<PAGE>
As filed with the Securities and Exchange Commission on November 21, 1995.
Registration No. 33-63967
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEBSTER FINANCIAL CORPORATION
(Exact name of Registrant as specified in its governing instrument)
Delaware 06-1187536
(State of Incorporation) (I.R.S. Employer Identification No.)
------------------------
Webster Plaza
145 Bank Street
Waterbury, Connecticut 06702
(203) 753-2921
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
John V. Brennan
Executive Vice President
Webster Plaza
145 Bank Street
Waterbury, Connecticut 06702
(203) 753-2921
(Name and address, including zip code, and telephone number, including area
code, of Agent for Service)
------------------------
Copies of communications to:
Charles E. Allen, Esq. Kenneth T. Cote, Esq.
Hogan & Hartson L.L.P. Brown & Wood
555 Thirteenth Street, N.W. One World Trade Center
Washington, D.C. 20004 New York, New York 10048
(202) 637-5600 (212) 839-5300
------------------------
Approximate date of commencement of the proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number the earlier effective statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 21, 1995
PROSPECTUS
1,100,000 Shares
Webster Financial Corporation
Common Stock
All 1,100,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Webster
Financial Corporation ("Webster"). The Common Stock is quoted on the Nasdaq
National Market ("NASDAQ") under the symbol "WBST." On November 20, 1995, the
last reported sale price of the Common Stock on NASDAQ was $25 3/8 per share.
See "RISK FACTORS" at page 10 of this Prospectus for certain
considerations relevant to an investment in the Common Stock.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), ANY STATE SECURITIES COMMISSION, THE OFFICE OF
THRIFT SUPERVISION ("OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR THE CONNECTICUT COMMISSIONER OF BANKING ("COMMISSIONER"),
NOR HAS THE SEC, ANY STATE SECURITIES COMMISSION, THE OTS, THE FDIC
OR THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION,
AND ARE NOT INSURED BY THE FDIC, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY
OTHER GOVERNMENTAL AGENCY.
==============================================================================
Price to Public Underwriting Proceeds to
Discounts (1) Webster (2)
- ------------------------------------------------------------------------------
Per Share .. $ $ $
- ------------------------------------------------------------------------------
Total (3) .. $ $ $
==============================================================================
(1) Webster has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"UNDERWRITING."
(2) Before deducting expenses payable by Webster estimated at $225,000.
(3) Webster has granted the Underwriters an option to purchase up to an
additional 165,000 shares of Common Stock to cover overallotments, if any.
If all of such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Webster will be increased to $ , $
and $ , respectively. See "UNDERWRITING."
--------------------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about December __, 1995.
Merrill Lynch & Co. Advest, Inc.
The date of this Prospectus is December __, 1995.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- 1 -
<PAGE>
(See Appendix A)
- --------------------------------------------------------------------------------
County Banking Offices Deposit Market Share Rank
- ------ --------------- -------------------- ----
New Haven 28 12% 4
Hartford 28 8% 2
Total Banking Offices -
Statewide 63 6% 3
- --------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF WEBSTER AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK OF WEBSTER ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
- 2 -
<PAGE>
AVAILABLE INFORMATION
Webster is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files reports, proxy or
information statements and other information with the SEC. Such reports,
statements and other information filed with the SEC can be inspected and copied
at the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all the information set forth in the
Registration Statement which Webster has filed with the SEC under the Securities
Act of 1933, as amended (the "Securities Act"), of which this Prospectus is a
part, and to which reference is hereby made for further information with respect
to Webster and the Common Stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Webster with the SEC (File No.
0-15213) under the Exchange Act are hereby incorporated in this Prospectus by
reference: (i) Webster's Annual Report on Form 10-K for the year ended December
31, 1994; (ii) Webster's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995; and (iii) Webster's
Current Reports on Form 8-K dated March 1, 1995, June 20, 1995, October 10, 1995
and November 1, 1995, and on Form 8-K/A dated July 27, 1995 and October 18,
1995.
All documents filed by Webster pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus.
In lieu of incorporating by reference the description of the Common
Stock which is contained in a registration statement filed by Webster under the
Exchange Act, such description is included in this Prospectus. See "DESCRIPTION
OF CAPITAL STOCK."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Webster will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference and not
delivered herewith (other than exhibits to such documents which are not
specifically incorporated by reference into the text of such documents).
Requests for such documents should be directed to: Lee A. Gagnon, Executive Vice
President, Chief Operating Officer and Secretary, Webster Financial Corporation,
Webster Plaza, 145 Bank Street, Waterbury, Connecticut 06702; telephone (203)
753-2921.
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<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information,
definitions and financial statements appearing elsewhere herein or incorporated
herein by reference. Capitalized terms used in this Prospectus Summary which
have not been defined in the foregoing text are defined in the more detailed
information presented hereinafter. Unless otherwise indicated or the context
otherwise requires, all references herein to Webster include its wholly owned
subsidiary, Webster Bank, and subsidiaries of Webster Bank. Similarly, all
references herein to Webster or Webster Bank give effect retroactively to the
following transactions, which occurred in the following sequence on November 1,
1995: (i) the conversion of Webster's wholly owned subsidiary, Bristol Savings
Bank ("Bristol"), from a Connecticut chartered savings bank to a federally
chartered savings bank, (ii) the concurrent renaming of Bristol as "Webster
Bank," (iii) the merger of Webster's wholly owned subsidiary, First Federal
Bank, a federal savings bank ("First Federal"), into Webster Bank, with Webster
Bank as the surviving savings bank, (iv) the acquisition of Shelton Bancorp,
Inc. ("Shelton") through a merger of Webster Acquisition Corp., a wholly owned
subsidiary of Webster formed for such purpose, into Shelton, with Shelton as the
surviving corporation , (v) the merger of Shelton into Webster, with Webster as
the surviving corporation, and (vi) the merger of Shelton Savings Bank ("Shelton
Bank"), a wholly owned subsidiary of Shelton, into Webster Bank, with Webster
Bank as the surviving savings bank. The Shelton acquisition has been accounted
for as a "pooling of interests," so that the assets, liabilities, shareholders'
equity and operating results of Shelton for all periods prior to the acquisition
are reflected retroactively in Webster's historical financial information
included elsewhere in this Prospectus.
Webster
Webster, headquartered in Waterbury, Connecticut, is the holding
company of Webster Bank. Webster Bank is engaged in consumer, commercial and
mortgage banking in Connecticut. Webster Bank attracts deposits from retail and
business customers and obtains additional funds through Federal Home Loan Bank
("FHL Bank") advances and other borrowings. Webster Bank invests its funds in
residential first mortgage loans, commercial and industrial loans, commercial
real estate loans, home equity loans, consumer installment loans and securities.
Webster Bank currently serves customers from 45 banking offices located in New
Haven, Fairfield, Litchfield and Hartford Counties in Connecticut. In the
Shawmut Transaction (as summarized below), Webster Bank will acquire 20 banking
offices in the greater Hartford, Connecticut banking market (the "Hartford
Banking Market"), while exchanging two Webster Bank banking offices in Fairfield
County as part of the consideration for the offices being acquired. As a result,
Webster Bank will then have a total of 63 banking offices, extending from the
Massachusetts border through central Connecticut to Long Island Sound. After
giving effect to the Shawmut Transaction, Webster Bank will be the second
largest independent bank in Connecticut and the largest Connecticut-based bank
in the Hartford Banking Market, based on deposit market share. See "THE SHAWMUT
TRANSACTION." In addition to significantly expanding Webster's franchise, the
Shawmut Transaction will broaden Webster's assets and deposit base and will have
an accretive effect on its net income per common share. See "PRO FORMA COMBINED
FINANCIAL INFORMATION." Webster intends in the future to consider additional
favorable acquisitions in Connecticut or other market areas generally adjacent
to the communities served by Webster Bank.
Webster has significantly increased its banking operations through five
completed acquisitions: Suffield Bank ("Suffield") on September 6, 1991, First
Constitution Bank ("First Constitution") on October 2, 1992, Bristol on March 3,
1994, Shoreline Bank & Trust Company ("Shoreline") on December 16, 1994, and
Shelton on November 1, 1995 (collectively, the "Acquisitions"). These
Acquisitions have extended Webster's banking operations into new markets and
added 33 banking offices, $1.5 billion in deposits and approximately 160,000
customer accounts. The Suffield and First Constitution acquisitions involved
substantial financial assistance from the FDIC. The Suffield, First Constitution
and Bristol acquisitions were accounted for as "purchase" transactions. The
Shoreline and Shelton acquisitions were accounted for as "pooling of interests"
transactions. The Acquisitions have enabled Webster to broadly expand its assets
and deposit base and to improve operating efficiency through the elimination of
duplicative administrative, support and staff functions and the consolidation of
redundant facilities. The Acquisitions have contributed positively to Webster's
operating results. See "COMPLETED ACQUISITIONS" and "PROSPECTUS SUMMARY --
Summary Consolidated Financial Data."
Webster is continuing to expand its banking activities, particularly
commercial and consumer banking. These types of banking activities involve
higher net interest margins and fees than those generally available from
residential first mortgage lending. This expansion has necessitated the addition
of experienced commercial and
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<PAGE>
consumer banking officers, support personnel and related systems. The costs of
this infrastructure have resulted in higher overhead expenses in recent years,
partially offsetting the greater revenues available from commercial and consumer
banking. The Shawmut Transaction will enable Webster to further expand its
commercial and consumer banking activities without a proportionate increase in
overhead expenses.
At September 30, 1995, Webster had consolidated total assets of $3.3
billion, total deposits of $2.4 billion and shareholders' equity of $172.6
million or 5.18% of total assets. For the nine months ended September 30, 1995,
Webster had consolidated net income of $16.0 million, compared with net income
of $14.0 million for the same period in 1994. On a pro forma combined basis at
September 30, 1995 after giving effect to the Shawmut Transaction and the
Offering, Webster would have had total assets of approximately $3.8 billion,
total deposits of approximately $3.1 billion and shareholders' equity of
approximately $200 million or 5.22% of total assets. See "PRO FORMA COMBINED
FINANCIAL INFORMATION."
Webster, as a holding company, and its subsidiary Webster Bank, are
subject to comprehensive regulation, supervision and examination by the OTS, as
the primary federal regulator of Webster Bank. Webster Bank's deposits are
federally insured by the Bank Insurance Fund ("BIF") of the FDIC, which also has
significant regulatory authority over Webster Bank. As of September 30, 1995,
approximately 63% of Webster Bank's deposits were assessed premiums at BIF rates
and approximately 37% were assessed premiums at Savings Association Insurance
Fund ("SAIF") rates. After giving effect to the Shawmut Transaction,
approximately 71% of Webster Bank's deposits will be assessed premiums at BIF
rates and approximately 29% at SAIF rates. As of September 30, 1995, Webster
Bank met all regulatory capital requirements for a "well-capitalized" bank, with
ratios of Tier 1 capital to adjusted total assets, Tier 1 capital to
risk-weighted assets, and total capital to risk-weighted assets of 5.60%,
11.68%, and 12.80%, respectively. Webster Bank expects to continue to meet all
regulatory capital requirements for a "well-capitalized" bank following
consummation of the Shawmut Transaction. See "USE OF PROCEEDS" and "CAPITAL
RATIOS."
Shelton Acquisition
On November 1, 1995, Webster completed a stock for stock, tax free
acquisition of Shelton, the holding company of Shelton Bank, a state-chartered
savings bank headquartered in Shelton, Connecticut. Shelton Bank was
concurrently merged into Webster Bank. Shelton Bank had six banking offices
located in Ansonia, Bethany, Oxford and Shelton, which are located in eastern
Fairfield County and southwestern New Haven County, communities which are
contiguous to Webster Bank's market areas. As of September 30, 1995, Shelton had
consolidated total assets of $298 million, total deposits of $273 million and
shareholders' equity of $21 million or 7.0% of total assets. For the nine months
ended September 30, 1995, Shelton had consolidated net income of $1.6 million,
compared with $1.6 million for the same period in 1994. The Shelton acquisition
has been accounted for as a "pooling of interests." Webster issued 1,293,056
shares of its Common Stock to the shareholders of Shelton in the acquisition,
based on a .92 fixed exchange rate. An additional 44,561 shares of Common Stock
are issuable by Webster at an average exercise price of $13.22 per share
pursuant to options previously granted by Shelton to its directors, officers and
employees. See "COMPLETED ACQUISITIONS."
The Shawmut Transaction
On October 1, 1995, Webster Bank entered into a Purchase and Assumption
Agreement (the "Shawmut Agreement") with Shawmut Bank Connecticut, National
Association ("Shawmut"), as part of the Fleet/Shawmut Divestiture, to acquire 20
Shawmut branch banking offices in the Hartford Banking Market, including
deposits and loans at or allocated to such offices (the "Shawmut Transaction").
The Shawmut Transaction is expected to be consummated in early 1996, subject to
prior completion of the Offering, OTS regulatory approval and other closing
conditions. References herein to the Shawmut Transaction include certain related
actions reflected in the pro forma adjustments shown in the footnotes to the Pro
Forma Combined Statement of Condition contained elsewhere in this Prospectus.
Upon consummation of the Shawmut Transaction, Webster Bank will acquire
20 Shawmut Branches in the Hartford Banking Market, including deposits and loans
at or allocated to the Shawmut Branches. See "MAP." Webster Bank will be
acquiring savings and money market deposit accounts, NOW and checking accounts,
business checking and deposit accounts and consumer time deposits. The loans to
be acquired will consist of residential first
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<PAGE>
mortgage loans, commercial real estate loans, commercial and industrial loans,
home equity loans, and consumer installment loans.
The Shawmut Transaction will enhance Webster Bank's ability to provide
a broad line of deposit and cash management services. The Shawmut Transaction is
estimated to increase the percentage of savings and money market deposit
accounts from 25% to 27% of total deposits, NOW and checking accounts from 11%
to 13% of total deposits, and business checking and deposit accounts from 1% to
4% of total deposits. While consumer time deposits are also estimated to
increase in dollar amount, such deposits as a percentage of total deposits are
estimated to decrease from approximately 63% to 56%.
The Shawmut Transaction will expand Webster Bank's lending capacity and
increase its emphasis on commercial and industrial loans and commercial real
estate loans to small and medium sized businesses. The Shawmut Transaction will
enhance Webster Bank's ability to provide a full range of loan services for
commercial banking customers with credit needs up to $10 million. The Shawmut
Transaction is estimated to increase Webster Bank's loan portfolio from $2.0
billion to $2.6 billion. The percentage of commercial loans in Webster Bank's
loan portfolio is estimated to increase from approximately 15% to 19%. The
percentage of residential first mortgage loans is estimated to decrease from
approximately 77% to 73% of Webster Bank's loan portfolio. The percentage of
consumer loans, including home equity loans, is estimated to remain at
approximately 8% of Webster Bank's loan portfolio.
The following table presents certain Webster pro forma combined
financial information after combining the historical balance sheet of Webster
(including Shelton) with the Shawmut assets to be acquired and liabilities to be
assumed as if the Shawmut Transaction and the Offering had occurred on September
30, 1995 (dollars in thousands):
At September 30, 1995
---------------------
Pro Forma
Webster Combined
------- --------
Total interest-earning assets .......... $3,177,319 $3,595,319
Total interest-bearing liabilities ..... $3,115,342 $3,574,342
Weighted average interest rates:
Total interest-earning assets ..... 7.50% 7.74%
Total interest-bearing liabilities 4.60% 4.07%
Interest rate spread .............. 2.90% 3.67%
The assets being acquired and the liabilities being assumed in the Shawmut
Transaction will be the amounts outstanding at the date of consummation of the
Shawmut Transaction. The amounts and weighted average interest rates will change
from the September 30, 1995 amounts and weighted average interest rates shown
above due to interest-rate repricing, principal repayments and prepayments and
other changes in balances of the assets being acquired and the liabilities being
assumed. See "PRO FORMA COMBINED FINANCIAL INFORMATION."
Use of Proceeds
All of the net proceeds from the Offering will be contributed by
Webster to Webster Bank in connection with the consummation of the Shawmut
Transaction to increase Webster Bank's regulatory capital ratios, which would
otherwise decrease as a result of Webster Bank's significant increase in size
upon the consummation of the Shawmut Transaction. The contribution of the net
proceeds from the Offering, together with an additional capital contribution by
Webster of existing holding company funds, is expected to enable Webster Bank to
continue to meet all capital ratios required for a "well-capitalized" bank
following consummation of the Shawmut Transaction. See "RISK FACTORS --
Acquisition of Shawmut Branches," "USE OF PROCEEDS" and "CAPITAL RATIOS."
Market for Common Stock and Dividends
The Common Stock is quoted on the NASDAQ under the symbol "WBST." On
November 20, 1995 the last sale price of the Common Stock on NASDAQ was $25 3/8
per share. Webster's policy is to pay quarterly cash dividends on its Common
Stock. Webster has paid consecutive quarterly cash dividends on the Common Stock
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<PAGE>
since 1987. Current quarterly cash dividends on the Common Stock are $.16 per
share. See "MARKET PRICES AND DIVIDENDS."
Risk Factors
Special attention should be given to the factors discussed under "RISK
FACTORS."
Summary Consolidated Financial Data
The following tables summarize selected consolidated financial data of
Webster that give effect to the acquisition of Shelton on a "pooling of
interests" basis by retroactively combining historical Webster and Shelton data
for all periods presented. The selected consolidated financial data at and for
the years ended December 31, 1994, 1993, 1992, 1991 and 1990 were derived from
Webster's consolidated financial statements, which have been restated to include
Shelton. Selected consolidated financial data at and for the nine-month periods
ended September 30, 1995 and 1994 of Webster are derived from consolidated
financial statements of Webster, which have also been restated to include
Shelton. In Webster's opinion, all adjustments, which consist of normal
recurring accruals and the cumulative effect of a change in the method of
accounting for income taxes, necessary for a fair presentation have been
included. The operating data and significant statistical data for the nine
months ended September 30, 1995 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 1995.
The selected consolidated financial data should be read in conjunction
with the following financial statements and related notes thereto included or
incorporated by reference in this Prospectus: (i) Webster's audited supplemental
consolidated financial statements, as restated to include Shelton, at December
31, 1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992; (ii)
Webster's unaudited supplemental consolidated financial statements, as restated
to include Shelton, at September 30, 1995 and for the nine-month periods ended
September 30, 1995 and 1994; (iii) Webster's audited separate consolidated
financial statements (excluding Shelton) at December 31, 1994 and 1993 and for
the years ended December 31, 1994, 1993 and 1992; (iv) Webster's unaudited
separate consolidated financial statements (excluding Shelton) at September 30,
1995 and for the nine-month periods ended September 30, 1995 and 1994; (v)
Shelton's audited separate financial statements at June 30, 1995 and 1994 and
for the years ended June 30, 1995, 1994 and 1993; and (vi) Shelton's unaudited
separate financial statements at September 30, 1995 and for the three-month
periods ended September 30, 1995 and 1994. See "Index to Supplemental
Consolidated Financial Statements" as to the supplemental consolidated financial
statements and related notes of Webster referred to in clauses (i) and (ii)
above. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" as to the separate
consolidated financial statements and related notes of Webster and Shelton
referred to in clauses (iii) through (vi) above, which financial information
should be read in conjunction with the related separate management's discussion
and analysis of financial condition and results of operations of Webster and
Shelton, respectively, also incorporated by reference herein.
The pro forma combined financial condition and other data at September
30, 1995 give effect to the Offering and the Shawmut Transaction, which is to be
accounted for as a "purchase" transaction, and to certain related actions
reflected in the pro forma adjustments shown in the footnotes to the Pro Forma
Combined Statement of Condition. All pro forma combined data are unaudited. See
"PRO FORMA COMBINED FINANCIAL INFORMATION."
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<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
Financial Condition Pro Forma
and Other Data Combined At At
(Dollars in Thousands) September 30, September 30, At December 31,
----------------------------------------------------
1995 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................... $3,823,932 $3,332,932 $3,053,851 $2,483,403 $2,367,722 $1,173,489 $ 934,823
Loans receivable, net.......... 2,490,542 1,872,542 1,869,216 1,467,935 1,522,168 701,478 682,417
Mortgage-backed securities..... 742,722 942,722 631,718 518,435 346,719 235,114 113,204
Securities..................... 170,593 170,593 174,130 151,329 91,604 97,326 55,551
Segregated Assets, net......... 116,365 116,365 137,096 176,998 223,907 -- --
Core deposit intangible........ 46,916 4,916 5,457 11,829 15,463 1,402 --
Deposits....................... 3,108,068 2,431,068 2,432,984 1,966,574 1,995,079 990,054 732,511
FHL Bank advances and other
borrowings.................. 455,509 675,509 414,375 312,152 193,864 73,772 101,791
Shareholders' equity........... 199,613 172,613 156,807 126,273 129,195(a) 83,067 81,021
Number of banking offices...... 63 45 45 39 39 23 18
<CAPTION>
Operating Data At or for the Nine Months
(Dollars in Thousands) Ended September 30, At or for the Year Ended December 31,
------------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $161,790 $139,618 $ 190,820 $ 154,589 $ 111,021 $ 90,901 $ 88,319
Interest expense............... 96,194 71,093 98,464 80,803 61,205 60,015 62,264
------- ------- ----------- --------- --------- --------- ---------
Net interest income............ 65,596 68,525 92,356 73,786 49,816 30,886 26,055
Provision for loan losses...... 1,395 2,185 3,155 4,597 5,574 4,285 10,379
Noninterest income............. 15,357 11,300 13,629 10,703 8,407 5,150 4,027
Noninterest expenses:
Core deposit intangible writedown -- -- 5,000 -- -- -- --
Foreclosed property expenses, net 3,392 5,379 6,949 5,085 6,135 5,089 734
Other noninterest expenses.. 52,698 50,056 67,346 49,912 33,018 20,550 18,340
------- ------- ----------- --------- --------- --------- ---------
Total noninterest expenses 56,090 55,435 79,295 54,997 39,153 25,639 19,074
------- ------- ----------- --------- --------- --------- ---------
Income before income taxes..... 23,468 22,205 23,535 24,895 13,496 6,112 629
Income taxes................... 7,439 8,159 4,850 10,595 7,083 2,774 2,341
------- ------- ----------- --------- --------- --------- ---------
Net income (loss) before cumulative
change ..................... 16,029 14,046 18,685 14,300 6,413 3,338 (1,712)
Cumulative change (b).......... -- -- -- 4,575 -- -- --
------- ------- ----------- --------- --------- --------- ---------
Net income (loss).............. 16,029 14,046 18,685 18,875 6,413 3,338 (1,712)
Preferred stock dividends...... 972 1,406 1,716 2,653 581 -- --
------- ------- ----------- --------- --------- --------- ---------
Net income (loss) available to
common shareholders........ $15,057 $12,640 $ 16,969 $ 16,222 $ 5,832 $ 3,338 $ (1,712)
======= ======= ========= ========= ========= ========= =========
Loan originations during period $287,475 $641,419 $ 745,618 $ 390,337 $ 283,926 $ 133,418 $ 118,301
Net increase (decrease) in deposits 1,916 457,610 466,410 (28,505) 1,005,025 157,543 59,485
Loans serviced for others...... 937,066 948,253 949,337 357,699 409,190 183,273 188,565
Capitalized mortgage loan servicing
rights...................... 3,815 4,601 4,427 1,337 2,008 20 --
</TABLE>
See footnotes on the following page.
- 8 -
<PAGE>
<TABLE>
<CAPTION>
At or for the Nine Months
Ended September 30, At or for the Year Ended December 31,
---------------------------- -------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Significant Statistical Data
For The Period:
Net income (loss) per common share (c):
Primary....................... $2.19 $2.08 $2.69 $2.25 (b) $1.18 $0.68 ($0.33)
Fully Diluted................. $2.04 $1.87 $2.44 $2.04 (b) $1.16 $0.68 ($0.33)
Cash dividends paid per common
share (c)...................... $0.48 $0.35 $0.52 $0.50 $0.48 $0.48 $0.48
Return on average assets ........ 0.69% 0.64% 0.67% 0.60%(b) 0.43% 0.32% (0.19%)
Return on average shareholders'
equity......................... 12.75% 12.74% 12.55% 11.11%(b) 6.87% 4.06% (1.98%)
Average shareholders' equity to average
assets......................... 5.39% 4.99% 5.37% 5.39% 6.29% 7.94% 9.38%
Interest rate spread............. 2.83% 3.24% 3.29% 3.13% 3.32% 2.81% 2.35%
Net interest margin.............. 2.96% 3.29% 3.34% 3.23% 3.50% 3.14% 2.94%
Noninterest expenses to average assets 2.40% 2.51% 2.86% 2.30% 2.64% 2.45% 2.03%
Noninterest expenses (excluding foreclosed
property expenses and provisions) to
average assets................. 2.26% 2.27% 2.61% 2.09% 2.23% 1.95% 1.95%
Ratio of earnings to fixed charges 1.92x 2.27x 1.93x 2.50x 2.85x 1.90x 1.06x
<CAPTION>
Pro Forma
Combined At At
September 30, September 30,
At End of Period: 1995 1995
------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Book value per common share (c). $23.09 $22.86 $20.59 $19.90 $21.29 $16.88 $16.47
Tangible book value per common share $17.16 $22.14 $19.78 $17.58 $18.13 $16.60 $16.47
Common shares outstanding
(000's) (c).................... 7,900 6,800 6,780 5,088 4,895 4,920 4,918
Shareholders' equity to total assets 5.22% 5.18% 5.13% 5.08% 5.46% 7.08% 8.67%
Nonaccrual assets to total assets 1.51% 1.73% 2.10% 2.41% 2.83% 2.83% 2.75%
Allowance for loan losses to nonaccrual
loans.......................... 126.15% 112.94% 134.04% 135.79% 108.71% 77.15% 79.20%
Allowances for nonaccrual assets
to nonaccrual assets........... 84.60% 75.94% 77.01% 77.32% 76.95% 36.07% 32.18%
- --------------------------------
<FN>
(a) Includes $18.25 million of the $30 million of Series A cumulative perpetual
preferred stock ("Series A Stock") issued by Webster to the FDIC on October
6, 1995 in connection with the First Constitution acquisition. $11.75
million of the Series A Stock was redeemed on December 29, 1992, and the
remaining $18.5 million was redeemed on June 29, 1993.
(b) Before cumulative change in the method of accounting for income taxes
adopted by Webster and Shelton in 1993 in accordance with Financial
Accounting Standards Bulletin No. 109. After such cumulative change, (i)
net income per common share for 1993 was $3.13 on a primary basis and $2.73
on a fully diluted basis, (ii) return on average assets for 1993 was .79%
and (iii) return on average shareholders' equity for 1993 was 14.66%.
(c) All per share data and the number of outstanding shares of Common Stock
have been adjusted retroactively to give effect to stock dividends paid by
Webster and Shelton.
</FN>
</TABLE>
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<PAGE>
RISK FACTORS
Legislative and General Regulatory Developments
General. Webster is subject to various regulatory restrictions as a
holding company, imposed primarily by the OTS and the Commissioner. Webster Bank
is subject to extensive regulation by the OTS as its primary federal regulator
and also to regulation as to certain matters by the FDIC. The OTS and FDIC have
adopted numerous regulations and undertaken other regulatory initiatives, and
further regulations and initiatives may occur. Future legislation or regulatory
developments could have an adverse effect on Webster or Webster Bank.
Regulatory Capital. Current regulatory capital requirements for
OTS-regulated savings banks include a Tier 1 leverage or a core capital to
adjusted total assets ratio and a risk-based capital ratio in which assets are
weighted based upon their inherent risk. An interest-rate risk component was
added to the risk-based capital requirement by the OTS in 1994, the
implementation of which has been postponed indefinitely. Under the OTS
regulation, an institution is considered to have excess interest-rate risk if,
based upon a 200 basis point change in market interest rates, the market value
of a bank's capital changes by more than 2%. This requirement is not expected to
have a material effect on Webster Bank's ability to meet the risk-based capital
requirement. The FDIC also issued new capital regulations, which became
effective September 1, 1995, pursuant to which the FDIC will include an
assessment of the exposure to declines in the economic value of a bank's capital
due to changes in interest rates in its evaluation of a bank's capital adequacy.
There can be no assurance that Webster Bank will be able to satisfy such capital
requirements in the future or any additional capital requirements that may be
imposed.
At September 30, 1995, Webster Bank had a Tier 1 capital to adjusted
total assets ratio of 5.60%, a Tier 1 capital to risk-weighted assets ratio of
11.68% and a total capital to risk-weighted assets ratio of 12.80%, thereby
meeting all applicable regulatory capital ratios required for classification as
a "well-capitalized" bank for federal deposit insurance assessment rate
purposes. Following consummation of the Shawmut Transaction, Webster Bank
expects that its capital ratios will continue to meet all applicable regulatory
capital ratios required for classification as a "well-capitalized" bank. See
"CAPITAL RATIOS." There can be no assurance that Webster Bank in the future will
continue to meet such capital ratios.
Deposit Insurance Premiums. Webster Bank is a BIF member institution
with approximately 63% of its deposits assessed premiums at BIF rates. The
remaining approximately 37% of Webster Bank's deposits are assessed premiums at
SAIF rates. After giving effect to the Shawmut Transaction, approximately 71% of
Webster Bank's deposits are expected to be assessed premiums at BIF rates and
approximately 29% at SAIF rates.
Deposit insurance premiums to both the BIF and the SAIF were identical
when both funds were created in 1989, with an eight cent differential between
the premiums paid by well-capitalized institutions and the premiums paid by
under-capitalized institutions (23 cents to 31 cents per $100 of assessable
deposits). Such premiums were set to facilitate each fund achieving its
designated reserve ratios. As each fund achieves its designated reserve ratio,
however, the FDIC has the authority to lower the premium assessments for that
fund to a rate that would be sufficient to maintain the designated reserve
ratio. In August 1995, the FDIC determined that the BIF had achieved its
designated reserve ratio and approved lower BIF premium rates for deposit
insurance by the BIF for all but the riskiest institutions. Under the new BIF
deposit insurance premium schedule, deposit insurance premiums range from a low
of four cents per $100 of assessable deposits for well-capitalized institutions
to 31 cents per $100 of assessable deposits for undercapitalized institutions.
Because the SAIF remains significantly below its designated reserve ratio,
insurance premiums for assessable SAIF deposits were not reduced by this recent
FDIC action. As a "well-capitalized" bank, it is anticipated that Webster Bank
will pay insurance premiums to the BIF of four cents per $100 of assessable BIF
deposits. Webster Bank also expects to pay insurance premiums to the SAIF of 23
cents per $100 of assessable SAIF deposits.
The current financial condition of the SAIF has resulted in the
introduction of various legislation in both the United States Senate ("Senate")
and the United States House of Representatives ("House") to recapitalize the
SAIF and then to merge the SAIF into the BIF. Both the Senate and the House
legislation, as currently proposed, would generally impose a special one-time
assessment of approximately 85 cents to 90 cents per $100 of assessable SAIF
deposits, which would apply retroactively to approximately $900 million of
assessable SAIF deposits at Webster Bank. After the special assessment, it is
proposed that SAIF premium rates would then become the same as
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<PAGE>
BIF rates until the funds are merged. Webster is unable to predict whether this
legislation will be enacted or the amount or applicable retroactive date of any
one-time assessment or the rates that would then apply to assessable SAIF
deposits.
Elimination of Federal Savings Association Charter
Legislation is currently being debated that could eliminate the federal
savings association charter. If such legislation is enacted, Webster Bank would
be required to convert its federal savings bank charter to either a national
bank charter or to a state depository institution charter. Proposed legislation
may also provide relief as to recapture of the bad debt deduction for federal
tax purposes that otherwise would be applicable if Webster Bank converted its
charter. Such legislation would (i) repeal future bad debt deductions; (ii)
exempt pre-1988 bad debt deductions from recapture; and (iii) suspend post-1987
bad debt deductions from recapture, provided that Webster Bank meets a proposed
residential loan origination requirement. Pending legislation also may result in
Webster becoming regulated at the holding company level by the Board of
Governors of the Federal Reserve System ("Federal Reserve") rather than by the
OTS. Regulation by the Federal Reserve could subject Webster to capital
requirements that are not currently applicable to Webster as a holding company
under OTS regulation and may result in statutory limitations on the type of
business activities in which Webster may engage at the holding company level,
which business activities currently are not restricted. Webster is unable to
predict whether such legislation will be enacted or, if enacted, whether it will
contain the relief as to bad debt deductions previously taken.
Sources of Funds for Cash Dividends
The principal sources of funds for Webster's payments of cash dividends
on the Common Stock and the Series B cumulative convertible preferred stock (the
"Series B Stock") of Webster, as well as for the payment of principal and
interest on Webster's $40 million principal amount of 8 3/4% Senior Notes due
2000 (the "Senior Notes"), are cash dividends from Webster Bank. At September
30, 1995, at the holding company level, Webster had liquid investments of $26
million, of which up to $20 million is expected to be contributed by Webster to
Webster Bank in connection with the Shawmut Transaction. Webster Bank is subject
to certain regulatory requirements that affect its ability to pay cash dividends
to Webster. The Series B Stock ranks prior to the Common Stock as to payment of
cash dividends. In addition, the Senior Notes contain certain covenants that
affect Webster's ability to pay cash dividends on the Common Stock. See
"DESCRIPTION OF CAPITAL STOCK," "MARKET PRICES AND DIVIDENDS" and "CAPITAL
RATIOS."
Effect of Interest Rate Fluctuations
Webster's consolidated results of operations depend to a large extent
on the level of its net interest income, which is the difference between
interest income from interest-earning assets (such as loans and investments) and
interest expense on interest-bearing liabilities (such as deposits and
borrowings). If interest-rate fluctuations cause its cost of funds to increase
faster than the yield on its interest-bearing assets, net interest income will
be reduced. Webster measures its interest-rate risk using simulation, price
elasticity and gap analyses. The differences between an institution's
interest-rate sensitive assets and its interest-rate sensitive liabilities at a
point in time is its gap position. A negative gap indicates that cumulative
interest-rate sensitive liabilities exceed cumulative interest-rate sensitive
assets for that period. A positive gap indicates that cumulative interest-rate
sensitive assets exceed cumulative interest-rate sensitive liabilities. Based on
Webster's asset-liability mix at September 30, 1995, management believes
Webster's one year gap position of positive 5.5% represents a reasonable amount
of interest-rate risk at this point in time.
While Webster uses various monitors of interest-rate risk, it is unable
to predict future fluctuations in interest rates or the specific impact thereof.
The market values of most of Webster's financial assets are sensitive to
fluctuations in market interest rates. Fixed-rate investments, mortgage-backed
securities and mortgage loans decline in value as interest rates rise. Although
Webster's investment and mortgage-backed securities portfolios have grown in
recent quarters, most of the growth has been in adjustable-rate securities or
short-term securities with maturities of less than two years. Changes in
interest rates also can affect the amount of loans originated by Webster, as
well as the value of its loans and other interest-earning assets and its ability
to realize gains on the sale of such assets and liabilities. The extent to which
borrowers prepay loans also is affected by prevailing interest rates. When
interest rates increase, borrowers are less likely to prepay their loans;
whereas, when interest rates decrease, borrowers are more likely to prepay
loans. Funds generated by prepayments may be invested at a lower
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<PAGE>
rate. Prepayments may adversely affect the value of mortgage loans, the levels
of such assets that are retained in the portfolio, net interest income and loan
servicing income. Similarly, prepayments on mortgage-backed securities also may
affect adversely the value of these securities and interest income. 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 deposits increases
at a rate that is greater than the increase in yields on interest-earning
assets, the interest-rate spread is negatively affected. Changes in the asset
and liability mix also affect the interest-rate spread.
Acquisition of Shawmut Branches
The Shawmut Transaction will represent a further expansion of Webster's
retail and commercial banking activities by adding 20 Shawmut Branches,
including deposits and loans at or allocated to the Shawmut Branches. The
Shawmut Transaction will increase the percentage of commercial loans in Webster
Bank's loan portfolio. Commercial loans generally have a higher degree of risk
and return compared to residential first mortgage loans. The Shawmut Transaction
will impose increased challenges to Webster Bank in its integration of the
retail and commercial banking operations of the 20 Shawmut Branches into the
current Webster Bank structure, including the retention and expansion of deposit
and lending relationships being acquired. Based upon its experience in the five
completed Acquisitions, Webster Bank plans a smooth integration of the
operations of the Shawmut Branches, although this cannot be assured.
The purpose of the Offering is to obtain additional capital for
contribution by Webster to Webster Bank in order for Webster Bank to continue to
meet the regulatory capital ratios for a "well-capitalized" bank following the
consummation of the Shawmut Transaction. Webster intends to consummate the
Offering prior to consummating the Shawmut Transaction. Therefore, investors in
the Common Stock in the Offering cannot be assured that the Shawmut Transaction
will thereafter be consummated. However, Webster intends to consummate the
Offering only after OTS approval has been obtained for the Shawmut Transaction
and the Fleet/Shawmut Merger has been consummated. In the unlikely event that
the Shawmut Transaction were not to close after the consummation of the
Offering, Webster would initially use the net proceeds for investment purposes,
and thereafter seek to use the net proceeds for general business purposes,
including future acquisitions, none of which is pending. See "THE SHAWMUT
TRANSACTION - Conditions to the Shawmut Transaction."
Economic Conditions
Webster's business and financial condition are significantly affected
by national and local economic conditions. Changes in economic conditions are
neither predictable nor controllable and may have materially adverse
consequences upon Webster even if other favorable events occur. Webster's
business and financial condition are especially subject to changes in economic
conditions prevailing in Connecticut where all of its banking offices are
located.
WEBSTER
Webster, headquartered in Waterbury, Connecticut, is the holding
company of Webster Bank. Webster Bank is engaged in consumer, commercial and
mortgage banking in Connecticut. Webster Bank attracts deposits from retail and
business customers and obtains additional funds through FHL Bank advances and
other borrowings. Webster invests its funds in residential first mortgage loans,
commercial and industrial loans, commercial real estate loans, home equity
loans, consumer installment loans and securities. Webster Bank currently serves
customers from 45 banking offices located in New Haven, Fairfield, Litchfield
and Hartford Counties in Connecticut.
At September 30, 1995, Webster had consolidated total assets of $3.3
billion, total deposits of $2.4 billion and shareholders' equity of $172.6
million or 5.2% of total assets. Residential first mortgage, commercial and
consumer loans comprised 82%, 9% and 9%, respectively, of Webster's net loans
receivable of $1.9 billion at September 30, 1995. For the nine months ended
September 30, 1995, Webster had consolidated net income of $16.0 million,
compared with consolidated net income of $14.0 million for the same period in
1994.
- 12 -
<PAGE>
At September 30, 1995, nonaccrual loans amounted to $37.9 million and
the allowance for loan losses was $42.8 million, or 112.9% of nonaccrual loans.
Foreclosed properties, net of write downs and reserves, were $18.8 million.
Total nonaccrual assets were $56.7 million, or 1.7% of total assets. The
allowances for losses on nonaccrual assets totaled $43.9 million and represented
75.9% of nonaccrual assets. At September 30, 1995, Segregated Assets, net of
allowances totaled $116.4 million. See "COMPLETED ACQUISITIONS -- First
Constitution Acquisition" as to the obligation of the FDIC to reimburse Webster
Bank for 80% to 95% of losses and eligible expenses on Segregated Assets and to
make contingent reserve payments in connection with the First Constitution
acquisition.
In recent years, Webster's banking operations, including the number of
its banking offices and its assets, deposits and loan portfolio, have been
significantly expanded as a result of five completed Acquisitions. Webster
believes that each of these Acquisitions has been completed on favorable terms.
See "COMPLETED ACQUISITIONS." Completion of the pending Shawmut Transaction,
which is expected to occur in early 1996, will further significantly increase
Webster's banking operations. See "THE SHAWMUT TRANSACTION" and "PRO FORMA
COMBINED FINANCIAL INFORMATION." Webster intends in the future to consider
additional favorable acquisitions in Connecticut or other market areas generally
adjacent to the communities served by Webster Bank. No acquisitions other than
the Shawmut Transaction are pending.
Webster is continuing to expand its banking activities, particularly
commercial and consumer lending. These types of banking activities involve
higher net interest margins and fees than those generally available from
residential first mortgage lending. This expansion has necessitated the addition
of experienced commercial and consumer banking officers, support personnel and
related systems. The costs of this infrastructure have resulted in higher
overhead expenses in recent years, partially offsetting the larger revenues
available from commercial and consumer lending. The Shawmut Transaction will
enable Webster to further expand its commercial and consumer banking operations
by significantly increasing its commercial and consumer banking activities
without a proportionate increase in overhead expenses.
Webster, as a holding company, and its subsidiary Webster Bank are
subject to comprehensive regulation, supervision and examination by the OTS, as
the primary federal regulator of Webster Bank. Webster Bank is a BIF-insured
member institution. The FDIC also has significant regulatory authority over
Webster Bank. As of September 30, 1995, 63% of Webster Bank's deposits were
assessed premiums at BIF rates and 37% were assessed premiums at SAIF rates. As
of September 30, 1995, Webster Bank met all regulatory capital requirements for
a "well-capitalized" institution, with ratios of core capital to adjusted total
assets, core capital to total risk-weighted assets, and total capital to total
risk-weighted assets of 5.60%, 11.68%, and 12.80%, respectively. See "CAPITAL
RATIOS."
COMPLETED ACQUISITIONS
Suffield Acquisition
On September 6, 1991, Webster Bank acquired certain assets and
liabilities of Suffield Bank ("Suffield"), Suffield, Connecticut, from the FDIC
in an assisted transaction, in which Webster Bank received a $2.5 million cash
payment from the FDIC in connection with the acquisition to reflect its negative
bid. The Suffield acquisition involved an assumption of $247 million of deposit
liabilities (including $93 million of brokered and out-of-state deposits) and $5
million of other liabilities and a purchase of $48 million of performing
one-to-four family home loans, passbook loans and installment loans and $26
million of cash, cash equivalents and U.S. agency obligations. In addition,
Webster Bank received $181 million in cash from the FDIC, representing the
difference between the liabilities assumed less the assets purchased. The
Suffield acquisition, accounted for as a "purchase" transaction, is contributing
positively to Webster's operating results. The net interest income and
noninterest income attributable to the Suffield acquisition have more than
offset the direct costs and overhead of the additional branches acquired.
Through the Suffield acquisition, Webster Bank acquired five additional banking
offices and extended its market area to north central Connecticut.
- 13 -
<PAGE>
First Constitution Acquisition
On October 2, 1992, Webster Bank acquired most of the assets, all of
the deposits and certain other liabilities of First Constitution Bank ("First
Constitution"), New Haven, Connecticut, from the FDIC in an assisted
transaction. This acquisition increased Webster Bank's assets by $1.3 billion
from $880 million to over $2.0 billion and doubled the number of its banking
offices to 32 by adding 14 New Haven County and two Fairfield County offices.
The First Constitution acquisition has been accounted for as a "purchase"
transaction.
The financial terms of the First Constitution acquisition included five
primary components. First, the FDIC made a cash purchase of $30 million of
Series A Stock of Webster. Webster redeemed $11.75 million of the Series A Stock
on December 30, 1992 and redeemed the balance of the Series A Stock on June 29,
1993. Second, Webster received at the time of the acquisition a $24.2 million
cash payment from the FDIC to purchase the assets and assume the liabilities in
the acquisition. This payment increased cash, which was offset by various
adjustments reflecting the market value of assets acquired and liabilities
assumed on the consolidated statement of condition, and had no impact on
Webster's consolidated statement of income. Webster Bank purchased approximately
$1.3 billion of First Constitution's assets, including: $817 million in one- to
four-family home loans; $30 million in home equity loans; $34 million in
consumer loans; $257 million in "Segregated Assets" (consisting of multi-family,
commercial and commercial real estate loans); and $155 million in cash, cash
equivalents, U.S. agency obligations and mortgage-backed securities. Webster
Bank assumed approximately $1.2 billion in deposit balances of First
Constitution (including approximately $300 million of brokered or out-of-state
deposits, most of which were withdrawn prior to December 31, 1992 as planned by
Webster Bank) and $29 million of other borrowings and liabilities. Third, the
FDIC retained approximately $225 million of First Constitution's higher risk
assets, including OREO, "in-substance foreclosed" loans, commercial loan
participations, real estate investments, and investments in subsidiaries.
Fourth, the FDIC is reimbursing Webster Bank quarterly for 80% of the total net
charge-offs and certain related expenses on all Segregated Assets purchased in
the acquisition for five years after the acquisition date, with such
loss-sharing 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). Fifth, the FDIC is
also reimbursing Webster Bank, as a contingent reserve payment, for 80% of the
excess over $52 million for four years after the acquisition date, up to a
maximum reimbursement of $20 million, of (i) the total net charge-offs on all
First Constitution one- to four-family home, home equity and consumer loans
purchased in the acquisition plus (ii) the unreimbursed portion of the total net
charge-offs and certain related expenses on the Segregated Assets.
As part of the First Constitution acquisition, Webster Bank established
a reserve for the estimated unreimbursed portion of loan losses on Segregated
Assets of $10.7 million and an additional reserve of $46.5 million for the
estimated unreimbursed portion of the one- to four-family home, home equity, and
consumer loans acquired in the First Constitution acquisition (including those
held for sale). During the nine months ended September 30, 1995, Webster Bank
received $6.0 million in reimbursement for eligible charge-offs and related net
expenses in accordance with the loss-sharing arrangement described above.
Payments due from the FDIC upon charge-off and related expenses are recorded as
receivables. When such reimbursements are received, the funds are credited
against the receivable and invested in interest earning assets. Such
reimbursements have no immediate impact on Webster's consolidated statement of
income. Webster Bank's provision for loan losses and the amount of net
charge-offs and related expenses that Webster Bank is required to absorb on the
Segregated Assets are lower than otherwise would have been the case in the
absence of the loss-sharing arrangement with the FDIC. While the maturity of
many of the Segregated Assets is longer than the five-year term of the loss
sharing arrangement, Webster Bank is permitted to take charge-offs of the
Segregated Assets during the five-year term of the loss sharing arrangement in
accordance with the examination criteria utilized by the OTS.
Bristol Acquisition
On March 3, 1994 Webster completed the conversion/acquisition of
Bristol Savings Bank ("Bristol"), which then became a wholly owned subsidiary of
Webster. The acquisition, which was accounted for as a "purchase" transaction,
increased Webster's total assets by $486 million and added five full service
banking offices, with $453 million in deposits, in an attractive, contiguous
market where Bristol had the leading deposit market share. Bristol's mortgage
banking subsidiary also enhanced Webster's mortgage banking capabilities. The
Bristol acquisition has made a positive contribution to Webster's operating
results. Webster achieved economies of scale
- 14 -
<PAGE>
by combining the administration, operations and mortgage banking activities of
Bristol with those of Webster's other subsidiary bank, First Federal, prior to
merging Bristol and First Federal to form Webster Bank on November 1, 1995.
Additionally, at the time of the Bristol acquisition over $10 million in
potential future tax benefits were available as a result of the Bristol
acquisition, primarily in the form of tax loss carryforwards.
Shoreline Acquisition
On December 16, 1994 Webster completed its acquisition of Shoreline
Bank & Trust Company ("Shoreline"), Madison, Connecticut, for 266,500 shares of
Common Stock of Webster in a tax free transaction accounted for as a "pooling of
interests" transaction, which resulted in Shoreline's financial condition and
operating data being retroactively combined with Webster's consolidated
financial data. Shoreline was formerly a state chartered bank and trust company
with total assets of $51 million, deposit liabilities of $47 million and
shareholders' equity of $4 million. Shoreline had net income of $374,000 for the
nine months ended September 30, 1994 preceding the acquisition and reported
losses for its 1993, 1992 and 1991 fiscal years of $188,000, $870,000 and
$1,056,000, respectively. Concurrent with the acquisition, Shoreline was merged
into Webster Bank and Shoreline's Madison banking office became a full service
office of Webster Bank. The Shoreline acquisition provided a natural extension
of Webster's primary market area.
Shelton Acquisition
On November 1, 1995, Webster acquired Shelton Bancorp, Inc.
("Shelton"), the holding company of Shelton Savings Bank ("Shelton Bank"), a
state-chartered savings bank headquartered in Shelton, Connecticut for 1,293,056
shares of Common Stock. An additional 44,561 shares of Common Stock are issuable
by Webster pursuant to options previously granted by Shelton to its directors,
officers and employees at an average exercise price of $13.22 per share. As part
of the acquisition, Shelton Bank was concurrently merged into Webster Bank. The
acquisition was a tax free transaction and has been accounted for as a "pooling
of interests" transaction. As a result, the consolidated financial condition and
operating data of Shelton as shown below are retroactively combined with
Webster's consolidated financial data.
Shelton Bank served customers from six banking offices located in
Ansonia, Bethany, Oxford and Shelton. Shelton's general market area was eastern
Fairfield County and southwestern New Haven County. At September 30, 1995,
Shelton had consolidated total assets of $298.3 million, deposits of $273.3
million, and shareholders' equity of $20.8 million. At September 30, 1995,
Shelton had gross loans receivable of $224.1 million, which included $188.1
million in residential first mortgage loans, $12.0 million in commercial real
estate loans, and $24.0 million in home equity and other consumer loans. At
September 30, 1995, nonaccrual loans and OREO were $2.8 million. At that date,
Shelton's allowance for loan losses was $1.5 million, or 71.1% of nonaccrual
loans, and its total allowances for loan and OREO losses were $1.5 million, or
54.4% of nonaccrual loans and OREO. For its fiscal years ended June 30, 1995,
1994 and 1993, Shelton had consolidated net income of $2,216,000, $2,250,000
($1,975,000 before a FASB 109 cumulative accounting change) and $1,920,000,
respectively. For the three months ended September 30, 1995 and 1994, Shelton
had net income of $555,000 and $547,000, respectively.
THE SHAWMUT TRANSACTION
Background of the Acquisition
As of February 20, 1995, Shawmut National Corporation and Fleet
Financial Group, Inc. ("Fleet") (hereinafter jointly referred to as
"Fleet/Shawmut") entered into an Agreement and Plan of Merger (the
"Fleet/Shawmut Merger"). As a condition of regulatory approval of the
Fleet/Shawmut Merger, Fleet/Shawmut are required to have their subsidiary banks
divest certain branches in Connecticut, Massachusetts, New Hampshire and Rhode
Island to avoid anticompetitive effects that could be caused by the
Fleet/Shawmut Merger (the "Fleet/Shawmut Divestiture"). In August 1995,
Fleet/Shawmut announced guidelines that were designed to foster competition,
preserve jobs and continue to meet customer needs in the states where
divestitures are required. Fleet/Shawmut then solicited preliminary bids from
potential acquirors with respect to the branches to be divested.
- 15 -
<PAGE>
In early September 1995, Webster Bank, along with Eagle Federal Savings
Bank, Bristol, Connecticut ("Eagle"), submitted a preliminary joint bid for all
25 branch banking offices of the Fleet/Shawmut subsidiary banks to be divested
in the Hartford Banking Market. On September 26, 1995, a formal joint bid was
submitted by Webster Bank and Eagle. After extensive negotiations, Fleet/Shawmut
selected Webster Bank and Eagle to acquire all 25 branch banking offices being
divested in the Hartford Banking Market. On October 1, 1995, Webster Bank and
Eagle executed separate purchase and assumption agreements for 20 (the "Shawmut
Branches") and five, respectively, of these offices with Fleet/Shawmut
subsidiary banks. Such agreements may be required to be consummated concurrently
at Fleet/Shawmut's option.
Acquired Branches, Deposits and Loans
Upon consummation of the Shawmut Transaction, Webster Bank will acquire
20 Shawmut Branches in the Hartford Banking Market, including deposits and loans
at or allocated to the Shawmut Branches. The Shawmut Branches are located in the
following Connecticut cities or towns in the Hartford Banking Market: Berlin,
Bristol, Cromwell, East Hartford, Elmwood, Enfield, Farmington, Glastonbury,
Hartford (three offices), Manchester, Middletown, New Britain, Newington,
Simsbury, Southington, West Hartford, Wethersfield and Windsor. See "MAP."
Webster Bank will be acquiring consumer time deposits, savings and money market
deposit accounts, NOW and checking accounts, and business checking and deposit
accounts. The loans to be acquired consist of residential first mortgage loans,
commercial real estate loans, commercial and industrial loans, home equity
loans, and other consumer installment loans.
Strategic Rationale
The Shawmut Transaction will significantly increase Webster Bank's
commercial and retail banking activities in the Hartford Banking Market. After
giving effect to the Shawmut Transaction, Webster Bank will be the second
largest independent bank in Connecticut and the largest Connecticut-based bank
in the Hartford Banking Market, based on total deposit market share. Webster
Bank will have banking offices extending from the Massachusetts border through
central Connecticut to Long Island Sound. Over the last ten years, Webster Bank
has expanded its commercial banking operations serving small and medium sized
businesses in its market areas.
The Shawmut Transaction will enhance Webster Bank's ability to provide
a broad line of deposit and cash management services. The Shawmut Transaction is
estimated to increase the percentage of savings and money market deposit
accounts from 25% to 27% of total deposits, NOW and checking accounts from 11%
to 13% of total deposits, and business checking and deposit accounts from 1% to
4% of total deposits. While consumer time deposits are also estimated to
increase in dollar amount, such deposits as a percentage of total deposits are
estimated to decrease from approximately 63% to 56%.
The Shawmut Transaction will expand Webster Bank's lending capacity and
increase its emphasis on commercial and industrial loans and commercial real
estate loans to small and medium sized businesses as compared to its traditional
emphasis on retail banking. The Shawmut Transaction will enhance Webster Bank's
ability to provide a full range of loan services for commercial banking
customers with credit needs up to $10 million. The Shawmut Transaction is
estimated to increase Webster Bank's loan portfolio from $2.0 billion to $2.6
billion. The percentage of commercial loans in Webster Bank's loan portfolio is
estimated to increase from approximately 15% to 19%. The percentage of
residential first mortgage loans is estimated to decrease from approximately 77%
to 73% of Webster Bank's loan portfolio. The percentage of consumer loans,
including home equity loans, is estimated to remain at approximately 8% of
Webster Bank's loan portfolio.
Webster expects that the Shawmut Transaction will have an accretive
effect on its net income per common share. The Shawmut Transaction will reduce
Webster's tangible book value per common share because of the core deposit
intangible, which will be tax deductible. Book value per common share is
expected to be substantially unchanged after giving effect to the Shawmut
Transaction and the Offering. See "PRO FORMA COMBINED FINANCIAL INFORMATION."
- 16 -
<PAGE>
Purchase Price
Under the terms of the Shawmut Agreement, Webster Bank will
acquire 20 Shawmut Branches for the following purchase price:
(a) Webster Bank will make a cash payment equal to (i) 5.1% of
the average daily balances (including accrued interest) of
assumed deposit liabilities at or allocated to the Shawmut
Branches for the period commencing either 30 days or seven
days prior to the third business day prior to the closing
date, whichever amount is lower, subject to adjustment, as
described in the last paragraph below, less (ii) $2 million;
(b) Webster Bank will pay cash for the stated value of the
real property of the nine owned Shawmut Branches; estimated
payment of approximately $4 million;
(c) Webster Bank will pay cash equal to the net book value of
the personalty (excluding automatic teller machines) at the 20
Shawmut Branches as of the closing date; plus the greater of
$5,000 or net book value, for each of the automatic teller
machines; estimated payment of approximately $1 million;
(d) Webster Bank will exchange two of its branch banking
offices and related deposits (the "Webster Branches") located
in Fairfield and Stamford, Connecticut to Shawmut (the "Branch
Exchange"); Webster Bank will be paid the net book value of
the real and personal property (other than automated teller
machines not being transferred) at the two Webster Branches,
but no separate deposit premium;
(e) Webster will issue a five year nontransferable warrant to
Fleet for 300,000 shares of Common Stock of Webster, with an
exercise price of $32.50 per share, subject to certain
antidilution adjustments (see "The Warrant" below); and
(f) Webster Bank will agree to make a contingent payment (the
"Contingent Payment") in the event of a Change of Control (as
defined below) of Webster within five years of the closing
date in which Fleet would be entitled to receive a cash
payment from Webster Bank equal to (i) the excess of the offer
price per share of Common Stock of Webster over (ii) $32.50,
multiplied by (iii) 150,000 (see "Contingent Payment" below).
Webster Bank will receive a cash payment from Shawmut for the net
deposit liabilities at the closing date, less (i) the aggregate cash payments
described in (a), (b) and (c) above, less (ii) the unpaid principal balances
(based on the general ledger balances), plus accrued interest, on loans to be
acquired that are at or allocated to the Shawmut Branches, plus (iii) the net
book value of the real and personal property at the two Webster Branches as
described in (d) above. See "PRO FORMA COMBINED FINANCIAL INFORMATION" as to the
estimated deposit liabilities to be assumed and loans to be acquired.
Pursuant to purchase and assumption agreements between Eagle and
Fleet/Shawmut subsidiary banks (the "Eagle Purchase Agreements") and subject to
all required regulatory approvals, Eagle will acquire five branch banking
offices from the subsidiary banks with an estimate of approximately $276 million
in deposit liabilities to be acquired. The cash deposit premium to be paid to
the Fleet/Shawmut subsidiary banks by Webster Bank and Eagle combined is
required to average 5.5% of the total amount of the deposit liabilities to be
acquired by both Webster Bank and Eagle combined. The deposit premium to be paid
by Eagle is a fixed percentage that is higher than 5.5% since it involves no
branch exchange, warrant or contingent payment. The 5.1% deposit premium
referred to above to be paid by Webster Bank will be increased or decreased so
as to achieve the 5.5% average deposit premium with Eagle on a combined basis.
Webster does not expect the amount of this adjustment to be material.
-17-
<PAGE>
The Warrant
At the closing of the Shawmut Transaction, Webster will issue to Fleet
a warrant for 300,000 shares of Common Stock of Webster (the "Warrant"). The
exercise price will be $32.50 per share, subject to customary pro rata
antidilution adjustments in the event of a future issuance by Webster of Common
Stock (or securities convertible into or exercisable for Common Stock) at a
price per share of less than $32.50. Such adjustments will not be applicable as
to the Common Stock issued in the Offering, pursuant to employee/director
benefit plans of Webster, upon the conversion of the Series B Stock of Webster,
or pursuant to Webster's dividend reinvestment plan. The Warrant may be
exercised in whole, but not in part, within five years of the date of issuance,
but not within the first two years from the closing date, unless a Change of
Control of Webster has occurred, as defined below. The Warrant may not be sold
or otherwise transferred by Fleet without Webster's prior consent. The $32.50
exercise price represents a premium of 25% over the approximately $26.00 market
price of the Webster Stock prevailing at the time of the negotiation of the
Shawmut Transaction.
For purposes of the Warrant, a "Change of Control" will be deemed to
have occurred in the event that any person or company: (i) acquires voting
rights as to more than 25% of the outstanding Common Stock of Webster or (ii)
executes a definitive merger or other acquisition agreement with Webster.
However, no Change in Control will be deemed to have occurred, if the directors
of Webster serving prior to such acquisition of Common Stock or execution of
such definitive agreement (or successor directors selected by such continuing
directors and unaffiliated with such acquiror) will continue to constitute at
least 50% of the parent holding company board of directors after such
acquisition.
In the event that a Change of Control of Webster is deemed to have
occurred, Fleet would have the right to sell the Warrant to Webster (the "Put").
The price of the Put would be an amount equal to the number of shares issuable
under the Warrant, multiplied by (i) the cash price for the Common Stock of
Webster set forth in the definitive agreement relating to the Change of Control
transaction (or, in the case of a stock for stock transaction, an amount equal
to the five day trailing average closing price of the acquiror's stock following
the public announcement of the transaction, multiplied by the exchange ratio),
less (ii) the then exercise price per share of the shares issuable under the
Warrant. The Put, however, would not be available if the Change of Control
transaction would be accounted for as a "pooling of interests" and Webster's
independent accountants, within ten business days of the exercise of the Put,
issue an opinion indicating that the exercise of the Put would result in the
inability to account for the Change of Control transaction as a "pooling of
interests." If Fleet disagrees with such accounting opinion, Webster, at its
expense, will promptly submit the matter to the accounting staff of the SEC for
an interpretation which will be controlling.
The Standstill Agreement
Webster and Fleet also will enter into a standstill agreement at the
time of the closing of the Shawmut Transaction (the "Standstill Agreement").
Under the Standstill Agreement, for a period of five years, Fleet will (a) vote
all shares of Common Stock of Webster it holds (including shares obtained upon
exercise of the Warrant) on all matters (including the election of directors) as
recommended by the Webster Board of Directors and (b) will not initiate a tender
offer for shares of Common Stock of Webster or participate in a publicly
announced tender offer for Webster that is opposed by the Webster Board of
Directors. However, if during such five year period a bona fide third party
announces or makes an unsolicited offer to acquire more than 25% of the Common
Stock of Webster, that is not solicited by the Webster Board of Directors,
Webster will permit Fleet to make an acquisition proposal to the Webster Board
of Directors or release Fleet from the restrictions set forth in the Standstill
Agreement. Fleet also has agreed that it will not sell the shares of Common
Stock of Webster issued upon exercise of the Warrant in a private sale
transaction (i) to any person as to whom Webster has advised Fleet has filed a
Schedule 13D or 13G under the Exchange Act as to beneficial ownership of more
than 5% of the Common Stock of Webster or (ii) to any person whom Fleet knows or
who confirms to Fleet that such person beneficially owns, or would beneficially
own upon such purchase, more than 4.9% of the then outstanding Common Stock of
Webster. All voting restrictions will terminate upon Fleet's sale of the Common
Stock of Webster issued under the Warrant or upon the execution of a definitive
agreement relating to a Change of Control of Webster, as defined in the Warrant.
-18-
<PAGE>
Contingent Payment
Pursuant to the Shawmut Agreement, Webster Bank and Fleet will enter
into a contingent payment agreement at the time of the closing of the Shawmut
Transaction (the "Contingent Payment Agreement"). If Webster executes a
definitive agreement that would result, if completed, in a Change of Control of
Webster (defined on the same basis as in the Warrant), Fleet would be entitled
to a cash payment from Webster Bank equal to 150,000 times an amount equal to
(i) the cash price per share for the Common Stock of Webster as set forth in the
definitive agreement relating to the Change of Control transaction (or in the
case of a stock for stock transaction, the five day trailing average closing
price of the acquiror's stock following the public announcement of the
transaction multiplied by the exchange ratio, as defined in the definitive
agreement relating to the Change of Control transaction), less (ii) $32.50 (the
"Contingent Payment"). The Contingent Payment also will be due (a) within 30
days of the public announcement of a tender offer supported by the Webster Board
of Directors or (b) upon the consummation of a tender offer that the Webster
Board of Directors has not recommended to its shareholders.
Fleet would not be entitled to receive the Contingent Payment in cash
as to any Change of Control transaction that would be accounted for as a
"pooling of interests," if Fleet receives an opinion from Webster's independent
accountants, within ten business days of Fleet's written request for payment,
indicating that payment of the Contingent Payment would result in the inability
to account for the Change of Control transaction as a "pooling of interests." In
such event, the Contingent Payment would be made, at Fleet's option, either (a)
by Webster issuing Common Stock to Fleet immediately before the consummation of
the Change of Control transaction, having a market value equal to the cash
amount of the Contingent Payment, or (b) in cash, plus interest at the "prime
rate" as published from time to time by The Wall Street Journal, at such time as
Webster's independent accountants certify that a cash payment by Webster Bank of
the Contingent Payment would not result in the inability to treat the Change of
Control transaction as a "pooling of interests" for accounting purposes.
The Sublease Agreement
Pursuant to the Shawmut Agreement, Webster Bank and Fleet Bank,
National Association ("Fleet Bank") will enter into a sublease agreement with
respect to a total of 50,000 square feet of office space in One Constitution
Plaza in downtown Hartford (the "Sublease Agreement") at the time of the closing
of the Shawmut Transaction. The Sublease Agreement will provide that Webster
Bank will sublease office space from Fleet Bank at One Constitution Plaza until
December 31, 2003. Under the terms of the Sublease Agreement, Webster Bank will
sublease 20,000 square feet of office space commencing on the closing date, and
will add an additional 10,000 square feet on each of January 1, 1997, January 1,
1998 and January 1, 1999. The Sublease Agreement will provide that Webster Bank
will assume and pay its pro rata portion of taxes and operating expenses over
base rent, based on its sublease percentage of the total square footage leased
by Fleet Bank. Webster Bank will also be entitled to its pro rata portion of the
build-out provisions contained in the master lease agreement relating to One
Constitution Plaza.
Effect on Proportion of BIF/SAIF Deposit Premiums
Webster Bank's deposits are insured by the FDIC through the BIF. After
giving effect to the Shawmut Transaction, approximately 71% of Webster Bank's
deposits will be assessed premiums at BIF rates and only 29% of its deposits
will be assessed premiums at SAIF rates. This compares with approximately 63% of
deposits at BIF rates and 37% of deposits at SAIF rates prior to the Shawmut
Transaction.
Conduct of Business Pending the Shawmut Transaction
The Shawmut Agreement contains various restrictions on the operations
of the branches to be sold while the Shawmut Transaction is pending. In general,
the Shawmut Agreement obligates Shawmut (and Webster Bank vis-a-vis the Webster
Branches) to (a) conduct its business of banking in the usual, regular and
ordinary course, consistent with past practices; (b) to use reasonable efforts
to maintain and preserve intact its relationships with branch employees, and
advantageous business relationships, including branch customers; and (c) to take
no action that would adversely affect or delay the ability of any party to
obtain any regulatory approval. Branch employees may not be transferred to any
facilities other than the branches to be acquired, except upon the request of a
branch employee.
- 19 -
<PAGE>
Regulatory Approvals for the Shawmut Transaction
Consummation of the Shawmut Transaction is conditioned upon the receipt
of all required regulatory approvals. An application for approval by the OTS, as
Webster Bank's primary federal regulator, was filed on November 6, 1995 and the
required 30 day notice publication was commenced on November 7, 1995. Webster is
not aware of any reasons why the approval of the OTS for the Shawmut Transaction
should not be received on a timely basis following such 30 day notice
publication period; however, this cannot be assured. Webster does not anticipate
the need to obtain any other regulatory approval for the Shawmut Transaction.
In addition to the OTS regulatory approval needed to be obtained by
Webster for the Shawmut Transaction, other regulatory approvals must be received
by Fleet/Shawmut, including various federal and state bank regulatory agency
approvals for the Fleet/Shawmut Merger and no objection from the United States
Department of Justice ("DOJ") for the Fleet/Shawmut Divestiture. The
Fleet/Shawmut Merger has been approved by the Board of Governors of the Federal
Reserve System and certain state bank regulatory agencies. The DOJ has taken a
no objection position. One state bank regulatory approval is still pending for
the Fleet/Shawmut Merger. While Webster understands that such state bank
regulatory approval is expected to be received shortly, this cannot be assured.
OTS regulatory approval is required to be received by Eagle as to its
acquisition of branches from Fleet/Shawmut under the Eagle Purchase Agreements.
At Fleet/Shawmut's option, such acquisition by Eagle may be required to be
consummated concurrently with the Shawmut Transaction by Webster. While Webster
expects that Eagle should receive OTS regulatory approval on a timely basis,
this cannot be assured.
Webster does not intend to complete the Offering until after Webster
has obtained OTS regulatory approval for the Shawmut Transaction, and the
Fleet/Shawmut Merger has been consummated.
Conditions to the Shawmut Transaction
The respective obligations of Webster and Shawmut to effect the Shawmut
Transaction are subject to various conditions, including the following: (a) the
prior consummation of the Fleet/Shawmut Merger; (b) the receipt of all required
regulatory approvals (without material conditions) to the Shawmut Transaction
and the expiration of any related regulatory waiting periods; (c) the completion
of the Offering; (d) customary closing conditions, such as continued accuracy of
representations and warranties, delivery of legal opinions, officers'
certificates and transfer and assignment documents at the closing; (e) the
execution and delivery of the Warrant, the Standstill Agreement, the Contingent
Payment Agreement and the Sublease Agreement; and (f) the concurrent
consummation of the acquisition by Eagle under the Eagle Purchase Agreements.
Shawmut at its option may terminate the Shawmut Agreement, if the
registration statement, of which this Prospectus is a part, is not declared
effective by the SEC by January 31, 1996, unless Webster by such date has
obtained a "firm commitment underwriting letter" from Merrill Lynch, Pierce,
Fenner & Smith Incorporated or another reputable investment banking firm to
raise the amount of capital required to obtain OTS approval for Webster to
consummate the Shawmut Transaction.
In the event of a Change of Control of Webster (defined on the same
basis as in the Warrant) prior to the closing of the Shawmut Transaction,
Shawmut at its option may terminate the Shawmut Agreement.
USE OF PROCEEDS
Webster will contribute to Webster Bank all of the net proceeds from
the sale of the Common Stock in the Offering in order to increase Webster Bank's
regulatory capital ratios, which otherwise would have decreased as a result of
Webster Bank's significant increase in size upon consummation of the Shawmut
Transaction. Webster anticipates that the net proceeds from the Offering will be
approximately $27 million. See "PRO FORMA COMBINED FINANCIAL INFORMATION." In
addition, Webster expects to contribute to Webster Bank up to $20 million of
Webster's existing holding company funds to further increase Webster Bank's
capital ratios. As a result of these capital contributions, Webster Bank expects
to continue to meet all capital ratios required for a "well-capitalized" bank
following consummation of the Shawmut Transaction. See "CAPITAL RATIOS."
- 20 -
<PAGE>
In the unlikely event that the Shawmut Transaction were not to close
after consummation of the Offering, Webster would initially use the net proceeds
for investment purposes, and thereafter seek to use the net proceeds for general
business purposes, including future acquisitions, none of which is pending.
CAPITALIZATION
The following table sets forth the consolidated capitalization,
including deposit accounts and borrowings, of Webster (including Shelton) at
September 30, 1995, and Webster's pro forma combined capitalization as of that
date after giving effect to the Offering and the Shawmut Transaction. The
information shown below should be read in conjunction with the historical
consolidated statement of condition of Webster at September 30, 1995, as
restated to reflect the acquisition of Shelton. Dollar amounts are stated in
thousands.
Pro Forma
September 30, 1995
Webster Combined (e)
---------- ----------
Deposits (a)....................... $2,439,833 $3,118,833
FHL Bank Advances.................. 545,415 325,415
Other Borrowings................... 90,094 90,094
Senior Notes due June 30, 2000..... 40,000 40,000
---------- ----------
Total............................ 3,115,342 3,574,342
---------- ----------
Shareholders' Equity:
Common Stock, $.01 par value:
Authorized - 14,000,000 shares
Issued shares (b) (c)........... 73 84
Serial Preferred Stock, $.01 par value:
Authorized - 3,000,000 shares;
Outstanding - 171,869 shares of
Series B Stock 2 2
Paid-in-Capital (d)................ 105,876 132,865
Retained Earnings.................. 73,325 73,325
Less Treasury Stock at cost, 445,424 shares (3,456) (3,456)
Less ESOP Shares Purchased with Debt. (3,207) (3,207)
---------- ----------
Total Shareholders' Equity....... 172,613 199,613
---------- ----------
Total Capitalization............... $3,287,955 $3,773,955
========== ==========
- -------------------------
(a) Includes advance payments by borrowers for taxes and insurance.
(b) 6,799,611 shares of Common Stock (excluding Treasury Stock) were issued and
outstanding as of September 30, 1995 after giving effect to the Shelton
acquisition. On a pro forma combined basis, such number of issued and
outstanding shares of Common Stock would be increased to 7,899,611 shares
(or to 8,064,611 shares if the overallotment option for 165,000 shares is
exercised in full).
(c) Excludes 583,259 shares of Common Stock issuable upon exercise of
outstanding stock options to directors, officers and employees. Also,
excludes 986,062 shares of Common Stock issuable upon conversion of the
remaining shares of the Series B Stock.
(d) Net proceeds from the sale of 1,100,000 shares of Common Stock in the
Offering are estimated at $27 million (or $31.1 million if the
overallotment option for 165,000 shares is exercised in full).
(e) See "PRO FORMA COMBINED FINANCIAL INFORMATION," including adjustments to
the Pro Forma Combined Statement of Condition at September 30, 1995.
- 21 -
<PAGE>
CAPITAL RATIOS
The following table compares Webster Bank's historical and pro forma
regulatory capital levels as of September 30, 1995 to minimum regulatory
requirements. Webster intends to contribute to Webster Bank all of the $27
million in estimated net proceeds from the Offering, plus up to an additional
$20 million of existing holding company funds. Pro forma combined capital, as
shown below, reflects such capital contributions and gives effect to the Shawmut
Transaction. The actual capital level of Webster Bank may be higher or lower
depending on Webster Bank's financial condition and asset mix at the time of the
consummation of the Shawmut Transaction. See "USE OF PROCEEDS" and "PRO FORMA
COMBINED FINANCIAL INFORMATION," including the adjustments to the Pro Forma
Combined Statement of Condition.
<TABLE>
<CAPTION>
Pro Forma Combined,
Historical As Adjusted
---------- -----------
Amount Percent Amount Percent
------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Tier 1 Capital
Capital level............................................. $ 185,469 5.60% $ 191,511 5.07%
Minimum Requirement ...................................... 99,292 3.00 113,241 3.00
----------- ----- ----------- ----
Excess ................................................... $ 86,177 2.60% $ 78,270 2.07%
=========== ===== =========== =====
Tier 1 Risk-Based Capital
Capital level............................................. $ 185,469 11.68% $ 191,511 9.25%
Minimum Requirement ...................................... 63,521 4.00 82,805 4.00
----------- ------ ----------- ----
Excess.................................................... $ 121,948 7.68% $ 108,706 5.25%
=========== ===== =========== =====
Total Risk-Based Capital
Capital level............................................. $ 203,203 12.80% $ 209,245 10.11%
Minimum Requirement ...................................... 127,042 8.00 165,611 8.00
----------- ------ ----------- ----
Excess ................................................... $ 76,161 4.80% $ 43,634 2.11%
=========== ===== =========== =====
</TABLE>
To be considered "well-capitalized" for regulatory capital purposes,
Webster Bank would be required to maintain a ratio of Tier 1 capital to adjusted
total assets of 5.0%, a ratio of Tier 1 capital to risk-weighted assets of 6.0%
and a ratio of total capital to risk-weighted assets of 10.0%, which ratios are
calculated on a quarterly basis. Pro forma combined capital reflected above
assumes that the net proceeds from the Offering, and the additional capital to
be contributed from existing holding company funds, will be invested by Webster
Bank in assets with a 20% risk weighting or used to repay outstanding FHL Bank
advances. As a result of such capital contributions, Webster Bank expects to
meet all regulatory capital ratios required for a "well-capitalized" bank
following the consummation of the Shawmut Transaction.
- 22 -
<PAGE>
MARKET PRICES AND DIVIDENDS
The following sets forth the range of high and low sale prices of the
Common Stock as reported on NASDAQ on a quarterly basis, as well as cash
dividends paid during the quarters indicated. Webster paid a 10% stock dividend
on June 4, 1993. The per share data shown below and elsewhere in this Prospectus
have been adjusted retroactively to reflect such 10% stock dividend.
<TABLE>
<CAPTION>
Sale Prices
-------------------------------------------- Cash
High Low Period End Dividends Paid
---- --- ---------- --------------
<S> <C> <C> <C> <C>
1992:
First Quarter $12 3/4 $10 1/2 $11 5/8 $0.12
Second Quarter 12 7/8 10 1/2 12 3/4 0.12
Third Quarter 14 1/2 11 7/8 12 7/8 0.12
Fourth Quarter 17 1/4 12 3/4 17 1/4 0.12
1993:
First Quarter 19 1/8 16 3/8 16 7/8 0.12
Second Quarter 18 1/2 15 3/8 18 1/2 0.12
Third Quarter 21 17 3/4 20 1/4 0.13
Fourth Quarter 25 20 1/4 22 7/8 0.13
1994:
First Quarter 22 1/4 18 1/2 21 5/8 0.13
Second Quarter 24 3/4 18 3/8 23 7/8 0.13
Third Quarter 25 1/2 22 1/2 23 1/4 0.13
Fourth Quarter 23 1/2 17 1/4 18 1/2 0.13
1995:
First Quarter 22 1/4 18 1/2 21 5/8 0.16
Second Quarter 25 3/4 21 1/2 23 7/8 0.16
Third Quarter 30 1/2 23 3/8 26 1/4 0.16
Fourth Quarter 27 1/2 24 1/2 25 3/8 0.16
(through November 20)
- -------------------
</TABLE>
On November 20, 1995, the closing price of the Common Stock on NASDAQ
was $25 3/8 per share.
Webster's policy is to pay quarterly cash dividends. Webster has paid
consecutive quarterly cash dividends since 1987.
The principal sources of funds for Webster's payments of cash dividends
on its Common Stock and its Series B Stock, as well as for payment of principal
and interest on its Senior Notes, are dividends from Webster Bank and liquid
investments at the holding company level. At September 30, 1995, Webster
(excluding its investment in Webster Bank) had $26.0 million of cash and cash
equivalents, investment securities and other liquid assets at the holding
company level.
Annual dividend payments on the shares of Common Stock (based on an
annual current dividend rate of $0.64 per share) and Series B Stock outstanding
at September 30, 1995 are approximately $4.4 million and $1.3 million,
respectively. While the Senior Notes are outstanding, Webster is required to
maintain liquid assets at the holding company level equal to not less than 150%
of the aggregate interest expense on the Senior Notes and on all indebtedness
for borrowed money of Webster for 12 full calendar months. At September 30,
1995, the liquid
- 23 -
<PAGE>
asset requirement was $5.6 million based on the Senior Notes and a guaranteed
ESOP borrowing. The Senior Notes also limit Funded Indebtedness at the holding
company level to 90% of the consolidated net worth of Webster. In addition,
there are limitations on restricted distributions (which include cash dividends
and other distributions by Webster and certain principal payments or
acquisitions by Webster of its indebtedness). See "DESCRIPTION OF CAPITAL STOCK
- -- Senior Notes" as to these limitations and related definitions of capitalized
terms. The Series B Stock ranks prior to the Common Stock as to payment of
dividends. See "DESCRIPTION OF CAPITAL STOCK -- Series B Stock."
OTS capital distribution regulations limit Webster Bank's ability to
pay dividends based on its capital level and supervisory condition. Under the
regulations, a savings bank that meets fully phased-in minimum capital
requirements is generally permitted to make capital distributions of up to the
greater of (i) 100% of its net income during that year, plus the amount that
would reduce by one-half its "surplus capital ratio" (the excess capital over
its fully phased-in minimum capital requirements), or (ii) 75% of its net income
over the most recent four-quarter period. Based on fully phased-in minimum
regulatory capital requirements applicable to Webster Bank at September 30,
1995, Webster Bank had $54.1 million available under OTS capital distribution
regulations for the payment of cash dividends. Earnings by Webster Bank
subsequent to September 30, 1995 will increase the amount available under such
regulations for the payment of cash dividends in the future by Webster Bank.
However, Webster Bank's significant increase in size following consummation of
the Shawmut Transaction will reduce the amount available for the payment of cash
dividends in the future by Webster Bank. See "CAPITAL RATIOS." A 30-day notice
filing is required to be made with the OTS before any cash dividends are
declared or paid by a savings bank. There can be no assurance that Webster Bank
will continue to meet its fully phased-in minimum capital requirements in the
future or that its net income and surplus capital in the future will be
sufficient to permit the payment of cash dividends in the future by Webster Bank
to Webster.
At September 30, 1995, Webster Bank exceeded all regulatory capital
ratios required for a "well-capitalized" bank. See "CAPITAL RATIOS" as to
Webster's capital ratios at September 30, 1995, including the pro forma effect
of the Offering, the additional capital contribution using existing holding
company funds and the Shawmut Transaction on the capital ratios of Webster as of
that date. Webster Bank expects to continue to meet all regulatory capital
ratios required for a "well-capitalized" bank following the Shawmut Transaction.
Since Webster Bank intends to continue to follow its policy of maintaining its
regulatory capital ratios at the levels required for a "well-capitalized" bank,
the amount available for dividends by Webster Bank would be substantially less
than the amount permitted under the OTS capital distribution regulations
discussed above. There can be no assurance that Webster Bank will continue to
meet all regulatory capital ratios required for a "well-capitalized" bank in the
future.
An insured depository institution is prohibited from declaring any
dividend, making any other capital distribution, or paying a management fee to
its holding company if, following the distribution or payment, the institution
would be classified as "undercapitalized" or lower. Under prompt corrective
action regulations adopted by both the OTS and FDIC, an insured depository
institution would be "undercapitalized" if the institution has a total
risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of
less than 4%, or a Tier 1 capital ratio that is less than 4% (3% if the
institution is rated Composite or Macro 1 in its most recent report of
examination). Webster Bank is subject to the dividend limitations imposed by the
prompt corrective action regulations. Webster Bank, as an OTS regulated
institution, however, is only permitted to make a capital distribution under the
prompt corrective action regulations if the amount and type also would be
permitted under the OTS's existing capital distribution regulations discussed
above. In addition, Webster might be required by the OTS to maintain the capital
of Webster Bank at a level consistent with regulatory capital requirements. This
may reduce the amount of funds that would otherwise be available to Webster for
the payment of cash dividends on the Common Stock.
- 24 -
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Financial Information as of
September 30, 1995 combines the unaudited supplemental consolidated statement of
condition of Webster, as restated to include Shelton, at September 30, 1995,
with the unaudited financial information at September 30, 1995 supplied by
Shawmut as to the Shawmut assets to be acquired and liabilities to be assumed.
The Pro Forma Combined Financial Information is presented as if the Shawmut
Transaction and the Offering had occurred on September 30, 1995, and gives
effect to the pro forma adjustments described in the accompanying notes. The Pro
Forma Combined Financial Information should be read in conjunction with the
unaudited supplemental consolidated statement of financial condition and related
notes of Webster at September 30, 1995, as restated to include Shelton, which
are included elsewhere in this Prospectus. See the introductory paragraphs under
"PROSPECTUS SUMMARY--Summary Consolidated Financial Data" and "Index to
Supplemental Consolidated Financial Statements."
The Pro Forma Combined Financial Information is not necessarily
indicative of the consolidated financial position that would have been achieved
had the Shawmut Transaction and the Offering been consummated on the date
indicated.
- 25 -
<PAGE>
Pro Forma Combined Statement of Condition
<TABLE>
<CAPTION>
Shawmut Assets Purchase
Acquired and Accounting
Liabilities and Other Pro Forma
At September 30, 1995 (Unaudited) Webster Assumed Adjustments Combined
------- ------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Depository Institutions.......... $ 48,340 $ 264,000 $ (247,000)(b) $65,340
Interest-bearing Deposits.......................... 75,097 -- -- 75,097
Securities......................................... 170,593 -- -- 170,593
Mortgage-backed Securities......................... 942,722 -- (200,000)(c) 742,722
Loans Receivable, Net.............................. 1,872,542 630,000(a)(c) (12,000)(d) 2,490,542
Accrued Interest Receivable........................ 21,631 5,000 -- 26,631
Premises and Equipment, Net........................ 36,212 5,000 4,000 (e) 45,212
Segregated Assets, Net............................. 116,365 -- -- 116,365
Foreclosed Properties, Net......................... 18,801 -- -- 18,801
Core Deposit Intangible............................ 4,916 -- 42,000 (f) 46,916
Prepaid Expenses and Other Assets.................. 25,713 -- -- 25,713
----------- ----------- ------------ -----------
TOTAL ASSETS.................................... $ 3,332,932 $ 904,000 $ (413,000) $3,823,932
=========== =========== ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits........................................... $ 2,431,068 $ 900,000(a) $ (223,000)(b) $3,108,068
Federal Home Loan Bank Advances.................... 545,415 -- (220,000)(c) 325,415
Other Borrowings................................... 130,094 -- -- 130,094
Advance Payments by Borrowers for Taxes
and Insurance.................................... 8,765 2,000 -- 10,765
Accrued Expenses and Other Liabilities............. 44,977 2,000 3,000 (g) 49,977
----------- ----------- ----------- -----------
Total Liabilities............................... 3,160,319 904,000 (440,000) 3,624,319
SHAREHOLDERS' EQUITY............................... 172,613 -- 27,000 (h) 199,613
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY......................................... $ 3,332,932 $ 904,000 $ (413,000) $3,823,932
=========== =========== ============ ==========
</TABLE>
The Pro Forma Combined Statement of Condition does not include results of
operations subsequent to September 30, 1995, which are expected to increase
shareholders' equity.
The Pro Forma Combined Statement of Condition has not been adjusted to reflect
any of the improvements in operating efficiencies that Webster anticipates may
occur in the future due to the Shawmut Transaction.
See footnotes on following page.
Pro Forma Combined Selected Significant Statistical Data
Pro Forma
At September 30, 1995 (Unaudited) Webster Combined
Book value per common share........................... $22.86 $23.09
Tangible book value per common share.................. $22.14 $17.16(i)
Common shares outstanding (000's)..................... 6,800 7,900
Shareholders' equity to total assets.................. 5.18% 5.22%
Nonaccrual assets to total assets..................... 1.73% 1.51%
Allowance for loan losses to nonaccrual loans......... 112.94% 126.15%
Allowances for nonaccrual assets to nonaccrual assets. 75.94% 84.60%
- 26 -
<PAGE>
Notes to Pro Forma Combined Statement of Condition
(a) The weighted average interest rates at September 30, 1995 for the loans
to be acquired and deposits to be assumed in the Shawmut Transaction
were 8.37% and 2.80%, respectively.
(b) As part of the Shawmut Transaction, Webster will exchange two of its
Fairfield County branch banking offices (the "Branch Exchange"), the
effect of which is expected to reduce cash and deposits by
approximately $173 million. The weighted average interest rate at
September 30, 1995 of the deposits being exchanged is 4.93%. Included
below is a summary of the projected effect on cash of the Branch
Exchange, the effect of adjustments to cash for estimated run-off of
assumed deposits of $50 million and the acquired loan repayments and
prepayments of principal balances of $15 million. Such deposit run-off
is projected from October 1, 1995 to the expected date of the Shawmut
Transaction closing. The amounts reflected as loan repayments and
prepayments of principal are primarily estimates of such activity from
October 1, 1995 to the expected date of the Shawmut Transaction
closing. The remaining $39 million of other cash reductions represents
the estimated net impact of the Shawmut Transaction, the Offering and
other adjustments as described in footnote (c) below.
(In thousands)
Branch Exchange................................... $(173,000)
Projected deposit run-off......................... (50,000)
----------
Total cash adjustments related to deposits...... (223,000)
----------
Projected loan repayments and prepayments......... 15,000
Other cash reductions ............................ (39,000)
----------
Total net cash adjustments ..................... $(247,000)
==========
(c) Webster expects to sell approximately $200 million of available for
sale mortgage-backed securities with a weighted average interest rate
at September 30, 1995 of approximately 6.61% and use excess cash to
payoff approximately $220 million of outstanding FHL Bank advances with
a weighted average interest rate at September 30, 1995 of approximately
6.20%. Such transactions will assist Webster Bank to continue as a
"well-capitalized" bank for regulatory capital ratio purposes following
the Shawmut Transaction and the Offering. See footnote (h) below as to
the Offering. Also, see "CAPITAL RATIOS" elsewhere in this Prospectus.
(d) Purchase accounting and other adjustments related to the acquired loan
portfolio reflect loan loss allowances, projected repayments and
prepayments of principal balances offset by mark to market premium
adjustments.
(e) The stated book value of premises and equipment acquired estimated at
$5.0 million approximates market value. Webster expects to purchase
approximately $4 million of additional data processing and other
equipment.
(f) Represents a tax deductible core deposit intangible estimated at
approximately $42 million based on $850 million of deposit liabilities
assumed (after the projected deposit run-off).
(g) Includes estimated transaction costs of approximately $3 million
(principally financial advisory and other professional fees).
- 27 -
<PAGE>
(h) Webster expects to raise approximately $27 million in net shareholders'
equity through the sale of approximately 1.1 million additional shares
of Common Stock in the Offering. There can be no assurance that the
Offering will be consummated or as to the number of shares to be issued
or the price per share.
(In thousands)
Estimated common equity raised....................... $ 29,000
Estimated expenses (including underwriting discount)
related to the sale of common equity................ (2,000)
------------
Estimated net proceeds from the sale of
common equity..................................... $ 27,000
============
(i) On a pro forma combined basis, the tangible book value per share is
computed by subtracting the tax deductible core deposit intangible
estimated at approximately $46.9 million (including $4.9 million prior
to the Shawmut Transaction) from common shareholders' equity estimated
at approximately $182.4 million, divided by the shares of Common Stock
outstanding estimated at approximately 7.9 million shares.
Pro Forma Combined Summary
After giving effect to the Shawmut Transaction: Webster at September
30, 1995 would have pro forma combined total assets of approximately $3.8
billion. Webster's net loans receivable would increase as of that date from $1.9
billion to approximately $2.5 billion on a pro forma combined basis; the
weighted average interest rate of Webster's total interest-earning assets of
7.50% at September 30, 1995 would increase to approximately 7.74% on a pro forma
combined basis; total deposits at September 30, 1995 would increase from $2.4
billion to approximately $3.1 billion on a pro forma combined basis; the
weighted average interest rate of Webster's total interest-bearing liabilities
of 4.60% at September 30, 1995 would decrease to approximately 4.07% on a pro
forma combined basis; and the weighted average interest rate spread of 2.90% at
September 30, 1995 would increase to approximately 3.67% on a pro forma combined
basis. The assets being acquired and the liabilities being assumed in the
Shawmut Transaction will be the amounts outstanding at the date of consummation
of the Shawmut Transaction. The amounts and weighted average interest rates will
change from the September 30, 1995 amounts and weighted average interest rates
shown above due to interest-rate repricing, principal repayments and prepayments
and other changes in balances of the assets being acquired and the liabilities
being assumed.
- 28 -
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
Webster is authorized to issue 14,000,000 shares of Common Stock (par
value $.01 per share), of which 6,807,198 shares (excluding Treasury Stock) were
issued and outstanding as of November 1, 1995. As of November 1, 1995, there
were outstanding options for 583,259 shares of Common Stock held by directors,
officers and employees of Webster. After giving effect to the conversion of the
outstanding Series B Stock into 986,062 shares of Common Stock as described
below and the exercise of outstanding stock options, there would be a total of
8,376,519 shares of Common Stock (excluding Treasury Stock) then outstanding.
See "CAPITALIZATION" as to the number of shares of Common Stock to be
outstanding after giving effect to the Offering. Each share of Common Stock has
the same relative rights and is identical in all respects to each other share of
the Common Stock. The Common Stock is non-withdrawable capital, is not of an
insurable type and is not insured by the FDIC or any other governmental entity.
Holders of the Common Stock are entitled to one vote per share on each
matter properly submitted to shareholders for their vote, including the election
of directors. Holders of the Common Stock do not have the right to cumulate
their votes for the election of directors, and they have no pre-emptive or
conversion rights with respect to any shares that may be issued. The Common
Stock is not subject to additional calls or assessments by Webster, and all
shares of the Common Stock currently outstanding are fully paid and
nonassessable.
Holders of the Common Stock are entitled to receive dividends when and
as declared by the Board of Directors out of funds legally available for
distribution. No cash dividends or other distributions may be declared or paid
on the Common Stock, however, unless all accumulated dividends have been paid
concurrently on the Series B Stock. In addition, as described below, the
indenture for the Senior Notes places certain restrictions on Webster's ability
to pay cash dividends on the Common Stock. See "DESCRIPTION OF CAPITAL STOCK --
Senior Notes."
In the unlikely event of any liquidation or dissolution of Webster, the
holders of the Common Stock would be entitled to receive (after payment or
provision for payment of all debts and liabilities of Webster and after payment
of the liquidation preferences of all outstanding shares of preferred stock) all
remaining assets of Webster available for distribution, in cash or in kind.
The transfer agent and registrar for the Common Stock is Chemical
Mellon Shareholders Services, L.L.C., Securityholder Relations, P.O. Box 24935,
Church Street Station, New York, New York 10249.
Series B Stock
Webster's Certificate of Incorporation authorizes the Board of
Directors, without further stockholder approval, to issue up to 3,000,000 shares
of serial preferred stock for any proper corporate purpose. In approving any
issuance of serial preferred stock, the Board of Directors has broad authority
to determine the rights and preferences of the serial preferred stock, which may
be issued in one or more series. These rights and preferences may include
voting, dividend, conversion and liquidation rights that may be senior to the
Common Stock.
Of the 3,000,000 authorized shares of serial preferred stock, 171,869
shares of Series B Stock are currently outstanding. The Series B Stock ranks
prior to the Common Stock with respect to dividends and amounts distributable
upon liquidation. The Series B Stock is entitled to receive, when declared by
the Board of Directors out of funds of Webster legally available therefor,
cumulative quarterly cash dividends at an annual rate of 7 1/2%. Unless full
cumulative dividends on the Series B Stock have been paid, dividends (other than
in Common Stock) may not be paid or declared upon the Common Stock. Upon any
liquidation of Webster, the holders of the Series B Stock will be entitled to
receive out of the assets of Webster available for distribution to its
shareholders before any distribution is made to holders of the Common Stock an
amount equal to $100 per share, plus an amount equal to all dividends
accumulated and unpaid on the Series B Stock to the date of final distribution.
Except as indicated below or as required by law, holders of the Series
B Stock have no voting rights. If at any time six quarterly dividends payable on
the Series B Stock are accumulated and unpaid, the number of directors
- 29 -
<PAGE>
of Webster is required to be increased by two and the holders of all the Series
B Stock, voting as a single class, will be entitled to elect the additional two
directors until all dividends accumulated on the Series B Stock have been paid
in full. In addition, without the vote or consent of the holders of at least
two-thirds of the Series B Stock then outstanding, Webster may not (i) amend,
alter or repeal any of the provisions of its Certificate of Incorporation or
Certificate of Designation so as to affect adversely the preferences or powers
of the Series B Stock, (ii) authorize any reclassification of the Series B
Stock, or (iii) issue any shares of any class or series of stock of Webster
ranking prior to the shares of the Series B Stock as to dividends or upon
liquidation, or reclassify any authorized stock of Webster into any such prior
shares or issue any obligation or security convertible into or evidencing the
right to purchase any such prior shares. Accordingly, the voting rights of the
holders of Series B Stock could under certain circumstances operate to restrict
the flexibility that Webster would otherwise have in connection with any future
issuances of equity securities or changes to its capital structure.
The Series B Stock is not subject to any mandatory redemption at the
election of the holder or sinking fund provision. The Series B Stock may be
redeemed for cash at the option of Webster, in whole or in part, at any time on
or after January 15, 1997, at the applicable redemption price, plus accumulated
and unpaid dividends. The redemption price initially will be $104.50 per share
effective as of January 15, 1997 and will decline to $100.00 after January 15,
2003. Holders of Series B Stock have the right, at their option, at any time to
convert the Series B Stock into a number of fully paid and nonassessable shares
of Common Stock equal to $100.00 for each share surrendered for conversion
divided by the conversion price, subject to certain exceptions following a
notice of redemption by Webster. The current conversion price per share of
Series B Stock is $17.43 (equivalent to 5.74 shares of Common Stock per share of
Series B Stock), as adjusted for the 10% stock dividend issued to shareholders
of record on June 4, 1993. Such conversion price is subject to further
adjustment upon certain events. If the actual price of the shares of Common
Stock sold in the Offering is less than the average of the last reported sales
prices per share for the ten consecutive trading days preceding the date of
issuance of such Common Stock, the conversion price for the Series B Stock will
be subject to further adjustment.
Senior Notes
The Senior Notes were issued by Webster in an aggregate principal
amount of $40,000,000 pursuant to an Indenture (the "Indenture"), dated as of
June 15, 1993, between Webster and Chemical Bank, as trustee (the "Trustee").
Certain provisions of the Indenture are summarized below because of their impact
on the Common Stock. The Senior Notes bear interest at the annual rate of 8
3/4%, payable semi-annually on each June 30 and December 30 until maturity on
June 30, 2000. The Senior Notes are unsecured general obligations of Webster
only and not of its subsidiaries. The Senior Notes may not be redeemed by
Webster prior to maturity. This provision is not expected to have an
anti-takeover effect, since the Notes would be assumed by any acquiror of
Webster. The Indenture contains covenants that limit Webster's ability at the
holding company level to incur additional Funded Indebtedness (as defined
below), to make Restricted Distributions (as defined below), to engage in
certain dispositions affecting Webster Bank or its voting stock, to create
certain liens upon Webster's assets at the holding company level (including a
negative pledge clause), and to engage in mergers, consolidations, or sale of
substantially all of Webster's assets unless certain conditions are satisfied.
The Indenture also requires that Webster maintain a specified level of liquid
assets at the holding company level.
Restrictions on Additional Indebtedness. The Indenture limits the
amount of Funded Indebtedness which Webster may incur or guarantee at the
holding company level. Funded Indebtedness includes any obligation of Webster
with a maturity in excess of one year for borrowed money, for the deferred
purchase price of property or services, for capital lease payments, or related
to the guarantee of such obligations. Webster may not incur or guarantee any
Funded Indebtedness if, immediately after giving effect thereto, the amount of
Funded Indebtedness of Webster at the holding company level, including the
Senior Notes, would be greater than 90% of Webster's consolidated net worth. As
of September 30, 1995, Webster's consolidated net worth was $172.6 million and
it had $43.1 million of Funded Indebtedness.
Restricted Distributions. Under the Indenture, Webster may not,
directly or indirectly, make any Restricted Distribution (as defined below),
except in capital stock of Webster, if, at the time or after giving effect
thereto: (a) an event of default shall have occurred and be continuing under the
Indenture; (b) Webster Bank would fail to meet any of the applicable minimum
capital requirements under OTS regulations; (c) Webster would fail to maintain
sufficient liquid assets to comply with the terms of the covenant described
under "Liquidity Maintenance"
- 30 -
<PAGE>
below; or (d) the aggregate amount of all Restricted Distributions subsequent to
March 31, 1993 would exceed the sum of (i) $5 million, plus (ii) 75% of
Webster's aggregate consolidated net income (or if such aggregate consolidated
net income would be a deficit, minus 100% of such deficit) accrued on a
cumulative basis in the period commencing on March 31, 1993 and ending on the
last day of the fiscal quarter immediately preceding the date of the Restricted
Distribution, and plus (iii) 100% of the net proceeds received by Webster from
any capital stock issued by Webster (other than to a subsidiary) subsequent to
March 31, 1993. As of September 30, 1995, Webster had the ability to pay $57.2
million in Restricted Distributions. Such amount will be increased by the amount
of net proceeds raised by Webster in the Offering.
Restricted Distribution means: (a) any dividend, distribution or other
payment (except for dividends, distributions or payments payable in capital
stock or dividends on the Series B Stock) on the capital stock of Webster or any
subsidiary (other than a wholly owned subsidiary); (b) any payment to purchase,
redeem, acquire or retire any capital stock of Webster (other than the Series A
Stock, which was previously redeemed), the capital stock of any subsidiary
(other than a wholly owned subsidiary); and (c) any payment by Webster of
principal (whether a prepayment, redemption or at maturity) of, or to acquire,
any indebtedness for borrowed money issued or guaranteed by Webster (other than
the Senior Notes or pursuant to a guarantee by Webster of any borrowing by any
ESOP established by Webster or a wholly owned subsidiary), except that any such
payment of principal of, or to acquire, any such indebtedness for borrowed money
that is not subordinated to the Senior Notes will not constitute a Restricted
Distribution, if such indebtedness was issued or guaranteed by Webster at a time
when the Senior Notes were rated in the same or higher rating category as the
rating assigned to the Senior Notes by Standard & Poor's Ratings Group ("S&P")
at the time the Senior Notes were issued.
Liquidity Maintenance. The Indenture requires that Webster maintain at
all times, on an unconsolidated basis, liquid assets in an amount equal to or
greater than 150% of the aggregate interest expense on the Senior Notes and all
other indebtedness for borrowed money of Webster for 12 full calendar months
immediately following each determination date under the Indenture, provided that
Webster will not be required to maintain such liquid assets once the Senior
Notes have been rated "BBB-" or higher by S&P for six calendar months and remain
rated in such category.
Provisions Affecting Rights of Shareholders
General. Certain provisions included in Webster's Certificate of
Incorporation and Bylaws may serve to entrench current management and to prevent
a change in control of Webster even if desired by a majority of shareholders.
These provisions are desired to encourage potential acquirers to negotiate
directly with the Board of Directors of Webster and to discourage other takeover
attempts. The following discussion is a general summary of certain provisions of
Webster's Certificate of Incorporation and Bylaws, and certain other regulatory
provisions that may be deemed to have an "anti-takeover" effect. The description
is necessarily general and, with respect to provisions contained in Webster's
Certificate of Incorporation and Bylaws, reference should be made to the
document in question, each of which is an exhibit to Webster's registration
statement. In addition, see "THE SHAWMUT TRANSACTION -- The Standstill
Agreement."
Directors. Certain provisions of Webster's Certificate of Incorporation
and Bylaws will impede changes in majority control of Webster's Board of
Directors. The Certificate of Incorporation provides that the Board of Directors
will be divided into three classes, with directors in each class elected for
three-year staggered terms. Thus, assuming nine directors, as is currently the
case, it would take two annual elections to replace a majority of the board. The
Bylaws provide that the size of the Board of Directors, within the 7-to-15 range
specified in the Certificate of Incorporation, may be increased or decreased
only by a two-thirds vote of the board and by a vote of two-thirds of the shares
eligible to be voted at a duly constituted meeting of shareholders called for
such purpose. The Certificate of Incorporation provides that a vacancy occurring
in the Board of Directors, including a vacancy created by any increase in the
number of directors, may be filled for the remainder of the unexpired term by a
majority vote of the directors then in office. Finally, the Bylaws impose
certain restrictions on the nomination by shareholders of candidates for
election to the Board of Directors or the proposal by shareholders of business
to be acted upon at an annual meeting of shareholders.
The Certificate of Incorporation provides that a director may be
removed only for cause and then only by the affirmative vote of two-thirds of
the total shares eligible to vote at a duly constituted meeting of the
shareholders
- 31 -
<PAGE>
called expressly for that purpose. The Certificate of Incorporation also
provides that 30 days' written notice must be provided to any director or
directors whose removal is to be considered at a shareholders' meeting called
for such purpose. See "THE SHAWMUT TRANSACTION -- The Standstill Agreement" as
to the agreement by Fleet to vote all shares of Common Stock of Webster owned by
Fleet or its affiliates, as determined by the Board of Directors of Webster, for
a period of five years after the issuance of the Warrant. The Standstill
Agreement also contains limitations on the sale of shares of Common Stock of
Webster acquired upon exercise of the Warrant.
Call of Special Meetings. The Corporation's Certificate of
Incorporation contains a provision which provides that a special meeting of
shareholders may be called at any time but only by the chairman of the board or
the president of the corporation or by the Board of Directors. Shareholders are
not authorized to call a special meeting.
Cumulative Voting. The Certificate of Incorporation denies cumulative
voting rights in the election of directors.
Authorization of Serial Preferred Stock. The Certificate of
Incorporation authorizes 3,000,000 shares of serial preferred stock, $.01 par
value, of which only 171,869 shares of Series B Stock are outstanding. See
"DESCRIPTION OF CAPITAL STOCK -- Series B Stock." Webster is authorized to issue
serial preferred stock from time-to-time in one or more series subject to
applicable provisions of law. Webster's Board of Directors, without stockholder
approval, is authorized to fix the designations, powers, preferences, and
relative, participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights, that could adversely affect the voting power of the holders
of its Common Stock. In the event of a proposed merger, tender offer or other
attempt to gain control of Webster of which management does not approve, it
might be possible for the Board of Directors to authorize the issuance of a
series of serial preferred stock with rights and preferences that could impede
the completion of such a transaction. The Board of Directors could also issue a
series of serial preferred stock that may have the effect of deterring a future
takeover attempt.
Approval of Acquisitions of Control. The Certificate of Incorporation
prohibits any person (whether an individual, company or group acting in concert)
from acquiring beneficial ownership of 10% or more of Webster's voting stock,
unless the acquisition has received the prior approvals of two-thirds of
Webster's outstanding voting shares and of all required federal regulatory
authorities. Furthermore, no person may make an offer to acquire 10% or more of
Webster's voting stock without obtaining prior approval of the offer by a
two-thirds vote of Webster's Board of Directors or, alternatively, before the
offer is made, obtaining approval of the acquisition from the OTS. These
provisions do not apply to the purchase of shares by underwriters in connection
with a public offering, and the provisions remain effective only so long as
Webster Bank is a majority-owned subsidiary of Webster. Shares acquired in
excess of these limitations are not entitled to vote or take other shareholder
action or be counted in determining the total number of outstanding shares of
voting stock in connection with any matter involving shareholder action. These
excess shares are also subject to transfer to a trustee, selected by Webster,
for the sale on the open market or otherwise, with the expenses of the trustee
to be paid out of the proceeds of such sale. These limitations on offers and
purchases do not apply to Webster Bank's ESOP or other employee benefits plans.
See "THE SHAWMUT TRANSACTION --The Standstill Agreement" as to the voting of
shares of Common Stock of Webster owned by Fleet or its affiliates, as
determined by the Board of Directors of Webster.
Federal law provides that, subject to certain exemptions, no person
acting directly or indirectly or through or in concert with one or more other
persons may acquire "control" of an insured institution (such as Webster Bank)
without giving at least 60 days' prior written notice providing specified
information to the institution's primary federal regulator, which is the OTS.
"Control" is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of an insured institution or to vote 25
percent or more of any class of voting securities of an insured institution.
Control is presumed to exist where the acquiring party has voting control of at
least 10 percent of any class of the institution's voting securities and the
acquiring party is subject to a "control factor" as defined in the Rules and
Regulations of the OTS. The OTS may prohibit the acquisition of control if it
finds among other things that (i) the acquisition would result in a monopoly or
substantially lessen competition; (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the institution; or (iii) the
competence, experience or integrity of any acquiring person or any of the
proposed management personnel indicates that it would not be in the interest of
the depositors or the public to permit the acquisition of control by such
person.
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<PAGE>
Connecticut banking statutes prohibit any person from offering to
acquire or acquiring voting stock of a federal savings bank having its principal
office in Connecticut (such as Webster Bank) or a holding company of such an
entity (such as Webster), that would result in such person becoming, directly or
indirectly, the beneficial owner of more than 10% of any class of voting stock
of such savings bank unless such person had previously filed an acquisition
statement with the Commissioner and such offer or acquisition has not been
disapproved by the Commissioner.
Regulations adopted by the Commissioner also place certain restrictions
on the ability of any person to acquire more than 10 percent of any class of
equity securities of Webster. No person, acting singly or together with any
associate or group of persons acting in concert, for a period of three years
following the date of the Bristol acquisition (until March 3, 1997) shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of equity securities of Webster without the
prior written approval of the Commissioner. The foregoing restriction will not
apply to Webster's Series B Stock, so long as six or more quarterly dividends
are not accumulated and unpaid so as to entitle such preferred shareholders to
elect two members of the Board of Directors of Webster. Where any person,
directly or indirectly, acquires the beneficial ownership of more than 10
percent of any such class of equity securities of Webster without the prior
written approval of the Commissioner, the securities beneficially owned by such
person in excess of 10 percent shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matter submitted to the shareholders for a vote. The foregoing
provisions will not apply to the acquisition of beneficial ownership by one or
more employee benefit plans of Webster provided that the plan or plans do not
have beneficial ownership in an aggregate of more than 25 percent of any class
of any equity security of Webster.
Procedures for Certain Business Combinations. The Certificate of
Incorporation requires that certain business combinations between Webster (or
any majority-owned subsidiary thereof) and a 10% or more stockholder or its
affiliates (collectively, the "Interested Shareholder") either (i) be approved
by at least 80% of the total number of outstanding voting shares of Webster, or
(ii) either be approved by two-thirds of Webster's continuing Board of Directors
(persons serving prior to the 10% shareholder becoming such) or involve
consideration per share generally equal to that paid by the 10% shareholder when
it acquired its block of stock. The types of business combinations with an
Interested Shareholder covered by this provision include: mergers,
consolidations, stock exchanges; a sale, lease, exchange, mortgage, pledge or
other transfer of assets other than in the usual and regular course of business;
an issuance by Webster of its equity securities having a market value in excess
of 5% of aggregate market value of its outstanding shares; the adoption of any
plan of liquidation of Webster or any subsidiary proposed by an Interested
Shareholder; and any reclassification of securities or recapitalization of
Webster which has the effect of increasing the proportionate equity ownership
interest of the Interested Shareholder.
Anti-Greenmail. The Certificate of Incorporation requires approval by a
majority of the outstanding voting stock before Webster may directly or
indirectly purchase or otherwise acquire any voting stock beneficially owned by
a holder of 5% or more of Webster's voting stock, if such holder has owned the
shares for less than two years. Any shares beneficially held by such person
would be excluded in calculating majority stockholder approval. This provision
would not apply to a pro rata offer made by Webster to all of its shareholders
in compliance with the Exchange Act and the rules and regulations thereunder or
a purchase of voting stock by Webster if the Board of Directors has determined
that the purchase price per share does not exceed the fair market value of such
voting stock.
Criteria for Evaluating Offers. The Certificate of Incorporation
provides that the Board of Directors, when evaluating any acquisition offers,
shall give due consideration to all relevant factors, including, without
limitation, the economic effects of acceptance of the offer on depositors,
borrowers and employees of Webster Bank and on the communities in which Webster
Bank operates or is located, as well as on the ability of Webster Bank to
fulfill the objectives of an insured institution under applicable federal
statutes and regulations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Certificate of Incorporation must be approved by a two-thirds vote of Webster's
Board of Directors and also by a majority of the outstanding shares of Webster's
voting stock, provided, however, that approval by two-thirds of the outstanding
voting stock is generally required for certain provisions. In addition, the
provisions regarding certain business combinations may be amended only by the
same "80%" stockholder vote required to approve a business combination with a
10% stockholder.
- 33 -
<PAGE>
The Bylaws may be amended by a two-thirds vote of the Board of
Directors or a two-thirds vote of the total shares eligible to be voted at a
duly constituted meeting of shareholders.
Delaware Takeover Statute. Section 203 of the Delaware General
Corporation Law (the "Delaware Takeover Statute") applies to Delaware
corporations with a class of voting stock listed on a national securities
exchange, authorized for quotation on an inter-dealer quotation system, or held
of record by 2,000 or more persons, and restricts transactions which may be
entered into by such a corporation and certain of its shareholders. The Delaware
Takeover Statute provides, in essence, that a shareholder acquiring more than
15% of the outstanding voting shares of a corporation subject to the statute (an
"Interested Person") but less than 85% of such shares may not engage in certain
"Business Combinations" with the corporation for a period of three years
subsequent to the date on which the shareholder became an Interested Person
unless (i) prior to such date the corporation's Board of Directors approved
either the Business Combination or the transaction in which the shareholder
became an Interested Person or (ii) the Business Combination is approved by the
corporation's Board of Directors and authorized by a vote of at least two-thirds
of the outstanding voting stock of the corporation not owned by the Interested
Person.
The Delaware Takeover Statute defines the term "Business Combination"
to encompass a wide variety of transactions with or caused by an Interested
Person in which the Interested Person receives or could receive a benefit on
other than a pro rata basis with other shareholders, including mergers, certain
asset sales, certain issuances of additional shares to the Interested Person,
transactions with the corporation which increase the proportionate interest of
the Interested Person or transactions in which the Interested Person receives
certain other benefits.
- 34 -
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase
Agreement, Webster has agreed to sell to each of the Underwriters named below,
and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Advest, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase, the number of shares of
Common Stock set forth opposite its name below. The Underwriters are committed
to purchase all of such shares if any are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased
as set forth in the Purchase Agreement.
Underwriter Number of Shares
----------- ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Advest, Inc.
---------
Total 1,100,000
=========
The Representatives have advised Webster that the Underwriters propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $_____ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $_____ per share on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
Webster has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an additional 165,000
shares of Common Stock to cover over-allotments, if any, at the public offering
price less the underwriting discount. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock purchased by it shown in the foregoing table is
of the 1,100,000 shares of Common Stock initially offered hereby.
Webster has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Webster has agreed that it will not, with certain exceptions, offer,
sell or otherwise dispose of any shares of Common Stock for 45 days from the
date of this Prospectus without the prior written consent of the Underwriters.
This prohibition will not affect shares of Common Stock issued by Webster
pursuant to employee or director benefit plans, the dividend reinvestment plan,
an acquisition, the conversion or exercise of securities convertible into or
exercisable for Common Stock of Webster, or the Warrant.
In connection with this Offering, certain Underwriters (and selling
group members, if any) may engage in passive market making transactions in the
Common Stock on NASDAQ in accordance with Rule 10b-6A under the
- 35 -
<PAGE>
Exchange Act. Rule 10b-6A permits, upon satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that are
also NASDAQ market makers in the security being distributed to engage in limited
market making transactions during the period when Rule 10b-6 under the Exchange
Act would otherwise prohibit such activity. Rule 10b-6A prohibits underwriters
and selling group members engaged in passive market making, generally, from
entering a bid or effecting a purchase at a price that exceeds the highest bid
for those securities displayed on NASDAQ by a market maker that is not
participating in the distribution. Under Rule 10b-6A, each underwriter or
selling group member engaged in passive market making is subject to a daily net
purchase limitation equal to 30% of such entity's average daily trading volume
during the two full consecutive calendar months immediately preceding the date
of the filing of the registration statement under the Securities Act pertaining
to the security to be distributed.
Merrill Lynch, Pierce, Fenner & Smith Incorporated renders various
financial advisory services to Webster from time to time, including services in
connection with the Shawmut Transaction.
LEGAL MATTERS
Hogan & Hartson L.L.P., Washington, D.C., counsel to Webster, will
render an opinion as to the legality of the shares of the Common Stock being
offered hereby. Certain legal matters will be passed upon for the Underwriters
by Brown & Wood, New York, New York.
EXPERTS
The supplemental consolidated financial statements of Webster (as
restated to include Shelton) at December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, included elsewhere in this
Prospectus, have been so included in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere in
this Prospectus and given upon the authority of that firm as experts in
accounting and auditing. The report refers to the fact that Webster and Shelton
adopted the provisions of the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" and No.
115 "Accounting for Certain Debt and Equity Securities" in 1993.
The separate consolidated financial statements of Webster (excluding
Shelton) at December 31, 1994 and 1993, and for each of the three years in the
period ended December 31, 1994, incorporated by reference into this Prospectus,
have been so incorporated in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing in the incorporated
materials and given upon the authority of that firm as experts in accounting and
auditing. The report refers to the fact that Webster adopted the provisions of
the Financial Accounting Standards Board's Statements of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" and No. 115 "Accounting for
Certain Debt and Equity Securities" in 1993.
The separate consolidated financial statements of Shelton at June 30,
1995 and 1994, and for each of the three years in the period ended June 30,
1995, incorporated by reference in this Prospectus, have been so incorporated in
reliance upon the report of Coopers & Lybrand L.L.P., independent public
accountants, appearing in the incorporated materials and given on the authority
of that firm as experts in accounting and auditing. The report refers to the
fact that Shelton changed its methods of accounting for investments and income
taxes during the fiscal year ended June 30, 1994.
- 36 -
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................ F-2
Supplemental Consolidated Statements of Condition
at December 31, 1994 and 1993..................................... F-3
Supplemental Consolidated Statements of Income for the
Years Ended December 31, 1994, 1993 and 1992...................... F-4
Supplemental Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992...................... F-5
Supplemental Consolidated Statements of Shareholders'
Equity for the Years Ended December 31, 1994,
1993 and 1992..................................................... F-7
Notes to Supplemental Consolidated Financial Statements.............. F-8
Supplemental Consolidated Statements of Condition
at September 30, 1995 (Unaudited) and at
December 31, 1994................................................. F-33
Supplemental Consolidated Statements of Income for the
Nine Months Ended September 30, 1995 and
1994 (Unaudited).................................................. F-34
Supplemental Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and
1994 (Unaudited).................................................. F-35
Notes to Supplemental Consolidated Financial Statements
(Unaudited)....................................................... F-36
F-1
<PAGE>
KPMG Peat Marwick LLP
CityPlace II
Hartford, CT 06103-4103
Independent Auditors' Report
The Board of Directors
Webster Financial Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Webster Financial Corporation and subsidiaries as of December 31, 1994 and 1993,
and the related supplemental consolidated statements of income, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994. These supplemental consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards requre 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.
The supplemental consolidated financial statements give retroactive effect to
the merger of Webster Financial Corporation and Shelton Bancorp, Inc. on
November 1, 1995, which has been accounted for as a pooling-of-interests as
described in Note 2 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consumation.
However, they will become the historical consolidated financial statements of
Webster Financial Corporation and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the supplemental 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, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
November 16, 1995
F-2
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION
December 31, 1994 and 1993
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Cash and Due from Depository Institutions $ 44,304 $ 25,044
Interest-bearing Deposits 54,318 21,414
Trading Securities, at Fair value (Note 3) 23,095 49,938
Securities: (Note 3)
Available for Sale, at Fair value 175,214 183,932
Held to Maturity, (Market value: $599,412 in 1994;
$453,855 in 1993) 630,449 448,516
Loans Receivable, Net (Note 4) 1,869,216 1,467,935
Segregated Assets, Net (Note 5) 137,096 176,998
Accrued Interest Receivable 18,359 14,040
Premises and Equipment, Net (Note 6) 36,632 29,613
Other Real Estate Acquired Through Foreclosure
and In-Substance Foreclosure, Net (Note 12) 26,588 25,464
Prepaid Expenses and Other Assets (Note 7) 38,580 40,509
--------- ---------
Total Assets $3,053,851 $2,483,403
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 8) $2,431,945 $1,965,635
Federal Home Loan Bank Advances (Note 9) 370,700 270,200
Other Borrowings (Note 10) 43,675 41,952
Advance Payments by Borrowers for Taxes and Insurance 13,375 14,007
Accrued Expenses and Other Liabilities 37,349 65,336
--------- ---------
Total Liabilities 2,897,044 2,357,130
--------- ---------
Shareholders' Equity: (Notes 14 and 15)
Cumulative Convertible Preferred Stock, Series B,
172,129 shares issued and outstanding at December 31, 1994 and
250,000 shares issued and outstanding at December 31, 1993 2 3
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 7,255,834 shares at December 31, 1994 and
5,582,542 shares at December 31, 1993 73 57
Paid in Capital 104,961 82,546
Retained Earnings 63,216 49,317
Less Treasury Stock at cost, 475,874 shares at December 31, 1994 and
495,034 shares at December 31, 1993 (3,692) (3,816)
Less Employee Stock Ownership Plan Shares Purchased with Debt (3,675) (1,952)
Unrealized Securities (Losses) Gains, Net (4,078) 118
--------- --------
Total Shareholders' Equity 156,807 126,273
--------- --------
Commitments and Contingencies (Notes 4, 6, and 16)
Total Liabilities and Shareholders' Equity $3,053,851 $2,483,403
========= =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-3
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
December 31, 1994, 1993 and 1992
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest Income:
Loans and Segregated Assets $139,648 $121,372 $ 83,649
Mortgage-backed Securities 38,786 24,777 19,739
Securities and Interest-bearing Deposits 12,386 8,440 7,633
------- ------- -------
Total Interest Income 190,820 154,589 111,021
------- ------- -------
Interest Expense:
Interest on Deposits (Note 9) 76,835 68,687 54,878
Interest on Borrowings 21,629 12,116 6,327
------- ------ ------
Total Interest Expense 98,464 80,803 61,205
------- ------ ------
Net Interest Income 92,356 73,786 49,816
Provision for Loan Losses (Note 5) 3,155 4,597 5,574
------- ------ ------
Net Interest Income After Provision
for Loan Losses 89,201 69,189 44,242
------- ------ ------
Noninterest Income:
Fees and Service Charges 12,188 7,912 5,677
Gain (Loss) on Sale of Loans, Securities
and Mortgage-backed Securities, Net (Note 3) (1,182) 1,880 1,962
Other Noninterest Income 2,623 911 768
------- ------ ------
Total Noninterest Income 13,629 10,703 8,407
------- ------ ------
Noninterest Expenses:
Salaries and Employee Benefits 34,943 22,336 14,546
Occupancy Expense of Premises 5,696 4,757 2,735
Furniture and Equipment Expenses 5,976 4,066 2,742
Federal Deposit Insurance Premiums 5,742 3,921 2,266
Other Real Estate Owned Expenses
and Provisions, Net (Note 13) 6,949 5,085 6,135
Core Deposit Intangible Write-Down 5,000 - -
Other Operating Expenses 14,989 14,832 10,729
------- ------ ------
Total Noninterest Expenses 79,295 54,997 39,153
------- ------ ------
Income Before Income Taxes and
Cumulative Effect of Change in Method
of Accounting for Income Taxes 23,535 24,895 13,496
Income Taxes (Note 14) 4,850 10,595 7,083
------- ------ ------
Income Before Cumulative Effect of Change in
Method of Accounting for Income Taxes 18,685 14,300 6,413
Cumulative Effect of Change in
Method of Accounting for Income Taxes (Note 14) - 4,575 -
------- ------ ------
Net Income 18,685 18,875 6,413
Preferred Stock Dividends 1,716 2,653 581
------- ------ ------
Net Income Available to Common Shareholders $ 16,969 $16,222 $ 5,832
======= ====== ======
Net Income Per Common Share Before
Cumulative Effect of Change in Method
of Accounting for Income Taxes:
Primary $2.69 $2.25 $1.18
Fully Diluted 2.44 2.04 1.16
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-4
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
(Dollars In Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 18,685 $ 18,875 $ 6,413
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 3,155 4,597 5,574
Provision for Other Real Estate Owned Losses 3,082 1,996 4,452
Provision for Depreciation and Amortization 4,383 3,180 1,687
Amortization of Securities Premiums, Net 390 2,103 252
Amortization and Write-down of Core Deposit Intangible 6,372 1,633 386
Losses on Sale of Other Real Estate Owned 465 143 105
Loans and Securities Losses (Gains), Net 1,322 (1,675) (1,762)
Gains on Sale of Trading Securities (140) (205) (200)
Decrease (Increase) in Trading Securities 25,684 (27,906) (14,610)
Decrease (Increase) in Investments Held for Sale 5,392 (5,372) 30
Loans Originated for Sale (288,880) (84,230) (50,087)
Sale of Loans, Originated for Sale 208,775 91,740 54,508
Decrease (Increase) in Interest Receivable 453 (328) 8,551
Increase (Decrease) in Interest Payable 3,888 2,793 (7,984)
(Decrease) Increase in Accrued Expenses
and Other Liabilities, Net (44,671) 28,742 8,839
Decrease (Increase) in Prepaid Expenses
and Other Assets 3,543 8,384 (28,185)
------- ------- -------
Net Cash (Used) Provided by Operating Activities (48,102) 44,470 (12,031)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of Securities, Available for Sale (99,631) (93,071) (7,162)
Purchases of Securities, Held to Maturity (106,136) (330,739) (126,743)
Maturities of Securities 25,944 34,088 28,522
Proceeds from Sales of Securities, Available for Sale 26,767 14,923 17,121
Net Decrease in Interest-bearing Deposits 396 29,631 76,655
Purchase of Loans (37,181) (5,468) (20,485)
Sale of Consumer Loans Held for Sale - 19,695 -
Net (Increase) Decrease in Loans (117,242) 13,057 76,251
Proceeds from Sales of OREO 23,106 10,211 6,367
Net Decrease in Segregated Assets 39,902 46,909 21,945
Principal Collected on Mortgage-backed Securities 166,503 151,143 76,774
Purchase of Premises and Equipment (6,916) (4,584) (17,541)
Excess of Assets Acquired over Liabilities Assumed in Acquisition - - (42,176)
Net Cash and Cash Equivalents Received from Bank
Institutions Acquired 15,490 - -
-------- -------- -------
Net Cash (Used) Provided by Investing Activities (68,998) (114,205) 89,528
-------- -------- -------
</TABLE>
F-5
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1994, 1993 and 1992
(Dollars In Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits 26,802 (28,675) (11,917)
Redemption of Brokered Deposits from Acquisition - - (205,961)
Proceeds from Sale of Common Stock 21,923 - -
Maturity of Medium Term Note - (5,000) -
Repayment of FHLB Advances and Other Borrowings (1,147,042) (544,230) (47,899)
Proceeds from FHLB Advances and Other Borrowings 1,247,542 627,842 163,287
Proceeds from Issuance of Senior Notes - 40,000 -
Redemption of Preferred Stock Series A - (18,250) (11,750)
Proceeds from Issuance of Preferred Stock Series A & B, Net - - 53,500
Cash Dividends to Common and Preferred Shareholders (4,724) (5,015) (2,763)
Net (Decrease) Increase in Advance Payments for
Taxes and Insurance (8,710) (2,440) 358
Exercise of Stock Options 569 1,026 434
-------- ------- -------
Net Cash Provided (Used) by Financing Activities 136,360 65,258 (62,711)
-------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents 19,260 (4,477) 14,786
Cash and Cash Equivalents at Beginning of Period 25,044 29,521 14,735
-------- ------- -------
Cash and Cash Equivalents at End of Period $ 44,304 $ 25,044 $ 29,521
======== ======= =======
Supplemental Disclosures:
Income Taxes Paid $ 9,253 $ 19,440 $ 7,959
Interest Paid 102,356 78,010 69,186
Supplemental Schedule of Noncash Investing
and Financing Activities:
Transfer of Loans to Real Estate Acquired Through
Foreclosure and In-Substance Foreclosure 47,479 18,465 15,517
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-6
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Employee
Stock Unrealized
Ownership Gains
Plan Shares (Losses) On
Preferred Common Paid-In Retained Treasury Purchased Securities,
Stock Stock Capital Earnings Stock With Debt Net Total
------ -------- ------ ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 $ - $ 50 $52,370 $37,777 $ (4,558) $ (2,572) $ - $83,067
Net Income for 1992 - - - 6,413 - - - 6,413
Dividends Paid: $.44 Per Share - - - (2,179) - - - (2,179)
Dividends Paid or Accrued:
Preferred Series A and Series B - - - (581) - - - (581)
Ten Percent Stock Dividend-Shelton - 1 - (57) - - - (56)
Reduction of Debt Related
to ESOP Shares - - - - - 296 - 296
Exercise of Stock Options - - 125 - 309 - - 434
Issuance of Series A Stock 12 - 29,988 - - - - 30,000
Issuance of Series B Stock, Net 3 - 23,497 - - - - 23,500
Redemption of Series A Stock (5) - (11,745) - - - - (11,750)
------ -------- ------ ------ ------ ------ ----- -------
Balance, December 31, 1992 $ 10 $ 51 $94,235 $41,373 $(4,249) $(2,276) $ - $129,144
------ -------- ------ ------ ------ ------ ----- -------
Net Income for 1993 - - - 18,875 - - - 18,875
Dividends Paid: $.46 Per
Common Share - - - (2,348) - - - (2,348)
Dividends Paid or Accrued:
Preferred Series A & B _ _ _ (2,653) - - - (2,653)
Reduction of Debt Related
to ESOP Shares - - - - - 324 - 324
Exercise of Stock Options - - 754 - 433 - - 1,187
Ten Percent Stock Dividend - 4 5,800 (5,804) - - - -
Ten Percent Stock Dividend-Shelton - 2 - (126) - - - (124)
Net Unrealized Gains on
Securities Available for Sale - - - - - - 118 118
Redemption of Series A Stock (7) - (18,243) - - - - (18,250)
------- -------- ------ ------ ------ ------ ----- -------
Balance, December 31, 1993 $ 3 $ 57 $82,546 $49,317 $(3,816) $(1,952) $ 118 $126,273
======= ======== ====== ====== ====== ====== ===== =======
Net Income for 1994 - - - 18,685 - - - 18,685
Dividends Paid: $.48 Per
Common Share - - - (3,053) - - - (3,053)
Dividends Paid or Accrued:
Preferred Series B - - - (1,716) - - - (1,716)
Dividends On:
Unallocated ESOP Shares - - - 52 - - - 52
Reduction of Debt Related
to ESOP Shares - - - - - 352 - 352
Purchase of Additional ESOP Shares - - - - - (2,075) - (2,075)
Five Percent Stock Dividend-Shelton - - - (69) - - - (69)
Exercise of Stock Options - - 507 - 124 - - 631
Proceeds from Sale of Common Stock - 11 21,912 - - - - 21,923
Conversion of Preferred Series B
to Common Stock (1) 5 (4) - - - - -
Net Unrealized (Loss)
on Securities Available
for Sale, Net of Taxes - - - - - - (4,196) (4,196)
------- -------- ------- ------ ------ ------ ------ -------
Balance, December 31, 1994 $ 2 $ 73 $104,961 $63,216 $(3,692) $(3,675) $(4,078) $156,807
======= ======== ======= ====== ====== ====== ====== =======
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-7
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Summary of Significant Accounting Policies
a) Business
Webster Financial Corporation ("Webster" or the "Corporation") is the
holding company for First Federal Bank, a federally chartered savings bank
("First Federal"), Bristol Savings Bank, a Connecticut-chartered savings bank
("Bristol"), and Shelton Savings Bank, a Connecticut-chartered savings bank
("Shelton Bank"), collectively called "the Banks". Webster, through its
subsidiary banks, is engaged primarily in retail and commercial banking,
attracting deposits from the general public and investing those funds in first
residential mortgage loans, commercial and industrial loans, commercial real
estate loans, home equity loans and consumer installment loans. Webster's
subsidiary Banks currently serve customers from 45 banking offices located in
New Haven, Fairfield, Litchfield and Hartford Counties in Connecticut.
First Federal was founded in 1935 and converted from a federal mutual to a
federal stock institution in 1986. On March 3, 1994, Webster became a multiple
holding company upon consummation of the acquisition of Bristol. See Note 2.
Bristol, founded in 1870, is a Connecticut-chartered savings bank headquartered
in Bristol, Connecticut.
On November 1, 1995, in the following sequence: (i) Bristol converted from
a state savings bank charter to a federal savings bank charter and was
concurrently renamed as Webster Bank, (ii) First Federal merged into Webster
Bank, as the surviving savings bank, (iii) Webster acquired Shelton Bancorp,
Inc. ("Shelton") and its wholly-owned subsidiary, Shelton Bank, through a merger
of a wholly-owned subsidiary of Webster formed for such purpose into Shelton, as
the surviving corporation, (iv) Shelton then merged into Webster, as the
surviving corporation, and (v) thereafter Shelton Bank merged into Webster Bank,
as the surviving savings bank. The acquisition of Shelton was accounted for as a
pooling of interests.
b) Basis of Financial Statement Presentation
The supplemental consolidated financial statements include the accounts of
Webster and the Banks. The supplemental consolidated financial statements and
notes hereto have been retroactively restated to include the accounts of Shelton
as if the merger had occurred at the beginning of the period of the earliest
date presented. See Note 2. Generally accepted accounting principles proscribe
giving effect to a consummated business combination accounted for by the pooling
of interests method in financial statements that do not include the date of
consummation. These financial statements do not extend through the date of
consummation, however, they will become the historical consolidated financial
statements of Webster after financial statements covering the date of
consummation of the business combination are issued. 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 amount of 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 other real estate owned and in-substance foreclosures.
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.
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. 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 based on judgments different from those of
management.
F-8
<PAGE>
NOTE 1: Summary of Significant Accounting Policies (Continued)
d) Other Real Estate Acquired Through Foreclosure and In-Substance
Foreclosure
Other real estate acquired through foreclosure consists of properties
acquired through foreclosure proceedings or acceptance of a deed in lieu of
foreclosure. Webster considers a property in-substance foreclosed when it is
determined that a borrower has little or no equity in a property collateralizing
a loan, proceeds for repayment of the loan can be expected to come only from the
operation or sale of the collateral, and it is doubtful that the equity can be
rebuilt in the foreseeable future. Other real estate owned ("OREO") acquired
through foreclosure and in-substance foreclosure are reported at the lower of
fair value less estimated selling expenses or cost with an allowance for losses
to provide for declines in values. Operating expenses are charged to current
period earnings, and gains and losses upon disposition are reflected in the
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
received. Loan origination fees net of certain direct origination costs and
premiums and discounts on loans purchased are recognized in interest income over
the lives of the loans using a method approximating the interest method. Loans
held for sale are carried at the lower of cost or market value in aggregate. Net
unrealized losses on loans held for sale, if any, are recognized in a valuation
allowance by charges to income.
f) Securities and Mortgage-backed Securities
On December 31, 1993 Webster adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires securities
to be classified into one of three categories. Securities with fixed maturities
that are classified as Held to Maturity are carried at cost, adjusted for
amortization of premiums and accretion of discounts over the estimated terms of
the securities utilizing a method which approximates the level yield method.
Securities that management intends to hold for indefinite periods of time,
including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory capital or
other similar factors, are classified as Available for Sale. All Equity
Securities are classified as Available for Sale. Securities Available for Sale
are carried at fair value with unrealized gains and losses recorded as
adjustments to shareholders' equity on a tax 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 include collateralized mortgage obligations
("CMOs") which are either U.S. government agency securities or are rated in at
least the top two rating categories by at least one of the major rating agencies
at time of purchase. One of the risks inherent when investing in CMOs and
mortgage-backed securities 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 would effect
earnings.
g) Interest-bearing Deposits
Interest-bearing Deposits consist primarily of deposits in the Federal Home
Loan Bank of Boston and short term Fed Funds. These deposits are carried at cost
which approximates market value.
h) 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.
F-9
<PAGE>
NOTE 1: Summary of Significant Accounting Policies (Continued)
i) Segregated Assets
Segregated Assets represent commercial, commercial real estate and
multi-family loans acquired in the October 1992 First Constitution Acquisition.
In addition, Segregated Assets contain OREO that has been so classified
subsequent to the acquisition date. These assets are subject to a loss-sharing
arrangement with the FDIC as discussed in Notes 2 and 5.
Interest on Segregated Assets is credited to income earned on loans 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.
j) Core Deposit Intangible
The excess of the purchase price over the fair value of the tangible net
assets acquired has been allocated to core deposits. The core deposit intangible
is being amortized on a straight-line basis over a period of ten years. On a
periodic basis, management assesses the recoverability of the core deposit
intangible. Such assessments encompass a projection of future earnings from the
deposit base as compared to original expectations, based upon a discounted cash
flow analysis. If an assessment of the core deposit intangible indicates that
its' recoverability is impaired, a charge to the Statement of Income for the
most recent period is recorded for the amount of such impairment.
k) Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes",
("Statement 109"). Statement 109 requires a change from the deferred method of
accounting for income taxes to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109, 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. Under Statement 109, 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. Webster adopted Statement 109 on January 1,
1993 and has reported the cumulative effect of that change in the statement of
income for the year ended December 31, 1993.
l) Employee Benefit Plans
The Banks have a noncontributory pension plan covering substantially all
employees. Pension costs are accrued in accordance with generally accepted
accounting principles (SFAS 87) and are funded in accordance with the
requirements of the Employee Retirement Income Security Act (ERISA). The Banks
also accrue costs related to postretirement benefits (SFAS 106). In addition,
the Banks have an employee savings plan adopted under Section 401(k) of the
Internal Revenue Code and an Employee Stock Ownership Plan ("ESOP").
m) Net Income Per Share
Primary net income per share is calculated by dividing net income available
to common shareholders by the weighted-average number of shares of common stock
and common stock equivalents outstanding, when dilutive. The common stock
equivalents consist of common stock options. Fully diluted net income per share
is calculated by dividing adjusted net income by the weighted-average fully
diluted common shares, including the effect of common stock equivalents and the
hypothetical conversion into common stock of the Series B cumulative convertible
preferred stock. The weighted-average number of shares used in the computation
of primary earnings per share for the years ended December 31, 1994, 1993 and
1992 were 6,306,994, 5,177,399 and 4,951,560, respectively and for fully diluted
earnings per share were 7,650,343, 6,621,158 and 5,017,393 for the same periods,
respectively.
n) Statements of Cash Flows
For purposes of the Statements of Cash Flows, Webster considers cash on hand and
in banks to be cash equivalents.
F-10
<PAGE>
NOTE 1: Summary of Significant Accounting Policies (Continued)
o) Loan Sales and Servicing
Gains or losses on sales of loans are recognized at the time of the sale.
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 premiums arising from gains on loan sales is
included in the accompanying Supplemental Consolidated Statements of Condition
as a component of Prepaid Expenses and Other Assets and is periodically reviewed
and adjusted for changed circumstances.
p) Reclassifications
Certain financial statement balances as previously reported have been
reclassified to conform to the 1994 supplemental consolidated financial
statements presentation. All per share data and the number of outstanding common
shares for all periods and dates have been adjusted retroactively to give effect
to stock dividends to common shareholders of record. In addition, all financial
statements presented have been retroactively restated to give effect to the
mergers with Shelton, completed on November 1, 1995, which was accounted for as
a pooling of intrests and Shoreline Bank and Trust Company ("Shoreline"), a
Connecticut chartered commercial bank, completed on December 16, 1994 which was
also acounted for as a pooling of interests. See Note 2 for additional
information regarding the Shelton and Shoreline acquisitions.
NOTE 2: Acquisitions
Pooling of Interests Transactions
On November 1, 1995, Webster acquired Shelton with $298 million in assets.
In connection with the acquisition, Webster issued 1,293,056 shares of its
common stock, based on an exchange ratio of .92 of a share of Webster common
stock for each of Shelton's outstanding shares.
On December 16, 1994, Webster acquired Shoreline, with $51 million in
assets based in Madison, Connecticut. In connection with the merger with
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.
Both acquisitions were accounted for as a pooling of interests and as such
the supplemental consolidated financial statements include financial data as if
both Shelton and Shoreline had been combined as of the beginning of the earliest
period presented.
The following table sets forth separate results of operations of the
combining entities: (in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
---------------------------------------------------------------------
Pooling Expense
Webster Shelton Shoreline Adjustments Combined
-------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 81,623 $ 8,619 $ 2,114 $ - $ 92,356
Provision for Loan Losses 2,594 255 306 - 3,155
Noninterest Income 11,696 1,262 671 - 13,629
Noninterest Expenses 70,326 6,233 2,036 700 79,295
Income Taxes 3,789 1,193 (132) - 4,850
-------- ------ ------ ------- -------
Net Income $ 16,610 $ 2,200 $ 575 $ (700) $ 18,685
======= ====== ====== ======= =======
</TABLE>
F-11
<PAGE>
NOTE 2: Acquisitions (Continued)
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
-----------------------------------------------
Webster Shelton Shoreline Combined
-------- ------ ------- -------
<S> <C> <C> <C> <C>
Net Interest Income $ 63,917 $ 7,971 $ 1,898 $ 73,786
Provision for Loan Losses 4,000 150 447 4,597
Noninterest Income 8,469 1,929 305 10,703
Noninterest Expenses 46,504 6,552 1,941 54,997
Income Taxes 9,157 1,435 3 10,595
-------- ------ ------- -------
Income (loss) Before Cumulative Effect
of Change in Method of Accounting
for Income Taxes 12,725 1,763 (188) 14,300
Cumulative Effect of Change in
Method of Accounting for Income Taxes 4,300 275 - 4,575
------- ------ ------- -------
Net Income (Loss) $ 17,025 $ 2,038 $ (188) $ 18,875
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1992
-----------------------------------------------
Webster Shelton Shoreline Combined
-------- ------ ------ -------
<S> <C> <C> <C> <C>
Net Interest Income $ 39,764 $ 8,114 $ 1,938 $ 49,816
Provision for Loan Losses 3,000 1,238 1,336 5,574
Noninterest Income 5,961 2,169 277 8,407
Noninterest Expenses 31,625 5,782 1,746 39,153
Income Taxes 5,444 1,637 2 7,083
-------- ------ ------ -------
Net Income (Loss) $ 5,656 $ 1,626 $ (869) $ 6,413
======= ====== ====== =======
</TABLE>
Noninterest income and noninterest expenses for Shelton and Shoreline have
been adjusted from amounts previously reported to reflect certain
reclassifications in accordance with accounting policies followed by Webster.
Bristol Savings Bank Acquisition
On March 3, 1994, Bristol converted from a Connecticut mutual savings bank
to a Connecticut capital stock savings bank and concurrently became a
wholly-owned subsidiary of Webster and a sister bank to First Federal ("the
Bristol acquisition"). Bristol, founded in 1870, is headquartered in Bristol,
Connecticut and has 5 banking offices in Hartford County. Webster became a
multiple holding company as a result of the Bristol acquisition. In connection
with the conversion, Webster completed the sale of 1,150,000 shares of its
common stock in related subscription and public offerings. Webster invested in
Bristol a total of $31.0 million including the net proceeds of approximately
$21.9 million from the subscription and public offerings and existing funds at
the holding company level. As a result of this investment, Bristol met all
capital ratios required by the FDIC for a "well-capitalized" savings bank. The
Bristol acquisition was accounted for as a purchase, and results of operations
relating to Bristol from March 3, 1994 are included in the accompanying
Supplemental Consolidated Financial Statements. 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.
First Constitution Acquisition
On October 2, 1992, First Federal acquired most of the assets, all of the
deposits and certain other liabilities of First Constitution Bank ("First
Constitution"), New Haven, Connecticut, from the FDIC in an assisted transaction
(the "First Constitution Acquisition"). The acquisition increased First
Federal's assets by over $1.3 billion from $880 million to over $2.0 billion and
doubled the number of its banking offices to 32 by adding 14 New Haven County
and two Fairfield County offices.
F-12
<PAGE>
NOTE 2: Acquisitions (Continued)
The financial terms of the First Constitution Acquisition included five
primary components. First, the FDIC made a cash purchase of $30 million of
Webster's Series A Cumulative Perpetual Preferred Stock (the "Series A Stock").
Webster redeemed $11.75 million of the Series A Stock on December 30, 1992 and
the remaining $18.25 million on June 29, 1993. Second, Webster received a $24.2
million cash payment from the FDIC to purchase the assets and assume the
liabilities in the acquisition. The payment increased cash, which was offset by
various adjustments reflecting the market value of the assets and liabilities
acquired on the consolidated statement of condition, and had no impact on the
consolidated statement of income. First Federal purchased approximately $1.3
billion of First Constitution's assets, including: $817 million in one-to-four
family home loans; $30 million in home equity loans; $34 million in consumer
loans; $257 million in "Segregated Assets" (consisting of multi-family,
commercial and commercial real estate loans); and $155 million in cash, cash
equivalents, U.S. agency obligations and mortgage-backed securities. First
Federal assumed approximately $1.2 billion in deposit balances of First
Constitution (including approximately $300 million of brokered or out-of-state
deposits, most of which were withdrawn prior to December 31, 1992 as planned by
First Federal) and $29 million of other borrowings and liabilities (including
indebtedness secured by mortgages, overdrafts, debit balances and service
charges, accrued interest payable on liabilities assumed, ad valorem taxes and
liabilities for federal funds purchased). Third, the FDIC retained approximately
$225 million of First Constitution's higher-risk assets, including other real
estate owned ("OREO"), "in-substance foreclosed" loans, commercial loan
participations, real estate investments, and investments in subsidiaries.
Fourth, the FDIC will reimburse First Federal quarterly for 80% of the total net
charge-offs and certain related expenses on all Segregated Assets purchased in
the acquisition for five years after the acquisition date, 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). Fifth, the FDIC also will reimburse
First Federal, as a contingent reserve payment, for 80% of the excess over $52
million for four years after the acquisition date, up to a maximum reimbursement
of $20 million of (I) the total net charge-offs on all First Constitution
one-to-four family home, home equity and consumer loans purchased in the
acquisition plus (ii) the unreimbursed portion of the total net charge-offs and
certain related expenses on the Segregated Assets. As part of the First
Constitution Acquisition, First Federal established a reserve for the estimated
unreimbursed portion of losses on Segregated Assets of $10.7 million and an
additional reserve of $46.5 million for the estimated unreimbursed portion of
losses on the one-to-four family home, home equity and consumer loans acquired
in the First Constitution Acquisition (including those held for sale).
Suffield Bank Acquisition
In September 1991, First Federal acquired certain assets and liabilities
of Suffield Bank, Suffield, Connecticut, from the FDIC in an assisted
transaction in which First Federal received a $2.5 million cash payment from the
FDIC in connection with the acquisition to reflect its negative bid. This
acquisition involved an assumption of $247 million of deposit liabilities
(including $93 million of brokered and out-of-state deposits) and $5 million of
other liabilities and a purchase of $48 million of performing one-to-four family
home loans, passbook loans and installment loans and $26 million of cash, cash
equivalents and U.S. agency obligations. In addition, First Federal received
$181 million in cash from the FDIC, representing the difference between the
liabilities assumed less the assets purchased.
F-13
<PAGE>
NOTE 3: Securities
A summary of securities follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1994 1993
------------------- -----------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
------- ------- ------ ------
<S> <C> <C> <C> <C>
Trading Securities:
Collateralized Mortgage Obligations $ 9,311 $ 9,311 $17,906 $17,906
GNMA 13,706 13,706 31,769 31,769
Equity Securities 78 78 263 263
------- ------- ------ ------
23,095 23,095 49,938 49,938
------- ------- ------ ------
Available for Sale Portfolio:
U.S. Treasury Notes:
Matures within 1 year 6,416 6,332 2,163 2,029
Matures within 5 years 7,530 7,300 - -
U.S. Government Agency:
Matures within 1 year 100 99 5,002 5,001
Matures within 5 years 33,480 31,857 53,809 54,025
Corporate Bonds and Notes:
Matures over 5 through 10 years 2,985 2,974 5 5
Matures over 10 years - - 3,222 3,225
Equity Securities:
Mutual Funds 20,146 19,509 32,459 32,061
Stock in Federal Home Loan Bank of Boston 26,269 26,269 15,897 15,897
Other Equity Securities 13,619 13,231 7,799 7,861
Collateralized Mortgage Obligations 57,121 56,083 63,369 63,828
Mortgage Backed Securities:
FNMA 11,316 11,560 - -
Unrealized Securities (Losses) Gains, Net (3,768) - 207 -
-------- ------- ------- -------
175,214 175,214 183,932 183,932
-------- ------- ------- -------
Held to Maturity Portfolio:
U.S. Treasury Notes:
Matures within 1 year 3,318 3,248 6,314 6,408
Matures within 5 years 19,567 18,595 25,278 26,199
U.S. Government Agency:
Matures within 5 years 61,822 60,239 2,702 2,757
Matures over 5 through 10 years 1,000 938 699 720
Corporate Bonds and Notes:
Matures within 1 year 702 698 1,110 1,133
Matures within 5 years 2,564 2,459 3,379 3,496
Matures over 5 through 10 years 418 389 363 371
Other - - 3,739 3,739
Mortgage Backed Securities:
FHLMC 87,650 82,393 75,875 77,255
FNMA 167,254 158,683 24,541 24,597
GNMA 1,919 1,922 2,496 2,572
Collateralized Mortgage Obligations 283,861 269,492 301,403 303,989
Other Mortgage Backed Securities 374 356 617 619
------- ------- ------- -------
630,449 599,412 448,516 453,855
------- ------- ------- -------
Total $828,758 $797,721 $682,386 $687,725
======= ======= ======= =======
</TABLE>
F-14
<PAGE>
NOTE 3: Securities (Continued)
A summary of realized gains and losses follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------ ------------------------------ -------------------------------
Realized Realized Realized
Gains Losses Net Gains Losses Net Gains Losses Net
------ ------ ------ ------ ------ ----- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trading Securities:
GNMA $ 2,069 $ (3,243) $ (1,174) $ 253 $ (284) $ (31) $ - $ - $ -
Collateralized Mortgage
Obligations 17 (4) 13 292 (142) 150 397 (167) 230
Equity Securities 128 (128) 0 21 (4) 17 76 (106) (30)
Futures Contracts 5,127 (3,826) 1,301 1,293 (1,224) 69 - - -
------ ------ ------ ------ ------ ----- ------- ------ ------
7,341 (7,201) 140 1,859 (1,654) 205 473 (273) (200)
------ ------ ------ ------ ------ ----- ------- ------ ------
Available for Sale:
Mutual Funds 72 (1,653) (1,581) 160 (1) 159 - - -
Other Equity Securities 28 (27) 1 47 - 47 - - -
------ ------- ------ ------ ------ ----- ------- ------ ------
100 (1,680) (1,580) 207 (1) 206 0 0 0
------ ------ ------ ------ ------ ----- ------- ------ ------
Total $ 7,441 $ (8,881)$ (1,440) $ 2,066 $(1,655) $ 411 $ 473 $ (273) $ 200
====== ======= ====== ====== ====== ===== ======= ====== ======
</TABLE>
There were no sales of debt securities from the held to maturity portfolio
for the years ended December 31, 1994 and 1993. There were no sales of
mortgage-backed securities for the years December 31, 1994, 1993 and 1992 other
than Trading Securities.
Summaries of unrealized gains and losses for the available for sale and
held to maturity portfolios follow (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1994 1993
------------------------------ -----------------------------
Unrealized Unrealized
Gains Losses Net Gains Losses Net
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury Notes $ - $ (314) $ (314) $ - $ (134) $ (134)
U.S. Government Agency - (1,623) (1,623) 402 (187) 215
Corporate Bonds and Notes: - (11) (11) 3 - 3
Equity Securities:
Mutual Funds - (638) (638) 15 (413) (398)
Other Equity Securities 372 (760) (388) 290 (228) 62
Collateralized Mortgage 189 (1,227) (1,038) 1,272 (813) 459
Obligations
FNMA 244 - 244 - - -
------ ------ ------ ----- ----- -----
805 (4,573) (3,768) 1,982 (1,775) 207
------ ------ ------ ----- ------ -----
Held to Maturity Portfolio:
Liquidity - (178) (178) - - 0
U.S. Treasury Notes 8 (1,050) (1,042) 1,088 (73) 1,015
U.S. Government Agency
Matures Within 5 years - (1,405) (1,405) 55 - 55
Matures over 5
through 10 years - (62) (62) 21 - 21
Corporate Bonds and Notes
Matures within 1 year 1 (5) (4) 23 - 23
Matures within 5 years 4 (109) (105) 117 - 117
Matures over 5
through 10 years 2 (31) (29) 8 - 8
Mortgage Backed Securities 801 (14,644) (13,843) 2,061 (545) 1,516
Collateralized Mortgage
Obligations 374 (14,743) (14,369) 3,463 (879) 2,584
----- ------- ------- ----- ------ -----
1,190 (32,227) (31,037) 6,836 (1,497) 5,339
----- ------- ------- ----- ------ -----
Total $1,995 $(36,800) $(34,805) $8,818 $(3,272) $5,546
===== ======= ======= ===== ====== =====
</TABLE>
F-15
<PAGE>
NOTE 3: Securities (Continued)
Webster holds short futures positions to minimize the price volatility of
certain adjustable-rate assets held as Trading Securities. At December 31, 1994
Webster held 54 short positions in Eurodollar futures contracts ($54 million
notional amount) and 88 short positions in 5 year Treasury note futures ($8.8
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 the
supplemental consolidated statements of income.
NOTE 4: Loans Receivable, Net
A summary of loans receivable, net follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Loans Secured by Mortgages on Real Estate:
Conventional, VA and FHA $1,486,342 $1,281,915
Conventional, VA and FHA Loans Held for Sale 24,735 11,505
Residential Participation 11,720 11,167
Residential Construction 53,779 28,930
Commercial Construction 4,237 2,083
Other Commercial 135,855 40,441
--------- ---------
1,716,668 1,376,041
Consumer Loans:
Home Equity Credit Lines 128,828 103,523
Other Consumer Loans 38,228 29,062
--------- ---------
167,056 132,585
Commercial Non-Mortgage Loans 45,055 11,640
--------- ---------
Gross Loans Receivable 1,928,779 1,520,266
Less:
Loans in Process - Residential 25,523 16,994
Loans in Process - Commercial 1,174 487
Allowance for Losses on Loans 46,772 45,168
Deferred Loan Fees, Unearned Discounts, and
Premiums on Loans Purchased, Net (13,906) (10,318)
--------- ---------
Loans Receivable, Net $1,869,216 $1,467,935
========= =========
</TABLE>
Included above at December 31, 1994 and 1993 are $531.5 million and $678.1
million, respectively of residential and consumer loans acquired from the FDIC
in the First Constitution Acquisition ("Reserve Assets"). Under the Purchase
Agreement with the FDIC, for four years after the acquisition date, the FDIC is
required to reimburse First Federal quarterly, in an aggregate amount up to $20
million, for 80% of all net charge-offs on the Reserve Assets and First
Federal's share of net charge-offs and expenses associated with Segregated
Assets ("First Federal's Shared Losses"), if such charge-offs on the Reserve
Assets and First Federal's portion of the Shared Losses collectively exceed $52
million. No contingent reserve payments will be made by the FDIC after
expiration of the four-year period following the acquisition date. First Federal
established $46.5 million in allowances for loan losses and allowances for loans
held for sale through purchase accounting adjustments to cover its portion of
losses on the Reserve Assets.
A detail of the changes in the allowances for loan losses for the three
years follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993 1992
---------- ---------- --------
<S> <C> <C> <C>
Balance at Beginning of Period $45,168 $49,780 $11,055
Provisions Charged to Operations 2,780 3,597 5,574
Additions to Allowance for Purchased Loans 12,819 - 35,731
Transfer from Allowance for Losses
for Loans Held for Sale - 2,390 -
Charge-offs (17,099) (11,667) (3,157)
Recoveries 3,104 1,068 577
------ ------ ------
Balance at End of Period $46,772 $45,168 $49,780
====== ====== ======
</TABLE>
See Footnote 11 for a detail of changes in the allowance for losses on
other real estate owned.
F-16
<PAGE>
NOTE 4: Loans Receivable, Net (Continued)
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 fair value of commitments to extend credit is considered to approximate
the contract amount. Future loan commitments represent residential mortgage loan
commitments, letters of credit, standby letters of credit, and unused home
equity credit lines. Rates for these loans are generally established shortly
before closing. The rates on home equity lines of credit vary with the prime
rate.
At December 31, 1994 and 1993 residential mortgage commitments outstanding
totaled $35.2 million and $53.6 million, respectively. Residential commitments
outstanding at December 31, 1994 consist of adjustable and fixed-rate mortgages
of $15.3 million and $20.1 million respectively, at rates ranging from 4.9% to
9.9%. Commitments to originate loans generally expire within 60 days. In
addition, at December 31, 1994 and 1993, there were unused portions of home
equity credit lines extended by Webster of $100.1 million and $77.3 million,
respectively. Unused commercial lines of credit, letters of credit and standby
letters of credit totaled $29.5 million and $2.4 million at December 31, 1994
and 1993, 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, 1994 and 1993, Webster had forward commitments to sell loans
totaling $4.4 million and $8.7 million, respectively at rates between 8.0% and
9.5% and 6.0% and 7.0%, respectively. The estimated fair value of commitments to
sell loans approximated the commitment price at December 31, 1994 and 1993.
At December 31, 1994, 1993 and 1992, Webster serviced, for the benefit of
others, mortgage loans aggregating approximately $944.5 million, $357.7 million
and $409.3 million, respectively.
The following table represents the carrying amounts and estimated fair
value disclosures for loans receivable by type (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1994 1993
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Residential $1,566,795 $1,512,972 $1,326,827 $1,350,176
Consumer 38,228 38,987 29,062 28,067
Home Equity 128,828 129,747 103,523 102,997
Commercial 182,137 174,309 53,691 51,552
Less Allowance for Loan Losses 46,772 - 45,168 -
--------- --------- --------- ------
Total $1,869,216 $1,856,015 $1,467,935 $1,532,792
========= ========= ========= =========
</TABLE>
F-17
<PAGE>
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. (See Note 2) (in thousands):
<TABLE>
<CAPTION>
At December 31,
------------------------
1994 1993
-------- --------
<S> <C> <C>
Commercial Real Estate Loans $ 98,813 $117,992
Commercial Loans 15,377 24,913
Multi-Family Real Estate Loans 18,124 22,816
Other Real Estate Owned 9,202 16,319
------- -------
141,516 182,040
Allowance for Segregated Asset Losses (4,420) (5,042)
------- -------
Segregated Assets, Net $137,096 $176,998
======= =======
</TABLE>
Under the Purchase Agreement with the FDIC, during the first five years
after the acquisition date, the FDIC is required to reimburse Webster quarterly
for 80% of all net charge-offs (i.e., the excess of charge-offs over recoveries)
and certain permitted expenses related to the Segregated Assets acquired by
Webster.
During the sixth and seventh years after the acquisition date, Webster is
required to pay quarterly to the FDIC an amount equal to 80% of the recoveries
during such years on Segregated Assets which were previously charged off after
deducting certain permitted expenses related to those assets. Webster is
entitled to retain 20% of such recoveries during the sixth and seventh years
following the acquisition date and 100% thereafter.
Upon termination of the seven-year period after the acquisition date, if
the sum of net charge-offs on Segregated Assets for the first five years after
the acquisition date plus permitted expenses during the entire seven-year
period, less any recoveries during the sixth and seventh year on Segregated
Assets charged off during the first five years, exceeds $49.2 million, the FDIC
is required to pay Webster an additional 15% of any such excess over $49.2
million at the end of the seventh year. As of December 31, 1994, Webster had
received a total of $31.2 million in reimbursements for net charge-offs and
permitted expenses from the FDIC. At December 31, 1994 and 1993, Webster had
allowances for losses of $4.4 million and $5.0 million, respectively, to cover
its portion of Segregated Assets losses.
F-18
<PAGE>
NOTE 5: Segregated Assets, Net (Continued)
A detail of changes in the allowance for Webster's share of losses for
Segregated Assets follows (in thousands):
At December 31,
--------------------
1994 1993
------- -------
Balance at Beginning of Period $ 5,042 $ 8,513
Provisions Charged to Operations 375 1,000
Charge-offs (1,505) (4,760)
Recoveries 508 289
------ ------
Balance at End of Period $ 4,420 $ 5,042
====== ======
At December 31, 1994 and 1993, nonperforming Segregated Assets are
classified as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
-------------------
1994 1993
<S> <C> <C>
Commercial Real Estate Loans $13,795 $21,451
Commercial Loans 3,678 6,623
Multi-Family Real Estate Loans 576 2,234
Real Estate Acquired through Foreclosure
and In-substance Foreclosure:
Commercial Real Estate 7,753 15,069
Multi-Family Real Estate 1,449 1,251
------ ------
Total $27,251 $46,628
====== ======
</TABLE>
Due to the loss-sharing arrangement with the FDIC, a yield on Segregated
Assets that approximates a market yield and the allowance for Webster's share of
losses on Segregated Assets, Webster believes that the estimated fair value of
Segregated Assets approximates their carrying amount of $137.0 million and
$177.0 million at December 31, 1994 and December 31, 1993, respectively.
NOTE 6: Premises and Equipment, Net
A summary of premises and equipment, net follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
------- -------
<S> <C> <C>
Land $ 5,925 $ 5,367
Buildings and Improvements 28,509 22,407
Leasehold Improvements 1,765 1,248
Furniture, Fixtures and Equipment 23,520 12,195
------ ------
Total Premises and Equipment 59,719 41,217
Accumulated Depreciation and Amortization 23,087 11,604
------ ------
Premises and Equipment, Net $36,632 $29,613
====== ======
</TABLE>
At December 31, 1994, 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 $950,000, $702,000 and $712,000 in 1994,
1993 and 1992, respectively. Webster is also entitled to rental income under
various non-cancelable operating leases for properties owned. Rental income
under these leases was $1,474,000, $638,000 and $534,000 in 1994, 1993 and 1992,
respectively.
F-19
<PAGE>
NOTE 6: Premises and Equipment, Net (Continued)
The following is a schedule of future minimum rental payments and receipts
required under these leases as of December 31, 1994(in thousands):
<TABLE>
<CAPTION>
Payments Receipts
------ ------
<S> <C> <C>
Years ending December 31:
1995 $ 805 $ 1,061
1996 764 818
1997 695 290
1998 635 236
1999 732 229
Later years 1,971 496
------ ------
$ 5,602 $ 3,130
====== ======
</TABLE>
NOTE 7: Prepaid Expenses and Other Assets
A summary of prepaid expenses and other assets follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
------ ------
<S> <C> <C>
Core Deposit Intangible $ 5,457 $11,829
Due from FDIC 2,008 6,208
Income Taxes Receivable 1,857 8,518
Deferred Tax Asset, Net (Note 12) 12,590 5,330
Other Assets 16,668 8,624
------ ------
Prepaid Expenses and Other Assets $38,580 $40,509
====== ======
</TABLE>
In addition to expected amortization, the core deposit intangible recorded
as a purchase accounting adjustment in the First Constitution Acquisition was
reduced by an additional $5.0 million at December 31, 1994. A write-down of the
core deposit intangible was deemed necessary after a review of the
recoverability of this asset was made. During 1994 there were outflows of
regular savings and certificate of deposit accounts because of overall decreases
in interest rates. In addition, because of the loss of customer accounts the
ability to collect fee income on such accounts has been reduced. Based on these
changes, management's estimates of fees and service charges and interest expense
on deposits indicate that the original projections will not be achieved. Such
analysis was prepared using a discounted cash flow analysis. Periodic
evaluations of the core deposit intangible asset will continue to be made and
such further impairment, if any, will be recorded as a charge to the Statement
of Income. The amount due from FDIC of $2.0 million at December 31, 1994
represents Webster's 80% reimbursement for fourth quarter net charge-offs and
expenses on Segregated Assets.
F-20
<PAGE>
NOTE 8: Deposits
Deposits and weighted average rates are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1994 1993
--------------------------- ------------------------
Weighted Weighted
Average % of Average % of
Rate Balance Total Rate Balance Total
----- -------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Regular Savings 2.09% $ 561,196 23.1% 2.07% $ 474,213 24.1%
-------- ----- --------- -----
NOW Accounts .98 327,094 13.4 1.01 235,123 12.0
-------- ----- --------- -----
Money Market Deposit Accounts 4.89 125,987 5.2 3.18 95,475 4.9
-------- ----- --------- -----
Certificate Accounts:
Up to 12 months 3.91 611,300 25.1 3.34 596,159 30.3
13 to 24 months 4.77 509,984 21.0 4.32 325,200 16.5
25 to 36 months 5.07 79,124 3.3 5.33 74,924 3.8
Over 36 months 6.08 217,260 8.9 5.95 164,541 8.4
----- -------- ----- ----- --------- -----
Total Certificates 4.62 1,417,668 58.3 4.11 1,160,824 59.0
----- --------- ----- ----- --------- -----
Total Deposits 3.56% $2,431,945 100.0% 3.20% $1,965,635 100.0%
===== ========= ===== ===== ========= =====
</TABLE>
Interest expense on deposits is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Regular Savings $12,139 $12,240 $ 8,724
NOW Accounts 3,906 3,222 3,806
Money Market Deposit Accounts 4,946 3,125 4,190
Certificate Accounts 55,844 50,100 38,158
------ ------ ------
$76,835 $68,687 $54,878
====== ====== ======
</TABLE>
The following table presents the amount of time deposits in amounts of
$100,000 or more at December 31, 1994 maturing during the periods indicated (in
thousands):
Maturing Amount
January 1, 1995 to March 31, 1995 $ 22,444
April 1, 1995 to June 30, 1995 32,236
July 1, 1995 to December 31, 1995 30,075
January 1, 1996 and beyond 71,767
-------
$156,522
The following table presents the carrying amounts and estimated fair values
for deposits (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Deposits Other than Certificates $1,014,277 $1,014,277 $ 804,811 $ 804,811
Certificate Accounts:
Maturing in Less than One Year 676,515 674,682 634,140 635,495
Maturing One Year and Beyond 741,153 736,615 526,684 534,605
--------- --------- --------- ---------
Total $2,431,945 $2,425,574 $1,965,635 $1,974,911
========= ========= ========= =========
</TABLE>
F-21
<PAGE>
NOTE 9: Federal Home Loan Bank Advances
Advances payable to the Federal Home Loan Bank of Boston are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Fixed Rate:
3.23% to 8.51% Due 1994 $ - $206,500
4.23% to 8.11% Due 1995 212,000 17,000
4.82% to 8.61% Due 1996 85,000 15,000
6.84% to 7.39% Due 1997 16,000 6,000
5.40% to 6.05% Due 1998 15,000 15,000
8.86% Due 1999 700 700
6.31% Due 2000 10,000 10,000
------- -------
338,700 270,200
Variable Rate:
6.38% Due in 1995 20,000 -
6.16% to 6.50% Due in 1996 12,000 -
------- -------
32,000 -
Total Federal Home Loan Bank Advances $370,700 $270,200
======= =======
</TABLE>
The weighted average cost of the Federal Home Loan Bank Advances at December
31, 1994 and 1993 was 6.28% and 4.31%, respectively.
At December 31, 1994, the Banks combined had additional borrowing capacity
of over $1.1 billion from the Federal Home Loan Bank, including a line of credit
of approximately $52.1 million. Advances are secured by the Banks' investment in
FHLB stock and a blanket security agreement. This agreement requires the Banks
to maintain as collateral certain qualifying assets principally mortgage loans
and securities. At December 31, 1994 and 1993, the Banks were in compliance with
all Federal Home Loan Bank requirements.
At December 31, 1994 and 1993, the estimated fair value of Federal Home Loan
Bank Advances was $367.3 million and $271.3 million compared to a carrying value
of $370.7 million and $270.2 million, respectively.
NOTE 10: Other Borrowings
Other borrowings outstanding at December 31, 1994 and 1993 consisted of
borrowings by the ESOP totalling $3.7 million and $2.0 million, respectively,
and Senior Notes totalling $40.0 million at December 31, 1994 and 1993. The ESOP
borrowings are from a commercial bank at a floating rate based on the commercial
bank's base (prime) rate and such rates at December 31, 1994 and 1993 were 8.00%
and 5.20%, respectively. The estimated fair value of the ESOP borrowing
approximates book value at December 31, 1994 and 1993. The terms of the loan
agreements call for the ESOP to make annual scheduled principal repayments
through 2001. Interest is paid quarterly and the borrowings are secured and
guaranteed by Webster. See Note 14 for a description of the increase in the
ESOP's outstanding indebtedness that was incurred in connection with the Bristol
acquisition.
On June 29, 1993, Webster completed a registered offering of $40 million in
aggregate principal 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. At December 31, 1993 and 1994, the estimated fair value of the
Senior Notes was $37.9 and $40.9 million, respectively
F-22
<PAGE>
NOTE 11: Summary of Estimated Fair Values
A summary of estimated fair values consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1994 1993
-------------------------- -------------------------
Carrying Estimated Carrying Estimated Footnote
Amount Fair Value Amount Fair Value Cross-Reference
---------- ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Assets:
Securities $ 828,758 $ 797,721 $ 682,386 $ 687,725 3
Loans 1,869,216 1,856,015 1,467,935 1,532,792 4
Segregated Assets, Net 137,093 137,093 176,998 176,998 6
---------- ---------- --------- ----------
Total $2,835,067 $2,790,829 $2,327,319 $2,397,515
========== ---------- ========= =========
Liabilities:
Deposits $2,431,945 $2,425,574 $1,965,635 $1,974,911 8
Federal Home Loan Bank Advances 370,700 367,300 270,200 271,300 9
Other Borrowings 43,675 41,575 41,952 42,852 10
---------- ---------- --------- ---------
Total $2,846,320 $2,834,449 $2,277,787 $2,289,063
========== ========== ========= =========
</TABLE>
In December 1991, the Financial Accounting Standards Board issued Statement
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. This
statement is effective for fiscal years ending after December 15, 1992, and such
disclosures are included as of December 31, 1994 and 1993.
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 estimated fair value of securities (Note 3) is estimated based on
prices published in financial newspapers or quotations received from securities
dealers or pricing services. Federal Home Loan Bank stock has no active market
and is required to be held by member banks. The estimated fair value of Federal
Home Loan Bank stock equals the carrying amount at December 31, 1994.
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 fifteen and thirty 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 as of December 31,
1994 and December 31, 1993. The estimated fair values of certificates of
deposit, Federal Home Loan Bank Advances and Senior Notes were calculated using
the discounted cash flow method. The discount rate is estimated using rates
currently offered for deposits and Federal Home Loan 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 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.
F-23
<PAGE>
NOTE 12: Other Real Estate Owned Expenses and Provisions, Net and Allowance for
Losses on Other Real Estate Owned
Other real estate owned expenses and provisions, net are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Gain on Sale of Other Real Estate
Acquired in Settlement of Loans, Net $ (465) $ 245 $ 111
Provision for Losses on Other
Real Estate Owned (3,082) (1,996) (4,452)
Rental Income 1,017 536 734
Other Real Estate Owned Expenses (4,419) (3,870) (2,528)
------ ------ ------
Other Real Estate Owned Expenses and
Provisions, Net $(6,949) $(5,085) $(6,135)
====== ====== ======
</TABLE>
Webster has an allowance for losses on other real estate owned. A detail of
the changes in the allowance follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Balance at Beginning of Period $ 1,036 $ 1,730 $ 920
Provisions 3,082 1,996 4,452
Losses Charged to Allowance (8,966) (2,694) (3,648)
Recoveries Credited to Allowance 852 4 6
Additions to Allowance for Acquired OREO 6,500 - -
------ ------ ----
Balance at End of Period $ 2,504 $ 1,036 $ 1,730
====== ====== ======
</TABLE>
In connection with the Bristol acquisition, a purchase accounting
adjustment of $5.9 million for the allowance for losses on real estate owned was
recorded at the time of the acquisition and added to Bristol's existing
allowance of $600,000 to reflect an accelerated disposition strategy.
NOTE 13: Income Taxes
As discussed more fully in Note 1, Webster adopted Statement 109 as of
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $4.6 million was determined as of January 1, 1993 and is reported
separately in the supplemental consolidated statements of income. Prior period
supplemental consolidated financial statements have not been restated to apply
the provisions of Statement 109.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was
enacted which resulted in an increase in the federal corporate tax rate from 34%
to 35% retroactive to January 1, 1993. The enactment of OBRA resulted in an
increase of $120,000 in Webster's deferred tax asset. Future net income of
Webster may be impacted by the increased tax rate.
F-24
<PAGE>
NOTE 13: Income Taxes (Continued)
Charges for income taxes in the Supplemental Consolidated Statements of
Income are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
1994 1993 1992
----- ------ ------
<S> <C> <C> <C>
Current:
Federal $ 7,929 $ 9,385 $ 4,408
State 2,751 3,305 2,118
----- ------ ------
10,680 12,690 6,526
Deferred:
Federal (4,452) (1,553) 438
State (1,378) (542) 119
------- ------ ------
(5,830) (2,095) 557
Total:
Federal 3,477 7,832 4,846
State 1,373 2,763 2,237
----- ------ ------
$ 4,850 $10,595 $ 7,083
===== ====== ======
</TABLE>
Income tax expense of $4.9, $10.6 and $7.0 million for the periods ending
December 31, 1994, 1993 and 1992, differed from the amounts computed by applying
the Federal Income Tax rate of 35% in 1994, 1993 and 34% in 1992 to pre-tax
income as a result of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Computed "Expected" Tax Expense $ 8,238 $ 8,713 $4,588
Reduction in Income Taxes Resulting From:
Dividends Received Deduction (135) (65) (123)
State Income Taxes, Net of Federal Income
Tax Benefit, Including Change in
Valuation Allowance 895 1,800 1,476
Adjustment to Deferred Tax Assets and Liabilities:
Change in Tax Rate (265) (88) -
Change in Valuation Allowance (Federal) (3,781) - -
Other, Net (102) 235 1,142
------ ------ -----
Income Taxes $ 4,850 $10,595 $7,083
====== ====== =====
</TABLE>
At December 31, 1994 Webster had a net deferred tax asset of $12.6 million.
In order to fully realize the net deferred tax asset, Webster must either
generate tax losses to carryback or generate future taxable income. Based on
Webster's historical and current taxable earnings, management believes it is
more likely than not that Webster will realize the net deferred tax asset. There
can be no assurance, however, that Webster will in the future generate any
taxable earnings or any specific level of continuing taxable earnings.
In March of 1994, Webster acquired Bristol as discussed more fully in Note
2. The acquisition of Bristol resulted in significant tax benefits, which are
reflected in the deferred tax asset at December 31, 1994. On the date of
acquisition Bristol's deferred tax asset of approximately $14 million had a 100%
valuation allowance, due to an unfavorable earnings history of Bristol and the
uncertain nature of generating future taxable income. Since the acquisition,
Bristol generated net income and is expected to continue to operate profitably
in the future. Therefore, Webster has recognized a portion of the deferred tax
asset valuation allowance in the current year, which offsets current income tax
expense.
F-25
<PAGE>
NOTE 13: Income Taxes (Continued)
Webster has established a valuation allowance principally for a portion of
temporary differences that may be subject to review by taxing authorities. The
primary source of recovery of the deferred tax assets are federal taxes paid
that are available for carryback of approximately $8.4 million in 1994, $9.4
million in 1993 and $6.5 million in 1992. The net increase of $10.0 million in
the valuation allowance was due primarily to a $13.8 million increase related to
the acquisition of Bristol offset by a $4.5 million reduction of tax expense.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993 are presented below. (In Thousands)
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
----------------- -----------------
<S> <C> <C>
Deferred Tax Assets:
Loan Loss Allowances & Other Allowances, Net $ 24,075 $ 22,388
Accrued Compensation and Pensions 1,311 437
Unrealized Losses of Securities 1,415 18
Tax Loss Carryforwards 5,439 320
Intangibles 2,930 -
Other 2,156 1,236
------ ------
Total Gross Deferred Tax Assets 37,326 24,399
Less: Valuation Allowance (11,191) (1,814)
------- -------
Deferred Tax Asset After Valuation Allowance 26,135 22,585
------- -------
Deferred Tax Liabilities:
Loan Discount 11,861 15,550
Plant and Equipment, Principally due to
Differences in Depreciation 933 595
Intangibles 2 637
Other 749 473
------- -------
Total Gross Deferred Tax Liabilities 13,545 17,255
------- -------
Net Deferred Tax Asset $ 12,590 $ 5,330
------- -------
</TABLE>
As a result of the Bristol acquisition, Webster has federal net operating
loss carryforwards of approximately $8 million which expire in various years
through 2006 and state net operating loss carryovers approximating $18 million
which expire in various years through 1998, subject to certain restrictions.
NOTE 14: Shareholders' Equity
In connection with the First Constitution Acquisition, Webster issued
1,200,000 shares of Series A Cumulative Perpetual Preferred Stock to the FDIC on
October 6, 1992 at a purchase price of $25.00 per share for an aggregate
investment of $30 million. At December 31, 1993, Webster had fully redeemed the
Series A Stock.
On December 30, 1992, through a registered offering, Webster issued $25
million which represents 250,000 shares of Series B 7 1/2% Cumulative
Convertible Preferred Stock (the "Series B Stock"). Webster used 50% of the net
proceeds of $23.5 million from this offering to redeem $11.75 million of the
Series A Stock. On June 29, 1993, Webster completed a registered offering of $40
million aggregate principal amount of 8 3/4% Senior Notes due 2000. Webster used
$18.25 million of the proceeds of the offering to redeem the remaining shares of
the Series A Stock. During 1994 holders of the Series B Stock converted 77,871
shares into 446,979 shares of Webster's common stock.
On March 3, 1994, Webster completed the sale of 1,150,000 shares of its
common stock in subscription and underwritten public offerings that were
conducted in connection with the Bristol acquisition. Webster invested $31
million into Bristol including approximately $21.9 million from the subscription
and public offerings with the balance from funds at the holding company. As a
result of this investment, Bristol meets the regulatory requirement for a "well
capitalized" savings bank. Of the 1,150,000 shares sold in the subscription and
public offerings, 100,000 shares were purchased by First Federal's ESOP. The
ESOP's outstanding loan balance was increased by approximately $2.1 million in
connection with the purchase.
F-26
<PAGE>
NOTE 14: Shareholders' Equity (Continued)
On December 16, 1994, Webster issued 266,500 shares of its common stock for
all 533,000 outstanding shares of Shoreline's common stock, based on an exchange
ratio of 1 share of Webster's common stock for 2 shares of Shoreline's common
stock. See Note 2 regarding the Shoreline acquisition.
Retained earnings at December 31, 1994 included $16.4 million, which
represented earnings appropriated to bad debt reserves and deducted for federal
income tax purposes which are not available for payment of cash dividends or
other distributions to shareholders, including distributions on redemption,
dissolution, or liquidation, without payment of such taxes by the Banks on the
amount of such earnings removed from the reserves for such distribution at the
then current tax rate.
Under applicable capital standards adopted by the Office of Thrift
Supervision, ("OTS") savings institutions are required to satisfy a "tangible
capital requirement," a "core capital requirement," and a "risk-based capital
requirement." At December 31, 1994, First Federal exceeded all OTS regulatory
capital requirements and met the FDIC requirements for a "well capitalized"
savings institution. The FDIC has established similar capital requirements (with
the exception of a "tangible" capital requirement) that apply to Bristol and
Shelton Bank, as state-chartered savings banks. At December 31,1994 Bristol and
Shelton Bank each exceeded all FDIC regulatory capital requirements and met the
FDIC requirements for a "well capitalized" bank. In order to be considered "well
capitalized," a depository institution must have a ratio of Tier 1 capital to
adjusted total assets of 5% or more, a ratio of Tier 1 capital to risk-weighted
assets of 6% or more, and a ratio of total capital to risk-weighted assets of
10% or more.
On August 23, 1993, the OTS issued new regulations, effective January 1,
1994, which add an interest-rate risk component to the risk-based capital
requirement. Under the new regulation, an institution is considered to have
excess interest-rate risk if based upon a 200 basis point change in market
interest rates, the market value of an institution's capital changes by more
than 2%. The OTS has delayed implementation of the new regulation until the
March 31, 1995 quarterly reporting period. The FDIC has proposed a similar
interest-rate risk component that would apply to Bristol. The interest-rate risk
requirements are not expected to have a material effect on the ability of the
Banks to meet the risk-based capital requirement.
At the time of the Banks' respective conversions 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, each eligible depositor will be entitled to
receive a liquidation distribution from the liquidation account. The Banks may
not declare or pay a cash dividend on or repurchase any of their capital stock
if the effect thereof would cause their regulatory capital to be reduced below
applicable regulatory capital requirements or the amount required for their
liquidation accounts.
The OTS capital distribution regulations condition First Federal's ability
to pay dividends. The OTS capital distribution regulations establish three tiers
of institutions for purposes of determining the level of dividends that can be
paid. Since First Federal's capital levels exceeded all fully phased-in OTS
capital requirements at December 31, 1994, it was considered a Tier I
Institution. Tier I 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 a calendar year. In accordance with the OTS capital
distribution regulations, First Federal must provide a 30 day notice prior to
the payment of any dividends to Webster. As of December 31, 1994, First Federal
had $54.0 million available for the payment of dividends under the OTS capital
distribution regulations. First Federal has paid dividends to Webster amounting
to $11.3 million and $3.0 million for 1993 and 1992, respectively. No such
notice requirements for the payment of dividends by Bristol or Shelton Bank to
Webster currently exist. Under the prompt corrective action regulations adopted
by the OTS and FDIC, the Banks are each precluded from paying any dividend if
such action would cause them to fail to comply with applicable minimum capital
requirements.
The Banks have an ESOP that invests in Webster's common stock as discussed
in Notes 10 and 15. Since Webster has secured and guaranteed the ESOP debt, the
outstanding ESOP loan balance is shown as a reduction of shareholders' equity.
Shareholders' equity is increased by the amount of principal repayments on the
ESOP loan. Principal repayments totaled $352,000, $324,200 and $296,000 during
the years ended December 31, 1994, 1993 and 1992, respectively.
F-27
<PAGE>
NOTE 15: Employee Benefit and Stock Option Plans
The Banks maintain 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 Banks also have
an employee savings plan under section 401(k) of the Internal Revenue Code.
Under the savings plan the Banks will match $.50 for every $1.00 of the
employee's contribution which is not in excess of 6% of the employee's annual
compensation. Operations were charged with $388,000, $169,000 and $106,000 for
the years ended December 31, 1994, 1993 and 1992, respectively, for
contributions to the savings plan.
The Banks' noncontributory ESOP is designed to invest, on behalf of
employees of the Banks who meet certain minimum age and service requirements, in
Webster's common stock. The Banks may make contributions to the ESOP in such
amounts as their boards of directors may determine on an annual basis. To the
extent that the Banks' contributions are used to repay the ESOP loan, Webster's
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 service under the ESOP. Operations were
charged with $384,000, $352,000 and $337,000 for the years ended December 31,
1994, 1993 and 1992, respectively, for contributions to the ESOP. The 1994 ESOP
charge includes $352,000 for principal payments and $109,219 of interest
payments (net of $120,033 of dividends on unallocated ESOP shares). The number
of new ESOP shares and shares committed to be released subject to the provisions
of Statement of Position 93-6 were 100,000 and 4,127 respectively. See Note 14
for a description of the increase in the ESOP's outstanding indebtedness that
was incurred in connection with the Bristol acquisition.
The following table sets forth the pension plan's funded status and amounts
recognized in Webster's Supplemental Consolidated Statements of Condition as of
December 31, 1994 and 1993: On November 1, 1995, Webster acquired Shelton in a
transaction accounted for as a pooling of interests. The following pension plan
disclosures exclude Shelton's noncontributory pension plan, which had pension
expenses of $85,000, $52,000 and $1,000 at December 31, 1994, 1993 and 1992.
Shelton Pension Plan disclosures as of December 31, 1994 and 1993 for pension
plan's funded status, pension plan's reconciliation of unfunded accrued pension,
components of net pension plan expense and postretirement benefits costs are not
available and are considered not meaningful to the supplemental consolidated
financial statements.
<TABLE>
<CAPTION>
(In Thousands) December 31,
----------------------
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 5,645 $ 1,504
Nonvested benefit obligation 914 201
------- -------
Accumulated benefit obligation 6,559 1,705
Effect of projected future compensation levels 1,176 1,347
------- -------
Projected benefit obligated for service
rendered to date 7,735 3,052
Plan assets at fair value, primarily listed
stocks and U.S. bonds 8,540 3,015
------- -------
Excess (Deficiency) of plan assets over
benefit obligation 805 (37)
Items not yet recognized in earnings:
Unrecognized prior service cost (1,775) (59)
Unrecognized net gain (406) (403)
Unrecognized net asset at January 1, 1987
being recognized over 20.9 years (148) (350)
------- -------
Unfunded accrued pension cost $ (1,524) $ (849)
======= =======
</TABLE>
The following table sets forth the pension plan's reconciliation of
unfunded accrued pension costs for the year ended December 31, 1994:
<TABLE>
<S> <C>
Unfunded accrued pension cost as of January 1, 1994
for First Federal Bank Pension Plan $ (849)
Unfunded accrued pension cost as of March 2, 1994
for Bristol Savings Bank Pension Plan (47)
Contributions made during 1994 142
Pension costs for 1994 (770)
-------
Unfunded accrued pension costs as of December 31, 1994 $ (1,524)
=======
</TABLE>
F-28
<PAGE>
On March 3, 1994, Webster acquired Bristol (see Note 2), and during 1994
Bristol's pension plan was merged with First Federal's pension plan. Bristol's
employees continued to accrue benefits under First Federal's pension plan.
The weighted average discount rate, 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 8.0%, 5.0%
and 9.0% for 1994 and 7.3%, 5.0% and 8.0% for 1993, respectively. During 1994,
Bristol made contributions totaling $142,000 to its pension plan prior to the
merger with First Federal's plan.
Net pension expense for 1994, 1993 and 1992 included the following
components:
<TABLE>
<CAPTION>
(In Thousands) December 31,
-------------------------------
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Service cost benefits earned during
the period $ 922 $ 279 $ 194
Interest cost on projected benefit
obligations 462 216 178
Return on plan assets 517 (326) (279)
Amortization and deferral (1,131) 62 10
------ ------ -------
Total $ 770 $ 231 $ 103
====== ====== =======
</TABLE>
In December 1991, the Financial Accounting Standards Board, ("FASB"),
issued Statement No. 106, "Employers' Accounting for Post Retirement Benefits
Other Than Pension," which requires that employers accrue the costs and
recognize the liability for benefits to be provided to retired employees over
the employees' service period. This statement is effective for fiscal years
beginning after December 15, 1992. During 1994, Webster accrued $900,000
representing cumulative postretirement benefits, $700,000 of which was a
purchase accounting adjustment related to the Bristol acquisition.
The components of postretirement benefits cost were as follows:
Year Ended December 31,
1994
--------
Service cost $ 20,590
Interest cost 58,438
Immediate recognition of net
transition obligation 821,312
-------
Net periodic postretirement benefit cost $900,340
========
The following table sets forth the status of Webster's accumulated
postretirement benefit obligation, which was unfunded, at December 31, 1994.
Accumulated benefit obligation $768,904
Unrecognized net gain 59,724
-------
Postretirement benefit liability $828,628
=======
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8%. The assumed weighted average health
care cost trend rate was 13% for 1994. Such rates decrease gradually to 4.25%
through the year 2008 and remains level thereafter. An increase of 1% in the
assumed health care cost trend rate would result in a recalculated accumulated
benefit obligation of $841,544.
Webster maintains Stock Option Plans (the "Option Plans") for the benefit
of its directors and officers and other full-time employees. Options totalling
194,780, 146,750 and 33,550 shares were granted in 1994, 1993 and 1992,
respectively, at the fair market value on the various grant dates. All options
issued prior to June 30, 1993 have been adjusted retroactively to give effect to
a 10% stock dividend to common shareholders of record on June 4, 1993. No
options were canceled or expired in 1994 and 1993. At December 31, 1994, options
for 693,386 shares of common stock were outstanding at an average option price
of $14.97. Options for 20,782 shares were exercised in 1994.
F-29
<PAGE>
NOTE 16: Legal Proceedings
Webster is a 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 17: Parent Company Condensed Financial Information
The Statements of Condition for 1994 and 1993 and the Statements of Income
and Cash Flows for the three-year period ended December 31, 1994 (parent only)
are presented below.
STATEMENTS OF CONDITION
-----------------------
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993
------- -------
<S> <C> <C>
Assets
Cash and Due from Depository Institutions $ 1,290 $ 518
Securities Available for Sale 16,878 23,691
Investment in Subsidiaries 178,757 134,021
Due from Subsidiaries 336 8,231
Other Assets 3,670 2,267
------- -------
Total Assets $200,931 $168,728
======= =======
Liabilities and Shareholders' Equity
Senior Notes due 2000 $ 40,000 $ 40,000
ESOP Borrowings 3,675 1,952
Other Liabilities 449 503
Shareholders' Equity 156,807 126,273
------- -------
Total Liabilities and
Shareholders' Equity $200,931 $168,728
======= =======
</TABLE>
F-30
<PAGE>
NOTE 17: Parent Company Condensed Financial Information (Continued)
STATEMENTS OF INCOME
--------------------
(In Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Dividends from Subsidiary $ 4,596 $11,997 $ 3,370
Interest on Securities 964 756 440
Loss on Sale of Securities (413) - -
Senior Notes Interest Expense 3,660 1,850 -
Other Noninterest Expenses 1,475 493 277
------ ------ ------
Income (Loss) Before Income Taxes and
Equity in Undistributed Earnings of Subsidiary 12 10,410 3,533
Income Tax Benefit 1,955 713 29
------ ------ ------
Income Before Equity in Undistributed
Earnings of Subsidiary 1,967 11,123 3,562
Equity in Undistributed Earnings of Subsidiary 16,718 7,752 2,851
------ ------ ------
Net Income 18,685 18,875 6,413
Preferred Stock Dividends 1,716 2,653 581
------ ------ ------
Net Income Applicable to Common Shareholders $16,969 $16,222 $ 5,832
====== ====== ======
</TABLE>
STATEMENTS OF CASH FLOWS
------------------------
(In Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------
1994 1993 1992
---------- ----------- ---------
<S> <C> <C> <C>
Operating Activities:
Net Income $18,685 $14,300 $ 6,413
(Increase) Decrease in Interest Receivable (15) (66) 36
Decrease (Increase) in Other Assets 6,666 (7,874) 1,117
Loss on Sales of Securities 413 - -
Equity in Undistributed Earnings of Subsidiary (16,718) (7,752) (2,851)
Other, Net 511 1,507 370
------ ------- ------
Net Cash Provided by Operating Activities 9,542 115 5,085
------ ------- ------
Investing Activities:
Purchases of Securities Available for Sale (2,369) (33,199) (3,000)
Maturities of Securities Available for Sale 8,400 11,980 11,600
------ ------- ------
Net Cash Provided (Used) by Investing Activities 6,031 (21,219) 8,600
------ ------- ------
Financing Activities:
Proceeds from Issuance of Senior Notes - 40,000 -
Net Proceeds from Sale of Common Stock 21,923 - -
Cash Dividends to Shareholders (4,724) (5,015) (2,765)
Issuance of Series A Stock, Net - - 30,000
Redemption of Series A Stock - (18,250) (11,750)
Issuance of Series B Stock, Net - - 23,500
Investment in Subsidiary (32,000) - (52,692)
------- ------- -------
Net Cash (Used) Provided by Financing Activities (14,801) 16,735 (13,707)
------ ------- -------
Increase (Decrease) in Cash and Cash Equivalents 772 (4,369) (22)
Cash and Cash Equivalents at Beginning of Year 518 4,887 4,909
------ ------- -------
Cash and Cash Equivalents at End of Year $ 1,290 $ 518 $ 4,887
====== ======= =======
</TABLE>
F-31
<PAGE>
NOTE 18: Selected Quarterly Consolidated Financial Information (Unaudited)
Selected quarterly data for 1994 and 1993 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands Except Per Share Data) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994:
Interest Income $41,189 $47,999 $50,430 $51,202
Interest Expense 20,820 24,231 26,042 27,371
Net Interest Income 20,369 23,768 24,388 23,831
Provision for Loan Losses 935 700 550 970
Loans and Securities Gains (Losses), Net 235 74 13 (1,504)
Other Noninterest Income 3,034 4,042 3,901 3,834
Noninterest Expenses 15,859 19,435 20,141 23,860
Income Taxes (Benefit) 2,541 2,836 2,781 (3,308)
------ ------ ------ ------
Net Income 4,303 4,913 4,830 4,639
Preferred Stock Dividends 469 468 469 310
------ ------ ------ ------
Net Income Applicable to
Common Shareholders $ 3,834 $ 4,445 $ 4,361 $ 4,329
====== ====== ====== ======
Net Income Per Share:
Primary $ .69 $ .70 $ .68 $ .64
====== ====== ====== ======
Fully Diluted $ .61 $ .63 $ .62 $ .59
====== ====== ====== ======
1993:
Interest Income $40,292 $38,781 $37,415 $38,101
Interest Expense 21,016 20,064 20,011 19,712
Net Interest Income 19,276 18,717 17,404 18,389
Provision for Loan Losses 1,190 1,195 1,180 1,032
Loans and Securities Gains, Net 572 418 404 486
Other Noninterest Income 2,156 1,912 2,344 2,411
Noninterest Expenses 14,703 13,637 12,766 13,891
Income Taxes 2,519 2,536 2,857 2,683
------ ------ ------ ------
Net Income before Cumulative Effect of Change
In Method of Accounting 3,592 3,679 3,349 3,680
Cumulative Effect of Change in Method of
Accounting for Income Taxes 4,300 - 275 -
------ ------ ------ ------
Net Income after Cumulative Effect of
Change in Method of Accounting 7,892 3,679 3,624 3,680
Preferred Stock Dividends 885 832 468 468
------ ------ ------ ------
Net Income Applicable to
Common Shareholders $ 7,007 $ 2,847 $ 3,156 $ 3,212
====== ====== ====== ======
Net Income Per Common Share
Before Cumulative Change:
Primary $ .54 $ .56 $ .56 $ .61
====== ====== ====== ======
Fully Diluted $ .49 $ .50 $ .51 $ .55
====== ====== ====== ======
</TABLE>
Results of operations relating to Bristol are included in the supplemental
consolidated financial statements only for the period subsequent to the
effective date of the acquisition of March 3, 1994. All periods presented have
been retroactively restated to reflect the inclusion of the results of Shelton
and Shoreline which were acquired on November 1, 1995 and December 16, 1994,
respectively, and were accounted for using the pooling of interests method.
F-32
<PAGE>
Webster Financial Corporation and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
------------- ------------
<S> <C> <C>
ASSETS
Cash and Due from Depository Institutions $ 48,340 $ 44,304
Interest-bearing Deposits 75,097 54,318
Trading Securities, at Fair value 41,390 23,095
Securities:
Available for Sale, at Fair value 215,061 175,214
Held to Maturity, (Market value: $853,434 in 1995;
$599,412 in 1994) 856,864 630,449
Loans Receivable, Net 1,872,542 1,869,216
Segregated Assets, Net 116,365 137,096
Accrued Interest Receivable 21,631 18,359
Premises and Equipment, Net 36,212 36,632
Foreclosed Properties, Net 18,801 26,588
Prepaid Expenses and Other Assets 30,629 38,580
------------- ------------
Total Assets $ 3,332,932 $ 3,053,851
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 2,431,068 $ 2,431,945
Federal Home Loan Bank Advances 545,415 370,700
Other Borrowings 130,094 43,675
Advance Payments by Borrowers for Taxes and Insurance 8,765 13,375
Accrued Expenses and Other Liabilities 44,977 37,349
------------ ------------
Total Liabilities 3,160,319 2,897,044
------------ ------------
Shareholders' Equity:
Cumulative Convertible Preferred Stock, Series B 171,869 shares issued and
outstanding at September 30, 1995
and 172,129 shares issued and outstanding at December 31, 1994 2
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 7,340,216 shares at September 30, 1995
and 7,255,834 at December 31, 1994 74 73
Paid in Capital 105,875 104,961
Retained Earnings 72,937 63,216
Less Treasury Stock at Cost, 445,424 shares
at September 30, 1995 and 475,874 shares at December 31, 1994 (3,456) (3,692)
Less Employee Stock Ownership Plan Shares
Purchased with Debt (3,207) (3,675)
Unrealized Securities Gains (Losses), Net 388 (4,078)
----------- -----------
Total Shareholders' Equity 172,613 156,807
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,332,932 $ 3,053,851
=========== ==========
</TABLE>
F-33
<PAGE>
Webster Financial Corporation and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Share Data)
Nine Months Ended
--------------------
September 30,
--------------------
1995 1994
-------- ---------
Interest Income:
Loans and Segregated Assets $ 115,540 $ 102,458
Mortgage-backed Securities 37,408 28,122
Securities and Interest-bearing Deposits 8,842 9,038
--------- ---------
Total Interest Income 161,790 139,618
--------- ---------
Interest Expense:
Interest on Deposits 72,808 56,148
Interest on Borrowings 23,386 14,945
--------- ---------
Total Interest Expense 96,194 71,093
--------- ---------
Net Interest Income 65,596 68,525
Provision for Loan Losses 1,395 2,185
--------- ---------
Net Interest Income After Provision for Loan Losses 64,201 66,340
--------- ---------
Noninterest Income:
Fees and Service Charges 10,590 8,913
Gain on Sale of Loans, Net 1,026 592
Gain (Loss) on Sale of Securities, Net 1,245 (270)
Other Noninterest Income 2,496 2,065
--------- ---------
Total Noninterest Income 15,357 11,300
--------- ---------
Noninterest Expenses:
Salaries and Employee Benefits 27,884 26,298
Occupancy Expense of Premises 4,513 4,338
Furniture and Equipment Expenses 4,523 4,552
Federal Deposit Insurance Premiums 3,272 4,238
Foreclosed Property Expenses and
Provisions, Net (Note 6) 3,392 5,379
Other Operating Expenses 12,506 10,630
--------- ---------
Total Noninterest Expenses 56,090 55,435
--------- ---------
Income Before Income Taxes 23,468 22,205
Income Taxes 7,439 8,159
--------- ---------
Net Income 16,029 14,046
Preferred Stock Dividends 972 1,406
--------- ---------
Net Income Available to Common Shareholders $ 15,057 $ 12,640
========= =========
Net Income Per Common Share:
Primary $ 2.19 $ 2.08
Fully Diluted $ 2.04 $ 1.87
F-34
<PAGE>
Webster Financial Corporation and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
September 30,
---------------------
1995 1994
----- -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 16,029 $ 14,046
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 1,395 2,185
Provision for Foreclosed Property Losses 1,691 2,421
Provision for Depreciation and Amortization 3,309 2,805
Amortization of Securities Premiums, Net 632 292
Amortization of Core Deposit Intangible 541 1,029
(Gains) Losses on Sale of Foreclosed Property (597) 502
Gains on Sale of Loans and Securities, Net (2,215) (265)
Gains on Sale of Trading Securities (56) (57)
(Increase) Decrease in Trading Securities (17,362) 17,908
Decrease in Investments Held for Sale -- 5,372
Loans Originated for Sale (98,665) (205,793)
Sale of Loans, Originated for Sale 91,232 162,577
(Increase) Decrease in Interest Receivable (3,196) 270
Increase in Interest Payable on Interest Bearing Liabilities 2,190 4,261
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 3,266 (32,582)
Decrease in Prepaid Expenses and Other Assets, Net 2,555 5,853
----------- -----------
Net Cash Provided (Used) by Operating Activities 749 (19,176)
----------- -----------
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (112,773) (124,886)
Purchases of Securities Held to Maturity (307,700) (83,075)
Maturities of Securities 6,862 29,351
Proceeds from Sale of Securities Available for Sale 79,231 12,087
Net (Decrease) Increase in Interest-bearing Deposits (20,779) 36,739
Purchase of Loans (2,123) (37,181)
Net Decrease (Increase) in Loans 6,536 (147,246)
Proceeds from Sale of Foreclosed Property 10,122 16,176
Net Decrease in Segregated Assets 18,051 35,146
Principal Collected on Mortgage-backed Securities 75,593 128,014
Purchase of Premises and Equipment (2,889) (5,914)
Net Cash and Cash Equivalents Received from Banking Institutions Acqu ed -- 15,490
----------- -----------
Net Cash Used by Investing Activities (249,869) (125,299)
----------- -----------
FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits (877) 18,239
Proceeds from Sale of Common Stock -- 21,923
Repayment of FHLB Advances (436,591) (919,542)
Proceeds from FHLB Advances 611,306 1,065,542
Repayment of Reverse Repurchase Agreements and Other Borrowings (25,140) --
Proceeds from Reverse Repurchase Agreements and Other Borrowings 112,104 --
Cash Dividends to Common and Preferred Shareholders (4,248) (3,578)
Net Decrease in Advance Payments for Taxes and Insurance (4,610) (14,726)
Exercise of Stock Options 1,212 354
----------- -----------
Net Cash Provided by Financing Activities 253,156 168,212
----------- -----------
Increase in Cash and Cash Equivalents 4,036 23,737
Cash and Cash Equivalents at Beginning of Period 44,304 26,066
----------- -----------
Cash and Cash Equivalents at End of Period $ 48,340 $ 49,803
=========== ===========
Supplemental Disclosures:
Income Taxes Paid $ 5,387 $ 7,922
Interest Paid 85,842 74,077
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of Loans to Foreclosed Property $ 8,449 $ 29,376
Securitization of Residential Real Estate Loans -- 137,458
</TABLE>
F-35
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
-----------------------
The accompanying unaudited supplemental consolidated financial statements
include all adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods presented. All
adjustments were of a normal recurring nature. The results of operations for the
nine month period ended September 30, 1995 are not necessarily indicative of the
results which may be expected for the year as a whole. These unaudited financial
statements should be read in conjunction with the audited year-end supplemental
consolidated financial statements and notes thereto included in this Prospectus.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
-----------------------------
The supplemental consolidated financial statements include the accounts of
Webster Financial Corporation ("Webster") and its wholly owned subsidiaries
First Federal Bank, a federal savings bank ("First Federal"), Bristol Savings
Bank, a state chartered savings bank ("Bristol") and Shelton Savings Bank, a
state chartered savings bank ("Shelton Bank") (collectively the "Banks").
Effective November 1, 1995, First Federal and Bristol were merged and renamed
Webster Bank. Also, effective November 1, 1995, Webster acquired Shelton Bancorp
Inc. ("Shelton") in a transaction accounted for as a pooling of interests. As
part of the acquisition, Shelton Bank was then merged into Webster Bank. The
accompanying supplemental consolidated financial statements and notes thereto
have been retroactively restated to include the accounts of Shelton as if the
acquisition had occurred at the beginning of the earliest period presented.
NOTE 3 - ACQUISITIONS
------------
SHELTON SAVINGS BANK
- --------------------
On November 1, 1995, Webster acquired Shelton with assets of $298 million.
In connection with the acquisition, Webster issued 1,293,056 shares of its
common stock to the shareholders of Shelton based on a fixed exchange ratio of
.92 of a share of Webster common stock for each of Shelton's outstanding shares.
SHORELINE BANK AND TRUST COMPANY
- --------------------------------
On December 16, 1994, Webster acquired Shoreline Bank and Trust Company
("Shoreline"), a Connecticut chartered commercial bank with $51 million in
assets based in Madison, Connecticut. In connection with the acquisition,
Webster issued 266,500 shares of its common stock for all of the outstanding
shares of Shoreline common stock based on an exchange ratio of 1 share of
Webster's common stock for 2 shares of Shoreline's common stock. The acquisition
was accounted for as a pooling of interests and as such the accompanying
supplemental consolidated financial statements include Shoreline's financial
data as if Shoreline had been combined as of the beginning of the earliest
period presented.
BRISTOL SAVINGS BANK
- --------------------
On March 3, 1994, Bristol converted from a Connecticut mutual savings bank
to a Connecticut capital stock savings bank and concurrently became a
wholly-owned subsidiary of Webster and a sister bank to First Federal (the
"Bristol Acquisition"). Webster became a multiple holding company as a result of
the Bristol Acquisition. In connection with the conversion, Webster completed
the sale of 1,150,000 shares of its common stock in related subscription and
public offerings. Webster invested in Bristol a total of $31.0 million,
consisting of the net proceeds of approximately $21.9 million from the
subscription and public offerings plus existing funds from the holding company.
As a result of this investment, Bristol met all ratios required by the FDIC for
a "well-capitalized" institution. The Bristol Acquisition was accounted for as a
purchase and results of operations relating to Bristol are included in the
accompanying supplemental consolidated financial statements only for the period
subsequent to the effective date of the acquisition.
F-36
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NET INCOME PER SHARE
--------------------
Primary net income per share is calculated by dividing net income less
preferred stock dividends by the weighted-average number of shares of common
stock and common stock equivalents outstanding, when dilutive. The common stock
equivalents consist of common stock options. Fully diluted net income per share
is calculated by dividing adjusted net income by the weighted-average fully
diluted common shares, including the effect of common stock equivalents and the
hypothetical conversion into common stock of the Series B 7 1/2% Cumulative
Convertible Preferred Stock. The weighted-average number of shares used in the
computation of primary net income per share for the nine months ended September
30, 1995 was 6,917,942 and for the nine months ended September 30, 1994 was
6,087,841. The weighted-average number of shares used in the computation of
fully diluted earnings per share for the nine months ended September 30, 1995
was 7,872,109 and for the nine months ended September 30, 1994 was 7,521,717.
NOTE 5 - ACCOUNTING FOR IMPAIRED LOANS
-----------------------------
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." Under SFAS No. 114, a loan
is considered impaired when it is probable that the creditor will be unable to
collect amounts due, both principal and interest, according to the contractual
terms of the loan agreement. This statement does not apply to large groups of
small-balance homogeneous loans that are collectively evaluated for impairment
such as residential and consumer loans. When a loan is impaired, a creditor has
a choice of ways to measure impairment. The factors used to measure impairment
include: (i) the present value of expected future cash flows of the impaired
loan discounted at the loan's original effective interest rate, (ii) the
observable market price of the impaired loan or (iii) the fair value of the
collateral of a collateral-dependent loan. When a loan has been deemed to be
impaired, a valuation allowance is established for the amount of such
impairment.
Webster considers its residential and consumer loan portfolios to be exempt
from the provisions of SFAS No. 114 since these loans are large groups of
small-balance homogeneous loans collectively evaluated for determining loan loss
allowances. In identifying impaired loans under the provisions of SFAS No. 114,
Webster aggregates loans into risk classifications and makes an individual
assessment of each borrower's ability to repay based upon current contract
terms. If it is determined that the borrower will not be able to fulfill the
terms of the original contract, the loan is classified as impaired. Impaired
loans differ from nonaccrual loans based upon the following:
Nonaccrual loans are loans which are contractually past due 90 days or more
as to principal or interest payments. In addition, a loan may be placed on
nonaccrual status based on uncertainty as to future principal or interest
payments. In comparison, the measurement of impaired loans is more subjective
due to the use of estimates of future cash flows.
There is no difference in Webster's charge-off policy for impaired loans as
compared to other loans classified as nonaccrual or risk-rated by category.
Loans are charged-off to the loan loss or impaired loan loss allowances when
management determines that a portion of the book value of the loan will not be
recovered either through principal repayment or liquidation of the underlying
collateral.
Webster adopted SFAS No. 114 during the quarter ended March 31, 1995, with
no impact on its results of operations. At September 30, 1995, Webster had $11.7
million of impaired loans, of which $5.6 million was measured based upon the
fair value of the underlying collateral and $6.1 million was measured based upon
the expected future cash flows of the impaired loans. Of the total impaired
loans of $11.7 million, $10.1 million had allowances for losses on impaired
loans of $1.7 million. In the 1995 third quarter, the average balance of
impaired loans was $11.8 million. The allowance for losses on impaired loans was
established as a result of an allocation from the allowance for losses on loans.
F-37
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - ACCOUNTING FOR IMPAIRED LOANS - Continued
-----------------------------------------
In October 1994, the Financial Accounting Standards Board issued SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure", amending SFAS No. 114. SFAS No. 118 allows institutions to use
existing methods for recognizing interest income on impaired loans. Webster's
policy with regard to the recognition of interest income on impaired loans
includes an individual assessment of each loan. Interest which is more than 90
days past due is not accrued. When payments on impaired loans are received,
Webster records interest income on a cash basis or applies the total payment to
principal based on an individual assessment of each loan. Interest income
recognized on impaired loans for the nine months ended September 30, 1995
amounted to $46,199.
NOTE 6 - REVERSE REPURCHASE AGREEMENTS
-----------------------------
At September 30, 1995, Webster had $87.0 million of reverse repurchase
agreements outstanding. Information concerning borrowings under reverse
repurchase agreements is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Balance at Fixed Maturity Book Value Market Value
September 30, 1995 Term Rate Date of Collateral of Collateral
- ------------------ ---- ---- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$14,895 9 months 5.85% 5/10/96 $16,194 $15,827
11,527 9 months 5.83 5/10/96 11,471 12,087
35,992 3 months 5.77 12/14/95 36,381 37,298
24,550 4 months 5.77 1/23/96 27,546 26,358
------ ------ ------
$86,964 $91,592 $91,570
====== ====== ======
</TABLE>
The securities underlying the reverse repurchase agreements are all U.S.
Agency collateral and have been delivered to the broker-dealers who arrange the
transactions. Webster uses reverse repurchase agreements when the cost of such
borrowings is favorable as compared to other funding sources. The average
balance and the maximum amount of outstanding reverse repurchase agreements at
any month-end during the 1995 third quarter was $38.3 million and $87.0 million,
respectively. There were no reverse repurchase agreements outstanding at
September 30, 1994. The weighted-average interest rate of the reverse repurchase
agreements outstanding at September 30, 1995 was 5.79%.
NOTE 7 - ACCOUNTING STANDARDS
--------------------
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122
"Accounting for Mortgage Servicing Rights", which amends SFAS No. 65 "Accounting
for Certain Mortgage Banking Activities." Under SFAS No. 65, mortgage servicing
rights were required to be capitalized only if servicing was purchased but
prohibited separate capitalization of mortgage servicing rights when acquired
through loan portfolio sales with servicing rights retained. 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. Additionally, SFAS No. 122 requires that a
mortgage banking entity assess its capitalized mortgage servicing rights for
impairment and establish valuation allowances based on the fair value of those
servicing rights, which include those servicing rights acquired prior to
adoption of SFAS No. 122. As allowed under the provisions of this statement,
Webster elected early adoption of SFAS No. 122 on July 1, 1995. As a result of
such adoption, Webster recorded gains on the sale of loans of $118,000 for the
nine months ended September 30, 1995. At September 30, 1995, the fair value of
all mortgage servicing rights exceeded its book value, therefore, no valuation
allowance was recorded.
F-38
<PAGE>
Appendix A
Description of Graphic Material
A map of the State of Connecticut is included as a part of the
Prospectus. Each branch of Webster Bank is represented on the map as a dot; the
20 branches to be acquired in the Shawmut Transaction are represented by a dot
with a circle surrounding it; and the two branches of Webster Bank being
transferred to Shawmut are each represented by a dot surrounded by a box.
<PAGE>
No dealer, salesman or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by Webster or the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than those specifically
offered hereby or of any securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make an offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of Webster since the date hereof or that the
information included or incorporated by reference herein is correct as of any
time subsequent to its date.
--------------------
TABLE OF CONTENTS
Page
Map........................................... 2
Available Information......................... 3
Incorporation of Certain Documents by
Reference................................... 3
Prospectus Summary............................ 4
Risk Factors.................................. 10
Webster....................................... 12
Completed Acquisitions........................ 13
The Shawmut Transaction....................... 15
Use of Proceeds............................... 20
Capitalization................................ 21
Capital Ratios................................ 22
Market Prices and Dividends................... 23
Pro Forma Combined Financial Information...... 25
Description of Capital Stock.................. 29
Underwriting.................................. 35
Legal Matters................................. 36
Experts ...................................... 36
Index to Supplemental Consolidated Financial
Statements ................................. F-1
1,100,000 Shares
Webster
Financial
Corporation
Common Stock
--------------------
PROSPECTUS
--------------------
Merrill Lynch & Co.
Advest, Inc.
December ___, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following expenses are expected to be incurred in connection with
the issuance and sale of the securities being registered:
Securities and Exchange Commission registration fee...... $ 11,260
NASD filing fee.......................................... 3,765
NASDAQ listing fee....................................... 17,500
Printing and mailing expenses............................ 16,250
Legal fees............................................... 75,000
Accounting fees and expenses............................. 75,000
Blue sky legal fees ..................................... 7,500
Blue sky expenses........................................ 1,875
Miscellaneous expenses................................... 16,850
----------
Total.................................................... $ 225,000
==========
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law sets forth certain
circumstances under which directors, officers, employees and agents may be
indemnified against liability that they may incur in their capacity as such.
Section 145 of the Delaware General Corporation Law, which is filed as Exhibit
99.1 to this Registration Statement, is incorporated herein by reference.
Article Nine of the Registrant's Bylaws, entitled "Indemnification,"
provides for indemnification of the Registrant's directors, officers, employees
and agents under certain circumstances. Article Nine of the Registrant's Bylaws,
which are filed as Exhibit 4.4 to this Registration Statement, is incorporated
herein by reference.
The Registrant also has the power to purchase and maintain insurance on
behalf of its directors and officers. The Registrant has in effect a policy of
liability insurance covering its directors and officers, the effect of which is
to reimburse the directors and officers of the Registrant against certain
damages and expenses resulting from certain claims made against them caused by
their negligent act, error or omission.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
II-1
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
Item 16. Exhibits.
The following exhibits are filed herewith as part of this Registration
Statement or incorporated herein by reference.
Exhibit No. Exhibit
---------- ---------
1 Form of Purchase Agreement among the Registrant and the
Underwriters.
2.1 Purchase and Assumption Agreement, between the Registrant and
Shawmut Bank Connecticut, National Corporation, dated as of
October 1, 1995 (incorporated herein by reference to the
Registrant's Current Report on Form 8-K filed on October 1,
1995).
2.2 Agreement and Plan of Merger dated June 20, 1995, as amended,
among the Registrant, Webster Acquisition Corp. and Shelton
Bancorp, Inc., including exhibits A through G thereto
(incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K/A filed on July 27,
1995).
4.1 Restated Certificate of Incorporation of Registrant
(incorporated herein by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1986).
4.2 Certificate of Amendment of Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-2,
Registration No. 33-54980, filed on November 25, 1992).
4.3 Certificate of Designation for the Series B 7 1/2% Cumulative
Convertible Preferred Stock (incorporated herein by reference
to Exhibit 4.4 to the Registrant's Registration Statement on
Form S-2, Registration No. 33-54980, filed on November 25,
1992).
4.4 Bylaws of the Registrant, as amended to date (incorporated
herein by reference to Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
4.5 Form of Stock Certificate for Common Stock (incorporated
herein by reference to Exhibit 4(b) to the Registrant's
Registration Statement on Form S-1, Registration No. 33-8675,
filed on September 11, 1986).
5* Opinion of Hogan & Hartson L.L.P. regarding legality of
securities being registered.
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
24** Power of Attorney (filed as part of the signature page to the
Registration Statement).
II-2
<PAGE>
99.1 Section 145 of the Delaware General Corporation Law
(incorporated herein by reference to Exhibit 28.1 to the
Registrant's Registration Statement on Form S-2, Registration
No. 33-54980, filed on November 25, 1992).
____________________________
*To be filed by Pre-Effective Amendment.
**Previously filed.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waterbury, State of
Connecticut, on the 20th day of November, 1995.
WEBSTER FINANCIAL CORPORATION
By: /s/ James C. Smith
-----------------------
James C. Smith
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the undersigned
in the capacities indicated on the 20th day of November, 1995.
Signature Title
- --------- -----
/s/ James C. Smith
- -------------------- Chairman, President, Chief Executive
James C. Smith Officer and Director
(Principal Executive Officer)
/s/ John V. Brennan
- -------------------- Executive Vice President, Chief
John V. Brennan Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Peter J. Swiatek
- -------------------- Controller
Peter J. Swiatek (Principal Accounting Officer)
II-4
<PAGE>
Signature Title
- --------- -----
* Director
- ----------------------------
Joel S. Becker
* Director
- ----------------------------
O. Joseph Bizzozero, Jr.
* Director
- -----------------------------
Robert A. Finkenzeller
* Director
- -----------------------------
Walter R. Griffin
* Director
- -----------------------------
J. Gregory Hickey
* Director
- -----------------------------
C. Michael Jacobi
* Director
- -----------------------------
Harold W. Smith
- ----------------------------- Director
Sr. Marguerite Waite, C.S.J.
- -----------------------------
*James C. Smith, by signing his name hereto, does sign this document on behalf
of each of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange Commission.
/s/ James C. Smith
- -----------------------
James C. Smith
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
------------- ---------
1 Form of Purchase Agreement among the Registrant and the
Underwriters.
2.1 Purchase and Assumption Agreement, between the Registrant and
Shawmut Bank Connecticut, National Corporation, dated as of
October 1, 1995 (incorporated herein by reference to the
Registrant's Current Report on Form 8-K filed on October 1,
1995).
2.2 Agreement and Plan of Merger dated June 20, 1995, as amended,
among the Registrant, Webster Acquisition Corp. and Shelton
Bancorp, Inc., including exhibits A through G thereto
(incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K/A filed on July 27,
1995).
4.1 Restated Certificate of Incorporation of Registrant
(incorporated herein by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1986).
4.2 Certificate of Amendment of Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-2,
Registration No. 33-54980, filed on November 25, 1992).
4.3 Certificate of Designation for the Series B 7 1/2% Cumulative
Convertible Preferred Stock (incorporated herein by reference
to Exhibit 4.4 to the Registrant's Registration Statement on
Form S-2, Registration No. 33-54980, filed on November 25,
1992).
4.4 Bylaws of the Registrant, as amended to date (incorporated
herein by reference to Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
4.5 Form of Stock Certificate for Common Stock (incorporated
herein by reference to Exhibit 4(b) to the Registrant's
Registration Statement on Form S-1, Registration No. 33-8675,
filed on September 11, 1986).
5* Opinion of Hogan & Hartson L.L.P. regarding legality of
securities being registered.
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
24** Power of Attorney (filed as part of the signature page to the
Registration Statement).
99.1 Section 145 of the Delaware General Corporation Law
(incorporated herein by reference to Exhibit 28.1 to the
Registrant's Registration Statement on Form S-2, Registration
No. 33-54980, filed on November 25, 1992).
___________________________________________
*To be filed by Pre-Effective Amendment.
**Previously filed.
II-6
<PAGE>
Exhibit 1
1,100,000 Shares
WEBSTER FINANCIAL CORPORATION
(a Delaware corporation)
Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
___________, 199_
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
ADVEST, INC.
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Dear Sirs:
Webster Financial Corporation, a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and Advest, Inc. ("Advest") and each of the
other Underwriters named in Schedule A hereto (collectively, the "Underwriters",
which term shall also include any underwriter substituted as hereinafter
provided in Section 10), for whom Merrill Lynch and Advest are acting as
representatives (in such capacity, Merrill Lynch and Advest shall hereinafter be
referred to as the "Representatives"), with respect to the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of
1,100,000 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock"), as set forth in said Schedule A, except as may otherwise be
provided in the Pricing Agreement, as hereinafter defined, and the grant by the
Company to the Underwriters, acting severally and not jointly, of
<PAGE>
the option described in Section 2(b) hereof to purchase up to 165,000 additional
shares of Common Stock to cover over-allotments, if any, except as may otherwise
be provided in the Pricing Agreement. The aforesaid 1,100,000 shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the 165,000 additional shares of Common Stock which may be purchased
by the Underwriters pursuant to the option described in Section 2(b) hereof (the
"Option Securities") are hereinafter called, collectively, the "Securities".
Prior to the purchase and public offering of the Securities by the
several Underwriters, the Company and the Representatives, acting on behalf of
the several Underwriters, shall enter into an agreement substantially in the
form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Securities
will be governed by this Agreement, as supplemented by the Pricing Agreement.
From and after the date of the execution and delivery of the Pricing Agreement,
this Agreement shall be deemed to incorporate the Pricing Agreement.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-63967) and a related
preliminary prospectus for the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), and has filed such
amendments thereto, if any, and such amended preliminary prospectuses as may
have been required to the date hereof, and will file such additional amendments
thereto and such amended prospectuses as may hereafter be required. Such
registration statement as amended at the time it becomes effective (including
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act and the information, if any, deemed to be a part thereof
pursuant to Rule 430A(b) of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations")), is hereinafter referred to as the
"Registration Statement". Any registration statement filed by the Company
pursuant to Rule 462(b) of the 1933 Act Regulations is hereinafter referred to
as the "Rule 462(b) Registration Statement", and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The prospectus on file with the Commission at the time the Registration
Statement becomes effective (including the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act) is hereinafter
referred to as the "Prospectus", except that if any revised prospectus shall be
2
<PAGE>
provided to the Underwriters by the Company for use in connection with the
offering of the Securities which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective (whether or
not such revised prospectus is required to be filed by the Company pursuant to
Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use.
The Company understands that the Underwriters propose to commence a
public offering of the Securities as soon as the Representatives deem advisable
after the Registration Statement becomes effective and the Pricing Agreement has
been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each Underwriter as of the
date hereof and as of the date of the Pricing Agreement (such latter date being
hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective,
the Registration Statement will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, at the
Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company
for use in connection with the offering of the Securities which differs
from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it
is first provided to the Underwriters for such use), at Closing Time
referred to in Section 2 and at a Date of Delivery, if any, referred to
in Section 2, will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the
Company in writing by any Underwriter through the Representatives
expressly for use in the Registration Statement or the Prospectus.
3
<PAGE>
(ii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material
respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations of the
Commission under the 1934 Act (the "1934 Act Regulations"), and, when
read together with the other information included or incorporated by
reference in the Prospectus, at the time the Registration Statement and
any amendments thereto become effective, at the Closing Time and at a
Date of Delivery, if any, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iii) The accountants who reported on the financial statements and
supporting schedules of the Company and its subsidiaries, and of
Shelton Bancorp, Inc. and its subsidiary ("Shelton"), included or
incorporated by reference in the Registration Statement, are
independent public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iv) The historical financial statements of the Company and its
subsidiaries incorporated by reference in the Registration Statement
and the Prospectus present fairly the consolidated financial position
of the Company and its subsidiaries as at the dates indicated and the
consolidated results of their operations and cash flows for the periods
specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
(v) The historical financial statements of the Company and its
subsidiaries, as restated to include Shelton (the "restated
consolidated financial statements"), included in the Registration
Statement and the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries as at the dates indicated
and the consolidated results of their operations and cash flows for the
periods specified; except as otherwise stated in the Registration
Statement, said restated consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis; the supporting schedules, if any,
included in the Registration Statement present fairly the information
required to be stated therein; and the selected historical financial,
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operating and statistical data set forth in the Prospectus under the
captions "Summary Consolidated Financial Data" and "Pro Forma Combined
Financial Information" fairly present the information set forth therein
and have been compiled on a basis consistent with that of the restated
consolidated financial statements included in the Prospectus.
(vi) The pro forma financial statements and the other pro forma
financial information of the Company and its subsidiaries and the
related notes thereto included and incorporated by reference in the
Registration Statement and the Prospectus present fairly in accordance
with generally accepted accounting principles the information shown
therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have
been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(vii) The financial statements of Shelton and its subsidiary
incorporated by reference in the Registration Statement and the
Prospectus present fairly the consolidated financial position of
Shelton and its subsidiary as at the dates indicated and the
consolidated results of their operations and cash flows for the periods
specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
(viii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings or business
affairs of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by the Company or any
of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) except for regular
quarterly dividends on the Company's Common Stock, or dividends
declared, paid or made in accordance with the terms of any series of
the Company's preferred stock, par value $.01 per share, there has been
no dividend
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or distribution of any kind declared, paid or made by the Company on
any class of its capital stock.
(ix) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the
Prospectus; the Company is duly registered as a savings and loan
holding company under the Home Owners' Loan Act of 1933, as amended
("HOLA"); and the Company is not required to qualify as a foreign
corporation in any jurisdiction in order to conduct its business except
in the State of Connecticut, where it is duly qualified and in good
standing.
(x) Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good standing
would not have a material adverse effect on the condition, financial or
otherwise, or the earnings or business affairs of the Company and its
subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of each such subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equitable right.
(xi) The Purchase and Assumption Agreement, dated as of October 1,
1995 (the "Acquisition Agreement"), between Webster Bank and Shawmut
Bank Connecticut, National Association has been duly authorized,
executed and delivered by Webster Bank and constitutes the valid and
binding agreement of Webster Bank, and, to the knowledge of the
Company, except for the consents, authorizations and appovals described
in the Registration Statement and the Prospectus, no consent,
authorization or approval of any governmental authority or other party
must be obtained for the consummation of the transactions contemplated
in the Acquisition Agreement. Nothing has come to the attention of the
Company which would cause it to believe that, had the transactions
contemplated by the Acquisition Agreement been
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consummated as of the date of this Agreement in accordance with the
terms of the Acquisition Agreement, the representations and warranties
contained in this Section 1 would not remain true and correct in all
material respects; provided, however, that the Company makes no
representation or warranty as to the ultimate action to be taken by
various governmental agencies and authorities in connection with
applications made thereto under applicable statutes and regulations.
(xii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to reservations or
agreements referred to in the Prospectus); the Securities have been
duly and validly authorized for issuance and sale as contemplated by
this Agreement and, when issued and delivered by the Company to the
Underwriters pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be validly
issued and fully paid and non-assessable; and the Common Stock conforms
to all statements relating thereto contained in the Prospectus and the
issuance of the Securities is not subject to preemptive or similar
rights.
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its charter or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained
in any material contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any of its
subsidiaries is subject; and the execution, delivery and performance of
this Agreement and the Pricing Agreement, and the consummation by the
Company of the transactions contemplated herein and therein have been
duly authorized by all necessary corporate action and will not conflict
with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it or any of them is a party or by which
either of the Company or its subsidiaries may be bound, or to which any
of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary or any
applicable law, administrative regulation or administrative or court
decree.
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<PAGE>
(xiv) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or
which might result in any material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings or business affairs of the
Company and its subsidiaries considered as one enterprise, or which
might materially and adversely affect the properties or assets of the
Company and its subsidiaries considered as one enterprise or which
might materially and adversely affect the consummation of this
Agreement or the Pricing Agreement; all pending legal or governmental
proceedings to which the Company or any subsidiary of the Company is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business of the
Company or any such subsidiary, are, considered in the aggregate, not
material; and there are no contracts or documents of the Company or any
of its subsidiaries which are required to be filed as exhibits to the
Registration Statement by the 1933 Act or by the 1933 Act Regulations
which have not been so filed.
(xv) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, adequate trademarks, service marks and trade names
necessary to conduct the business now operated by them, and neither the
Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any trademarks, service marks or trade names
which, singly or in the aggregate, would result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xvi) No authorization, approval, consent, order or decree of any
court or governmental authority or agency is required in connection
with the issuance or sale of the Securities or the consummation of any
other transaction contemplated by this Agreement or the Pricing
Agreement, except such as may be required under the 1933 Act or the
1933 Act Regulations, HOLA (each of which qualification or approval has
been obtained) or state securities laws.
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<PAGE>
(xvii) The Company and its subsidiaries own or possess or have
obtained all licenses, certificates, consents, orders, approvals,
authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business
now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such license, certificate, consent,
order, approval, authority or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise,
or the earnings or business affairs of the Company and its subsidiaries
considered as one enterprise.
(xviii) No labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company, is
imminent which might be expected to result in any material adverse
change, or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings or
business affairs of the Company and its subsidiaries considered as one
enterprise.
(xix) This Agreement has been duly executed and delivered by the
Company.
(xx) The Company and its subsidiaries have good and marketable
title to all of their respective properties, in each case free and
clear of all liens, encumbrances and defects, except as stated in the
Prospectus or such as do not materially affect the value of such
properties in the aggregate to the Company and its subsidiaries
considered as one enterprise.
(xxi) No holder of securities of the Company has rights to the
registration of securities of the Company because of the filing of the
Registration Statement.
(xxii) The Company is in compliance with all provisions of Section
517.075 of the Florida statutes, and all rules and regulations
promulgated thereunder relating to issuers doing business in Cuba.
(b) Any certificate signed by any officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
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<PAGE>
SECTION 2. Sale and Delivery to the Underwriters; Closing.
(a) On the basis of the representations, warranties and covenants
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, acting severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in the Pricing Agreement, the total
number of Initial Securities set forth in Schedule A opposite the name of such
Underwriter (except as otherwise provided in the Pricing Agreement), plus any
additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(i) If the Company has elected not to rely upon Rule 430A of the
1933 Act Regulations, the initial public offering price and the
purchase price per share to be paid by the several Underwriters for the
Securities have each been determined and set forth in the Pricing
Agreement, dated the date hereof, and an amendment to the Registration
Statement and the Prospectus will be filed before the Registration
Statement becomes effective.
(ii) If the Company has elected to rely upon Rule 430A of the 1933
Act Regulations, the purchase price per share to be paid by the several
Underwriters for the Securities shall be an amount equal to the initial
public offering price, less an amount per share to be determined by
agreement between the Representatives and the Company. The initial
public offering price per share of the Securities shall be a fixed
price to be determined by agreement between the Representatives and the
Company. The initial public offering price and the purchase price, when
so determined, shall be set forth in the Pricing Agreement. In the
event that such prices have not been agreed upon and the Pricing
Agreement has not been executed and delivered by the Company and the
Representatives by the close of business on the fourteenth business day
following the date of this Agreement, this Agreement shall terminate
forthwith, without liability of any party to any other party, unless
otherwise agreed to by the Company and the Representatives.
(b) In addition, on the basis of the representations, warranties and
covenants herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional 165,000 shares of Common Stock at
the price per share set forth in the Pricing Agreement. The option hereby
granted will expire 30 days after (i) the date the
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<PAGE>
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the 1933 Act Regulations, or (ii) the Representation Date, if
the Company has elected to rely upon Rule 430A under the 1933 Act Regulations,
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Representatives to
the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days and not earlier than two full
business days after the exercise of said option, nor in any event prior to
Closing Time, as hereinafter defined, unless otherwise agreed by the
Representatives and the Company. If the option is exercised as to all or any
portion of the Option Securities, each of the Underwriters, acting severally and
not jointly, will purchase that portion of the total number of Option Securities
then being purchased which the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject to such adjustments as the Representatives in their
discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the office of Brown & Wood, One
World Trade Center, New York, New York 10048, or at such other place as shall be
agreed upon by the Representatives and the Company, at 10:00 A.M. on the third
(fourth, if the pricing occurs after 4:30 P.M. on any given day) business day
(unless postponed in accordance with the provisions of Section 10) following the
date the Registration Statement becomes effective (or, if the Company has
elected to rely upon Rule 430A of the 1933 Act Regulations, the third (fourth,
if the pricing occurs after 4:30 P.M. on any given day) business day after
execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company (such time and date of payment and delivery being herein called
"Closing Time"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned office of Brown & Wood, or at such other place as shall be
agreed upon by the Representatives and the Company, on each Date of Delivery as
specified in the notice from the Representatives to the Company. Payment shall
be made to the Company by certified or official bank check or checks drawn in
[Federal funds or similar same-day
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<PAGE>
funds] payable to the order of the Company against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before Closing Time or the Date of Delivery, as the case
may be. It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. Merrill Lynch or Advest,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities
or the Option Securities, if any, to be purchased by any Underwriter whose check
has not been received by Closing Time or the Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives not later than 10:00 A.M. on the last business day prior to
Closing Time or the Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement (including any amendment thereto) to become
effective and will notify the Representatives immediately, and confirm
the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment thereto), (ii) of the receipt of any comments from the
Commission with respect to the transactions contemplated by this
Agreement or the Pricing Agreement, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus, or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Company will make
every reasonable effort to prevent the issuance by the Commission of
any such order and, if any such order is issued, to obtain the lifting
thereof at the earliest possible moment.
(b) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the
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Registration Statement (including any post-effective amendment) or any
amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Securities which differs from the
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations), will furnish the Representatives with copies of any such
amendment or supplement or other document proposed to be filed a
reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file any such amendment or supplement or
other document or use any such prospectus to which the Representatives
or counsel for the Underwriters shall object.
(c) The Company will make available to the Representatives a
signed copy of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and will also deliver to the
Representatives as many conformed copies as the Representatives may
reasonably request of the Registration Statement and of each amendment
thereto for each of the Underwriters.
(d) The Company will furnish to each Underwriter, from time to
time during the period when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may
reasonably request for the purposes contemplated by the 1933 Act or the
1934 Act or the respective applicable rules and regulations of the
Commission thereunder.
(e) During the period when the Prospectus is required to be
delivered, the Company will comply, so far as it is able and at its own
expense, with all requirements imposed upon them by the Commission and
by the 1933 Act, the 1933 Act Regulations, the 1934 Act and 1934 Act
Regulations, including, without limitation, Rule 10b-6 under the 1934
Act, so far as necessary to permit the continuance of sales or dealing
in shares of Common Stock during such period in accordance with the
provisions hereof and the Prospectus.
(f) If any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters,
to amend or supplement the Prospectus in order to make the Prospectus
not misleading in the light of the circumstances existing at the time
it is delivered to a purchaser, the Company will forthwith amend or
supplement
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<PAGE>
the Prospectus (in form and substance satisfactory to counsel for the
Underwriters), whether by filing documents pursuant to the 1934 Act or
otherwise, as may be necessary so that, as so amended or supplemented,
the Prospectus will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the
time it is delivered to a purchaser, not misleading, and the Company
will furnish to the Underwriters a reasonable number of copies of such
amendment or supplement.
(g) The Company will endeavor, in cooperation with the
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of
the United States as the Representatives may reasonably designate;
provided, however, that the Company shall not be obligated to qualify
as a foreign corporation in any jurisdiction in which it is not so
qualified. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement. The Company will promptly
advise the Representatives of the receipt by it of any notification
with respect to the suspension of the qualification of the Securities
for sale in any jurisdiction or the initiating or threatening of any
proceeding for such purpose.
(h) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations)
covering a twelve month period beginning not later than the first day
of the Company's fiscal quarter next following the "effective date" (as
defined in said Rule 158) of the Registration Statement.
(i) The Company will use the net proceeds received by it from
the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".
(j) During a period of 45 days from the date hereof, the
Company will not, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any securities that
are of the same or a similar class or series as the Securities (except
for Common Stock or
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options issued pursuant to reservations, agreements, employee benefit
plans, stock option plans or dividend reinvestment and stock purchase
plans).
(k) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in
reliance upon Rule 430A of the 1933 Act Regulations, then immediately
following the execution of the Pricing Agreement, the Company will
prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 424(b) of the 1933 Act
Regulations, copies of the amended Prospectus, or, if required by such
Rule 430A, an additional post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information
so omitted.
(l) Other than as permitted by the 1933 Act and the 1933 Act
Regulations, the Company will not distribute any prospectus, offering
circular or other offering material in connection with the offering and
sale of the Securities.
(m) The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, will file
all documents required to be filed with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act within the time
periods required by the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the printing or reproduction and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the printing or reproduction of this Agreement and the
Pricing Agreement, (iii) the preparation, issuance and delivery of the
certificates for the Securities, (iv) the fees and disbursements of the
Company's counsel and accountants, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of the Company's
counsel in connection therewith and in connection with the preparation of the
Blue Sky Survey, (vi) the printing or reproduction and delivery to the
Underwriters of copies of the Registration Statement as originally filed and all
amendments thereto, of any preliminary prospectuses, and of the Prospectus and
any amendments or supplements to either of the foregoing, and the other
documents in connection with the offering of the Securities, (vii) the
reproduction and delivery to the Underwriters of copies of Blue Sky Survey, and
(viii) the fees and expenses incurred with
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respect to any filing with the National Association of Securities Dealers, Inc.
If this Agreement is terminated by the Representatives in accordance with
the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall
reimburse the Underwriters for all of their actual accountable out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained, to the
performance by the Company of all of its covenants and other obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. on the date hereof, or with the consent of the
Representatives, at a later time and date, not later, however, than
5:30 P.M. on the first business day following the date hereof, or at
such later time and date as may be approved by a majority in interest
of the Underwriters; and at Closing Time or a Date of Delivery, as the
case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the
Company has elected to rely upon Rule 430A of the 1933 Act Regulations,
the price of the Securities and any price-related information
previously omitted from the effective Registration Statement pursuant
to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the 1933 Act Regulations within the
prescribed time period, and prior to Closing Time the Company shall
have provided evidence satisfactory to the Representatives of such
timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the 1933 Act Regulations.
(b) At Closing Time the Representatives shall have received:
(1) The favorable opinion, dated as of Closing Time,
of Hogan & Hartson L.L.P., counsel for the Company, in form
and substance satisfactory to counsel for the Underwriters, to
the effect that:
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(i) The Company was incorporated and is validly
existing as a corporation in good standing under the
laws of the State of Delaware.
(ii) The Company is a registered savings and
loan holding company under HOLA and has corporate
power and corporate authority to own, lease and
operate its properties and to conduct its business as
described in the Registration Statement.
(iii) To the knowledge of such counsel, the
authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if
any, pursuant to reservations or agreements referred
to therein).
(iv) Each subsidiary of the Company was
incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction
of its incorporation, has corporate power and
corporate authority to own, lease and operate its
properties and to conduct its business as described
in the Registration Statement; and all of the issued
and outstanding capital stock of each such subsidiary
has been duly authorized and validly issued, is fully
paid and non-assessable and, to such counsel's
knowledge, is owned by the Company, directly or
through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien or encumbrance.
(v) The Securities to be purchased by the
Underwriters pursuant to this Agreement have been
duly and validly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company to the
Underwriters pursuant to this Agreement against
payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and
non-assessable.
(vi) The issuance of the Securities is not
subject to preemptive rights arising by operation of
law or under the charter or by-laws of the Company;
the Common Stock conforms in all material respects to
the descriptions thereof in the Prospectus; and the
form of certificate used to evidence the Common Stock
is in due and proper
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form and complies with all applicable requirements of
the Delaware Corporation Law and HOLA.
(vii) This Agreement and the Pricing Agreement
have been duly authorized, executed and delivered by
the Company.
(viii) No further approval, authorization,
consent, notice or other order of the Commission, the
Office of Thrift Supervision, the Board of Governors
of the Federal Reserve System, or the Federal Deposit
Insurance Corporation is required in connection with
the execution and delivery of this Agreement or the
Pricing Agreement or the issuance of the Securities,
except for such approvals, authorizations, consents,
notices or orders as have been obtained under the
1933 Act, HOLA, the Bank Holding Company Act of 1956
or the Federal Deposit Insurance Act, each as
amended, if applicable.
(ix) The Registration Statement has become
effective under the 1933 Act and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission.
(x) At the time the Registration Statement
became effective and at the Representation Date, the
Registration Statement (other than the historical and
pro forma financial statements and supporting
schedules included therein or omitted therefrom, as
to which no opinion need be rendered) complied as to
form in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations.
(xi) The information in the Prospectus under the
captions "Risk Factors -- Legislative and General
Regulatory Developments", " -- Elimination of Federal
Savings Association Charter", "The Shawmut
Transaction" and "Description of Capital Stock", and
the information in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 under
the captions "Federal Savings and Loan Holding
Company Regulation" and "Bank Regulation", to the
extent that such information constitutes matters of
law, summaries
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<PAGE>
of legal matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is correct
in all material respects.
(xii) To such counsel's knowledge, the execution
and delivery of this Agreement and the Pricing
Agreement by the Company and the sale of Securities
by the Company as contemplated herein and therein
will not (A) constitute a breach of, or default
under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries
pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument known to
such counsel or (B) result in any violation of the
provisions of the charter or by-laws of the Company
or any subsidiary or any of the laws and regulations
identified in paragraph (viii) above of this Section
5(b)(1).
(xiii) Each document filed pursuant to the 1934
Act and incorporated by reference in the Prospectus
(other than the historical and pro forma financial
statements and supporting schedules included therein
or omitted therefrom as to which no opinion need be
rendered) complied when so filed as to form in all
material respects with the 1934 Act and the 1934 Act
Regulations.
(xiv) To such counsel's knowledge, no holder of
securities of the Company has rights to the
registration of securities of the Company because of
the filing of the Registration Statement.
(2) The favorable opinion, dated as of each Closing
Time, of Brown & Wood, counsel to the Underwriters, with
respect to the matters set forth in (i), (v), (vi), (vii),
(ix) and (x) of subsection (b)(1) of this Section.
(3) In giving its opinion required by subsection
(b)(1) this Section, Hogan & Hartson L.L.P. shall additionally
state that no facts have come to their attention that have
caused them to believe (i) that the Registration Statement
(except for historical and pro forma financial statements and
schedules and other financial or statistical data included
therein or omitted therefrom as to which such counsel need
make no statement) at the time it became effective, contained
an untrue statement of a material fact or omitted to
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<PAGE>
state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the Prospectus (except as aforesaid), at the
Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the
Securities which differs from the Prospectus on file at the
Commission at the Representation Date, in which case at the
time it is first provided to the Underwriters for such use) or
at Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; (ii) that there are any legal or governmental
proceedings pending or threatened which are required to be
disclosed in the Registration Statement, other than those
disclosed therein; and (iii) that there are any licenses,
franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or
referred to in the Registration Statement or to be filed or
incorporated by reference as exhibits thereto other than those
described or referred to therein or filed or incorporated by
reference as exhibits thereto; and that the descriptions
thereof or references thereto are not correct in all material
respects.
(4) In giving its opinion required by subsection
(b)(2) of this Section, Brown & Wood shall additionally state
that no facts have come to their attention that have caused
them to believe that the Registration Statement (except for
historical and pro forma financial statements and schedules
and other financial or statistical data included therein or
omitted therefrom as to which such counsel need make no
statement) at the time it became effective or at the
Representation Date, contained an untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading or that the Prospectus, at the Representation
Date (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriters by the Company for
use in connection with the offering of the Securities which
differs from the Prospectus on file at the Commission at the
Representation Date, in which case at the time it is first
provided to the Underwriters for such use) or at Closing Time,
included or includes an untrue
20
<PAGE>
statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(5) In rendering their opinion required by subsection
(b)(1) of this Section, Hogan & Hartson L.L.P. may rely on the
opinion of the Company's general counsel, [Griffin, Griffin &
O'Brien], as to matters of Connecticut law or as to matters
relating to subsidiaries of the Company other than Webster
Bank, a federal savings bank.
(c) At Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change, or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings or
business affairs of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
and the Representatives shall have received a certificate of the
President or a Vice President of the Company and of the chief financial
officer of the Company, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the
representations and warranties of the Company contained in Section 1
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part
to be complied with or satisfied at or prior to Closing Time and (iv)
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or to their knowledge threatened by the Commission. As used
in this Section 5(c), the term "Prospectus" means the Prospectus in the
form first used to confirm sales of the Securities.
(d) At the time of the execution of this Agreement, the
Representatives shall have received from KPMG Peat Marwick LLP a letter
dated such date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent certified public
accountants with respect to the Company and its subsidiaries
within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
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<PAGE>
(ii) in their opinion, the consolidated financial
statements and supporting schedules of the Company and its
subsidiaries, and the restated consolidated financial
statements of the Company and its subsidiaries, audited by
them and included or incorporated by reference in the
Prospectus comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the
related published rules and regulations thereunder and, if
applicable, they have made a review in accordance with
standards established by the American Institute of Certified
Public Accountants of the unaudited consolidated interim
financial statements for the periods specified in such letter,
as indicated in their reports thereon;
(iii) The selected consolidated financial data with
respect to the consolidated financial position and results of
operations of the Company and its subsidiaries for the five
most recent fiscal years included in the Prospectus agrees
with the corresponding amounts in the restated consolidated
financial statements (audited where applicable) for such five
fiscal years;
(iv) based upon limited procedures (not constituting
an audit), consisting of a reading of the unaudited
consolidated financial statements (as restated where
applicable) and other information referred to below, a reading
of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated
by reference in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing has come to their
attention which causes them to believe that:
(A) the unaudited financial statements of
the Company and its subsidiaries (as restated where
applicable) included or incorporated by reference in
the Prospectus do not comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the related
published rules and regulations thereunder, or are
not in conformity with generally accepted accounting
principles applied
22
<PAGE>
on a basis substantially consistent with the basis
for the audited restated consolidated financial
statements included in the Prospectus;
(B) any other unaudited income statement
data or balance sheet items included in the
Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements
(as restated where applicable) from which such data
and items were derived, and any such unaudited data
and items were not determined on a basis
substantially consistent with the basis for the
corresponding amounts in the audited restated
consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements which
were not included in the Prospectus but from which
were derived any unaudited financial statements
referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with
the basis for the audited restated consolidated
financial statements included in the Prospectus;
(D) at a specified date not more than three
days prior to the date of such letter, there has been
any change in the capital stock of the Company or any
increase in the consolidated long term debt of the
Company and its subsidiaries or any decrease in the
total assets or shareholders' equity of the Company
and its subsidiaries, in each case as compared with
the amounts shown in the most recent restated
consolidated balance sheet included or incorporated
by reference in the Prospectus, except in each case
for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or
which are described in such letter; or
(E) during the period from September 30,
1995 to a specified date not more than three days
prior to the date of such letter, there were any
decreases in total revenues, net income or net income
per share of the Company and its subsidiaries or
other items specified by the Representatives, or any
increases in any items specified by the
Representatives, in each case as
23
<PAGE>
compared with the corresponding period in the
preceding year, except in each case for increases or
decreases which the Prospectus discloses have
occurred or may occur or which are described in such
letter;
(iv) in addition to the examination referred to in
their opinion and the limited procedures referred to in clause
(iii) above, they have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are
included or incorporated by reference in the Prospectus and
which were specified by the Representatives and have found
such amounts, percentages and financial information to be in
agreement with the relevant accounting, financial and other
records of the Company and its subsidiaries; and
(v) on the basis of a reading of the pro forma
financial information included and incorporated by reference
in the Prospectus (the "pro forma financial information"),
carrying out certain specified procedures, inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters, and proving the arithmetic
accuracy of the application of the pro forma financial
information, nothing came to their attention which caused them
to believe that the pro forma financial information does not
comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or
that the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of such
information.
(e) At Closing Time, the Representatives shall have received
from KPMG Peat Marwick LLP a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (d) of this Section, except that the specified
date referred to shall be a date not more than three days prior to
Closing Time, and, if the Company has elected to rely on Rule 430A of
the 1933 Act Regulations, to the further effect that they have carried
out procedures as specified in clause (iv) of subsection (d) of this
Section with respect to certain amounts, percentages and financial
information deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and found such amounts, percentages and financial
information to be in agreement with the records specified in such
clause (iv).
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<PAGE>
(f) At the time of the execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P.,
independent auditors for Shelton, a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that:
(i) they are independent public accountants with
respect to Shelton and its subsidiary within the meaning of
the 1933 Act and the applicable published rules and
regulations thereunder;
(ii) in their opinion, the consolidated financial
statements and supporting schedules of Shelton and its
subsidiary audited by them and incorporated by reference in
the Prospectus comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the
related published rules and regulations thereunder and, if
applicable, they have made a review in accordance with
standards established by the American Institute of Certified
Public Accountants of the unaudited consolidated interim
financial statements for the periods specified in such letter,
as indicated in their reports thereon;
(iii) based upon limited procedures (not constituting
an audit), consisting of a reading of the unaudited
consolidated financial statements and other information
referred to below, inspection of the minute books of the
Shelton and its subsidiary since the date of the latest
audited financial statements incorporated by reference in the
Prospectus, inquiries of officials of Shelton and its
subsidiary responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in
such letter, nothing has come to their attention which causes
them to believe that the unaudited financial statements of
Shelton and its subsidiary incorporated by reference in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act,
or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
the basis for the audited consolidated financial statements of
Shelton incorporated by reference in the Prospectus;
(iv) in addition to the examination referred to in
their opinion and the limited procedures referred to in clause
(iii) above, they have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial
25
<PAGE>
information which are included or incorporated by reference in
the Prospectus and which were specified by the Representatives
and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting,
financial and other records of Shelton and its subsidiary.
(g) At Closing Time, the Representatives shall have received
from Coopers & Lybrand L.L.P. a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (f) of this Section.
(h) At Closing Time and at each Date of Delivery, if any,
counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the
accuracy and completeness of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and
sale of the Securities as herein contemplated shall be satisfactory in
form and substance to the Representatives and counsel for the
Underwriters.
(i) In the event the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
Option Securities, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by
the Company hereunder shall be true and correct as of each Date of
Delivery, and the Representatives shall have received:
(1) A certificate of the President or a Vice
President and of the chief financial officer of the Company,
dated such Date of Delivery, confirming that the certificate
delivered at Closing Time pursuant to Section 5(c) hereof
remains true and correct as of such Date of Delivery.
(2) The favorable opinion of Hogan & Hartson L.L.P.
in form and substance reasonably satisfactory to counsel for
the Underwriters, dated such Date of Delivery, relating to the
Option Securities and otherwise to the same effect as the
opinion required by Section 5(b)(1) hereof.
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<PAGE>
(3) The favorable opinion of Brown & Wood, counsel
for the Underwriters, dated such Date of Delivery, relating to
the Option Securities and otherwise to the same effect as the
opinion required by Section 5(b)(2) hereof.
(4) A letter from KPMG Peat Marwick LLP, in form and
substance satisfactory to the Representatives, dated such Date
of Delivery, substantially the same in scope and substance as
the letter furnished to the Representatives pursuant to
Section 5(d) hereof, except that the "specified date" in the
letter furnished pursuant to this Section 5(i)(4) shall be a
date not more than three days prior to such Date of Delivery.
(5) A letter from Coopers & Lybrand L.L.P., in form
and substance satisfactory to the Representatives, dated such
Date of Delivery, substantially the same in scope and
substance as the letter furnished to the Representatives
pursuant to Section 5(f) hereof.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Representatives by notice to the Company at any time at or prior to Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the 1933 Act as follows (each such person being an "Indemnified
Party"):
(i) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, to which such Indemnified Party
may become subject under any applicable Federal or state law, or
otherwise, and related to or arising out of (A) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any post-effective amendment thereto),
including the information deemed to be part of the Registration
Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (B) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement
27
<PAGE>
to any of the foregoing) or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, (C) any breach by the Company of any of its
representations, warranties and agreements contained herein, or (D) the
issuance and sale of the Securities, any transaction relating to the
issuance and sale of the Securities or the engagement of the
Representatives pursuant to, and the performance by the Representatives
of the services contemplated by, this Agreement;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever
based upon any claim whatsoever based upon any item in clauses (A)
through (D) of subsection (a)(i) of this Section, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense whatsoever (including the fees and
disbursements of counsel chosen by the Representatives) reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any item in clauses (A) through (D) of subsection (a)(i) of this
Section, to the extent that any such expense is not paid under
subsections (a)(i) or (ii) of this Section.
(b) The Company shall not, however, be liable to an Indemnified Party
for such loss, claim, settlement, damage or liability under (i) clauses (A) or
(B) of subsection (a)(i) of this Section to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); (ii) clause (B) of
subsection (a)(i) of this Section to the extent arising out of any untrue
statement contained in or omission from any preliminary prospectus if the
Company shall sustain the burden of proving that the person making such claim
was not sent or given a copy of the Prospectus (or the Prospectus as amended or
supplemented) at or prior to the written confirmation of the sale of such
Securities to such person and the untrue statement contained in or omission from
such preliminary prospectus was corrected in the Prospectus (or
28
<PAGE>
the Prospectus as amended or supplemented); and (iii) clause (D) of subsection
(a)(i) of this Section that is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from the bad faith or gross negligence
of, unlawful act of, or willful breach of this Agreement (which breach is
materially detrimental to the Company) by such Indemnified Party, other than
actions performed at the request or with the consent of the Company.
(c) The Company also agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or its security holders or creditors related to or arising out of the
engagement of the Representatives pursuant to, or the performance by the
Representatives of the services contemplated by, this Agreement, except to the
extent that any loss, claim, damage or liability is found in a final judgment by
a court to have resulted from the Indemnified Party's bad faith or gross
negligence, as the case may be.
(d) Each Indemnified Party shall give prompt notice of any action
commenced against it in respect of which indemnity may be sought hereunder but
failure to so notify the Company shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. The Company
may participate at its own expense in the defense of such action. In no event
shall the Company be liable for the fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
Indemnified Parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
(e) The Company agrees that, without the prior written consent of the
Representatives, it will not settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification could be sought under the indemnification provision in
this Section 6 (whether or not the Underwriters or any other Indemnified Party
is an actual party to such claim, action or proceeding), unless such settlement,
compromise or consent includes an unconditional release, satisfactory in form
and substance to the Representatives, of each Indemnified Party from all
liability arising out of such claim, action or proceeding.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and the
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<PAGE>
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company and one or more of the Underwriters, as incurred, in
such proportions that the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon and the Company is responsible for the balance; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the 1933 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers of
the Company submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or any controlling person, or by or on behalf of the Company, and
shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement. (a) The Representatives may
terminate this Agreement, by notice to the Company, at any time at or prior to
Closing Time (i) if there shall have been, since the date of this Agreement or
since the respective dates as of which information is given in the Registration
Statement, any material adverse change, or any development involving a
prospective material adverse change, in the condition, financial or otherwise,
or in the earnings or business affairs of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there shall have occurred any material adverse change in
the financial markets in the United States or any outbreak or escalation of
hostilities or other national or international calamity or crisis the effect of
which is such as to make it, in the reasonable judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in the Common Stock shall have been
suspended by the Commission or a national securities exchange, or if trading
generally on either the
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<PAGE>
American Stock Exchange or the New York Stock Exchange shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, by either of
said Exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either federal, New
York or Connecticut authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4, and provided further that Sections 6 and 7 hereof shall
survive such termination.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time to purchase the Initial
Securities which it or they are obligated to purchase under this Agreement and
the Pricing Agreement (the "Defaulted Securities"), the Representatives shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(i) if the number of Defaulted Securities does not exceed 10% of
the Initial Securities, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the
Initial Securities, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Company shall have the
right to postpone Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
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SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives c/o Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated at North Tower, World
Financial Center, New York, New York 10281 attention of Henry R. Michaels;
notices to the Company shall be directed to it at 145 Bank Street, Waterbury,
Connecticut 06720 attention of James C. Smith.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
each inure to the benefit of and be binding upon the Underwriters and the
Company and their respective successors. Nothing expressed or mentioned in this
Agreement or the Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto and thereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or the Pricing Agreement or any provision herein or therein contained. This
Agreement and the Pricing Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the parties
hereto and thereto and their respective successors and said controlling persons
and officers and directors and their heirs and legal representatives, and for
the benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. Governing Law. This Agreement and the Pricing Agreement and
the rights and obligations of the parties created hereby and thereby shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said State. Specified times
of day refer to New York City time.
32
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
WEBSTER FINANCIAL CORPORATION
By:
-------------------------------
Authorized Signatory
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ADVEST, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------
Authorized Signatory
For themselves and as Representatives of
other Underwriters named in Schedule A hereto.
33
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Advest, Inc................................................
Total.................................................. 1,100,000
=========
34
<PAGE>
Exhibit A
1,100,000 Shares
WEBSTER FINANCIAL CORPORATION
(a Delaware corporation)
Common Stock
(Par Value $.01 Per Share)
PRICING AGREEMENT
, 199
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
ADVEST, INC.
as Representatives of the several Underwriters
named in the within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1334
Dear Sirs:
Reference is made to the Purchase Agreement, dated , 199 (the "Purchase
Agreement"), relating to the purchase by the several Underwriters named in
Schedule A thereto (the "Underwriters"), for whom Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Advest, Inc. are acting as
representatives (the "Representatives"), of the above shares of Common Stock
(the "Securities"), of Webster Financial Corporation (the "Company").
Pursuant to Section 2 of the Purchase Agreement, the Company agrees
with each Underwriter as follows:
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $ , being
<PAGE>
an amount equal to the initial public offering price set forth above
less $ per share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
WEBSTER FINANCIAL CORPORATION
By:
----------------------------------
Authorized Signatory
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ADVEST, INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-------------------------------
Authorized Signatory
For themselves and as Representatives of the
other Underwriters named in Schedule A to the
Purchase Agreement.
A-2
<PAGE>
</TABLE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Webster Financial Corporation
We consent to the use of our reports included in the prospectus or
incorporated herein by reference and to the references to our Firm under the
heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
November 21, 1995
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Pre-Effective
Amendment to the registration statement on Form S-3 of Webster Financial
Corporation of our report dated July 24, 1995 on our audit of the consolidated
financial statements of Shelton Bancorp, Inc. ("Shelton"), which report is
included in Shelton's 1995 annual report on Form 10-K. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
November 21, 1995
<PAGE>
