<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
Commission File Number: 0-15213
WEBSTER FINANCIAL CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1187536
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Webster Plaza, Waterbury, Connecticut 06720
---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 753-2921
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 per value
----------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Based upon the closing price of the registrant's common stock as of
March 15, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant is $211,924,494. Solely for purposes of this
calculation, the shares held by directors and executive officers of the
registrant and by shareholders beneficially owning more than 10% of the
registrant's outstanding common stock, who may or may not be deemed to have been
excluded.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common Stock, par value $.01 per share
Issued and Outstanding at March 27, 1996 : 8,103,746
DOCUMENTS INCORPORATED BY REFERENCE
Part I and II: Portions of the Annual Report to Shareholders for fiscal year
ended December 31, 1995
Part III: Portions of the Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 25, 1996.
<PAGE>
<TABLE>
<CAPTION>
WEBSTER FINANCIAL CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
<S> <C> <C> <C>
Item 1. Business........................................................................................ 3
General.................................................................................... 3
Recent Acquisitions........................................................................ 4
FDIC Assisted Acquisitions................................................................. 5
Lending Activities......................................................................... 5
Segregated Assets.......................................................................... 16
Investment Activities...................................................................... 18
Sources of Funds........................................................................... 21
Bank Subsidiaries.......................................................................... 24
Employees.................................................................................. 24
Market Area and Competition................................................................ 24
Federal Savings Bank Regulation............................................................ 27
Federal Reserve System..................................................................... 34
Federal Home Loan Bank System.............................................................. 35
Taxation................................................................................... 35
Item 2. Properties...................................................................................... 37
Item 3. Legal Proceedings............................................................................... 39
Item 4. Submission of Matters to a Vote of Security Holders............................................. 39
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters................................................................... 39
Item 6. Selected Financial Data......................................................................... 40
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................................................ 40
Item 8. Financial Statements and Supplementary Data..................................................... 40
Item 9. Disagreements on Accounting
and Financial Disclosures..................................................................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 41
Item 11. Executive Compensation.......................................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................................................ 41
Item 13. Certain Relationships and Related Transactions.................................................. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................................... 41
</TABLE>
2
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PART I
Item 1. Business
--------
General
Wesbster Financial Corporation, ("Webster" or the "Corporation"),
through its subsidiary, Webster Bank, ("Webster Bank" or the "Bank") delivers
financial services to local individuals and businesses. Webster's Mission is to
build valuable banking relationships by helping individuals, families and
businesses to reach their financial goals. The company has grown profitably in
recent years, primarily through a series of acquisitions which have expanded and
strengthened its franchise and have accelerated Webster's transition from a
tranditional thrift institution to a full-service retail bank. Webster is
organized along three lines of business - consumer, business and mortgage
banking, each focused on the special needs of its customers. Webster serves
275,000 customers from 64 banking offices in Connecticut, extending from the
Massachusetts border to Long Island Sound.
Webster's goals are to ensure customer satisfaction by providing
superior customer service and by delivering quality financial products and
services, to provide a stimulating and challenging work environment that
encourages, develops and rewards excellence, and to make a meaningful investment
in the communities Webster serves.
Assets at December 31, 1995 were $3.2 billion compared to $3.1
billion a year earlier. Net loans receivable amounted to $1.89 billion at
December 31, 1995 compared to $1.87 billion a year ago. Deposits were $2.40
billion at December 31, 1995 compared to $2.43 billion at December 31, 1994.
Prior to November 1, 1995, Webster had two savings bank
subsidiaries: First Federal Bank, a federal savings bank ("First Federal"),
founded in 1935, with its home office in Waterbury, Connecticut, and Bristol
Savings Bank ("Bristol"), a state chartered savings bank, founded in 1870, with
its home office in Bristol, Connecticut. References herein to Webster Bank or
the Bank prior to November 1, 1995 mean First Federal, unless the context
otherwise indicates. 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 Bank merged
into Webster Bank, as the surviving savings bank with its home office in
Waterbury, Connecticut, (iii) Webster acquired Shelton Bancorp, Inc. ("Shelton")
and its wholly-owned subsidiary, Shelton Savings 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 Savings Bank merged into Webster Bank,
as the surviving savings bank. References to Webster Bank or the Bank on and
after November 1, 1995 mean the surviving bnak in the transactions that were
consummated on such date, unless the context otherwise indicates.
Webster expanded its banking operations by acquiring Shelton in
1995 and 20 former Shawmut Bank Connecticut ("Shawmut") branch banking offices
in the Hartford banking market in February 1996. See "Shelton Acquisition" and
"Shawmut Transaction." In preceding years, Webster expanded its operations
through the acquisition of Bristol in 1994 (see "Recent Acquisitions") and
Shoreline Bank and Trust ("Shoreline") in 1994 and the FDIC-assisted
acquisitions of First Constitution Bank ("First Constitution") in 1992 and
Suffield Bank ("Suffield") in 1991. (See "FDIC Assisted Acquisitions" 1991.)
These acquisitions have significantly expanded the market areas served by the
Corporation.
On an unconsolidated basis at December 31, 1995, the assets of
Webster consisted primarily of its investment in the Bank and $61.8 million of
cash and other investments. The principal sources of Webster's revenues on an
unconsolidated basis are dividends from the Bank and interest and dividend
income from other investments. See Note 18 to Webster's Consolidated Financial
Statements for parent-only financial statements.
The Bank's deposits are federally insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is a Bank Insurance Fund ("BIF") member
institution and approximately at December 31, 1995 63% of the Bank's deposits
were subject to BIF assessment rates and 37% to Savings Association Insurance
Fund ("SAIF") assessment rates. After giving effect to the
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Shawmut Transaction, approximately 72% of the Bank's deposits are subject to BIF
assessment rates and 28% to SAIF assessments rates. See "Bank Regulation."
Webster as a holding company, and the Bank are subject to
comprehensive regulation, examination and supervision by the OTS, as the primary
federal regulator. The bank is also subject to regulation, examination and
supervision by the FDIC as to certain matters. At December 31, 1995, the Board
of Governors of the Federal Reserve System ("FRB") also has regulatory authority
over the Bank as to some matters. See "Holding Company Regulation" and "Bank
Regulation."
Webster's executive offices are located at Webster Plaza,
Waterbury, Connecticut, 06702. Its telephone number is (203) 753-2921
Recent Acquisitions
The Shawmut Transaction - On October 1, 1995, Webster Bank entered
into a Purchase and Assumption Agreement with Shawmut Bank Connecticut National
Association (now Fleet National Bank of Connecticut), as part of the
Fleet/Shawmut merger, to acquire 20 former Shawmut branch banking offices in the
Hartford Banking Market. The Shawmut Transaction was consummated on February 16,
1996 with Webster Bank receiving approximately $845 million in BIF insured
deposits, and $586 million in loans. In connection with the Shawmut Transaction,
Webster completed the sale of 1,249,600 shares of its common stock in an
underwritten public offering in December 1995. The Shawmut Transaction is being
accounted for as a purchase. The results of operations related to the Shawmut
branch banking offices prior to acquisition are not included in the accompanying
Consolidated Financial Statements. Such results will only be included for the
period subsequent to the consummation of the Shawmut Transaction.
The Shelton Bancorp, Inc. Acquisition - On November 1, 1995,
Webster acquired Shelton and its subsidiary, Shelton Savings Bank, a $295
million asset savings bank in Shelton, Connecticut, with $273 million in BIF
insured deposits. In connection with the merger with Shelton, Webster issued
1,292,549 shares of its common stock for all the outstanding shares of Shelton
common stock. Under the terms of the agreement, Shelton shareholders received
.92 of a share of Webster common stock in a tax free exchange for each of their
Shelton common shares. This acquisition was accounted for as a pooling of
interests. The Corporation's Consolidated Financial Statements include Shelton's
financial data as if Shelton had been combined at the beginning of the earliest
period presented.
Shoreline Bank and Trust Company - On December 16, 1994, Webster
acquired Shoreline, a $51.0 million asset commercial bank based in Madison,
Connecticut, with $47.0 million in BIF insured deposits. To effect the
acquisition, Shoreline was merged into Webster Bank and its Madison banking
office became a full service office of Webster Bank. In connection with the
merger, the Corporation issued 266,500 shares of its common stock for all of the
outstanding shares of Shoreline common stock. This acquisition was accounted for
as a pooling of interests. The Corporation's Consolidated Financial Statements
include Shoreline's financial data as if Shoreline had been combined at the
beginning of the earliest period presented.
Bristol Savings Bank - On March 3, 1994, Webster acquired Bristol,
a state chartered savings bank with $486 million in assets which became a
wholly-owned subsidiary of Webster. In connection with the conversion of Bristol
from a mutual to a stock charter concurrently with the
4
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acquisition, 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 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" savings bank. The Bristol acquisition was
accounted for as a purchase. Results of operations relating to Bristol are
included in the Corporation's Consolidated Financial Statements only for the
period subsequent to the effective date of the acquisition. Webster maintained
Bristol as a separate savings bank subsidiary until November 1, 1995, when First
Federal and Bristol were merged and renamed as Webster Bank.
FDIC Assisted Acquisitions
Webster Bank significantly expanded its retail banking operations
through assisted acquisitions of First Constitution Bank ("First Constitution")
in October 1992 and Suffield Bank ("Suffield") in September 1991 from the
Federal Deposit Insurance Corporation ("FDIC"). These acquisitions, which were
accounted for as purchases, involved financial assistance from the FDIC and
extended Webster Bank's retail banking operations into new market areas by
adding 21 branch offices, $1.5 billion in retail deposits and approximately
150,000 customer accounts. See Note 2 to the Consolidated Financial Statements
for additional information concerning the terms of these assisted acquisitions.
5
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Lending Activities
General. Webster originates residential, consumer, and business
loans. Total loans receivable was $1.9 billion at December 31, 1995 and 1994.
All references to loan and allowance for loan loss balances and ratios in the
Lending Activities section exclude Segregated Assets, which are discussed
immediately after this section. At December 31, 1995, first mortgage loans
secured by one-to-four family properties comprised 77.2% of the Corporation's
loan portfolio, before net items.
Nonaccrual loans, which include most loans delinquent 90 days or
more, were $37.8 million at December 31, 1995, compared to $34.9 million at
December 31, 1994, out of a total loan portfolio, before net items, of over
$1.94 billion at December 31, 1995 and $1.93 billion at December 31, 1994. The
ratio of nonaccrual loans to total loans before net items was 1.9% and 1.8% at
December 31, 1995 and 1994, respectively. Nonaccrual assets, which includes
nonaccrual loans and real estate owned were $55.0 million and $61.5 million at
December 31, 1995 and 1994 respectively.
One-to-Four Family First Mortgage Loans. Webster originates both
fixed-rate and adjustable-rate mortgage loans. The Corporation originates
one-year, three-year and five-year adjustable-rate mortgage loans (ARMs) with
caps on the annual and lifetime interest rate adjustments, which currently are
generally 2% and 6%, respectively. At December 31, 1995, 63% of Webster's total
mortgage loans before net items were adjustable-rate loans. Interest rates on
adjustable loans originated as of December 31, 1995 were 2.75% above the
constant maturity one-year U.S. Treasury yield index. There are no prepayment
penalties on any of Webster's adjustable-rate loans. Webster has offered
adjustable-rate mortgage loans at initial interest rates discounted from the
fully indexed rate.
Although adjustable-rate mortgage loans allow Webster to increase
the sensitivity of its asset base to changes in interest rates, the extent of
this interest sensitivity is limited by the interest rate "caps" contained in
adjustable-rate loans. The terms of such loans may also increase the likelihood
of delinquencies in periods of high interest rates, particularly if such loans
are originated at discounted interest rates. Federal law permits the FRB to
promulgate regulations limiting the maximum interest rate that may apply during
the term of adjustable rate mortgage loans. Under the current regulations, no
specific interest rate limit is set, but lenders are required to impose interest
rate caps on all adjustable-rate mortgage loans and all dwelling-secured
consumer loans, including home equity loans, which provide for interest rate
adjustments.
Webster originates 15 to 30 year fixed-rate mortgage loans on
one-to-four family units. Webster has exchanged fixed-rate, long-term mortgage
loans for mortgage-backed
6
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securities guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association ("FNMA") and the Government National
Mortgage Association ("GNMA"). At December 31, 1995, $555.5 million or 37% of
Webster's total residential mortgage loans before net items had fixed rates.
Webster sells mortgage loans in the secondary market when such
sales are consistent with its asset/liability management objectives. At December
31, 1995, Webster had $2.9 million of adjustable and fixed-rate mortgage loans
held for sale.
Webster also makes residential construction loans to individuals to
construct one-to-four family residential units. At December 31, 1995, such
construction loans totaled $54.4 million or 2.8% of Webster's total loans
receivable before net items.
All of the conventional mortgage loans on one-to-four family units
originated by Webster include a "due-on-sale" clause, which is a provision
giving Webster the right to declare a loan immediately due and payable in the
event, among other things, that the borrower sells or otherwise disposes of the
real property which is subject to the mortgage and the loan is not repaid.
Webster actively enforces "due-on-sale" clauses.
Commercial and Commercial Real Estate Mortgage Loans. Webster had
$197.9 million, or 10.2% of its total loans receivable before net items, in
commercial and commercial real estate loans outstanding as of December 31, 1995,
excluding Segregated Assets. Commercial real estate loans are secured by
multi-family residences, office buildings, retail outlets, warehouses, land or
other commercial real properties. Commercial loans are secured by assets other
than real estate, such as inventory or trade receivables.
Loans secured by commercial and multi-family residential
properties can involve greater risks than single-family residential mortgage
lending. Such loans generally are substantially larger than single-family
residential mortgage loans, and repayment of the loan generally depends on cash
flow generated by the property. Because the payment experience on loans secured
by such property is often dependent on successful operation or management of the
security property, repayment of the loan may be subject to a greater extent to
adverse conditions in the real estate market or the economy as compared to
one-to-four family residential mortgage loans. The commercial real estate
business is cyclical and subject to downturns, overbuilding and local economic
conditions.
At December 31, 1995, $14.9 million of Webster's $41.8 million
allowance for loan losses was allocated to commercial and commercial real estate
loans. See "Management's Discussion and Analysis and Results of Operations"
contained in the annual report to shareholders and incorporated herein by
reference. The annual report is filed as an exhibit hereto. Also see "Business
- -- Lending Activities -- Nonaccrual Loans and Delinquencies" for more
information about Webster's asset quality, allowance for loan losses and
provisions for loan losses.
Consumer Loans. At December 31, 1995, consumer loans were $172.3
million or 8.9% of Webster's total loans receivable before net items. Consumer
loans consist primarily of home equity credit lines, home improvement loans,
passbook loans and other consumer loans. The allowance for losses on consumer
loans was $7.9 million at December 31, 1995.
7
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The following table sets forth the composition of Webster's loan portfolio,
excluding Segregated Assets, in dollar amounts and in percentages at the dates
shown, and a reconciliation of loans receivable, net.
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993 1992 1991
------------------- ---------------- ----------------- -------------- -------------
Amount % Amount % Amount % Amount % Amount %
(Dollars in thousands)
Residential mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family units...................$ 1,498,024 79.2% $1,465,419 78.4% $1,263,618 86.1% $1,321,825 86.9% $501,114 71.4%
Multi-family units................. 13,198 0.7 5,931 0.3 -- -- 5,320 0.3 5,073 0.7
Construction....................... 54,410 2.9 53,779 2.9 28,930 2.0 15,033 1.0 9,642 1.4
Land............................... 2,652 0.1 26,712 1.4 29,464 2.0 12,045 0.8 3,390 0.5
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Total residential mortgage loans. 1,568,284 82.9 1,551,841 83.0 1,322,012 90.1 1,354,223 89.0 519,219 74.0
Residential loans held for sale..... 2,872 0.2 24,735 1.3 11,505 0.8 7,240 0.5 -- --
Commercial mortgage loans:
Income producing properties........ -- -- -- -- 135 0.0 348 0.0 14,645 2.1
Land............................... 19,867 1.1 5,60 0.3 -- -- -- -- -- --
Construction....................... 8,887 0.5 4,237 0.2 2,083 0.1 5,735 0.4 5,752 0.8
Other commercial real estate....... 115,976 6.1 130,248 7.0 40,306 2.7 41,636 2.7 27,227 3.9
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Total commercial mortgage loans.. 144,730 7.7 140,092 7.5 42,524 2.8 47,719 3.1 47,624 6.8
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Total mortgage loans................. 1,715,886 90.8 1,716,668 91.8 1,376,041 93.7 1,409,182 92.6 566,843 80.8
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Less mortgage loans net items:
Residential loans in process....... 20,642 1.1 25,523 1.4 16,994 1.2 3,295 0.2 2,736 0.4
Commercial loans in proces......... -- -- 1,174 0.1 487 0.0 508 0.0 436 0.1
Allowance for loan losses.......... 30,799 1.6 36,252 1.9 38,477 2.6 44,384 2.9 7,696 1.1
Unearned (premiums) discounts and
deferred loan fees, net.......... (12,207) (0.5) (13,906) (0.8) (10,318) (0.8) 2,091 0.1 1,684 0.2
------------ ----- ---------- ---- ----------- ----- ---------- ---- --------- -----
Net mortgage loans............... 1,676,652 88.6 1,667,625 89.2 1,330,401 90.7 1,358,904 89.4 554,291 79.0
------------ ----- ---------- ----- ----------- ----- ---------- ----- --------- -----
Consumer loans:
Home improvement................... 6,980 0.4 4,718 0.3 4,413 0.3 6,274 0.4 18,355 2.6
Home equity credit lines........... 122,737 6.5 128,828 6.9 103,523 7.1 100,821 6.6 104,264 14.9
Education.......................... 135 0.0 483 0.0 684 0.0 451 0.0 758 0.1
Personal........................... 31,653 1.7 23,231 1.3 13,928 0.9 14,553 1.0 4,572 0.7
Marine loans....................... 462 0.0 226 0.0 246 0.0 1,160 0.1 131 0.0
Automobiles........................ 2,195 0.1 2,399 0.1 2,584 0.2 2,604 0.2 3,633 0.5
Secured by deposits................ 8,121 0.4 7,171 0.4 7,207 0.5 8,277 0.5 5,416 0.8
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Total consumer loans............. 172,283 9.1 167,056 9.0 132,585 9.0 134,140 8.8 137,129 19.6
Less:
Allowance for loan losses......... 7,865 0.4 7,312 0.4 5,955 0.4 4,626 0.3 2,563 0.4
Deferred loan costs, (net)........ (1,255) (0.1) -- -- -- -- -- -- -- --
-------------- ------------------------------------------- ---------------- -------- -----
Net consumer loans............... 165,673 8.8 159,744 8.6 126,630 8.6 129,514 8.5 134,566 19.2
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Consumer loans held for sale, net.. -- -- -- -- -- -- 23,116 1.5 -- --
Commercial non-mortgage loans........ 53,194 2.8 45,055 2.4 11,640 0.8 11,404 0.7 13,417 1.9
Less:
Allowance for loan losses.......... 3,133 0.2 3,208 0.2 736 0.1 770 0.1 796 0.1
Unearned (premiums) discounts and
deferred loan fees, net.......... 430 0.0 -- -- -- -- -- -- -- --
------------ ----- ----------- ------------------ ------ ---------- ----- --------- -----
Net commercial non-mortgage loans. 49,631 2.6 41,847 2.2 10,904 0.7 10,634 0.6 12,621 1.8
------------ ----- ----------- ----- ----------- ----- ---------- ----- --------- -----
Loans receivable, net ............. $1,891,956 100.0% $1,869,216 100.0% $1,467,935 100.0% $1,522,168 100.0% $701,478 100.0%
=========== ===== =========== ===== =========== ===== ========== ====== ========= =====
</TABLE>
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The following table sets forth the contractual maturity and interest-rate
sensitivity of residential and commercial real estate construction loans and
commercial loans at December 31, 1995.
<TABLE>
<CAPTION>
Contractual Maturity
----------------------------------------------------
One Year One to Over
or Less Five Years Five Years Total
------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Contractual Maturity:
Construction loans:
Residential mortgage.................................. $ 582 $ - $ 53,828 $ 54,410
Commercial mortgage................................... 890 1,420 6,577 8,887
Commercial non-mortgage loans........................... 14,113 21,938 17,143 53,194
---------- ---------- --------- ----------
Total............................................... $ 15,585 $ 23,358 $ 77,548 $ 116,491
============ ========== ======== ==========
Interest-Rate Sensitivity:
Fixed rates............................................. $ 1,555 $ 6,829 $ 29,751 $ 38,135
Variable rates.......................................... 14,030 16,529 47,797 78,356
---------- ---------- ----------- ----------
Total............................................... $ 15,585 $ 23,358 $ 77,548 $ 116,491
=========== ========== ============ ==========
</TABLE>
Loan Originations. Federally chartered savings institutions are
authorized to originate real estate mortgage loans throughout the United States.
However, almost all of the real estate mortgage loans originated by Webster are
secured by real estate located in Connecticut.
Loan originations come from a number of sources. Residential loan
originations are attributable primarily to present depositors and borrowers,
walk-in customers, referrals from real estate brokers, builders, loan
originators and third party correspondents. Webster seeks to attract consumer
loans by direct advertising and solicitation of its existing deposit and loan
customers.
Federal regulations provide that real estate loans may not exceed 100%
of the appraised value of the security property at the time of origination. With
respect to home loans originated or refinanced in excess of 90% of the appraised
value of the security property, that part of the unpaid balance that exceeds 80%
of the property's value must be insured or guaranteed by a qualified mortgage
insurance company. These regulations also require an institution's board of
directors specifically to approve all loans on the security of real estate which
are not home loans and which at the time of origination are in excess of 90% of
the appraised value of the security property.
Webster makes single-family conventional first mortgage loans with a
loan-to-value ratio of up to 95%. Webster requires private mortgage insurance
for 25% of the amount of the outstanding principal balance of any loan having a
loan-to-value ratio over 90%. If the loan-to-value ratio is between 80% and 90%,
Webster requires private mortgage insurance for 20% of the outstanding principal
balance of the loan.
Property securing real estate loans originated by Webster is usually
appraised by one of several professionally-qualified, state-licensed independent
appraisers who have been ratified by the Board of Directors of Webster. Webster
also employs staff appraisers, who also must be state licensed. For all first
mortgage real estate loans, Webster requires the borrower to obtain title, fire
and extended casualty insurance and, where appropriate, flood insurance and
business interruption coverage. Loans are approved by certain officers with
specified approval authority. Loans approved in excess of $500,000 are ratified
by the Board of Directors.
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Purchase and Sale of Loans and Loan Servicing. Webster has been a
seller and purchaser of whole loans and participations in the secondary market.
During 1995 and 1994, Webster originated residential mortgages that were
transferred primarily to the Federal National Mortgage Association ("FNMA") for
conversion into mortgage-backed securities. Webster generally retains the right
to service the underlying loans for these securities. During 1994, Webster
securitized some of its owned residential mortgage loans into mortgage-backed
securities and these assets were reclassified on Webster's balance sheet
accordingly. Securitization limits credit risk and increases liquidity since
these securities can be easily sold in the secondary market.
Loan servicing on purchased loans is generally performed by the loan
seller, which retains a portion of the interest paid by the borrower in
consideration for the servicing of the loan. Certain direct costs of servicing
loans for others, such as attorneys' fees and court costs associated with
collecting delinquent loans, are borne pro-rata by the owners of the loans.
Other costs of servicing loans are part of the servicing institution's general
operating expenses and vary from period to period, depending primarily on rates
of delinquency and resulting collection efforts required of the institution
servicing the loans. Because servicing revenues generally are collected when
loan payments are received, such revenues also vary with the rates of
delinquency.
The following table sets forth information as to Webster's mortgage
loan servicing portfolio at the dates shown. The decrease of total loans
serviced for 1995 is primarily due to the sale of mortgage loan servicing rights
on both owned and non-owned loans while the 1994 increase is mostly due to the
Bristol and Shoreline acquisitions.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------
1995 1994 1993
-------------------- ---------------------- ---------------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans owned and serviced................ $1,324,257 63.7% $ 1,509,219 61.5% $ 1,262,448 77.9%
Loans serviced for others............... 753,053 36.3 944,547 38.5 357,687 22.1
---------- ------ ------------- ------ ------------- ------
Total loans serviced by Webster..... $2,077,310 100.0% $2,453,766 100.0% $ 1,620,135 100.0%
========== ====== ========== ======= ============= ======
</TABLE>
Webster, from time to time, has purchased whole loans and loan
participations. The loans and loan participations purchased are secured by
property located in Connecticut and in other areas of the United States. There
can be significant risks associated with the purchase of loans secured by
properties located outside a savings institution's local lending territory. The
purchaser may be unfamiliar with the local economy in the area where the
security properties are located and is generally dependent on the loan seller to
service the loan and deal with delinquencies and foreclosures. Webster seeks to
reduce such risks by underwriting purchased loans using at least the same
conservative underwriting policies as used for locally originated loans; using
underwriting standards which meet the requirements of FNMA and FHLMC; and
purchasing only loans secured by one-to-four family owner occupied residences.
The Corporation may also purchase insurance to cover a portion of losses on
purchased loans.
10
<PAGE>
The table below shows mortgage loan origination, purchase, sale and repayment
activities of Webster for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
First mortgage loan originations and purchases:
Permanent:
Mortgage loans originated..................................... $ 271,997 $ 665,108 $ 309,286
Construction:
1-4 family units.............................................. 50,445 44,491 24,805
----------- ------------ ------------
Total permanent and construction loans originated 322,442 709,599 334,091
Loans and participations purchased.............................. 2,123 37,158 3,092
Loans acquired in the Bristol acquisition. . . . . . ........... -- 255,562 --
----------- ------------ ------------
Total loans originated and purchased........................ 324,565 1,002,319 337,183
----------- ------------ -----------
First mortgage loan sales and principal reductions:
Loans securitized and sold...................................... 109,787 495,135 92,123
Loan principal reductions....................................... 204,314 119,507 260,712
Reclassified to REO............................................. 11,246 47,050 17,489
----------- ------------ ------------
Total loans sold and principal reductions................... 325,347 661,692 370,324
----------- ------------ ------------
(Decrease) Increase in mortgage loans
receivable before net items................................... $ (782) $ 340,627 $ (33,141)
============ ========== ============
</TABLE>
Fee Income from Lending Activities. Webster realizes loan origination,
commitment and other fee income from its lending activities, including
non-refundable application fees and appraisal fees, document preparation fees,
tax service fees and other miscellaneous fees which are dependent upon the type
of loan originated. Webster also receives late payment fees, loan modification
fees and servicing fees from existing loans. Income realized from these
activities can vary significantly with the volume and type of loans in the
portfolio and in response to competitive factors. Webster also realizes
prepayment penalties from early repayment of its fixed-rate loans originated
prior to 1983. Total prepayment penalties have declined significantly since
1983. Webster currently does not include a prepayment penalty clause in any of
its residential mortgage loans.
Usury Limitations. Federal legislation first enacted in 1980 has
preempted all state usury laws concerning residential first mortgage loans
unless the state legislature acted to override the preemption by April 1, 1983.
The Connecticut Legislature did not act to override the federal preemption.
Connecticut law imposes no ceiling on interest rates on the types of loans
currently originated by the Bank.
11
<PAGE>
Nonaccrual Assets and Delinquencies. When an insured institution
classifies problem assets as either "substandard" or "doubtful," it is required
to establish general allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the asset so classified or to charge-off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional valuation allowances. See "Classification
of Assets" below.
The following table sets forth certain information regarding Webster's
loans (excluding Segregated Assets) accounted for on a nonaccrual basis,
accruing loans which are greater than 90 days past due and real estate acquired
through foreclosure at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Residential real estate......................... $ 20,560 $18,390 $27,995 $ 39,633 $ 8,873
Commercial . . . . . . . . ..................... 15,296 15,268 4,132 1,846 4,934
Consumer. . . . . . . . . . . . ................ 1,987 1,237 1,137 4,311 523
Real estate acquired through foreclosure and
in-substance foreclosures:
Residential and consumer...................... 6,368 9,296 18,753 11,674 2,887
Commercial.................................... 10,808 17,292 6,711 7,744 15,063
---------- --------- --------- ---------- ----------
Total......................................... $ 55,019 $ 61,483 $ 58,728 $ 65,208 $32,280
========== ========= ========= ========== =======
</TABLE>
Interest on nonaccrual loans that would have been recorded as
additional income for the years ended December 31, 1995, 1994 and 1993 had the
loans been current in accordance with their original terms approximated
$2,984,000, $2,784,000 and $3,132,000, respectively.
See Note 1(e) to the Consolidated Financial Statements contained in the
annual report to shareholders and incorporated herein by reference for a
description of Webster's nonaccrual loan policy.
The following table sets forth information as to delinquent loans,
excluding Segregated Assets, in Webster's loans receivable portfolio before net
items.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1995 1994
---- ----
Percentage Percentage
Principal of Loans Principal of Loans
Balances Receivable Balances Receivable
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Past due 30-89 days and still accruing:
Residential real estate.................... $ 28,396 1.46% $ 26,161 1.36%
Commercial................................. 11,099 0.57 9,933 0.51
Consumer................................... 2,640 0.14 2,069 0.11
-------- ---- ---------- -----
Total.................................. $ 42,135 2.17% $ 38,163 1.98%
========== ====== ========== =====
</TABLE>
12
<PAGE>
Classification of Assets. Under the OTS' problem assets classification
system, a savings institution's problem assets are classified as "substandard,"
"doubtful" or "loss" (collectively "classified assets"), depending on the
presence of certain characteristics. An asset is considered "substandard" if
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the institution will sustain
"some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified "substandard"
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions and
values, "highly questionable and improbable." Assets classified "loss" are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted. In
addition, assets that do not currently warrant classification in one of the
foregoing categories but which are deserving of management's close attention are
designated as "special mention" assets.
At December 31, 1995, the Bank's classified assets totaled $82.6
million, consisting of $75.8 million in loans classified as "substandard," $6.8
million in loans classified as "doubtful" and $0 classified as "loss". At
December 31, 1994, the Bank's classified loans totaled $106.4 million,
consisting of $97.8 million in loans classified as "substandard," $8.3 million
in loans classified as "doubtful" and $300,000 classified as "loss." In
addition, at December 31, 1995 and 1994, the Bank had $29.8 million and $45.9
million, respectively, of special mention loans.
Allowance for Loan Losses. Webster's allowance for loan losses at
December 31, 1995 totalled $41.8 million. See "Management's Discussion and
Analysis -- Results of Operations Asset Quality and Comparison of Years ended
December 31, 1995 and 1994," contained in the annual report to shareholders and
incorporated herein by reference. In assessing the specific risks inherent in
the portfolio, management takes into consideration the risk of loss on Webster's
nonaccrual loans, classified loans and watch list loans including an analysis of
the collateral for the loans. Other factors considered are Webster's loss
experience, loan concentrations, local economic conditions and other factors.
13
<PAGE>
The following is a summary of activity in the allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........................... $ 46,772 $45,168 $49,780 $ 11,055 $ 7,952
Charge-offs:
Residential real estate. .............................. ( 6,952) (12,761) (8,208) (1,027) (429)
Consumer. . . . ....................................... (418) (760) (1,236) (706) (239)
Commercial. . . . . ................................... (3,490) (3,578) (2,223) (1,424) (2,864)
--------- --------- --------- ---------- --------
(10,860) (17,099) (11,667) (3,157) (3,532)
Recoveries:
Residential real estate................................ 657 388 205 10 --
Consumer............................................... 943 1,701 749 558 3
Commercial............................................. 1,185 1,015 114 9 3
--------- --------- --------- ---------- --------
2,785 3,104 1,068 577 6
Net charge-offs...................................... (8,075) (13,995) (10,599) (2,580) (3,526)
Additions to allowance for acquired loans................ -- 12,819 -- 35,731 2,285
Transfer from allowance for losses
for loans held for sale................................ -- -- 2,390 -- --
Provisions charged to operations........................ 3,100 2,780 3,597 5,574 4,344
--------- --------- --------- ---------- --------
Balance at end of period................................. $ 41,797 $ 46,772 $45,168 $ 49,780 $11,055
========= ========= ======= ========== ========
Ratio of net charge-offs to average loans
outstanding............................................ 0.4% 0.8% 0.7% 0.3% 0.5%
</TABLE>
14
<PAGE>
The following table presents an allocation of Webster's allowance for
loan losses at the dates indicated and the related percentage of loans in each
category to Webster's gross loan portfolio.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
--------------------- ------------------ ------------------- ------------------ ---------------
Amount % Amount % Amount % Amount % Amount %
------ ------- ------ ------- ------ ------- ------ ------- ------ ----
(Dollars in thousands)
Balance at End of Period
Applicable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans.... $19,013 80.93% $25,399 81.74% $35,473 87.71% $39,888 86.29% $ 3,917 72.37%
Commercial mortgage loans..... 11,786 7.46 10,853 7.26 3,004 2.80 4,496 3.02 3,779 6.64
Commercial non-mortgage loans. 3,133 8.87 3,208 2.34 736 .77 770 .72 796 1.87
Consumer loans................ 7,865 2.74 7,312 8.66 5,955 8.72 4,626 9.97 2,563 19.12
--------- ------ --------- ------ --------- ----- --------- ------ --------- ------
Total..................... $41,797 100.00% $46,772 100.00% $45,168 100.0% $49,780 100.0% $ 11,055 100.0%
======== ====== ========== ====== ========= ===== ========= ===== ========= =====
</TABLE>
15
<PAGE>
Segregated Assets
Segregated Assets at December 31, 1995 and 1994 consist of the
following assets purchased from the FDIC in the First Constitution Acquisition
which are subject to a loss-sharing arrangement with the FDIC:
<TABLE>
<CAPTION>
At December 31,
1995 1994
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial real estate loans........................... $ 79,995 74.0% $ 98,813 69.8%
Commercial non-mortgage loans.......................... 10,439 9.7 15,377 10.9
Multi-family mortgage loans............................ 16,341 15.1 18,124 12.8
Other real estate owned................................ 1,299 1.2 9,202 6.5
----------- ----- ----------- ------
108,074 100.0% 141,516 100.0%
===== ======= =====
Less allowance for segregated assets................... 3,235 4,420
----------- -----------
Segregated Assets, net................................. $ 104,839 $ 137,096
=========== ===========
</TABLE>
Under the Purchase and Assumption Agreement with the FDIC, during the
first five years after October 2, 1992 (the "Acquisition Date") the FDIC is
required to reimburse the Bank quarterly for 80% of all net charge-offs (i.e.,
the excess of charge-offs over recoveries) and certain permitted expenses
related to the commercial non-mortgage loans, commercial real estate loans and
multi-family loans acquired by the Bank.
During the sixth and seventh years following the Acquisition Date, the
Bank is required to pay quarterly to the FDIC an amount equal to 80% of the
recoveries during such years on Segregated Assets that were previously charged
off after deducting certain permitted expenses related to those assets. The Bank
is entitled to retain 20% of such recoveries during the sixth and seventh years
and 100% thereafter.
Upon termination of the seven-year period after the Acquisition Date,
if the sum of net charge-offs on Segregated Assets during the first five years
plus permitted expenses during the entire seven-year period, less any recoveries
during the sixth and seventh year on Segregated Assets charged off during the
first five years, exceeds $49.2 million, the FDIC is required to pay the Bank an
additional 15% of any such excess over $49.2 million. As of December 31, 1995,
the Bank has received $38.0 million in reimbursements for net charge-offs and
permitted expenses from the FDIC. At December 31, 1995, the Bank had a $3.2
million allowance for losses to cover its share of losses on the Segregated
Assets.
A detail of changes in the allowance for the Bank's share of losses for
Segregated Assets follows:
Years Ended December 31,
------------------------
1995 1994
---- ----
(In thousands)
Balance at beginning of period ........... $ 4,420 $ 5,042
Provisions................................ -- 375
Charge-offs............................... (1,772) (1,505)
Recoveries................................ 587 508
-------- ---------
Balance at end of period.............. $ 3,235 $ 4,420
======= =======
16
<PAGE>
The following table sets forth information regarding Segregated Assets
delinquencies and nonaccruals at December 31, 1995 and 1994:
At December 31,
---------------------------
1995 1994
---- ----
(In thousands)
Past due 30-89 days and still accruing:
Commercial real estate loans............. $ 1,042 $ 1,251
Commercial non-mortgage loans............ 79 271
Multi-family loans....................... 386 1,021
--------- ---------
1,507 2,543
--------- ---------
Loans accounted for on a nonaccrual basis:
Commercial real estate loans............. 2,604 13,795
Commercial non-mortgage loans............ 1,203 3,678
Multi-family real estate loans........... 1,432 576
--------- ---------
5,239 18,049
--------- ---------
Total................................. $ 6,746 $ 20,592
======== =========
Interest on nonaccrual Segregated Assets that would have been recorded
as additional income had the loans been current in accordance with their
original terms approximated $1,207,000, $2,047,000 and $2,929,000 for the years
ended December 31, 1995, 1994 and 1993 respectively.
The following table sets forth the contractual maturity and interest
rate sensitivity of commercial loans contained in the Segregated Assets
portfolio at December 31, 1995.
<TABLE>
<CAPTION>
Contractual Maturity
-----------------------------------------------------
One Year One to Over
or Less Five Years Five Years Total
------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Contractual Maturity:
Commercial loans........................................ $ 1,341 $ 2,258 $ 6,840 $ 10,439
---------- ---------- ---------- ----------
Total............................................... $ 1,341 $ 2,258 $ 6,840 $ 10,439
========== ========== ========== ==========
Interest Rate Sensitivity:
Predetermined Rates..................................... $ 79 $ 288 $ 1,625 $ 1,992
Variable Rates.......................................... 1,262 1,970 5,215 8,447
---------- ---------- ---------- ----------
Total............................................... $ 1,341 $ 2,258 $ 6,840 $ 10,439
========== ========== ========== ==========
</TABLE>
17
<PAGE>
Investment Activities
The Bank has authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of federal agencies,
certificates of deposit of federally insured banks and savings institutions,
bankers' acceptances and federal funds. Subject to various restrictions, the
Bank may also invest a portion of its assets in commercial paper, corporate debt
securities, and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make
directly. The Bank also is required to maintain liquid assets at minimum levels
which vary from time to time. See "Regulation -- Savings Bank Regulation --
Liquidity."
Webster, as a Delaware corporation, has authority to invest in any type
of investment permitted under Delaware law. As a unitary holding company,
however, its investment activities are subject to certain regulatory
restrictions described under "Holding Company Regulation."
Webster, directly or through the Bank, maintains an investment
portfolio that provides not only a source of income but also, due to staggered
maturity dates, a source of liquidity to meet lending demands and fluctuations
in deposit flows. The securities constituting Webster's investments in corporate
bonds and notes generally are publicly traded and are considered investment
grade quality by a nationally recognized rating firm. The commercial paper and
collateralized mortgage obligations ("CMOs") in Webster's investment portfolio
are all 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 inherent risks of
investing in mortgage-backed securities, including CMOs, is the ability of such
instruments to incur prepayments of principal prior to maturity at prepayment
rates different than those estimated at the time of purchase. This generally
occurs because of changes in market interest rates. The market values of
fixed-rate mortgage-backed securities are sensitive to fluctuations in market
interest rates, declining in value as interest rates rise. If interest rates
decrease, as had been the case during 1995, the market value of loans and
mortgage-backed securities generally will increase causing the level of
prepayments to increase. Except for $8.4 million invested by Webster at the
holding company level at December 31, 1995 in the common stock of certain
entities, Webster's investments, directly and through the Bank, were investments
of the type permitted federally chartered savings institutions. Webster's
investment portfolio is managed by its Treasurer in accordance with a written
investment policy approved by the Board of Directors. A report on investment
activities is presented to the Board of Directors monthly.
18
<PAGE>
The following table sets forth Webster's interest-bearing deposits and
the composition of its securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1995 1994 1993
-------------- ------------------ ----------------
% of % of % of
Book Port- Book Port- Book Port-
Value folio Value folio Value folio
----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing Deposit....................... $26,017 100.0% $54,318 100.0% $21,414 100.0%
======= ===== ======= ===== ======= =====
Trading Securities:
Mortgage Backed Securities:
GNMA..................................... 14,766 1.4% 13,706 1.7% 31,769 4.7%
Collateralized Mortgage Obligations...... 29,838 2.9 9,311 1.1 17,906 2.6
Equity Securities............................ -- -- 78 0.0 263 0.0
------ ---- ------ ---- --------- ---
44,604 4.3 23,095 2.8 49,938 7.3
------ ---- ------ ---- --------- ---
Available for Sale Portfolio:
U.S. Treasury Notes:
Matures within 1 year...................... 1,000 0.1 6,416 0.8 2,163 0.3
Matures over 1 within 5 years.............. -- -- 7,530 0.9 -- --
U.S. Government Agency:
Matures within 1 year...................... -- -- 100 0.0 5,002 0.7
Matures over 1 within 5 years.............. 12,901 1.2 33,480 4.0 53,809 7.9
Corporate Bonds and Notes:
Matures over 1 within 5 years.............. 23,005 2.2 -- -- -- --
Matures over 5 through 10 years........... 2,737 0.2 2,985 0.4 5 0.0
Matures over 10 years...................... -- -- -- -- 3,222 0.5
Mutual Funds................................. 34,077 3.2 20,146 2.4 32,459 4.8
Equity Securities:
Stock in Federal Home Loan Bank of Boston 30,039 2.9 26,269 3.2 15,897 2.3
Other Equity Securities.................... 9,195 0.9 13,619 1.6 7,799 1.1
Mortgage Backed Securities:
FNMA....................................... 139,860 13.4 11,316 1.4 -- --
FHLMC...................................... 62,572 6.0 -- -- -- --
GNMA....................................... 20,443 2.0 -- -- -- --
Collateralized Mortgage Obligations.......... 155,321 14.9 57,121 6.9 63,369 9.3
Unamortized Hedge............................ 816 0.1 -- -- -- --
Unrealized Securities Gains (Losses), Net...... 6,122 0.6 (3,768) (0.5) 207 0.0
-------- ----- ------- ----- ------- -----
498,000 47.7 175,214 21.1 183,932 26.9
-------- ----- ------- ----- ------- -----
Held to Maturity Portfolio:
U.S. Treasury notes:
Matures within 1 year...................... 1,577 0.2 3,318 0.4 6,314 0.9
Matures over 1 within 5 years.............. 8,262 0.8 19,567 2.4 25,278 3.7
U.S. Government Agency:
Matures within 1 year...................... 1,003 0.1 -- -- -- --
Matures over 1 within 5 years. . . . ..... 39,868 3.8 61,822 7.5 2,702 0.4
Matures over 5 through 10 years. . . ...... 999 0.1 1,000 0.1 699 0.1
Corporate Bonds and Notes:
Matures within 1 year. . . . .............. -- -- 702 0.1 1,110 0.2
Matures over 1 within 5 years. . . . . .... 2,555 0.2 2,564 0.3 3,379 0.5
Matures over 5 through 10 years............ 330 0.0 418 0.1 363 0.1
Other...................................... -- -- -- -- 3,739 0.5
Mortgage Backed Securities:
FHLMC........................................ 42,877 4.1 87,650 10.6 75,875 11.1
FNMA ........................................ 31,785 3.0 167,254 20.2 24,541 3.6
GNMA......................................... 1,622 0.2 1,919 0.2 2,496 0.4
Collateralized Mortgage Obligations.......... 370,762 35.5 283,861 34.2 301,403 44.2
Other Mortgage Backed Securities ............ 308 0.0 374 0.0 617 0.1
-------- ------ -------- ------ -------- -------
501,948 48.0 630,449 76.1 448,516 65.8
------- ------ ------- ------ ------- ------
Total.................................... 1,044,640 100.0% 828,758 100.0% 682,386 100.0%
========= ===== ======= ======= ======= =====
</TABLE>
19
<PAGE>
The average remaining life of the securities portfolio, exclusive of
equity securities with no maturity, is 14.1 and 15.1 years at December 31, 1995
and 1994, respectively. Although the stated final maturity of these obligations
are long-term, the weighted average life generally is much shorter due to
prepayments of principal.
The following table sets forth the contractual maturities of Webster's
securities and mortgage-backed securities at December 31, 1995 and the weighted
average yields of such securities.
<TABLE>
<CAPTION>
Due Due
Due After One, But After Five, But Due
Within One Year Within Five Years Within 10 Years After 10 Years
------------------ ------------------ ------------------ -----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Bearing Deposits..... $ 26,017 5.69% $ -- -- % $ -- --% $ -- -- %
Trading Portfolio:
Mortgaged-Backed Securities -- -- -- -- -- -- 44,604 6.80
Available For Sale Portfolio:
U.S. Government Agency..... -- -- 12,522 5.41 -- -- -- --
Mutual Funds. . . ......... -- -- -- -- -- -- 33,947 --
Equity Securities (a)...... -- -- 1,590 7.05 -- -- 10,340 --
Corporate Bonds and Notes 23,000 4.51 5 5.00 2,730 6.22 -- --
U.S. Treasury Notes........ 1,000 4.63 -- -- -- -- -- --
Mortgaged-Backed Securities -- -- 816 -- -- -- 382,099 6.93
Held to Maturity Portfolio:
U.S. Treasury Notes ...... 1,577 4.97 8,262 6.45 -- -- -- --
U.S. Government Agencies... 1,003 8.10 39,868 5.89 999 6.32
Corporate Bonds and Notes -- -- 2,555 6.60 330 6.96
FHL Bank Stock................ -- -- -- -- -- -- 30,039 6.70
Mortgage-Backed Securities -- -- 20,961 6.18 11,219 6.48 415,174 7.27
------ ------ -------- ---- ------ ---- --------- ----
Totals................... $ 52,597 5.18% $ 86,579 5.99% $ 15,278 6.43% $ 916,203 6.73%
======== ==== ======== ==== ======= ==== ========== ====
<FN>
(a) Adjusted to a fully taxable equivalent basis.
</FN>
</TABLE>
20
<PAGE>
Sources of Funds
General. Deposits, loan repayments, securities maturities as well as
earnings are the primary sources of Webster's funds for use in its lending and
investment activities. While scheduled loan repayments are a relatively stable
source of funds, deposit flows and loan prepayments are influenced by prevailing
interest rates, money market and local economic conditions. Webster also derives
funds from FHL Bank advances and other borrowings.
Webster attempts to control the flow of funds in its deposit accounts
according to its need for funds and the cost of alternative sources of funds.
Webster controls the flow of funds primarily by the pricing of deposits, which
is influenced to a large extent by competitive factors in its market area.
Deposit Activities. Webster has developed a variety of deposit programs
designed to attract both short-term and long-term deposits from the general
public. These deposit programs include passbook and statement savings accounts,
club accounts, regular and NOW checking accounts, money market accounts and
certificate accounts with short and long term maturities.
Webster gathers retail and commercial deposits through its 64 full
service banking offices. In 1995, Webster introduced Check Card, a debit card
that can be used at over 12 million merchant locations worldwide. Also
introduced was the Webster One account, a relationship banking account that
affords customers the opportunity to avoid fees, earn more on savings and
simplify their bookkeeping with one combined statement when they link all of
their balances with Webster. Webster relies primarily on competitive pricing
policies and advertising to attract and retain deposits and also emphasizes
customer service and convenience. The Bank's First Call telephone banking
service provides automated customer access to account information and Webster
representatives 24 hours a day, seven days a week. Additionally, customers may
transfer funds, inquire about checks and ATM transactions. Its customer services
include ATM's that utilize state-of-the art technology, membership in the
"Yankee-24" and Cirrus ATM networks and convenient business hours of operation,
including Saturday hours. Webster provides automatic loan payment features from
its accounts as well as direct deposit of Social Security and other payments.
Webster has not used brokers to obtain deposits, however, some residual brokered
deposits have been received through acquired banks.
Webster charges fees for certain deposit account services and early
withdrawal penalties on its certificate accounts. These fees offset the cost of
providing additional services or are intended to offset the adverse effects of
the withdrawal of funds during periods of rising interest rates.
21
<PAGE>
The following table sets forth the deposit accounts of Webster in
dollar amounts and as percentages of total deposits at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993
------------------------------- --------------------------- -----------------------------
Weighted % of Weighted % of Weighted % of
average total average total average total
rate Amount deposits rate Amount deposits rate Amount deposits
---- ------ -------- ---- ------ -------- ---- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance by account type:
Demand deposits and NOW accounts. 1.18% $ 351,189 14.6 .98% $ 327,094 13.4% 1.01% $ 235,123 12.0%
Regular savings.................. 2.09 471,588 19.6 2.09 561,196 23.1 2.07 474,213 24.1
Money market accounts............ 4.03 87,371 3.6 4.89 125,987 5.2 3.18 95,475 4.9
Certificate accounts............. 5.59 1,490,054 62.2 4.62 1,417,668 58.3 4.11 1.160,824 59.0
------ ------------ ------ ------ ------------ ------- ------ ----------- -------
Total deposits................ 4.20% $ 2,400,202 100.0% 3.56% $ 2,431,945 100.0% 3.20% $ 1,965,635 100.0%
====== ============ ====== ====== ============ ======= ====== =========== =======
</TABLE>
22
<PAGE>
Maturity information regarding Webster's deposit accounts of $100,000
or more at December 31, 1995 is shown below.
<TABLE>
<CAPTION>
Total
Deposits Over Over
of Three Months Six Months
$100,000 Three Months through through Over % of Total
or more or less Six Months One Year One Year Deposits
----------- ------------ ------------ ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
$129,800 $33,848 $33,070 $29,964 $32,918 5.41%
</TABLE>
Additional information concerning the deposits of Webster is included
in Note 8 of the Consolidated Financial Statements contained in the annual
report to shareholders and incorporated herein by reference.
Borrowings. The FHL Bank System functions in a reserve credit capacity
for savings institutions and certain other home financing institutions. Members
of the FHL Bank System are required to own capital stock in the FHL Bank.
Members are authorized to apply for advances on the security of such stock and
certain of their home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States) provided certain
creditworthiness standards have been met. See "Federal Home Loan Bank System."
Under its current credit policies, the FHL Bank limits advances based on a
member's assets, total borrowings and net worth.
Webster Bank uses FHL Bank advances as an alternative source of funds
to deposits in order to fund its lending activities when it determines that it
can profitably invest the borrowed funds over their term. At December 31, 1995,
Webster Bank had outstanding FHL Bank advances of $383.1 million and other
borrowings in the amount of $170.0 million, compared with FHL Bank advances of
$370.7 million and other borrowings of $43.7 million at December 31, 1994.
The following table sets forth certain information as to Webster Bank's
FHL Bank short-term borrowings at the dates and for the years indicated.
At December 31,
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Average amount outstanding during the period:
FHL Bank short-term advances................. $ 268,563 $ 261,133 $150,224
Amount outstanding at end of period:
FHL Bank short-term advances................. 209,401 232,000 190,000
Highest month end balance of short-term
borrowings................................... 379,713 387,887 206,472
Weighted average interest rate of short-term
borrowings at end of period.................. 6.09% 5.92% 3.54%
Weighted average interest rate of short-term
borrowings during the period................. 6.13% 4.69% 3.58%
Reverse repurchase agreements were also transacted during 1995 as a source of
short term borrowings. Webster Bank uses reverse repurchase agreements when the
cost of such borrowings is favorable as compared to other funding sources. The
average balance for the year and the maximum amount of outstanding reverse
repurchase agreements at any month-end
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during 1995 was $37.8 million and $126.9 million, respectively. The
weighted-average interest rate of the reverse repurchase agreements outstanding
at December 31, 1995 was 5.80%. No reverse repurchase agreements were transacted
during 1994.
Equity Offering. In December 1995, Webster completed the sale of
1,249,600 shares of common stock in an underwritten public offering raising
$32.1 million of additional capital, net of expenses, which was invested in the
Bank to facilitate its completion of the Shawmut Transaction and to have the
Bank remain well capitalized for regulatory purposes.
Bank Subsidiaries
The Bank is permitted to invest up to 2% of its assets in the stock,
paid-in surplus, and unsecured obligations of subsidiary service corporations
engaged in certain activities, and an additional 1% of its assets when the
additional funds are used primarily for community or inner-city development or
investment. In addition, since the Bank meets all applicable minimum regulatory
capital requirements, it is also permitted to invest up to 50% of its regulatory
capital in conforming loans to service corporations. At December 31, 1995, the
Bank's direct investment in its service corporation subsidiary totaled $198,583.
As of December 31, 1995, the activities of such service corporation subsidiary
consisted primarily of the selling of mutual funds and annuities through a third
party provider. The service corporation receives a portion of the sales
commissions generated and rental income for the office space leased to the
provider. The Bank also has an operating subsidiary, the primary function of
which is to dispose other real estate owned.
Employees
At December 31, 1995, Webster had 714 employees (including 152
part-time employees), none of whom was represented by a collective bargaining
group. Webster maintains a comprehensive employee benefit program providing,
among other benefits, group medical and dental insurance, life insurance,
disability insurance, a pension plan, an employee investment plan and an
employee stock ownership plan. Management considers Webster's relations with its
employees to be good.
Market Area And Competition
The Bank is headquartered in Waterbury, Connecticut (New Haven County)
and conducts business from its home office in downtown Waterbury and 64 branch
offices in Waterbury, Southbury, Ansonia, Bethany, Oxford, Cheshire, Prospect,
Branford, Derby, East Haven, Hamden, Madison, Milford, Naugatuck, New Haven,
North Haven, Orange and West Haven (New Haven County), Watertown (Litchfield
County), Fairfield, and Shelton (Fairfield County), and Suffield, East Windsor,
Bristol, Plainville, Terryville, Enfield, Windsor Locks, Berlin, East Hartford,
Farmington, Glastonbury, Hartford, Manchester, New Britain, Newington, Simsbury,
West Hartford, Wethersfield and Southington (Hartford County) and Cromwell and
Middletown (Middlesex County). Waterbury is approximately 30 miles southwest of
Hartford and is located on Route 8 midway between Torrington and the New Haven
and Bridgeport metropolitan areas. Most of the Bank's depositors live, and most
of the properties securing its mortgage loans are located, in the same area or
the adjoining counties. The Bank's market area has a diversified economy with
the workforce employed primarily in manufacturing, financial services, health
care, industrial and technological companies.
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The Bank faces substantial competition for deposits and loans
throughout its market areas. The primary factors stressed by the Bank in
competing for deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations, automated
services and office hours. Competition for deposits comes primarily from other
savings institutions, commercial banks, credit unions, money market funds and
other investment alternatives. The primary factors in competing for loans are
interest rates, loan origination fees, the quality and range of lending services
and personalized service. Competition for origination of first mortgage loans
comes primarily from other savings institutions, mortgage banking firms,
mortgage brokers, commercial banks and insurance companies. The Bank faces
competition for deposits and loans throughout its market area not only from
local institutions but also from out-of-state financial institutions which have
opened loan production offices or which solicit deposits in its market area.
The OTS's statement of policy on branching by federally chartered
savings institutions, as recently amended, permits a federal association to
branch into any state or states of the United States and its territories, except
as otherwise prohibited under federal law. The OTS statement of policy expressly
preempts any contrary state law. Connecticut permits interstate stock
acquisitions between Connecticut depository institutions, (i.e., commercial
banks, savings banks, and savings and loan associations) and depository
institutions in other states that have adopted reciprocal legislation, subject
to the approval of the Connecticut Banking Commissioner. Connecticut also
permits out-of-state bank holding companies or savings institution companies in
states which have adopted reciprocal legislation to acquire the stock of
Connecticut holding companies or depository institutions. A bank holding company
or savings institution holding company in a state which has adopted reciprocal
legislation may charter and operate a de novo Connecticut depository institution
or holding company upon the approval of the Connecticut Banking Commissioner.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("IBBEA"), amended the Bank Holding Company Act
of 1956 to permit a bank holding company to acquire a bank located in any state
notwithstanding otherwise prohibitive state law if the acquisition does not
result in the bank holding company controlling more than 10% of the deposits in
the United States or 30% of deposits in the state in which the bank to be
acquired is located (unless waived by the state). IBBEA permits individual
states to establish a state concentration limit of less than 30% and restrict
the acquisition of any in-state bank that has been in existence for less than
five years. Effective June 1, 1997, IBBEA will permit an adequately capitalized
bank to merge with a bank in another state and operate the target bank's offices
as branches, subject to similar national (10%) and state (30%) deposit
concentration limits and certain other conditions, if the state in which the
target bank is located does not enact legislation between September 29, 1994 and
June 1, 1997 to prohibit interstate merger transactions. IBBEA also will permit
a bank subsidiary of a bank holding company to act as agent for other depository
institutions owned by the same holding company for certain deposit and loan
functions effective as of September 29, 1995. The foregoing provisions are
expected to further increase competition within the Corporation's existing
market area.
Holding Company Regulation
General. Under the Home Owners' Loan Act, as amended (the
"HOLA"), the OTS has regulatory jurisdiction over savings and loan holding
companies. Webster, as a savings and loan holding company within the meaning of
the HOLA, is subject to regulation, supervision and examination by the OTS.
25
<PAGE>
The HOLA prohibits a savings and loan holding company such as
Webster, directly or indirectly, or through one or more subsidiaries, from (I)
acquiring control of, or acquiring by merger or purchases of assets, another
savings institution or savings and loan holding company without the prior
written approval of the OTS; (ii) acquiring more than five percent of the issued
and outstanding shares of voting stock of another savings institution or savings
and loan holding company, subject to certain limited exceptions; or (iii)
acquiring and retaining control of a financial institution that does not have
SAIF or BIF insurance of accounts. The HOLA allows the OTS to approve
transactions that result in the creation of multiple savings and loan holding
companies controlling savings institutions located in more than one state in
both supervisory and non-supervisory transactions, subject to the requirement
that, in non-supervisory transactions, the law of the state in which the savings
institution to be acquired is located must specifically authorize the proposed
acquisition, by language to that effect and not merely by implication.
Restrictions relating to service as an officer or director of an unaffiliated
holding company or savings institution also are applicable to the directors and
officers of the Corporation and the Bank under the Depository Institutions
Management Interlocks Act, as amended. At the time of First Federal's conversion
to stock form, Webster agreed to maintain the capital of Webster Bank (as the
predecessor to the Bank), at a level consistent with regulatory requirements.
On November 1, 1995, Webster (which since March 3, 1994 had
been a multiple savings and loan holding company) became a unitary savings and
loan holding company upon the consummation of the merger of First Federal and
Bristol, renamed as Webster Bank. As a unitary savings and loan holding company,
Webster is generally not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Bank continues to
qualify as a qualified thrift lender. See "Bank Regulation -- Qualified Thrift
Lender Requirement."
If in the future Webster again becomes a multiple savings and
loan holding company, the Corporation and its subsidiaries would be prohibited
from engaging in any activities other than (I) furnishing or providing
management services for its savings institution subsidiaries; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing or liquidating
assets owned or acquired from the institution; (iv) holding or managing
properties used or occupied by its savings institution subsidiaries; (v) acting
as trustee under deeds of trust; (vi) engaging in any other activity in which
multiple savings and loan holding companies were authorized by regulation to
engage as of March 5, 1987; and (vii) engaging in any activity that the Federal
Federal Reserve by regulation has determined to be permissible for bank holding
companies under section 4(C) of the Bank Holding Company Act of 1956, as amended
(the "BHCA"), unless the OTS, by regulation, prohibits or limits any such
activity for savings and loan holding companies.
The activities in which multiple savings and loan holding
companies were authorized by regulation to engage in as of March 5, 1987
consisted of activities that generally are similar to those permitted for
service corporations of federally chartered savings institutions and include,
among other things, various types of lending activities, furnishing or
performing clerical, accounting and internal audit services primarily for
affiliates, certain real estate development and leasing activities and
underwriting credit life or credit health and accident insurance in connection
with extensions of credit by institutions or their affiliates.
The activities that the Federal Reserve by regulation has
permitted for bank holding companies under section 4(C) of the BHCA generally
consist of those activities that the Federal Reserve has found to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto, and include, among other things, various lending activities, certain
real and personal property leasing activities, certain securities brokerage
activities, acting as an investment or financial advisor subject to certain
conditions, and providing management consulting to depository institutions
subject to certain conditions. OTS regulations do not limit the extent to which
savings and loan holding companies and their non-savings institution
subsidiaries may engage in activities
26
<PAGE>
permitted for bank holding companies pursuant to section 4(c)(8) of the BHCA,
although prior OTS approval is required to commence any such activity.
Federal Savings Bank Regulation
General. Webster Bank, as a federally chartered savings bank,
is subject to supervision and regulation by the OTS. OTS regulations generally
provide that savings institutions must be examined no less frequently than every
12 months, unless the savings institution (I) has assets of less than $250
million; (ii) is well capitalized, (iii) was found to be well-managed and its
composite condition was found to be outstanding (or good, if the savings
institution had total assets of not more than $100 million) during its last
examination; (iv) is not subject to a formal enforcement proceeding or an order
from the FDIC or another banking agency; and (v) has not undergone a change of
control during the previous 12-month period, and then it must be examined no
less frequently than every 18 months. The Bank also is subject to assessments by
the OTS to cover the costs of such examinations.
The OTS is authorized to promulgate regulations to ensure the
safe and sound operations of savings institutions and may impose various
requirements and restrictions on the activities of savings institutions. The
HOLA requires that all regulations and policies of the OTS for the safe and
sound operations of savings institutions are to be no less stringent than those
established by the Office of the Comptroller of Currency (the "OCC") for
national banks. The Bank also is subject to regulation, supervision and
examination by the FDIC, in its capacity as administrator of the BIF and the
SAIF, to ensure the safety and soundness of both the BIF and the SAIF. See
"Insurance of Deposits" below. The OTS and FDIC may revalue the assets of the
Bank based upon appraisals, and require establishment of specific reserves in
amounts equal to the difference between such revaluation and the book value of
the assets. The OTS and FDIC also are authorized to promulgate regulations to
ensure the safe and sound operations of savings institutions and may impose
various requirements and restrictions on the activities of insured depository
institutions subject to their jurisdiction.
Capital Requirements. OTS regulations require that savings
institutions maintain (I) "core capital" in an amount of not less than 3% of
total assets, (ii) "tangible capital" in an amount not less than 1.5% of total
assets, and (iii) a level of risk-based capital equal to 8% of risk-weighted
assets. Capital standards established by the OTS for savings institutions must
generally be no less stringent than those applicable to national banks. Under
OTS regulations, the term "core capital" generally includes common stockholders'
equity, noncumulative perpetual preferred stock and related surplus, and
minority interests in the equity accounts of consolidated subsidiaries less
unidentifiable intangible assets (other than certain amounts of supervisory
goodwill) and certain investments in subsidiaries plus 90% of the fair market
value of readily marketable purchased mortgage servicing rights ("PMSRs"),
subject to certain conditions. "Tangible capital" generally is defined as core
capital minus intangible assets and certain investments in subsidiaries, except
PMSRs.
In determining total risk-weighted assets for purposes of the
risk-based requirement, (I) each off-balance sheet asset must be converted to
its on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset), (ii) the credit equivalent amount of each
off-balance sheet asset and each on-balance sheet asset must be multiplied by a
risk factor ranging from 0% to 200% (again depending upon the nature of the
asset) and (iii) the resulting amounts are added together and constitute total
risk-weighted assets. "Total capital," for purposes of the risk-based capital
requirement, equals the sum of core capital plus supplementary capital (which,
as defined, includes the sum of, among other items, perpetual preferred stock
not counted as core capital, limited life preferred stock, subordinated debt,
and general loan and lease loss allowances up to
27
<PAGE>
1.25% of risk-weighted assets) less certain deductions. The amount of
supplementary capital that may be counted towards satisfaction of the total
capital requirement may not exceed 100% of core capital, and OTS regulations
require the maintenance of a minimum ratio of core capital to total risk-
weighted assets of 4%.
OTS regulations were amended to include an interest-rate risk
component to the risk- based capital requirement. However, the OTS has delayed
implementation of this amended regulation indefinitely. Under the regulation, as
amended, an institution would be 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%. This new requirement
is not expected to have any material effect on the ability of the Bank to meet
the risk-based capital requirement.
Capital requirements higher than the generally applicable
minimum requirement may be established for a particular savings institution if
the OTS determines that the institution's capital was or may become inadequate
in view of its particular circumstances.
As of December 31, 1995, the Bank had a ratio of tier 1 or
core capital to adjusted total assets of 5.99%; a ratio of tier 1 or core
capital to total risk-weighted assets of 12.04%; and a ratio of total capital to
total risk-weighted assets of 13.30%. Webster's consolidated shareholders'
equity at December 31, 1995 was $210 million or 6.5% of total assets. Under the
OTS's prompt corrective action regulations, as shown above, at December 31,
1995, the Bank was classified as well capitalized based on its capital ratios.
Prompt Corrective Action. Pursuant to the FDIA, the federal
banking agencies established for each capital measure levels at which an insured
institution is deemed to be well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Federal banking agencies are required to take prompt
corrective action with respect to insured institutions that fall below minimum
capital standards. The degree of required regulatory intervention for
institutions that are not at least adequately capitalized is tied to an insured
institution's capital category, with increasing scrutiny and more stringent
restrictions, including the appointment of a receiver, being imposed as an
institution's capital declines. An insured institution that falls below the
minimum capital standards must submit a capital restoration plan and could be
subject to operating restrictions.
The prompt corrective action regulations are generally based
upon an institution's capital ratios. Under the prompt corrective action
regulation adopted by the OTS, a savings institution will be considered to be
(I) "well capitalized" if the institution has a total risk-based capital ratio
of 10% or greater, a Tier 1 or core capital to risk-weighted assets ratio of 6%
or greater, and a leverage ratio of 5% or greater (provided that the institution
is not subject to an order, written agreement, capital directive or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure); (ii) "adequately capitalized" if the institution has a
total risk- based capital ratio of 8% or greater, a Tier 1 or core capital to
risk-weighted assets ratio of 4% or greater, and a leverage ratio of 4% or
greater (3% or greater if the institution is rated composite 1 in its most
recent report of examination); (iii) "undercapitalized" if the institution has a
total risk-based capital ratio that is less than 8%, a Tier 1 or core capital to
risk-weighted assets ratio of less than 4%, or a leverage ratio that is less
than 4% (3% if the institution is rated composite 1 in its most recent report of
examination); (iv) "significantly undercapitalized" if the institution has a
total risk- based capital ratio that is less than 6%, a Tier 1 or core capital
to risk-weighted assets ratio that is less than 3%, or a leverage ratio that is
less than 3%; and (v) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is less than or equal to 2%. The
prompt corrective action regulations also permit the OTS to determine that a
savings institution should be classified in a lower category based on other
information, such as the institution's examination report, after written notice.
28
<PAGE>
An institution that is not well capitalized is prohibited from
accepting deposits through a deposit broker. An adequately capitalized
institution , however, can apply for a waiver to accept brokered deposits.
Institutions that receive a waiver are subject to limits on the rates of
interest they may pay on brokered deposits. Undercapitalized institutions are
prohibited from offering rates of interest on insured deposits that
significantly exceed the prevailing rate in their normal market area or the area
in which the deposits would otherwise be accepted. Institutions classified as
undercapitalized are precluded from increasing their assets, acquiring other
institutions, establishing additional branches, or engaging in new lines of
business without an approved capital plan and an agency determination that such
actions are consistent with the plan. Institutions that are significantly
undercapitalized may be required to take one or more of the following actions:
(I) raise additional capital so that the institution will be adequately
capitalized; (ii) be acquired by, or combined with, another institution if
grounds exist for appointing a receiver; (iii) refrain from affiliate
transactions; (iv) limit the amount of interest paid on deposits to the
prevailing rates of interest in the region where the institution is located; (v)
further restrict asset growth; (vi) hold a new election for directors, dismiss
any director or senior executive officer who held office for more than 180 days
immediately before the institution became undercapitalized, or employ qualified
senior executive officers; (vii) stop accepting deposits from correspondent
depository institutions; and (viii) divest or liquidate any subsidiary that the
OTS determines is a significant risk to the institution.
Critically undercapitalized institutions are subject to
additional restrictions. No later than 90 days after a savings institution
becomes critically undercapitalized, the Director of the OTS is required to
appoint a conservator or receiver for the institution, unless the Director
determines, with the concurrence of the FDIC, that other action would better
achieve the purpose of prompt corrective action. The Director also must make
periodic redeterminations that the alternative action continues to be justified
no less frequently than every 90 days. The Director is required to appoint a
receiver if the institution remains critically undercapitalized nine months
later, unless the institution is in compliance with an approved capital plan and
the OTS and FDIC certify that the institution is viable.
Any company that controls an "undercapitalized" institution
must guarantee that the institution will comply with the plan and provide
appropriate assurances of performance in connection with the submission of a
capital restoration plan by the depository institution. The aggregate liability
of any such controlling company under such guaranty is limited to the lesser of
(I) 5% of the institution's assets at the time it became undercapitalized; or
(ii) the amount necessary to bring the institution into capital compliance at
the time the institution fails to comply with the terms of its capital plan.
Safety and Soundness Guidelines. The federal banking agencies
have prescribed safety and soundness guidelines relating to (I) internal
controls, information systems, and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset
growth; and (vi) compensation and benefit standards for officers, directors,
employees and principal shareholders. Such guidelines impose standards based
upon an institution's asset quality and earnings. The guidelines are intended to
set out standards that the agencies will use to identify and address problems at
institutions before capital becomes impaired. Institutions are required to
establish and maintain a system to identify problem assets and prevent
deterioration of those assets in a manner commensurate with its size and the
nature and scope of their operations. Furthermore, institutions must establish
and maintain a system to evaluate and monitor earnings and ensure that earnings
are sufficient to maintain adequate capital and reserves in a manner
commensurate with their size and the nature and scope of its operation.
Under the guidelines, an institution not meeting one or more
of the safety and soundness guidelines is required to file a compliance plan
with the appropriate federal banking agency. In the event that an institution,
such as the Bank, were to fail to submit an acceptable compliance plan or fail
in any material respect to implement an accepted compliance plan within the
29
<PAGE>
time allowed by the agency, the institution would be required to correct the
deficiency and the appropriate federal agency would also be authorized to: (I)
restrict asset growth; (2) require the institution to increase its ratio of
tangible equity to assets; (3) restrict the rates of interest that the
institution may pay; or (4) take any other action that would better carry out
the purpose of the corrective action. The Bank was in compliance with all such
guidelines as of December 31, 1995.
Qualified Thrift Lender Requirement. The Bank is deemed to be
a "qualified thrift lender" ("QTL") as long as its "qualified thrift
investments" continue to equal or exceed 65% of its "portfolio assets" on a
monthly average basis in nine out of every 12 months. Qualified thrift
investments generally consist of (I) various housing related loans and
investments (such as residential construction and mortgage loans, home
improvement loans, mobile home loans, home equity loans and mortgage-backed
securities), (ii) certain obligations of the FDIC (including the Federal Savings
and Loan Insurance Corporation and the Resolution Trust Corporation), and (iii)
shares of stock issued by any FHLB, the Federal Home Loan Mortgage Corporation
or the Federal National Mortgage Corporation. In addition, the following assets
may be categorized as qualified thrift investments in an amount not to exceed
20% in the aggregate of portfolio assets: (I) 50% of the dollar amount of
residential mortgage loans originated and sold within 90 days of origination;
(ii) investments in securities of a service corporation that derives at least
80% of its income from residential housing finance; (iii) 200% of loans and
investments made to acquire, develop or construct starter homes or homes in
credit needy areas, subject to certain conditions; (iv) loans for the purchase
or construction of churches, schools, nursing homes and hospitals; and (v)
consumer loans (in an amount up to 20% of portfolio assets). For purposes of the
QTL test, the term "portfolio assets" means the savings institution's total
assets minus goodwill and other intangible assets, the value of property used by
the savings institution to conduct its business, and liquid assets held by the
savings institution in an amount up to 20% of its total assets.
OTS regulations provide that any savings institution that
fails to meet the definition of a QTL must either convert to a bank charter,
other than a savings bank charter, or limit its future investments and
activities (including branching and payments of dividends) to those permitted
for both savings institutions and national banks. Further, within one year of
the loss of QTL status, a holding company of a savings institution that does not
convert to a bank charter must register as a bank holding company and will be
subject to all statutes applicable to bank holding companies. In order for the
Bank to exercise the powers granted to federally chartered savings institutions
and maintain full access to Federal Home Loan Bank advances, The Bank must
continue to meet the definition of a QTL. Webster Bank qualifies as a QTL under
the current test.
Insurance of Deposits. Deposit accounts at the Bank are
insured by the FDIC up to a maximum of $100,000 per insured depositor. The Bank
is a BIF member institution with approximately 63% of its deposits assessed at
BIF premium rates and approximately 37% at SAIF rates as of December 31, 1995.
Deposit insurance premiums are paid to the FDIC on a quarterly basis.
The FDIC has established a risk-based deposit insurance
premium assessment system, pursuant to which BIF and SAIF member institutions
both pay deposit insurance assessment rates, depending on the risk
classification assigned to each institution. The FDIC places each institution
into one of nine assessment risk classifications based on the institution's
capital and supervisory classification.
Deposit insurance premiums for the BIF and the SAIF are set to
facilitate each fund achieving its designated reserve ratio. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premium rates for all but the riskiest
institutions. Effective January 1, 1996, BIF deposit insurance premiums for well
capitalized banks were further reduced to the statutory minimum of $2,000 per
institution per year. Because the SAIF remains significantly below its
designated reserve ratio, SAIF deposit
30
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insurance premiums were not reduced and remain at 0.23% to 0.31% of deposits on
an annual basis, based upon an institution's supervisory evaluations and capital
levels.
The current financial condition of the SAIF has resulted in
proposed legislation to recapitalize the SAIF through a one-time special
assessment (held by an institution of approximately 80 cents to 85 cents per
$100 of assessable SAIF deposits as of March 31, 1995, subject to certain
limited adjustments). If the special assessment is enacted, the one-time
assessment would apply to approximately $882 million of assessable SAIF deposits
at The Bank. Certain adjustments to the special assessment applicable to the
Bank have been proposed that will reduce the amount of the special assessment by
20 percent. The Bank qualifies for a proposed adjustment, because on June 30,
1995, less than 50 percent of The Bank's deposits were insured by the SAIF.
After the special assessment, if SAIF achieves its designated reserve ratio,
SAIF premium rates would then become the same as BIF rates. Proposed legislation
also contemplates a merger of the SAIF into the BIF, which would require
separate legislation. The Bank is unable to predict whether the proposed
legislation will be enacted or the amount or the precise retroactive date of any
one-time assessment or the deposit insurance premium rates that would ultimately
apply to assessable SAIF deposits.
Legislation also has been proposed that could eliminate the
federal savings institution charter. If such legislation is enacted, The Bank
would be required to convert its federal savings bank charter to either a
national bank charter or to a Connecticut depository institution charter.
Pending legislation may provide relief as to recapture of the bad debt deduction
for federal tax purposes that otherwise would be applicable if The Bank
converted its savings bank charter to a commercial bank charter, provided that
The Bank meets a proposed residential loan origination requirement. Pending
legislation also may result in Webster becoming regulated at the holding company
level by the 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 relief as to bad debt deductions
previously taken.
FDIC insurance of deposits may be terminated by the FDIC,
after notice and hearing, upon a finding by the FDIC that the insured bank has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
condition imposed by, or written agreement with, the FDIC. Additionally, if
insurance termination proceedings are initiated against a bank, the FDIC may
temporarily suspend insurance on new deposits received by the institution under
certain circumstances.
Capital Distributions. An OTS rule imposes limitations on all
capital distributions by savings institutions (including dividends, stock
repurchases and cash-out mergers). Under the current rule, a savings institution
is classified as a tier 1 institution, a tier 2 institution or a tier 3
institution, depending on its level of regulatory capital both before and after
giving effect to a proposed capital distribution. Under a proposed rule, the OTS
would conform its three classifications to the five capital classifications set
forth under the prompt corrective action regulations. Under such proposal,
institutions that are at least adequately capitalized would still be required to
provide prior notice. Well capitalized institutions could make capital
distributions without prior regulatory approval in specified amounts in any
calendar year.
A tier 1 institution (i.e., one that both before and after a
proposed capital distribution has net capital equal to or in excess of its
capital requirements may, subject to any otherwise applicable statutory or
regulatory requirements or agreements entered into with the regulators, make
capital distributions in any calendar year up to 100% of its net income to date
during the calendar
31
<PAGE>
year plus the amount that would reduce by one-half its "surplus capital ratio"
(ie., the percentage by which the institution's capital-to-assets ratio exceeds
the ratio of its fully phased-in capital requirement to its assets) at the
beginning of the calendar year. No regulatory approval of the capital
distribution is required, but prior notice must be given to the OTS.
A tier 2 institution (ie., one that both before and after a
proposed capital distribution has net capital equal to its then-applicable
minimum capital requirement but which fails to meet its fully phased-in capital
requirement either before or after the distribution) may, after prior notice but
without the approval of the OTS, make capital distributions of up to: (1) 75% of
its net income over the most recent four quarter period if it satisfies the
risk-based capital standard applicable to it as of January 1, 1993 computed
based on its current portfolio; or (ii) 50% of its net income over the most
recent four quarter period if it satisfies the risk-based capital standard
applicable to it as of January 1, 1991 computed based on its current portfolio.
In calculating an institution's permissible percentage of capital distributions,
previous distributions made during the previous four quarter period must be
included. Tier 2 institutions may not make capital distributions in excess of
the above limitations without the prior written approval of the OTS.
A tier 3 institution (ie., one that either before or after a
proposed capital distribution fails to meet As then-applicable minimum capital
requirement) may not make any capital distributions without the prior written
approval of the OTS. In addition, the OTS may prohibit a proposed capital
distribution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. Also, an institution meeting the tier 1 criteria which has been
notified that it needs more than normal supervision will be treated as a tier 2
or tier 3 institution, unless the OTS deems otherwise.
The FDIA further prohibits an insured depository institution
from declaring any dividend, making any other capital distribution, or paying a
management fee to a controlling person if, following the distribution or
payment, the institution would be classified as undercapitalized, significantly
undercapitalized or critically undercapitalized. For purposes of the OTS's
capital distribution regulation, The Bank was treated as a tier 1 institution
and had approximately $85.1 million available under such regulation for the
payment of dividends as of December 31, 1995.
Community Reinvestment Act. Under the Community Reinvestment
Act (the "CRA") and the implementing OTS regulations, which were amended in 1995
to provide for a performancebased evaluation system, a savings institution has a
continuing and affirmative obligation to help meet the credit needs of its local
communities, including low and moderate-income neighborhoods, consistent with
the safe and sound operation of the institution. The CRA requires the board of
directors of savings institutions, such as the Bank, to adopt a CRA statement
for each assessment area that, among other things, describes its efforts to help
meet community credit needs and the specific types of credit that the
institution is willing to extend. In connection with its examination of a
savings institution, the OTS is required to take into account the institution's
record of meeting the credit needs of its community in determining whether to
grant approval for certain types of applications including mergers and
acquisitions. The Bank's current CRA rating is "outstanding".
Liquidity. Federal savings banks, such as the Bank, are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain bankers' acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations)
equal to a monthly average of not less than a specified percentage of the
average daily balance of the savings institution's net withdrawable deposits
plus short-term borrowings under OTS regulations. This liquidity requirement may
be changed from time to time by the OTS to any amount within the range of 4% to
10% depending upon economic' conditions and the deposit flows of member
institutions, and currently is 5.0%. OTS regulations also require each savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently
32
<PAGE>
1%) of the total of the average daily balance of its net withdrawable deposits
and short-term borrowings. At December 31, 1995, the Bank was in compliance with
these liquidity requirements.
Loans to One Borrower Limitations. Savings institutions must
generally comply with the loans- to-one-borrower limitations applicable to
national banks pursuant to HOLA. National banks generally may not make loans to
a single borrower in excess of 15% of their unimpaired capital and unimpaired
surplus, plus an additional 10% of unimpaired capital and unimpaired surplus for
loans secured by readily marketable collateral (which, as defined, does not
include real property). The HOLA provides exceptions from the generally
applicable national bank limits, under which a savings institution may make
loans to one borrower in excess of such limits under one of the following
circumstances: (I) for any purpose, in any amount not to exceed $500,000; (ii)
to develop domestic residential housing units, in an amount not to exceed the
lesser of $30 million or 30% of the savings institution's unimpaired capital and
unimpaired surplus, provided other conditions are satisfied; or (iii) to finance
the sale of real property which it owns as a result of foreclosure, in an amount
not to exceed 50% of the savings institution's unimpaired capital and unimpaired
surplus. Pursuant to its authority to impose more stringent requirements on
savings institutions to protect safety and soundness, the OTS has promulgated a
rule limiting loans to one borrower to finance the sale of real property
acquired in satisfaction of debts to 15% of unimpaired capital and surplus. The
rule provides that purchase money mortgages received by a savings institution to
finance the sale of such real property do not constitute "loans" (provided the
savings institution is not placed in a more detrimental position holding the
note than holding the real estate) and, therefore, are not subject to the
loans-to-one-borrower limitation. At December 31, 1995, under the lending limits
established by HOLA, the maximum amount that the Bank could lend to one borrower
was, in general, limited to $ 28.9 million.
Commercial Loans. The Bank is authorized to invest in loans
for commercial, corporate, business or agricultural purposes in an amount not to
exceed 10% of its total assets under the HOLA. At December 31, 1995, The Bank's
commercial loan portfolio was within the amount permitted by this limitation.
Commercial Real Property Loans. The aggregate amount of
commercial mortgage loans that a federal savings institution may make may not be
in excess of 400% of the savings institution's capital pursuant to the HOLA. The
revised limit, however, does not require the divestiture of loans made prior to
enactment of the FIRREA in 1989. The OTS has the authority to grant exceptions
to the limit if the additional amount will not pose a significant risk to the
safe or sound operation of the savings institution involved, and is consistent
with prudent operating practices. At December 31, 1995, the Bank's commercial
mortgage loan portfolio was within the amount permitted by this limitation.
Limitation on Certain Investments. As a federally chartered
savings institution, the Bank is generally prohibited from investing directly in
equity securities and real estate (other than that used for offices and related
facilities or acquired through, or in lieu of, foreclosure or on which a
contract purchaser has defaulted). In addition, the HOLA limits the aggregate
investment by savings institutions in certain investments, including service
corporations. At December 31, 1995, the Bank was in compliance with such
requirements and limitations.
Activities of Subsidiaries. A savings institution seeking to
establish a new subsidiary, acquire control of an existing company (after which
it would be a subsidiary), or conduct a new activity through a subsidiary, must
provide 30 days prior notice to the FDIC and to the OTS and conduct any
activities of the subsidiary in accordance with regulations and orders of the
OTS. Moreover, the OTS has the power to require a savings institution to divest
any subsidiary or terminate any activity conducted by a subsidiary that the OTS
determines is a serious threat to the financial safety, soundness or stability
of such savings institution or is otherwise inconsistent with sound banking
practices.
33
<PAGE>
Transactions with Affiliates Restrictions. Transactions
engaged in by a savings institution or one of its subsidiaries with affiliates
of the savings institution generally are subject to the affiliate transaction
restrictions contained in Sections 23A and 23B of the Federal Reserve Act in the
same manner and to the same extent as such restrictions apply to transactions
engaged in by a member bank or one of its subsidiaries with affiliates -of the
member bank. Section 23A of the Federal Reserve Act imposes both quantitative
and qualitative restrictions on transactions engaged in by a member bank or one
of its subsidiaries with an affiliate, while Section 23B of the Federal Reserve
Act requires, among other things that all transactions with affiliates be on
terms substantially the same, and at least as favorable to the member bank or
its subsidiary, as the terms that would apply to, or would be offered in, a
comparable transaction with an unaffiliated party. Exemptions from, and waivers
of, the provisions of Sections 23A and 23B of the Federal Reserve Act may be
granted only by the Federal Reserve. The HOLA and OTS regulations promulgated
thereunder contain other restrictions on loans and extension of credit to
affiliates, and the Director of the OTS is authorized to impose additional
restrictions on transactions with affiliates if the Director determines such
restrictions are necessary to ensure the safety and soundness of any savings
institution. Current OTS regulations are similar to Sections 23A and 23B of the
Federal Reserve Act.
Regulatory Revision., Each federal banking agency is
required to implement a comprehensive review of its regulations to eliminate
duplicative, unduly burdensome and unnecessary regulations in accordance with
the Community Development and Regulatory Improvement Act of 1994 (the "Community
Development Act"), The OTS has announced that it will review each of Rs
regulations to determine if: (1) the regulation is current; (ii) the regulation
could be eliminated without endangering safety and soundness, diminishing
consumer protection or violating statutory requirements; (iii) the regulation's
subject matter is more suited for a policy statement or handbook guidance; (iv)
the regulation is consistent with the regulation of the other federal banking
agencies; and (v) the regulation is easily understood. Based upon the first part
of this review, in late 1995, the OTS formally deleted eight percent of its
regulations including outdated, duplicative and otherwise necessary regulations.
The OTS also issued a notice of proposed rulemaking
concerning a comprehensive revision to its regulations and policy statements
concerning lending and investments. Under the proposal certain loan
documentation requirements will be replaced by general safety and soundness
standards, commercial loans made by a service corporation will be exempted from
an institution's overall ten percent limit on commercial loans; an institution
will be able to use its own cost-of-funds index in structuring adjustable rate
mortgages, and the 35% of assets limitation on credit card lending will be
eliminated. The OTS has announced that it expects to issue proposals that will
reduce the burdens imposed by its regulations governing, among other things,
subsidiaries, corporate governance and preemption. Similarly, the FDIC has
issued a notice of opportunity for comment with respect to its review of all of
its regulations and written policies.
Federal Reserve System
Savings institutions are required to maintain nonearning
reserves against their transaction accounts (primarily NOW and regular checking
accounts) and nonpersonal time deposits (those which are transferable or held by
a person other than a natural person) with an original maturity of less than
1-1/2 years under certain Federal Reserve regulation. At December 31, 1995, The
Bank was in compliance with these requirements. These reserves may be used to
satisfy liquidity requirements imposed by the OTS. Because required reserves
must be maintained in the form of vault cash or a noninterest-bearing account at
a Federal Reserve bank, the effect of this reserve requirement is to reduce the
amount of the institution's interest-earning assets.
The Bank also has the authority to borrow from the Federal
Reserve "discount window," if it has exhausted all FHL Bank sources. Federal
Reserve Banks are prohibited from
34
<PAGE>
providing a discount window advance to an "undercapitalized" institution for
more than 60 days in a 120-day period, except in limited circumstances.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12 regional FHL
Banks, each subject to supervision and regulation by the Federal Housing Finance
Board (the "FHFB"). The FHL Banks provide a central credit facility for member
savings institutions. The Bank, as a member of the FHL Bank of Boston, is
required to own shares of capital stock in that FHL Bank in an amount at least
equal to one percent of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) from the FHL Bank, whichever
is greater. The Bank was in compliance with this requirement. The maximum amount
that the FHL Bank of Boston will advance fluctuates from time to time in
accordance with changes in policies of the FHFB and the FHL Bank of Boston, and
the maximum amount generally is reduced by borrowings from any other source. In
addition, the amount of FHL Bank advances that a savings institution may obtain
will be restricted in the event the institution fails to constitute a QTL. See
"Federal Savings Bank Regulation -- Qualified Thrift Lender Requirement."
The FHFB has promulgated regulations that establish standards of
community service or support as a basis for FHL Bank members to maintain
continued access to long-term advances. Pursuant to the regulations, each FHL
Bank member is required to provide a Community Support Statement ("CSS") to its
FHLB for review on a schedule established by the FHFB. The CCS is to include
information regarding the members Community Reinvestment Act evaluation,
evidence of assistance to first-time home buyers, documentation of any judgments
based on violation of the Fair Housing and Equal Credit Opportunity Acts, and
evidence of community support. The FHFB reviews certain of the statements and
will require a Community Support Action Plan ("CSAP") if it disapproves of the
CSS. If the member has failed to submit a CSS, submits a CSAP that is not
approved, or fails to substantially meet its CSAP within one year, the FHFB may
restrict the members access to long-term advances.
Taxation
Federal. Webster, on behalf of itself and its subsidiaries,
files a calendar tax year consolidated federal income tax return. Webster and
its subsidiaries report their income and expenses using the accrual method of
accounting.
Savings institutions are generally taxed in the same manner as
other corporations. Unlike other corporations, however, qualifying savings
institutions that meet certain definitional tests relating to the nature of
their supervision, income, assets and business operations are allowed to
establish a reserve for bad debts and for each tax year are permitted to deduct
additions to that reserve for losses on "qualifying real property loans" using
the more favorable of the following two alternative methods: (1) a method based
on the institution's actual loss experience (the "experience method") or (ii) a
method based on a specified percentage of an institution's taxable income (the
"percentage of taxable income method"). "Qualifying real property loans" are, in
general, loans secured by interests in improved real property. The addition to
the reserve for losses on nonqualifying real property loans must be computed
under the experience method.
Under the percentage of taxable income method, qualifying
institutions may deduct up to 8% of their taxable income after certain
adjustments and subject to the limitations discussed below. The net effect of
the percentage of taxable income method deduction is that the maximum effective
federal income tax rate on income computed without regard to actual bad debts
and certain other factors for qualifying institutions is 32.20%
35
<PAGE>
The amount of the bad debt deduction that savings institutions
such as the Bank may claim with respect to additions to its reserve for bad
debts is subject to certain limitations. First, the percentage of taxable income
or experience method deduction will be eliminated entirely, the existing
reserves will be recaptured into taxable income and the institution will be
permitted a deduction only for specific charge-offs, unless at least 60% of the
savings institution's assets fall within certain designated categories. Second,
the bad debt deduction attributable to "qualifying real property loans" cannot
exceed the greater of (1) the amount deductible under the experience method or
(ii) the amount which, when added to the bad debt deduction for nonqualifying
loans, equals the amount by which 12% of the sum of the total deposits or
withdrawable accounts at the end of the taxable year exceeds the sum of the
surplus, undivided profits and reserves at the beginning of the taxable year.
Third, the amount of the bad debt deduction attributable to qualifying real
property loans computed using the percentage of taxable income method is
permitted only to the extent that the institution's reserve for losses on
qualifying real property loans at the close of the taxable year, taking into
account the addition to that reserve for that taxable year, does not exceed 6%
of such loans outstanding at such time. Fourth, the deduction under the
percentage of taxable income method is reduced, but not below zero, by the
amount of the addition to reserves for losses on nonqualifying loans for the
taxable year. Finally, a savings institution that computes its tax bad debt
deduction using the percentage of taxable income method and files its federal
income tax return as part of a consolidated group is required to reduce
proportionately its taxable income for losses attributable to activities of
nonsavings institution members of the consolidated group that are "functionally
related" to the savings institution member. The savings institution member is
permitted, however, to proportionately increase its taxable income in subsequent
years to recover any such reduction to the extent the nonsavings institution
members realize income in subsequent years from their "functionally related"
activities. Webster does not expect that these various restrictions will operate
to limit significantly the amount of its otherwise allowable bad debt deductions
in the near future.
At December 31, 1995, the Bank had tax bad debt reserves of
approximately $16.4 million. To the extent that (1) the reserves for losses on
qualifying real property loans established by the Bank, using the percentage of
taxable income method, exceed the amount that would have been allowed under the
experience method and (ii) the Bank makes distributions to its shareholder that
are considered to result in withdrawals from that institution's excess bad debt
reserve, then the amounts considered to be withdrawn will be included in that
institution's taxable income. The amount considered to be withdrawn by a
distribution will be the amount of the distribution plus the amount necessary to
pay the federal income tax with respect to the withdrawal. Dividends paid out of
the Bank's current or accumulated earnings and profits as calculated for federal
income tax purposes, however, will not be considered to result in withdrawals
from the Bank's bad debt reserves. Distributions in excess of the Bank's current
and accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation of the foregoing institutions,
will be considered to result in withdrawals from the Banks bad debt reserves.
Depending on the composition of its items of income and expense,
a savings institution may be subject to the alternative minimum tax. For tax
years beginning after 1986, a savings institution must pay an alternative
minimum tax equal to the amount (if any) by which 20% of alternative minimum
taxable income ("AMTI"), as reduced by an exemption varying with AMTI, exceeds
the regular tax due. AMTI equals regular taxable income increased or decreased
by certain adjustments and increased by certain tax preferences, including
depreciation deductions in excess of those allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and, for tax years after 1989, 75% of
the excess of adjusted current earnings over AMTI. AMTI may be reduced only up
to 90% by net operating loss carryovers, but the payment of altemative minimum
tax will give rise to a minimum tax credit which will be available with an
indefinite carryforward period, to reduce federal income taxes of the
institution in future years (but
36
<PAGE>
not below the level of alternative minimum tax arising in each of the
carryforward years). See also 'Bank Regulation -- Insurance of Deposits."
Webster's federal income tax returns have been examined by the
Internal Revenue Service for tax years through 1990 and are currently under
examination by the Internal Revenue Service for tax years 1991 through 1993.
State. State income taxation is in accordance with the
corporate income tax laws of Connecticut and other states on an apportioned
basis. For the State of Connecticut the Bank and its subsidiaries are required
to pay taxes Linder the larger of two methods but no less than the minimum tax
of $250 per entity. Method one is 11.25% (scheduled to decrease to 7.5% by 2000)
of the year's taxable income (which, with certain exceptions, is equal to
taxable income for federal purposes) or method two, (additional tax on capital)
an amount equal to 3 and 1/10 mills per dollar on its average capital and a
special rule for banks to calculate its additional tax base is an amount equal
to 4% of the amount of interest or dividends credited by the Bank on savings
accounts of depositors or account holders during the preceding taxable year,
provided that, in determining such amount, interest or dividends credited to the
savings account of a depositor or account holder are deemed to be the lesser of
the actual interest or dividends credited or the interest or dividend that would
have been credited if it had been computed and credited at the rate of
one-eighth of 1 % per annum. In addition, a surtax was imposed in prior years
equal to 20% (reduced to 10% in 1992 and eliminated in 1993) of the tax
calculated as set forth in the preceding sentence (excluding the $250 minimum
tax) without reduction of the tax so calculated by the amount of any credit
against the tax.
Item 2. Properties At December 31, 1995 (after giving effect to the consummation
from the Shawmut Transaction on February 16, 1996), Webster had 29 banking
offices in New Haven County, 29 banking offices in Hartford County, two banking
offices in Fairfield County, two banking offices in Litchfield County and two
banking offices in Middlesex County. Twenty of the banking offices are related
to the Shawmut Transaction and so are noted in the following banking office
table.
37
<PAGE>
The following table sets forth certain information concerning
the banking offices of Webster at December 31, 1995 after giving effect to the
consummation of the Shawmut Transaction on February 16, 1996.
<TABLE>
<CAPTION>
Lease Lease
Year Owned or Expiration Renewal
Location Opened Leased Data Option
- -------- ------ ------ ---- ------
<S> <C> <C> <C> <C>
Webster Plaza, Waterbury, CT 1978 Owned --
Naugatuck Valley Mall, Waterbury, CT 1969 Leased 2000
Chase Avenue at Wigwam Ave, Waterbury, CT 1976 Owned --
364 Reidville Drive, Waterbury, CT 1976 Building-Owned --
Land-Leased 1997
670 Wolcott Street, Mattatuck Plaza, 1984 Building-Owned --
Waterbury, CT Land-Leased 2004 One 10-year option
656 Main Street, Watertown, CT 1959 Owned --
544 Straits Turnpike, Watertown, CT 1985 Leased 1998 Three 5-year options
Southbury Plaza, Southbury, CT 1979 Leased 2004 One 10-year option
45 Waterbury Road, Prospect, CT 1988 Owned --
359 Queen Street, Southington, CT 1989 Leased 1997 One 5-year option
145 Highland Avenue, Cheshire, CT 1990 Leased 2005 One 5-year option
66 North Main Street, Suffield, CT 1991 Owned --
6 National Drive, Windsor Locks, CT 1991 Leased 1996 Two 3-year options
24 Dexter Plaza, Windsor Locks, CT 1991 Leased 1998 One 5-year option
561 Hazard Avenue, Enfield, CT 1991 Owned --
Route 140, East Windsor, CT 1991 Leased Monthly Negotiated
1 South Main Street, Branford, CT 1992 Owned
922 South Main St., Cheshire, CT 1992 Building-Owned --
Land-Leased 2013 Two 33-year options
630 New Haven, Ave., Derby, CT 1992 Leased 2001 Five 5-year options
260 Main Street, East Haven, CT 1992 Owned --
1177 Post Road, Fairfield, CT 1992 Owned
2290 Whitney Ave., Hamden, CT 1992 Owned
5 Helen St., Hamden, CT 1992 Owned
1227 Whitney Ave., Hamden, CT 1992 Owned
100 Broad St., Milford, CT 1992 Owned
314 Merwin Ave., Milford, CT 1992 Owned
80 Elm St., New Haven, CT 1992 Owned
894 Whalley Ave., New Haven, CT 1992 Owned --
70 Washington Ave., North Haven, CT 1992 Leased 2009 Three 5-year options
247 Boston Post Rd., Orange, CT 1992 Owned --
534 Campbell Ave., West Haven, CT 1992 Owned --
28 Durham Rd., Madison, CT 1995 Leased 2000 One 5-year option
733 Rubber Avenue, Naugatuck, CT 1994 Building-Owned --
Land-Leased 2087
575 Farmington Ave., Bristol, CT* 1994 Leased 1996 One 5-year option
647 Farmington Ave., Bristol, CT 1994 Leased 2007 One 10-year option
761 Pine St., Forestville, CT 1994 Leased 1996 One 5-year option
150 Main St., Bristol, CT 1994 Owned --
51 East Main Street, Plainville, CT 1994 Owned
North Riverside Avenue, Terryville, CT 1994 Owned
375 Bridgeport, Shelton, CT 1995 Owned
75 Tremont Street, Ansonia, CT 1995 Owned
200 Division Street, Ansonia, CT 1995 Owned
696 Amity Road, Bethany, CT 1995 Owned
60 Oxford Road, Oxford, CT 1995 Owned
427 Howe Avenue, Shelton, CT 1995 Owned
40 Webster Square, Berlin CT*' 1996 Owned --
594 Farmington Avenue, Bristol, CT** 1996 Leased 2006 Two 5-year options
5 Coles Road, Cromwell, CT*' 1996 Leased 2004
1085 Main Street, East Hartford, CT** 1996 Owned --
38
<PAGE>
50 Freshwater Blvd., Enfield, CT** 1996 Leased 2009 One 6-year option
High Street, Farmington, CT** 1996 Leased 1999
141 Hebron Avenue, Glastonbury, 1996 Owned --
185 Asylum Avenue, Hartford, CT** 1996 Leased 1998 One 5-year option
410 Homestead Avenue, Hartford, CT** 1996 Owned --
655 Wethersfield Avenue, Hartford, CT** 1996 Leased 1997 One 5-year option
320 Middle Turnpike, Manchester, CT** 1996 Leased 1997 One 5-year option
363 Main Street, Middletown, CT** 1996 Owned --
741 West Main Street, New Britain, CT* 1996 Owned --
3180 Berlin Turnpike, Newington, CT** 1996 Leased 1999
690 Hopmeadow Street, Simsbury, CT** 1996 Owned --
132 Main Street, Southington, CT** 1996 Owned --
1114 New Britain Ave., West Hartford, CT** 1996 Leased 1997 One 5-year option
65 La Salle Road, West Hartford, CT** 1996 Leased 1997 One 5-year option
1039 Silas Deane Hwy., Wethersfield, CT** 1996 Leased 2000 One 5-year option
270 Broad Street, Windsor, CT** 1996 Owned --
<FN>
*Drive thru facility only
** Acquired in the Shawmut Transaction on February 16, 1996.
</FN>
</TABLE>
The total net book value of properties and furniture and fixtures owned
and used for offices at December 31, 1995 was $26.6 million, which includes the
aggregate net book value of leasehold improvements on properties used for
offices of $.8 million at that date. Additional properties and furniture and
fixtures of approximately $6.3 million were acquired on February 16, 1996 in the
Shawmut Transaction, net of one banking office sold in such Transactions.
Item 3. Legal Proceedings
------------------
At December 31, 1995, there were no material pending legal proceedings
to which Webster was a party or to which any of its property was subject.
Item 4. Submission Of Matters To A Vote Of Security Holders
---------------------------------------------------
Not Applicable
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
--------------------------------------------------------------------
The common stock of Webster is traded over-the-counter on the Nasdaq
National Market System under the symbol "WBST."
The following table shows dividends declared and the market price per
share by quarter for 1995 and 1994. Webster increased the quarterly dividend to
$.16 per share in January 1995.
39
<PAGE>
Common Stock (Per Share)
----------------------------------------------
Market Price
----------------------------------
Cash
Dividends End of
Declared Low High Period
-------- --- ---- ------
1995;
Fourth........................ $ .16 $ 24 1/2 $ 29 1/2 $ 29 1/2
Third......................... .16 23 31 26 1/4
Second........................ .16 21 1/4 26 23 7/8
First......................... .16 18 22 1/4 21 1/4
1994:
Fourth........................ $ .13 $ 17 1/4 231/2 18 1/2
Third......................... .13 22 1/2 25 23 1/4
Second........................ .13 18 3/8 24 3/4 22 1/2
First......................... .13 18 1/2 22 1/4 18 1/2
Payment of dividends from Webster Bank to the Webster is subject to
certain regulatory and other restrictions. See "Bank Regulation - Restrictions
on Dividend Payments.' Payment of dividends by Webster on its stock is subject
to various restrictions, none of which is expected to limit any dividend policy
which the Board of Directors may in the future decide to adopt. Under Delaware
law, Webster may pay dividends out of surplus or, in the event there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Dividends may not be paid out of net
profits, however, if the capital of Webster has been diminished to an amount
less than the aggregate amount of capital represented by all classes of
preferred stock.
Item 6. Selected Financial Data
------------------------
Selected financial data for the five years ended December 31, 1995,
consisting of data captioned "Selected Consolidated Financial and Other Data" on
Page 2 of the Corporation's 1995 Annual Report to Shareholders, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
"Management's Discussion and Analysis of Financial Condition and
Results of Operations' on Pages 15 to 27 of the Corporation's 1995 Annual Report
to Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
--------------------------------------------
The required information is incorporated herein by reference from Pages
28 to 59 of the Corporation's 1995 Annual Report to Shareholders.
Item 9. Disagreements on Accounting and Financial Disclosures.
------------------------------------------------------
Not Applicable.
40
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information regarding the directors and executive officers of the
Corporation is omitted from this report as the Corporation has filed its
definitive proxy statement within 120 days after the end of the fiscal year
covered by this Report, and the information included therein is incorporated
herein by reference.
Item 11. Executive Compensation
----------------------
Information regarding compensation of executive officers and directors
is omitted from this Report as the Corporation has filed a definitive proxy
statement within 120 days after the end of the fiscal year covered by this
report, and the information included therein (excluding the Personnel Resources
Committee Report on Executive Compensation and the Comparative Company
Performance information) is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information required by this Item is omitted from this Report as the
Corporation has filed a definitive proxy statement within 120 days after the end
of the fiscal year covered by this Report, and the information included therein
is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information regarding certain relationships and related transactions is
omitted from this Report as the Corporation has filed a definitive proxy
statement within 120 days after the end of the fiscal year covered by this
Report, and the information included therein is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financ ial Statement Schedules, and Reports on Form 8-K
-------------------------------------------------------------------
(a)(1) The following consolidated financial statements of the
Registrant and its subsidiary included in its Annual Report to Shareholders for
the year ended December 31, 1995, are incorporated herein by reference in Item
8. The remaining information appearing in the Annual Report to Shareholders is
not deemed to be filed as part of this Report, except as expressly provided
herein.
Consolidated Statements of Condition - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows -Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits are either filed as part of this Report
or are incorporated herein by reference; references herein to First Federal Bank
now mean Webster Bank:
Exhibit No. 3. Certificate of Incorporation and Bylaws.
41
<PAGE>
3.1 Restated Certificate of Incorporation (incorporated herein by reference
to Exhibit 3(a) to the Corporation's Form 10-K filed on March 27,
1987).
3.2 Certificate of Amendment of Restated Certificate of Incorporation
(incorporated herein by Reference to Exhibit 4.2 to the Corporation's
Registration Statement on Form S-2, Registration No. 33-54980, filed on
November 25, 1992).
3.3 Certificate of Designation for the Series A Cumulative Perpetual
Preferred Stock (incorporated herein by reference from the Registrant's
Form 8-K filed on October 19, 1992).
3.4 Certificate of Designation for the Series B 7-1/2% Cumulative
Convertible Preferred Stock (incorporated herein by reference to
Exhibit 4.4 to Pre-Effective Amendment No. 2 to the Corporation's
Registration Statement on Form S-2, Registration No. 33-54980, filed on
December 22, 1992).
3.5 Bylaws of Registrant (incorporated by reference to Exhibit 3.5 to the
Corporation's Form 10-K filed on March 31, 1995).
3.6 Certificate of Designation for the Series C Participating Preferred
Stock (incorporated by reference to the Corporation's Form 8-K filed on
February 12, 1996).
Exhibit No. 1 0. Material Contracts.
10.1 1986 Stock Option Plan of Webster Financial Corporation (incorporated
herein by reference to Exhibit 10(a) to the Corporation's Form 10-K
filed on March 27, 1987).
10.2 1992 Stock Option Plan of Webster Financial Corporation (incorporated
by reference to Exhibit 10.2 to the Corporation's Form 10-K filed on
March 31, 1994).
10.3 Amendment No. 1 to 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.3 to the Corporation's Form 10-K filed on March 31, 1 994).
10.4 Short-term Incentive Compensation Plan (incorporated by reference to
Exhibit 10.4 to the Corporation's Form 10-K filed on March 31, 1 995).
10.5 Long-Term Incentive Compensation Plan (incorporated by reference to
Exhibit 99.6 to the Corporation's Form 8-K/A filed on November 10,
1993).
10.6 Performance Incentive Plan (incorporated by reference to Exhibit 10.6
to the Corporation's Form 10-K filed on March 31, 1995)
10.7 Amended and Restated Employee Stock Ownership Plan, effective as of
January 1, 1989 (incorporated by reference to Exhibit 10.7 to the
Corporation's Form 10-K filed on March 31, 1995)
10.8 First Federal Bank Deferred Compensation Plan for Directors and
Officers, effective December 7, 1987 (incorporated herein by reference
to Exhibit 10(I) to the Corporation's Form 10-K filed on March 29,
1988).
10.9 Form of Supplemental Retirement Plan for Harold W. Smith (incorporated
herein by reference to Exhibit 10(j) to the Corporation's Form 10-K
filed on March 29, 1 988).
10.10 Form of Stock Option Agreement for Harold W. Smith (initial)
(incorporated herein by reference to Exhibit 10(k) to the Corporation's
Form 10-K filed on March 29, 1988).
42
<PAGE>
10.11 Form of Stock Option Agreement for Executive Officers (initial)
(incorporated herein by reference to Exhibit 10(l) to the Corporation's
Form 10-K filed on March 29, 1 988).
10.12 Form of Stock Option Agreement for Directors (Initial) (incorporated
herein by reference to Exhibit 10(m) to the Corporation's Form 10-K
filed on March 29, 1 988).
10.13 Form of Stock Option Agreement for Employees (1 987) (incorporated
herein by reference to Exhibit 10(n) to the Corporation's Form 10-K
filed on March 29, 1988).
10.14 Form of Incentive Stock Option Agreement (for employees with employment
agreements) (incorporated by reference to Exhibit 10.15 to the
Corporation's Form 10-K filed on March 31, 1994).
10.15 Form of Incentive Stock Option Agreement (for employees with severance
agreements) (incorporated by reference to Exhibit 1 0. 1 6 to the
Corporation's Form 10-K filed on March 3 1, 1994).
10.16 Form of Incentive Stock Option Agreement (for employees with no
employment or severance agreements) (incorporated by reference to
Exhibit 10.17 to the Corporation's Form 10-K filed on March 31, 1994).
10.17 Form of Nonqualified Stock Option Agreement (for employees with
employment agreements) (incorporated by reference to Exhibit 10.18 to
the Corporation's Form 10-K filed on March 31, 1994).
10.18 Form of Non-Incentive Stock Option Agreement (for non-employee
directors).(incorporated by reference to Exhibit 10.19 to the
Corporation's Form 10-K filed on March 31, 1994).
10.19 Form of Non-incentive Stock Option Agreement (for employees with
employment agreements) (incorporated by reference to Exhibit 10.20 to
the Corporation's Form 10-K filed on March 31, 1994).
10.20 Form of Non-incentive Stock Option Agreement (for employees with
severance agreements) (incorporated by reference to Exhibit 10.21 to
the Corporation's Form 10-K filed on March 31, 1994).
10.21 Form of Non-incentive Stock Option Agreement (for employees with no
employment or severance agreements) (incorporated by reference to
Exhibit 10.22 to the Corporation's Form 10-K filed on March 31, 1 994).
10.22 Form of Incentive Stock Option Agreement (for employees)
(revised)(incorporated by reference to Exhibit 10.22 to the
Corporation's Form 10-K filed on March 31, 1995)
10.23 Form of Nonqualified Stock Option Agreement (for employees with
employment agreements) (revised) (incorporated by reference to Exhibit
10.23 to the Corporation's Form 10-K filed on March 31, 1995).
10.24 Form of Nonqualified Stock Option Agreement (immediate vesting)
(incorporated by reference to Exhibit 10.24 to the Corporation's Form
10-K filed on March 31, 1995.
10.25 Form of Nonqualified Stock Option Agreement (for senior officers of
Bristol Mortgage) (incorporated by reference to Exhibit 10.25 to the
Corporation's Form 10-K filed on March 31, 1995).
43
<PAGE>
10.26 Supplemental Retirement Plan for Employees of First Federal Bank, as
amended and restated effective as of October 1, 1994 (incorporated by
reference to Exhibit 10.26 to the Corporation's Form 10-K filed on
March 31, 1 995).
10.27 Consulting Agreement between First Federal Bank and Harold W. Smith,
Jr., dated as of January 1, 1 994 (incorporated herein by reference to
Exhibit 1 0. 1 2 to the Corporation's Form 8-K/A filed on January 13,
1994).
10.28 Employment Agreement between the Corporation, First Federal Bank and
James C. Smith, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.28 to the Corporation's Form 10-K filed on March 31,
1995).
10.29 Employment Agreement between the Corporation, First Federal Bank and
Lee A. Gagnon, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.29 to the Corporation's Form 10-K filed on March 31,
1995).
10.30 Employment Agreement between the Corporation, First Federal Bank and
John V. Brennan, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.30 to the Corporation's Form 10-K filed on March 31,
1995).
10.31 Employment Agreement between the Corporation, First Federal Bank and
Ross M. Strickland, dated as of January 1, 1995 (incorporated by
reference to Exhibit 10.31 to the Corporation's Form 10-K filed on
March 31, 1995).
10.32 Employment Agreement among the Registrant, First Federal Bank and Gary
M. MacElhiney, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.32 to the Corporation's Form 10-K filed on March 31,
1995).
10.33 Purchase and Assumption Agreement among FDIC, Receiver of Suffield
Bank, FDIC and First Federal Bank, dated September 6, 1 991
(incorporated herein by reference to Exhibit 10(m) from the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
10.34 Indemnity Agreement between FDIC and First Federal Bank dated as of
September 6, 1991 (incorporated herein by reference to Exhibit 10(n) to
the Registrant's Annual Report on Form 1 OK for the year ended December
31, 1991).
10.35 Purchase and Assumption Agreement among the FDIC, in its corporate
capacity as receiver of First Constitution Bank, First Federal Bank and
the FDIC, dated as of October 2, 1992 (incorporated herein by reference
from the Registrant's Form 8-K filed on October 19, 1992).
10.36 Amendment No. 1 to Purchase and Assumption Agreement, dated as of
August 8, 1994, between the FDIC and First Federal (incorporated by
reference to Exhibit 10.36 to the Corporation's Form 10-K filed on
March 31, 1 995).
10.37 Indenture, dated as of June 15, 1993, between the Corporation and
Chemical Bank, as Trustee, relating to the Corporation's Senior Notes
due 2000 (incorporated herein by reference to Exhibit 99.5 to the
Corporation's Form 8-K/A filed on November 10, 1993).
10.38 Severance Payment Agreement between the Corporation, Webster Bank and
Peter K. Mulligan dated as of April 17, 1995.
Exhibit No. 13. Annual Report to Shareholders.
Exhibit No. 21. Subsidiaries.
Exhibit No. 24. Consent of KPMG Peat Marwick.
44
<PAGE>
(b) Thefollowing current reports on Form 8-K or amendments thereto on
Form 8 were filed by the Registrar during the last quarter of
fiscal year 1995
(1 Current Report on Form 8-K dated October 10, 1995
(ii) Current Report on Form 8-K dated November 1, 1995
Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
(d) Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WEBSTER FINANCIAL CORPORATION
Registrant
BY: /s/ James C.Smith
----------------------------------
James C. Smith,
Chairman and Chief Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities noted as of March 29, 1996.
By: /s/.John V. Brennan
--------------------------------------------------------
John V. Brennan,
Executive Vice President,
Chief Financial Officer and Treasurer
By: /s/ Peter J. Swiatek
--------------------------------------------------------
Peter J. Swiatek
Controller
By: /s/ Harold W. Smith
--------------------------------------------------------
Harold W. Smith
Director
By: /s/ Joel S. Becker
--------------------------------------------------------
Joel S. Becker
Director
By: /s/ 0. Joseph Bizzozero, Jr
--------------------------------------------------------
0. Joseph Bizzozero, Jr.
Director
45
<PAGE>
By: /s/ Walter R. Griffin
--------------------------------------------------------
Walter R. Griffin
Director
By: /s/ Robert A. Finkenzeller
--------------------------------------------------------
Robert A. Finkenzeller
Director
By: /s/ Marguerite F. Waite
--------------------------------------------------------
Marguerite F. Waite
Director
By: /s/ J. Gregory Hockey
--------------------------------------------------------
J. Gregory Hickey
Director
46
<PAGE>
EXHIBIT INDEX*
Number Description
3.1 Restated Certificate of Incorporation incorporated herein by reference
to Exhibit 3(a) to the Corporation's Form 10-K filed on March 27,
1987).
3.2 Certificate of Amendment of Restated Certificate of Incorporation
(incorporated herein by Reference to Exhibit 4.2 to the Corporation's
Registration Statement on Form S-2, Registration No. 33-54980, filed on
November 25, 1992).
3.3 Certificate of Designation for the Series A Cumulative Perpetual
Preferred Stock (incorporated herein by reference from the Registrant's
Form 8-K filed on October 19, 1 992).
3.4 Certificate of Designation for the Series B 7-1/2% Cumulative
Convertible Preferred Stock (incorporated herein by reference to
Exhibit 4.4 to Pre-Effective Amendment No. 2 to the Corporation's
Registration Statement on Form S-2, Registration No. 33-54980, filed on
December 22, 1992).
3.5 Bylaws of Registrant (incorporated by reference to Exhibit 3.5 to the
Corporation's Form 10-K filed on March 31, 1995).
3.6 Certificate of Designation for the Series C Participating Preferred
Stock (incorporated by reference to the Corporation's Form 8-K filed on
February 12, 1 996).
10.1 1986 Stock Option Plan of Webster Financial Corporation (incorporated
herein by reference to Exhibit 10(a) to the Corporation's Form 10-K
filed on March 27, 1 987).
10.2 1 992 Stock Option Plan of Webster Financial Corporation (incorporated
by reference to Exhibit 10.2 to the Corporation's Form 10-K filed on
March 31, 1994).
10.3 Amendment No. 1 to 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.3 to the Corporation's Form 10-K filed on March 31, 1994).
10.4 Short-term Incentive Compensation Plan (incorporated by reference to
Exhibit 10.4 to the Corporation's Form 10- K filed on March 31, 1 995).
10.5 Long-Term Incentive Compensation Plan (incorporated by reference to
Exhibit 99.6 to the Corporation's Form 8- K/A filed on November 10,
1993).
10.6 Performance Incentive Plan (incorporated by reference to Exhibit 10.6
to the Corporation's Form 10-K filed on March 31, 1995).
10.7 Amended and Restated Employee Stock Ownership Plan, effective as of
January 1, 1989 (incorporated by reference to Exhibit 10.7 to the
Corporation's Form 10-K filed on March 31, 1995).
10.8 First Federal Bank Deferred Compensation Plan for Directors and
Officers, effective December 7, 1 987 (incorporated herein by reference
to Exhibit 10(l) to the Corporation's Form 10-K filed on March 29,
1988).
10.9 Form of Supplemental Retirement Plan for Harold W. Smith (incorporated
herein by reference to Exhibit 10(j) to the Corporation's Form 10-K
filed on March 29, 1 988).
47
<PAGE>
10.10 Form of Stock Option Agreement for Harold W. Smith (initial)
(incorporated herein by reference to Exhibit 10(k) to the Corporation's
Form 10-K filed on March 29, 1988).
10.11 Form of Stock Option Agreement for Executive Officers (initial)
(incorporated herein by reference to Exhibit 10(l) to the Corporation's
Form 10-K filed on March 29, 1988).
10.12 Form of Stock Option Agreement for Directors (initial) (incorporated
herein by reference to Exhibit 10(m) to the Corporation's Form 10-K
filed on March 29, 1988).
10.13 Form of Stock Option Agreement for Employees (1987) (incorporated
herein by reference to Exhibit 10(n) to the Corporation's Form 10-K
filed on March 29, 1988).
10.14 Form of Incentive Stock Option Agreement (for employees with employment
agreements).(incorporated by reference to Exhibit 10.1 5 to the
Corporation's Form 10-K filed on March 31, 1994).
10.15 Form of Incentive Stock Option Agreement (for employees with severance
agreements)(incorporated by reference to Exhibit 10.1 6 to the
Corporation's Form 10-K filed on March 31, 1994).
10.16 Form of Incentive Stock Option Agreement (for employees with no
employment or severance agreements) (incorporated by reference to
Exhibit 10.17 to the Corporation's Form 10-K filed on March 31,
1994).
10.17 Form of Nonqualified Stock Option Agreement (for employees with
employment agreements) (incorporated by reference to Exhibit 1 0. 18
to the Corporation's Form 10-K filed on March 31, 1994).
10.18 Form of Non-Incentive Stock Option Agreement (for non-employee
directors).(incorporated by reference to Exhibit 10.19 to the
Corporation's Form 10-K filed on March 31, 1994).
10.19 Form of Non-Incentive Stock Option Agreement (for employees with
employment agreements) (incorporated by reference to Exhibit 10.20 to
the Corporation's Form 10-K filed on March 31, 1994).
10.20 Form of Non-incentive Stock Option Agreement (for employees with
severance agreements) (incorporated by reference to Exhibit 10.21 to
the Corporation's Form 10-K filed on March 31, 1994).
10.21 Form of Non-incentive Stock Option Agreement (for employees with no
employment or severance agreements)(incorporated by reference to
Exhibit 10.22 to the Corporation's Form 10-K filed on March 31, 1994).
10.22 Form of Incentive Stock Option Agreement (for employees) (revised)
(incorporated by reference to Exhibit 10.22 to the Corporation's Form
10-K filed on March 31, 1995).
10.23 Form of Nonqualified Stock Option Agreement (for employees with
employment agreements) (revised) (incorporated by reference to Exhibit
10.23 to the Corporation's Form 10-K filed on March 31, 1995).
10.24 Form of Nonqualified Stock Option Agreement (immediate vesting)
(incorporated by reference to Exhibit 10.24 to the Corporation's Form
10-K filed on March 31, 1995).
10.25 Form of Nonqualified Stock Option Agreement (for senior officers of
Bristol Mortgage) (incorporated by reference to Exhibit 10.25 to the
Corporation's Form 10-K filed on March 31, 1995).
48
<PAGE>
10.26 Supplemental Retirement Plan for Employees of First Federal Bank, as
amended and restated effective as of October 1, 1994 (incorporated by
reference to Exhibit 10.26 to the Corporation's Form 10-K filed on
March 31, 1995).
10.27 Consulting Agreement between First Federal Bank and Harold W. Smith,
Jr., dated as of January 1, 1994 (incorporated herein by reference to
Exhibit 10.12 to the Corporation's Form 8-K/A filed on January 13,
1994).
10.28 Employment Agreement between the Corporation, First Federal Bank and
James C. Smith, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.28 to the Corporation's Form 10-K filed on March 31,
1995).
10.29 Employment Agreement between the Corporation, First Federal Bank and
Lee A. Gagnon, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.29 to the Corporation's Form 10-K filed on March 31,
1995).
10.30 Employment Agreement between the Corporation, First Federal Bank and
John V. Brennan, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.30 to the Corporation's Form 10-K filed on March 31,
1995).
10.31 Employment Agreement between the Corporation, First Federal Bank and
Ross M. Strickland, dated as of January 1, 1995 (incorporated by
reference to Exhibit 10.31 to the Corporation's Form 10-K filed on
March 31, 1995).
10.32 Employment Agreement among the Registrant, First Federal Bank and Gary
M. MacElhiney, dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.32 to the Corporation's Form 10-K filed on March 31,
1995).
10.33 Purchase and Assumption Agreement among FDIC, Receiver of Suffield
Bank, FDIC and First Federal Bank, dated September 6, 1991
(incorporated herein by reference to Exhibit 10(m) from the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
10.34 Indemnity Agreement between FDIC and First Federal Bank dated as of
September 6, 1991 (incorporated herein by reference to Exhibit 10(n) to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
10.35 Purchase and Assumption Agreement among the FDIC, in its corporate
capacity as receiver of First Constitution Bank, First Federal Bank and
the FDIC, dated as of October 2, 1992 (incorporated herein by reference
from the Registrant's Form 8-K filed on October 19, 1992).
10.36 Amendment No. 1 to Purchase and Assumption Agreement, dated as of
August 8, 1994, between the FDIC and First Federal (incorporated by
reference to Exhibit 10.36 to the Corporation's Form 10-K filed on
March 31, 1995).
10.37 Indenture, dated as of June 15, 1993, between the Corporation and
Chemical Bank, as Trustee, relating to the Corporation's 8 3/4% Senior
Notes due 2000 (incorporated herein by reference to Exhibit 99.5 to the
Corporation's Form 8-K/A filed on November 10, 1993).
10.38 Severance Payment Agreement between the Corporation, Webster Bank and
Peter K. Mulligan dated as of April 17, 1995.
49
<PAGE>
13. Annual Report to Shareholders.
21. Subsidiaries.
24. Consent of KPMG Peat Marwick.
* References herein to First Federal Bank now mean Webster Bank.
50
<PAGE>
SEVERANCE PAYMENT AGREEMENT
---------------------------
AGREEMENT, dated as of April 17, 1995, among WEBSTER FINANCIAL
CORPORATION (the "Company"), FIRST FEDERAL BANK, FSB (the "Bank"), and PETER K.
MULLIGAN (the "Employee").
WHEREAS, the Employee is serving as the Executive Vice
President, Consumer Banking of the Company, the Bank and Bristol Savings Bank, a
wholly-owned subsidiary of the Company ("Bristol");
WHEREAS, the Boards of Directors of the Company and the Bank
believe that it is in the best interests of the Company and the Bank to
encourage the Employee's continued employment with and dedication to the
Company, the Bank and Bristol in the face of potentially distracting
circumstances arising from the possibility of a change in control of the Company
or the Bank, although no such change is now contemplated;
WHEREAS, the Boards of Directors of the Company and the Bank
have approved and-authorized the entry into this Agreement with the Employee;
and
WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions for the payment of special compensation
to the Employee in the event of a termination of the Employee's employment in
connection with or as the result of a change in control of the Company or the
Bank;
NOW, THEREFORE, it is AGREED as follows:
1. Term. The initial term of this Agreement shall be for a
period commencing on the date hereof and ending on December 31, 1997. The
Company and the Bank may renew this Agreement by written notice to the Employee
for one additional year on December 31, 1995 and each subsequent December 31
during the term of this Agreement. References herein to the term of this
Agreement shall include the initial term and any additional years for which this
Agreement is renewed.
2. Termination of Employment in Connection with a Change in
--------------------------------------------------------------
Control.
- --------
(a) If during the term of this Agreement there is a
change in control of the Company or the Bank, the Employee shall be entitled to
receive from the Company and the Bank, jointly and severally, as a severance
payment for services previously rendered to the Company and the Bank, a lump sum
cash payment as provided for herein (subject to Section 2(c) below) in the event
the
<PAGE>
Employee's employment is terminated, voluntarily or involuntarily, in connection
with or within two years after the change in control of the Company or the Bank,
unless such termination is for cause (as defined below), is a voluntary
termination without "Good Reason" (as defined below) in connection with or after
a "Technical Change" (as defined below), or occurs by virtue of normal
retirement, permanent and total disability (as defined for purposes of any long
term disability plan maintained by the Company or the Bank in which the Employee
is a participant, or, if there is no such plan, as defined in Section 22(e) of
the Internal Revenue Code) or death. Subject to Section 2(c) below, the amount
of the payment shall be equal to one year's salary from the Company, the Bank
and Bristol plus any bonuses paid by them to the Employee during the then
current fiscal year, if (i) the Employee's termination of employment was
voluntary without "Good Reason" (as hereinafter defined) other than in
connection with or following a "Technical Change" (as defined below), or (ii)
the Employee's termination of employment was either voluntary with Good Reason
or involuntary. For purposes of this Agreement, a "Technical Change" shall mean
a change in control described in Section 2( b)(vii) below (and not described in
any other subsection of Section 2(b)) in which the persons who were directors of
the Company before the transaction described in such subsection shall constitute
at least 50% of the Board of Directors of the Company or any successor
corporation. The term "termination for cause" shall mean termination because of
the Employee's personal dishonesty, incompetence, - willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final cease-and- desist order. "Good
Reason" shall include a material reduction in the position, authority, duties or
responsibilities of the Employee from those which existed prior to the change in
control or a reduction in the Employee's job stature as reflected in the
Employee's title. If the Employee notifies the Boards of Directors of the
Company and the Bank that the Employee intends to terminate employment
voluntarily for Good Reason, the Employee shall state in such notice the reasons
why the Employee believes that Good Reason exists. Unless the Company and the
Bank, within 30 days of the date of the Employee's notice of resignation or
termination, reject the Employee's statement that Good Reason exists, the
Employee's entitlement to the severance payment payable under clause (ii) above
shall be conclusive. If the Boards of Directors reject the Employee's statement
of Good Reason within such 30-day period, the dispute shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof, but the Company and the
Bank shall have the burden of proving in such arbitration that their rejection
of the Employee's statement was proper. Payment under this Section 2(a) shall be
in lieu of any amount which may be otherwise owed to the Employee as damages for
such termination. Payment under this Section 2(a) shall not be reduced by any
compensation which the Employee may receive from other employment with another
employer after termination of the Employee's employment with
- 2 -
<PAGE>
the Company and the Bank. No payment hereunder shall affect the Employee's
entitlement to any vested retirement benefits or other compensation payments.
In addition, subject to Section 2(c) below, in the case of any
termination of employment within the scope of this Section 2(a) for which a
severance payment is payable to the Employee, the following shall apply: (1) the
Employee shall also be entitled to continued medical, dental, group term life
insurance and long-term disability insurance coverage and to continued
eligibility for benefits under any other employee welfare benefit plan (within
the meaning of Section 3(l) of the Employee Retirement Income Security Act of
1974, as amended) in which the Employee was eligible to participate before the
change in control, on a basis no less favorable to the Employee than that in
effect during the fiscal year preceding the fiscal year in which the change in
control occurs, as if the Employee's employment had not been terminated, which
coverage and eligibility shall continue for one year after the termination; and
(2) all insurance or other provisions for indemnification, defense or
hold-harmless of officers and directors of the- Company, the Bank or Bristol
that are in effect on the date the notice of termination is given by or to the
Employee shall continue for the benefit of the Employee with respect to all of
the Employee's acts and omissions while an officer or director as fully and
completely as if such termination had not occurred, and until the final
expiration or running of all periods of limitation against action which may be
applicable to such acts. or omissions.
(b) A "change in control" of the Company, for purpose
s of this Agreement, shall be deemed to have taken place if: (i) any person
becomes the beneficial owner of 25 percent or more of the total number of voting
shares of the Company; (ii) any person becomes the beneficial owner of 10
percent or more, but less than 25 percent, of the total number of voting shares
of the Company, unless. the Director of the Office of Thrift Supervision (the
"Director") has approved a rebuttal agreement filed by such person or such
person has filed a certification with , the Director; (iii) any person (other
than the persons named as proxies solicited on behalf of the Board of Directors
of the Company) holds revocable or irrevocable proxies, as to the election or
removal of two or more directors of the Company, for 25 percent or more of the
total number of voting shares of the Company; (iv) any person has received the
approval of the Director under Section 10 of the Home Owners' Loan Act, as
amended (the "Holding Company Act"), or regulations issued thereunder, to
acquire control of the Company; (v) any person has received approval of the
Director under Section 7(j) of the Federal Deposit Insurance Act, as amended
(the "Control Act"), or regulations issued thereunder, to acquire control of the
Company; (vi) any person has commenced a tender or exchange offer, or entered
into an agreement or received an option, to acquire beneficial ownership of 25
percent or more of the total number of voting shares of the Company, whether or
not the requisite approval for such acquisition has been received under the
Holding Company Act, the Control Act, or the respective regulations issued
thereunder, or (vii) as the result of, or in connection with, any cash tender or
exchange offer,
- 3 -
<PAGE>
merger, or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions, the persons who were directors of
the Company before such transaction shall cease to constitute at least
two-thirds of the Board of Directors of the Company or any successor
corporation. Notwithstanding the foregoing, a "change in control" will not be
deemed to have occurred under clauses (ii), (iii), (iv), (v) or (vi) of this
section 2(b), if within 30 days of such action, the Board of Directors of the
Company (by a two-thirds affirmative vote of the directors in office before such
action occurred) makes a determination that such action does not and is not
likely to constitute a "change in control" of the Company. For purposes of this
Section 2(b), a "person" includes an individual, corporation, partnership,
trust, association, joint venture, pool, syndicate, unincorporated organization,
joint-stock company or similar organization or group acting in concert. A person
for these purposes shall be deemed to be a beneficial owner as that term is used
in Rule 13d-3 under the Securities Exchange Act of 1934.
A "change in control" of the Bank, for purposes of this
Agreement, shall be deemed to have taken place if the Company's beneficial
ownership of the total number of voting shares of the Bank is reduced to less
than 50 percent.
(c) Notwithstanding any other provisions of this
Agreement or of any other agreement, contract, or understanding heretofore or
hereafter entered into between the Employee and the Company or the Bank (or any
subsidiary or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 2(c) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Company or the Bank (or any subsidiary or affiliate of either of them)
for the direct or indirect provision of compensation to the Employee (including
groups or classes of participants or beneficiaries of which the Employee is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for the Employee (a "Benefit Plan"), the Employee shall
not have any right to receive any payment or other benefit under this Agreement,
any Other Agreement, or any Benefit Plan if such payment or benefit, taking into
account all other payments or benefits to or for the Employee under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any payment
to the Employee under this Agreement to be considered a parachute payment"
within the meaning of Section 28OG(b)(2) of the Code (a "Parachute Payment"). In
the event that the receipt of any such payment or benefit under this Agreement,
any Other Agreement, or any Benefit Plan would cause the Employee to be
considered to have received a Parachute Payment under this Agreement, then the
Employee shall have the right, in the Employee's sole discretion, to designate
those payments or benefits under this Agreement, any Other Agreements, and/or
any Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to the Employee under this Agreement be deemed to be a Parachute
Payment.
- 4 -
<PAGE>
3. No Assignments. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of the other parties
hereto. However, in the event of the death of the Employee, all rights to
receive payments hereunder shall become rights of the Employee's estate.
4. Amendments or Additions; Action by Board of Directors. No
amendments or additions to this Agreement shall be binding unless in writing and
signed by all parties hereto. The prior approval by a two-thirds affirmative
vote of the full Boards of Directors of the Company and the Bank shall be
required in order for the Company and the Bank to authorize any amendments or
additions to this Agreement.
5. Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
6. Governing Law. This Agreement shall be governed by the laws
of United States to the extent applicable and otherwise by the laws of the State
of Connecticut (other than the choice of law rules thereof).
WEBSTER FINANCIAL CORPORATION
ATTEST: /s/Lee Gagnon By: /s/James C. Smith
------------------- -------------------------------
(Secretary) (Chief Executive Officer)
FIRST FEDERAL BANK, FSB
ATTEST: /s/Lee Gagnon By: /s/James C. Smith
------------------- -------------------------------
(Secretary) (Chief Executive Officer)
EMPLOYEE
/s/Peter K. Mulligan
-----------------------------------
Peter K. Mulligan
- 5-
<PAGE>
Webster Financial Corporation
1995 Annual Report
Corporate Profile
Webster Financial Corporation is the holding company for Webster Bank, a $4
billion bank with 64 offices in Connecticut. The Company has grown steadily and
profitably through the years by emphasizing asset quality, recurring earnings
and expense control. A series of recent acquisitions have expanded and
strengthened Webster's franchise and have accelerated its transition from a
traditional thrift institution to a full-service retail bank. Webster is
organized along three business lines -- consumer, business and mortgage banking
- -- each focused on the special needs of its customers. By helping its customers
reach their financial goals, Webster builds strong, lasting relationships which
create shareholder value.
1995 Highlights
Reported record operating earnings before non-recurring items
Signed a definitive agreement to purchase 20 branches of the former Shawmut Bank
Connecticut in the Greater Hartford banking market
Raised $34 million in additional capital to support the Shawmut branch
acquisition Completed Shelton Bancorp acquisition
Merged three bank subsidiaries into a single bank, which was renamed Webster
Bank Increased the cash dividend 23 percent
Enhanced automated and telephone banking capabilities to increase access and
convenience Received again the highest rating -- Outstanding -- for Community
Reinvestment Act (CRA) compliance
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial and Other Data
(Dollars In Thousands Except Share Data)* At December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Condition Data
Total assets $ 3,219,670 $ 3,053,851 $ 2,483,403 $ 2,367,722 $ 1,173,489
Loans receivable, net 1,891,956 1,869,216 1,467,935 1,522,168 701,478
Securities 1,044,640 828,758 669,764 438,323 332,440
Segregated Assets, net 104,839 137,096 176,998 223,907 --
Core deposit intangible 4,729 5,457 11,829 15,463 1,402
Deposits 2,400,202 2,431,945 1,966,574 1,995,079 990,054
FHL Bank advances and other borrowings 553,114 414,375 312,152 193,864 73,772
Shareholders' equity 209,973 156,807 126,273 129,144 83,067
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Data
Interest income $ 218,811 $ 190,820 $ 154,589 $ 111,021 $ 90,901
Interest expense 131,533 98,464 80,803 61,205 60,015
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 87,278 92,356 73,786 49,816 30,886
Provision for loan losses 3,100 3,155 4,597 5,574 4,285
Noninterest income 21,975 13,629 10,703 8,407 5,150
Noninterest expenses:
Non-recurring expenses** 6,371 5,700 -- -- --
Foreclosed property expenses and
provisions, net 4,025 6,949 5,085 6,135 5,089
Other noninterest expenses 69,191 66,646 49,912 33,018 20,550
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 79,587 79,295 54,997 39,153 25,639
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 26,566 23,535 24,895 13,496 6,112
Income taxes 8,246 4,850 10,595 7,083 2,774
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before cumulative change 18,320 18,685 14,300 6,413 3,338
Cumulative effect of change in method of
accounting for income taxes -- -- 4,575 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 18,320 18,685 18,875 6,413 3,338
Preferred stock dividends 1,296 1,716 2,653 581 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to
common shareholders $ 17,024 $ 16,969 $ 16,222 $ 5,832 $ 3,338
- ------------------------------------------------------------------------------------------------------------------------------------
Loan originations during period $ 417,372 $ 745,618 $ 390,337 $ 283,926 $ 133,418
Net (decrease)/ increase in deposits (31,743) 465,371 (28,505) 1,005,025 157,543
Significant Statistical Data*
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
For The Period: 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.78% 3.29% 3.13% 3.32% 2.81%
Net yield on average earning assets 2.89% 3.34% 3.23% 3.50% 3.14%
Return on average shareholders' equity 10.70% 12.55% 11.11% 6.87% 4.06%
Net income per common share:***
Primary $ 2.44 $ 2.69 $ 2.25 $ 1.18 $ 0.68
Fully Diluted $ 2.30 $ 2.44 $ 2.04 $ 1.16 $ 0.68
Dividends declared per common share**** $ .64 $ 0.52 $ 0.50 $ 0.48 $ 0.48
Dividend payout ratio 27.83% 18.44% 16.85% 37.07 63.24%
Noninterest expenses to average assets 2.53% 2.86% 2.30% 2.64% 2.45%
Noninterest expenses (excluding foreclosed
property expenses and provisions, net and
non-recurring expenses) to average assets 2.20% 2.25% 2.09% 2.23% 1.95%
At End of Period:
Book value per common share $ 23.87 $ 20.59 $ 19.90 $ 21.29 $ 16.88
2
<PAGE>
Tangible book value per common share $ 23.28 $ 19.78 $ 17.58 $ 18.13 $ 16.60
Common shares outstanding (000's) 8,078 6,780 5,088 4,895 4,920
Shareholders' equity to total assets 6.52% 5.13% 5.08% 5.46% 7.08%
Nonaccrual assets to total assets 1.71% 2.10% 2.41% 2.83% 2.83%
Allowance for loan losses to nonaccrual loans 110.45% 134.04% 135.79% 108.71% 77.15%
Allowances for nonaccrual assets to
nonaccrual assets 76.39% 77.01% 77.32% 76.95% 36.07%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Information for all periods presented has been restated to reflect the
inclusion of the results of Shelton Bancorp, Inc. and Shoreline Bank and
Trust Company which were acquired on November 1, 1995 and December 16,
1994, respectively, and were accounted for using the pooling of interests
method.
** See Management's Discussion and Analysis Comparison of 1995 and 1994 years
and Note 2 to the Consolidated Financial Statements.
*** Before cumulative change in the method of accounting for income taxes.
After such cumulative change net income per common share for 1993 was $3.13
on a primary basis and $2.73 on a fully diluted basis.
**** Webster has continuously declared dividends since the third quarter of
1987. All per share data and the number of outstanding shares of common
stock have been adjusted retroactively to give effect to the payment of
stock dividends.
</FN>
</TABLE>
To Our Shareholders
"Webster strives to help individuals, families and businesses reach their
financial goals. Our focus is on building valuable customer relationships by
providing a broad range of products and services and superior customer service."
We are pleased to report that 1995 was a year of significant accomplishment for
Webster Financial Corporation. In furthering its record of sound, steady growth,
Webster expanded its franchise and its product offerings. Guided by our
conservative business philosophy, we continued our emphasis on asset quality,
recurring earnings and expense control.
Accomplishments for the year included record operating earnings before
non-recurring items and an increase in the cash dividend. In October, Webster
accelerated its transition from a traditional thrift to a full-service retail
bank by agreeing to acquire 20 branches of Shawmut Bank Connecticut. Webster
subsequently raised $34 million in a common stock offering to support the
Shawmut branch acquisition. The Shawmut branch acquisition was completed on
February 16, 1996. In November, Webster acquired Shelton Bancorp and merged
Webster's three bank subsidiaries into a single entity renamed Webster Bank.
Once again, Webster received the highest rating for Community Reinvestment Act
(CRA) compliance.
Webster strives to help individuals, families and businesses reach their
financial goals. Our focus is on building valuable customer relationships by
providing a broad range of products and services and superior customer service.
The bank is organized along three business lines -- consumer, business and
mortgage banking -- each focused on meeting the special needs of its customers.
Webster's growing franchise and automated and telephone banking initiatives
enhance customer access and convenience. Webster customers now access
information and transact their banking business from automated teller machines
(ATMs) worldwide and through Webster's 24-hour banking center.
Webster has completed and integrated six acquisitions since 1991, each one
contributing to Webster's improving results. Today, Webster is the second
largest Connecticut-based bank with assets of $4 billion and over $210 million
in shareholders' equity. Our 1,200 employees serve 275,000 customers from 64
banking offices and 84 ATMs in Connecticut, extending from the Massachusetts
border to Long Island Sound.
3
<PAGE>
1995 Earnings
Earnings for the year were $18.3 million or $2.30 per fully diluted share
compared to $18.7 million or $2.44 per fully diluted share in 1994. The 1995
results were reduced by $2.7 million of non-recurring items net after tax. The
1995 earnings would have been $18.9 million or $2.83 per fully diluted share
were it not for the effects of the Shelton acquisition and the net non-recurring
items. Book value per share increased 16 percent in 1995, to $23.87.
Net non-recurring pretax expenses of $6.4 million were partially offset by $2.2
million in pretax gains on the sale of mortgage loan servicing. The
non-recurring expenses include a $3.3 million charge related to the acquisition
of Shelton Bancorp, Inc., $2.1 million of expenses related to the merger of
Webster's three banking subsidiaries and name change and $1.0 million of costs
incurred in preparation for Webster's acquisition of 20 former Shawmut branch
banking offices.
Dividend
Webster has paid a regular quarterly cash dividend for 34 consecutive quarters
since the corporation paid its first dividend in 1987. In January 1995, the
board of directors increased the dividend 23 percent to $.16 per common share.
Shawmut Branch Acquisition
In October, Webster signed a definitive agreement with Shawmut Bank Connecticut
to purchase 20 Shawmut Bank offices in the Hartford banking market, including
approximately $845 million in deposits and $586 million in loans. The
acquisition, which was consummated on February 16, 1996, expanded and
strengthened Webster's franchise and created the second largest
Connecticut-based bank in the state with a six percent statewide deposit market
share.
This acquisition accelerated Webster's transition from a traditional thrift
institution to a full-service retail bank. The Shawmut acquisition increases
Webster's deposit market share in the Hartford banking market from 3.2 percent
to 8.3 percent, giving Webster the second largest share in that market.
Shelton Bancorp Acquisition
Webster completed the purchase of Shelton Bancorp on November 1. Shelton Bancorp
contributed assets of $295 million and six full-service banking offices in south
central Connecticut. The acquisition extended Webster's franchise into an
attractive contiguous market and added 13,000 households to Webster's growing
customer base.
Subsidiaries Merged and Renamed Webster Bank
In November, Webster merged its subsidiary banks -- First Federal Bank, Bristol
Savings Bank and Shelton Savings Bank -- into a single entity renamed Webster
Bank. The merger and renaming benefitted both Webster and its customers.
The merger enables our customers to transact their banking business at any of
Webster's offices throughout Connecticut. The larger bank now offers a wider
array of products and services. Additionally, Webster's commercial customers
benefit from the bank's presence in a larger geographic area and from the bank's
ability to accommodate the credit needs of larger customers.
The merger enabled Webster to achieve economies of scale, eliminate duplicative
administrative activities, streamline operations and reduce costs. Webster
Financial Corporation and Webster Bank are now regulated by a single regulator,
further reducing expenses and the cost of compliance.
Webster Bank expects to achieve greater name recognition in the marketplace at
reduced cost by advertising as a single bank. The name change also aligns the
name of the bank more closely with the name of the holding company.
4
<PAGE>
Raising Capital to Support the Shawmut Acquisition
In December, Webster raised $34 million in an offering of 1,249,600 common
shares priced at $27.25 per share. Net proceeds of this public offering were
used to support the acquisition of the Shawmut branches. Webster currently has
$210 million in equity capital and approximately 8.1 million common shares
outstanding.
Community Reinvestment Act
Webster is committed to making a meaningful investment in the communities it
serves and is dedicated to achieving the objectives of the Community
Reinvestment Act (CRA) and Fair Lending Practices. Webster provides a
comprehensive array of deposit and loan products to support the needs of all
community members including minorities and low-income families. Our commitment
to our communities has earned Webster the highest attainable CRA rating --
Outstanding -- for the third consecutive rating period, and has helped us build
valuable customer relationships.
Rights Agreement
In February 1996, Webster's board of directors adopted a Rights Agreement to
assist the board in protecting the rights and investment of Webster
shareholders. The plan is designed to protect all Webster shareholders against
hostile acquirers who may seek to take advantage of Webster and its shareholders
through coercive or unfair tactics aimed at gaining control of Webster without
paying all shareholders a full and fair price.
Outlook
The economic outlook for Connecticut appears to be improving. While lagging the
national economy, the Connecticut economy continues to show modest signs of
improvement. While corporate restructuring and downsizing may continue,
encouraging growth is evident in small businesses statewide.
Growth
Webster remains committed to the goal of sound, steady growth. Our expanding
franchise, broader product offerings and steadfast attention to superior
customer service create opportunities in this regard. We intend to pursue
opportunities to further strengthen Webster's franchise through combinations
with other financial institutions on terms that are consistent with this goal.
The year 1995 was a rewarding one for Webster. Our achievements were made
possible through the extraordinary dedication of our employees and the continued
support of our customers and shareholders. Our future is bright as we realize
the benefits of recent acquisitions and continue our transition to a leading
Connecticut retail bank. We appreciate your investment.
Sincerely,
James C. Smith
Chairman and Chief Executive Officer
Webster Bank Offices
Webster's franchise extends from the Massachusetts border through central
Connecticut to Long Island Sound. The Shawmut branch acquisition expanded our
network in the Greater Hartford area. The Shelton acquisition extended Webster's
franchise in south central Connecticut. Today, Webster's franchise includes 64
full-service offices and 84 ATMs located in the central and most populous
corridor of Connecticut.
5
<PAGE>
Full-service Banking Office Locations
38 Webster Bank offices
6 Former Shelton Savings Bank offices
(Acquired November 1, 1995)
20 Former Shawmut Bank Connecticut offices
(Acquired February 16, 1996)
Consumer Banking
Webster expects that by 1998, our customers will conduct over 60 percent of
their transactions using automated or telephone banking means. Here, a customer
uses a 24-hour ATM to make a deposit at Webster's new downtown Hartford office.
It wasn't long ago that superior customer service meant a fast-moving teller
line and courteous, professional, bankers. But as consumer preferences change,
the definition has been expanded to include new product offerings and easier
methods by which to access those products. Today, consumers look for
full-service retail banks offering everything from basic checking accounts to
mutual funds and annuities to telephone banking. Webster continuously expands
its product and service offerings to meet evolving consumer needs.
For customers who continue to favor branch banking, Webster offers 64 convenient
locations from the Massachusetts border through central Connecticut to Long
Island Sound. But recognizing that a growing number of customers prefer
automated access to banking services, Webster has steadily increased its
investment in technology to develop products and services that enhance our
customers' ability to access their accounts and Webster telebanking
representatives at anytime and from anywhere they choose.
Webster Bank's First CallSM telephone banking service (800-325-2424) provides
access to account information 24 hours a day, seven days a week. More than
45,000 customers use First Call weekly to get up-to-date balances on Webster
accounts, transfer funds, and make payments on Webster installment loans and
mortgages. Using First Call, customers may also speak with Webster
representatives after normal banking hours to open accounts, apply for loans or
to simply ask questions. We expect that by 1998, Webster customers will transact
over 60 percent of their banking business by direct banking means.
In 1995, Webster made significant additions to its consumer product line. We
introduced the Webster Check Card, a debit card that can be used at over 12
million merchant locations worldwide. We also introduced WebsterOneSM, a
relationship banking package that affords customers the opportunity to reduce
fees, earn more on savings and simplify their bookkeeping with one combined
statement. Additionally, Webster introduced a valuable home equity product that
provides loans of up to 100 percent of the available equity in a principal
residence. Webster will introduce its own credit card later this year.
Webster offers advanced products to meet our customers changing needs while
maintaining a hometown bank atmosphere. Providing superior customer service is
the primary focus of Webster Bank.
Webster's new Check Card combines the convenience of an ATM card with the
purchasing power of a Visa card. Accepted at over 12 million Visa merchant
locations worldwide, the Check Card automatically deducts purchases from a
customer's checking account - it works just like a check. Here, a customer of
Lane and Lenge in West Hartford Center uses her Webster Check Card to make a
floral purchase.
6
<PAGE>
Business Banking
Webster recently introduced its Webster FAX-LinkTM service which provides an
automatic morning fax to businesses detailing checking account balances and
transaction information. The Business Banking Unit has over $500 million in
credit balances and $150 million in business deposits.
Businesses large and small fuel our economy, creating jobs and opportunity for
people from Hartford to Hamden, from Windsor to Waterbury. Webster facilitates
this process by providing credit and other banking services throughout
Connecticut, where Webster is among the largest business banks.
Webster provides a full range of business banking products and services, from
cash management to the most complex financing packages. In 1995, Webster opened
a business banking office in Hartford and expanded its business banking
operations in the Bristol, New Haven, and Waterbury regions. We also formed a
Small Business Banking Unit to focus on the special needs of businesses with
credit requirements of up to $250,000. Every business customer has a dedicated
relationship manager who serves as the primary contact and liaison with all
Webster service areas.
Business Banking has introduced several new products to make it easier for
customers to access account information at anytime and from anywhere they
choose. Our Webster PC-LinkTM product is a PC-based service designed to let
businesses retrieve and analyze information about Webster accounts and to
perform transactions. Our Webster FAX- LinkTM product is an automatic morning
fax service to business customers providing balance and transaction information.
Additionally, Webster offers a telephone banking service that lets business
banking customers transfer funds between accounts and perform other financial
transactions over the phone. For the many Connecticut companies involved in
foreign trade, Webster offers international services including import, export
and standby letters of credit, acceptance financing and foreign exchange.
Webster's commitment to promoting economic expansion in Connecticut and to
helping firms grow and create jobs makes us a strong partner for state
businesses. And as businesses prosper, so too will Webster.
Businesses fuel job growth which, in turn, fuels the economy. Webster is
committed to providing the capital small- and medium-sized businesses need to
prosper and expand in Connecticut. Here, Bob Annon, senior vice president,
Webster Business Banking, and Edgar B. Butler, Jr., president and chief quality
officer of The Taylor & Fenn Company in Windsor, view a 3,500 pound casting made
for a Taylor & Fenn customer. Taylor & Fenn, a Webster customer since 1986,
employs 136 people and was recently named the top state designee for the Blue
Chip Enterprise Initiative sponsored by The United States Chamber of Commerce,
Nations Business magazine and the Connecticut Mutual Life Insurance Company.
7
<PAGE>
Mortgage Banking
Fitz and Cheryl Morrison of New Haven enjoy their new two-family home made
possible in part by a mortgage from Webster Bank. A leading mortgage lender in
Connecticut, Webster is committed to helping people buy, build and refinance
their homes.
Webster's roots lie in mortgage lending. Sixty years ago, Webster's founder,
Harold Webster Smith, assisted would-be homeowners in buying or building their
homes by providing mortgage financing during the Depression era of the 1930s.
Today, Webster is a leading mortgage lender in Connecticut still committed to
helping people buy, build and refinance their homes.
Webster closed $275 million in residential first mortgage loans in 1995,
including $107 million to first-time homebuyers, and $60 million in construction
financing. Webster participates with federal, state and local agencies to assist
Connecticut families buy homes. These agencies include the Connecticut Housing
Finance Authority, the Connecticut Department of Housing, Fannie Mae and Freddie
Mac, to name but a few. Webster actively promotes programs which are designed to
meet the special needs of low-to-moderate income families.
Superior customer service and innovative products are what make Webster a
successful mortgage lender. From first-time homebuyer loans to jumbo mortgages
to construction loans, Webster meets each customer's unique needs. For example,
Webster's Family MortgageSM introduced in 1995 allows parents to help their
children buy homes. Parents can pledge certificates of deposit or the equity in
their own homes as collateral in lieu of a downpayment. Another popular product,
Webster's flexible construction loan automatically converts to a permanent
mortgage loan.
Innovative products mean little if they are difficult to access. That's why
mortgage originators, equipped with laptop computers, visit customers in their
homes or their offices to complete an application in just minutes. Responding to
the need for more convenient access to bank services, our laptop origination
process is a major competitive advantage for Webster.
Mortgage products and the way they are delivered have changed a great deal
through the years. But our commitment to making the dream of homeownership come
true for Connecticut residents is as strong today as it was in 1935.
Webster mortgage originators count themselves among the select few bankers
nationwide equipped with laptop computers to expedite the application process.
Using laptop computers, our originators reduce the time it takes to file a
mortgage application, and, reduce by a minimum of three days, the time it takes
for an application to receive approval. Here, Barry and Debbie Pasqurell of
Berlin provide financial information for their refinance application to Webster
loan originator Renee Gonzalez.
8
<PAGE>
Executive Management of Webster Financial Corporation
Front row: Lee A. Gagnon Executive Vice President, Chief Operating Officer and
Secretary
(L to R) John V. Brennan Executive Vice President, Chief Financial Officer
and Treasurer
Back row: Peter K. Mulligan Executive Vice President, Consumer Banking
(L to R) Gary M. MacElhiney Executive Vice President, Business Banking
Ross M. Strickland Executive Vice President, Mortgage Banking
Harold Webster Smith
On October 11, 1935, during the depths of the Depression, 24-year old Harold
Webster Smith opened a bank in downtown Waterbury, Connecticut with $25,000 in
deposits gathered from family and friends. First Federal Savings of Waterbury
was founded to help community members buy and build their homes. Guided by a
conservative business philosophy and an extraordinary commitment to its
customers, the bank has grown in its founder's image to become the second
largest Connecticut-based bank.
As you have read in this report, on November 1, 1995, 60 years after the bank
was founded, Webster Financial Corporation merged First Federal and its two
other subsidiary banks into a single entity with a new name - Webster Bank. The
merger achieved economies of scale and enables Webster to |resent a unified
image in all markets. The name Webster was chosen to honor Mr. Smith and to
reaffirm the bank's Connecticut roots.
Webster's headquarters building, depicted on the cover of this report, is but
four blocks from Mr. Smith's birthplace and two blocks from the bank's original
main office. Mr. Smith retired as chief executive officer in 1987 and as
chairman of the board in 1995. He continues to serve Webster today as a director
and as chairman emeritus.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
Webster Financial Corporation, ("Webster" or the "Corporation"), through its
subsidiary, Webster Bank, (the "Bank") delivers financial services to local
individuals and businesses. Webster's Mission is to build valuable banking
relationships by helping individuals, families and businesses to reach their
financial goals. The company has grown profitably in recent years, primarily
through a series of acquisitions which have expanded and strengthened its
franchise and have accelerated Webster's transition from a traditional thrift
institution to a full-service retail bank. Webster is organized along three
lines of business--consumer, business and mortgage banking each focused on the
special needs of its customers. Webster's 1,200 employees serve 275,000
customers from 64 banking offices in Connecticut, extending from the
Massachusetts border to Long Island Sound.
Webster's goals are to ensure customer satisfaction by providing superior
customer service and by delivering quality financial products and services, to
provide a stimulating and challenging work environment that encourages, develops
and rewards excellence, and to make a meaningful investment in the communities
Webster serves.
Assets at December 31, 1995 were $3.2 billion compared to $3.1 billion a year
earlier. Net loans receivable amounted to $1.89 billion at December 31, 1995
compared to $1.87 billion a year ago. Deposits were $2.40 billion at December
31, 1995 compared to $2.43 billion at December 31, 1994.
Acquisitions
The Shawmut Transaction
On October 1, 1995, Webster Bank entered into a Purchase and Assumption
Agreement with Shawmut Bank Connecticut, as part of the Fleet/Shawmut
Divestiture, to acquire 20 former Shawmut branch banking offices in the Hartford
Banking Market. The Shawmut Transaction was consummated on February 16, 1996
with Webster Bank receiving approximately $845 million in deposits, and $586
million in loans. In connection with the Shawmut Transaction, Webster completed
the sale of 1,249,600 shares of its common stock in an underwritten public
offering in December 1995. The Shawmut Transaction is being accounted for as a
purchase. The results of operations related to the Shawmut branch banking
offices prior to acquisition are not included in the accompanying Consolidated
Financial Statements. Such results will only be included for the period
subsequent to the consummation of the Shawmut Transaction.
The Shelton Acquisition
On November 1, 1995, Webster acquired Shelton Bancorp, Inc. ("Shelton") and its
subsidiary, Shelton Savings Bank, a $295 million savings bank in Shelton,
Connecticut. In connection with the merger with Shelton, Webster issued
1,292,549 shares of its common stock for all the outstanding shares of Shelton
common stock. Under terms of the agreement, Shelton shareholders received .92 of
a share of Webster common stock in a tax free exchange for each of their Shelton
common shares. This acquisition was accounted for as a pooling of interests and
as such Consolidated Financial Statements include Shelton's financial data as if
Shelton had been combined at the beginning of the earliest period presented.
10
<PAGE>
Shoreline Bank and Trust Company
On December 16, 1994, Webster acquired Shoreline Bank and Trust Company
("Shoreline"), a $51 million asset commercial bank 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. This acquisition was accounted for as a pooling of
interests and as such the Consolidated Financial Statements include Shoreline's
financial data as if Shoreline had been combined at the beginning of the
earliest period presented. Concurrent with the acquisition, Shoreline was merged
into the former First Federal Bank ("First Federal") and its Madison banking
office became a full service office.
Bristol Savings Bank
On March 3, 1994, Bristol Savings Bank ("Bristol") converted from a Connecticut
mutual savings bank to a Connecticut capital stock savings bank and concurrently
became a wholly owned subsidiary of Webster and a sister bank to First Federal.
Webster became a multiple holding company as a result of the Bristol acquisition
and increased its assets by $486 million. In connection with the conversion
Webster completed the sale of 1,150,000 shares of its common stock in related
subscription and public offerings. The Bristol acquisition was accounted for as
a purchase and results of operations relating to Bristol are included in the
accompanying Consolidated Financial Statements only for the period subsequent to
the effective date of the acquisition. On November 1, 1995, Webster converted
Bristol Savings Bank from a state to a federal charter under the new name of
Webster Bank, and then merged First Federal Bank into the renamed Webster Bank.
Webster then became a unitary holding company as a result of the merger.
FDIC Assisted Acquisitions
First Federal significantly expanded its retail banking operations through
assisted acquisitions of First Constitution Bank ("First Constitution") in
October 1992 and Suffield Bank ("Suffield") in September 1991 from the Federal
Deposit Insurance Corporation ("FDIC"). These acquisitions, which were accounted
for as purchases, involved financial assistance from the FDIC and extended First
Federal's retail banking operations into new market areas by adding 21 branch
offices, $1.5 billion in retail deposits and approximately 150,000 customer
accounts. See Note 2 to the Consolidated Financial Statements for additional
information concerning the terms of these assisted acquisitions.
Asset Quality
General
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans, aggressively
managing nonperforming assets and maintaining adequate reserve coverage on
nonaccrual assets. At year end 1995, residential and consumer loans comprised
over 90% of the loan portfolio. All fixed income securities must have an
investment rating in the top two rating categories by a major rating service at
time of purchase.
Unless otherwise noted, the information set forth concerning loans, nonaccrual
loans, foreclosed properties and allowances for loan losses excludes Segregated
Assets.
Nonaccrual Assets
The aggregate amount of nonaccrual assets decreased to $55.0 million at December
31, 1995 from $61.5 million at December 31, 1994 and declined as a percentage of
total assets to 1.71% at December 31, 1995 from 2.10% at December 31, 1994.
Nonaccrual loans increased $2.9 million in 1995 which was offset by a decrease
of $9.4 million in foreclosed properties due to net proceeds received from sales
of $11.5 million. The allowance for loan losses at December 31, 1995 was $41.8
million and represented 110.45% of nonaccrual assets. Total loan and foreclosed
properties allowances for losses of $42.8 million represented 76.39% of
nonaccrual assets. The following table details Webster's nonaccrual loans and
foreclosed properties for the last five years.
11
<PAGE>
<TABLE>
<CAPTION>
(In Thousands) At December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Assets:
Loans accounted for on a nonaccrual basis:
Residential real estate $ 20,560 $ 18,390 $ 27,995 $ 39,633 $ 8,873
Commercial real estate 15,296 15,268 4,132 1,846 4,934
Consumer 1,987 1,237 1,137 4,311 523
Foreclosed Properties:
Residential and Consumer 6,368 9,296 18,753 11,674 2,887
Commercial 10,808 17,292 6,711 7,744 15,063
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 55,019 $ 61,483 $ 58,728 $ 65,208 $ 32,280
- ------------------------------------------------------------------------------------------------------------------------------------
A summary of the activity in the allowance for loan losses for the last five
years follows:
(Dollars In Thousands) For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 46,772 $ 45,168 $ 49,780 $ 11,055 $ 7,952
Charge-offs:
Residential real estate (6,952) (12,761) (8,208) (1,027) (429)
Consumer (418) (760) (1,236) (706) (239)
Commercial (3,490) (3,578) (2,223) (1,424) (2,864)
- ------------------------------------------------------------------------------------------------------------------------------------
(10,860) (17,099) (11,667) (3,157) (3,532)
Recoveries:
Residential real estate 657 388 205 10 --
Consumer 943 1,701 749 558 3
Commercial 1,185 1,015 114 9 3
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (8,075) (13,995) (10,599) (2,580) (3,526)
Additions to allowance for acquired loans -- 12,819 -- 35,731 2,285
Transfer from allowance for losses for
loans held for sale -- -- 2,390 -- --
Provisions charged to operations 3,100 2,780 3,597 5,574 4,344
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 41,797 $ 46,772 $ 45,168 $ 49,780 $ 11,055
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average
loans outstanding 0.4% 0.8% 0.7% 0.3% 0.5%
</TABLE>
During 1995, 1994 and 1993 increased loan charge-offs were due primarily to
loans acquired as a result of the acquisitions of Bristol and First
Constitution. Such charge-offs were in line with expectations and adequate loan
loss allowances were established at the time of each acquisition. Included in
the 1994 loan charge-offs were write-downs of $2.7 million related to a bulk
sale of $10.0 million of nonperforming residential loans and foreclosed
properties. See Note 13 to the Consolidated Financial Statements for a summary
of activity in the allowance for losses on foreclosed properties. Management
believes that the allowance for loan losses is adequate to cover expected losses
in the loan portfolio.
Segregated Assets
Segregated Assets consist of all commercial real estate, commercial, and
multi-family loans acquired from the FDIC in the First Constitution acquisition.
Segregated Assets, before the allowance for losses of $3.2 million, totalled
$108.1 million at December 31, 1995, down from $256.6 million at acquisition
(1992). Segregated Assets are subject to a loss-sharing arrangement with the
FDIC. The FDIC is required to reimburse Webster Bank quarterly for 80% of the
total net charge-offs and certain related expenses on Segregated Assets for five
years after 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). The impact of purchasing the Segregated Assets has been reflected
primarily in increased noninterest expenses for the Bank's share of certain
reimbursable expenses and all non-reimbursable expenses. The Bank's share of
charge-offs reduces the allowance for losses on the Segregated
12
<PAGE>
Assets which was established in conjunction with the First Constitution
acquisition. Management believes that the allowance for losses on Segregated
Assets is adequate to cover expected losses on this portfolio. See Note 5 to the
Consolidated Financial Statements.
Reimbursable net charge-offs and eligible expenses of Segregated Assets
aggregated $7.5 million for 1995. During 1995, Webster Bank received $6.9
million as reimbursement for eligible charge-offs and related net expenses in
accordance with the loss-sharing arrangement described above. Payments due from
the FDIC upon charge-off and related expenses are recorded as receivables. Such
reimbursements are made on a quarterly basis to Webster Bank by the FDIC. When
such reimbursements are received the funds are invested in earning assets. Such
reimbursements have no immediate impact on the consolidated statements of
income.
A detail of changes in the allowance for Webster's share of losses for
Segregated Assets follows:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 4,420 $ 5,042
Provisions charged to operations -- 375
Charge-offs (1,772) (1,505)
Recoveries 587 508
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 3,235 $ 4,420
- ------------------------------------------------------------------------------------------------------------------
At December 31, 1995 and 1994, nonaccrual Segregated Assets were classified as
follows:
</TABLE>
<TABLE>
<CAPTION>
(In Thousands) At December 31,
- ------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
Segregated Assets accounted for on a nonaccrual basis:
<S> <C> <C>
Commercial real estate loans $ 2,604 $ 13,795
Commercial loans 1,203 3,678
Multi-family real estate loans 1,432 576
Foreclosed Properties:
Commercial real estate 648 7,753
Multi-family real estate 651 1,449
- ------------------------------------------------------------------------------------------------------------------
Total $ 6,538 $ 27,251
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Liquidity and Capital Resources
Webster Bank is required to maintain minimum levels of liquid assets as defined
by regulations adopted by the Office of Thrift Supervision ("OTS"). This
requirement, which may be varied by the OTS, is based upon a percentage of
withdrawable deposits and short term borrowings. The required liquidity ratio is
currently 5.0% and Webster Bank's liquidity ratio was 5.99% at December 31,
1995.
The primary sources of liquidity for Webster Bank are cash flows from operating
activities, investing activities and financing activities. Cash flow from
operating activities include net income, loans originated for sale, the sale of
loans originated for sale and adjustments for noncash items such as
depreciation, the provision for loan losses and changes in accruals. Cash flow
from investing activities includes the purchase, maturity, and sale of
securities and mortgage-backed securities classified as trading or available for
sale, and the net change in loans and Segregated Assets. While scheduled loan
amortization and maturing securities and short term investments generally are
predictable sources of funds, loan and mortgage-backed securities prepayments
are greatly influenced by general interest rates, economic conditions and
competition. One of the inherent risks of investing in mortgage-backed
securities is the ability of such instruments to incur prepayments of principal
prior to maturity at prepayment rates different than those estimated at the time
of purchase. This generally occurs because of changes in market interest rates.
The market values of fixed-rate mortgage-backed securities are sensitive to
fluctuations in market interest rates, declining in value as interest rates
rise. If interest rates decrease, as has been the case during 1995, the market
value of mortgage-backed securities generally will tend to increase causing the
level of prepayments to increase. The lower yields on such loans, and
mortgage-backed securities may be offset by a lower cost of funds. Changes in
nonaccrual assets due to additions or sales of such assets may also affect
liquidity.
13
<PAGE>
Financing activity cash flows primarily include repayments and proceeds from FHL
Bank advances and the net change in deposits. The utilization of particular
sources of funds depends on comparative costs and availability. Webster Bank
has, from time to time, chosen not to pay rates on deposits as high as certain
competitors, and when necessary, supplements deposits with various borrowings.
Webster Bank manages the prices of its deposits to maintain a stable,
cost-effective deposit base as a source of liquidity.
Webster Bank had additional borrowing capacity from the FHL Bank of $1.4 billion
at December 31, 1995. At that date, the Bank had FHL Bank advances outstanding
of $383.1 million compared to $370.7 million at December 31, 1994. See Note 9 to
the Consolidated Financial Statements.
Webster's main sources of liquidity at the holding company level are dividends
from the Bank and capital offerings, while the main outflows are the payment of
dividends to preferred and common stockholders and the payment of interest to
holders of Webster's 8 3/4% Senior Notes. There are certain restrictions on
payment of dividends by Webster Bank to Webster. See Note 15 to the Consolidated
Financial Statements. Webster does not have a regulatory capital requirement at
the holding company level.
In July of 1995, Webster announced its intention to repurchase up to ten percent
of its outstanding common shares from time to time over a twenty-four month
period. The shares purchased under the repurchase program are intended to offset
future dilution from shares of common stock that may be issued in connection
with conversions of currently convertible preferred stock or issued upon
exercise of options under Webster's stock option plans. No shares have been
repurchased under this current plan. Webster previously repurchased 548,500
shares in two stock repurchase plans announced in 1988 and 1990.
Applicable OTS regulations require federal savings banks such as Webster Bank,
to satisfy certain minimum capital requirements, including a leverage capital
requirement (expressed as a ratio of core or Tier 1 capital to adjusted total
assets) and risk-based capital requirements (expressed as a ratio of core or
Tier 1 capital and total capital to total risked- weighted assets). As an OTS
regulated savings institution, Webster Bank also is subject to a minimum
tangible capital requirement (expressed as a ratio of tangible capital to
adjusted total assets). At December 31, 1995, Webster Bank was in full
compliance with all applicable capital requirements as detailed below:
<TABLE>
<CAPTION>
(Dollars In Thousands) At December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Tier 1 Tier 1 Total
Tangible Capital Core Capital Risk-Based Capital Risk-Based Capital
Requirement Requirement Requirement Requirement
- -----------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital for regulatory
purposes $ 184,715 5.85% $ 189,444 5.99% $ 189,444 12.04% $ 209,174 13.30%
Minimum regulatory
requirement 47,334 1.50 94,810 3.00 62,932 4.00 125,863 8.00
- -----------------------------------------------------------------------------------------------------------------------------------
Excess over requirement $ 137,381 4.35% $ 94,634 2.99% $ 126,512 8.04% $ 83,311 5.30%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The OTS issued new regulations, effective January 1, 1994, which added an
interest-rate component to the risk-based capital requirement. However, the OTS
has delayed implementation of the new regulations indefinitely. 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 new interest-rate risk
requirements, if implemented, are not expected to affect the ability of Webster
Bank to meet the risk-based capital requirements.
14
<PAGE>
Asset/Liability Management
The goal of Webster's asset/liability management policy is to manage
interest-rate risk so as to maximize net interest income over time in changing
interest-rate environments while maintaining acceptable levels of risk. To this
end, Webster's strategies for managing interest-rate risk are responsive to
changes in the interest-rate environment and market demands for particular types
of deposit and loan products. Management measures interest-rate risk using GAP,
duration and simulation analyses with particular emphasis on measuring changes
in the market value of portfolio equity in different interest-rate environments.
The simulations analyses incorporate assumptions about balance sheet changes
such as asset and liability growth, loan and deposit pricing and changes due to
the mix and maturity of such assets and liabilities. From such simulations,
interest rate risk is quantified and appropriate strategies are formulated. The
overall interest rate risk position is reviewed on an ongoing basis by the Asset
Liability Committee, which includes Executive Management and has representation
by members of each line of business. Strategies employed in 1995 to improve the
interest-rate sensitive position included (i) the selling of certain fixed-rate
mortgage loans, (ii) promotion of adjustable-rate mortgage loans, (iii) emphasis
on the origination of variable-rate home equity credit lines and commercial
loans, (iv) emphasis on the purchase of short-term or adjustable-rate securities
or mortgage-backed securities, (v) emphasis on deposits that meet
asset/liability management objectives and (vi) the employment of hedging
techniques to reduce the interest-rate risk of certain assets or liabilities.
Based on Webster's asset/liability mix at December 31, 1995, management's
simulation analysis of the effects of changing interest rates projects that an
instantaneous 200 basis point increase in interest rates would decrease the
market value of portfolio equity by 10% at December 31, 1995. At December 31,
1995, Webster had a 4.26% positive GAP position in the one year time horizon
which means that cumulative interest-rate sensitive assets exceed cumulative
interest-rate sensitive liabilities for that period. Management believes that
its interest-rate risk position represents a reasonable amount of interest-rate
risk at this point in time. Webster also utilizes as part of its asset/liability
management strategy various interest rate contracts including short futures
positions, interest rate swaps and interest rate caps. The notional amounts of
these instruments are not reflected in Webster's statement of condition but are
included in the repricing table for purposes of analyzing interest-rate risk.
Interest-rate contracts are entered into as hedges against future rate
fluctuations and not for speculative purposes.
Webster is unable to predict future fluctuations in interest rates and as such
the market values of certain of Webster's financial assets and liabilities are
sensitive to fluctuations in market interest rates. Changes in interest rates
can affect the amount of loans originated by Webster Bank, as well as the value
of its loans and other interest-earning assets. 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 their loans. Prepayments may
adversely affect the value of mortgage loans, the levels of such assets that are
retained in Webster Bank's portfolio, and net interest income and loan servicing
income. Similarly, prepayments on mortgage-backed securities may also adversely
affect 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 interest-bearing
liabilities increase 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 affects the interest rate spread.
The following table sets forth the estimated maturity/repricing structure of
Webster's interest-earning assets and interest-bearing liabilities at December
31, 1995. Repricing for mortgage loans is based on contractual repricing and
projected prepayments and repayments of principal. Deposit liabilities without
fixed maturities are assumed to decay over the periods presented based on
industry standards and internal projections.
15
<PAGE>
<TABLE>
<CAPTION>
More than More than More than More than More than
6 Months 6 Months 1 Year 3 Years 5 Years 10 Years More than
(Dollars In Thousands) or less to 1 Year to 3 Years to 5 Years to 10 Years to 20 Years 20 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans $ 680,310 $ 468,168 $ 391,347 $ 138,192 $ 139,926 $ 121,030 $ 58,473 $1,997,446
Securities 571,282 147,170 97,235 52,561 83,083 77,719 41,607 1,070,657
- -----------------------------------------------------------------------------------------------------------------------------------
Total Rate-Sensitive
Assets $ 1,251,592 $ 615,338 $ 488,582 $ 190,753 $ 223,009 $ 198,749 $ 100,080 $3,068,103
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits $ 808,381 $ 459,215 $ 689,618 $ 275,955 $ 84,592 $ 44,703 $ 37,738 $2,400,202
Borrowings 357,057 105,000 65,000 50,700 -- -- -- 577,757
- -----------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive
Liabilities $ 1,165,438 $ 564,215 $ 754,618 $ 326,655 $ 84,592 $ 44,703 $ 37,738 $2,977,959
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated GAP $ 86,154 $ 51,123 $ (266,036) $ (135,902) $ 138,417 $ 154,046 $ 62,342
GAP to Total Assets
Percentage 2.67% 1.59% -8.26% -4.22% 4.30% 4.78% 1.94%
Cumulative GAP $ 86,154 $ 137,277 $ (128,759) $ (264,661) $(126,244) $ 27,802 $ 90,144
Cumulative GAP to Total
Assets Percentage 2.67% 4.26% -4.00% -8.22% -3.92% 0.86% 2.80%
</TABLE>
Comparison of 1995 and 1994 Years
General
For 1995, Webster reported net income of $18.3 million, or $2.30 per share on a
fully diluted basis. Included in the 1995 results are a total of $6.4 million of
non-recurring expenses which include: $3.3 million of expenses related to the
Shelton acquisition, $2.1 million of expenses related to changing the name of
and merging together Webster's banking subsidiaries, and $1.0 million of
expenses related to charges incurred in preparation for the acquisition of 20
branch banking offices from the former Shawmut Bank. Also included in the 1995
results are a $2.2 million gain on the sale of mortgage servicing rights and
$500,000 of losses on the sale of securities as part of a portfolio
restructuring plan. Net income for 1994 amounted to $18.7 million, or $2.44 per
share on a fully diluted basis. Included in the 1994 results are $700,000 of
expenses related to the Shoreline acquisition, a $5.0 million write-down of the
First Constitution core deposit intangible asset and income tax benefits of $4.5
million related to a reduction of the deferred tax asset valuation allowance
primarily related to Bristol. Results for Bristol are included in the
accompanying Consolidated Financial Statements only from the date of acquisition
on March 3, 1994.
Net Interest Income
Net interest income before the provision for loan losses decreased $5.1 million
in 1995 to $87.3 million from $92.4 million for 1994. The decrease is primarily
due to the fact that the cost of interest-bearing liabilities has increased
faster than the yield on interest-earning assets, in part due to a shift of low
cost deposits to longer term certificates of deposit.
Interest Income
Total interest income for 1995 amounted to $218.8 million, an increase of $28.0
million, or 14.7%, compared to $190.8 million in 1994. This increase in income
was due primarily to an increase in the average volume of loans and
mortgage-backed securities and to an increase in the average yield on all
interest-earning assets which increased to 7.20% in 1995 from 6.91% in 1994.
16
<PAGE>
Interest Expense
Interest expense for 1995 amounted to $131.5 million, an increase of $33.1
million, or 33.6%, compared to $98.5 million in 1994. This increase in interest
expense of $33.1 million was due primarily to an increase in interest rates of
$21.4 million and to an increase in the average volume of deposits and
borrowings of $11.7 million.
The following table shows the major categories of assets and liabilities
together with their respective interest income or expense and the rates earned
and paid by Webster.
<TABLE>
<CAPTION>
(Dollars In Thousands) Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net (a) $ 1,935,608$ 144,896(b) 7.49% $ 1,810,382 $ 129,859(b) 7.17% $ 1,524,133 $105,924(b) 6.95%
Segregated Assets,
net (a) 123,293 9,592 7.78 126,207 9,789 7.7 200,629 15,448 7.70
Mortgage-backed
securities 776,710 52,718 6.79 602,865 38,786 6.43 395,623 24,777 6.26
Interest-bearing
deposits 24,790 948 3.80 30,312 1,071 3.53 19,328 650 3.36
Securities 182,400 10,657 6.22(c) 191,682 11,315 5.99(c) 144,815 7,790 5.49(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 3,042,801 218,811 7.20 2,761,448 190,820 6.9 2,284,528 154,589 6.77
Other assets 101,367 211,058 102,741
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,144,168 $ 2,972,506 $ 2,387,269
- ------------------------------------------------------------------------------------------------------------------------------------
Savings, DDA and
escrow $ 840,822 $ 14,122 1.68% $ 858,887 $ 15,769 1.84% $ 708,135 $ 15,859 2.24%
Money market
savings and
fixed maturity
deposits 1,632,576 84,013 5.15 1,466,179 61,066 4.16 1,270,026 52,828 4.16
FHL Bank advances 419,822 27,501 6.55 351,693 17,969 5.11 219,874 10,071 4.58
Repurchase Agreements 37,830 2,237 5.91 -- -- -- -- -- --
Other borrowings 40,000 3,660 9.15 40,000 3,660 9.15 24,836 2,045 8.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 2,971,050 131,533 4.42 2,716,759 98,464 3.62 2,222,871 80,803 3.64
Other liabilities 1,884 106,878 35,621
Shareholders' equity 171,234 148,869 128,777
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income
and interest rate
spread $ 87,278 2.78 $ 92,356 3.29 $ 73,786 3.13
Total liabilities and
shareholders'
equity $ 3,144,168 $ 2,972,506 $ 2,387,269
- ------------------------------------------------------------------------------------------------------------------------------------
Net yield on average
earning assets 2.89% 3.34% 3.23%
<FN>
(a) Interest on nonaccrual loans has been included only to the extent
reflected in the Consolidated Statements of Income. Nonaccrual loans,
however, are included in the average balances outstanding.
(b) Includes discount and fee income, net of $1.1 million, $547,000 and
$707,000 in 1995, 1994 and 1993, respectively.
(c) Yields are adjusted to a fully taxable equivalent basis.
</FN>
</TABLE>
Net interest income also can be analyzed in terms of the impact of changing
rates and changing volumes. The following table describes the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected Webster's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rates (changes in rates multiplied by prior volume), and (iii) the net change.
The change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
17
<PAGE>
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1995 v. 1994 1994 v. 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
- ----------------------------------------------------------------------------------------------------------------------------------
Rate Volume Total Rate Volume Total
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans and Segregated Assets $ 5,802 $ 9,038 $ 14,840 $ 3,165 $ 15,111 $ 18,276
Mortgage-backed securities 2,232 11,700 13,932 690 13,319 14,009
Securities 47 (828) (781) 772 3,174 3,946
Total 8,081 19,910 27,991 4,627 31,604 36,231
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on interest-bearing liabilities:
Deposits 16,161 5,139 21,300 (3,158) 11,306 8,148
FHL Bank advances and other
borrowings 5,216 6,553 11,769 1,530 7,983 9,513
- ----------------------------------------------------------------------------------------------------------------------------------
Total 21,377 11,692 33,069 (1,628) 19,289 17,661
Net change in net interest income $(13,296) $ 8,218 $ (5,078) $ 6,255 $ 12,315 $ 18,570
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Provision for Loan Losses
The provision for loan losses for 1995 was $3.1 million versus $3.2 million for
1994. The allowance for losses on loans at December 31, 1995 amounted to $41.8
million and represented 110.45% of nonaccrual loans versus $46.8 million or
134.04% of nonaccrual loans at December 31, 1994.
Noninterest Income
Noninterest income for 1995 amounted to $22.0 million, compared to $13.6 million
in 1994. Fees and service charges totaled $14.1 million in 1995, an increase of
$1.9 million, or 15.9% from 1994 due primarily to a larger customer base. Gains
on sales of loans, mortgage loan servicing rights, securities and
mortgage-backed securities amounted to $4.3 million in 1995 compared to losses
of $1.2 million in 1994. The 1995 results include non-recurring income of $2.2
million, which represent gains on the sale of mortgage loan servicing rights and
non-recurring losses on the sale of securities as part of a portfolio
restructuring plan. Other noninterest income for 1995 amounted to $3.5 million,
an increase of $.9 million from 1994.
Noninterest Expenses
Noninterest expenses for 1995 amounted to $79.6 million compared to $79.3
million in 1994. The increase of $.3 million is primarily due to increased
salaries and employee benefits, occupancy, furniture and equipment, and other
operating expenses, offset by decreases in federal deposit insurance premiums
and foreclosed properties expenses. Included in the 1995 results are a total of
$6.4 million of non-recurring expenses which include: $3.3 million of expenses
related to the Shelton acquisition, $2.1 million of expenses related to changing
the name of and merging together Webster's banking subsidiaries, and $1.0
million of expenses related to charges incurred in preparation for the
acquisition of 20 banking offices from the former Shawmut Bank. Also included in
the 1995 results were benefits from the reduction of the Bank Insurance Fund
("BIF"), deposit insurance premiums. The Federal Deposit Insurance Corporation
determined that the BIF had met its required reserve ratio as of June 1, 1995
and lowered the BIF premium retroactively to that date. There was no reduction
by the FDIC in the premium rates of the Savings Association Insurance Fund
("SAIF") which has not met its required reserve level. At December 31, 1995,
approximately 59% of Webster Bank's deposits are assessed premiums at the BIF
rate and 41% at the SAIF rate. Deposits acquired in the Shawmut transaction on
February 16, 1996 will be assessed at the lower BIF rates. The decrease in
foreclosed property expenses is due to lower provisions for foreclosed property
losses and lower foreclosed property expenses due to a decrease in the
outstanding balance of foreclosed properties. Included in the 1994 results are
$700,000 of expenses related to the Shoreline acquisition and a $5.0 million
write-down of the First Constitution core deposit intangible asset. An
evaluation of the core deposit intangible asset at December 31, 1995 was
performed using a discounted cash flow analysis. This analysis revealed that
there has not been any further impairment of this asset.
18
<PAGE>
Income Taxes
Income tax expense for 1995 increased to $8.2 million from $4.8 million in 1994.
Included in the 1995 and 1994 results are $2.9 million and $4.5 million of
benefits from the utilization of tax loss carryforwards and the reduction of the
deferred tax asset valuation allowance primarily related to Bristol Savings
Bank.
Comparison of 1994 and 1993 Years
General For 1994, Webster reported net income of $18.7 million, or $2.44 per
share on a fully diluted basis. Included in the 1994 results were $700,000 of
expenses related to the Shoreline acquisition, a $5.0 million write-down of the
First Constitution core deposit intangible asset and income tax benefits of $4.5
million related to a reduction of the deferred tax asset valuation allowance.
Net income for 1993 amounted to $18.9 million and net income available to common
shareholders was $16.2 million. Included in the 1993 results was cumulative
change in the method of accounting for income taxes of $4.6 million. This change
occurred as a result of the adoption of Statement of Financial Accounting
Standard No. 109, "Accounting For Income Taxes" and is discussed in more detail
in Note 14 to the Consolidated Financial Statements. Operating earnings for 1994
amounted to $16.9 million or $2.44 per fully diluted share compared to $11.6
million or $2.04 per fully diluted share for the same period a year earlier. The
increased operating earnings for 1994 were primarily attributed to increased
earning assets as a result of the Bristol acquisition and lower provisions for
loan losses.
Operating Earnings Summary
(In Thousands) Years Ended December 31,
- ------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------
Net Income $ 18,685 $ 18,875
Less Cumulative Change in
Method of Accounting for
Income Taxes -- 4,575
- ------------------------------------------------------------------
Operating Earnings 18,685 14,300
Less Preferred Stock Divided
Requirements 1,716 2,653
- ------------------------------------------------------------------
Operating Earnings Available
to Common Shareholders $ 16,969 $ 11,647
- ------------------------------------------------------------------
Net Interest Income
Net interest income before the provision for loan losses increased $18.6 million
in 1994 to $92.4 million from $73.8 million for 1993. The increase was primarily
the result of higher volumes of interest-earning assets due to the Bristol
acquisition.
Interest Income
Total interest income for 1994 amounted to $190.8 million, an increase of $36.2
million, or 23.4%, compared to 1993. This increase in income was due primarily
to an increase in the average volume of loans, mortgage-backed securities and
securities acquired in the Bristol acquisition and to an increase in the average
yield on all interest-earning assets which increased to 6.91% in 1994 from 6.77%
in 1993.
19
<PAGE>
Interest Expense
Interest expense for 1994 amounted to $98.5 million, an increase of $17.7
million, or 21.9%, compared to 1993. The increase in interest expense of $17.7
million was attributable to an increase in the average volume of deposits and
borrowings of $19.3 million and a decrease of $1.6 million related to interest
rates. The increase in volume is primarily attributable to an increase of
interest-bearing liabilities as a result of the Bristol acquisition.
Provision for Loan Losses
The provision for loan losses for 1994 was $3.2 million versus $4.6 million for
1993. The allowances for losses on loans at December 31, 1994 amounted to $46.8
million and represented 134.04% of nonaccrual loans versus $45.2 million or
135.79% of nonaccrual loans at December 31, 1993.
Noninterest Income
Noninterest income for 1994 amounted to $13.6 million, compared to $10.7 million
in 1993. Fees and service charges totaled $12.2 million in 1994, an increase of
$4.3 million, or 54%, from 1993 primarily due to increases in fees from checking
and deposit products and loan servicing as a result of the Bristol acquisition.
Losses on sales of loans, securities and mortgage-backed securities amounted to
$1.2 million in 1994 compared to gains of $1.9 million in 1993. Other
noninterest income for 1994 amounted to $2.6 million, compared to $911,000 in
1993, an increase of $1.7 million primarily as a result of the Bristol
acquisition.
Noninterest Expenses
Noninterest expenses for 1994 amounted to $79.3 million compared to $55.0
million in 1993. The increase of $24.3 million is primarily due to increased
salaries, benefits, occupancy, furniture and equipment costs, increased premiums
for federal deposit insurance, foreclosed property expenses and provisions and
other noninterest expenses and are related primarily to the Bristol acquisition.
Expenses for 1994 also included a $5.0 million write-down of the core deposit
intangible asset recorded in the First Constitution acquisition and $700,000 of
expenses related to the Shoreline acquisition. 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 increases in interest rates.
In addition, because of the loss of customer accounts the ability to collect fee
income on such accounts had been reduced. Based on these changes, management's
estimates of fees and service charges and interest expense on deposits indicate
that the original projections of such amounts 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 increase in foreclosed property expenses and provisions of $1.9
million is primarily due to increased provisions for foreclosed properties.
Income Taxes
Income tax expense for 1994 decreased to $4.9 million from $10.6 million in 1993
due to benefits from the utilization of tax loss carryforwards and the reduction
of the deferred tax asset valuation allowance primarily relating to Bristol
Savings Bank. Included in the 1993 results is a cumulative change in the method
of accounting for income taxes of $4.6 million as a result of the adoption of
Financial Accounting Standard No. 109, "Accounting for Income Taxes", which is
discussed in more detail in Note 14 to the Consolidated Financial Statements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
20
<PAGE>
Unlike most industrial companies, virtually all of the assets and liabilities of
a banking institution are monetary in nature. As a result, interest rates have a
more significant impact on a banking institution's performance than the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods and services. In
the current interest rate environment, the maturity structure of Webster's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
Recent Financial Accounting Standards
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation." This statement encourages all companies to adopt a new fair value
based method of accounting for stock compensation plans in place of the
intrinsic value method prescribed by Accounting Principals Board ("APB") Opinion
25. In adopting the fair value based method, companies will record compensation
cost related to activity with their stock-based compensation plans. Companies
that choose to continue to account for stock- based compensation under the
provision of APB Opinion 25 will be required to disclose the impact on net
income and earnings per share as if they had adopted the fair value method.
Webster does not plan to adopt the fair value method. This standard applies to
financial statements for fiscal years beginning after December 31, 1994.
Calendar year companies will first be required to disclose comparable pro forma
net income and earnings per share for 1995 and 1996 in their 1996 financial
statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
("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 the
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. At December 31,
1995, the fair value of all mortgage servicing rights approximates its book
value of $2.6 million, therefore, no valuation allowance was recorded.
In October 1994, the FASB issued statement of Financial Accounting Standard No.
119 ("SFAS 119"), "Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments." This statement requires institutions to
disclose the average fair value of derivative instruments as well as net gains
and losses arising from trading revenues. Webster currently holds short futures
positions to minimize the price volatility of certain adjustable-rate assets
held as Trading Securities. Changes in the market value of short futures
positions are recognized in the statements of income as a gain or loss in the
period for which the change occurred. Webster also holds various interest-rate
financial instruments in the form of interest rate swaps and caps as hedges
against increases in interest rates. This statement is effective for fiscal
years ending after December 15, 1994. See Notes 3 and 11.
In November 1993, the Accounting Standards Executive Committee issued Statement
of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans."
This statement requires institutions with employee stock ownership plans to
record compensation expense equivalent to the fair value of shares committed to
be released to employees. Shares not committed to be released are excluded from
outstanding shares for the calculation of net income per share. Such provisions
are not required for employee stock ownership plan shares issued prior to
December 31, 1992. On March 3, 1994, in conjunction with the subscription and
public offerings of 1,150,000 shares of common stock of Webster, the Webster
Bank Employee Stock Ownership Plan purchased 100,000 additional shares. The
implementation of Statement of Position 93-6 did not have an effect on earnings
for 1994 since no shares related to the purchase were committed for release
during 1994. During 1995, 4,127 shares were released and the impact on earnings
was $85,000 before income taxes. The exclusion of the additional employee stock
ownership plan shares not committed to be released does not have a material
effect on the computation of net income per share.
In May 1993, the FASB issued Statement of Financial Accounting Standard No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities." As allowed under the provisions of this statement, Webster elected
early adoption of SFAS No. 115 on December 31, 1993. The early adoption and
implementation of SFAS No. 115 did not
21
<PAGE>
have a material affect on the financial statements. See Note 1 to the
Consolidated Financial Statements for a discussion of SFAS No. 115.
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 the 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.
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.
Recent Proposed Legislation
Legislation has been introduced in the United States House of Representatives
("House") that would eliminate the federal savings association charter by
January 1, 1998. If such legislation is enacted, Wester Bank would be required
to convert its federal savings charter to either a national bank charter or to a
state depository institution charter. 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 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. The pending legislation is
expected to provide relief as to recapture of the bad debt deduction that
otherwise would be applicable if Webster Bank were unable to continue as a
qualified savings institution for federal tax purposes. Webster is unable to
predict whether such legislation will be enacted or, if enacted, whether it will
contain relief as to bad debt deductions previously taken by Webster Bank.
22
<PAGE>
Savings Association Insurance Fund Recapitalization
The current financial condition of the Savings Association Insurance Fund
("SAIF") has resulted in the introduction of various legislation in both the
United States Senate ("Senate") and the House to recapitalize the SAIF and then
to merge the SAIF into the Bank Insurance Fund ("BIF"). Both the Senate and
House legislation, as currently proposed, would generally impose a special
one-time assessment of approximately 85 cents per $100 of assessable SAIF
deposits at March 31, 1995. Depending upon the final form of this legislation,
the special assessment may apply retroactively to approximately $882 million of
assessable SAIF deposits at Webster Bank. After the special assessment, it is
proposed that SAIF premium rates would then be the same as BIF rates until the
funds are merged, which would significantly reduce Webster Bank's future federal
deposit insurance premiums. Webster Bank is unable to predict whether this
legislation will be enacted, the amount or applicable retroactive date of any
one-time assessment or the rates that would then apply to assessable SAIF
deposits.
23
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Condition
(Dollars In Thousands, Except Share Data) December 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Depository Institutions $ 44,228 $ 44,304
Interest-bearing Deposits 26,017 54,318
Securities: (Note 3)
Trading at Fair Value 44,604 23,095
Available for Sale, at Fair Value 498,088 175,214
Held to Maturity, (Market Value: $505,775 in 1995;
$599,412 in 1994) 501,948 630,449
Loans Receivable, Net (Note 4) 1,891,956 1,869,216
Segregated Assets, Net (Note 5) 104,839 137,096
Accrued Interest Receivable 21,585 18,359
Premises and Equipment, Net (Note 6) 40,654 36,632
Foreclosed Properties, Net (Note 13) 17,176 26,588
Prepaid Expenses and Other Assets (Note 7) 28,575 38,580
- --------------------------------------------------------------------------------------------------------------------
Total Assets $ 3,219,670 $ 3,053,851
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits (Note 8) $ 2,400,202 $ 2,431,945
Federal Home Loan Bank Advances (Note 9) 383,100 370,700
Other Borrowings (Note 10) 170,014 43,675
Advance Payments by Borrowers for Taxes and Insurance 14,435 13,375
Accrued Expenses and Other Liabilities 41,946 37,349
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 3,009,697 2,897,044
- --------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Notes 15 and 16)
Cumulative Convertible Preferred Stock, Series B,
171,869 shares issued and outstanding at December 31, 1995 and
172,129 shares issued and outstanding at December 31, 1994 2 2
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 8,501,746 shares at December 31, 1995 and
7,255,834 shares at December 31, 1994 85 73
Paid in Capital 138,263 104,961
Retained Earnings 75,858 63,216
Less Treasury Stock at cost, 424,024 shares at
December 31, 1995 and 475,874 shares at
December 31, 1994 (3,290) (3,692)
Less Employee Stock Ownership Plan Shares
Purchased with Debt (3,207) (3,675)
Unrealized Gains (Losses) on Securities, Net 2,262 (4,078)
- --------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 209,973 156,807
- --------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 4, 6, and 17)
Total Liabilities and Shareholders' Equity $ 3,219,670 $ 3,053,851
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
(Dollars In Thousands, Except Share Data) Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans and Segregated Assets $ 154,488 $ 139,648 $ 121,372
Mortgage-backed Securities 52,718 38,786 24,777
Securities and Interest-bearing Deposits 11,605 12,386 8,440
- --------------------------------------------------------------------------------------------------------------------
Total Interest Income 218,811 190,820 154,589
- --------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on Deposits (Note 8) 98,135 76,835 68,687
Interest on Borrowings 33,398 21,629 12,116
- --------------------------------------------------------------------------------------------------------------------
Total Interest Expense 131,533 98,464 80,803
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income 87,278 92,356 73,786
Provision for Loan Losses (Note 4) 3,100 3,155 4,597
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 84,178 89,201 69,189
- --------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Fees and Service Charges 14,131 12,188 7,912
Gain on Sale of Loans and Loan Servicing, Net (Note 4) 3,116 258 1,469
Gain (loss) on Sale of Securities, Net (Note 3) 1,173 (1,440) 411
Other Noninterest Income 3,555 2,623 911
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 21,975 13,629 10,703
- --------------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Salaries and Employee Benefits 37,608 34,943 22,336
Occupancy Expense of Premises 6,390 5,696 4,757
Furniture and Equipment Expenses 5,999 5,976 4,066
Federal Deposit Insurance Premiums 3,990 5,742 3,921
Foreclosed Property Expenses
and Provisions, Net (Note 13) 4,025 6,949 5,085
Non-recurring Expenses (Note 2) 6,371 5,700 --
Other Operating Expenses 15,204 14,289 14,832
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 79,587 79,295 54,997
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and
Cumulative Effect of Change in Method
of Accounting for Income Taxes 26,566 23,535 24,895
Income Taxes (Note 14) 8,246 4,850 10,595
- --------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Change in
Method of Accounting for Income Taxes 18,320 18,685 14,300
Cumulative Effect of Change in
Method of Accounting for Income Taxes (Note 14) -- -- 4,575
- --------------------------------------------------------------------------------------------------------------------
Net Income 18,320 18,685 18,875
Preferred Stock Dividends 1,296 1,716 2,653
- --------------------------------------------------------------------------------------------------------------------
Net Income Available to
Common Shareholders $ 17,024 $ 16,969 $ 16,222
- --------------------------------------------------------------------------------------------------------------------
Net Income Per Common Share Before
Cumulative Effect of Change in Method
of Accounting for Income Taxes:
Primary $ 2.44 $ 2.69 $ 2.25
Fully Diluted 2.30 2.44 2.04
</TABLE>
See accompanying notes to consolidated financial statements
25
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Dollars In Thousands) Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 18,320 $ 18,685 $ 18,875
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 3,100 3,155 4,597
Provision for Foreclosed Property Losses 2,000 3,082 1,996
Provision for Depreciation and Amortization 4,507 4,383 3,180
Amortization of Securities Premiums, Net 884 390 2,103
Amortization and Write-down of Core Deposit Intangible 728 6,372 1,633
(Gains) Losses on Sale of Foreclosed Properties (918) 465 143
Loans and Securities (Gains) Losses, Net (4,398) 1,322 (1,675)
Losses (Gains) on Sale of Trading Securities 109 (140) (205)
(Increase) Decrease in Trading Securities (19,859) 25,684 (27,906)
Decrease (Increase) in Investments Held for Sale -- 5,392 (5,372)
Loans Originated for Sale (101,537) (288,880) (84,230)
Sale of Loans, Originated for Sale 109,787 208,775 91,740
(Increase) Decrease in Interest Receivable (3,171) 453 (328)
Increase in Interest Payable 960 3,888 2,793
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 3,302 (44,671) 28,742
Decrease in Prepaid Expenses and Other Assets 2,240 3,543 8,384
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 16,054 (48,102) 44,470
- --------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchases of Securities, Available for Sale (148,803) (99,631) (93,071)
Purchases of Securities, Held to Maturity (308,021) (106,136) (330,739)
Maturities of Securities 14,097 25,944 34,088
Proceeds from Sales of Securities, Available for Sale 140,917 26,767 14,923
Net Decrease in Interest-bearing Deposits 28,301 396 29,631
Purchase of Loans (2,123) (37,181) (5,468)
Sale of Consumer Loans Held for Sale -- -- 19,695
Net (Increase) Decrease in Loans (28,598) (117,242) 13,057
Proceeds from Sales of Foreclosed Properties 12,870 23,106 10,211
Net Decrease in Segregated Assets 28,941 39,902 46,909
Principal Collected on Mortgage-backed Securities 118,174 166,503 151,143
Purchase of Premises and Equipment (8,529) (6,916) (4,584)
Net Cash and Cash Equivalents Received from Bank
Institutions Acquired in a Purchase Transaction -- 15,490 --
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (152,774) (68,998) (114,205)
- --------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net (Decrease) Increase in Deposits (31,743) 26,802 (28,675)
Net Proceeds from Sale of Common Stock 32,112 21,923 --
Repayment of FHLB Advances (1,039,613) (1,147,042) (544,230)
Proceeds from FHLB Advances 1,052,014 1,247,542 627,842
Repayment of Other Borrowings (61,193) -- (5,000)
Proceeds from Other Borrowings 188,077 -- 40,000
Redemption of Preferred Stock Series A -- -- (18,250)
Cash Dividends to Common and Preferred Shareholders (5,690) (4,724) (5,015)
Net Increase (Decrease) in Advance Payments for
Taxes and Insurance 1,060 (8,710) (2,440)
Exercise of Stock Options 1,620 569 1,026
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 136,644 136,360 65,258
- --------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (76) 19,260 (4,477)
Cash and Cash Equivalents at Beginning of Period 44,304 25,044 29,521
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 44,228 $ 44,304 $ 25,044
- --------------------------------------------------------------------------------------------------------------------
26
<PAGE>
Supplemental Disclosures:
Income Taxes Paid $ 9,087 $ 9,253 $ 19,440
Interest Paid 130,573 102,356 78,010
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of Loans to Foreclosed Properties 12,002 47,479 18,465
Transfer of Securities from Held to Maturity to
Available for Sale 301,424 -- --
Securitization of Residential Real Estate Loans -- 137,458 --
</TABLE>
See accompanying notes to consolidated financial statements
27
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Employee
Stock Unrealized
Ownership Gains
Plan Shares (Losses) On
Preferred Common Paid-In Retained Treasury Purchased Securities,
(In thousands, Except Share Data) Stock Stock Capital Earnings Stock With Debt Net Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- 6 5,800 (5,930) -- -- -- (124)
Net Unrealized Gain
on Securities Available for Sale,
Net of Taxes -- -- -- -- -- -- 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 -- -- -- (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
Net Income for 1995 -- -- -- 18,320 -- -- -- 18,320
Dividends Paid: $.64 Per
Common Share -- -- -- (4,382) -- -- -- (4,382)
Dividends Paid or Accrued:
Preferred Series B -- -- -- (1,296) -- -- -- (1,296)
Allocation of ESOP Shares -- -- (3) -- -- 468 -- 465
Fractional Shares Paid -- -- (13) -- -- -- -- (13)
Exercise of Stock Options -- -- 1,218 -- 402 -- -- 1,620
Proceeds from Sale of
Common Stock -- 12 32,100 -- -- -- -- 32,112
Net Unrealized Gain
on Securities Available for Sale,
28
<PAGE>
Net of Taxes -- -- -- -- -- -- 6,340 6,340
Balance, December 31, 1995 $ 2 $ 85 $138,263 $ 75,858 $ (3,290) $ (3,207) $ 2,262 $209,973
</TABLE>
See accompanying notes to consolidated financial statements
Notes To Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
a) Business
Webster Financial Corporation ("Webster"), headquartered in Waterbury,
Connecticut, is the holding company for Webster Bank, a federally chartered
savings bank ("Webster Bank" or "the Bank"). Webster Bank is engaged in
consumer, commercial and mortgage banking primarily 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
64 banking offices located in Hartford, New Haven, Fairfield, and Litchfield
Counties in Connecticut.
Webster Bank's predecessor, First Federal Bank, a federal savings bank, ("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 Savings Bank
("Bristol"). See Note 2. Bristol, founded in 1870, was 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 Bank merged into Webster Bank, as the surviving savings bank,
(iii) Webster acquired Shelton Bancorp, Inc. ("Shelton") and its wholly-owned
subsidiary, Shelton Savings 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 Savings Bank merged into Webster Bank. The acquisition of
Shelton was accounted for as a pooling of interests. See Note 2.
b) Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Webster and the
Bank. The consolidated financial statements and notes hereto have been
retroactively restated to include the accounts of Shelton acquired on November
1, 1995 and Shoreline Bank and Trust and Company ("Shoreline") acquired on
December 16, 1994 as if the mergers had occurred at the beginning of the period
of the earliest date presented. The financial statements have been prepared in
conformity with generally accepted accounting principles and all significant
intercompany transactions have been eliminated in consolidation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported 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 foreclosed property.
c) Allowance for Loan Losses
An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, current and anticipated
economic conditions and other pertinent factors which, in management's judgment,
deserve current recognition in estimating loan losses.
29
<PAGE>
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Webster's allowance for loan
losses. Such agencies may require Webster to recognize additions to the
allowance for loan losses based on judgments different from those of management.
d) Foreclosed Properties
Foreclosed Properties consists of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed
Properties are reported at the lower of fair value less estimated selling
expenses or cost with an allowance for losses to provide for declines in 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 management has the intent and ability to hold to maturity are classified as
Held to Maturity and are carried at cost, adjusted for amortization of premiums
and accretion of discounts over the estimated terms of the securities 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-rate Instruments
Webster utilizes as part of its asset liability management strategy various
interest rate contracts including short futures positions, interest rate swaps
and interest rate caps. Webster holds short futures positions to minimize the
price volatility of certain adjustable rate assets held as Trading Securities.
Changes in the market value of short futures positions are recognized as a gain
or loss in the consolidated statement of income in the period for which the
change occurred.
Interest rate caps and swaps are entered into as hedges against future interest
rate fluctuations. Webster does not trade in speculative interest rate
contracts. Those agreements meeting the criteria for hedge accounting treatment
are designated as hedges and are accounted for as such. If a contract is
terminated, any unrecognized gain or loss is deferred and amortized as an
adjustment to the yield of the related asset or liability over the remainder of
the period that is
30
<PAGE>
being managed. If the linked asset or liability is disposed of prior to the end
of the period being managed, the related interest rate contract is marked to
fair value, with any resulting gain or loss recognized in current period income
as an adjustment to the gain or loss on the disposal of the related asset or
liability. Interest income or expense associated with interest rate caps and
swaps is recorded as a component of net interest income. Interest rate caps and
swaps that hedge available for sale assets are marked to fair value monthly with
adjustments to shareholders' equity on a tax effected basis.
h) Interest-bearing Deposits
Interest-bearing Deposits consist primarily of deposits in the Federal Home Loan
Bank of Boston. These deposits are carried at cost which approximates market
value.
i) Premises and Equipment
Depreciation of premises and equipment is accumulated on a straight-line basis
over the estimated useful lives of the related assets. Estimated lives are 15 to
40 years for buildings and improvements and 3 to 20 years for furniture,
fixtures and equipment. Amortization of leasehold improvements is calculated on
a straight-line basis over the terms of the related leases.
Maintenance and repairs are charged to expense as incurred and improvements are
capitalized. The cost and accumulated depreciation relating to premises and
equipment retired or otherwise disposed of are eliminated from the accounts and
any resulting gains and losses are credited or charged to income.
j) 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 foreclosed properties 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.
k) Core Deposit Intangible
The excess of the purchase price over the fair value of the tangible net assets
acquired has been allocated to deposits. The 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 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 intangible indicates that it is impaired, a charge to
income for the most recent period is recorded for the amount of such impairment.
l) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. 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.
31
<PAGE>
m) Employee Benefit Plans
The Bank has a noncontributory pension plan covering substantially all
employees. Pension costs are accrued in accordance with generally accepted
accounting principles (SFAS 87) and are funded in accordance with the
requirements of the Employee Retirement Income Security Act (ERISA). The Bank
also accrues costs related to postretirement benefits (SFAS 106).
n) 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, 1995, 1994 and
1993 were 6,969,208, 6,306,994 and 5,177,399, respectively and for fully diluted
earnings per share were 7,970,921, 7,650,343 and 6,621,158 for the same periods,
respectively.
o) Statements of Cash Flows
For purposes of the Statements of Cash Flows, Webster considers cash on hand and
in banks to be cash equivalents.
p) Loan Sales and Servicing Sales
Gains or losses on sales of loans are recognized at the time of the sale. On
July 1, 1995, Webster elected early adoption of Statement of Financial
Accounting Standard No. 122 ("SFAS No. 122") "Accounting for Mortgage Servicing
Rights." 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. See Note 4.
When loans sold have an average contractual interest rate, adjusted for normal
servicing costs, which differs from the agreed yield to the purchaser, gains or
losses are recognized equal to the present value of such differential over the
estimated remaining life of such loans. Any resulting net premium is amortized
over the same estimated life using a method approximating the interest method.
The aggregate of unamortized excess servicing rights arising from gains on loan
sales is included in the accompanying Consolidated Statements of Condition as a
component of Prepaid Expenses and Other Assets and is periodically reviewed and
adjusted for changed circumstances.
q) Reclassifications
Certain financial statement balances as previously reported have been
reclassified to conform to the 1995 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
acquisition of Shelton, completed on November 1, 1995, which was accounted for
as a pooling of interests, and to the acquisition of Shoreline, completed on
December 16, 1994, which was also accounted for as a pooling of interests. See
Note 2 for additional information regarding the Shoreline and Shelton
acquisitions.
Note 2
Acquisitions
Pooling of Interests Transactions
On November 1, 1995, Webster acquired Shelton, with $295 million in assets based
in Shelton, Connecticut. In connection with the acquisition, Webster issued
1,292,549 shares of its common stock for all of the outstanding shares of
Shelton common stock, based on an exchange ratio of .92 of a share of Webster
common stock for each of Shelton's outstanding shares of common stock.
32
<PAGE>
On December 16, 1994, Webster acquired Shoreline, with $51 million in assets,
based in Madison, Connecticut. In connection with the acquisition of Shoreline,
Webster issued 266,500 shares of its common stock for all of the outstanding
shares of Shoreline common stock, based on an exchange ratio of 1 share of
Webster's common stock for 2 shares of Shoreline's common stock. Shoreline was
merged into the Bank on the acquisition date.
Both acquisitions were accounted for as a pooling of interests and as such the
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:
<TABLE>
<CAPTION>
(In Thousands) Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
Pooling
Expense
Webster Shelton* Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Interest Income $ 79,908 $ 7,370 $ -- $ 87,278
Provision for Loan Losses 2,750 350 -- 3,100
Noninterest Income 20,192 1,783 -- 21,975
Noninterest Expenses 70,365 5,922 3,300 79,587
Income Taxes 7,115 1,13 -- 8,246
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 19,870 $ 1,750 $(3,300) $ 18,320
- --------------------------------------------------------------------------------------------------------------------
(In Thousands) Year Ended December 31, 1994
- --------------------------------------------------------------------------------------------------------------------
Pooling
Expense
Webster Shelton Shoreline Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
(In Thousands) Year Ended December 31, 1993
- --------------------------------------------------------------------------------------------------------------------
Webster Shelton Shoreline Combined
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
<FN>
* Shelton's results of operations for the 1995 period shown above include
earnings from January 1, 1995 to October 31, 1995. On November 1, 1995,
Shelton was merged into Webster Bank and results of operations subsequent to
that date are included with those of Webster. 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.
</FN>
</TABLE>
The 1995 Statement of Income includes $6.4 million of non-recurring expenses:
$3.3 million of expenses related to the
33
<PAGE>
Shelton acquisition, $2.1 million of expenses related to changing the name of
and merging together Webster's banking subsidiaries, and $1.0 million of
expenses related to charges incurred in the preparation for the acquisition of
20 banking offices from the former Shawmut Bank which was consummated on
February 16, 1996. Included in the 1994 Statement of Income are $5.7 million of
non-recurring expenses which include a $5.0 million write-down of the First
Constitution core deposit intangible asset (See Note 7), and $700,000 of
expenses related to the Shoreline acquisition.
Purchase Transactions
The Shawmut Transaction
On October 1, 1995, Webster Bank's predecessor, First Federal entered into a
Purchase and Assumption Agreement with Shawmut Bank Connecticut, as part of the
Fleet/Shawmut Divestiture, to acquire 20 Shawmut branch banking offices in the
Hartford Banking Market. The Shawmut Transaction was consummated on February 16,
1996, with Webster Bank receiving approximately $845 million in deposits, and
$586 million in loans. In connection with the Shawmut Transaction on December
15, 1995, Webster completed the sale of 1,249,600 shares of its common stock in
an underwritten public offering. The Shawmut Transaction is being accounted for
as a purchase and the results of operations related to Shawmut's branch banking
offices are not included in the accompanying Consolidated Financial Statements.
Such results will be included subsequent to February 16, 1996, the date of
consummation of the acquisition.
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, was headquartered in Bristol,
Connecticut and had 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. 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 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, Webster Bank's predecessor, 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 and added 14
banking offices in New Haven County and two banking offices in Fairfield County.
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, First Federal received a
$24.2 million cash payment from the FDIC to purchase certain assets and assume
certain liabilities of First Constitution in the acquisition. The payment
increased cash, which was offset on the consolidated statement of condition by
various adjustments reflecting the market value of the assets and liabilities
acquired, 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. 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 agreed to
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
34
<PAGE>
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 agreed to 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, Webster's predecessor, 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.
Note 3
Securities
A summary of securities follows:
<TABLE>
<CAPTION>
(In Thousands) December 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading Securities:
Mortgage-Backed Securities:
GNMA $ 14,766 $ 14,766 $ 13,706 $ 13,706
FHLMC 29,838 29,838 -- --
Collateralized Mortgage Obligations -- -- 9,311 9,311
Equity Securities -- -- 78 78
- --------------------------------------------------------------------------------------------------------------------
44,604 44,604 23,095 23,095
- --------------------------------------------------------------------------------------------------------------------
Available for Sale Portfolio:
U.S. Treasury Notes:
Matures within 1 year 1,000 1,000 6,416 6,332
Matures over 1 within 5 years -- -- 7,530 7,300
U.S. Government Agency:
Matures within 1 year -- -- 100 99
Matures over 1 within 5 years 12,901 12,522 33,480 31,857
Corporate Bonds and Notes:
Matures over 1 within 5 years 23,005 23,005 -- --
Matures over 5 within 10 years 2,737 2,730 2,985 2,974
Mutual Funds* 34,077 33,947 20,146 19,509
Equity Securities:
Stock in Federal Home Loan Bank of Boston 30,039 30,039 26,269 26,269
Other Equity Securities 9,195 11,930 13,619 13,231
Mortgage-Backed Securities:
FNMA 139,860 142,827 11,316 11,560
FHLMC 62,572 63,221 -- --
GNMA 20,443 20,512 -- --
35
<PAGE>
Collateralized Mortgage Obligations 155,321 155,539 57,121 56,083
Unamortized Hedge 816 816 -- --
Unrealized Securities Gains (Losses), Net 6,122 -- (3,768) --
- --------------------------------------------------------------------------------------------------------------------
498,088 498,088 175,214 175,214
- --------------------------------------------------------------------------------------------------------------------
(In Thousands) December 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
- --------------------------------------------------------------------------------------------------------------------
Held to Maturity Portfolio:
U.S. Treasury Notes:
Matures within 1 year 1,577 1,577 3,318 3,248
Matures over 1 within 5 years 8,262 8,445 19,567 18,595
U.S. Government Agency:
Matures within 1 year 1,003 1,006 -- --
Matures over 1 within 5 years 39,868 41,330 61,822 60,239
Matures over 5 within 10 years 999 1,008 1,000 938
Corporate Bonds and Notes:
Matures within 1 year -- -- 702 698
Matures over 1 within 5 years 2,555 2,579 2,564 2,459
Matures over 5 within 10 years 330 325 418 389
Mortgage-Backed Securities:
FHLMC 42,877 43,714 87,650 82,393
FNMA 31,785 32,457 167,254 158,683
GNMA 1,622 1,698 1,919 1,922
Collateralized Mortgage Obligations 370,762 371,342 283,861 269,492
Other Mortgage-Backed Securities 308 294 374 356
- --------------------------------------------------------------------------------------------------------------------
501,948 505,775 630,449 599,412
- --------------------------------------------------------------------------------------------------------------------
Total $ 1,044,640 $ 1,048,467 $ 828,758 $ 797,721
- --------------------------------------------------------------------------------------------------------------------
<FN>
* Mutual funds consist primarily of funds that invest in U.S. Government
securities, Mortgage-backed securities and money market instruments.
</FN>
</TABLE>
A summary of realized gains and losses follows:
<TABLE>
(In Thousands) December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Gains Losses Net Gains Losses Net Gains Losses Net
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trading Securities:
Mortgage-Backed
Securities $ 1,901 $ (194) $ 1,707 $2,086 $(3,247) $(1,161) $ 545 $ (426) $119
Futures and Options
Contracts 3,517 (5,333) (1,816) 5,127 (3,826) 1,301 1,293 (1,224) 69
Equity Securities -- -- -- 128 (128) -- 21 (4) 17
- -------------------------------------------------------------------------------------------------------------------------------
5,418 (5,527) (109) 7,341 (7,201) 140 1,859 (1,654) 205
- -------------------------------------------------------------------------------------------------------------------------------
Available for Sale:
Mortgage-Backed
Securities 898 (878) 20 -- -- -- -- -- --
U.S. Treasury Notes 363 -- 363 -- -- -- -- -- --
U.S. Government Agency -- (284) (284) -- -- -- -- -- --
Mutual Funds -- (139) (139) 72 (1,653) (1,581) 160 (1) 159
Other Equity Securities 1,322 -- 1,322 28 (27) 1 47 -- 47
- -------------------------------------------------------------------------------------------------------------------------------
2,583 (1,301) 1,282 100 (1,680) (1,580) 207 (1) 206
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 8,001 $(6,828) $ 1,173 $ 7,441 $(8,881) $(1,440) $ 2,066 $(1,655) $411
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
During 1995, sales from the available for sale portfolio consisted of treasury,
agency, mortgage-backed securities and equities. There were no sales of debt
securities from the held to maturity portfolio for the years ended December 31,
1995 and 1994. During the 1995 fourth quarter the Bank elected under guidelines
issued by the Financial Accounting Standards Board to transfer certain
securities from the held to maturity to the available for sale portfolio. These
securities had an approximate book value of $301.4 million and fair market value
of $299.9 million. Under this one-time provision, the Bank was able to reassess
the appropriateness of the classifications of all securities and account for any
resulting reclassifications at fair market value. This one-time election to
reclassify securities was required to be completed by December 31, 1995. The
Bank reclassified certain securities to allow greater flexibility in managing
interest-rate risk and to enhance its ability to react to changes in market
conditions.
Summaries of unrealized gains and losses for the available for sale and held to
maturity portfolios follow:
<TABLE>
<CAPTION>
(In Thousands) December 31,
- ------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Gains Losses Net Gains Losses Net
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury Notes $ -- $ -- $ -- $ -- $ (314) $ (314)
U.S. Government Agency -- (379) (379) -- (1,623) (1,623)
Corporate Bonds and Notes -- (7) (7) -- (11) (11)
Mutual Funds 18 (148) (130) -- (638) (638)
Equity Securities 3,012 (278) 2,734 372 (760) (388)
Mortgage-Backed Securities 6,615 (2,711) 3,904 433 (1,227) (794)
- ------------------------------------------------------------------------------------------------------------------------
9,645 (3,523) 6,122 805 (4,573) (3,768)
- ------------------------------------------------------------------------------------------------------------------------
Held to Maturity Portfolio:
U.S. Treasury Notes: -- -- -- 8 (1,228) (1,220)
Matures within 1 year 1 (1) -- -- -- --
Matures over 1 within 5 years 184 (1) 183 -- -- --
U.S. Government Agency
Matures within 1 year 3 -- 3 -- -- --
Matures over 1 within 5 years 1,465 (2) 1,463 -- (1,405) (1,405)
Matures over 5 within 10 years 8 -- 8 -- (62) (62)
Corporate Bonds and Notes
Matures within 1 year -- -- -- 1 (5) (4)
Matures over 1 within 5 years 26 (2) 24 4 (109) (105)
Matures over 5 within 10 years -- (5) (5) 2 (31) (29)
Mortgage-Backed Securities 4,844 (2,693) 2,151 1,175 (29,387) (28,212)
- ------------------------------------------------------------------------------------------------------------------------
6,531 (2,704) 3,827 1,190 (32,227) (31,037)
- ------------------------------------------------------------------------------------------------------------------------
Total $ 16,176 $ (6,227) $ 9,949 $ 1,995 $ (36,800) $ (34,805)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Webster holds short futures positions to minimize the price volatility of
certain adjustable-rate assets held as Trading Securities. At December 31, 1995,
Webster held 385 short positions in Eurodollar futures contracts ($385 million
notional amount) and 98 short positions in 5 and 10 year Treasury note futures
($9.8 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 gains (losses) on sale of securities, net in the consolidated
statement of income.
37
<PAGE>
Note 4
Loans Receivable, Net
A summary of loans receivable, net follows:
(In Thousands) December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Loans Secured by Mortgages on Real Estate:
Conventional, VA and FHA $ 1,504,506 $ 1,486,342
Conventional, VA and FHA Loans Held for Sale 2,872 24,735
Residential Participation 9,368 11,720
Residential Construction 54,410 53,779
Commercial Construction 8,887 4,237
Other Commercial 135,843 135,855
- --------------------------------------------------------------------------------
1,715,886 1,716,668
Consumer Loans:
Home Equity Credit Lines 122,737 128,828
Other Consumer Loans 49,546 38,228
- --------------------------------------------------------------------------------
172,283 167,056
Commercial Non-Mortgage Loans 53,194 45,055
- --------------------------------------------------------------------------------
Gross Loans Receivable 1,941,363 1,928,779
Less:
Loans in Process 20,642 26,697
Allowance for Losses on Loans 41,797 46,772
Premiums on Loans Purchased, Deferred Loan Fees,
and Unearned Discounts, Net (13,032) (13,906)
- --------------------------------------------------------------------------------
Loans Receivable, Net $1,891,956 $1,869,216
- --------------------------------------------------------------------------------
Included above at December 31, 1995 and 1994 are $466.9 million and $531.5
million, respectively, of residential and consumer loans acquired from the FDIC
in the First Constitution acquisition ("Reserve Assets"). For four years after
the acquisition date, the FDIC is required to reimburse the Bank quarterly, in
an aggregate amount up to $20 million, for 80% of all net charge-offs on the
Reserve Assets and the Bank's share of net charge-offs and expenses associated
with Segregated Assets ("Webster Bank's Shared Losses"), if such charge-offs on
the Reserve Assets and Webster Bank's portion of the Shared Losses collectively
exceed $52 million. Cumulative net charge-offs on Reserve Assets and the Bank's
share of net charge-offs and expenses associated with Segregated Assets from
acquisition date through 1995 totaled $34.7 million. No contingent reserve
payments will be made by the FDIC after expiration of the four-year period
following the acquisition date. The Bank 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.
Webster adopted SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
on January 1, 1995, with no impact on its results of operations. At December 31,
1995, Webster had $9.3 million of impaired loans, of which $4.5 million was
measured based upon the fair value of the underlying collateral and $4.8 million
was measured based upon the expected future cash flows of the impaired loans. Of
the total impaired loans of $9.3 million, $6.9 million had allowances for losses
on impaired loans of $2.1 million. In 1995, the average balance of impaired
loans was $12.8 million. The allowance for losses on impaired loans was
established as a result of an allocation from the allowance for losses on loans.
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. Cash basis interest
income recognized on impaired loans for the twelve months ended December 31,
1995 amounted to $50,362.
38
<PAGE>
A detail of the changes in the allowances for loan losses for the three years
follows:
<TABLE>
(In Thousands) December 31,
- -------------------------------------------------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------------------------------------------------
Impaired Total
Loans Loans Allowance 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period $ 46,772 $ -- $ 46,772 $ 45,168 $ 49,780
Provisions Charged to Operations 3,100 -- 3,100 2,780 3,597
Additions to Allowance for Purchased Loans -- -- -- 12,819 --
Transfer from Allowance for Losses for:
Loans Held for Sale -- -- -- -- 2,390
Allocation from General Allowance (2,426) 2,426 -- -- --
Charge-offs (10,527) (333) (10,860) (17,099) (11,667)
Recoveries 2,785 -- 2,785 3,104 1,068
- -------------------------------------------------------------------------------------------------------------------------
Balance at End of Period $ 39,704 $ 2,093 $ 41,797 $ 46,772 $ 45,168
- -------------------------------------------------------------------------------------------------------------------------
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, 1995 and 1994 residential mortgage commitments outstanding
totaled $45.8 million and $35.2 million, respectively. Residential commitments
outstanding at December 31, 1995 consist of adjustable and fixed-rate mortgages
of $17.4 million and $28.4 million, respectively, at rates ranging from 4.8% to
9.8%. Commitments to originate loans generally expire within 60 days. In
addition, at December 31, 1995 and 1994, there were unused portions of home
equity credit lines extended by Webster of $158.5 million and $100.1 million,
respectively. Unused commercial lines of credit, letters of credit, standby
letters of credit and outstanding commercial new loan commitments totaled $40.3
million and $29.5 million at December 31, 1995 and 1994, 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, 1995 and 1994, Webster had forward commitments to sell loans
totaling $2.9 million and $4.4 million, respectively, at rates between 5.5% and
8.0% and 8.0% and 9.5%, respectively. The estimated fair value of commitments to
sell loans approximated the commitment price at December 31, 1995 and 1994.
At December 31, 1995, 1994 and 1993, Webster serviced, for the benefit of
others, mortgage loans aggregating approximately $753.1 million, $944.5 million
and $357.7 million, respectively. During 1995, Webster sold $290.0 million in
mortgage loan servicing rights and recorded a $2.2 million gain on their sale.
39
<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) At December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Commercial Real Estate Loans $ 79,995 $ 98,813
Commercial Loans 10,439 15,377
Multi-Family Real Estate Loans 16,341 18,124
Other Real Estate Owned 1,299 9,202
- ----------------------------------------------------------------------------
108,074 141,516
Allowance for Segregated Asset Losses (3,235) (4,420)
- ----------------------------------------------------------------------------
Segregated Assets, Net $ 104,839 $ 137,096
- ----------------------------------------------------------------------------
During the first five years after the First Constitution 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 First Constitution acquisition,
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 First Constitution acquisition and 100% thereafter.
Upon termination of the seven-year period after the First Constitution
acquisition, if the sum of Webster's 20% share of net charge-offs on Segregated
Assets for the first five years after the acquisition date plus permitted
expenses during the entire seven-year period, less any recoveries during the
sixth and seventh year on Segregated Assets charged off during the first five
years, exceeds $49.2 million, the FDIC is required to pay Webster an additional
15% of any such excess over $49.2 million at the end of the seventh year. As of
December 31, 1995, Webster had received a total of $38.0 million in
reimbursements for net charge-offs and permitted expenses from the FDIC. At
December 31, 1995 and 1994, Webster had allowances for losses of $3.2 million
and $4.4 million, respectively, to cover its portion of Segregated Assets
losses.
A detail of changes in the allowance for Webster's share of losses for
Segregated Assets follows:
(In Thousands) At December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Balance at Beginning of Period $ 4,420 $ 5,042
Provisions Charged to Operations -- 375
Charge-offs (1,772) (1,505)
Recoveries 587 508
- ----------------------------------------------------------------------------
Balance at End of Period $ 3,235 $ 4,420
- ----------------------------------------------------------------------------
At December 31, 1995 and 1994, nonperforming Segregated Assets are classified as
follows:
(In Thousands) At December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Commercial Real Estate Loans $ 2,604 $ 13,795
Commercial Loans 1,203 3,678
Multi-Family Real Estate Loans 1,432 576
Foreclosed Property:
Commercial Real Estate 648 7,753
Multi-Family Real Estate 651 1,449
- ----------------------------------------------------------------------------
Total $ 6,538 $ 27,251
- ----------------------------------------------------------------------------
40
<PAGE>
Note 6
Premises and Equipment, Net
A summary of premises and equipment, net follows:
(In Thousands) December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Land $ 6,162 $ 5,925
Buildings and Improvements 29,809 28,509
Leasehold Improvements 1,772 1,765
Furniture, Fixtures and Equipment 27,020 23,520
Total Premises and Equipment 64,763 59,719
Accumulated Depreciation and Amortization 24,109 23,087
- ----------------------------------------------------------------------------
Premises and Equipment, Net $ 40,654 $ 36,632
- ----------------------------------------------------------------------------
At December 31, 1995, 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 $827,000, $950,000 and $702,000 in 1995,
1994 and 1993, respectively. Webster is also entitled to rental income under
various non-cancelable operating leases for properties owned. Rental income
under these leases was $1,682,000, $1,474,000 and $638,000 in 1995, 1994 and
1993, respectively.
The following is a schedule of future minimum rental payments and receipts
required under these leases as of December 31, 1995 (in thousands):
Years ending December 31: Payments Receipts
- ----------------------------------------------------------------------------
1996 $ 833 $ 933
1997 746 367
1998 683 311
1999 574 288
2000 405 247
Later years 2,098 1,038
- ----------------------------------------------------------------------------
Total $ 5,339 $ 3,184
- ----------------------------------------------------------------------------
Note 7
Prepaid Expenses and Other Assets
A summary of prepaid expenses and other assets follows:
(In Thousands) December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Core Deposit Intangible $ 4,729 $ 5,457
Due from FDIC 1,174 2,008
Income Taxes Receivable 1,809 1,857
Deferred Tax Asset, Net (Note 14) 14,820 12,590
Other Assets 6,043 16,668
- ----------------------------------------------------------------------------
Prepaid Expenses and Other Assets $ 28,575 $ 38,580
- ----------------------------------------------------------------------------
The reduction in the Core Deposit Intangible balance at December 31, 1995 is the
result of normal monthly amortization only. 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. An evaluation of the core deposit
intangible at December 31, 1995 was performed and no further impairment was
noted. Periodic evaluations of the core deposit
41
<PAGE>
intangible asset will continue to be made and any further impairment, if any,
will be recorded as a charge to the Consolidated Statement of Income.
The amount due from FDIC of $1.2 million at December 31, 1995 represents
Webster's 80% reimbursement for fourth quarter net charge-offs and expenses on
Segregated Assets. The reduction in the due from FDIC balance at December 31,
1995 reflects a decrease in the volume of segregated loan charge-offs for the
fourth quarter as compared to the same quarter for the previous year. Other
Assets are primarily comprised of capitalized mortgage servicing rights, prepaid
expenses and various miscellaneous assets. The reduction in the Other Assets
balance at December 31, 1995 is due primarily to lower balances related to
mortgage servicing rights and prepaid FDIC deposit insurance premiums.
During the 1995 second quarter, Webster adopted Statement of Financial
Accounting Standard No. 122 ("SFAS 122") "Accounting for Mortgage Servicing
Rights". 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. During 1995, Webster
capitalized $181,000 in connection with selling loans while retaining the right
to service those loans. At December 31, 1995, the combined book value of
Purchased Mortgage Servicing Rights ("PMSR") and Excess Mortgage Servicing
Rights ("EMSR") was $2.6 million. At December 31, 1995, the fair value of PMSR
and EMSR approximated book value.
Note 8
Deposits
Deposits and weighted average rates are summarized as follows:
(In Thousands) December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average % of Average % of
Rate Balance Total Rate Balance Total
- -------------------------------------------------------------------------------------------------------------------
Regular Savings 2.09% $ 471,588 19.6% 2.09% $ 561,196 23.1%
- -------------------------------------------------------------------------------------------------------------------
NOW and DDA Accounts 1.18 351,189 14.6 .98 327,094 13.4
- -------------------------------------------------------------------------------------------------------------------
Money Market Deposit Accounts 4.03 87,371 3.6 4.89 125,987 5.2
- -------------------------------------------------------------------------------------------------------------------
Certificate Accounts:
Up to 12 months 5.19 707,540 29.5 3.91 611,300 25.1
13 to 24 months 5.92 521,104 21.7 4.77 509,984 21.0
25 to 36 months 5.52 70,812 3.0 5.07 79,124 3.3
Over 36 months 6.16 190,598 8.0 6.08 217,260 8.9
- -------------------------------------------------------------------------------------------------------------------
Total Certificates 5.59 1,490,054 62.2 4.62 1,417,668 58.3
- -------------------------------------------------------------------------------------------------------------------
Total Deposits 4.20% $ 2,400,202 100.0% 3.56% $ 2,431,945 100.0%
Interest expense on deposits is summarized as follows:
(In Thousands) Years Ended December 31,
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Regular Savings $ 11,284 $ 12,139 $ 12,240
NOW Accounts 2,838 3,906 3,222
Money Market Deposit Accounts 5,139 4,946 3,125
Certificate Accounts 78,874 55,844 50,100
- -------------------------------------------------------------------------------
Total $ 98,135 $ 76,835 $ 68,687
- -------------------------------------------------------------------------------
42
<PAGE>
The following table presents the amount of time deposits in amounts of $100,000
or more at December 31, 1995 maturing during the periods indicated:
(In Thousands)
- -----------------------------------------------------------------
Maturing Amount
- -----------------------------------------------------------------
January 1, 1996 to March 31, 1996 $ 33,848
April 1, 1996 to June 30, 1996 33,070
July 1, 1996 to December 31, 1996 29,964
January 1, 1997 and beyond 32,918
- -----------------------------------------------------------------
Total $ 129,800
- -----------------------------------------------------------------
Note 9
Federal Home Loan Bank Advances
Advances payable to the Federal Home Loan Bank of Boston are summarized as
follows:
(In Thousands) At December 31,
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
Fixed Rate:
- -----------------------------------------------------------------------------
4.23% to 8.11% Due 1995 $ -- $ 212,000
4.82% to 8.61% Due 1996 295,400 85,000
5.45% to 7.39% Due 1997 50,000 16,000
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
- -----------------------------------------------------------------------------
371,100 338,700
- -----------------------------------------------------------------------------
Variable Rate:
- -----------------------------------------------------------------------------
6.38% Due in 1995 -- 20,000
5.94% to 6.41% Due in 1996 12,000 12,000
- -----------------------------------------------------------------------------
12,000 32,000
- -----------------------------------------------------------------------------
Total Federal Home Loan Bank Advances $ 383,100 $ 370,700
- -----------------------------------------------------------------------------
The weighted average cost of the Federal Home Loan Bank Advances at December 31,
1995 and 1994 was 6.31% and 6.28%, respectively.
At December 31, 1995, the Bank had additional borrowing capacity of over $1.4
billion from the Federal Home Loan Bank, including a line of credit of
approximately $40.0 million. Advances are secured by the Banks' investment in
FHLB stock and a blanket security agreement. This agreement requires the Bank to
maintain as collateral certain qualifying assets principally mortgage loans and
securities. At December 31, 1995 and 1994, the Bank was in compliance with all
Federal Home Loan Bank requirements.
Note 10
Other Borrowings
Other borrowings outstanding consisted of borrowings by the ESOP totaling $3.2
million and $3.7 million at December 31, 1995 and 1994, respectively, Senior
Notes (as defined below) totaling $40.0 million at both December 31, 1995 and
1994 and reverse repurchase agreements outstanding totaling $126.9 million at
December 31, 1995. There were no reverse repurchase agreements outstanding at
December 31, 1994. 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, 1995 and 1994 were 8.30% and 8.00%, respectively. The estimated fair value
of the ESOP borrowing approximates book value at December 31, 1995 and 1994. 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 15 for a description of the
increase in the ESOP's outstanding indebtedness that was incurred in connection
with the Bristol acquisition.
43
<PAGE>
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.
Information concerning borrowings under reverse repurchase agreements is
summarized below:
(Dollars In Thousands)
- -------------------------------------------------------------------------------
Balance at Book Value Market Value
December 31, 1995 Maturity Date Of Collateral Of Collateral
- -------------------------------------------------------------------------------
$126,884 Less than six months $130,325 $132,621
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 1995 was $37.8 million and $126.9 million, respectively.
The weighted-average interest rate of the reverse repurchase agreements
outstanding at December 31, 1995 was 5.80%.
Note 11
Interest Rate Financial Instruments
Webster utilizes as part of its asset liability management strategy various
interest rate contracts including short futures positions, interest rate swaps
and interest rate caps. (See Note 3 for disclosures on futures positions). These
interest rate financial instruments involve, to varying degrees, credit risk and
market risk. Credit risk is the possibility that a loss may occur if a counter
party to a transaction fails to perform according to the terms of the contract.
Market risk is the effect of a change in interest rates or currency rates on the
value of the financial instrument. The notional amount of interest rate
financial instruments is the amount upon which interest and other payments under
the contract are based. For interest rate financial instruments, the notional
amount is not exchanged and therefore, the notional amounts should not be taken
as a measure of credit or market risk.
The fair value, which approximates the cost to replace the contract at the
current market rates is generally representative of market risk. There is no
credit risk related to the interest rate swaps at December 31, 1995 due to the
fact that Webster is currently paying amounts that are greater than it is
receiving. There is no credit risk related to the interest rates caps at
December 31, 1995.
The following table represents a summary of interest rate financial instruments
at December 31, 1995:
</TABLE>
<TABLE>
<CAPTION>
Fair Market Maturity Book
(In Thousands) Notional Amount Value Date Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 100,000 $ (4,191) 5/23/00 --
50,000 (763) 6/05/98 --
- ---------------------------------------------------------------------------------------------------
Total $ 150,000 $ (4,954) --
- ---------------------------------------------------------------------------------------------------
Interest rate cap agreements $ 75,000 $ 37 7/23/97 $ 320
50,000 136 6/23/98 496
- ---------------------------------------------------------------------------------------------------
Total $ 125,000 $ 173 $ 816
- ---------------------------------------------------------------------------------------------------
</TABLE>
Interest rate swap agreements involve the exchange of fixed and variable
interest payments based upon notional amounts paid to a maturity date. At
December 31, 1995, Webster had two swap agreements in which the corporation
received a variable rate based on LIBOR and paid a fixed rate of 6.66% and 6.04%
on each swap. Total net interest expense paid on
44
<PAGE>
swap agreements totaled $312,000 for the year ended December 31, 1995. There
were no swap agreements outstanding at December 31, 1994 and 1993.
Interest rate cap agreements are similar to interest rate swap agreements except
that interest rate payments are made or received only if current interest rates
rise above a predetermined interest rate. At December 31, 1995, Webster had two
outstanding cap agreements with an interest rate cap of 7%. The amount paid for
entering into the interest rate cap is amortized over the life of the agreement
as an adjustment to mortgage-backed securities available for sale interest
income. At December 31, 1995, Webster had $816,000 of unamortized cap balances
and during the 1995 period amortized $250,000.
Note 12
Summary of Estimated Fair Values
A summary of estimated fair values consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) December 31,
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C>
Securities (Note 3) $ 1,044,640 $ 1,048,467 $ 828,758 $ 797,721
Residential Loans 1,560,823 1,620,103 1,566,795 1,512,972
Consumer Loans 49,814 51,892 38,228 38,987
Home Equity Loans 123,724 127,794 128,828 129,747
Commercial Loans 199,392 199,040 182,137 174,309
Less Allowance for Loan Losses 41,797 -- 46,772 --
Segregated Assets, Net (Note 5) 104,839 104,839 137,096 137,096
Interest Rate Contracts (Note 11) 816 173 -- --
Other Assets 177,419 177,419 218,781 218,781
- ----------------------------------------------------------------------------------------------------------------
Total $ 3,219,670 $ 3,329,727 $ 3,053,851 $ 3,009,613
- ----------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits Other than Certificates $ 910,148 $ 910,148 $ 1,014,277 $ 1,014,277
Certificate Accounts:
Maturing in Less than One Year 1,109,471 1,111,199 676,515 674,682
Maturing in One Year and Beyond 380,583 389,233 741,153 736,615
Federal Home Loan Bank Advances 383,100 385,678 370,700 367,300
Other Borrowings 170,014 170,890 43,675 41,575
Other Liabilities 56,381 56,381 50,724 50,724
- ----------------------------------------------------------------------------------------------------------------
Total $ 3,009,697 $ 3,023,529 $ 2,897,044 $ 2,885,173
- ----------------------------------------------------------------------------------------------------------------
</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.
The carrying amounts for interest-bearing deposits approximate fair value since
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair value of securities (Note 3) is estimated based on prices published in
financial newspapers or quotations received from securities dealers or pricing
services. The fair value of interest rate contracts was based on the amount the
Corporation would receive or pay to terminate the agreements. 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.
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
45
<PAGE>
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.
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 $104.8 million and
$137.0 million at December 31, 1995 and December 31, 1994, respectively.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, regular savings, NOW accounts and money
market accounts, is equal to the amount payable on demand. The estimated fair
values of certificates of deposit, Federal Home Loan Bank Advances, reverse
repurchase agreements 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 carrying amount of purchased mortgage servicing rights and
excess mortgage servicing rights approximates market value at December 31, 1995
and 1994.
The calculation of fair value estimates of financial instruments is dependent
upon certain subjective assumptions and involves significant uncertainties,
resulting in variability in estimates with changes in assumptions. Potential
taxes and other expenses that would be incurred in an actual sale or settlement
are not reflected in the amounts disclosed. Fair value estimates are not
intended to reflect the liquidation value of the financial instruments.
Note 13
Foreclosed Property Expenses and Provisions, Net and Allowance for Losses on
Foreclosed Properties
Foreclosed property expenses and provisions, net are summarized as follows:
(In Thousands) Years Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Gain (Loss) on Sale of Foreclosed Properties
Acquired in Settlement of Loans, Net $ 918 $ (465) $ 245
Provision for Losses on Foreclosed
Properties (2,000) (3,082) (1,996)
Rental Income 646 1,017 536
Foreclosed Property Expenses (3,589) (4,419) (3,870)
- --------------------------------------------------------------------------------
Total $ (4,025) $ (6,949) $ (5,085)
- --------------------------------------------------------------------------------
Webster has an allowance for losses on foreclosed properties. A detail of the
changes in the allowance follows:
(In Thousands) Years Ended December 31,
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Balance at Beginning of Period $ 2,504 $ 1,036 $ 1,730
Provisions 2,000 3,082 1,996
Losses Charged to Allowance (3,795) (8,966) (2,694)
Recoveries Credited to Allowance 282 852 4
Additions to Allowance for Acquired
Foreclosed Properties -- 6,500 --
- -------------------------------------------------------------------------------
Balance at End of Period $ 991 $ 2,504 $ 1,036
- -------------------------------------------------------------------------------
In connection with the Bristol acquisition, a purchase accounting adjustment of
$5.9 million for the allowance for losses on foreclosed properties was recorded
at the time of the acquisition and added to Bristol's existing allowance of
$600,000 to reflect an accelerated disposition strategy.
46
<PAGE>
Note 14
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 consolidated statements of income. Prior period consolidated financial
statements have not been restated to apply the provisions of Statement 109.
Charges for income taxes in the Consolidated Statements of Income are comprised
of the following:
(In Thousands) Years Ended December 31,
- -------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------
Current:
Federal $ 10,370 $ 7,929 $ 9,385
State 3,170 2,751 3,305
- -------------------------------------------------------------------
13,540 10,680 12,690
Deferred:
Federal (4,171) (4,452) (1,553)
State (1,123) (1,378) (542)
- -------------------------------------------------------------------
(5,294) (5,830) (2,095)
Total:
Federal 6,199 3,477 7,832
State 2,047 1,373 2,763
- -------------------------------------------------------------------
$ 8,246 $ 4,850 $ 10,595
- -------------------------------------------------------------------
Income tax expense of $8.2, $4.9 and $10.6 million for the years ended December
31, 1995, 1994 and 1993, differed from the amounts computed by applying the
Federal income tax rate of 35% in 1995, 1994 and 1993 to pre-tax income as a
result of the following:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
- -------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "Expected" Tax Expense $ 9,298 $ 8,238 $ 8,713
Reduction in Income Taxes Resulting From:
Dividends Received Deduction (123) (135) (65)
State Income Taxes, Net of Federal Income
Tax Benefit, Including Change in
Valuation Allowance and Rate 1,330 895 1,800
Adjustment to Deferred Tax Assets and Liabilities:
Change in Tax Rate (Federal) -- (265) (88)
Change in Valuation Allowance (Federal) (2,294) (3,781) --
Other, Net 35 (102) 235
- -------------------------------------------------------------------------------------------------
Income Taxes $ 8,246 $ 4,850 $ 10,595
- -------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 Webster had a net deferred tax asset of $14.8 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 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, 1995 and 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 there was an expectation that it would continue
to operate profitably in the future.
47
<PAGE>
As a result of the merger of First Federal into Bristol and the subsequent
renaming of the Bank to Webster Bank (see Note 1 a.) any tax loss carryforwards
and all other tax attributes associated with the Bristol acquisition have been
retained. As a result of the Bristol acquisition, Webster has Connecticut net
operating loss carryovers approximating $13 million which expire in various
years through 1998. Webster has recognized a portion of the deferred tax asset
valuation allowance in the current year, which offsets current income tax
expense.
Webster's valuation allowance is 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 $9.0 million in 1995. The net decrease
of $3.0 million in the valuation allowance was due to favorable reassessment of
expected future earnings and resulted in a reduction of income 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, 1995 and
1994 are presented below.
(In Thousands) December 31,
- -------------------------------------------------------------------------------
Deferred Tax Assets: 1995 1994
- -------------------------------------------------------------------------------
Loan Loss Allowances & Other Allowances, Net $ 23,285 $ 24,075
Accrued Compensation and Pensions 1,995 1,311
Unrealized Losses on Securities -- 1,415
Tax Loss Carryforwards 2,025 5,439
Intangibles 2,786 2,930
Other 2,506 2,156
- -------------------------------------------------------------------------------
Total Gross Deferred Tax Assets 32,597 37,326
Less: Valuation Allowance (8,207) (11,191)
- -------------------------------------------------------------------------------
Deferred Tax Asset After Valuation Allowance 24,390 26,135
- -------------------------------------------------------------------------------
Deferred Tax Liabilities:
Loan Discount 6,132 11,861
Plant and Equipment, Principally due to
Differences in Depreciation 281 933
Unrealized Gains on Securities 1,649 --
Other 1,508 751
- -------------------------------------------------------------------------------
Total Gross Deferred Tax Liabilities 9,570 13,545
- -------------------------------------------------------------------------------
Net Deferred Tax Asset $ 14,820 $ 12,590
- -------------------------------------------------------------------------------
Note 15
Shareholders' Equity
In December 1995, Webster completed the sale of 1,249,600 shares of common stock
in an underwritten public offering raising $32.1 million of additional capital,
net of expenses, which was invested in the Bank to facilitate its completion of
the Shawmut Transaction and to have the Bank remain well capitalized for
regulatory purposes.
On November 1, 1995, Webster acquired Shelton (see Note 2). In connection with
the acquisition, Webster issued 1,292,549 shares of its common stock for all the
outstanding shares of Shelton common stock. Under the terms of the agreement,
Shelton shareholders received .92 of a share of Webster common stock in a tax
free exchange for each of their shares of Shelton common shares.
48
<PAGE>
On December 16, 1994, Webster acquired Shoreline (see Note 2). In connection
with the acquisition, Webster issued 266,500 shares of its common stock for all
533,000 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.
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. Of the 1,150,000 shares sold in the
subscription and public offerings, 100,000 shares were purchased by Webster
Bank's ESOP. The ESOP's outstanding loan balance was increased by approximately
$2.1 million in connection with the purchase.
On December 30, 1992, through a registered offering, Webster issued 250,000
shares of Series B 7 1/2% Cumulative Convertible Preferred Stock (the "Series B
Stock") for $25 million. Webster used 50% of the net proceeds of $23.5 million
from this equity offering to redeem $11.75 million of its Series A Preferred
Stock (as defined). 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 from this note offering to redeem the
remaining shares of its Series A Preferred Stock. During 1995 and 1994 holders
of the Series B Stock converted 260 shares and 77,871 shares into 1,492 shares
and 446,979 shares, respectively of Webster's common stock.
In connection with the First Constitution acquisition, Webster issued 1,200,000
shares of Series A Cumulative Perpetual Preferred Stock (the "Series A Stock) to
the FDIC on October 6, 1992 at a purchase price of $25.00 per share for an
aggregate investment of $30 million.
Retained earnings at December 31, 1995 included $16.4 million of earnings of the
bank appropriated to bad debt reserves and deducted for federal income tax
purposes, which retained earnings are not available for payment of cash
dividends or other distributions to Webster, including distributions on
redemption, dissolution, or liquidation, without payment of taxes by the Bank 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 "Tier 1 capital
requirement," a "Tier 1 risk-based capital requirement," and a "total risk-based
capital requirement." At December 31, 1995, Webster Bank exceeded all OTS
regulatory capital requirements and met the FDIC requirements for a "well
capitalized" savings institution. In order to be considered "well capitalized,"
a depository institution must have a ratio of Tier 1 capital to adjusted total
assets of 5%, a ratio of Tier 1 capital to risk-weighted assets of 6%, and a
ratio of total capital to risk-weighted assets of 10%.
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
indefinitely delayed implementation of the new regulation. The interest-rate
risk requirements, if implemented, are not expected to have a material effect on
the ability of the Bank to meet its risk-based capital requirement.
At the time of the respective conversions of the Bank and certain predecessors
from mutual to stock form, each institution established a liquidation account
for the benefit of eligible depositors who continue to maintain their deposit
accounts after conversion. In the event of a complete liquidation of the Bank,
each eligible depositor will be entitled to receive a liquidation distribution
from the liquidation account. The Bank may not declare or pay a cash dividend on
or repurchase any of its capital stock if the effect thereof would cause its
regulatory capital to be reduced below applicable regulatory capital
requirements or the amount required for its liquidation accounts.
The OTS capital distribution regulations establish three tiers of institutions
for purposes of determining the level of dividends that can be paid. Since
Webster Bank's capital levels exceeded all fully phased-in OTS capital
requirements at December 31, 1995, it is considered a Tier 1 Institution. Tier 1
Institutions generally are able to pay dividends up to an amount equal to
one-half of their excess capital at the beginning of the year plus all income
for the calendar year. In accordance with the OTS capital distribution
regulations, the Bank must provide a 30 day notice prior to the payment of any
dividends to Webster. As of December 31, 1995, the Bank had $85.1 million
available for the payment of dividends under
49
<PAGE>
the OTS capital distribution regulations. The Bank has paid dividends to Webster
amounting to $13.1 million and$4.6 million for 1995 and 1994, respectively.
Under the prompt corrective action regulations adopted by the OTS and the FDIC,
the Bank is precluded from paying any dividend if such action would cause it to
fail to comply with applicable minimum capital requirements.
The Bank has an ESOP that invests in Webster common stock as discussed in Notes
10 and 16. 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 $848,000, $384,000 and $352,000 during
the years ended December 31, 1995, 1994 and 1993, respectively.
On February 6, 1996, Webster's Board of Directors adopted a stockholders' rights
plan in which preferred stock purchase rights have been granted as a dividend at
the rate of one Right for each share of common stock held of record as of the
close of business on February 16, 1996. The plan is designed to protect all
Webster shareholders against hostile acquirers who may seek to take advantage of
Webster and its shareholders through coercive or unfair tactics aimed at gaining
control of Webster without paying all shareholders a full and fair price. Each
right initially would entitle the holder thereof to purchase under certain
circumstances one 1/1,000th of a share of a new Series C Preferred Stock at an
exercise price of $100 per share. The rights will expire in February 2006. The
rights will be exercisable only if a person or group in the future becomes the
beneficial owner of 15% or more of the common stock, or announces a tender or
exchange offer which would result in its ownership of 15% or more of the common
stock, or if the Board declares any person or group to be an "adverse person"
upon a determination that such person or group has acquired beneficial ownership
of 10% or more and that such ownership is not in the best interests of the
company.
Note 16
Employee Benefit and Stock Option Plans
The Bank maintains a noncontributory pension plan for employees who meet certain
minimum service and age requirements. Pensions are based upon earnings of
covered employees during the period of credited service. The Bank also has an
employee investment plan under section 401(k) of the Internal Revenue Code.
Under the investment plan the Bank will match $.50 for every $1.00 of the
employee's contribution up to 6% of the employee's annual compensation.
Operations were charged with $438,000, $388,000 and $169,000 for the years ended
December 31, 1995, 1994 and 1993, respectively, for contributions to the
investment plan.
The Bank's ESOP, which is noncontributory by employees, is designed to invest,
on behalf of employees of the Bank who meet certain minimum age and service
requirements, in Webster common stock. The Bank may make contributions to the
ESOP in such amounts as the board of directors may determine on an annual basis.
To the extent that the Banks' contributions are used to repay the ESOP loan,
Webster common stock is allocated to the accounts of participants in the ESOP.
Stock and other amounts allocated to a participant's account become fully vested
after the participant has completed five years of service under the ESOP.
Operations were charged with $848,000, $384,000 and $352,000 for the years ended
December 31, 1995, 1994 and 1993, respectively, for contributions to the ESOP.
The 1995 ESOP charge includes $722,516 for principal payments and $125,484 of
interest payments (net of $140,792 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 10,687 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 funded status of the Bank's pension plan and
amounts recognized in Webster's Consolidated Statements of Condition as of
December 31, 1995 and 1994. 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 multi-employer pension plan, which
had pension expense of $50,000, $85,000 and $52,000 for the years ended December
31, 1995, 1994 and 1993. Information concerning the actuarial present value of
accumulated plan benefits, plan assets or benefits attributable to individual
organizations participating in the Shelton pension plan is not provided by the
plan administrator and, therefore, is not included on the following page.
50
<PAGE>
(In Thousands) December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 7,518 $ 5,645
Nonvested benefit obligation 642 914
- --------------------------------------------------------------------------------
Accumulated benefit obligation 8,160 6,559
Effect of projected future compensation levels 1,740 1,176
- --------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 9,900 7,735
Plan assets at fair value, primarily listed
stocks and U.S. bonds 10,782 8,540
- --------------------------------------------------------------------------------
Excess (Deficiency) of plan assets over
benefit obligation 882 805
Items not yet recognized in earnings:
Unrecognized prior service cost (1,913) (1,775)
Unrecognized net gain (312) (406)
Unrecognized net asset at January 1, 1987
being recognized over 20.9 years (139) (148)
- --------------------------------------------------------------------------------
Unfunded accrued pension cost $ (1,482) $ (1,524)
- --------------------------------------------------------------------------------
The following table sets forth a reconciliation of unfunded accrued pension
costs for the Bank's pension plan :
(In Thousands)
- --------------------------------------------------------------------------------
Unfunded accrued pension cost as of January 1, 1995 $ (1,524)
Contributions made during 1995 518
Pension costs for 1995 (476)
- --------------------------------------------------------------------------------
Unfunded accrued pension costs as of December 31, 1995 $ (1,482)
- --------------------------------------------------------------------------------
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 7.25%, 5.0%
and 9.0% for 1995 and 8.0%, 5.0% and 9.0% for 1994, respectively.
Net pension expense for 1995, 1994 and 1993 included the following components:
(In Thousands) December 31,
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Service cost benefits earned during
the period $ 700 $ 922 $ 279
Interest cost on projected benefit
obligations 665 462 216
Return on plan assets (2,170) 517 (326)
Amortization and deferral 1,281 (1,131) 62
- -------------------------------------------------------------------------------
Total $ 476 $ 770 $ 231
- -------------------------------------------------------------------------------
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.
51
<PAGE>
The components of postretirement benefits cost were as follows:
(In Thousands) Year Ended December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Service cost $ -- $ 20
Interest cost 39 58
Immediate recognition of net
transition obligation -- 822
- ----------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 39 $ 900
- ----------------------------------------------------------------------------
The following table sets forth the status of Webster's accumulated
postretirement benefit obligation, which was unfunded:
(In Thousands) Year Ended December 31,
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
Accumulated benefit obligation $550 $768
Unrecognized net gain 4 59
- ----------------------------------------------------------------------------
Postretirement benefit liability $554 $827
- ----------------------------------------------------------------------------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%. The assumed weighted average health
care cost trend rate was 13% for 1995. Such rates decrease gradually to 4.25%
through the year 2008 and remain level thereafter. An increase of 1% in the
assumed health care cost trend rate would result in a recalculated accumulated
benefit obligation of $49,000.
Webster maintains stock option plans (the "Option Plans") for the benefit of its
directors, officers and other full-time employees. Options totaling 59,600,
194,780 and 146,750 shares were granted in 1995, 1994 and 1993, respectively, at
the fair market value of Webster common stock 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 1995, 1994 and 1993. At December 31,
1995, options for 596,216 shares of common stock were outstanding at an average
option price of $15.56. Options for 51,850 shares were exercised in 1995.
Note 17
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.
52
<PAGE>
Note 18
Parent Company Condensed Financial Information
The Statements of Condition for 1995 and 1994 and the Statements of Income and
Cash Flows for the three-year period ended December 31, 1995 (parent only) are
presented below.
<TABLE>
<CAPTION>
Statements of Condition
(In Thousands) December 31,
- --------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and Due from Depository Institutions $ 440 $ 1,290
Securities Available for Sale 61,400 16,878
Investment in Subsidiaries 191,661 178,757
Due from Subsidiaries -- 336
Other Assets 2,845 3,670
- --------------------------------------------------------------------------------------------------------
Total Assets $ 256,346 $ 200,931
- --------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Senior Notes due 2000 $ 40,000 $ 40,000
ESOP Borrowings 3,130 3,675
Other Liabilities 3,243 449
Shareholders' Equity 209,973 156,807
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 256,346 $ 200,931
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
(In Thousands) December 31,
- --------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from Subsidiary $ 13,072 $ 4,596 $ 11,997
Interest on Securities 1,098 964 756
Gain (Loss) on Sale of Securities 503 (413) --
Other Noninterest Income 2 -- --
Senior Notes Interest Expense 3,660 3,660 1,850
Other Noninterest Expenses 3,453 1,475 493
- --------------------------------------------------------------------------------------------------------
Income Before Income Taxes and
Equity in Undistributed Earnings of Subsidiaries 7,562 12 10,410
Income Tax Benefit 2,429 1,955 713
- --------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 9,991 1,967 11,123
Equity in Undistributed Earnings of Subsidiaries 8,329 16,718 7,752
- --------------------------------------------------------------------------------------------------------
Net Income 18,320 18,685 18,875
Preferred Stock Dividends 1,296 1,716 2,653
- --------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Shareholders $ 17,024 $ 16,969 $ 16,222
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
(In Thousands) December 31,
- --------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net Income $ 18,320 $ 18,685 $ 14,300
Increase in Interest Receivable (16) (15) (66)
Decrease (Increase) in Other Assets 2,048 6,666 (7,874)
(Gain) Loss on Sales of Securities (503) 413 --
Equity in Undistributed Earnings of Subsidiaries (8,329) (16,718) (7,752)
Other, Net 1,932 511 1,507
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 13,452 9,542 115
- --------------------------------------------------------------------------------------------------------
</TABLE>
53
<TABLE>
Investing Activities:
<S> <C> <C> <C>
Purchases of Securities Available for Sale (45,168) (2,369) (33,199)
Maturities of Securities Available for Sale 4,445 8,400 11,980
- ----------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities (40,723) 6,031 (21,219)
- ----------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from Issuance of Senior Notes -- -- 40,000
Net Proceeds from Sale of Common Stock 32,112 21,923 --
Cash Dividends to Shareholders (5,691) (4,724) (5,015)
Redemption of Series A Stock -- -- (18,250)
Investment in Subsidiary -- (32,000) --
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 26,421 (14,801) 16,735
- ----------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (850) 772 (4,369)
Cash and Cash Equivalents at Beginning of Year 1,290 518 4,887
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 440 $ 1,290 $ 518
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note 19
Selected Quarterly Consolidated Financial Information (Unaudited)
Selected quarterly data for 1995 and 1994 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands Except Per Share Data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------
1995:
<S> <C> <C> <C> <C>
Interest Income $ 50,954 $ 54,288 $ 56,548 $ 57,156
Interest Expense 28,907 32,380 34,907 35,339
- -------------------------------------------------------------------------------------------------------------
Net Interest Income 22,047 21,908 21,641 21,817
Provision for Loan Losses 385 455 555 1,705
Loans and Securities Gains, Net 337 678 1,256 2,018
Other Noninterest Income 4,453 4,316 4,317 4,465
Noninterest Expenses 18,723 18,998 18,369 23,497
Income Taxes 2,495 2,226 2,718 807
- -------------------------------------------------------------------------------------------------------------
Net Income 5,234 5,223 5,572 2,291
Preferred Stock Dividends 324 324 324 324
- -------------------------------------------------------------------------------------------------------------
Net Income Applicable to
Common Shareholders $ 4,910 $ 4,899 $ 5,248 $ 1,967
- -------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Primary $ .71 $ .71 $ .76 $ .27
- -------------------------------------------------------------------------------------------------------------
Fully Diluted $ .67 $ .67 $ .70 $ .27
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
54
<PAGE>
Results of operations relating to Bristol are included in the 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.
55
<PAGE>
Independent Auditors' Report and Management's Report
The Board of Directors and Shareholders of
Webster Financial Corporation
Waterbury, Connecticut:
We have audited the accompanying consolidated statements of condition of Webster
Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Webster Financial
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes to the Consolidated Financial Statements, the Corporation
changed its method of accounting for mortgage servicing rights in 1995 and
income taxes in 1993.
January 24, 1996, except as to Note 2 and the last paragraph of Note 15, as to
which the date is February 16, 1996
To Our Shareholders:
The management of Webster is responsible for the integrity and objectivity of
the financial and operating information contained in this annual report,
including the consolidated financial statements covered by the Independent
Auditors' Report. These statements were prepared in conformity with generally
accepted accounting principles and include amounts that are based on the best
estimates and judgments of management.
Webster has a system of internal accounting controls which provides management
with reasonable assurance that transactions are recorded and executed in
accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained so as to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes
formal procedures, an organizational structure that segregates duties, and a
comprehensive program of periodic audits by the internal auditors. Webster has
also instituted policies which require employees to maintain the highest level
of ethical standards.
In addition, the Audit Committee of the Board of Directors, consisting solely of
outside directors, meets periodically with management, the internal auditors and
the independent auditors to review internal accounting controls, audit results
and accounting principles and practices, and annually recommends to the Board of
Directors the selection of independent auditors.
James C. Smith John V. Brennan
Chairman and Executive Vice President,
Chief Executive Officer Chief Financial Officer and Treasurer
56
<PAGE>
Directors of Webster Financial Corporation
James C. Smith
Chairman and
Chief Executive Officer
Joel S. Becker
Chairman and
Chief Executive Officer,
Torrington Supply Company
O. Joseph Bizzozero, Jr., M.D.
BCB Medical Group
Robert A. Finkenzeller
President, Eyelet Crafters, Inc.
Walter R. Griffin Griffin,
Griffin & O'Brien, P.C.
J. Gregory Hickey, CPA
Retired Managing Partner
of Hartford office of
Ernst & Young
C. Michael Jacobi
President and
Chief Executive Officer,
Timex Corporation
Harold W. Smith
Chairman Emeritus
Sr. Marguerite Waite
President and
Chief Executive Officer,
St. Mary's Hospital
Executive Officers of Webster Financial Corporation
James C. Smith
Chairman and
Chief Executive Officer
John V. Brennan, CPA
Executive Vice President,
Chief Financial Officer and Treasurer
Lee A. Gagnon, CPA
Executive Vice President,
Chief Operating Officer and Secretary
Gary M. MacElhiney
Executive Vice President,
57
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Business Banking
Peter K. Mulligan
Executive Vice President,
Consumer Banking
Ross M. Strickland
Executive Vice President,
Mortgage Banking
58
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Shareholder Information
Annual Meeting
The annual meeting of Webster Financial Corporation shareholders will be held on
April 25, 1996 at 4:00 P.M. at the Courtyard by Marriot, 63 Grand Street,
Waterbury, Connecticut. As of March 9, 1996, there were 8,103,746 shares of
common stock outstanding and approximately 2,792 shareholders of record.
Corporate Headquarters
Webster Financial Corporation and Webster Bank
Webster Plaza
Waterbury, CT 06702
(203) 753-2921
Transfer Agent and Registrar
Chemical Mellon Shareholder Services
Securityholder Relations
P.O. Box 24935, Church Street Station
New York, NY 10249
1-800-851-9677
Dividend Reinvestment and Stock Purchase Plan
Stockholders wishing to receive a prospectus for the Dividend Reinvestment and
Stock Purchase Plan are invited to write or call to Chemical Mellon Shareholder
Services at the address listed above.
Stock Listing Information
The common stock of Webster is traded over-the-counter on the NASDAQ National
Market System under the symbol "WBST".
General Inquiries - Contact Lee A. Gagnon
Financial Inquiries - Contact John V. Brennan
Webster Financial Corporation
P.O. Box 191
Waterbury, Connecticut 06726-0191
(203) 753-2921
Form 10K and Other Reports
Our annual report to the Securities and Exchange Commission (Form 10K),
additional copies of this report, and quarterly reports may be obtained free of
charge by contacting Lee A. Gagnon, Executive Vice President and Secretary, at
Corporate Headquarters.
Common Stock Dividends and Market Prices
The following table shows dividends declared and the market price per share by
quarter for 1995 and 1994.
Common Stock (Per Share)
- -------------------------------------------------------------------------------
Market Price
- -------------------------------------------------------------------------------
Cash
Dividends End of
1995 Declared Low High Period
- -------------------------------------------------------------------------------
Fourth $ .16 $ 24 1/2 $ 29 1/2 $ 29 1/2
Third .16 23 31 26 1/4
Second .16 21 1/4 26 23 7/8
First .16 18 22 1/4 21 1/4
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1994
- -------------------------------------------------------------------------------
Fourth $ .13 $ 17 1/4 $ 23 1/2 18 1/2
Third .13 22 1/2 25 1/2 23 1/4
Second .13 18 3/8 24 3/4 22 1/2
First .13 18 1/2 22 1/4 18 1/2
Market Makers
Advest, Inc.
Brean Murray, Foster Secs Inc.
First Albany Corporation
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities L.P.
MacAllister Pitfield MacKay
Mayer & Schweitzer Inc.
Merrill Lynch, Pierce, Fenner & Smith
Paine Webber Inc.
Ryan Beck & Co., Inc.
Sandler O'Neill & Partners
Sherwood Securities Corp.
Troster Singer Corp.
Tucker, Anthony & R.L. Day
Webster Bank Information
For more information on Webster Bank products and services, call 1-800-325-2424,
or write:
Webster Bank
Customer Information Center
P.O. Box 191
Waterbury, Connecticut 06726-0191
60
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</TABLE>
Exhibit 21
----------
Subsidiaries
------------
The Registrant operates one subsidiary, Webster Bank. Webster Bank has
five wholly owned subsidiaries, Webster investment Services, Inc., FCB
Properties, Inc., Bristol Mortgage Corporation, Bristol Financial Services, Inc.
("BFSI"), and Omni Financial Services, Inc. In addition, BFSI has one wholly
owned subsidiary, Pequabuck Capital Corporation.
<PAGE>
Peat Marwick LLP
CityPlace II
Hartford, CT 06103-4103
Consent of Independent Auditors
-------------------------------
The Board of Directors
Webster Financial Corporation:
We consent to the incorporation by reference in the registration statements
(Nos. 33-13244 and 33-38286) on Forms S-8 and the registration statement (No.
33-65428) on Form S-3 of Webster Financial Corporation of our report dated
January 24, 1996, except as to Note 2 and the last paragraph of Note 15, as to
which the date is February 16, 1996, relating to the consolidated statements of
condition of Webster Financial Corporation and subsidiaries as of December 31,
1995 and 1994 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three
year-period ended December 31, 1995, which report appears in the December 31,
1995 annual report on Form 10-K of Webster Financial Corporation.
Our report refers to a change in the methods of accounting for mortgage
servicing rights in 1995 and income taxes in 1993.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
March 28, 1996
