<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ending March 31, 1996
---------------------------------------------------------
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) (ZipCode)
(203) 753-2921
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding for the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (par value $.01) 8,103,746 Shares
- ----------------------------- ----------------
(Class) Issued and Outstanding at March 31, 1996
<PAGE>
Webster Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Consolidated Statements of Condition at March 31, 1996
and December 31, 1995 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Statements 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
<PAGE>
Webster Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- --------
<S> <C> <C>
ASSETS
Cash and Due from Depository Institutions $104,631 $44,228
Interest-bearing Deposits 12,876 26,017
Securities: (Note 3)
Trading at Fair Value 43,073 44,604
Available for Sale, at Fair Value 375,009 498,088
Held to Maturity, (Market Value: $527,981 in 1996;
$505,775 in 1995) 528,624 501,948
Loans Receivable, Net 2,483,673 1,891,956
Segregated Assets, Net 98,967 104,839
Accrued Interest Receivable 24,558 21,585
Premises and Equipment, Net 49,305 40,654
Foreclosed Properties, Net 18,237 17,176
Core Deposit Intangible 47,172 4,729
Prepaid Expenses and Other Assets 27,048 23,846
---------- -----------
Total Assets $3,813,173 $3,219,670
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $3,128,824 $2,400,202
Federal Home Loan Bank Advances 270,700 383,100
Other Borrowings 136,049 170,014
Advance Payments by Borrowers for Taxes and Insurance 11,105 14,435
Accrued Expenses and Other Liabilities 52,649 41,946
---------- -----------
Total Liabilities 3,599,327 3,009,697
---------- -----------
Shareholders' Equity
Cumulative Convertible Preferred Stock, Series B,
171,869 shares issued and outstanding at March 31, 1996
and 171,869 shares issued and outstanding at December 31, 1995 2 2
Common Stock, $.01 par value:
Authorized - 14,000,000 shares;
Issued - 8,501,746 shares at March 31, 1996 and
8,501,746 shares at December 31, 1995 85 85
Paid in Capital 138,554 138,263
Retained Earnings 79,789 75,858
Less Treasury Stock at cost, 398,000 shares at
March 31, 1996 and 424,024 shares at
December 31, 1995 (3,088) (3,290)
Less Employee Stock Ownership Plan Shares
Purchased with Debt (2,574) (3,207)
Unrealized Gains (Losses) on Securities, Net 1,078 2,262
---------- -----------
Total Shareholders' Equity 213,846 209,973
---------- -----------
Total Liabilities and Shareholders' Equity $3,813,173 $3,219,670
========== ==========
</TABLE>
3
<PAGE>
Webster Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1996 1995
------ ------
Interest Income:
Loans and Segregated Assets $45,351 $37,303
Mortgage-backed Securities 14,229 11,199
Securities and Interest-bearing Deposits 2,352 2,452
------- -------
Total Interest Income 61,932 50,954
Interest Expense:
Interest on Deposits 27,332 22,180
Interest on Borrowings 8,594 6,727
------- -------
Total Interest Expense 35,926 28,907
Net Interest Income 26,006 22,047
Provision for Loan Losses 1,000 385
------- --------
Net Interest Income After Provision for Loan Losses 25,006 21,662
Noninterest Income:
Fees and Service Charges 3,516 3,515
Gain on Sale of Loans and Loan Servicing, Net 171 161
Gain on Sale of Securities, Net 325 176
Other Noninterest Income 828 938
-------- --------
Total Noninterest Income 4,840 4,790
Noninterest Expenses:
Salaries and Employee Benefits 10,742 9,187
Occupancy Expense of Premises 2,158 1,436
Furniture and Equipment Expenses 1,662 1,590
Marketing Expenses 1,084 767
Federal Deposit Insurance Premiums 525 1,444
Foreclosed Property Expenses and
Provisions, Net (Note 5) 898 1,335
Non-recurring Expenses 500 -
Other Operating Expenses 3,605 2,964
------- -------
Total Noninterest Expenses 21,174 18,723
Income Before Income Taxes 8,672 7,729
Income Taxes 3,141 2,495
------- -------
Net Income 5,531 5,234
Preferred Stock Dividends 324 324
------ -------
Net Income Available to Common Shareholders $5,207 $4,910
===== =====
Net Income Per Common Share:
Primary $0.63 $0.71
Fully Diluted $0.60 $0.67
Dividends Declared Per Common Share: $0.16 $0.16
4
<PAGE>
Webster Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------ -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $5,531 $5,234
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 1,000 385
Provision for Foreclosed Property Losses 350 621
Provision for Depreciation and Amortization 1,303 1,096
Amortization of Securities Premiums, Net 588 199
Amortization and Write-down of Core Deposit Intangible 736 182
Gains on Sale of Foreclosed Properties, Net (271) (165)
Loans and Securities Gains, Net (133) (157)
Gains on Trading Securities, Net (363) (181)
Decrease in Trading Securities 1,531 8,138
Loans Originated for Sale (11,101) (63,221)
Sale of Loans, Originated for Sale 10,386 34,021
Increase in Interest Receivable (306) (148)
Increase in Interest Payable (831) (539)
(Decrease) Increase in Accrued Expenses and Other Liabilities, Net (12,860) 1,981
(Increase) Decrease in Prepaid Expenses and Other Assets, Net (1,065) 6,057
------ -----
Net Cash Used by Operating Activities (5,505) (6,497)
------ ------
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (9,946) (30,342)
Purchases of Securities Held to Maturity (41,362) (76,838)
Maturities of Securities 9,211 193
Proceeds from Sale of Securities Available for Sale 113,153 22,132
Net Decrease in Interest-bearing Deposits 13,141 7,539
Purchase of Loans - (2,123)
Net (Increase) Decrease in Loans (10,202) 38,577
Proceeds from Sale of Foreclosed Properties 3,466 2,896
Net Decrease in Segregated Assets 5,872 6,039
Principal Collected on Mortgage-backed and Investment Securities 45,348 18,082
Purchases of Premises and Equipment (4,181) (715)
Disposals of Premises and Equipment 554 -
Net Cash and Cash Equivalents Received in the Shawmut Transaction 113,551 -
------- ---------
Net Cash Provided (Used) new Investing Activities 238,605 (14,560)
------- ---------
FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits (22,626) 9,501
Repayment of FHLB Advances (349,149) (165,376)
Proceeds from FHLB Advances 236,749 180,376
Repayment of Other Borrowings (189,317) -
Proceeds from Other Borrowings 156,080 -
Cash Dividends to Common and Preferred Shareholders (1,601) (1,410)
Net Decrease in Advance Payments for
Taxes and Insurance (3,330) (4,362)
Exercise of Stock Options - 207
------- ------
Net Cash (Used) Provided by Financing Activities (172,697) 18,936
Increase (Decrease) in Cash and Cash Equivalents 60,403 (2,121)
Cash and Cash Equivalents at Beginning of Period 44,228 44,304
------- ------
Cash and Cash Equivalents at End of Period $104,631 $42,183
======== =======
Supplemental Disclosures:
Income Taxes Paid 1,200 3,267
Interest Paid 36,142 28,801
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer of Loans to Foreclosed Properties 5,773 2,653
</TABLE>
5
<PAGE>
Webster Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
-----------------------------------------------------
The accompanying consolidated financial statements include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All adjustments
were of a normal recurring nature. The results of operations for the three month
period ended March 31, 1996 are not necessarily indicative of the results which
may be expected for the year as a whole. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Webster Financial Corporation 1995 Annual Report to shareholders. The
consolidated financial statements include the accounts of Webster Financial
Corporation ("Webster") and its wholly owned subsidiary, Webster Bank (the
"Bank").
NOTE 2 - ACQUISITION
-----------
On October 1, 1995, Webster entered into a Purchase and Assumption
Agreement with Shawmut Bank Connecticut, as part of the Fleet/Shawmut
Divestiture, to acquire 20 Shawmut banking offices in the Hartford Banking
Market (the "Shawmut Transaction"). The Shawmut Transaction was consummated on
February 16, 1996, with Webster Bank receiving $586 million in loans and $751
million of net deposits. The Shawmut Transaction was accounted for as a purchase
and the results of operations related to the banking offices acquired are
reflected in the Consolidated Statement of Income subsequent to the date of
acquisition. As of March 31, 1996, Webster operates 64 full service offices in
Connecticut that expend from the Massachusetts border to Long Island Sound.
The following summarizes assets purchased and liabilities assumed in
the Shawmut Transaction (in thousands):
Assets Acquired:
Loans $ 586,235
Premises and Equipment 6,327
Other Assets 3,059
-------
Total Assets Acquired 595,621
-------
Liabilities Assumed:
Deposits 846,412
Less Deposits Exchanged (95,163)
Net Deposits Assumed 751,249
Other Liabilities 922
-------
Total Liabilities Assumed 752,171
-------
Net Liabilities Assumed 156,550
Net Premium Paid for Deposits (42,999)
-------
Net Cash Received $ 113,551
=======
6
<PAGE>
Webster Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AND MORTGAGE-BACKED SECURITIES
------------------------------------------
On December 31, 1993, Webster adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement requires
securities to be classified into one of three categories. Securities with fixed
maturities that are classified as Held to Maturity are carried at cost, adjusted
for amortization of premiums and accretion of discounts over the estimated terms
of the securities utilizing a method which approximates the level yield method.
Securities that management intends to hold for indefinite periods of time
(including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory capital or
other similar factors) are classified as Available for Sale. All Equity
Securities are classified as Available for Sale. Securities Available for Sale
are carried at fair value with unrealized gains and losses recorded as
adjustments to shareholders' equity on a tax effected basis. Securities
classified as Trading Securities are carried at fair value with unrealized gains
and losses included in earnings. Gains and losses on the sales of securities are
recorded using the specific identification method.
A summary of securities as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------- -----------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Trading Securities:
Mortgage-Backed Securities:
GNMA $14,490 $14,490 $14,766 $14,766
FHLMC 28,583 28,583 29,838 29,838
------- ------ ------ ------
43,073 43,073 44,604 44,604
------ ------ ------ ------
Available for Sale Portfolio:
U.S. Treasury Notes:
Matures within 1 year - - 1,000 1,000
Matures over 1 within 5 years 2,509 2,557 - -
U.S. Government Agency:
Matures over 1 within 5 years 12,907 12,580 12,901 12,522
Corporate Bonds and Notes:
Matures over 1 within 5 years 5 20 23,005 23,005
Matures over 5 within 10 years 2,737 2,732 2,737 2,730
Mutual Funds* 5,230 5,219 34,077 33,947
Equity Securities:
Stock in Federal Home Loan Bank of Boston 30,039 30,039 30,039 30,039
Other Equity Securities 10,232 12,845 9,195 11,930
Mortgage Backed Securities:
FNMA 111,757 109,834 139,860 142,827
FHLMC 44,603 44,588 62,572 63,221
GNMA 19,028 19,002 20,443 20,512
Collateralized Mortgage Obligations 131,458 135,322 155,321 155,539
Unamortized Hedge 715 271 816 816
Unrealized Securities Gains, Net 3,789 - 6,122 -
------- ------- ------- -------
375,009 375,009 498,088 498,088
------- ------- ------- -------
</TABLE>
7
<PAGE>
Webster Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AND MORTGAGE-BACKED SECURITIES (continued)
------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Held to Maturity Portfolio:
U.S. Treasury Notes:
Matures within 1 year 1,174 1,190 1,577 1,577
Matures over 1 within 5 years 251 252 8,262 8,445
U.S. Government Agency:
Matures within 1 year 6,824 6,816 1,003 1,006
Matures over 1 within 5 years 27,744 28,628 39,868 41,330
Matures over 5 within 10 years 983 993 999 1,008
Corporate Bonds and Notes:
Matures within 1 year 957 959 - -
Matures over 1 within 5 years 1,652 1,648 2,555 2,579
Matures over 5 within 10 years 80 74 330 325
Mortgage Backed Securities:
FHLMC 40,643 41,071 42,877 43,714
FNMA 29,863 30,456 31,785 32,457
GNMA 1,572 1,622 1,622 1,698
Collateralized Mortgage Obligations 416,590 413,984 370,762 371,342
Other Mortgage-backed Securities 291 288 308 294
-------- --------- --------- ----------
528,624 527,981 501,948 505,775
-------- --------- --------- ----------
Total $946,706 $946,063 $1,044,640 $1,048,467
-------- --------- --------- ---------
<FN>
* Mutual Funds consist primarily of funds invested in money market and
short duration instruments.
</FN>
</TABLE>
NOTE 4 - NET INCOME PER SHARE
--------------------
Primary net income per share is calculated by dividing net income less
preferred stock dividends by the weighted-average number of shares of common
stock and common stock equivalents outstanding, when dilutive. The common stock
equivalents consist of common stock options. Fully diluted net income per share
is calculated by dividing adjusted net income by the weighted-average fully
diluted common shares, including the effect of common stock equivalents and the
hypothetical conversion into common stock of the Series B 7 1/2% Cumulative
Convertible Preferred Stock. The weighted-average number of shares used in the
computation of primary net income per share for the three months ended March 31,
1996 was 8,263,098 and for the three months ended March 31, 1995 was 6,870,244.
The weighted-average number of shares used in the computation of fully diluted
earnings per share for the three months ended March 31, 1996 was 9,249,160 and
for the three months ended March 31, 1995 was 7,868,639.
8
<PAGE>
Webster Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET
------------------------------------------------
Foreclosed property expenses and provisions, net are summarized as follows
(in thousands):
Three Months
Ended March 31,
---------------
1996 1995
---- ----
Gain on Sale of Foreclosed Property, Net $(271) $ (164)
Provision for Losses on Foreclosed Property 350 621
Rental Income (114) (148)
Foreclosed Property Expenses 933 1,026
------ -----
Foreclosed Property Expenses and Provisions, Net $ 898 $ 1,335
====== =====
NOTE 6 - ACCOUNTING FOR IMPAIRED LOANS
------------------------------
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." Under SFAS No. 114, a loan
is considered impaired when it is probable that the creditor will be unable to
collect amounts due, both principal and interest, according to the contractual
terms of the loan agreement. This statement does not apply to large groups of
small-balance homogeneous loans that are collectively evaluated for impairment
such as residential and consumer loans. When a loan is impaired, a creditor has
a choice of ways to measure impairment. The factors used to measure impairment
include: (I) the present value of expected future cash flows of the impaired
loan discounted at the loan's original effective interest rate, (ii) the
observable market price of the impaired loan or (iii) the fair value of the
collateral of a collateral-dependent loan. When a loan has been deemed to be
impaired, a valuation allowance is established for the amount of such
impairment.
Webster considers its residential and consumer loan portfolios to be exempt
from the provisions of SFAS No. 114 since these loans are large groups of
small-balance homogeneous loans collectively evaluated for determining loan loss
allowances. In identifying impaired loans under the provisions of SFAS No. 114,
Webster aggregates loans into risk classifications and makes an individual
assessment of each borrower's ability to repay based upon current contract
terms. If it is determined that the borrower will not be able to fulfill the
terms of the original contract, the loan is classified as impaired. In
comparison to nonaccrual loans, the measurement of impaired loans is more
subjective due to the use of estimates of future cash flows. 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.
There is no difference in Webster's charge-off policy for impaired loans as
compared to other loans classified as nonaccrual or risk-rated by category.
Loans are charged-off to the loan loss or impaired loan loss allowances when
management determines that a portion of the book value of the loan will not be
recovered either through principal repayment or liquidation of the underlying
collateral.
Webster adopted SFAS No. 114 during the quarter ended March 31, 1995, with no
impact on its results of operations. At March 31, 1996, Webster had $10.7
million of impaired loans, of which $6.3 million was measured based upon the
fair value of the underlying collateral and $4.4 million was measured based upon
the expected future cash flows of the impaired loans. Of the total of impaired
loans of $10.7 million, $5.8 million had allowances for losses on impaired loans
of $2.4 million. In the 1996 first quarter, total impaired loans averaged $10.0
million.
9
<PAGE>
Webster Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - ACCOUNTING FOR IMPAIRED LOANS (continued)
-----------------------------------------
In October 1994, the Financial Accounting Standards Board issued SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure", amending SFAS No. 114. SFAS No. 118 allows institutions to use
existing methods for recognizing interest income on impaired loans. Webster's
policy with regard to the recognition of interest income on impaired loans
includes an individual assessment of each loan. Interest which is more than 90
days past due is not accrued. When payments on impaired loans are received,
Webster records interest income on a cash basis or applies the total payment to
principal based on an individual assessment of each loan. Interest income
recognized on impaired loans in the three months ended March 31, 1996 amounted
to $46,000.
NOTE 7 - REVERSE REPURCHASE AGREEMENTS
-----------------------------
At March 31, 1996, Webster had short term borrowings through reverse
repurchase agreements outstanding. Information concerning borrowings under
reverse repurchase agreements is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Balance at Weighted Maturity Book Value Market Value
March 31, 1996 Term Average Rate Date of Collateral of Collateral
- -------------------- --------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$93,503 1 to 9 months 5.42% Less than 6 months $95,778 $94,122
</TABLE>
The securities underlying the reverse repurchase agreements are all U.S.
Agency collateral and have been delivered to the broker-dealers who arrange the
transactions . Webster uses reverse repurchase agreements when the cost of such
borrowings is less than other funding sources. The average balance and the
maximum amount of outstanding repurchase agreements at any month-end during the
1996 first quarter was $111.0 million and $117.3 million, respectively. There
were no reverse repurchase agreements outstanding at March 31, 1995.
10
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GENERAL
- -------
Webster Financial Corporation ("Webster") , through its subsidiary, Webster
Bank (the "Bank"), delivers financial services to local individuals and
business. Webster's mission is to build valuable banking relationships by
helping individuals, families and businesses to reach their financial goals.
Webster is organized along three lines of business - consumer, business and
mortgage banking, with each focused on the special needs of its customers.
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. Webster currently serves customers from 64 full service banking
offices located in Hartford, New Haven, Fairfield, Litchfield, and Middlesex
counties in Connecticut.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Total assets were $3.8 billion at March 31, 1996, an increase of $593.5
million from $3.2 billion at December 31, 1995. The increase in total assets is
due primarily to the Shawmut Transaction, which resulted in a total increase of
$694.6 million including loans acquired , cash and the core deposit intangible
recorded. This increase was partially offset by a total reduction of $111.1
million of securities and interest-bearing deposits.
Net Segregated Assets decreased to $99.0 million at March 31, 1996 from
$104.8 million at December 31, 1995 due primarily to principal repayments of
$4.1 million and net chargeoffs of $1.7 million. Total net foreclosed properties
were $18.2 million at March 31, 1996 compared to $17.2 million at December 31,
1995. The net increase in foreclosed properties of $1.0 million for the current
quarter was primarily attributable to additions of $5.8 million, that were
offset by sales of $2.9 million and valuation write downs of $1.9 million.
Total liabilities were $3.6 billion at March 31, 1996, an increase of
$589.6 million from $3.0 billion at December 31, 1995. The increase in total
liabilities is due primarily to a net increase in deposits of $728.6 million
that was partially offset by a decrease of $146.4 in FHLB and other borrowings.
Both of these changes in liabilities for the current quarter period are a result
of the Shawmut Transaction.
Shareholders' equity was $213.8 million at March 31, 1996 and $210.0 at
December 31, 1995. The Bank had tier 1 leveraged, tier 1 risk based, and total
risk-based capital ratios of 5.24%, 9.53% and 10.75% , respectively. The Bank
met the regulatory capital requirements to be categorized as a "well
capitalized" institution at March 31, 1996.
ASSET QUALITY
- -------------
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans, aggressively
managing nonaccrual assets and maintaining adequate reserve coverage on
nonaccrual assets. At March 31, 1996, residential and consumer loans comprised
approximately 84% 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 which are discussed separately.
11
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A breakdown of loans receivable, net by type as of March 31, 1996 and
December 31, 1995 follows (in thousands):
March 31, 1996 December 31, 1995
-------------- -----------------
Residential Mortgage Loans $1,903,761 $1,560,822
Commercial Real Estate Loans 233,528 146,630
Commercial and Industrial Loans 173,403 52,763
Consumer Loans (Including Home Equity) 218,925 173,538
---------- ----------
Total Loans 2,529,617 1,933,753
Allowance for Loan Losses (45,944) (41,797)
---------- ----------
Loans Receivable, Net $2,483,673 $1,891,956
========== ==========
Included above at March 31, 1996 and December 31, 1995 were loans held for
sale of $6.5 million and $2.9 million, respectively. Loans held for sale at
March 31, 1996 and December 31, 1995 represented one-to-four family residential
mortgage loans.
The following table details the nonaccrual assets at March 31, 1996 and
December 31, 1995 (in thousands):
March 31, 1996 December 31, 1995
-------------- -----------------
Loans Accounted For on a Nonaccrual Basis:
Residential Real Estate $18,810 $20,560
Commercial 15,615 15,296
Consumer 2,068 1,987
-------- --------
Total Nonaccrual Loans 36,493 37,843
Foreclosed Properties:
Residential and Consumer 9,160 6,368
Commercial 9,077 10,808
-------- ------
Total Nonaccrual Assets $54,730 $55,019
====== ======
The net decrease in nonaccrual assets of $300,000 at March 31, 1996 as
compared to the December 31, 1995 balance is due primarily to payoffs,
foreclosed property sales and charge-offs. There were no nonaccrual assets
received in the Shawmut Transaction.
At March 31, 1996, Webster's allowance for losses on loans of $45.9 million
represented 125.9% of nonaccrual loans and its total allowances for losses on
nonaccrual assets of $46.7 million amounted to 84.2% of nonaccrual assets. A
detail of the changes in the allowances for losses on loans and foreclosed
property for the three months ended March 31, 1996 follows (in thousands):
<TABLE>
<CAPTION>
Allowances For Losses On
------------------------
Impaired Foreclosed Total
Loans Loans Properties Allowances for Losses
----- ----- ---------- ---------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 39,704 $ 2,093 $ 991 $42,788
Provisions for Losses 1,000 - 350 1,350
Allocation from General Allowance (365) 365 - -
Purchase Accounting Adjustment 5,000 - - 5,000
Losses Charged to Allowances (2,034) - (632) (2,666)
Recoveries Credited to Allowances 181 - 33 214
-------- -------- -------- ---------
Balance at March 31, 1996 $ 43,486 $ 2,458 $ 742 $ 46,686
======== ======= ======= ========
</TABLE>
12
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Segregated Assets, Net
Segregated Assets, Net at March 31, 1996 included the following assets
purchased from the FDIC in the First Constitution Acquisition which are subject
to a loss-sharing arrangement with the FDIC (in thousands):
March 31, 1996 December 31, 1995
Commercial Real Estate Loans $ 76,024 $ 79,995
Commercial and Industrial Loans 9,854 10,439
Multi-Family Real Estate Loans 15,018 16,341
Foreclosed Properties 1,098 1,299
--------- -------
101,994 108,074
Allowance for Segregated Assets Losses (3,027) (3,235)
--------- --------
Segregated Assets, Net $ 98,967 $104,839
========== ========
Under the Purchase and Assumption Agreement with the FDIC relating to the
First Constitution Acquisition, during the first five years after October 2,
1992 (the "Acquisition Date"), the FDIC is required to reimburse Webster
quarterly for 80% of all net charge-offs (i.e., the excess of charge-offs over
recoveries) and certain permitted expenses related to the Segregated Assets
acquired by Webster.
During the sixth and seventh years after the Acquisition Date, Webster is
required to pay quarterly to the FDIC an amount equal to 80% of the recoveries
during such years on Segregated Assets which were previously charged off after
deducting certain permitted expenses related to those assets. Webster is
entitled to retain 20% of such recoveries during the sixth and seventh years
following the Acquisition Date and 100% thereafter.
Upon termination of the seven-year period after the Acquisition Date, if
the sum of net charge-offs on Segregated Assets for the first five years after
the Acquisition Date plus permitted expenses during the entire seven-year
period, less any recoveries during the sixth and seventh year on Segregated
Assets charged off during the first five years, exceeds $49.2 million, the FDIC
is required to pay Webster an additional 15% of any such excess over $49.2
million at the end of the seventh year. At March 31, 1996, cumulative net
charge-offs aggregated $50.5 million and Webster began recording the additional
15% reimbursement.
The reduction of $6.1 million for gross Segregated Assets for the current
quarter is the result of approximately $2.1 million in gross charge offs and
$4.0 million in payments received. Write downs and sales activity for the
quarter were not significant. Reimbursements received for net charge-offs and
eligible expenses on Segregated Assets aggregated $1.2 million for the three
months ended March 31, 1996. A reimbursement request totaling $1.1 million has
been submitted to the FDIC for the first quarter 1996 period.
A detail of changes in the allowance for Segregated Assets losses follows
(in thousands):
Balance at December 31, 1995 $ 3,235
Provisions Charged to Operations -
Charge-offs (420)
Recoveries 212
-------
Balance at March 31, 1996 $ 3,027
=======
13
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
The following table details nonaccrual Segregated Assets at March 31, 1996
and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
Segregated Assets Accounted For on a Nonaccrual Basis:
<S> <C> <C>
Commercial Real Estate Loans $ 3,871 $2,604
Commercial and Industrial Loans 880 1,203
Multi-Family Real Estate Loans 351 1,432
------- --------
Total Nonaccrual Loans 5,102 5,239
Foreclosed Properties:
Commercial Real Estate 610 648
Multi-Family Real Estate 503 651
------- --------
Total Nonaccrual Segregated Assets $ 6,215 $6,538
======= ========
</TABLE>
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. To this end, Webster's strategies for managing
interest-rate risk are responsive to changes in the interest-rate environment
and to market demands for particular types of deposit and loan products.
Management measures interest-rate risk using simulation, price elasticity and
GAP analyses. Based on Webster's asset/liability mix at March 31, 1996,
management's simulation analysis of the effects of changing interest rates
projects that an instantaneous +/- 200 basis point change in interest rates
would increase and decrease net interest income by less than 2% and 8%,
respectively. At March 31, 1996, Webster had a 4.7% 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 March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Under regulations of the Office of Thrift Supervision, Webster Bank is
required to maintain assets which are readily marketable in an amount equal to
5% or more of its net withdrawable deposits plus short-term borrowings. At March
31, 1996, Webster Bank had a liquidity ratio of 6.7% and was in compliance with
the applicable regulations. Webster Bank had mortgage commitments outstanding of
$70.4 million, unused home equity credit lines of $163.2 million and commercial
lines and letters of credit of $73.2 million.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the three month periods ended March 31, 1996 and March 31,
1995:
General
- -------
The results of operations for the 1996 first quarter period included 44
days of income and expense related to the Shawmut Transaction consumated on
February 16, 1996. Net income for the current three month period ended March 31,
1996 was $5.5 million, or $.60 per fully diluted share, an increase of $297,000,
as compared to $5.2 million or $.67 per fully diluted share for the same period
in 1995. Net income available to common shareholders increased 6% in the first
quarter of 1996 to $5.2 million as compared to $4.9 million for the same period
in 1995. Results for the first quarter of 1996 included $500,000 of
non-recurring conversion costs related to the Shawmut Acquisition that were
higher than anticipated.
14
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- -------------------
Net interest income for the three month period ended March 31, 1996
amounted to $26.0 million, an increase of $4.0 million or 18% as compared to
$22.0 million for the same period in 1995. The increase is primarily
attributable to an increased volume of average earning assets and interest
bearing liabilities related to the Shawmut Transaction. The net interest rate
spread for the three months ended March 31, 1996 was 3.09% as compared to 3.02%
for the same period in 1995 and 2.69% for the fourth quarter of 1995.
Interest Income for the three months ended March 31, 1996 amounted to $61.9
million as compared to $51.0 million for the same period in 1995. The increase
is due primarily to a higher volume of average earning assets and an increased
yield on loans. The yield on loans for the current three month period was 7.87%
as compared to 7.35% for the same period a year earlier and 7.36% for the fourth
quarter of 1995.
Interest Expense for the three months ended March 31, 1996 amounted to
$35.9 million compared to $28.9 million for the same period in 1995. This
increase is due primarily to a higher amount of average interest-bearing
liabilities due primarily to acquired deposits and a higher amount of borrowed
funds. The cost of interest-bearing liabilities increased to 4.40% for the three
months ended March 31, 1996 compared to 4.12% for the same period in 1995. For
the fourth quarter of 1995 the cost of interest-bearing liabilities was 4.67%.
The decrease in the cost of interest-bearing liabilities in the 1996 first
quarter as compared to the fourth quarter of 1995 is due primarily to increased
noninterest-bearing deposits received in the Shawmut Transaction. Interest
expense on borrowings for the three months ended March 31, 1996 amounted to $8.6
million as compared to $6.7 million for the same period in 1995. The increase in
interest expense on borrowings is primarily attributed to a higher volume of
borrowings offset by a lower cost of funds.
Provision for Loan Losses
- -------------------------
The provision for loan losses amounted to $1.0 million for the three month
period ended March 31, 1996 as compared to $385,000 for the same period in 1995.
At March 31, 1996, the allowance for loan losses was $45.9 million and
represented 125.9% of nonaccrual loans, compared to $44.2 million and 124.9% a
year earlier.
Noninterest Income
- ------------------
Noninterest income of $4.8 million for the three month period ended March
31, 1996 was unchanged as compared to the same period in 1995. During the
current period, increased net gains from loan and securities sales were
partially offset by lower other noninterest income. There were $496,000 of net
gains on sales of loans and securities for the three months ended March 31, 1996
as compared to $337,000 of net gains for the same period in 1995.
Noninterest Expenses
- --------------------
Noninterest expenses for the three months ended March 31, 1996 amounted to
$21.2 million as compared to $18.7 million for the same period in 1995. The
increase in noninterest expenses for the current quarter is due primarily to the
Shawmut Transaction. Increases in salaries and benefits expense, occupancy
expenses, marketing expenses, other expenses and $500,000 of additional
non-recurring conversion costs related to the Shawmut Transaction were partially
offset by lower costs for FDIC premiums and foreclosed property expenses. During
the third quarter of 1995, the FDIC determined that the Bank Insurance Fund
("BIF") had met its required reserve ratio as of June 1, 1995 . There was no
reduction by the FDIC in premium rates of the Savings Association Insurance Fund
("SAIF"), which had not met its required reserve level. The reduction in the BIF
premium rates resulted in lower Federal Deposit Insurance Premium expenses of
$919,000 for the current three month period. At March 31, 1996, approximately
70% of Webster's deposits are assessed premiums at the BIF rate and 30% at the
SAIF rate.
15
<PAGE>
Webster Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Income Taxes
Income taxes for the three months ended March 31, 1996 increased due to a
higher level of taxable income which was partially offset by a reduction in
state income tax rates. Income taxes for 1995 were also lower as compared to
1996 due to a higher level of benefits realized from the utilization of tax loss
carry forwards and a reduction of the deferred tax valuation allowance, both of
which are primarily related to the prior acquisition of Bristol Savings Bank.
Legislation continues to be pending on the proposed repeal of Code Section
593 which governs how qualified savings institutions calculate their bad debt
deduction for tax purposes. This repeal may cause qualified savings institutions
to recapture all or part of their tax bad debt reserves, which could cause an
increase in income taxes not previously provided for in the year of recapture.
The pending legislation provides relief from such recapture but the result or
timing of such legislation cannot be determined.
16
<PAGE>
Webster Financial Corporation and Subsidiary
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - Not Applicable
-----------------
Item 2. CHANGES IN SECURITIES - Not Applicable
---------------------
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
-------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The Registrant's annual meeting of shareholders was held on April
25, 1996
(b) Not Applicable
(c) The following matters were voted upon and approved by the
Registrant's shareholders at the 1996 annual meeting: (i)
re-election of four directors, of which three are to serve for a
three year term and one for a one year term (Proposal 1); (ii)
ratification of the appointment of KPMG Peat Marwick as
independent auditors of Webster for the year ending December 31,
1996 (Proposal 2); (iii) Approval of Amendment of the 1992 Stock
Option Plan (Proposal 3); (iv) approval of the material terms of
Webster's Performance Incentive Plan (Proposal 4); (v) approval
to pay directors' annual retainer fees in stock (Proposal 5). As
to Proposal 1, Walter R. Griffin received 6,668,351 votes for
election and 88,263 votes were withheld, J. Gregory Hickey
received 6,720,568 votes for election and 36,046 votes were
withheld, C. Michael Jacobi received 6,720,944 votes for election
and 35,670 votes were withheld, John J. Crawford received
6,716,969 votes for election and 39,645 were withheld. As to
Proposal 2, shareholders cast 6,716,157 votes for, 19,176 against
and 21,281 abstentions. As to Proposal 3, shareholders cast
5,867,646 votes for, 538,086 against and 98,586 abstentions. As
to Proposal 4, shareholders cast 5,842,252 for, 462,484 against
and 99,479 abstentions. As to Proposal 5, shareholders cast
5,829,830 for and 485,183 against and 89,201 abstentions.
(d) Not Applicable
Item 5. OTHER INFORMATION - Not Applicable
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on form 8-K
Form 8K dated March 1, 1996 (announcing the date for the Registrant's
annual meeting of shareholders)
17
<PAGE>
Webster Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements 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
Date: May 15, 1996 By: /s/ John V. Brennan
---------------------- --------------------
John V. Brennan
Executive Vice President,
Chief Financial Officer and Treasurer
Date: May 15, 1996 By: /s/ Peter J. Swiatek
---------------------- ---------------------
Peter J. Swiatek
Controller
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 117,507
<SECURITIES> 946,706
<RECEIVABLES> 2,631,611
<ALLOWANCES> 48,971
<INVENTORY> 0
<CURRENT-ASSETS> 117,015
<PP&E> 49,305
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,813,173
<CURRENT-LIABILITIES> 3,128,824
<BONDS> 406,749
<COMMON> 199,660
0
17,186
<OTHER-SE> 63,754
<TOTAL-LIABILITY-AND-EQUITY> 3,813,173
<SALES> 66,772
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,174
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 35,926
<INCOME-PRETAX> 8,672
<INCOME-TAX> 3,141
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,531
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.60
</TABLE>
