UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ending JUNE 30, 1999
-------------------------------------------------
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 Identification No.)
incorporation or organization)
Webster Plaza, Waterbury, Connecticut 06720
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(Address of principal executive offices) (Zip Code)
(203) 753-2921
----------------------------------------------------
(Registrant's telephone number, including area code)
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(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 each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock (par value $ .01) 38,064,716 SHARES
- ---------------------------------- -------------------------------------------
Class Issued and Outstanding at August 5, 1999
1
<PAGE>
Webster Financial Corporation and Subsidiaries
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Condition at June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 5
Condensed Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Consolidated Financial Statements 16
Quantitative and Qualitative Disclosures about Market Risk 23
Forward Looking Statements 23
Year 2000 Readiness Disclosure Statement 24
PART II - OTHER INFORMATION 25
SIGNATURES 27
EXHIBIT INDEX 28
</TABLE>
2
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------ ------
<S> <C> <C>
ASSETS
Cash and Due from Depository Institutions $ 161,332 $ 173,863
Interest-bearing Deposits 6,658 3,560
Securities: (Note 2)
Trading, at Fair Value 70,561 91,114
Available for Sale, at Fair Value 2,693,847 2,969,822
Held to Maturity, (Fair Value: $338,802 in 1999;
$404,365 in 1998) 346,826 401,154
Loans Receivable, Net 5,278,808 4,993,509
Accrued Interest Receivable 55,883 55,012
Premises and Equipment, Net 85,883 79,324
Foreclosed Properties, Net 3,939 3,526
Intangible Assets 139,338 78,380
Cash Surrender Value of Life Insurance 144,788 141,059
Prepaid Expenses and Other Assets 69,127 43,594
--------- ---------
TOTAL ASSETS $ 9,056,990 $ 9,033,917
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 5,719,866 $ 5,651,273
Federal Home Loan Bank Advances 1,394,404 1,774,560
Reverse Repurchase Agreements and Other Borrowings (Note 6) 1,082,045 738,921
Advance Payments by Borrowers for Taxes and Insurance 10,976 32,293
Accrued Expenses and Other Liabilities 84,684 82,414
--------- ---------
TOTAL LIABILITIES 8,291,975 8,279,461
--------- ---------
Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trusts Holding Solely Junior Subordinated
Debentures of the Corporation (Note 12) 150,000 150,000
Preferred Stock of Subsidiary Corporation 49,577 49,577
SHAREHOLDERS' EQUITY (NOTE 7)
Common stock, $.01 par value:
Authorized - 50,000,000 shares;
Issued - 38,479,422 shares at June 30, 1999 and
38,353,424 shares at December 31, 1998 385 384
Paid-in Capital 254,102 249,819
Retained Earnings 351,352 314,791
Less Treasury Stock at cost, 470,815 shares at June 30, 1999
and 1,026,770 shares at December 31, 1998 (13,286) (27,914)
Less Employee Stock Ownership Plan Shares Purchased with Debt (1,128) (1,339)
Accumulated Other Comprehensive (Loss) Income (25,987) 19,138
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 565,438 554,879
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,056,990 $ 9,033,917
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 95,669 $ 95,035 $ 188,894 $ 192,893
Securities and Interest-bearing Deposits 49,844 64,593 102,528 125,934
------- ------- ------- -------
Total Interest Income 145,513 159,628 291,422 318,827
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 46,906 57,018 95,486 113,693
Borrowings 31,519 42,959 65,261 82,086
------- ------- ------- -------
Total Interest Expense 78,425 99,977 160,747 195,779
------- ------- ------- -------
NET INTEREST INCOME 67,088 59,651 130,675 123,048
Provision for Loan Losses 2,100 1,900 4,100 3,800
------- ------- ------- -------
Net Interest Income After Provision for Loan Losses 64,988 57,751 126,575 119,248
------- ------- ------- -------
NONINTEREST INCOME:
Fees and Service Charges 14,057 9,552 26,943 19,065
Gain on sale of loans and loan servicing, net 634 2,299 1,439 2,565
Gain on sale of securities, net 1,712 7,028 3,419 10,126
Other noninterest income 3,757 2,931 7,856 5,380
------- ------- ------- -------
Total noninterest income 20,160 21,810 39,657 37,136
------- ------- ------- -------
NONINTEREST EXPENSES:
Salaries and Employee Benefits 21,430 19,219 42,396 38,756
Occupancy Expense of Premises 4,434 3,892 8,771 7,767
Furniture and Equipment Expenses 4,799 4,271 9,481 8,638
Intangible Amortization 3,091 2,363 5,610 4,662
Marketing Expenses 2,203 2,140 4,350 4,029
Acquisition-Related Expenses -- 17,400 -- 17,400
Capital Securities Expense 3,662 3,692 7,323 7,354
Dividends on Preferred Stock of Subsidiary Corporation 980 1,038 2,000 2,076
Other Operating Expenses (Note 5) 9,416 8,833 18,152 17,629
------- ------- ------- -------
Total Noninterest Expenses 50,015 62,848 98,083 108,311
------- ------- ------- -------
Income Before Income Taxes 35,133 16,713 68,149 48,073
Income Taxes (Note 13) 11,946 7,313 23,171 18,952
------- ------- ------- -------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 23,187 $ 9,400 $ 44,978 $ 29,121
======= ====== ======= =======
Net Income Per Common Share: (Note 3)
Basic $0.63 $0.25 $1.23 $0.77
Diluted $0.61 $0.24 $1.20 $0.75
Dividends Declared Per Common Share $0.12 $0.11 $0.23 $0.21
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 44,978 $ 29,121
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 4,100 3,800
Provision for Foreclosed Property Losses 75 245
Provision for Depreciation and Amortization 6,372 6,013
Amortization of Securities Premiums, Net 1,987 1,654
Amortization of Hedging Costs, Net 2,331 2,301
Amortization and Write-down of Intangibles 5,610 4,662
Amortization of Mortgage Servicing Rights 860 921
Gains on Sale of Foreclosed Properties, Net (319) (562)
Gains on Sale of Loans and Securities, Net (4,574) (12,502)
Gains on Trading Securities, Net (284) (189)
Decrease in Trading Securities 20,838 27,140
Loans Originated for Sale (113,640) (17,625)
Sale of Loans, Originated for Sale 111,678 79,124
Decrease (Increase) in Interest Receivable 1,134 (384)
Increase (Decrease) in Accrued Expenses and Other Liabilities, Net 10,302 (54,596)
Increase in Cash Surrender Value of Life Insurance (3,729) (2,212)
(Decrease) Increase in Interest Payable (7,353) 2,484
Decrease in Prepaid Expenses and Other Assets, Net 6,231 2,716
Pooling Adjustments, Net -- 7,860
---------- --------
Net Cash Provided by Operating Activities 86,597 79,971
---------- --------
INVESTING ACTIVITIES:
Purchases of Securities, Available for Sale (529,911) (1,498,887)
Purchases of Securities, Held to Maturity (814) (49,717)
Maturities of Securities 177,420 72,420
Proceeds from Sale of Securities, Available for Sale 211,616 872,010
Proceeds from Sale of Securities, Held to Maturity 15,458 --
Principal Collected on Securities 438,079 569,909
Purchases of Life Insurance -- (87,700)
Net (Increase) Decrease in Interest-bearing Deposits (1,734) 65,664
Loans Purchased -- (66,173)
Net (Increase) Decrease in Loans (78,766) 67,110
Proceeds from Sale of Foreclosed Properties 4,067 8,197
Purchases of Premises and Equipment, Net (5,414) (11,497)
Cash Received through Purchase Acquisitions 16,706 1,688
---------- --------
Net Cash Provided (Used) by Investing Activities 246,707 (56,976)
---------- --------
FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits (214,689) 430
Repayment of FHLB Advances (2,037,114) (2,645,554)
Proceeds from FHLB Advances 1,656,959 2,599,870
Repayment of Reverse Repurchase Agreements & Other Borrowings (16,246,699) (5,192,771)
Proceeds from Reverse Repurchase Agreements & Other Borrowings 16,585,065 5,218,471
Net (Decrease) Increase in Advance Payments for Taxes and Insurance (21,317) 2,522
Cash Dividends to Common and Preferred Shareholders (8,414) (10,143)
Common Stock Repurchased (65,429) (10,305)
Exercise of Stock Options 5,803 7,719
---------- --------
Net Cash Used by Financing Activities (345,835) (29,761)
---------- --------
Decrease in Cash and Cash Equivalents (12,531) (6,766)
Cash and Cash Equivalents at Beginning of Period 173,863 151,322
---------- --------
Cash and Cash Equivalents at End of Period $ 161,332 $ 144,556
========== ========
</TABLE>
5
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ 15,069 $ 25,386
Interest Paid 166,873 192,405
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to foreclosed properties 4,432 10,963
</TABLE>
ASSETS ACQUIRED AND LIABILITIES ASSUMED IN PURCHASE BUSINESS COMBINATIONS WERE
AS FOLLOWS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 SIX MONTHS ENDED JUNE 30, 1998
------------------------------ ------------------------------
<S> <C> <C>
Cash and cash equivalents acquired, net of cash paid $ 16,706 $ 1,688
Fair value of all other tangible and intangible assets acquired 354,666 9,648
Common stock issued (77,032) (9,268)
----------- -----------
Fair value of liabilities assumed $ 294,340 $ 2,066
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED 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 and
six month periods ended June 30, 1999 are not necessarily indicative of the
results which may be expected for the year as a whole.
Effective January 1, 1999, Webster acquired Access National Mortgage,
Inc. ("Access"). On April 21, 1999, Webster acquired Maritime Bank & Trust
Company ("Maritime") and on May 19, 1999, acquired Village Bancorp, Inc.
("Village"). Theses transactions were all accounted for as purchases and
therefore results are reported only for the periods subsequent to the
acquisition dates (see Note 7).
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Webster Financial
Corporation 1998 Annual Report to Shareholders. The consolidated financial
statements include the accounts of Webster Financial Corporation ("Webster") and
its subsidiaries, Webster Bank (the "Bank") and Damman Insurance Associates
("Damman").
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
net of taxes included in Other Comprehensive Income (See Note 4). 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.
7
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (continued)
A summary of securities follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------------------------------ ---------------------------------------
Gross Unrealized Gross Unrealized
Amortized ------------------- Fair Amortized ------------------ Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRADING SECURITIES:
Mortgage-backed Securities $ 70,561(a) $ -- $ -- $ 70,561 $ 91,114(a) $ -- $ -- $ 91,114
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes 31,097 25 (140) 30,982 13,514 123 -- 13,637
U.S. Government Agency 17,959 62 (77) 17,944 16,501 278 -- 16,779
Municipal Bonds and Notes 14,689 9 (108) 14,590 14,688 516 -- 15,204
Corporate Bonds and Notes 76,026 10 (5,330) 70,706 81,452 454 (2,148) 79,758
Equity Securities 212,768 9,752 (5,299) 217,221 211,871 7,241 (4,664) 214,448
Mortgage-backed Securities 2,370,475 10,564 (47,764) 2,333,275 2,582,759 39,937 (5,248) 2,617,448
Purchased Interest-rate Contracts 13,655 -- (4,526) 9,129 15,985 -- (3,437) 12,548
--------- ------ -------- --------- --------- ------ -------- ---------
2,736,669 20,422 (63,244) 2,693,847 2,936,770 48,549 (15,497) 2,969,822
--------- ------ -------- --------- --------- ------ -------- ---------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes 10,845 -- (63) 10,782 2,455 12 -- 2,467
U.S. Government Agency 4,553 5 (5) 4,553 6,000 15 -- 6,015
Municipal Bonds and Notes 22,649 3 (391) 22,261 12,500 347 -- 12,847
Corporate Bonds and Notes 135,607 51 (6,797) 128,861 151,536 2,626 (1,171) 152,991
Mortgage-backed Securities 173,172 1,016 (2,213) 171,975 228,663 2,426 (1,044) 230,045
--------- ------ -------- --------- --------- ------ -------- ---------
346,826 1,075 (9,469) 338,432 401,154 5,426 (2,215) 404,365
--------- ------ -------- --------- --------- ------ -------- ---------
Total $ 3,154,056 $21,497 $(72,713) $3,102,840 $3,429,038 $53,975 $(17,712) $3,465,301
========= ====== ======== ========= ========= ====== ======== =========
</TABLE>
(a) Stated at fair market value.
During the second quarter of 1999, Webster acquired Maritime and Village.
At the dates of acquisition, Maritime only held available for sale securities
that totaled $20.5 million and Village held available for sale securities that
totaled $11.4 million and held to maturity securities that totaled $26.9
million. On a combined basis, the securities portfolio increased approximately
$58.8 million due to the acquisitions.
During the first quarter of 1999, Webster sold $15.5 million of
securities classified as held to maturity, which resulted in a loss of $193,000.
The securities were sold due to a regulator's request that Webster divest of the
holdings as the securities did not meet regulatory guidelines, which were issued
subsequent to the acquisition of the securities.
NOTE 3 - NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income
available to common shareholders by the weighted-average number of shares of
common stock outstanding. Diluted net income per common share is calculated by
dividing adjusted net income by the weighted-average number of diluted common
shares, including the effect of common stock equivalents. The common stock
equivalents consist of common stock options and warrants. The weighted-average
shares used in the calculation of net income per common share have been adjusted
to reflect the two-for-one stock split which was effective for shareholders of
record as of April 6, 1998. The weighted-average number of shares used in the
computation of basic net income per common share for the three and six month
periods ended June 30, 1999 was 37,095,498 and 36,682,728, respectively, and for
the three and six month periods ending June 30, 1998 was 38,020,449 and
37,923,320, respectively. The weighted-average number of shares used in the
computation of diluted earnings per
8
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
common share for the three and six month periods ended June 30, 1999 was
37,751,574 and 37,338,282, respectively, and for the three and six month periods
ended June 30, 1998 was 38,798,872 and 38,679,191, respectively.
NOTE 4 - COMPREHENSIVE INCOME
The provisions of Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income" were adopted as of January 1, 1998.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (such as changes in net unrealized
investment gains and losses). Comprehensive income includes net income and any
changes in equity from non-owner sources that bypass the income statement.
The following table summarizes comprehensive income for the three and six
month periods ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 23,187 $ 9,400 $ 44,978 $ 29,121
Other comprehensive (loss) income, net of tax
Unrealized (losses) gains on investments available for sale:
Unrealized holding (losses) gains arising during period
(net of income tax (benefit) of $(14,016) and
$(22,137) for the three and six months ended June 30,
1999, respectively, and $1,837 and $3,595 for the three
and six months ended June 30, 1998, respectively) (27,207) 2,537 (42,972) 4,964
Less reclassification adjustment for gains included in net
income (net of income tax expense of $695 and $1,109 for
the three and six months ended June 30, 1999, respectively,
and $2,811 and $4,048 for the three and six months ended
June 30, 1998, respectively) 1,348 3,882 2,153 5,590
--------- -------- --------- ---------
Other comprehensive loss (28,555) (1,345) (45,125) (626)
--------- -------- --------- ---------
Comprehensive (loss) income $ (5,368) $ 8,055 $ (147) $ 28,495
========= ======== ========= ========
</TABLE>
NOTE 5 - FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET
Foreclosed property expenses and provisions, net are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gain on sale of foreclosed property, net $ (108) $ (67) $ (319) $ (407)
Provision for losses on foreclosed property 75 37 75 245
Rental income (17) (8) (34) (65)
Foreclosed property expenses 119 191 288 786
---- ---- ---- ----
Foreclosed property expenses and provisions, net $ 69 $ 153 $ 10 $ 559
</TABLE>
9
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - REVERSE REPURCHASE AGREEMENTS
At June 30, 1999, Webster had short-term reverse repurchase agreements
outstanding. Information concerning borrowings under reverse repurchase
agreements is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
BALANCE AT WEIGHTED AVERAGE BOOK VALUE MARKET VALUE
JUNE 30, 1999 TERM AVERAGE RATE MATURITY DATE OF COLLATERAL OF COLLATERAL
- ------------- ---- ------------ ------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
$ 881,549 1 to 11 months 5.24% Less than 2 months $891,908 $891,512
</TABLE>
The securities underlying the reverse repurchase agreements are all
U.S. Agency collateral and have been delivered to broker-dealers. 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
short-term reverse repurchase agreements at any month-end during the 1999 second
quarter was $850.8 million and $888.7 million, respectively. The outstanding
balance at December 31, 1998 was $589.4 million.
NOTE 7 - SHAREHOLDERS' EQUITY
Webster, during the second quarter 1999 period, repurchased 441,847
shares of its common stock. The total cost of the repurchased shares was $12.8
million with an average per share cost of approximately $29.07. For the six
month period ended June 30, 1999, Webster repurchased 2.3 million shares of its
common stock at a total cost of $65.4 million with an average per share cost of
$29.04.
On May 19, 1999, Webster consummated its acquisition of Village Bancorp,
Inc. In connection with the acquisition, Webster reissued approximately 1.7
million common shares from treasury valued at $47.7 million.
On April 21, 1999, Webster consummated its acquisition of Maritime Bank &
Trust Company. In connection with the acquisition, Webster reissued
approximately 779,000 common shares from treasury valued at $22.1 million.
Effective January 1, 1999, Webster acquired Access National Mortgage,
Inc., an Internet-based residential mortgage origination company that became a
subsidiary of Webster Bank. In connection with the acquisition, Webster issued
125,998 shares of its common stock valued at approximately $3.5 million.
Net income for the current year six month period was $45.0 million and
$8.4 million has been paid in dividends to common shareholders from net
earnings.
NOTE 8 - ACQUISITION-RELATED COSTS
Webster consummated the acquisitions of Maritime and Village on April 21,
1999 and May 19, 1999, respectively. These acquisitions were accounted for as
purchases, and therefore, related acquisition costs are included in the cost of
the acquired company and have not impacted the statement of operations for the
current period.
10
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In connection with the acquisitions of Eagle Financial Corp. ("Eagle"),
MidConn Bank ("MidConn"), People's Savings Financial Corp. ("People's"), and DS
Bancor, Inc. ("Derby") that were completed on April 15, 1998, May 31, 1997, July
31, 1997, and January 31, 1997 Webster recorded approximately $47.2 million of
acquisition-related charges. Additionally, Webster recorded an increase of $8.7
million to the provision for loan losses related to the acquisitions of Eagle,
Derby and People's during 1998 and 1997, for conformity to Webster's credit
policies. There are no further acquisition-related accrued liabilities related
to MidConn.
The following table presents a summary of the acquisition-related accrued
liabilities (in thousands):
<TABLE>
<CAPTION>
Derby People's Eagle
----- -------- -----
<S> <C> <C> <C>
Balance of acquisition-related accrued liabilities
at December 31, 1998 $ 3,800 $ 1,600 $ 1,400
----- ----- -----
Payments/Writedowns:
Compensation (severance and related costs) -- -- --
Data processing contract termination (362) -- --
Branch closure costs (64) (38) (177)
Building costs -- (145) --
Acquisition-related and miscellaneous expenses -- -- (220)
----- ----- -----
Balance of acquisition-related accrued liabilities
at June 30, 1999 $ 3,374 $ 1,417 $ 1,003
===== ===== =====
</TABLE>
The remaining total accrued liability of $5.8 million represents, for the
most part, accruals for data processing contract termination costs payable over
a future period and the estimated loss on sale of excess fixed assets due to
consolidation of overlapping branch locations.
NOTE 9 - ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. Under this
statement, an entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing the
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. SFAS No. 133, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. Early adoption is permitted, however, retroactive application is
prohibited. Management is in the process of evaluating the impact of this
statement on its financial position and results of operations.
11
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - PENDING ACQUISITIONS
On June 30, 1999, Webster announced a definitive agreement to acquire New
England Community Bancorp, Inc. ("NECB"), in a tax-free, stock-for-stock
exchange. NECB is a Connecticut based multi-bank holding company with three
subsidiary Connecticut banks, one New Hampshire subsidiary bank and a mortgage
company with offices in both states. Based on the terms of the agreement, NECB
shareholders will receive 1.06 shares of Webster common stock for each share of
NECB common stock held. Webster expects to record the transaction as a pooling
of interests and record after-tax acquisition related charges of $9.3 million.
The transaction is currently expected to close in the fourth quarter of 1999.
NOTE 11 - BUSINESS SEGMENTS
Webster has four segments for business segment reporting purposes. These
segments include consumer banking, business banking, mortgage lending and
treasury. The organizational hierarchies that define the business segments are
periodically reviewed and revised. Results may be restated in future periods to
reflect changes in methodologies and organizational structure. The following
table presents the statement of operations and total assets for Webster's
reportable segments.
12
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - BUSINESS SEGMENTS (continued)
Operating income and total assets by business segment are as follows:
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
------- ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 43,476 $ 7,382 $ 14,261 $ 1,935 $ 34 $ 67,088
Provision for Loan Losses 270 873 957 -- -- 2,100
------- ------ -------- -------- ----- ---------
Net Interest Income After Provision 43,206 6,509 13,304 1,935 34 64,988
Noninterest Income 10,217 550 2,506 4,587 2,622 20,482
Noninterest Expense 31,886 3,517 511 5,344 3,094 44,352
------- ------ -------- -------- ----- ---------
Income Before Income Taxes 21,537 3,542 15,299 1,178 (438) 41,118
Income Taxes 6,998 1,127 4,618 355 (153) 12,945
------- ------ -------- -------- ----- ---------
Net Income (Loss) After Taxes $ 14,539 $ 2,415 $ 10,681 $ 823 $ (285) $ 28,173
------- ------ -------- -------- ----- ---------
Total Assets at Period End $898,284 $834,909 $3,876,014 $3,424,024 $23,759 $9,056,990
</TABLE>
Three Months Ended June 30, 1998
<TABLE>
<CAPTION>
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
------- ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 26,288 $ 8,078 $ 20,001 $ 5,088 $ 196 $ 59,651
Provision for Loan Losses 252 262 1,386 -- -- 1,900
------- ------ -------- -------- ----- ---------
Net Interest Income After Provision 26,036 7,816 18,615 5,088 196 57,751
Noninterest Income 7,745 257 1,879 8,998 1,597 20,476
Noninterest Expense 22,187 3,253 1,630 10,314 2,296 39,680
------- ------ -------- -------- ----- ---------
Income (Loss) Before Income Taxes 11,594 4,820 18,864 3,772 (503) 38,547
Income Taxes 4,289 1,783 6,980 1,396 (186) 14,262
------- ------ -------- -------- ----- ---------
Net Income (Loss) After Taxes $ 7,305 $ 3,037 $ 11,884 $ 2,376 $ (317) $ 24,285
------- ------ -------- -------- ----- ---------
Total Assets at Period End $731,897 $501,792 $3,728,328 $4,203,443 $23,683 $9,189,143
------- ------ -------- -------- ----- ---------
</TABLE>
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
------- ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 75,682 $ 14,224 $ 37,445 $ 3,266 $ 58 $ 130,675
Provision for Loan Losses 450 1,748 1,902 -- -- 4,100
------- ------ -------- -------- ----- ---------
Net Interest Income After Provision 75,232 12,476 35,543 3,266 58 126,575
Noninterest Income 19,135 934 5,483 6,470 5,773 37,795
Noninterest Expense 62,037 7,289 6,285 7,028 6,120 88,759
------- ------ -------- -------- ----- ---------
Income (Loss) Before Income Taxes 32,330 6,121 34,741 2,708 (289) 75,611
Income Taxes 10,991 2,081 11,812 921 (98) 25,707
------- ------ -------- -------- ----- ---------
Net Income (Loss) After Taxes $ 21,339 $ 4,040 $ 22,929 $ 1,787 $ (191) $ 49,904
------- ------ -------- -------- ----- ---------
Total Assets at Period End $898,284 $834,909 $3,876,014 $3,424,024 $23,759 $9,056,990
</TABLE>
<PAGE>
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Consumer Business Mortgage All Total
(In thousands) Banking Banking Lending Treasury Other Segments
------- ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 59,548 $ 13,120 $ 43,433 $ 6,680 $ 267 $ 123,048
Provision for Loan Losses 558 584 2,658 -- -- 3,800
------- ------ -------- -------- ----- ---------
Net Interest Income After Provision 58,990 12,536 40,775 6,680 267 119,248
Noninterest Income 15,205 542 3,491 12,706 2,367 34,311
Noninterest Expense 51,763 5,901 8,120 12,101 3,596 81,481
------- ------ -------- -------- ----- ---------
Income (Loss) Before Income Taxes 22,432 7,177 36,146 7,285 (962) 72,078
Income Taxes 8,300 2,655 13,374 2,696 (356) 26,669
------- ------ -------- -------- ----- ---------
Net Income (Loss) After Taxes $ 14,132 $ 4,522 $ 22,772 $ 4,589 $ (606) $ 45,409
------- ------ -------- -------- ----- ---------
Total Assets at Period End $731,897 $501,792 $3,728,328 $4,203,443 $23,683 $9,189,143
</TABLE>
The consumer banking segment includes consumer lending and the Bank's
deposit generation and direct banking activities, which include the operation of
automated teller machines and telebanking customer support, sales and small
business lending. The business banking segment includes the Bank's investment in
commercial and
13
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
industrial loans and commercial real estate loans. The business banking segment
also includes deposits and cash management activities for business banking. The
mortgage lending segment includes the Bank's investment in residential real
estate loan origination, servicing and secondary marketing activities. The
treasury segment includes the Bank's investment in assets and liabilities
managed by the treasury department and includes interest-bearing deposits,
securities, FHL Bank Advances, reverse repurchase agreements and other
borrowings. All other includes the results of Webster's trust and investment and
insurance subsidiaries, which offer products to both consumer and business
customers.
Management allocates indirect expenses to its business segments. These
expenses include administration, finance, operations and other support related
functions. Net income (loss) after income taxes for the segments do not include
certain income and expense categories, that total for the three and six month
periods ended June 30, 1999, $(5.0) million and $(4.9) million, respectively,
and for the same respective periods in 1998, $(14.9) million and $(16.3)
million, respectively, that do not directly relate to segments. The major
categories not included in segments for the three and six month periods ended
June 30, 1999, were (on a before tax basis) $3.7 million and $7.3 million of
capital securities expense. For the three and six month periods ended June 30,
1998, the major categories not included in the segments were capital securities
expense of $3.7 million and $7.3 million and acquisition-related expense of
$17.4 million.
NOTE 12 - CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF
THE CORPORATION
During 1997, Webster formed a statutory business trust, Webster Capital
Trust I ("Trust I"), of which Webster owns all of the common stock. Trust I
exists for the sole purpose of issuing trust securities and investing the
proceeds in an equivalent amount of subordinated debentures of the Corporation.
On January 31, 1997, Trust I completed a $100 million underwritten public
offering of 9.36% Corporation-Obligated Manditorily Redeemable Capital
Securities of Webster Capital Trust I ("capital securities"). The sole asset of
Trust I is the $100 million of Webster's 9.36% junior subordinated deferrable
interest debentures due in 2027 ("subordinated debt securities"), purchased by
Trust I on January 30, 1997.
On April 1, 1997, Eagle Financial Capital Trust I, subsequently renamed
Webster Capital Trust II ("Trust II"), completed a $50 million private placement
of 10.00% capital securities. Proceeds from the issue were invested by Trust II
in junior subordinated deferrable debentures issued by Eagle due in 2027. These
debentures represent the sole assets of Trust II.
The subordinated debt securities are unsecured obligations of Webster and
are subordinate and junior in right of payment to all present and future senior
indebtedness of Webster. Webster has entered into guarantees, which together
with Webster's obligations under the subordinated debt securities and the
declarations of trust governing Trust I and Trust II, including its obligations
to pay costs, expenses, debts and liabilities (other than trust securities),
provides a full and unconditional guarantee of amounts on the capital
securities.
NOTE 13 - INCOME TAXES
The State of Connecticut enacted tax law changes in May 1998, allowing
for the formation of a Passive Investment Company ("PIC") by financial
institutions. This new legislation exempts Passive Investment Companies from
state income taxation in Connecticut, and exempts from inclusion in Connecticut
taxable income the dividends paid from a passive investment company to a related
financial institution. Webster Bank qualifies as a financial institution under
the new statute, and incorporated Webster Mortgage Investment Corporation
("WMIC")
14
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
to qualify as a PIC. WMIC began operations in the first quarter of 1999.
Webster's operation of a PIC subsidiary is expected to significantly reduce its
Connecticut tax liability in 1999. Webster Mortgage Investment Corporation is a
wholly owned subsidiary of Webster Bank.
15
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GENERAL
Webster Financial Corporation ("Webster" or the "Corporation"), through
its subsidiaries, Webster Bank (the "Bank") and Damman Insurance Associates
("Damman"), delivers financial services to individuals, families and businesses
throughout Connecticut. Webster emphasizes five business lines - consumer
banking, business banking, mortgage lending, trust and investment services, and
insurance services, each supported by centralized administration and operations.
Webster has grown significantly in recent years, primarily through a series of
acquisitions which have expanded and strengthened its franchise.
CHANGES IN FINANCIAL CONDITION
Total assets were $9.1 billion at June 30, 1999, as compared to $9.0
billion at December 31, 1998. The increase of $23.1 million is primarily the
result of increases in net loans of $285.3 million, intangibles of $61.0 million
and other assets of $25.5 million partially offset by a decrease in investment
securities of $350.9 million. Total assets of $310.0 million were received
through the second quarter acquisitions of Maritime and Village that included
net loans and investment securities of $209.5 million and $58.8 million,
respectively.
During the current year six month period, total deposits increased
$68.6 million while total borrowings and escrow funds decreased $37.0 million
and $21.3 million, respectively. Total liabilities of $290.0 million, including
$284.5 million of deposits, were assumed through the second quarter acquisitions
of Maritime and Village. Total equity increased $10.6 million for the six month
period that primarily reflects net earnings of $45.0 million, a net decrease in
treasury stock of $14.6 million, and an unrealized loss on securities of $45.1
million. The net decrease in treasury stock primarily reflects $65.4 million of
common stock repurchases, $69.8 million related to shares reissued related to
the acquisitions of Maritime and Village and $9.3 million due to the exercise of
stock options. At June 30, 1999, the Bank had Tier 1 leveraged, Tier 1
risk-based, and total risk-based capital ratios of 6.09%, 11.29% and 12.54%,
respectively. The Bank met the regulatory capital requirements to be categorized
as a "well capitalized" institution at June 30, 1999.
ASSET QUALITY
Webster devotes significant attention to maintaining asset quality
through conservative underwriting standards, active servicing of loans,
aggressively managing nonaccrual assets and maintaining adequate reserve
coverage on nonaccrual assets. At June 30, 1999, residential and consumer loans
comprised approximately 80% of the loan portfolio. Securities transactions are
executed under the guidelines of internal corporate investment policy and in
adherence to applicable regulatory, federal and state regulations.
16
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A breakdown of loans receivable, net by type as of June 30, 1999 and December
31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Residential Mortgage Loans $ 3,802,376 $ 3,749,152
Commercial Real Estate Loans 510,584 416,203
Commercial Loans 534,224 401,772
Home Equity Loans 448,904 439,369
Consumer Loans 44,099 42,122
--------- ---------
Total Loans 5,340,187 5,048,618
Allowance for Loan Losses (61,379) (55,109)
--------- ---------
Loans Receivable, Net $ 5,278,808 $ 4,993,509
========= =========
</TABLE>
Included above at June 30, 1999 and December 31, 1998 were loans held for
sale of $11.4 million and $1.7 million, respectively.
The following table details the nonaccrual assets at June 30, 1999 and
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Loans Accounted For on a Nonaccrual Basis:
<S> <C> <C>
Residential $ 11,279 $ 9,040
Commercial 18,383 14,703
Consumer 1,396 1,636
------ ------
Total Nonaccrual Loans 31,058 25,379
Foreclosed Properties:
Residential and Consumer 2,343 1,153
Commercial 1,597 2,373
------ ------
Total Nonaccrual Assets $ 34,998 $ 28,905
======= ======
</TABLE>
At June 30, 1999, Webster's allowance for losses on loans of $61.4
million represented 197.6% of nonaccrual loans and its total allowances for
losses on nonaccrual assets of $61.6 million amounted to 174.9% of nonaccrual
assets. A detail of the changes in the allowances for losses on loans and
foreclosed property for the six months ended June 30, 1999 follows (in
thousands):
<TABLE>
<CAPTION>
Allowances For Losses On
Foreclosed Total
Loans Properties Allowance for Losses
----- ---------- --------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ 55,109 $ 207 $ 55,316
Provisions for Losses 4,100 75 4,175
Losses Charged to Allowances (2,386) (64) (2,450)
Recoveries Credited to Allowances 909 9 918
Allowances Received through Acquisitions 3,647 -- 3,647
------ -------- ------
Balance at June 30, 1999 $ 61,379 $ 227 $ 61,606
====== ======== ======
</TABLE>
17
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ASSET/LIABILITY MANAGEMENT
The goal of Webster's asset/liability management policy is to manage
interest-rate risk so as to maximize net interest income over time in changing
interest-rate environments while maintaining acceptable levels of risk. 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 simulation analyses with
particular emphasis on measuring changes in the market value of portfolio equity
and changes in net interest income in different interest-rate environments.
Market value is measured as the net present value of future cash flows. 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. The key assumptions relate to the
behavior of interest rates and spreads, the fluctuations in product balances,
and prepayment and decay rates on loans and deposits. From such simulations,
interest-rate risk is quantified and appropriate strategies are formulated.
Webster also uses as part of its asset/liability management strategy
various interest-rate contracts including short futures positions, interest-rate
swaps and interest-rate caps and floors. Webster utilized interest-rate
financial instruments to hedge mismatches in interest-rate maturities to reduce
exposure to movements in interest rates. These interest-rate financial
instruments involve, to varying degrees, credit risk and market risk. Credit
risk is the possibility that a loss may occur if a counterpart to a transaction
fails to perform according to the terms of the contract. Market risk is the
effect of a change in interest rates or currency rates on the value of the
financial instruments. The notional amount of interest-rate financial
instruments is the amount upon which interest and other payments under the
contract are based. For interest-rate financial instruments, the notional amount
is not exchanged and therefore, the notional amounts should not be taken as a
measure of credit or market risk.
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 unmatched 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, floors 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.
18
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Webster's main sources of liquidity at the holding company level are
dividends received from the Bank and net proceeds from capital offerings and
borrowings, while the main outflows are the payment of dividends to preferred
and common shareholders, repurchases of Webster's common stock and the payment
of interest on borrowing lines of credit and to holders of Webster's 8 3/4%
Senior Notes, Webster's 9.36% Capital Trust I Capital Securities and Webster's
Capital Trust II 10.00% Capital Securities. There are certain restrictions on
the payment of dividends by the Bank to Webster. The Bank is required to
maintain minimum levels of liquid assets as defined by regulations adopted by
the Office of Thrift Supervision ("OTS"). This requirement, which may be varied
by the OTS, is based upon a percentage of net withdrawable deposits and
short-term borrowings. The required liquidity ratio as revised by the OTS is
currently 4.00% and the Bank's liquidity ratio at June 30, 1999 exceeded the
requirement. Webster Bank is also required by regulation to maintain sufficient
liquidity to ensure safe and sound operations. Adequate liquidity as assessed by
the OTS may vary from institution to institution depending on such factors as
the institution's overall asset/liability structure, market conditions,
competition and the requirements of the institution's deposit and loan
customers. The OTS considers both an institution's adherence to the liquidity
ratio requirement, as well as safety and soundness issues, in assessing whether
an institution has sufficient liquidity.
Webster Bank had mortgage commitments outstanding of $152.8 million,
other non-mortgage loan commitments of $33.0 million, unused home equity credit
lines of $328.3 million and commercial lines and letters of credit of $413.3
million at June 30, 1999.
19
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
GENERAL
Net income for the three month period ended June 30, 1999 was $23.2
million or $.61 per diluted share compared to $22.6 million or $.58 per diluted
share for the previous year respective period, adjusting for after tax
acquisition-related expenses of $13.2 million in 1998. Net income for the six
month period ended June 30, 1999, was $45.0 million or $1.20 per diluted share
compared to $42.3 million or $1.09 per diluted share for the previous year
respective period, adjusting for after tax acquisition-related expenses of $13.2
million. In general, higher net income for the current year three and six month
periods, was primarily the result of higher net interest income and fees and
service charges income combined with lower operating expenses.
NET INTEREST INCOME
Net interest income for the three and six month periods ended June 30,
1999 amounted to $67.1 million and $130.7 million, respectively, compared to
$59.7 million and $123.0 million for the respective periods in 1998. Total
interest income for the current year three and six month periods compared to the
same periods in 1998 decreased $14.1 million and $27.4 million, respectively,
while decreases in total interest expense of $21.6 million and $35.0 million,
respectively more than offset the decreases in total interest income. Net
interest rate spread for the three and six month periods ended June 30, 1999 was
3.07% and 2.99%, respectively as compared to 2.48% and 2.59% for the same
periods in the previous year. The improved net interest rate spreads for the
current year periods are the result of higher yields on our securities portfolio
and lower costs on total interest-bearing liabilities.
INTEREST INCOME
Total interest income for the three and six month periods ended June 30,
1999, was $145.5 million and $291.4 million, respectively compared to $159.6
million and $318.8 million. The decreases in total interest income for the
current year periods is primarily related to securities and interest-bearing
deposits that had a combined lower average balance of approximately $1.0 billion
when compared to the prior year. Total interest income from loans remained
relatively unchanged as lower rates were offset by a higher average balance for
the current year periods.
INTEREST EXPENSE
Total interest expense for the three and six month periods ended June 30,
1999, was $78.4 million and $160.7 million, respectively, compared to $100.0
million and $195.8 million. The total cost of funds for the three and six months
periods ended June 30, 1999 was 3.88% and 3.97% as compared to 4.52% and 4.51%,
respectively, for the same periods one year earlier. The decreases in total
interest expense for the current year three and six month periods as compared to
one year earlier, are the results of a lower volume of average interest-bearing
liabilities of $692.2 million and $524.9 million, respectively, as well as a
reduction in the total rate incurred on total interest-bearing liabilities.
Reduced interest expense on total borrowings for the current year periods as
compared to the previous year same periods was $11.4 million and $16.8 million.
The rates incurred on total borrowings for the 1999 three and six month periods
were 5.16% and 5.22%, respectively, as compared to 5.68% and 5.74 %,
respectively, for the previous year same periods. Interest rates incurred on
total deposits were 3.65% and 4.23% and 3.76% and 4.21% for the three and six
month periods ended in 1999 and 1998, respectively.
20
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table shows 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 JUNE 30, 1999 1998
- --------------------------- ----- ------
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 $ 5,220,629 $ 95,669 7.34 % $ 4,953,184 $ 95,035 7.66 %
Securities 3,159,790 49,844 6.31 4,160,018 64,593 6.21
--------- ------ ---- --------- ------- ----
TOTAL INTEREST-EARNING ASSETS 8,380,419 145,513 6.95 9,113,202 159,628 7.00
------- -------
Noninterest-Earning Assets 544,095 496,665
-------- --------
TOTAL ASSETS $ 8,924,514 $ 9,609,867
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Deposits $ 5,643,329 46,906 3.65 % $ 5,789,534 57,018 3.93 %
Borrowings 2,448,044 31,519 5.16 2,994,007 42,959 5.68
--------- ------ ---- --------- ------- ----
TOTAL INTEREST-BEARING LIABILITIES 8,091,373 78,425 3.88 8,783,541 99,977 4.52
------ --------- -------
Noninterest-Bearing Liabilities 104,071 99,057
-------- -------
TOTAL LIABILITIES 8,195,444 8,882,598
Capital Securities and Preferred Stock of
Subsidiary Corporation 199,577 199,577
SHAREHOLDERS' EQUITY 529,493 527,692
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,924,514 $ 9,609,867
========= =========
NET INTEREST INCOME $ 67,088 $ 59,651
====== =======
INTEREST RATE SPREAD 3.07 % 2.48 %
==== ====
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 3.20 % 2.64 %
==== ====
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
- ------------------------- ----- ------
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 $ 5,139,085 $ 188,894 7.37 % $ 4,766,579 $ 192,893 8.09 %
Securities 3,241,505 102,528 6.33 4,220,979 125,934 5.97
--------- ------- ---- --------- ------- ----
TOTAL INTEREST-EARNING ASSETS 8,380,590 291,422 6.96 8,987,558 318,827 7.10
------- -------
Noninterest-Earning Assets 559,624 484,309
-------- --------
TOTAL ASSETS $ 8,940,214 $ 9,471,867
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Deposits $ 5,595,504 $ 95,486 3.76 % $ 5,796,915 113,693 4.21
Borrowings 2,521,825 65,261 5.22 2,845,271 82,086 5.74
--------- ------ ---- --------- ------- ----
TOTAL INTEREST-BEARING LIABILITIES 8,117,329 160,747 3.97 8,642,186 195,779 4.51
------- -------
Noninterest-Bearing Liabilities 91,209 137,185
------- --------
TOTAL LIABILITIES 8,208,538 8,779,371
Capital Securities and Preferred Stock of
Subsidiary Corporation 199,577 174,992
SHAREHOLDERS' EQUITY 532,099 517,504
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,940,214 $ 9,471,867
========= =========
NET INTEREST INCOME $ 130,675 $ 123,048
======= =======
INTEREST RATE SPREAD 2.99 % 2.59 %
==== ====
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 3.12 % 2.76 %
==== ====
</TABLE>
21
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES
The provision for loan losses was $2.1 million and $4.1 million,
respectively, for the three and six month periods ended June 30, 1999 compared
to $1.9 million and $3.8 million for the respective periods in 1998. At June 30,
1999 the allowance for loan losses totaled $61.4 million and represented 197.6%
of non-accrual loans compared to $57.1 million and 190.7% at June 30, 1998.
NONINTEREST INCOME
Total noninterest income for the three and six months ended June 30,
1999 totaled $20.2 million and $39.7 million, respectively, compared to $21.8
million and $37.1 million for the respective periods in 1998. When the three
month periods are compared, reduced income for the current period of $1.6
million is due to primarily from lower income from net gains on the sale of
loans and investments of $7.0 million that was partially offset by increased fee
and service charge income of $4.5 million and other income of $826,000. During
the second quarter of 1998, $350 million of securities, most of which were
mortgage securities with relatively narrow spreads to wholesale funding, were
sold and largely accounts for the higher net gains for the previous year period.
When the six month periods are compared, noninterest income for the current year
period was $2.5 million higher due to increased income from fees and service
charges of $7.9 million and other income of $2.5 million that more than offset
reduced net gains from loan and securities sales income.
NONINTEREST EXPENSES
Total noninterest expenses for the three and six month periods ended
June 30, 1999 totaled $50.0 million and $98.1 million, respectively, compared to
$62.8 million and $108.3 million, respectively, for the same periods in 1998.
Included in noninterest expenses for the prior year periods is $17.4 million of
acquisition related expenses. On an adjusted basis, operating expenses for the
current year three and six month periods increased $4.6 million and $7.2
million, respectively, as compared to the same periods in 1998. While virtually
all operating expenses increased for the current periods, salaries and benefits,
occupancy and intangible amortization were the most significant. The increases
in noninterest expenses for the current year periods is primarily due to
expenses resulting from the acquisitions of Maritime and Village in the second
quarter of 1999, Access National Mortgage, Inc. ("Access") in the first quarter
of 1999 and Eagle Financial Corp. ("Eagle"), and Damman Insurance Associates
("Damman") in the second quarter of 1998.
INCOME TAXES
Total income tax expense for the current three and six month periods was
$11.9 million and $23.2 million as compared to $7.3 million and $19.0 million
for the same periods in 1998. Tax expenses for the 1999 periods are higher than
the corresponding 1998 periods because of higher income before income taxes. The
effective tax rate is approximately 34% for the three and six month periods in
1999 as compared to 44% and 39% in the same periods a year ago. During the first
quarter of 1999, Webster formed a Connecticut Passive Investment Company. The
State of Connecticut enacted tax law changes in May 1998, allowing for the
formation of a Passive Investment Company ("PIC") by financial institutions.
This new legislation exempts Passive Investment Companies from state income
taxation in Connecticut, and exempts from inclusion in Connecticut taxable
income the dividends paid from a passive investment company to a related
financial institution. Webster Bank qualifies as a financial institution under
the new statute. The legislation was effective for tax years beginning on or
after January 1, 1999.
22
<PAGE>
Webster Financial Corporation and Subsidiaries
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The following table details the estimated market value of Webster's
interest-sensitive assets and interest-sensitive liabilities at June 30, 1999 if
interest rates instantaneously increase or decrease 100 basis points.
<TABLE>
<CAPTION>
Book Market Estimated Market Value Impact
Value Value -100 BP +100 BP
----- ----- ------- -------
<S> <C> <C> <C> <C>
Interest-sensitive assets
Trading $ 70,561 $ 70,561 $ 525 $ (1,165)
Non-trading 8,346,844 8,099,095 199,871 (247,505)
Interest-sensitive liabilities 8,395,892 8,213,315 (31,371) 207,037
</TABLE>
The table above excludes earning assets that are not directly impacted by
changes in interest rates. These assets include equity securities of $217.2
million (See Note 2 to Consolidated Financial Statements) and nonaccrual loans
of $31.1 million (See "Asset Quality" within the MD&A). Values for mortgage
servicing rights have been included in the table above as changes in interest
rates affect the valuation of the servicing rights. Equity securities and
nonaccrual assets not included in the above table are, however, subject to
fluctuations in market value based on other risks.
Based on Webster's asset/liability mix at June 30, 1999, management's net
interest income sensitivity analysis of the effects of changing interest rates
estimates that an instantaneous 100 basis point increase in interest rates would
decrease net interest income over the next twelve months by about 4.7% and an
instantaneous 100 basis point decline in interest rates would increase net
interest income over the next twelve months by about 3.6%. The above estimated
market values are subject to factors that could cause actual results to differ
from such projections and estimates.
FORWARD LOOKING STATEMENTS
Statements in the sections captioned "Management's Discussion and
Analysis of Consolidated Financial Statements," "Quantitative and Qualitative
Disclosures about Market Risk" and "Year 2000 Readiness Disclosure Statement"
are forward-looking statements within the meaning of the Securities and Exchange
Act of 1934, as amended. Actual results could differ materially from those
management expectations, projections and estimates. Factors that could cause
future results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal, state and local tax authorities, changes in
interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of Webster's loan and investment portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting Webster's operations, markets,
products, services and prices. Such developments could have an adverse impact on
Webster's financial position and results of operations.
23
<PAGE>
Webster Financial Corporation and Subsidiaries
YEAR 2000 READINESS DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
The Corporation's overall Year 2000 project plan continues to meet regulatory
requirements and targeted objectives. The following discussion addresses the
status of the project as of June 30, 1999.
I. THE CORPORATION'S STATE OF READINESS
During the second quarter of 1999, the Corporation focused on completing
the validation of core functionality on mission critical applications. At June
30, 1999, validation of 100% of identified core functionality was completed. The
Corporation has not made any significant revisions to the Year 2000 project plan
as reported in the 1998 Annual Report and has met the June 30, 1999 target date
for completion of the validation and implementation phases for core business
systems.
II. THE COSTS TO ADDRESS THE CORPORATION'S YEAR 2000 ISSUES
At June 30, 1999, the Corporation's estimated total direct costs for Year
2000 remediation remains at approximately $1 million. Approximately $760,000 of
direct costs have been incurred to date. Included in these direct costs, are
expenses related to the replacement or upgrade of hardware and software that
amounted to approximately $145,000 and expenses related to consulting services
for Year 2000 management and systems testing that amounted to approximately
$613,000. During the next 6 months, the Corporation anticipates Year 2000
readiness direct expenses to total approximately $240,000.
III. THE RISKS OF THE CORPORATION'S YEAR 2000 ISSUES
During the second quarter of 1999, the Corporation continued to focus on
Contingency planning for potential business disruptions resulting from problems
encountered with internal operations and infrastructure or external connections.
The Corporation will continue to identify and revise potential scenarios during
1999 as needed.
IV. THE CORPORATION'S CONTINGENCY PLANS
At June 30, 1999, the Corporation has completed contingency plans for
identified core business functions. Contingency planning is scenario-driven and
focuses on risk assessment, alternate solutions for business resumption and
approaches to minimize the impact of each scenario. Testing and validation of
contingency plans is substantially complete. Contingency plans will continue to
be reviewed and refined during 1999 and as changes in the external environment
occur. During the mid-December 1999 through mid-January 2000 period, the
Corporation is taking an event management approach intended to ensure a state of
readiness. Event management plans will continue to be reviewed and refined
during 1999.
24
<PAGE>
Webster Financial Corporation and Subsidiaries
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - Not Applicable.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on April 22, 1999.
(b) Achille A. Apicella, George T. Carpenter, John J. Crawford and
C. Michael Jacobi were re-elected as directors at the annual
meeting. Continuing directors include: Richard H. Alden, Joel S.
Becker, O. Joseph Bizzozero, Jr., Harry P. DiAdamo, Jr., Robert
A. Finkenzeller, John F. McCarthy, James C. Smith and Sister
Marguerite Waite.
(c) The following matters were voted upon and approved by the
Registrant's shareholders at the 1999 annual meeting on April
22, 1999: (i) election of four directors to serve a three year
term (Proposal 1); and (ii) ratification of the appointment of
KPMG LLP as independent auditors of Webster for the year ending
December 31, 1999 (Proposal 2). As to Proposal 1, Achille A.
Apicella received 31,756,912 votes for election and 226,810
votes were withheld; George T. Carpenter received 31,746,197
votes for election and 237,525 votes were withheld; John J.
Crawford received 31,760,893 votes for election and 222,829
votes were withheld; and C. Michael Jacobi received 31,760,336
votes for election and 223,386 votes were withheld. There were
no abstentions or broker non-votes for any of the nominees. As
to Proposal 2, shareholders cast 31,718,313 votes for, 139,853
against, 125,556 abstentions, and 0 broker non-votes.
(d) Not Applicable.
Item 5. OTHER INFORMATION - None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 Bylaws of Webster Financial Corporation, as amended.
27 Financial Data Tables.
</TABLE>
(b) Reports on Form 8-K
Webster filed the following Current Reports on Form 8-K with the
Securities and Exchange Commission (the ("SEC") during the quarter
ended June 30, 1999:
25
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Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Current Report on Form 8-K filed with the SEC on April 9, 1999 (date of report
April 6, 1999) (announcing regulatory approval of Webster's proposed acquisition
of Maritime Bank & Trust Company and the exchange ratio for the transaction).
Current Report on Form 8-K filed with the SEC on May 6, 1999 (date of report
April 21, 1999) (announcing the completion of Webster's acquisition of Maritime
Bank & Trust Company, regulatory and shareholder approval of Webster's proposed
acquisition of Village Bancorp, Inc. and the exchange ratio for the Village
transaction).
Current Report on Form 8-K filed with the SEC on July 13, 1999 (date of report
June 29, 1999) (regarding the announcement of Webster's proposed acquisition of
New England Community Bancorp, Inc.).
26
<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: August 13, 1999 By:
---------------------------------------
John V. Brennan
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
27
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Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
------------ -----------
<S> <C>
3 Bylaws of Webster Financial Corporation, as amended.
27 Financial Data Tables.
</TABLE>
28
Webster Financial Corporation
- --------------------------------------------------------------------------------
Exhibit 3
BYLAWS
OF
WEBSTER FINANCIAL CORPORATION
(hereinafter called the "Corporation")
(As amended effective May 17, 1999)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation shall be
in the city of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meetings. Meetings of shareholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meetings of shareholders shall be held at
Webster Plaza, Waterbury, Connecticut on the third Thursday of April at 11:00
a.m. or at such other place, date and hour as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at which
meetings the shareholders shall elect by a plurality vote a board of directors
and transact such other business as may properly be brought before the meeting.
Except as may otherwise be specifically provided by law, written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each shareholder entitled to vote at such meeting not less than 10 nor more than
60 days before the date of the meeting. The notice shall also set forth the
purpose or purposes for which the meeting is called.
SECTION 3. Business at Annual Meeting. At an annual meeting of the shareholders,
only such business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the annual meeting was
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Webster Financial Corporation
- --------------------------------------------------------------------------------
mailed or such public disclosure was made. A shareholder's notice to the
secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 3. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 3, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
SECTION 4. Special Meetings. Special meetings of shareholders for any purpose
may be called only as provided in the Certificate of Incorporation. Except as
may otherwise be specifically provided by law, written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than 10 nor
more than 60 days before the date of the meeting to each shareholder entitled to
vote at such meeting.
SECTION 5. Quorum. The holders of one-third of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder entitled to vote at the
meeting.
SECTION 6. Voting. Except as otherwise required by law, the Certificate of
Incorporation or these bylaws, any matter brought before any meeting of
shareholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter. Each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. The board of directors,
in its discretion, may require that any votes cast at such meeting shall be cast
by written ballot.
SECTION 7. List of Shareholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder of the Corporation who is present.
30
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Webster Financial Corporation
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SECTION 8. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the shareholders entitled to examine the list required by
Section 7 of this Article II or to vote in person or by proxy at any meeting of
shareholders.
SECTION 9. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. Proxies solicited on behalf of the board of directors shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
SECTION 10. Voting of Shares in the Name of Two or More Persons. If shares or
other securities having voting power stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the Corporation is given written notice to the contrary and is furnished with
a copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (1) if only one votes, his act binds all; (2) if more than one
vote, the act of the majority so voting binds all; (3) if more than one vote,
but the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or any person voting the shares, or a
beneficiary, if any, may apply to the Court of Chancery of the State of Delaware
or such other court as may have jurisdiction to appoint an additional person to
act with the persons so voting the shares, which shall then be voted as
determined by a majority of such persons and the person appointed by the Court.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this subsection shall be
a majority or even-split in interest.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by any officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in absence of such provision, as the board
of directors of such corporation may determine. Shares held by an administrator,
executor, guardian or conservator may be voted by him, but no trustees shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer into his name if authority so to do is contained
in an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered that pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
Neither treasury shares of its own stock held by the Corporation, nor shares
held by another corporation, if a majority of shares entitled to vote for the
election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office as
inspectors of election to act at such meeting or any adjournment thereof. The
number of inspectors shall be either one or three. If the board of directors so
appoints either one or three such inspectors, that appointment shall not be
altered at the meeting. If
31
<PAGE>
Webster Financial Corporation
- --------------------------------------------------------------------------------
inspectors of election are not so appointed, the chairman of the board or the
president may, and on the request of not less than ten percent of the votes
represented at the meeting shall, make such appointments at the meeting. If
appointed at the meeting, the majority of the votes present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the board of directors in advance of the meeting
or by the chairman of the board or the president.
Unless otherwise prescribed by law, the duties of such inspectors shall include:
determining the number of shares of stock entitled to vote, the voting power of
each share, the shares of stock represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the right to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or the vote with fairness to all shareholders.
SECTION 14. Conduct of Meetings. Annual and special meetings shall be conducted
in accordance with rules prescribed by the presiding officer of the meeting,
unless otherwise prescribed by law or these bylaws. The board of directors shall
designate, when present, either the chairman of the board or the president to
preside at such meetings.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of directors shall be
twelve. Directors need not be residents of the State of Delaware. To be eligible
for nomination as a director, a nominee must be a resident of the State of
Connecticut at the time of his nomination or, if not then a resident, have been
previously a resident for at least three years.
Directors shall be elected only by shareholders at annual meetings of
shareholders, other than the initial board of directors and except as provided
in Section 2 of this Article III in the case of vacancies and newly created
directorships.
Each director elected shall hold office for the term for which he is elected and
until his successor is elected and qualified or until his earlier resignation or
removal. After the Corporation becomes publicly-owned, each director is required
to own not less than 100 shares of the common stock of the Corporation.
SECTION 2. Classes; Terms of Office; Vacancies. The board of directors shall
divide the directors into three classes; and, when the number of directors is
changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, further, that no
decrease in the number of directors shall affect the term of any director then
in office. At each annual meeting of shareholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders and when their respective
successors are elected and qualified.
Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled, for the unexpired term, by the
concurring vote of a majority of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been elected
and qualified.
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Webster Financial Corporation
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SECTION 3. Duties and Powers. The business of the Corporation shall be managed
by or under the direction of the board of directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, or by these bylaws directed or
required to be exercised or done by the shareholders. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 4. Meetings. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The annual regular meeting of the board of directors shall be held
without other notice than this bylaw immediately after, and at the same place
as, the annual meeting of the shareholders. Additional regular meetings of the
board of directors shall be held monthly, and may be held without notice at such
time and at such place as may from time to time be determined by the board of
directors. Special meetings of the board of directors may be called by the
chairman of the board, the president or a majority of directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than 48 hours before the date of the
meeting, or by telephone or telegram on 24 hours' notice.
SECTION 5. Quorum. Except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these bylaws, at all meetings of the board of
directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 6. Actions Without Meeting. Any action required or permitted to be taken
at any meeting of the board of directors or of any committee thereof may be
taken without a meeting, if all the members of the board of directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee.
SECTION 7. Meetings by Means of Conference Telephone. Members of the board of
directors of the Corporation, or any committee designated by the board of
directors, may participate in a meeting of the board of directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. Compensation. The board of directors shall have the authority to fix
the compensation of directors. The directors may be paid their reasonable
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a reasonable fixed sum for actual attendance at each meeting of the
board of directors. Directors, as such, may receive a stated salary for their
services. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 9. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorizes
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the contract or transaction, or solely because his or their votes are counted
for such purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
SECTION 10. Corporate Books. The directors may keep the books of the Corporation
outside of the State of Delaware at such place or places as they may from time
to time determine.
SECTION 11. Presumption of Assent. A director of the Corporation who is present
at meeting of the board of directors at which action on any matter is taken
shall be presumed to have assented to the action taken unless his dissent or
abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date he receives a copy of the minutes of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
SECTION 12. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the chairman of the board or the president
of the Corporation. Unless otherwise specified therein such resignation shall
take effect upon receipt thereof by the chairman of the board or the president.
More than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
SECTION 13. Nominees. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the board of directors or by any shareholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 45 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations or proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy
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statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such shareholder. At the
request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary of the
Corporation that information required to be set forth in a shareholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 13. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with procedures prescribed by the bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more other directors to constitute an executive committee. The chairman of the
board shall serve as the chairman of the executive committee, unless a different
director is designated as chairman by the board of directors. The designation of
any committee pursuant to this Article IV and the delegation of authority
thereto shall not operate to relieve the board of directors, or any director, of
any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of directors is
not in session, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, except to the extent, if any, that such powers and
authority shall be limited by the resolution appointing the executive committee;
and except also that the executive committee shall not have the power or
authority of the board of directors with reference to amending the Certificate
of Incorporation; adopting an agreement of merger or consolidation; recommending
to the shareholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets; recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution; amending the
bylaws of the Corporation; filling a vacancy or creating a new directorship; or
approving a transaction in which any member of the executive committee, directly
or indirectly, has any material beneficial interest; and unless the resolution
or bylaws expressly so provide, the executive committee shall not have the power
or authority to declare a dividend or to authorize the issuance of stock or
securities convertible into or exercisable for stock.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this Article IV,
each member of the executive committee shall hold office until the next annual
regular meeting of the board of directors following his designation and until
his successor is designated as a member of the executive committee.
SECTION 4. Meetings. Regular meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by the chairman of the executive committee, the chief executive officer
or any two members thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
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SECTION 5. Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
SECTION 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee and the writings are filed with the
minutes of the proceedings of the committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be filled by a
resolution adopted by a majority of the full board of directors.
SECTION 8. Resignations and Removal. Any member of the executive committee may
be removed at any time with or without cause by resolution adopted by a majority
of the full board of directors. Any member of the executive committee may resign
from the executive committee at any time by giving written notice to the
chairman of the board or the president of the Corporation. Unless otherwise
specified therein, such resignation shall take effect upon receipt. The
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. Procedure. The executive committee may fix its own rules of procedure
which shall not be inconsistent with these bylaws. It shall keep regular minutes
of its proceedings and report the same to the full board of directors for its
information at the meeting thereof held next after the proceedings shall have
been taken.
SECTION 10. Other Committees. The board of directors by resolution shall
establish an audit committee, and a stock option committee, composed in each
case only of directors who are not employees of the Corporation or any
subsidiary thereof. The board of directors by resolution may also establish such
other committees composed of directors as they may determine to be necessary or
appropriate for the conduct of the business of the Corporation and may prescribe
the duties and powers thereof.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a president, one
or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman of the board as an officer. The president shall be the chief executive
officer, unless the board of directors designates the chairman of the board as
the chief executive officer. The president may serve as the chairman of the
board, if so designated by the board of directors. The offices of the secretary
and treasurer may be held by the same person and a vice president may also be
either the secretary or the treasurer. The board of directors may designate one
or more vice presidents as executive vice president or senior vice president.
The board of directors may also elect or authorize the appointment of such other
officers as the business of the Corporation may require. The officers shall have
such authority and perform such duties as the board of directors may from time
to time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. Election. The board of directors at its first meeting held after the
annual meeting of shareholders shall elect annually the officers of the
Corporation who shall exercise such powers and
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perform such duties as shall be set forth in these bylaws and as determined from
time to time by the board of directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the board of
directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the Corporation
shall be filled by the board of directors. The salaries of all officers of the
Corporation shall be fixed by the board of directors.
SECTION 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
SECTION 4. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the chairman of the board, the president or any
vice president, and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The board of directors may, by resolution, from time
to time confer like powers upon any other person or persons.
ARTICLE VI
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
(i) the chairman of the board or the president and (ii) by the secretary or an
assistant secretary of the Corporation, representing the number of shares
registered in certificate form.
SECTION 2. Signatures. Any and all of the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
SECTION 3. Lost Certificates. The chairman of the board, the president or any
vice president may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the chairman of the board, the
president or any vice president may, in his discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as such officer may require and/or to give the Corporation a bond in
such sum as he may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these bylaws. Transfer of stock shall be made on
the books of the Corporation only by the person named in the certificate or by
his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
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SECTION 5. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than 60 nor less than 10 days before the date of such meeting. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting. In order that the Corporation may determine the shareholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the shareholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall not be more than 60 days prior to such
action.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise required by law.
ARTICLE VII
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the Certificate
of Incorporation or these bylaws to be given to any director, members of a
committee or shareholder, such notice may be given by mail, addressed to such
director, members of a committee or shareholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
Unites States mail. Written notice may also be given personally or by telegram,
telex or cable.
SECTION 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or shareholder, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting with the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at nor the purpose of any regular or special meeting of the
shareholders, directors, or members of a committee of directors need be
specified in any other waiver of notice unless so required by the Certificate of
Incorporation or these bylaws.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation and the laws of
the State of Delaware, may be declared by the board of directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of
capital stock of the Corporation.
Subject to the provisions of the General Corporation Law of the State of
Delaware, such dividends may be paid either out of surplus, out of the net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
SECTION 2. Disbursement. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be December 31.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words. "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those
by or in the Right of the Corporation. Subject to Section 3 of this Article IX,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, trustee, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, association, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, and any appeal
therein, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding, and any
appeals therein, by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threate ned, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint
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venture, trust or other enterprise, against amounts paid in settlement and
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, If he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; provided, however, that no indemnification
shall be made against expenses in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation or
against amounts paid in settlement unless and only to the extent that there is a
determination (as set forth in Section 3 of this Article IX) that despite the
adjudication of liability or the settlement, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses or amounts paid in settlement.
SECTION 3. Authorization of Indemnification. Any indemnification under this
Article IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, trustee, employee or agent is proper in the circumstances
because such director, officer, trustee, employee or agent has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article IX and, if applicable, is fairly and reasonably entitled to indemnity as
set forth in the proviso in Section 2 of this Article IX, as the case may be.
Such determination shall be made (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding voluntarily initiated by such person unless the
action, suit or proceeding was authorized by a majority of the entire board of
directors.
SECTION 4. Good Faith Defined. For purposes of any determination under Section 3
of this Article IX, a person shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his conduct was unlawful, if his action is
based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
association, partnership, joint venture, trust or other enterprise of which such
person is or was serving at the request of the Corporation as a director,
officer, trustee, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because
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he has met the applicable standards of conduct set forth in Sections 1 and 2 of
this Article IX, as the case may be. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. Notwithstanding any of the
foregoing, unless otherwise required by law, no director, officer, trustee,
employee or agent of the Corporation shall be entitled to indemnification in
connection with any action, suit or proceeding voluntarily initiated by such
person unless the action, suit or proceeding was authorized by a majority of the
entire board of directors.
SECTION 6. Expenses Payable in Advance. Expenses incurred in connection with a
threatened or pending action, suit or proceeding may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, trustee,
employee or agent to repay such amount if it shall be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IX.
SECTION 7. Contract, Non-exclusivity and Survival of Indemnification. The
indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time while this Article IX is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. Further, the indemnification and
advancement of expenses provided by this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any certificate of incorporation,
bylaw, agreement, contract, vote of shareholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the person specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 and 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of each person.
SECTION 8. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Meaning of "Corporation" for Purposes of Article IX. For purposes of
this Article IX, references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other
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enterprises, shall stand in the same position under the provisions of this
Article IX with respect to the resulting of surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE X
AMENDMENTS
The board of directors or the shareholders may from time to time amend the
bylaws of the Corporation. Such action by the board of directors shall require
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the board of directors called for such purpose. Such
action by the shareholders shall require the affirmative vote of at least
two-thirds of the total votes eligible to be voted at a duly constituted meeting
of shareholders called for such purpose.
***************
The foregoing bylaws were originally adopted by the board of directors on
October 6, 1986.
/s/ Harriet Munrett Wolfe
----------------------------
Corporate Secretary
May 17, 1999
- ------------------------------
(Date)
42
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<LOANS-NON> 31,058 29,679
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 55,109 62,141
<CHARGE-OFFS> 2,386 10,830
<RECOVERIES> 4,556 1,513
<ALLOWANCE-CLOSE> 61,379 56,604
<ALLOWANCE-DOMESTIC> 61,379 56,604
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
