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 SEPTEMBER 30, 1997
------------------
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) 13,634,122 SHARES
- ------------------------------ ------------------------------------------
(Class) Issued and Outstanding at October 31, 1997
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Condensed Consolidated Statements of Condition at September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Condensed Consolidated
Financial Statements 10
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
(unaudited)
ASSETS
Cash and Due from Depository Institutions $ 125,728 $ 105,226
Interest-bearing Deposits 90,100 4,536
Securities: (Note 2)
Trading at Fair Value 71,452 59,331
Available for Sale, at Fair Value, (Book Value: $2,073,888 in 1997
and $979,173 in 1996) 2,101,410 983,699
Held to Maturity, (Market Value: $447,237 in 1997
and $528,473 in 1996) 444,980 534,672
Loans Receivable, Net 3,732,498 3,642,522
Segregated Assets, Net 44,784 75,670
Accrued Interest Receivable 40,127 35,430
Premises and Equipment, Net 58,436 58,711
Foreclosed Properties, Net 10,983 13,214
Intangible Assets 50,525 49,448
Prepaid Expenses and Other Assets 39,991 44,751
-------------- -------------
Total Assets $6,811,014 $5,607,210
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $4,265,011 $4,457,561
Federal Home Loan Bank Advances 1,039,029 559,880
Other Borrowings 972,437 166,127
Advance Payments by Borrowers for Taxes and Insurance 12,052 31,106
Accrued Expenses and Other Liabilities 58,901 55,704
-------------- -------------
Total Liabilities 6,347,430 5,270,378
-------------- -------------
Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust (Note 9) 100,000 --
-------------- -------------
SHAREHOLDERS' EQUITY
Cumulative Convertible Preferred Stock, Series B, No shares issued and
outstanding at September 30, 1997 and
98,084 shares issued and outstanding at December 31, 1996 -- 1
Common Stock, $.01 par value:
Authorized - 30,000,000 shares;
Issued - 13,637,863 shares at September 30, 1997 and
13,561,540 shares at December 31, 1996 136 136
Paid-in Capital 172,321 186,451
Retained Earnings 181,203 169,637
Less Treasury Stock at cost, 83,639 shares at September 30, 1997
and 575,274 shares at December 31, 1996 (4,068) (18,801)
Less Employee Stock Ownership Plan Shares Purchased with Debt (1,971) (2,574)
Unrealized Gains on Securities, Net 15,963 1,982
-------------- -------------
Total Shareholders' Equity 363,584 336,832
-------------- -------------
Total Liabilities and Shareholders' Equity $6,811,014 $5,607,210
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- --------- -------- ------
(unaudited) unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and Segregated Assets $75,798 $72,663 $223,250 $212,983
Securities and Interest-bearing Deposits 40,290 26,176 103,179 73,581
---------- --------- --------- ---------
Total Interest Income 116,088 98,839 326,429 286,564
---------- --------- --------- ---------
INTEREST EXPENSE:
Interest on Deposits 41,715 43,250 126,695 130,324
Interest on Borrowings 24,767 11,829 56,164 31,215
---------- --------- --------- ---------
Total Interest Expense 66,482 55,079 182,859 161,539
---------- --------- --------- ---------
NET INTEREST INCOME 49,606 43,760 143,570 125,025
Provision for Loan Losses (Note 6) 3,550 2,345 13,460 6,204
---------- --------- --------- ---------
Net Interest Income After Provision for Loan Losses 46,056 41,415 130,110 118,821
---------- --------- --------- ---------
NONINTEREST INCOME:
Fees and Service Charges 7,286 5,977 20,168 16,626
Gain on Sale of Loans and Loan Servicing, Net 178 345 499 493
Gain on Sale of Securities, Net 1,234 526 1,880 1,890
Other Noninterest Income 1,019 1,395 3,183 3,659
---------- --------- --------- ---------
Total Noninterest Income 9,717 8,243 25,730 22,668
---------- --------- --------- ---------
NONINTEREST EXPENSES:
Salaries and Employee Benefits 15,135 15,713 45,041 45,561
Occupancy Expense of Premises 3,161 3,226 9,491 9,290
Furniture and Equipment Expenses 2,932 3,033 8,818 8,031
Federal Deposit Insurance Premiums 256 531 757 1,584
Foreclosed Property Expenses and Provisions, Net (Note 4) 856 547 1,716 2,644
Marketing Expenses 1,268 1,251 4,261 4,172
Intangible Amortization 1,562 1,566 4,693 4,141
Non-recurring Expenses (Note 6) 7,200 4,730 27,058 5,230
Capital Securities Expense 2,400 -- 6,446 --
Other Operating Expenses 5,025 6,227 17,809 17,217
---------- --------- --------- ---------
Total Noninterest Expenses 39,795 36,824 126,090 97,870
---------- --------- --------- ---------
Income Before Income Taxes 15,978 12,834 29,750 43,619
Income Tax Expense 6,288 4,613 10,757 15,747
---------- --------- --------- ---------
NET INCOME 9,690 8,221 18,993 27,872
Preferred Stock Dividends -- 283 -- 928
---------- --------- --------- ---------
Net Income Available to Common Shareholders $9,690 $7,938 $18,993 $26,944
========== ========= ========= =========
Net Income Per Common Share:
Primary $0.69 $0.58 $1.37 $1.99
Fully Diluted $0.69 $0.56 $1.35 $1.90
Dividends Declared Per Common Share $0.20 $0.18 $0.60 $0.50
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------- --------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 18,993 $ 27,872
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 13,460 6,204
Provision for Foreclosed Property Losses 645 1,265
Provision for Depreciation and Amortization 7,016 6,178
Amortization of Securities (Discounts) Premiums, Net (2,129) 3,573
Amortization of Hedging Costs, Net 2,273 620
Amortization of Intangibles 4,693 4,141
Amortization of Mortgage Servicing Rights 387 531
Gains on Sale of Foreclosed Properties, Net (852) (1,079)
Loans and Securities Gains, Net (2,090) (1,758)
Gains on Trading Securities, Net (289) (625)
(Increase) Decrease in Trading Securities (32,447) 2,778
Loans Originated for Sale (34,893) (56,350)
Sale of Loans, Originated for Sale 35,911 68,462
Increase in Interest Receivable (4,697) (2,023)
Increase (Decrease) in Interest Payable 10,947 (449)
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 12,767 (10,314)
Increase in Prepaid Expenses and Other Assets, Net (4,649) (4,935)
------------- -------------
Net Cash Provided by Operating Activities 25,046 44,091
------------- -------------
INVESTING ACTIVITIES:
Purchases of Securities, Available for Sale (1,407,011) (539,111)
Purchases of Securities, Held to Maturity (13,847) (99,569)
Maturities of Securities 115,063 103,096
Proceeds from Sale of Securities, Available for Sale 112,425 202,561
Net Increase in Interest-bearing Deposits (85,564) (18,298)
Purchase of Loans (116,815) (67,423)
Net (Increase) Decrease in Loans (579) 47,061
Proceeds from Sale of Foreclosed Properties 15,877 16,742
Net Decrease in Segregated Assets 17,186 21,934
Sale of Segregated Assets 13,700 --
Principal Collected on Mortgage-backed Securities 190,657 174,400
Purchases of Premises and Equipment, Net (6,741) (8,696)
Net Cash and Cash Equivalents Received from Bank Acquisition -- 113,551
------------- -------------
Net Cash Used by Investing Activities (1,165,649) (53,752)
------------- -------------
FINANCING ACTIVITIES:
Net Decrease in Deposits (191,970) (143,316)
Repayment of FHLB Advances (2,864,365) (1,324,641)
Proceeds from FHLB Advances 3,343,514 1,470,755
Repayment of Other Borrowings (3,197,676) (746,605)
Proceeds from Other Borrowings 4,004,754 800,324
Net Decrease in Advance Payments for Taxes and Insurance (19,634) (10,489)
Net Proceeds from Issuance of Capital Securities 97,700 --
Cash Dividends to Common and Preferred Shareholders (7,385) (6,852)
Common Stock Repurchased (6,020) (7,575)
Exercise of Stock Options 2,187 1,613
------------- -------------
Net Cash Provided by Financing Activities 1,161,105 33,214
------------- -------------
Increase in Cash and Cash Equivalents 20,502 23,553
Cash and Cash Equivalents at Beginning of Period 105,226 69,469
------------- -------------
Cash and Cash Equivalents at End of Period $ 125,728 $ 93,022
============= =============
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ 18,581 $ 18,714
Interest Paid 171,403 158,985
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of Loans to Foreclosed Properties 21,479 15,105
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
-----------------------------------------------------
The accompanying condensed 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 and
nine month periods ended September 30, 1997, 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 restated Webster Financial Corporation 1996 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").
On January 31, 1997, and July 31, 1997, Webster acquired DS Bancor, Inc.
("Derby") and People's Savings Financial Corporation ("Peoples"), respectively,
through merger transactions. The transactions were accounted for as a pooling of
interests, and accordingly, the financial statements as of and for periods prior
to the Derby and Peoples transactions have been restated to reflect the
combinations. On August 1, 1997, Webster completed its acquisition of Sachem
Trust National Association ("Sachem"). The transaction was accounted for as a
purchase and therefore, periods prior to the merger date have not been restated.
NOTE 2 - SECURITIES
----------
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 follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------------------------------ ----------------------------------------------
Gross Unrealized Gross Unrealized
Amortized ------------------ Market Amortized ----------------- Market
Cost Gains Losses Value Cost Gains Losses Value
------------ ------ ------- --------- ------------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRADING SECURITIES:
Mortgage-Backed Securities $ 71,452 $ -- $ -- $ 71,452 $ 59,331 $ -- $ -- $ 59,331
---------- ------- ---------- ----------- ---------- ------- --------- ----------
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes 6,508 33 (6) 6,535 2,508 40 (4) 2,544
U.S. Government Agency 60,164 215 (279) 60,100 78,105 277 (381) 78,001
Corporate Bonds and Notes 45,168 174 - 45,342 10,299 13 (7) 10,305
Equity Securities 148,187 17,092 (4,293) 160,986 96,078 4,419 (144) 100,353
Mortgage-Backed Securities 1,797,999 24,215 (3,911) 1,818,303 786,723 8,559 (6,822) 788,460
Unamortized Hedge Instruments 15,862 -- (5,718) 10,144 5,460 -- (1,424) 4,036
---------- ------- ---------- ----------- ---------- ------- --------- ----------
2,073,888 41,729 (14,207) 2,101,410 979,173 13,308 (8,782) 983,699
---------- ------- ---------- ----------- ---------- ------- --------- ----------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes 2,447 20 -- 2,467 944 12 -- 956
U.S. Government Agency 32,477 15 (79) 32,413 39,453 948 (340) 40,061
Corporate Bonds and Notes 1,478 5 (3) 1,480 1,577 6 (8) 1,575
Municipal Bonds 5,000 -- -- 5,000 -- -- -- --
Money Market 1,500 -- -- 1,500 8,000 -- -- 8,000
Mortgage-Backed Securities 402,078 6,565 (4,266) 404,377 484,698 2,110 (8,927) 477,881
---------- ------- ---------- ----------- ---------- ------- --------- ----------
444,980 6,605 (4,348) 447,237 534,672 3,076 (9,275) 528,473
---------- ------- ---------- ----------- ---------- ------- --------- ----------
Total $2,590,320 $48,334 $(18,555) $2,620,099 $1,573,176 $16,384 $(18,057) $1,571,503
========== ======= ========== =========== ========== ======= ========= ==========
</TABLE>
6
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - 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 and warrants. 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, for the year to date period, the hypothetical conversion
into common stock of the Series B 7 1/2% Cumulative Convertible Preferred Stock
("Series B Stock"). There was no Series B Stock outstanding during the third
quarter of 1997. The weighted-average number of shares used in the computation
of primary net income per share for the three and nine months ended September
30, 1997, were 14,033,226 and 13,880,236, respectively, and for the three and
nine months ended September 30, 1996, were 13,605,509 and 13,565,666,
respectively. The weighted-average number of shares used in the computation of
fully diluted earnings per share for the three and nine months ended September
30, 1997, were 14,098,213 and 14,070,469, respectively, and for the three and
nine months ended September 30, 1996, were 14,593,529 and 14,631,507
respectively.
NOTE 4 - FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET
------------------------------------------------
Foreclosed property expenses and provisions, net are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gain on Sale of Foreclosed Property, Net $(393) $ (455) $(852) $(1,079)
Provision for Losses on Foreclosed Property 520 220 645 1,245
Rental Income (26) (35) (72) (225)
Foreclosed Property Expenses 755 817 1,995 2,703
----- ------- ------ ------
Foreclosed Property Expenses and Provisions, Net $ 856 $ 547 $1,716 $2,644
====== ======== ====== ======
</TABLE>
NOTE 5 - REVERSE REPURCHASE AGREEMENTS
-----------------------------
At September 30, 1997, 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>
WEIGHTED AVERAGE
BALANCE AT REMAINING WEIGHTED MATURITY BOOK VALUE MARKET VALUE
SEPTEMBER 30, 1997 TERM AVERAGE RATE DATE OF COLLATERAL OF COLLATERAL
- ----------------------- --------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
$676,040 1 to 23 months 5.63% Less than 3 months $671,378 $709,545
</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 quarterly average balance and
the maximum amount of outstanding reverse repurchase agreements at any month-end
during the 1997 third quarter period were $472.5 million and $676.0 million,
respectively. The total balance for reverse repurchase agreements outstanding at
December 31, 1996, was $99.1 million.
7
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - 1997 ACQUISITION COSTS
----------------------
In connection with the acquisitions of Derby and Peoples, that were
completed on January 31, 1997 and July 31, 1997, respectively, Webster recorded
approximately $27.1 million of merger-related charges. Additionally, Webster
recorded increases of $5.6 million and $1.5 million to the provision for loan
losses related to the acquisition of Derby and Peoples, respectively, for
conformity to Webster's credit policies. In connection with the acquisition of
Sachem on August 1, 1997, Webster recorded costs that did not impact the
statements of income as that transaction was recorded as a purchase transaction.
The following table presents a summary of the merger-related accrued
liabilities (in thousands):
<TABLE>
<CAPTION>
Derby Peoples Sachem
----- ------- ------
<S> <C> <C> <C>
Balance of merger-related accrued liabilities
at December 31, 1996 $ -- $ -- $ --
Additions 19,858 7,200 1,100
Compensation (severance and related costs) (6,673) (1,294) (1)
Data processing contract termination (1,412) -- --
Write down of fixed assets (633) -- --
Transaction costs (including investment bankers,
attorneys and accountants) (2,126) (1,207) (914)
Merger related and miscellaneous expenses (2,764) -- (5)
------ ----- -----
Balance of merger-related accrued liabilities
at September 30, 1997 $6,250 $4,699 $ 180
------ ------ ------
</TABLE>
The remaining accrued liability of $11.1 million represents, for the most
part, an accrual for data processing contract termination costs payable over a
future period, the estimated loss on sale of excess fixed assets due to
consolidation of overlapping branch locations and compensation costs related to
severance.
NOTE 7 - ACCOUNTING STANDARDS
--------------------
In September 1997, the Financial Accounting Standards Boards ("FASB")
issued Statement of Financial Accounting Standards No. 131, ("SFAS")
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the method in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim reports issued to shareholders. This statement
requires that public business enterprises report quantitative and qualitative
information about its reportable segments, including profit or loss, certain
specific revenue and expense items and segment assets. This statement also
requires reconciliations of total segment revenues, total segment profit or
loss, total segment assets and other amounts disclosed for segments to
corresponding amounts in the consolidated financial statements. This statement
is effective for financial statements for periods beginning after December 15,
1997 and in the initial year of application, comparative information for earlier
years is required.
In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of this statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. Comprehensive
income is the total of net income and all other non-owner changes in equity.
This statement is effective for fiscal years beginning after December 15, 1997
and reclassification of financial statements of earlier periods for comparative
purposes is required.
8
<PAGE>
Webster Financial Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - ACCOUNTING STANDARDS (continued)
--------------------
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This statement establishes standards for disclosing
information about an entity's capital structure. This statement is effective for
financial statements issued for periods ending after December 15, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
statement simplifies the standards for computing and presenting earnings per
share previously found in APB Opinion No. 15 and makes them comparable to
international standards. It replaces the presentation of primary earnings per
share with a presentation of basic earnings per share and requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures. Diluted earnings per
share for the three and nine months ended September 30, 1997 were $.69 and $1.35
respectively. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods.
NOTE 8 - CONVERSION OF CONVERTIBLE PREFERRED STOCK
-----------------------------------------
During the month of January 1997, preferred stockholders converted the
remaining 98,084 shares of Series B Stock into 563,002 shares of common stock.
NOTE 9 - CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUST
----------------------------------------------------------------------
On January 30, 1997, Webster completed the sale of $100 million of Webster
Capital Trust I Capital Securities. Webster Capital Trust I is a business trust
formed for the purpose of issuing capital securities and investing the proceeds
in junior subordinated debentures issued by Webster and due 2027. The sole
assets of the Trust are the junior subordinated debentures. Interest payments on
the debentures are tax deductible by Webster. The securities have an annual
interest rate of 9.36%, payable semiannually, beginning July 29, 1997.
NOTE 10 - SUBSEQUENT EVENTS
-----------------
On October 27, 1997, Webster announced a definitive agreement to acquire
Eagle Financial Corp. ("Eagle"), on a stock for stock basis in a tax-free
exchange fixed at 0.84 shares of Webster common stock for each share of Eagle
common stock. At the time of the announcement, Eagle had approximately $2.1
billion in total assets, $1.1 billion in loans, net and $1.4 billion in deposits
and operated 30 branches. Subsequent to the acquisition, Webster will have
approximately $8.9 billion in total assets and over 110 branch offices prior to
the consolidation of overlapping branches. Webster anticipates recognizing
acquisition related charges of approximately $18.9 million on a before tax
basis.
The definitive agreement has been approved by both companies' boards of
directors and is subject to the approval of Webster's and Eagle's stockholders
and the appropriate regulatory agencies. Webster expects the transaction to
close during the first quarter of 1998.
9
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
GENERAL
- -------
Webster Financial Corporation ("Webster" ), through its subsidiary, Webster
Bank, (the "Bank") delivers financial services to individuals, families and
businesses located throughout Connecticut. Webster Bank emphasizes four business
lines consumer, business, mortgage banking, and trust and investment management
services each supported by centralized administration and operations. The
Corporation has grown significantly in recent years, primarily through a series
of acquisitions which have expanded and strengthened its franchise. Webster
currently serves customers from 84 full service banking offices located in
Hartford, New Haven, Fairfield, Litchfield and Middlesex counties in
Connecticut.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Total assets were $6.8 billion at September 30, 1997, an increase of $1.2
billion from $5.6 billion at December 31, 1996. The change in total assets is
due primarily to a net increase in securities of approximately $1.0 billion and
increases in net loans and interest-bearing deposits of $90.0 million and $85.6
million, respectively. The increases were funded, in part, by borrowings and by
the capital securities issued in January 1997, as discussed below.
Net Segregated Assets decreased to $44.8 million at September 30, 1997,
from $75.7 million at December 31, 1996, due primarily to the bulk sale of
approximately $13.7 million of multi-family loans. Principal repayments and net
charge-offs totaled approximately $12.8 million and $4.4 million, respectively.
Total net foreclosed properties were $11.0 million at September 30, 1997,
compared to $13.2 million at December 31, 1996. The net decrease in foreclosed
properties of $2.2 million for the current nine month period was primarily
attributable to sales of $12.6 million and valuation write downs of $6.6 million
that were offset by additions of $17.0 million.
Total liabilities were $6.3 billion at September 30, 1997, an increase of
$1.0 billion from $5.3 billion at December 31, 1996. The increase in total
liabilities for the current period is due primarily to a net increase in
borrowings of $1.3 billion that was partially offset by a decrease of $192.6
million in deposits.
On January 30, 1997, Webster completed the sale of $100 million of Webster
Capital Trust I Capital Securities. Webster Capital Trust I is a business trust
formed for the purpose of issuing capital securities and investing the proceeds
in junior subordinated debentures, issued by Webster and due 2027. Interest
payments on the debentures are tax deductible by Webster. The securities have an
annual interest rate of 9.36%, payable semiannually, beginning July 29, 1997.
Shareholders' equity was $363.6 million at September 30, 1997 and $336.8
million at December 31, 1996. At September 30, 1997, the Bank had Tier 1
leveraged, Tier 1 risk-based, and Total risk-based capital ratios of 5.74%,
12.43% and 13.69%, respectively. The Bank continues to meet the regulatory
capital requirements to be categorized as a "well capitalized" institution at
September 30, 1997.
ASSET QUALITY
- -------------
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 September 30, 1997, residential and consumer
loans comprised approximately 88% 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.
10
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
A breakdown of loans receivable, net by type as of September 30, 1997 and
December 31, 1996 follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Residential Mortgage Loans $2,876,496 $2,784,796
Commercial Real Estate Loans 274,564 281,839
Commercial Loans 185,113 195,643
Consumer Loans (Including Home Equity) 419,052 408,536
Credit Cards 29,546 14,893
----------- -----------
Total Loans 3,784,771 3,685,707
Allowance for Loan Losses (52,273) (43,185)
----------- ----------
Loans Receivable, Net $3,732,498 $3,642,522
=========== ==========
</TABLE>
Included above at September 30, 1997 and December 31, 1996, were loans held
for sale of $2.9 million and $4.8 million, respectively. Loans held for sale at
September 30, 1997 and December 31, 1996, represented one-to-four family
residential mortgage loans.
The following table details the nonaccrual assets at September 30, 1997 and
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Loans Accounted for on a Nonaccrual Basis:
Residential Real Estate $24,412 $25,393
Commercial 11,497 12,874
Consumer 2,357 3,339
------- -------
Total Nonaccrual Loans 38,266 41,606
Foreclosed Properties:
Residential and Consumer 6,418 5,305
Commercial 4,565 7,909
------- -------
Total Nonaccrual Assets $49,249 $54,820
======= =======
</TABLE>
The net decrease in nonaccrual assets of $5.6 million at September 30,
1997, as compared to the December 31, 1996, balance is due primarily to payoffs,
foreclosed property sales and charge-offs.
At September 30, 1997, Webster's allowance for losses on loans of $52.3
million represented 136.6% of nonaccrual loans and its total allowances for
losses on nonaccrual assets of $52.8 million amounted to 106.1% of nonaccrual
assets. A detail of the changes in the allowances for losses on loans and
foreclosed property for the nine months ended September 30, 1997 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, 1996 $42,629 $ 556 $ 740 $ 43,925
Provisions for Losses 6,310 - 610 6,920
Provision Related to Acquisitions 7,150 - - 7,150
Allocation to Impaired Allowance (300) 300 - -
Losses Charged to Allowances (9,818) - (925) (10,743)
Recoveries Credited to Allowances 5,446 - 115 5,561
-------- -------- -------- --------
Balance at September 30, 1997 $ 51,417 $ 856 $ 540 $ 52,813
======== ======== ======== ========
</TABLE>
11
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
Segregated Assets, Net
- ----------------------
Segregated Assets, Net at September 30, 1997, 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):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Commercial Real Estate Loans $ 42,029 $ 58,745
Commercial Loans 4,677 6,606
Multi-Family Real Estate Loans -- 12,772
Foreclosed Properties 727 406
--------- --------
47,433 78,529
Allowance for Segregated Assets Losses (2,649) (2,859)
--------- ---------
Segregated Assets, Net $ 44,784 $ 75,670
========= ========
</TABLE>
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 September 30, 1997, cumulative net
charge-offs aggregated $58.4 million.
Gross Segregated Assets decreased $3.3 million during the 1997 third
quarter period due primarily to principal repayments. During the first nine
months of the 1997 period, Webster received reimbursements for net charge-offs
and eligible expenses on Segregated Assets aggregating $4.3 million. A
reimbursement request totaling $164,000 has been submitted to the FDIC for the
1997 third quarter period.
A detail of changes in the allowance for Segregated Assets losses follows
(in thousands):
Balance at December 31, 1996 $ 2,859
Charge-offs (229)
Recoveries 19
-------
Balance at September 30, 1997 $ 2,649
=======
12
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
The following table details nonaccrual Segregated Assets at September 30,
1997 and December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Segregated Assets Accounted for on a Nonaccrual Basis:
Commercial Real Estate Loans $ 623 $ 3,337
Commercial Loans 2,695 192
Multi-Family Real Estate Loans -- 495
-------- -------
Total Nonaccrual Loans 3,318 4,024
Foreclosed Properties:
Commercial Real Estate 644 269
Multi-Family Real Estate 83 138
-------- -------
Total Nonaccrual Segregated Assets $ 4,045 $ 4,431
======== =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
- --------------------------
The goal of Webster's asset/liability 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. Webster must provide
for sufficient liquidity for daily operations while maintaining mandated
regulatory liquidity levels. 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 duration, GAP and simulation analysis with
particular emphasis on measuring changes in the market value of equity and
changes in net interest income in different interest-rate environments. The
simulation analyses incorporate assumptions about balance sheet changes such as
asset and liability growth, loan and deposit pricing and changes due to the mix
and maturity of such assets and liabilities. From such simulations, interest
rate risk is quantified and appropriate strategies are formulated.
As part of its asset/liability management strategy, Webster utilizes
various interest rate instruments including short futures positions, interest
rate swaps, interest rate caps and interest rate floors. Webster holds short
futures positions to minimize the price volatility of certain adjustable rate
assets held as Trading Securities. Changes in the market value of the short
futures positions and trading securities are recognized as a gain or loss in the
consolidated statements of income in the period for which the change occurred.
Interest rate caps, interest rate floors and interest rate swaps are
entered into as hedges against future interest rate fluctuations. Webster does
not trade in speculative interest rate contracts. Those agreements meeting the
criteria for hedge accounting treatment are designated as hedges and are
accounted for as such. If a contract is terminated, any unrecognized gain or
loss is deferred and amortized as an adjustment to the yield of the related
asset or liability over the remainder of the period that was being hedged. If
the linked asset or liability is disposed of prior to the end of the period
being managed, the related interest rate contract is marked to fair value, with
any resulting gain or loss recognized in current period income as an adjustment
to the gain or loss on the disposal of the related asset or liability. Interest
income or expense associated with interest rate caps and swaps is recorded as a
component of net interest income. Interest rate instruments that hedge available
for sale assets are marked to fair value monthly with adjustments to
shareholders' equity on a tax effected basis.
13
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- ------------------------------------------------------------------------
The following table details the estimated market value of Webster's
financial assets at September 30, 1997, if interest rates instantaneously
increase or decrease 100 basis points.
<TABLE>
<CAPTION>
Book Market Estimated Market Value
ASSETS Value Value -100 BP +100BP
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Cash & Interest Bearing Deposits $ 215,828 $ 215,828 $ 215,828 $ 215,828
Trading Securities 71,452 71,452 71,048 67,783
Hedges -- -- (1,510) 1,738
----------- ----------- ------------- -----------
Total Trading Securities 71,452 71,452 69,538 69,521
Available for Sale Securities 2,058,026 2,091,266 2,118,282 2,046,334
Hedges 15,862 10,144 6,729 18,233
----------- ----------- ------------- -----------
Total Available for Sale Securities 2,073,888 2,101,410 2,125,011 2,064,567
Held to Maturity Securities 444,980 447,237 450,097 437,497
Loans 3,784,771 3,860,376 3,912,835 3,785,911
Mortgage Loan Servicing Assets 5,610 8,433 5,995 9,893
LIABILITIES
Deposits $4,265,011 $4,079,779 $4,149,570 $4,013,782
FHLB Advances & Other Borrowings 1,969,588 1,931,149 1,935,821 1,926,527
Senior Notes & Capital Securities 140,000 143,934 153,910 134,723
</TABLE>
Based on Webster's asset/liability mix at September 30, 1997, management's
sensitivity analysis of the effects of changing interest rates estimates that an
instantaneous +/-100 basis point change in interest rates would change net
interest income over the next twelve months by less than 4.2%. The above
estimated market values are subject to factors that could cause actual results
to differ from such projections and estimates.
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
September 30, 1997, Webster Bank had a liquidity ratio of 7.5% and was in
compliance with the applicable regulations. Webster Bank had mortgage
commitments outstanding of $89.4 million, non-mortgage commitments of $16.3
million, unused home equity credit lines of $269.6 million, available credit
card lines of $90.0 million and commercial lines and letters of credit of $100.0
million.
14
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996
GENERAL
- -------
Net income for the three month period ended September 30, 1997, excluding
non-recurring expenses, was $14.7 million, or $1.05 per fully diluted share
compared to $11.0 million or $.75 per fully diluted share for the same period in
1996. Net income for the nine month period ended September 30, 1997, excluding
non-recurring expenses, was $39.0 million, or $2.77 per fully diluted share
compared to $30.9 million, or $2.11 per fully diluted share for the same period
in 1996. Including the non-recurring after tax charges of $5.0 million related
to Webster's acquisition of Peoples, Webster reported net income of $9.7 million
or $0.69 per fully diluted share for the 1997 third quarter period, compared to
$8.2 million or $0.56 per fully diluted share for the respective 1996 period.
Including the non-recurring after tax charges of $20.0 million related to
Webster's acquisitions of Derby and Peoples, Webster reported net income of
$19.0 million or $1.35 per fully diluted share for the nine months of 1997,
compared to $27.9 million or $1.90 per fully diluted share for the respective
1996 period. Results for the nine months of 1996 included $290,000 of after tax
non-recurring conversion costs related to the 20 branches acquired from Shawmut
Bank Connecticut N.A. (the "Shawmut Transaction") and $2.7 million of after tax
non-recurring costs related to a one-time charge by the FDIC for
recapitalization of the SAIF Fund.
NET INTEREST INCOME
- -------------------
Net interest income for the three and nine month periods ended September
30, 1997, amounted to $49.6 million and $143.6 million, respectively, compared
to $43.8 million and $125.0 million for the respective periods in 1996. The
increases for the current year period are primarily attributable to a higher
volume of average interest-earning assets. The net interest rate spread for the
three and nine month periods ended September 30, 1997, were 3.03% and 3.10%,
respectively, compared to 3.10% and 3.08% for the same respective periods in
1996. The decrease in interest rate spread for the 1997 three month period as
compared to the same respective period in 1996, reflects a higher cost of funds
that more than offset an increased yield on interest-earning assets.
INTEREST INCOME
- ---------------
Interest income for the three and nine month periods ended September 30,
1997, amounted to $116.1 million and $326.4 million, respectively, compared to
$98.8 million and $286.6 million, respectively, for the comparable periods in
1996. The increases for the three and nine month periods in the current year are
due primarily to a higher volume of average interest-earning assets, which were
$6.3 billion and $5.9 billion, respectively, for the 1997 periods and $5.4
billion and $5.2 billion, respectively, for the 1996 periods. An increase in the
yield on interest-earning assets for the current quarter period was also a
contributing factor to the overall increase in interest income. When the nine
month periods are compared, the yield on interest-earning assets decreased
slightly in the current year period due to a higher volume of lower yielding
securities. The yield on interest-earning assets for the three and nine months
ended September 30, 1997, was 7.40% and 7.36%, respectively, compared to 7.35%
and 7.39%, respectively, for the same periods of the previous year.
INTEREST EXPENSE
- ----------------
Interest expense for the three and nine month periods ended September 30,
1997, amounted to $66.5 million and $182.9 million, respectively, compared to
$55.1 million and $161.5 million for the same periods in 1996. The increases for
the current periods are due primarily to increases in average borrowings, which
were $1.7 billion and $1.3 billion, respectively, for the three and nine month
current year periods compared to $598.3 million and $677.4 million,
respectively, for the 1996 periods. The cost of interest-bearing liabilities
increased to 4.37% for the three months ended September 30, 1997, as compared to
4.25% for the same period in 1996. The cost of interest-bearing liabilities
decreased to 4.26% for the nine months ended September 30, 1997, compared to
4.31% for the respective 1996 period. Interest expense on borrowings for the
three and nine month periods ended September 30, 1997, amounted to $24.8 million
and $56.2 million, respectively, compared to $11.8 million and $31.2 million,
respectively, for the same periods in 1996.
15
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
The following tables show the major categories of average assets and
average liabilities together with their respective interest income or expense
and the rates earned and paid by Webster.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996
- -------------------------------- ---------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST EARNING ASSETS:
Loans and Segregated Assets $3,824,250 $75,798 7.89% $3,729,210 $72,663 7.77%
Securities 2,428,899 40,290 6.63 1,632,879 26,176 6.42
--------- -------- ----- --------- ------- ----
TOTAL INTEREST EARNING ASSETS 6,253,149 116,088 7.40 5,362,089 98,839 7.35
------- ------
Noninterest Earning Assets 306,382 238,802
----------- ----------
TOTAL ASSETS $6,559,531 $5,600,891
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Deposits $4,338,893 41,715 3.81 $4,432,651 43,250 3.88
Borrowings 1,713,779 24,767 5.66 782,512 11,829 5.93
--------- ------ ---- ---------- ------ ----
TOTAL INTEREST BEARING LIABILITIES 6,052,672 66,482 4.37 5,215,163 55,079 4.25
--------- ------ --------- ------
Noninterest Bearing Liabilities 54,323 38,600
---------- -----------
TOTAL LIABILITIES 6,106,995 5,253,763
Corporation-Obligated Mandatorily Redeemable
Capital Securities of Subsidiary Trust 100,000 --
SHAREHOLDERS' EQUITY 352,536 347,128
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,559,531 $5,600,891
========= =========
NET INTEREST INCOME $49,606 $43,760
======= =======
INTEREST RATE SPREAD 3.03% 3.10%
===== =====
NET YIELD ON AVERAGE INTEREST EARNING ASSETS 3.18% 3.26%
===== =====
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
- ------------------------------- ---------------------------------- ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- -----
ASSETS:
INTEREST EARNING ASSETS:
Loans and Segregated Assets $3,810,757 $223,250 7.80% $3,637,254 $212,983 7.79%
Securities 2,093,448 103,179 6.57 1,529,334 73,581 6.45
--------- ------- ---- --------- -------- ----
TOTAL INTEREST EARNING ASSETS 5,904,205 326,429 7.36 5,166,588 286,564 7.39
------- -------
Noninterest Earning Assets 276,616 256,646
---------- ----------
TOTAL ASSETS $6,180,821 $5,423,234
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Deposits $4,390,066 126,695 3.85 $4,357,376 130,324 3.84
Borrowings 1,300,508 56,164 5.69 677,408 31,215 6.06
--------- -------- ---- ---------- ------ -----
TOTAL INTEREST BEARING LIABILITIES 5,690,574 182,859 4.26 5,034,784 161,539 4.31
------- -------
Noninterest Bearing Liabilities 60,157 46,308
---------- ----------
TOTAL LIABILITIES 5,750,731 5,081,092
Corporation-Obligated Mandatorily Redeemable
Capital Securities of Subsidiary Trust 89,744 --
SHAREHOLDERS' EQUITY 340,346 342,142
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,180,821 $5,423,234
========== ==========
NET INTEREST INCOME $143,570 $125,025
======== ========
INTEREST RATE SPREAD 3.10% 3.08%
===== =====
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 3.26% 3.22%
===== =====
</TABLE>
16
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses amounted to $3.6 million and $13.5 million
for the three and nine month periods ended September 30, 1997, respectively,
compared to $2.3 million and $6.2 million for the respective periods in 1996.
Included in the provision for the nine month period ended September 30, 1997,
was a $7.2 million provision related to loans acquired in the Derby and Peoples
acquisitions. At September 30, 1997, the allowance for loan losses was $52.3
million and represented 136.6% of nonaccrual loans, compared to $43.4 million
and 108.6%, respectively a year earlier.
NONINTEREST INCOME
- ------------------
Noninterest income for the three and nine month periods ended September 30,
1997, amounted to $9.7 million and $25.7 million, respectively, compared to $8.2
million and $22.7 million, respectively, for the same periods in 1996. The
increases in noninterest income for the three and nine month periods ended
September 30, 1997, compared to the same periods in 1996, are due primarily to
increased income from fees and service charges in the 1997 periods. There were
$1.4 million and $2.4 million of net gains on the sales of securities and loans
for the three and nine month periods ended September 30, 1997, respectively,
compared to $871,000 and $2.4 million, respectively, for the same periods in
1996.
NONINTEREST EXPENSES
- --------------------
Noninterest expenses for the three and nine months ended September 30,
1997, amounted to $39.8 million and $126.1 million, respectively, compared to
$36.8 million and $97.9 million for the same respective periods in 1996. The
increases in noninterest expenses for the current three and nine month periods
are due primarily to $7.2 million and $27.1 million of non-recurring expenses
related to the acquisitions of Derby and Peoples completed on January 31, 1997
and July 31, 1997, respectively. For the three month period ended September 30,
1997, compared to the same period in 1996, noninterest expenses decreased $1.9
million excluding non-recurring and capital securities expenses. Decreases in
salary and benefits expenses of $578,000 and other operating expenses of $1.2
million were primarily responsible for the overall decrease in the current three
month period. The decrease in salaries and benefits expenses and other operating
expenses is primarily attributed to synergies achieved through acquisitions.
Noninterest expenses for the 1997 and 1996 nine month periods were comparable
after adjusting for non-recurring and capital securities expenses.
INCOME TAXES
- ------------
Total income tax expense for the three and nine month periods ended
September 30, 1997, amounted to $6.3 million and $10.8 million, respectively,
compared to $4.6 million and $15.7 million, respectively, for the same periods
in 1996. Income tax expense for the three months ended September 30, 1997,
increased due to a higher level of income before taxes compared to the same
period in 1996. Income tax expense for the nine months ended September 30, 1997,
decreased as compared to the 1996 period due primarily to lower income before
taxes as a result of non-recurring expenses that were recorded in connection
with the acquisitions of Derby and Peoples.
17
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - At September 31, 1997, there were no material
pending legal proceedings, other than ordinary routine litigation
to its business, to which Webster was a party or to which any of
its property was subject.
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) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
Item 5. OTHER INFORMATION - Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. 27. Financial Data Table
(b) Reports filed on Form 8-K
Form 8K filed August 15, 1997 (announcing the acquisition of
People's Saving Financial Corp. and Sachem Trust National
Association).
18
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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: November 14, 1997 By: /s/ John V. Brennan
-------------------- ---------------------
John V. Brennan
Executive Vice President,
Chief Financial Officer and Treasurer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 125,728
<SECURITIES> 2,707,942
<RECEIVABLES> 3,724,469
<ALLOWANCES> 52,813
<INVENTORY> 0
<CURRENT-ASSETS> 247,252
<PP&E> 58,436
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,811,014
<CURRENT-LIABILITIES> 4,265,011
<BONDS> 2,011,466
0
0
<COMMON> 363,584
<OTHER-SE> 170,953
<TOTAL-LIABILITY-AND-EQUITY> 6,811,014
<SALES> 352,159
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 126,090
<LOSS-PROVISION> 13,460
<INTEREST-EXPENSE> 182,859
<INCOME-PRETAX> 29,750
<INCOME-TAX> 10,757
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,993
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.35
</TABLE>
