective in early 1999, as long as Webster Bank meets the OTS
capital requirements before and after the payment of dividends, Webster Bank may
pay dividends to Webster, without prior OTS approval, equal to the net income to
date over the calendar year, plus retained net income over the preceding two
years. In addition, the OTS has discretion to prohibit any otherwise permitted
capital distribution on general safety and soundness grounds, and must be given
30 days' advance notice of all capital distributions, during which time it may
object to any proposed distribution.
Taxation
Federal. Webster, on behalf of itself and its subsidiaries, files a
calendar tax year consolidated federal income tax return, except for the Bank's
REIT Subsidiary, which files a stand alone return. Webster and its subsidiaries
report their income and expenses using the accrual method of accounting. 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 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
14
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. At December 31, 1998, Webster had pre-1988 reserves of approximately
$41.0 million.
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. For tax years
beginning after 1986, a savings institution must pay an alternative minimum tax
equal to the amount (if any) by which 20% of alternative minimum taxable income
("AMTI"), as reduced by an exemption varying with AMTI, exceeds the regular tax
due. AMTI equals regular taxable income increased or decreased by certain
adjustments and increased by certain tax preferences, including depreciation
deductions in excess of those allowable for alternative minimum tax purposes,
tax-exempt interest on most private activity bonds issued after August 7, 1986
(reduced by any related interest expense disallowed for regular tax purposes),
the amount of the bad debt reserve deduction claimed in excess of the deduction
based on the experience method and, for tax years after 1989, 75% of the excess
of adjusted current earnings over AMTI. AMTI may be reduced only up to 90% by
net operating loss carryovers, but the payment of alternative minimum tax will
give rise to a minimum tax credit which will be available with an indefinite
carryforward period, to reduce federal income taxes of the institution in future
years (but not below the level of alternative minimum tax arising in each of the
carryforward years).
Webster's federal income tax returns have been examined by the Internal
Revenue Service for tax years through 1993.
State. State income taxation is in accordance with the corporate income
tax laws of the State of Connecticut and other states on an apportioned basis.
For the State of Connecticut, the Bank and its subsidiaries, exclusive of the
REIT subsidiary, are required to pay taxes under the larger of two methods but
no less than the minimum tax of $250 per entity. Method one is 9.50% (scheduled
to decrease to 7.5% by 2000) of the year's taxable income (which, with certain
exceptions, is equal to taxable income for federal purposes) or method two
(additional tax on capital), an amount equal to 3 and 1/10 mills per dollar on
its average capital and a special rule for banks to calculate its additional tax
base is an amount equal to 4% of the amount of interest or dividends credited by
the Bank on savings accounts of depositors or account holders during the
preceding taxable year, provided that, in determining such amount, interest or
dividends credited to the savings account of a depositor or account holder are
deemed to be the lesser of the actual interest or dividends credited or the
interest or dividend that would have been credited if it had been computed and
credited at the rate of one-eighth of 1% per annum.
Item 2. Properties
At December 31, 1998, Webster had 32 banking offices in New Haven
County, 53 banking offices in Hartford County, 6 banking offices in Fairfield
County, 7 banking offices in Litchfield County and 2 banking offices in
Middlesex County. Of these, 55 offices are owned and 45 offices are leased.
Lease expiration dates range from 1 to 22 years with renewal options of 3 to 35
years. Additionally, the Bank maintains two trust offices: one in Fairfield
County and one in Hartford County.
The total net book value of properties and furniture and fixtures owned
and used for banking offices at December 31, 1998 was $72.3 million, which
includes the aggregate net book value of leasehold improvements on properties
used for offices of $2.3 million at that date.
Item 3. Legal Proceedings
At December 31, 1998, there were no material pending legal
proceedings, other than ordinary routine litigation incidental to the business,
to which Webster or any of its subsidiaries was a party or of which any of their
property was the subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of Webster is traded over-the-counter on the Nasdaq
National Market System under the symbol "WBST."
The following table shows dividends declared and the market price per
share by quarter for 1998 and 1997. Webster increased its quarterly dividend to
$.11 per share in 1998.
Common Stock (Per Share)
Cash
Dividends Market Price End of
1998 Declared Low High Period
- - -------------------------------------------------------------------
Fourth $ .11 $ 18 7/8 $ 28 1/8 $27 7/16
Third .11 20 5/8 34 5/8 24 3/8
Second .11 31 7/16 36 1/4 33 1/4
First .11 28 9/16 35 34 3/4
Common Stock (Per Share)
Cash
Dividends Market Price End of
1998 Declared Low High Period
- - ----------------------------------------------------------------
Fourth $ .10 $ 28 1/2 $33 7/8 $33 1/4
Third .10 21 11/16 29 7/8 29 3/8
Second .10 17 5/16 22 7/8 22 3/4
First .10 17 9/16 20 11/16 17 9/16
Payment of dividends from Webster Bank to Webster is subject to certain
regulatory and other restrictions. Payment of dividends by Webster on its stock
is subject to various restrictions, none of which is expected to limit any
dividend policy which the Board of Directors may in the future decide to adopt.
Under Delaware law, Webster may pay dividends out of surplus or, in the event
there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Dividends may not be paid
out of net profits, however, if the capital of Webster has been diminished to an
amount less than the aggregate amount of capital represented by all classes of
issued and outstanding preferred stock.
Other Events
The annual meeting of shareholders of Webster will be held on April 22,
1999.
See pages 65 and 66 of the 1998 Annual Report to Shareholders, which pages are
incorporated herein by reference for additional information concerning Webster's
annual meeting and common stock.
16
Item 6. Selected Financial Data
(Dollars in thousands, except share data) AT OR FOR THE YEAR ENDED DECEMBER 31,
------------- ------------- ------------- ------------ -------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------ -------------
STATEMENT OF CONDITION DATA
Total assets $ 9,033,917 $9,095,887 $7,368,941 $6,479,567 $6,114,613
Loans receivable, net 4,993,509 4,995,851 4,813,553 4,082,564 4,145,335
Securities 3,462,090 3,589,273 2,105,173 2,000,185 1,558,401
Intangible assets 78,380 78,493 81,936 26,720 31,093
Deposits 5,651,273 5,719,030 5,826,264 5,060,822 5,044,336
Shareholders' equity 554,879 517,262 472,824 460,791 364,112
OPERATING DATA
Net interest income $ 245,435 $ 251,050 $ 222,118 $ 188,646 $ 182,100
Provision for loan losses 6,800 24,813 13,054 9,864 7,149
Noninterest income 74,163 42,264 52,009 33,316 21,378
Noninterest expenses:
Acquisition-related expenses 17,400 29,792 500 4,271 700
Other noninterest expenses 180,389 171,871 173,977 142,592 140,260
------------- ------------ ------------- ------------- -------------
Total noninterest expenses 197,789 201,663 174,477 146,863 140,960
------------- ------------ ------------- ------------- -------------
Income before income taxes 115,009 66,838 86,596 65,235 55,369
Income taxes 44,544 25,725 32,602 23,868 17,861
------------- ------------ ------------- ------------- -------------
NET INCOME 70,465 41,113 53,994 41,367 37,508
Preferred stock dividends -- -- 1,149 1,296 1,716
------------- ------------ ------------- ------------- -------------
Income available to common shareholders $ 70,465 $ 41,113 $ 52,845 $ 40,071 $ 35,792
============= ============ ============= ============= =============
SIGNIFICANT STATISTICAL DATA
Interest-rate spread 2.64% 3.00% 3.12% 2.98% 3.23%
Net interest margin 2.81% 3.19% 3.24% 3.14% 3.36%
Return on average shareholders' equity 13.16% 8.44% 11.32% 10.05% 10.52%
Return on average assets .76% .50% .75% .66% .65%
Net income per common share
Basic 1.86 1.10 1.44 1.18 1.16
Diluted 1.83 1.07 1.36 1.12 1.09
Dividends declared per common share 0.44 0.40 0.34 0.32 0.26
Dividend payout ratio 24.04% 37.38% 25.00% 28.57% 23.85%
Noninterest expenses to average assets 2.13% 2.45% 2.42% 2.34% 2.45%
Noninterest expenses to average assets,
adjusted (a) 1.73% 1.90% 2.34% 2.15% 2.23%
Diluted weighted average shares 38,571 38,473 39,560 36,797 34,533
Book value per common share $ 14.87 13.78 12.73 12.24 10.96
Tangible book value per common share $ 12.77 11.69 10.48 11.50 9.98
Shareholders' equity to total assets 6.14% 5.69% 6.42% 7.11% 5.95%
- - ----------------
(a) Noninterest expenses excluding foreclosed property, acquisition related,
non-recurring tax, capital securities and preferred dividends subsidiary
corporation expenses divided by average assets.
All per share data and the number of outstanding shares of common stock have
been adjusted retroactively to give effect to a stock dividend and a stock split
effected in the form of a stock dividend.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Management's Discussion and Analysis of Financial Condition & Results
of Operations" on Pages 21 to 31 of the Corporation's 1998 Annual Report to
Shareholders is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The required information is incorporated herein by reference from pages 24 to 25
of the Corporation's 1998 Annual Report to Shareholders.
17
Item 8. Financial Statements and Supplementary Data
The required information is incorporated herein by reference from Pages
32 to 64 of the Corporation's 1998 Annual Report to Shareholders.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the directors and executive officers of the
Corporation is omitted from this report as the Corporation has filed its
definitive proxy statement within 120 days after the end of the fiscal year
covered by this Report, and the information included therein is incorporated
herein by reference.
Item 11. Executive Compensation
Information regarding compensation of executive officers and directors
is omitted from this Report as the Corporation has filed a definitive proxy
statement within 120 days after the end of the fiscal year covered by this
Report, and the information included therein (excluding the Personnel Resources
Committee Report on Executive Compensation and the Comparative Company
Performance information) is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is omitted from this Report as the
Corporation has filed a definitive proxy statement within 120 days after the end
of the fiscal year covered by this Report, and the information included therein
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
omitted from this Report as the Corporation has filed a definitive proxy
statement within 120 days after the end of the fiscal year covered by this
Report, and the information included therein is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following Consolidated Financial Statements of the
Registrant and its subsidiaries included in its Annual Report to Shareholders
for the year ended December 31, 1998, are incorporated herein by reference in
Item 8. The remaining information appearing in the Annual Report to Shareholders
is not deemed to be filed as part of this Report, except as expressly provided
herein.
Consolidated Statements of Condition - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended December 31, 1998, 1997
and 1996
Consolidated Statements of Shareholders' Equity - Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income - Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
18
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits are either filed as part of this Report
or are incorporated herein by reference; references to First Federal Bank now
mean Webster Bank:
Exhibit
No. Exhibit Description
- - --- -------------------
Exhibit No. 2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
2.1 Agreement and Plan of Merger, dated as of
November 3, 1998, by and among Webster Financial
Corporation (the "Corporation"), Webster Bank and
Maritime Bank & Trust Company (filed as Exhibit
2.1 to the Corporation's Registration Statement
on Form S-4 (File No. 333-71141) filed with the
Securities and Exchange Commission (the "SEC") on
January 25, 1999 and incorporated herein by
reference).
2.2 Option Agreement, dated November 3, 1999, between
Maritime Bank & Trust Company and the Corporation
(filed as Exhibit 2.2 to the Corporation's
Registration Statement on Form S-4 (File No.
333-71141) filed with the SEC on January 25, 1999
and incorporated herein by reference).
2.3 Agreement and Plan of Merger, dated as of
November 11, 1998, by and between the Corporation
and Village Bancorp, Inc. (filed as Exhibit 2.1
to the Corporation's Registration Statement on
Form S-4 (File No. 333-71983) filed with the SEC
on February 8, 1999 and incorporated herein by
reference).
2.4 Option Agreement, dated November 11, 1999,
between Village Bancorp, Inc. and the Corporation
(filed as Exhibit 2.2 to the Corporation's
Registration Statement on Form S-4 (File No.
333-71983) filed with the SEC on February 8, 1999
and incorporated herein by reference).
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.1 Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996 and incorporated herein by reference).
3.2 Certificate of Amendment of Restated Certificate
of Incorporation (filed as Exhibit 3.2 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and
incorporated herein by reference).
3.3 Certificate of Designation of the Series C
Participating Preferred Stock (filed as Exhibit
3.5 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
3.4 Certificate of Amendment to the Restated
Certificate of Incorporation (filed as Exhibit
3.6 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
3.5 Certificate of Amendment to Restated Certificate
of Incorporation (text of amendment filed as part
of the Corporation's Current Report on Form 8-K
filed with the SEC on April 30, 1998 and
incorporated herein by reference).
3.6 Bylaws, as amended (filed as Exhibit 3 to the
Corporation's Quarterly Report on Form 10-Q filed
with the SEC on May 15, 1998 and incorporated
herein by reference).
Exhibit No. 4 Instruments Defining the Rights of Security Holders.
4.1 Rights Agreement, dated as of February 5, 1996,
between the Corporation and Chemical Mellon
Shareholder Services, L.L.C. (filed as Exhibit 1
to the Corporation's Current Report on Form 8-K
filed with the SEC on February 12, 1996 and
incorporated herein by reference).
4.2 Amendment No. 1 to Rights Agreement, entered into
as of November 4, 1996, by and between the
Corporation and ChaseMellon Shareholder Services,
L.L.C. (filed as an exhibit to the Corporation's
Current Report on Form 8-K filed with the SEC on
November 25, 1996 and incorporated herein by
reference).
4.3 Amendment No. 2 to Rights Agreement, entered into
as of October 30, 1998, between the Corporation
and American Stock Transfer & Trust Company
(filed as Exhibit 1 to the Corporation's Current
Report on Form 8-K filed with the SEC on October
30, 1998 and incorporated herein by reference).
Exhibit No. 10. Material Contracts.
10.1 1986 Stock Option Plan of Webster Financial
Corporation (filed as Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986 and
incorporated herein by reference).
10.2 1992 Stock Option Plan of Webster Financial
Corporation (filed as Exhibit 10.2 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.3 Amendment to [1992] Stock Option Plan.
10.4 Amendment No. 1 to 1992 Stock Option Plan (filed
as Exhibit 10.3 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by
reference).
10.5 Amendment No. 2 to 1992 Stock Option Plan (filed
as Exhibit 10.4 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by
reference).
10.6 Amendment No. 3 to 1992 Stock Option Plan (filed
as Exhibit 10.1 to the Corporation's Quarterly
Report on Form 10-Q filed with the SEC on August
14, 1998 and incorporated herein by reference).
10.7 Amendment No. 4 to 1992 Stock Option Plan.
10.8 Short-Term Incentive Compensation Plan (filed as
Exhibit 10.4 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.9 Economic Value Added Incentive Plan (the
description of the plan in the last paragraph
that begins on page 15 of the Corporation's
definitive proxy materials for the 1999 Annual
Meeting of Shareholders is incorporated herein by
reference).
10.10 Performance Incentive Plan (filed as Exhibit A to
the Corporation's definitive proxy materials for
the Corporation's 1996 Annual Meeting of
Shareholders and incorporated herein by
reference).
10.11 Amendent to Webster Financial Corporation
Performance Incentive Plan as amended and
restated effective January 1, 1996.
10.12 Amended and Restated Deferred Compensation Plan
for Directors and Officers.
10.13 First Amended and Restated Directors Retainer
Fees Plan (filed as Exhibit 10.3 to the
Corporation's Quarterly Report on Form 10-Q filed
with the SEC on August 14, 1998 and incorporated
herein by reference).
10.14 Supplemental Retirement Plan for Employees of
First Federal Bank, as amended and restated
effective as of October 1, 1994 (filed as Exhibit
10.26 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
10.15 Amendment No. 1 to the Supplemental Retirement
Plan for Employees of First Federal Bank.
10.16 Amendment No. 2 to the Supplemental Retirement
Plan for Employees of First Federal Bank.
10.17 Amendment No. 3 to the Supplemental Retirement
Plan for Employees of Webster Bank.
10.18 Qualified Performance-Based Compensation Plan
(filed as Exhibit A to the Corporation's
definitive proxy materials for the Corporation's
1998 Annual Meeting of Shareholders and
incorporated herein by reference).
10.19 Employment Agreement, dated as of January 1,
1998, among James C. Smith, the Corporation and
Webster Bank (filed as Exhibit 10.27 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule
10.27 to that Exhibit 10.27 for a list of other
executive officers of the Corporation and Webster
Bank who have an Employment Agreement
substantially identical in all material respects
to the Employment
Agreement of Mr. Smith, except as to the name of
the executive who is a party to the agreement and
as otherwise indicated on Schedule 10.27).
10.20 Amendment To Employment Agreement, entered into
as of March 17, 1998, by and among Webster Bank,
the Corporation and James C. Smith (filed as
Exhibit 10.28 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference;
see Schedule 10.28 to that Exhibit 10.28 for a
list of other executive officers of the
Corporation and Webster Bank who have an
Amendment To Employment Agreement substantially
identical in all material respects to the
Amendment To Employment Agreement of Mr. Smith,
except as to the name of the executive who is a
party to the agreement).
10.21 Change of Control Employment Agreement, dated as
of December 15, 1997, by and between the
Corporation and James C. Smith (filed as Exhibit
10.29 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997
and incorporated herein by reference; see
Schedule 10.29 to that Exhibit 10.29 for a list
of other executive officers of the Corporation
who have a Change of Control Employment Agreement
substantially identical in all material respects
to the Change of Control Employment Agreement of
Mr. Smith, except as to the name of the executive
who is a party to the agreement).
10.22 Purchase and Assumption Agreement among the
Federal Deposit Insurance Corporation (the
"FDIC", in its corporate capacity as receiver of)
First Constitution Bank, the FDIC and First
Federal Bank, and the dated as of October 2, 1992
(filed as Exhibit 2 to the Corporation's Current
Report on Form 8-K filed with the SEC on October
19, 1992 and incorporated herein by reference).
10.23 Amendment No. 1 to Purchase and Assumption
Agreement, made as of August 8, 1994, by and
between the FDIC, the FDIC as receiver of First
Constitution Bank and First Federal Bank(filed as
Exhibit 10.36 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.24 Indenture, dated as of June 15, 1993, between the
Corporation and Chemical Bank, as trustee,
relating to the Corporation's 8 3/4% Senior
Notes due 2000(filed as Exhibit 99.5 to the
Corporation's Current Report on Form 8-K/A filed
with the SEC on November 10, 1993and incorporated
herein by reference).
10.25 Junior Subordinated Indenture, dated as of
January 29, 1997 between the Corporation and The
Bank of New York as trustee, relating to the
Corporation's Junior Subordinated Deferrable
Interest Debentures (filed as Exhibit 10.41 to
the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and
incorporated herein by reference).
Exhibit No. 13. Portions of 1998 Annual Report to Shareholders.
Exhibit No. 21. Subsidiaries.
Exhibit No. 23 Consent of KPMG LLP.
Exhibit No. 27 Financial Data Schedule.
(b) The following Current Reports on Form 8-K were filed by the
Registrant during the last quarter of the fiscal year 1998.
(i) Current Report on Form 8-K filed with the SEC on October 30,
1998 (date of report October 30, 1998) (attaching Amendment
No. 2 to Rights Agreement).
(ii) Current Report on Form 8-K filed with the SEC on November
23, 1998 (date of report November 3, 1998) (regarding the
announcement of Webster's proposed acquisition of Maritime
Bank & Trust Company and Village Bancorp, Inc.).
(c) Exhibits to this Form 10-K are attached or incorporated herein by
reference as stated above.
(d) Not applicable.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of March 31, 1999.
WEBSTER FINANCIAL CORPORATION
By /s/ James C. Smith
----------------------------------
James C. Smith
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 31, 1999.
Name: Title:
/s/ James C. Smith
- - ------------------------------ Chairman and Chief Executive Officer
James C. Smith (Principal Executive Officer)
/s/ John V. Brennan
- - ------------------------------ Executive Vice President, Chief Financial
John V. Brennan Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Richard H. Alden
- - ------------------------------- Director
Richard H. Alden
/s/ Achille A. Apicella
- - ------------------------------- Director
Achille A. Apicella
/s/ Joel S. Becker
- - ------------------------------- Director
Joel S. Becker
/s/ O. Joseph Bizzozero, Jr.
- - -------------------------------- Director
O. Joseph Bizzozero, Jr.
/s/ George T. Carpenter
- - -------------------------------- Director
George T. Carpenter
/s/ John J. Crawford
- - -------------------------------- Director
John J. Crawford
20
/s/ Harry P. DiAdamo, Jr
- - ------------------------------
Harry P. DiAdamo, Jr. Director
/s/ Robert A. Finkenzeller
- - ---------------------------------
Robert A. Finkenzeller Director
/s/ Walter R. Griffin
- - ---------------------------------
Walter R. Griffin Director
/s/ J. Gregory Hickey
- - ---------------------------------
J. Gregory Hickey Director
/s/ C. Michael Jacobi
- - --------------------------------
C. Michael Jacobi Director
/s/ John F. McCarthy
- - --------------------------------
John F. McCarthy Director
- - ---------------------------------
Sister Marguerite Waite Director
21
EXHIBIT INDEX
Exhibit
No. Exhibit Description
- - --- -------------------
Exhibit No. 2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
2.1 Agreement and Plan of Merger, dated as of
November 3, 1998, by and among Webster Financial
Corporation (the "Corporation"), Webster Bank and
Maritime Bank & Trust Company (filed as Exhibit
2.1 to the Corporation's Registration Statement
on Form S-4 (File No. 333-71141) filed with the
Securities and Exchange Commission (the "SEC") on
January 25, 1999 and incorporated herein by
reference).
2.2 Option Agreement, dated November 3, 1999, between
Maritime Bank & Trust Company and the Corporation
(filed as Exhibit 2.2 to the Corporation's
Registration Statement on Form S-4 (File No.
333-71141) filed with the SEC on January 25, 1999
and incorporated herein by reference).
2.3 Agreement and Plan of Merger, dated as of
November 11, 1998, by and between the Corporation
and Village Bancorp, Inc. (filed as Exhibit 2.1
to the Corporation's Registration Statement on
Form S-4 (File No. 333-71983) filed with the SEC
on February 8, 1999 and incorporated herein by
reference).
2.4 Option Agreement, dated November 11, 1999,
between Village Bancorp, Inc. and the Corporation
(filed as Exhibit 2.2 to the Corporation's
Registration Statement on Form S-4 (File No.
333-71983) filed with the SEC on February 8, 1999
and incorporated herein by reference).
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.1 Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996 and incorporated herein by reference).
3.2 Certificate of Amendment of Restated Certificate
of Incorporation (filed as Exhibit 3.2 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and
incorporated herein by reference).
3.3 Certificate of Designation of the Series C
Participating Preferred Stock (filed as Exhibit
3.5 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
3.4 Certificate of Amendment to the Restated
Certificate of Incorporation (filed as Exhibit
3.6 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
3.5 Certificate of Amendment to Restated Certificate
of Incorporation (text of amendment filed as part
of the Corporation's Current Report on Form 8-K
filed with the SEC on April 30, 1998 and
incorporated herein by reference).
3.6 Bylaws, as amended (filed as Exhibit 3 to the
Corporation's Quarterly Report on Form 10-Q filed
with the SEC on May 15, 1998 and incorporated
herein by reference).
Exhibit No. 4 Instruments Defining the Rights of Security Holders.
4.1 Rights Agreement, dated as of February 5, 1996,
between the Corporation and Chemical Mellon
Shareholder Services, L.L.C. (filed as Exhibit 1
to the Corporation's Current Report on Form 8-K
filed with the SEC on February 12, 1996 and
incorporated herein by reference).
4.2 Amendment No. 1 to Rights Agreement, entered into
as of November 4, 1996, by and between the
Corporation and ChaseMellon Shareholder Services,
L.L.C. (filed as an exhibit to the Corporation's
Current Report on Form 8-K filed with the SEC on
November 25, 1996 and incorporated herein by
reference).
4.3 Amendment No. 2 to Rights Agreement, entered into
as of October 30, 1998, between the Corporation
and American Stock Transfer & Trust Company
(filed as Exhibit 1 to the Corporation's Current
Report on Form 8-K filed with the SEC on October
30, 1998 and incorporated herein by reference).
Exhibit No. 10. Material Contracts.
10.1 1986 Stock Option Plan of Webster Financial
Corporation (filed as Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986 and
incorporated herein by reference).
10.2 1992 Stock Option Plan of Webster Financial
Corporation (filed as Exhibit 10.2 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.3 Amendment to [1992] Stock Option Plan.
10.4 Amendment No. 1 to 1992 Stock Option Plan (filed
as Exhibit 10.3 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by
reference).
10.5 Amendment No. 2 to 1992 Stock Option Plan (filed
as Exhibit 10.4 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by
reference).
10.6 Amendment No. 3 to 1992 Stock Option Plan (filed
as Exhibit 10.1 to the Corporation's Quarterly
Report on Form 10-Q filed with the SEC on August
14, 1998 and incorporated herein by reference).
10.7 Amendment No. 4 to 1992 Stock Option Plan.
10.8 Short-Term Incentive Compensation Plan (filed as
Exhibit 10.4 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.9 Economic Value Added Incentive Plan (the
description of the plan in the last paragraph
that begins on page 15 of the Corporation's
definitive proxy materials for the 1999 Annual
Meeting of Shareholders is incorporated herein by
reference).
10.10 Performance Incentive Plan (filed as Exhibit A to
the Corporation's definitive proxy materials for
the Corporation's 1996 Annual Meeting of
Shareholders and incorporated herein by
reference).
10.11 Amendent to Webster Financial Corporation
Performance Incentive Plan as amended and
restated effective January 1, 1996.
10.12 Amended and Restated Deferred Compensation Plan
for Directors and Officers.
10.13 First Amended and Restated Directors Retainer
Fees Plan (filed as Exhibit 10.3 to the
Corporation's Quarterly Report on Form 10-Q filed
with the SEC on August 14, 1998 and incorporated
herein by reference).
10.14 Supplemental Retirement Plan for Employees of
First Federal Bank, as amended and restated
effective as of October 1, 1994 (filed as Exhibit
10.26 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
10.15 Amendment No. 1 to the Supplemental Retirement
Plan for Employees of First Federal Bank.
10.16 Amendment No. 2 to the Supplemental Retirement
Plan for Employees of First Federal Bank.
10.17 Amendment No. 3 to the Supplemental Retirement
Plan for Employees of Webster Bank.
10.18 Qualified Performance-Based Compensation Plan
(filed as Exhibit A to the Corporation's
definitive proxy materials for the Corporation's
1998 Annual Meeting of Shareholders and
incorporated herein by reference).
10.19 Employment Agreement, dated as of January 1,
1998, among James C. Smith, the Corporation and
Webster Bank (filed as Exhibit 10.27 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule
10.27 to that Exhibit 10.27 for a list of other
executive officers of the Corporation and Webster
Bank who have an Employment Agreement
substantially identical in all material respects
to the Employment
Agreement of Mr. Smith, except as to the name of
the executive who is a party to the agreement and
as otherwise indicated on Schedule 10.27).
10.20 Amendment To Employment Agreement, entered into
as of March 17, 1998, by and among Webster Bank,
the Corporation and James C. Smith (filed as
Exhibit 10.28 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference;
see Schedule 10.28 to that Exhibit 10.28 for a
list of other executive officers of the
Corporation and Webster Bank who have an
Amendment To Employment Agreement substantially
identical in all material respects to the
Amendment To Employment Agreement of Mr. Smith,
except as to the name of the executive who is a
party to the agreement).
10.21 Change of Control Employment Agreement, dated as
of December 15, 1997, by and between the
Corporation and James C. Smith (filed as Exhibit
10.29 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997
and incorporated herein by reference; see
Schedule 10.29 to that Exhibit 10.29 for a list
of other executive officers of the Corporation
who have a Change of Control Employment Agreement
substantially identical in all material respects
to the Change of Control Employment Agreement of
Mr. Smith, except as to the name of the executive
who is a party to the agreement).
10.22 Purchase and Assumption Agreement among the
Federal Deposit Insurance Corporation (the, in
its corporate capacity as receiver of "FDIC")
First Constitution Bank, the FDIC and First
Federal Bank, and the dated as of October 2, 1992
(filed as Exhibit 2 to the Corporation's Current
Report on Form 8-K filed with the SEC on October
19, 1992 and incorporated herein by reference).
10.23 Amendment No. 1 to Purchase and Assumption
Agreement, made as of August 8, 1994, by and
between the FDIC, the FDIC as receiver of First
Constitution Bank and First Federal Bank(filed as
Exhibit 10.36 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.24 Indenture, dated as of June 15, 1993, between the
Corporation and Chemical Bank, as trustee,
relating to the Corporation's 8 3/4% Senior
Notes due 2000 (filed as Exhibit 99.5 to the
Corporation's Current Report on Form 8-K/A filed
with the SEC on November 10, 1993and incorporated
herein by reference).
10.25 Junior Subordinated Indenture, dated as of
January 29, 1997 between the Corporation and The
Bank of New York as trustee, relating to the
Corporation's Junior Subordinated Deferrable
Interest Debentures (filed as Exhibit 10.41 to
the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and
incorporated herein by reference).
Exhibit No. 13. Portions of 1998 Annual Report to Shareholders.
Exhibit No. 21. Subsidiaries.
Exhibit No. 23. Consent of KPMG LLP.
Exhibit No. 27. Financial Data Schedule.
* References herein to First Federal Bank now mean Webster Bank.