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 SEPTEMBER 30, 2000
----------------------------------------------------------
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
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WEBSTER FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1187536
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Webster Plaza, Waterbury, Connecticut 06702
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(Address of principal executive offices) (Zip Code)
(203) 753-2921
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(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) 48,908,967 Shares
------------------------------ ------------------------------------------
Class Issued and Outstanding at October 31, 2000
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I - INTERIM FINANCIAL INFORMATION:
<S> <C>
Consolidated Statements of Condition at September 30, 2000 (unaudited) and December 31, 1999 (audited) 3
Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2000 4
and 1999
Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended
September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2000 and
1999 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Quantitative and Qualitative Disclosures about Market Risk 21
Forward Looking Statements 27
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
EXHIBIT INDEX 30
EXHIBIT 31
</TABLE>
2
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(In thousands, except share and per share data)
-----------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS:
Cash and due from depository institutions $ 232,294 $ 245,783
Interest-bearing deposits 10,240 37,838
Securities: (note 3)
Trading, at fair value -- 50,854
Available for sale, at fair value 3,060,994 2,700,585
Held to maturity, (fair value: $258,503 in 2000;
$300,282 in 1999) 275,006 315,462
Loans receivable:
Residential loans 4,215,112 3,898,943
Commercial real estate loans 893,622 741,168
Commercial and industrial loans 1,158,338 915,035
Home equity loans 584,747 492,684
Other consumer loans 97,863 47,064
Allowance for loan losses (88,917) (72,658)
------------- -------------
Loans receivable, net 6,860,765 6,022,236
Accrued interest receivable 71,781 58,918
Premises and equipment, net 104,803 103,403
Foreclosed properties, net 3,389 4,909
Intangible assets 312,525 138,829
Cash surrender value of life insurance 171,973 148,252
Prepaid expenses and other assets 152,780 104,675
------------- -------------
TOTAL ASSETS $ 11,256,550 $ 9,931,744
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Checking and NOW $ 1,565,898 $ 1,375,692
Savings and MMDAs 1,967,585 1,719,562
Certificates of deposit 3,497,420 3,095,837
------------- -------------
Total deposits 7,030,903 6,191,091
Federal Home Loan Bank advances 2,066,398 1,714,441
Securities sold under agreements to repurchase and other borrowings (note 4) 1,019,305 1,074,004
Advance payments by borrowers for taxes and insurance 22,923 41,605
Accrued expenses and other liabilities (note 5) 89,462 75,359
------------- -------------
TOTAL LIABILITIES 10,228,991 9,096,500
------------- -------------
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trusts holding solely junior subordinated
debentures of the corporation (note 10) 150,000 150,000
Preferred stock of subsidiary corporation 49,577 49,577
SHAREHOLDERS' EQUITY: (note 6)
Common stock, $.01 par value:
Authorized - 200,000,000 shares
Issued -49,425,444 shares at September 30, 2000 and
45,243,770 shares at December 31, 1999 494 452
Paid-in capital 415,016 301,336
Retained earnings 466,101 400,413
Unearned compensation (843) --
Less treasury stock at cost, 563,417 shares at September 30, 2000
and 140,000 shares at December 31, 1999 (13,362) (3,274)
Less Employee Stock Ownership Plan shares purchased with debt (641) (1,127)
Accumulated other comprehensive loss (38,783) (62,133)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 827,982 635,667
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,256,550 $ 9,931,744
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
2000 1999 2000 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $139,867 $110,640 $377,000 $321,684
Securities and interest-bearing deposits 57,733 51,539 165,189 160,334
-------- -------- -------- --------
Total interest income 197,600 162,179 542,189 482,018
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 60,376 49,548 162,445 153,209
Borrowings 51,414 34,783 138,631 101,834
-------- -------- -------- --------
Total interest expense 111,790 84,331 301,076 255,043
-------- -------- -------- --------
NET INTEREST INCOME 85,810 77,848 241,113 226,975
Provision for loan losses 3,200 2,245 8,600 6,678
-------- -------- -------- --------
Net interest income after provision for loan losses 82,610 75,603 232,513 220,297
-------- -------- -------- --------
NONINTEREST INCOME:
Fees and service charges 15,987 13,529 42,748 35,645
Trust and investment services 4,837 3,309 13,566 6,674
Insurance commissions 3,685 1,692 10,909 5,360
Gain on sale of loans and loan servicing, net 2,560 1,006 3,503 4,104
Gain (loss) on sale of securities, net 1,871 (1,505) 7,829 2,413
Increase in cash surrender value of life insurance 2,271 2,181 6,233 5,910
Other noninterest income 1,958 1,691 6,629 5,943
-------- -------- -------- --------
Total noninterest income 33,169 21,903 91,417 66,049
-------- -------- -------- --------
NONINTEREST EXPENSES:
Compensation and benefits expense 31,235 27,796 90,751 78,030
Occupancy expense 6,573 5,005 17,651 15,255
Furniture and equipment expense 6,090 5,543 18,830 16,051
Intangible amortization expense 6,907 3,959 15,065 9,804
Marketing expense 1,778 2,263 6,577 6,966
Professional services expense 1,688 1,757 5,171 7,027
Capital securities expense (note 10) 3,477 3,661 10,708 10,984
Dividends on preferred stock of subsidiary corporation 1,037 1,038 3,113 3,113
Other operating expenses (note 5) 9,816 8,114 26,888 25,824
-------- -------- -------- --------
Total noninterest expenses 68,601 59,136 194,754 173,054
-------- -------- -------- --------
Income before income taxes 47,178 38,370 129,176 113,292
Income taxes (note 8) 15,595 11,973 42,675 37,572
-------- -------- -------- --------
NET INCOME $ 31,583 $ 26,397 $ 86,501 $ 75,720
======== ======== ======== ========
NET INCOME PER COMMON SHARE: (note 9)
Basic $ 0.65 $ 0.58 $ 1.92 $ 1.71
Diluted $ 0.64 $ 0.57 $ 1.90 $ 1.67
Dividends declared per common share $ 0.16 $ 0.12 $ 0.46 $ 0.35
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 31,583 $ 26,397
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on securities available for sale arising
during the period (net of income tax effect of $17,502
and $(9,127) for 2000 and 1999, respectively) 26,390 (13,394)
Reclassification adjustment for net (gain) loss included in
net income (net of income tax effect of $881
and $(210) for 2000 and 1999, respectively) (1,328) 307
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Other comprehensive income (loss) 25,062 (13,087)
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COMPREHENSIVE INCOME $ 56,645 $ 13,310
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</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 86,501 $ 75,720
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on securities
available for sale arising during the period
(net of income tax effect of $19,194 and $(41,038)
for 2000 and 1999, respectively) 28,940 (60,227)
Reclassification adjustment for net gain included in
net income (net of income tax effect of $3,708
and $1,341 for 2000 and 1999, respectively) (5,590) (1,969)
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 23,350 (62,196)
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COMPREHENSIVE INCOME $ 109,851 $ 13,524
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</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 86,501 $ 75,720
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 8,600 6,678
Provision for depreciation on premises and equipment 13,868 10,177
Provision for foreclosures property losses -- 100
Amortization of securities premiums, net 657 2,568
Amortization of loan premiums, net 102 1,653
Amortization of intangible assets 15,065 9,804
Amortization of hedging costs, net 2,995 3,516
Amortization of mortgage servicing rights 1,378 1,200
Gains on sale of foreclosed properties, net (805) (545)
Gains on sale of securities, net (9,298) (3,117)
Gains on the sale of loans and servicing, net (3,503) (4,104)
Losses on trading securities, net 1,469 704
Decrease in trading securities 4,928 27,290
Loans originated for sale (128,259) (168,287)
Proceeds from sale of loans, originated for sale 123,745 170,911
Increase in interest receivable (6,871) (1,409)
Increase in prepaid expenses and other assets, net (10,614) (6,874)
Increase (decrease) in interest payable 2,580 (10,708)
(Decrease) increase in accrued expenses and other liabilities, net (12,609) 13,225
Increase in cash surrender value of life insurance (5,618) (5,668)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 84,311 122,834
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INVESTING ACTIVITIES:
Purchases of securities, available for sale (2,111,635) (792,742)
Purchases of securities, held to maturity -- (1,283)
Principal collected on investments 236,371 562,664
Maturities of securities 980,179 370,095
Proceeds from sale of securities, available for sale 867,683 318,315
Proceeds from sale of securities, held to maturity -- 15,458
Decrease (increase) in interest-bearing deposits, net 39,598 (7,796)
Increase in loans, net (135,148) (194,123)
Proceeds from sale of foreclosed properties 7,574 6,202
Purchases of premises and equipment, net (10,398) (11,646)
Net cash received through purchase acquisitions 230,847 16,706
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 105,071 281,850
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FINANCING ACTIVITIES:
Decrease in deposits, net (29,101) (423,042)
Repayment of FHLB advances (3,133,215) (2,495,690)
Proceeds from FHLB advances 3,158,268 2,354,854
Repayment of securities sold under agreement to repurchase and other borrowings (22,396,266) (33,138,668)
Proceeds from securities sold under agreement to repurchase and other borrowings 22,341,327 33,381,196
Cash dividends to common shareholders (20,813) (15,503)
Decrease in advance payments for taxes and insurance, net (25,485) (12,227)
Exercise of stock options 12,259 7,583
Common stock repurchased (109,845) (69,392)
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Net cash used by financing activities (202,871) (410,889)
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</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in cash and cash equivalents (13,489) (6,205)
Cash and cash equivalents at beginning of period 245,783 213,142
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 232,294 $ 206,937
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 33,508 $ 25,862
Interest paid 300,897 263,372
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING AND
FINANCING ACTIVITIES:
Transfer of loans to foreclosed properties $ 4,970 $ 8,268
</TABLE>
Assets acquired and liabilities assumed in purchase business combinations were
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of noncash assets acquired in purchase acquisitions $ 1,008,102 $ 354,666
Fair value of liabilities assumed in purchase acquisitions 1,228,214 294,340
Common stock issued in purchase business combination 199,425 77,032
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
BUSINESS
Webster Financial Corporation ("Webster" or the "Company"), through its
subsidiaries, Webster Bank ("the Bank") and Damman Associates Inc. ("Damman"),
delivers financial services to individuals, families and businesses primarily in
Connecticut. Webster provides business and consumer banking, mortgage,
insurance, trust and investment services through more than 120 banking offices,
200 ATMs and the internet (www.websterbank.com). Webster's online mortgage
subsidiary at www.nowlending.com on the Worldwide Web originates low-cost
mortgages across the United States. Webster Bank was founded in 1935 and
converted from a federal mutual to a federal stock institution in 1986.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Consolidated Financial Statements include the accounts of Webster and its
subsidiaries. The Consolidated Financial Statements and notes hereto have been
restated to include the accounts of New England Community Bancorp., Inc.
("NECB") acquired on December 1, 1999, as though this pooling of interests
acquisition had occurred at the beginning of the earliest period presented. All
share data has been restated for stock dividends and stock splits. The
Consolidated Financial Statements have been prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. All
significant intercompany transactions have been eliminated in consolidation.
Amounts in prior period financial statements are reclassified whenever necessary
to conform to current period presentations. The results of operations for the
three and nine month periods ended September 30, 2000, are not necessarily
indicative of the results which may be expected for the year as a whole.
The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, as of the date of the
Consolidated Financial Statements and the reported amounts of revenues and
expenses for the periods presented. These Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in the Webster 1999 Annual Report to Shareholders. The
actual results of Webster could differ from those estimates. Material estimates
that are susceptible to near-term changes include the determination of the
allowance for loan losses and the valuation allowance for the deferred tax
asset.
NOTE 2 - ACQUISITIONS
PURCHASE TRANSACTIONS COMPLETED DURING THIRD QUARTER
THE FLEETBOSTON BRANCH ACQUISITION
In November 1999, Webster announced a definitive agreement with FleetBoston
Financial to purchase four Connecticut branches that were being divested as a
result of the Fleet-BankBoston merger. The branches had approximately $163
million in deposit balances at the time of closing and are located in
Brookfield, Guilford, Meriden, and Thomaston. The transaction included the
purchase of deposits and loans for individual and small business customers
associated with these branches. Webster closed the transaction during the third
quarter of 2000.
8
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - SECURITIES
Securities are classified as available for sale, held to maturity or trading.
Management determines the appropriate classification of securities at the time
of purchase. Securities are classified as held to maturity when the Company has
the intent and ability to hold the securities to maturity. Held to maturity
securities are stated at amortized cost. Securities classified as trading are
carried at fair value, with net unrealized gains and losses recognized currently
in the income statement. Securities not classified as held to maturity or
trading are classified as available for sale and are stated at fair value.
Unrealized gains and losses, net of tax, on available for sale securities are
included in accumulated other comprehensive income (loss), a separate component
of shareholders' equity. The values at which held to maturity or available for
sale securities are reported are adjusted for amortization of premiums or
accretion of discounts over the estimated terms of the securities using a method
which approximates the level yield method. Such amortization and accretion is
included in interest income from securities. Unrealized losses on securities are
charged to earnings when the decline in fair value of a security is judged to be
other than temporary. The specific identification method is used to determine
realized gains and losses on sales of securities.
A summary of securities follows:
<TABLE>
<CAPTION>
(In thousands) September 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
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 (a) $ -- $ -- $ -- $ -- $ 50,854(b) $ -- $ -- $ 50,854
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes 12,797 -- (154) 12,643 17,070 18 (233) 16,855
U.S. Government Agency 85,397 -- (2,339) 83,058 92,733 -- (4,338) 88,395
Municipal bonds and notes 27,282 23 (629) 26,676 27,591 3 (1,463) 26,131
Corporate bonds and notes 73,898 -- (15,904) 57,994 75,068 -- (9,895) 65,173
Equity securities 187,829 5,206 (5,697) 187,338 201,352 7,684 (11,060) 197,976
Mortgage-backed securities (a) 2,731,179 9,194 (52,690) 2,687,683 2,379,491 6,330 (88,848) 2,296,973
Purchased interest-rate contracts 7,307 -- (1,705) 5,602 10,874 -- (1,792) 9,082
---------- ------- -------- ---------- ---------- ------- --------- ----------
3,125,689 14,423 (79,118) 3,060,994 2,804,179 14,035 (117,629) 2,700,585
---------- ------- -------- ---------- ---------- ------- --------- ----------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes 4,792 -- (41) 4,751 10,396 -- (112) 10,284
U.S. Government Agency -- -- -- -- 1,520 -- (6) 1,514
Municipal bonds and notes 24,063 29 (418) 23,674 24,861 39 (783) 24,117
Corporate bonds and notes 135,416 -- (14,167) 121,249 135,476 405 (12,322) 123,559
Mortgage-backed securities (a) 110,735 410 (2,316) 108,829 143,209 544 (2,945) 140,808
---------- ------- -------- ---------- ---------- ------- --------- ----------
275,006 439 (16,942) 258,503 315,462 988 (16,168) 300,282
---------- ------- -------- ---------- ---------- ------- --------- ----------
Total $3,400,695 $14,862 $(96,060) $3,319,497 $3,170,495 $15,023 $(133,797) $3,051,721
========== ======= ======== ========== ========== ======= ========= ==========
</TABLE>
(a) Mortgage-backed securities, which are guaranteed by FannieMae, Federal Home
Loan Mortgage Corporation and Government National Mortgage Association
represent participating interests in direct pass through pools of mortgage
loans originated and serviced by the issuers of the securities.
(b) Stated at fair value, including the effect of short futures positions.
9
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At September 30, 2000, short-term borrowings through securities sold under
agreements to repurchase totaled $795.3 million. Short-term borrowings through
securities sold under agreements to repurchase averaged approximately $765.3
million during the third quarter and the maximum amount outstanding at month-end
during the third quarter was $855.2 million. Securities underlying the
repurchase transactions held as collateral are primarily U.S. Government agency
securities consisting of FannieMae, Government National Mortgage Association
("GNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") securities.
Securities sold under agreement to repurchase related to Webster's funding
operations are delivered to broker-dealers. Webster also enters into short-term
repurchase agreement transactions directly with commercial and municipal
customers through its Treasury sales desk.
Information concerning short-term borrowings under securities sold under
agreement to repurchase as of September 30, 2000 is summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED BOOK VALUE MARKET VALUE
BALANCE AT AVERAGE AVERAGE OF OF
9/30/00 INTEREST RATE MATURITY DATE COLLATERAL COLLATERAL
------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
$795,279 6.40% less than 1 month $837,166 $824,257
</TABLE>
NOTE 5 - ACQUISITION-RELATED EXPENSES
The following table presents a summary of remaining acquisition-related accrued
liabilities for acquisitions that have been completed and accounted for under
the pooling of interests method:
<TABLE>
<CAPTION>
(In thousands) Derby People's Eagle NECB
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance of acquisition-related accrued liabilities at December 31, 1998 $3,800 $1,600 $1,400 $ --
------------------------------------------------------------------------------------------------------------------------------------
Additions/provisions -- -- -- 9,500
Payments and charges against the liabilities:
Compensation (severance and related costs) -- -- -- (3,000)
Data processing contract termination (700) -- -- (400)
Transaction costs (including investment bankers, attorneys and
accountants) -- -- (50) (1,300)
Writedown of fixed assets and facilities costs (100) (1,100) (400) (700)
Acquisition-related miscellaneous expenses -- (100) (175) (800)
------------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at December 31, 1999 $3,000 $400 $775 $3,300
------------------------------------------------------------------------------------------------------------------------------------
Payments and charges against the liabilities:
Compensation (severance and related costs) -- -- -- --
Data processing contract termination (510) -- -- --
Transaction costs (including investment bankers,
attorneys and accountants) -- -- -- (193)
Writedown of fixed assets and facilities costs (1,462) (145) (456) (233)
Acquisition-related miscellaneous expenses -- -- (22) (1,161)
------------------------------------------------------------------------------------------------------------------------------------
Balance of acquisition-related accrued liabilities at September 30, 2000 $1,028 $255 $297 $1,713
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The remaining total accrued liability balance of $3.3 million at September 30,
2000 represents, for the most part, an accrual for data processing contract
termination costs payable over future periods and the estimated loss on sale of
excess fixed assets due to consolidation of overlapping branch locations.
NOTE 6 - SHAREHOLDERS' EQUITY
Total equity increased $40.8 million during the third quarter period ended
September 30, 2000. The net increase was primarily attributable to net income of
$31.6 million, a favorable change of $25.1 million of unrealized gains, net
related to the available for sale securities portfolio and $5.2 million from the
exercise of stock options. These increases were partially offset by a reduction
of $13.2 million for the repurchase of Webster common stock and dividend
payments to common shareholders of $7.9 million.
Total equity increased $192.3 million for the nine month period ended September
30, 2000. This increase was primarily due to $86.5 million of net income, $203.4
million related to the MECH Financial, Inc. ("Mechanics") acquisition, stock
option exercises of $12.3 million and a favorable $23.4 million change of
unrealized gains, net on the available for sale securities portfolio. These
increases were partially offset by a reduction of $109.8 million for the
repurchase of Webster common stock, $20.8 million for common stock dividend
payments and $3.6 million for the retirement of Mechanic's common shares held by
Webster.
During the third quarter of 2000, Webster repurchased 558,020 shares of its
common stock. The total cost of the repurchased shares was $13.2 million with an
average per share cost of approximately $23.73. For the nine months ended
September 30, 2000, Webster repurchased 4.9 million shares of its common stock.
The cost of the repurchased stock was $109.8 million with an average per share
cost of approximately $22.36. The repurchased stock was primarily related to a
repurchase program announced in December 1999 for the purchase acquisition of
Mechanics that was closed in June 2000.
NOTE 7 - BUSINESS SEGMENTS
Webster has three segments for purposes of business segment reporting. These
segments include retail banking, business banking and treasury. The
organizational hierarchies that define the business segments are periodically
reviewed and revised. Results may be restated when necessary to reflect changes
in the organizational structure. The following table presents the statement of
operations and total assets for Webster's reportable segments.
11
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Operating income and total assets by business segment are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL BUSINESS TOTAL
(IN THOUSANDS) BANKING BANKING TREASURY SEGMENTS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 67,152 $ 14,242 $ 4,416 $ 85,810
Provision for loan losses 572 2,628 -- 3,200
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 66,580 11,614 4,416 82,610
Noninterest income 23,496 2,242 7,431 33,169
Noninterest expense 53,840 7,499 2,748 64,087
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 36,236 6,357 9,099 51,692
Income taxes 11,978 2,101 3,008 17,087
------------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 24,258 $ 4,256 $ 6,091 $ 34,605
------------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $ 5,695,757 $ 1,648,778 $ 3,912,015 $11,256,550
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
RETAIL BUSINESS TOTAL
(IN THOUSANDS) BANKING BANKING TREASURY SEGMENTS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 68,142 $ 9,099 $ 607 $ 77,848
Provision for loan losses 1,309 936 -- 2,245
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 66,833 8,163 607 75,603
Noninterest income 18,041 1,932 1,930 21,903
Noninterest expense 46,966 5,786 1,685 54,437
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 37,908 4,309 852 43,069
Income taxes 11,896 1,245 298 13,439
------------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 26,012 $ 3,064 $ 554 $ 29,630
------------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $ 4,799,713 $ 1,037,690 $ 3,970,184 $ 9,807,587
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL BUSINESS TOTAL
(IN THOUSANDS) BANKING BANKING TREASURY SEGMENTS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 191,744 $ 36,591 $ 12,778 $ 241,113
Provision for loan losses 1,851 6,749 -- 8,600
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 189,893 29,842 12,778 232,513
Noninterest income 58,137 12,808 20,472 91,417
Noninterest expense 146,440 27,522 6,971 180,933
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 101,590 15,128 26,279 142,997
Income taxes 33,563 5,001 8,677 47,241
------------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 68,027 $ 10,127 $ 17,602 $ 95,756
------------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $ 5,695,757 $ 1,648,778 $ 3,912,015 $11,256,550
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
RETAIL BUSINESS TOTAL
(IN THOUSANDS) BANKING BANKING TREASURY SEGMENTS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 197,302 $ 25,340 $ 4,333 $ 226,975
Provision for loan losses 3,851 2,827 -- 6,678
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 193,451 22,513 4,333 220,297
Noninterest income 50,509 4,410 11,130 66,049
Noninterest expense 131,699 17,168 10,090 158,957
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 112,261 9,755 5,373 127,389
Income taxes 37,014 3,333 1,899 42,246
------------------------------------------------------------------------------------------------------------------------------------
Net income after taxes $ 75,247 $ 6,422 $ 3,474 $ 85,143
------------------------------------------------------------------------------------------------------------------------------------
Total assets at period end $ 4,799,713 $ 1,037,690 $ 3,970,184 $ 9,807,587
</TABLE>
12
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The retail banking segment includes investment and insurance services, 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 banking. The retail banking segment also
includes the Bank's investment in residential real estate loan origination,
servicing and secondary marketing activities. The business banking segment
includes the Bank's investment in commercial and industrial loans and commercial
real estate loans. The business banking segment also includes business deposits,
cash management activities for business banking and all trust activities. The
treasury segment includes the Bank's investment in assets and liabilities
managed by Treasury and includes interest-bearing deposits, investment
securities, Federal Home Loan Bank advances, repurchase agreements and other
borrowings.
During the third quarter of 2000, Webster consolidated its consumer banking and
mortgage lending segments and investment and insurance services into one segment
called retail banking. The trust function that was previously included within
the other segment category was transferred into the business segment.
During the third quarter of 1999, Webster changed its internal funds transfer
pricing methodology, which charges or credits for the source or use of funds.
This change effected net interest income for all reported segments. As a result
of this change in methodology, there was an increase in interest income
allocated to treasury and an increase in interest expense allocated to retail
banking. The allocations are subject to periodic adjustment as the internal
management accounting system is revised and business or product lines within the
segments change. Also, because the development and application of these
methodologies is a dynamic process, the financial results presented may be
periodically revised.
Management allocates indirect expenses to its business segments. These expenses
include administration, finance, operations and other support related functions.
During the third quarter of 1999, as a result of further changes in methodology,
Webster reallocated certain noninterest expenses to retail banking from
treasury. Net income (loss) after taxes for the segments do not include certain
income and expense categories (net of taxes), totaling for the three and nine
month periods ended September 30, 2000, $(3.0) million and $(9.3) million,
respectively, and for the same respective periods in 1999 $(3.2) million and
$(9.4) million, that do not directly relate to segments. The major categories
not included in the segments for the three and nine month periods ended
September 30, 2000, were (on a before-tax basis) $3.5 million and $10.7 million
of capital securities expenses and $1.0 million and $3.1 million of dividend
expenses on the preferred stock of subsidiary corporation for each respective
period. For the three and nine month periods ended September 30, 1999, the major
categories not included in the segments were capital securities expenses of $3.7
million and $11.0 million and $1.0 million and $3.1 million of dividend expenses
on the preferred stock of subsidiary corporation for each respective period.
NOTE 8 - INCOME TAXES
Total income tax expense for the three month periods ended September 30, 2000
and 1999 was $15.6 million and $12.0 million, respectively. Total income tax
expense for the nine month periods ended September 30, 2000 and 1999 was $42.7
million and $37.6 million, respectively. Tax expense for the current year three
and nine month periods is higher than the corresponding prior year periods
primarily due to a higher level of income before taxes. During the first quarter
of 1999, Webster formed a Connecticut Passive Investment Company ("PIC"). PICs
are exempt from state income taxation in Connecticut, and the dividends paid
from a PIC to a related financial institution are also exempt from inclusion in
Connecticut taxable income. Webster Bank qualifies as a financial institution
under the Connecticut statute. The exemption is effective for tax years
beginning on or after January 1, 1999.
13
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - NET INCOME PER COMMON SHARE
The following tables reconcile the components of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
(In thousands, except per share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $31,583 $26,397 $86,501 $75,720
------------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 48,870 45,191 44,947 44,391
------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .65 $ .58 $ 1.92 $ 1.71
------------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income $31,583 $26,397 $86,501 $75,720
------------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 48,870 45,191 44,947 44,391
Potential dilutive common stock:
Options 568 761 513 890
Total weighted-average diluted shares 49,438 45,952 45,460 45,281
------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ .64 $ .57 $ 1.90 $ 1.67
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000 and 1999, options to purchase 1,132,459 and 720,597 shares
of common stock at exercise prices between $24.19 and $35.38 and $26.75 and
$35.38, respectively, were not considered in the computation of diluted
potential common stock for the quarter periods since the options' exercise
prices were greater than the average market price of Webster common stock for
the 2000 and 1999 quarter periods of $23.97 and $26.65, respectively.
At September 30, 2000 and 1999, options to purchase 1,166,253 and 698,597 shares
of common stock at exercise prices between $22.82 and $35.38 and $28.44 and
$35.38, respectively, were also not considered in the computation of diluted
potential common stock for the year-to-date periods since the options' exercise
prices were greater than the average market price of Webster common stock for
the 2000 and 1999 year-to-date periods of $22.71 and $28.35, respectively.
NOTE 10 - 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 $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
14
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. Expense on the securities including amortization of issuance costs,
for the three month periods ended September 30, 2000 and 1999, was $3.5 million
and $3.7 million, respectively, and for the nine month periods ended September
30, 2000 and 1999 was $10.7 million and $11.0 million, respectively.
NOTE 11 - ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("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 by SFAS No. 137, is now effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Upon adoption, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. Early adoption is permitted, however, retroactive application
is prohibited. The Company intends to adopt SFAS No. 133 as of January 1, 2001.
The adoption of this Standard may cause volatility in both the Consolidated
Statement of Income as well as the shareholders' equity section of the
Consolidated Statement of Condition. The impact of this Standard will be
dependent upon the fair value, nature and purpose of the derivative instruments
held by the Corporation as of January 1, 2001. Management has estimated that if
Webster had adopted SFAS No. 133 on September 30, 2000, the initial adoption
would not have had a material effect on Webster's financial statements. However,
these estimates are based on then current market rates and economic conditions,
which are subject to change. The effect of adoption on January 1, 2001 cannot be
estimated with certainty at this time, as it is subject to unknown variables at
that date such as (1) actual derivatives and related hedge positions, (2) market
values of derivatives and related hedged items, and (3) further ongoing
interpretation of SFAS No. 133 by the FASB.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities, an amendment to the SFAS Statement No. 133".
This statement amends the accounting and reporting standards of SFAS No. 133 for
certain derivative instruments and certain hedging activities.
In June 2000, the FASB issued SFAS No. 139, "Recission of FASB Statement No. 53
and amendments to FASB statements No. 63, 89 and 121". This statement shall be
effective for financial statements for fiscal years beginning after December 15,
2000. The changes under this statement pertain to industries other than banking
and therefore, this statement is expected to have no impact on Webster's
financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", a replacement
of SFAS No. 125. SFAS No. 140 addresses implementation issues that were
identified in applying SFAS No. 125. This statement revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. SFAS No. 140 is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
This statement is to be applied prospectively with certain exceptions. Other
than those exceptions, earlier or retroactively application is not permitted.
15
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS
On October 4, 2000, the Bank announced a definitive agreement to sell two
branches of the former Olde Port Bank & Trust located in New Hampshire to
Granite Bank, a New Hampshire state-chartered commercial bank. The Bank acquired
these branches through the New England Community Bancorp acquisition in December
1999. The two branches located in Portsmouth and Hampton employ approximately 23
people and had approximately $44 million in gross loans and deposits at
September 30, 2000.
On October 31, 2000, Webster announced a definitive agreement to purchase a 65%
interest in Duff & Phelps, LLC, an independent privately owned financial advisor
and investment bank headquartered in Chicago, with offices in New York, Los
Angeles and Raleigh-Durham. Duff & Phelps provides expertise in middle-market
mergers and acquisitions, private placements, fairness opinions, valuations,
ESOP and ERISA advisory services, and special financial advisory services. The
firm employs a staff of approximately 90 and will continue to operate under the
Duff & Phelps name. The transaction is expected to close in the fourth quarter
of 2000.
16
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
GENERAL
Webster Financial Corporation ("Webster" or the "Company"), through its
subsidiaries, Webster Bank ("the Bank") and Damman Associates Inc. ("Damman"),
delivers financial services to individuals, families and businesses primarily in
Connecticut. Webster provides business and consumer banking, mortgage,
insurance, trust and investment services through more than 120 banking offices,
200 ATMs and the internet (www.websterbank.com). Webster's online mortgage
subsidiary at www.nowlending.com on the Worldwide Web originates low-cost
mortgages across the United States. Webster Bank was founded in 1935 and
converted from a federal mutual to a federal stock institution in 1986.
FINANCIAL CONDITION
Webster on a consolidated basis at September 30, 2000 and December 31, 1999, had
total assets of $11.3 billion and $9.9 billion, total securities of $3.3 billion
and $3.1 billion, and net loans receivable of $6.9 billion and $6.0 billion,
respectively. Total deposits at the end of September 30, 2000 and December 31,
1999 were $7.0 billion and $6.2 billion and shareholders' equity totaled $828.0
million and $635.7 million, respectively.
Total assets increased $1.3 billion or 13.3% at September 30, 2000 from December
31, 1999. The overall increase is primarily due to purchase acquisitions that
were completed during the current year period, and net increases in net loans of
$838.5 million, available for sale securities of $360.4 million and intangible
assets of $173.7 million. The acquisitions completed during the current year
period contributed $711.2 million of net loans. The increase in investment
securities for the current year period is not related to the acquisitions as the
bulk of acquired securities were sold at the time of acquisition. The increase
in intangible assets primarily reflects goodwill and core deposit intangibles
totaling $180.3 million that were recorded during the current year second and
third quarter periods for the purchase acquisitions of MECH Financial Inc.
("Mechanics"), and branch purchases from The Chase Manhattan Bank ("Chase") and
FleetBoston Corporation ("Fleet").
Total liabilities increased $1.1 billion primarily due to increases in deposits
of $839.8 million and borrowings of $297.3 million. Acquisitions completed
during the current year period contributed net deposits and borrowings of $868.9
million and $327.1 million, respectively. The net increase to total equity of
$192.3 million is primarily due to $199.4 million of common stock issued for
acquisitions during the current year period, net income of $86.5 million, a
reduction of $23.4 million in unrealized losses on the available for sale
securities portfolio and stock option exercise proceeds of $12.3 million which
were offset by $109.8 million for repurchases of Webster common stock, $20.8
million for common stock dividend payments and $3.6 million of charges for the
retirement of Mechanics common stock held by Webster at the time of acquisition.
At September 30, 2000, the assets of Webster, on an unconsolidated basis,
consisted primarily of its investments in the Bank and Damman that totaled
$921.6 million, investment securities of $99.5 million and $40.0 million of cash
and interest-bearing deposits. Primary sources of income to Webster, on an
unconsolidated basis, are dividend payments received from the Bank and interest
and dividends from investment securities. Primary expenses of Webster, on an
unconsolidated basis, are interest expense on borrowings and interest expense
related to the capital securities.
Webster, through its consolidated Bank subsidiary, originates various types of
residential, business and consumer loans. Total gross loans receivable before
the allowance for loan losses were $6.9 billion and $6.1 billion at September
30, 2000 and December 31, 1999, respectively. The Bank offers commercial and
residential permanent and construction mortgage loans, commercial and industrial
loans and various types of consumer loans including home equity lines of credit,
home equity loans and other types of small business and household loans. At
September 30, 2000 and December 31, 1999, residential loans represented the
primary part of Webster's loan portfolio.
17
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The Bank, as part of its strategy to transition its asset base to that of a
commercial bank, places a strong emphasis on originating and developing its
commercial loan portfolio. In order to obtain geographic and industry
diversification within its commercial loan portfolio, the Bank participates in
the specialized lending market. The specialized lending loans are monitored by
the Shared National Credit Program, which was designed to provide efficient and
consistent review and classification, by bank regulatory agencies, of any loan
or loan commitment shared by three or more supervised institutions and totaling
$20 million or more. These bank regulatory agencies include the Board of
Governors of the Federal Reserve System, the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation.
At September 30, 2000 and December 31, 1999, the Bank had $429.0 million and
$297.0 million, respectively, of funded loans in the specialized lending market.
This represented approximately 6% and 5% of the total loan portfolio and 21% and
18% of the commercial loan portfolio at September 30, 2000 and December 31,
1999, respectively. Any additional credit risk, that may result from the
participation in the specialized lending market, will be monitored by the bank's
credit administration department. The Bank, at September 30, 2000 and December
31, 1999, had total loan loss allowances that were 200% and 191% of nonaccrual
loans, respectively. At September 30, 2000, the Bank had one specialized lending
borrower with nonaccrual loans totaling $5.2 million.
A summary of specialized lending follows:
<TABLE>
<CAPTION>
(In thousands) SEPTEMBER 30, 2000 DECEMBER 31, 1999
PRINCIPAL BALANCE PRINCIPAL BALANCE
INDUSTRY COMMITMENTS OUTSTANDING COMMITMENTS OUTSTANDING
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufacturing $177,450 $112,550 $163,706 $ 85,961
Cable 67,828 58,925 69,250 53,042
Wireless Communications 138,269 95,440 74,232 52,771
Radio broadcasting 50,000 32,683 35,000 26,068
Other (a) 206,925 129,026 118,999 78,733
------------------------------------------------------------------------------------------------------------------------------------
Total $640,472 $428,624 $461,187 $296,575
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes environmental, food and service industries and collateralized debt
obligations ("CDOs"). The CDO's had outstanding principal balances of $44.1
million and $38.5 million and outstanding commitments of $47.0 million and $47.0
million at September 30, 2000 and December 31, 1999, respectively.
The Bank's deposits are federally insured by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a Bank Insurance Fund ("BIF") member
institution.
Webster, as a holding company, and the Bank are subject to comprehensive
regulation, examination and supervision by the Office of Thrift Supervision (the
"OTS"), as the primary federal regulator. Webster is also subject to regulation,
examination and supervision by the FDIC as to certain matters. The Bank conducts
trust activities through its wholly owned nationally-chartered trust company
subsidiary which is subject to regulation, examination and supervision by the
Office of the Comptroller of the Currency. Webster's corporate headquarters is
located at Webster Plaza, Waterbury, Connecticut 06702. Its telephone number is
(203) 753-2921. Webster's internet website is: www.websterbank.com.
18
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
ASSET QUALITY
NONACCRUAL ASSETS
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans and aggressively
managing nonaccrual assets. The aggregate amount of nonaccrual assets increased
to $47.9 million at September 30, 2000 from $43.3 million at December 31, 1999
and decreased as a percentage of total assets to .43% at September 30, 2000 from
.44% at December 31, 1999. For the current year nine month period, nonaccrual
loans increased $6.1 million and foreclosed properties decreased $1.5 million.
The increase in nonaccrual loans for the current year period of $6.1 million is
primarily due to a $6.8 million syndicated loan relationship classified as
nonaccrual during the second quarter of 2000. The allowance for loan losses at
September 30, 2000 was $88.9 million and represented 200% of nonaccrual loans
and 1.3% of total gross outstanding loans. Total allowances for nonaccrual
assets of $89.1 million represented 185% of nonaccrual assets. The following
table details nonaccrual assets for the periods presented.
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
SEPTEMBER 30, DECEMBER 31,
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NONACCRUAL ASSETS:
Loans accounted for on a nonaccrual basis:
Residential $ 8,834 $11,490
Commercial 33,529 25,722
Consumer 2,116 1,182
FORECLOSED PROPERTIES:
Residential and Consumer 2,305 2,698
Commercial 1,084 2,210
------------------------------------------------------------------------------------------------------------------------------------
Total $47,868 $43,302
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 72,658 $ 65,201
CHARGE-OFFS:
Residential (1,190) (2,080)
Consumer (1,921) (1,396)
Commercial (1,975) (786)
------------------------------------------------------------------------------------------------------------------------------------
(5,086) (4,262)
RECOVERIES:
Residential 293 697
Consumer 546 213
Commercial 927 815
------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (3,320) (2,537)
Provisions charged to operations 8,600 6,678
Purchase acquisition 10,979 --
Pooling adjustment -- 3,647
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 88,917 $ 72,989
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans outstanding 0.05% 0.04%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Net charge-offs for the current year nine month period totaled $3.2 million as
compared to $2.5 million for the same period in 1999 primarily due to an
increase in commercial loan net charge-offs that was partially offset by lower
residential mortgage loan net charge-offs. The increase in commercial loan net
charge-offs for the current year period is primarily due to a $1.7 million
syndicated loan charge-off in June of 2000. Provision for loan losses expense
for the current year period increased compared to the previous year same period
primarily due to an increase in nonaccrual loans. The increase in the allowance
for loan losses of $15.9 million when the current year balance is compared to
one year earlier is primarily due to the incorporation of an $11.0 million
allowance for loan losses related to the Mechanics acquisition and an $8.6
million provision for the current year period. Management believes that the
allowance for loan losses at September 30, 2000 is adequate to cover expected
losses in the portfolio.
ASSET/LIABILITY MANAGEMENT
Interest-rate risk is the sensitivity of the market value of Webster's
interest-sensitive assets and liabilities and the sensitivity of Webster's
earnings to changes in interest rates over short-term and long-term time
horizons. The primary goal of interest-rate risk management is to control risk
within limits approved by Webster's Board of Directors. Webster's Asset &
Liability Management Committee manages interest-rate risk to maximize net
interest income and net market value over time in changing interest-rate
environments. Management measures interest-rate risk using simulation analyses
with particular emphasis on measuring changes in net market value and net
interest income in different rate environments. Market value is measured as the
net present value of future cash flows.
Simulation analysis incorporates assumptions about balance sheet changes such as
asset and liability growth, loan and deposit pricing and changes due to the mix
of assets and liabilities. Key assumptions relate to the behavior of interest
rates and spreads, fluctuations in product balances, prepayment speeds and decay
rates on deposits. From such simulations, interest-rate risk is quantified and
appropriate strategies are formulated and implemented.
Webster also uses as part of its asset/liability management strategy various
interest-rate contracts including futures and options, interest-rate swaps and
interest-rate caps and floors. Webster utilizes these financial instruments to
manage interest-rate risk by reducing net exposures. 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 counterparty to a
transaction fails to perform according to the terms of the contract. Market risk
is the effect of a change in interest rates on the value of the instruments. The
notional amount of interest-rate financial instruments is the amount upon which
interest and other payments under the contract are based. The notional amount is
not exchanged and therefore, the notional amounts should not be taken as a
measure of credit risk.
Webster holds futures and options positions and interest-rate contracts to
minimize the price volatility of certain assets held as trading securities.
Changes in the market value of these positions are recognized in the
Consolidated Statements of Income in the period for which the change occurred.
20
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following table summarizes the estimated market value of Webster's
interest-sensitive assets and interest-sensitive liabilities at September 30,
2000 and December 31, 1999, and the projected change to market values if
interest rates instantaneously increase or decrease by 100 basis points.
<TABLE>
<CAPTION>
Book Market Estimated Market Value Impact
(Dollars in thousands) Value Value -100 BP +100 BP
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 2000
------------------
Interest Sensitive Assets:
Trading $ -- $ -- $ -- $ --
Non-trading 10,067,577 10,032,754 222,549 (255,549)
Interest Sensitive Liabilities 10,139,530 10,026,621 (152,437) 141,194
Net Impact 70,112 (114,355)
Net Impact as % of interest sensitive assets
0.7% (1.1)%
DECEMBER 31, 1999
-----------------
Interest Sensitive Assets:
Trading $ 50,854 $ 50,854 $ 181 $ (479)
Non-trading 8,780,473 8,695,323 223,137 (256,650)
Interest Sensitive Liabilities 9,219,951 8,838,371 (139,222) 129,373
Net Impact 84,096 (127,756)
Net Impact as % of interest sensitive assets 1.0% (1.5)%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tables above exclude earning assets that are not directly impacted by
changes in interest rates. These assets include equity securities of $187.3
million at September 30, 2000 and $201.4 million at December 31, 1999 and
nonaccrual loans of $44.5 million at September 30, 2000 and $38.4 million at
December 31, 1999 (see "Asset Quality" within the MD&A). Values for mortgage
servicing rights have been included in the tables above as movements in interest
rates affect the valuation of the servicing rights. Equity securities and
nonaccrual assets not included in the above tables are, however, subject to
fluctuations in market value based on other risks. The equity securities at
September 30, 2000 and December 31, 1999 include $124.7 million and $103.9
million, respectively, of FHLB stock which is insensitive to market
fluctuations.
Interest-sensitive assets, net of interest-sensitive liabilities, when impacted
by a minus 100 basis point rate change, result in a favorable $70.1 million
change in net market values for September 30, 2000 compared to a favorable $84.1
million net market value change at December 31, 1999. These changes represent
0.7% of interest-sensitive assets at September 30, 2000 and 1.0% of
interest-rate sensitive assets at December 31, 1999. A plus 100 basis point rate
change results in an unfavorable $114.4 million or 1.1% change at September 30,
2000 compared to an unfavorable $127.8 million or 1.5% change at December 31,
1999.
21
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Based on Webster's asset/liability mix at September 30, 2000, management
estimates that an instantaneous 100 basis point increase in interest rates would
decrease net interest income over the next twelve months by approximately 3.9%.
An instantaneous 100 basis point decline in interest rates would increase net
interest income by approximately 4.3%. These estimates assume that management
takes no action to mitigate any negative effects from changing interest rates.
The market values and net interest income estimates are subject to factors that
could cause actual results to differ. Management believes that Webster's
interest-rate risk position at September 30, 2000, represents a reasonable level
of risk.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined by
regulations adopted by the 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 is currently 4.00% and the Bank's
liquidity ratio at September 30, 2000 exceeded the requirement. Webster Bank
also is 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 nature
of the institution's deposit and loan customers. The OTS considers both an
institution's liquidity ratio as well as safety and soundness issues in
assessing whether an institution has sufficient liquidity.
Liquidity management allows Webster to meet cash needs at a reasonable cost
under various operating environments. Liquidity is actively managed and reviewed
in order to maintain stable cost effective funding to support the balance sheet.
Liquidity comes from a variety of sources such as the cash flow from operating
activities including principal and interest payments on loans and investments,
unpledged securities which can be sold or utilized to secure funding and by
maintaining the ability to attract new deposits. Webster's goal is to maintain a
strong base of core deposits to support its growing balance sheet.
Management monitors current and projected cash needs and adjusts liquidity as
necessary. Webster has a detailed liquidity contingency plan, which is designed
to respond to liquidity concerns in a prompt and comprehensive manner. It is
designed to provide early detection of potential problems and details specific
actions required to address liquidity risks.
Webster is a member of the Federal Home Loan Bank ("FHLB") system and has
additional borrowing capacity from the FHLB of approximately $2.0 billion at
September 30, 2000. At that date, the Bank had FHLB advances outstanding of $2.1
billion compared to $1.7 billion at December 31, 1999.
Webster Preferred Capital Corporation ("WPCC"), a subsidiary of the Bank, is
required to redeem all outstanding shares of its Series A Preferred Stock on
January 15, 2001 that has a redemption value of $40.0 million. WPCC has
sufficient cash to redeem the stock without outside funding. WPCC expects
sufficient cash flow from loan payments to replenish its cash.
Webster's main sources of liquidity at the holding company level are dividends
from the Bank, investment income and net proceeds from capital offerings and
borrowings. The main uses of liquidity are purchases of investment securities,
the payment of dividends to common stockholders, repurchases of Webster's common
stock, and the payment of interest on borrowings and capital securities. There
are certain restrictions on the payment of dividends by the Bank to Webster.
Webster also maintains $120.0 million in revolving lines of credit with
correspondent banks. At September 30, 2000, the total balance outstanding on the
lines of credit was $103.0 million.
22
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
During the third quarter of 2000, Webster repurchased a total of 558,020 shares
of its common stock under a previously announced repurchase program. The total
cost of the repurchased shares was $13.2 million with an average per share cost
of approximately $23.73. The repurchased stock was related to the purchase
acquisition of Mechanics that closed during the second quarter current year
period.
Applicable OTS regulations require the Bank, as a federal savings bank, to
satisfy certain minimum capital requirements, including a leverage capital
requirement and risk-based capital requirements. As an OTS regulated savings
institution, the Bank is also subject to a minimum tangible capital requirement.
At September 30, 2000, the Bank was in full compliance with all applicable
capital requirements.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND
1999.
GENERAL
Net income for the three month period ended September 30, 2000, was $31.6
million or $.64 per diluted share compared to $26.4 million or $.57 per diluted
share for the same period ended September 30, 1999. Net income for the nine
month period ended September 30, 2000 was $86.5 million or $1.90 per diluted
share compared to $75.7 million or $1.67 per diluted share for the previous year
period. In general, higher net income for the current three and nine month
periods was the result of increased net interest income and noninterest income
partially offset by increased operating expenses for the current year periods.
More specifically, these increases are primarily the result of recent business
combinations. Information concerning business combinations is contained within
"Note 2 - Acquisitions" and in the 1999 Annual Report to Shareholders within
"Management's Discussion and Analysis of Financial Condition & Results of
Operations" section and incorporated herein by reference.
NET INTEREST INCOME
Net interest income for the three and nine month periods ended September 30,
2000, amounted to $85.8 million and $241.1 million, respectively, compared to
$77.8 million and $227.0 million for the respective periods in 1999. Total
interest income for the current year three and nine month periods compared to
the same periods in 1999 increased $35.4 million and $60.2 million,
respectively, while increases in total interest expense of $27.5 million and
$46.0 million, respectively, partially offset the increases in total interest
income. Net interest rate spread for the three and nine month periods ended
September 30, 2000 was 3.18% and 3.15%, respectively, as compared to 3.25% and
3.18% for the same periods in the previous year.
INTEREST INCOME
Total interest income for the three and nine month periods ended September 30,
2000 was $197.6 million and $542.2 million, respectively, compared to $162.2
million and $482.0 million in the previous year. The increases in total interest
income for the current year periods are due to both an increase in the volume of
average interest-earning assets and higher yields realized on these earning
assets. When the three month periods ended September 30, 2000 and 1999 are
compared, average loans increased $1.0 billion and the yield increased 62 basis
points over the prior year same period. Investment securities average funds
increased $119.8 million for the current year three month period and the yield
increased 31 basis points over the prior year same period. When the nine month
periods ended September 30, 2000 and 1999 are compared, interest-earning assets
increased $561.1 million and the yield increased 33 basis points for the current
year period. The increase in average assets and yield for the current year nine
month period was primarily attributable to an increase in average loans of
$666.0 million and an increased yield of 36 basis points for the current year
period. Average investment securities decreased during the current year nine
month period, however the related interest income increased as compared to the
previous year same period.
23
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
INTEREST EXPENSE
Total interest expense for the three and nine month periods ended September 30,
2000, was $111.8 million and $301.1 million, respectively, compared to $84.3
million and $255.0 million for the previous year periods. The rate paid on
interest-bearing liabilities for the three and nine months periods ended
September 30, 2000 was 4.38% and 4.22% respectively, as compared to 3.80% and
3.86%, respectively, for the same periods one year earlier. The increase in
total interest expense for the current three and nine month periods as compared
to one year earlier, is primarily due to a higher volume of average
interest-bearing liabilities of $1.3 billion and $702.7 million, respectively,
and higher costs on interest-bearing liabilities, most notably borrowings.
The higher costs on borrowings for the current year periods are primarily the
result of higher yields on FHLB advances that increased approximately 105 and 84
basis points for the three and nine month periods, respectively, and the cost of
repurchase agreements that increased approximately 144 and 109 basis points for
the three and nine month periods, respectively. The increase in borrowing costs
reflect a rising wholesale borrowing cost environment for the current year.
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 SEPTEMBER 30,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans $ 6,927,869 $ 139,867 8.06% $ 5,900,836 $ 110,640 7.44%
Securities 3,413,888 57,733 6.58(a) 3,294,076 51,539 6.27(a)
----------- ----------- ---- ----------- ----------- ----
TOTAL INTEREST-EARNING ASSETS 10,341,757 197,600 7.56 9,194,912 162,179 7.05
----------- -----------
Noninterest-earning assets 889,849 572,709
----------- -----------
TOTAL ASSETS $11,231,606 $ 9,767,621
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits $ 6,977,832 60,376 3.44% $ 6,235,061 49,548 3.15%
Borrowings 3,180,944 51,414 6.43 2,614,916 34,783 5.28
----------- ----------- ---- ----------- ----------- ----
TOTAL INTEREST-BEARING LIABILITIES 10,158,776 111,790 4.38 8,849,977 84,331 3.80
----------- -----------
Noninterest-bearing liabilities 91,865 83,963
----------- -----------
TOTAL LIABILITIES 10,250,641 8,933,940
Capital securities and preferred stock of
subsidiary corporation 199,577 199,577
SHAREHOLDERS' EQUITY 781,388 634,104
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,231,606 $ 9,767,621
=========== ===========
NET INTEREST INCOME $ 85,810 $ 77,848
=========== ===========
INTEREST-RATE SPREAD 3.18% 3.25%
==== ====
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 3.30% 3.36%
==== ====
<FN>
(a) For purposes of this computation, unrealized gains (losses) are excluded from the average rate calculations.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans $ 6,406,198 $ 377,000 7.85 % $ 5,740,223 $ 321,684 7.49
Securities 3,294,119 165,189 6.46 (a) 3,399,011 160,334 6.31 (a)
------------- ---------- ---- ------------ ---------- ----
TOTAL INTEREST-EARNING ASSETS 9,700,317 542,189 7.37 9,139,234 482,018 7.04
---------- ----------
Noninterest-earning assets 774,288 599,650
------------- ------------
TOTAL ASSETS $ 10,474,605 $ 9,738,884
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits $ 6,521,504 $ 162,445 3.33 % $ 6,230,386 153,209 3.29 %
Borrowings 3,014,174 138,631 6.14 2,602,618 101,834 5.23
------------- ---------- ---- ------------ ---------- ----
TOTAL INTEREST-BEARING LIABILITIES 9,535,678 301,076 4.22 8,833,004 255,043 3.86
---------- ----------
Noninterest-bearing liabilities 76,970 87,329
------------- ------------
TOTAL LIABILITIES 9,612,648 8,920,333
Capital securities and preferred stock of
subsidiary corporation 199,577 199,577
SHAREHOLDERS' EQUITY 662,380 618,974
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,474,605 $ 9,738,884
============= ============
NET INTEREST INCOME $ 241,113 $ 226,975
========== =========
INTEREST-RATE SPREAD 3.15 % 3.18 %
==== ====
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 3.27 % 3.32 %
==== ====
<FN>
(a) For purposes of this computation, unrealized gains (losses) are excluded from the average rate calculations.
</FN>
-------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $3.2 million and $8.6 million, respectively,
for the three and nine month periods ended September 30, 2000 compared to $2.2
million and $6.7 million for the same respective periods in 1999. The increase
for 2000 is attributable to the increase in gross loans and a shift within the
loan portfolio to a higher concentration of commercial loans. At September 30,
2000, the allowance for loan losses totaled $88.9 million and represented 200.0%
of nonaccrual loans as compared to $72.7 million and 190.7% respectively, at
December 31, 1999. At September 30, 2000 and December 31, 1999, the allowance
for loan losses represented 1.28% and 1.19% of gross outstanding loans,
respectively.
25
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
NONINTEREST INCOME
Total noninterest income for the three and nine month periods ended September
30, 2000 totaled $33.2 million and $91.4 million, respectively, compared to
$21.9 million and $66.0 million for the same respective periods in 1999. When
the three month periods are compared, increased income for the current period of
$11.3 million is primarily due to an increase of $2.5 million in fees and
service charges, $1.5 million in trust and investment services, $2.0 million in
insurance commissions, $3.4 million in net gains on the sale of securities and
$1.6 million of gains on sale of loans and loan servicing. During the current
year third quarter period, net gains of $2.0 million were realized on the sale
of mortgage servicing rights. When the nine month periods are compared,
increased income for the current period of $25.4 million is primarily due to an
increase of $7.1 million in fees and service charges, $6.9 million in trust and
investment services, $5.4 million of net gains on sale of securities and a $5.5
million increase in insurance commissions. The increase in fees and service
charges, trust and investment services and insurance commissions is due
primarily to an increased customer base, fees generated from expanded insurance,
trust and investments sales and as a result of acquisitions.
NONINTEREST EXPENSES
Total noninterest expenses for the three and nine month periods ended September
30, 2000 totaled $68.6 million and $194.8 million, respectively, compared to
$59.1 million and $173.1 million, respectively, for the same periods in 1999.
The increase in noninterest expenses for the current year third quarter period
as compared to the same period in the previous year is primarily due to
increased compensation and benefits expense of $3.4 million and intangible
amortization expense of $2.9 million. The increase of $21.7 million for the
current year nine month period as compared to the previous year same period is
primarily due to increased expenses for compensation and benefits expense of
$12.7 million, intangible asset amortization expense of $5.3 million and
occupancy and equipment expenses of $5.2 million. The increases in noninterest
expenses for the current year periods are a direct result of recent
acquisitions.
INCOME TAXES
Total income tax expense for the three and nine month periods ended September
30, 2000 were $15.6 million and $42.7 million, respectively, as compared to
$12.0 million and $37.6 million, respectively, for the same periods in 1999. Tax
expenses for the current year periods are higher than the corresponding 1999
periods due to a higher level of income before income taxes. During the first
quarter of 1999, Webster formed a Connecticut Passive Investment Company
("PIC"). PICs are exempt from state income taxation in Connecticut, and the
dividends paid from a PIC to a related financial institution are also exempt
from inclusion in Connecticut taxable income. Webster Bank qualifies as a
financial institution under the Connecticut statute. The exemption is effective
for tax years beginning on or after January 1, 1999.
26
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Securities and Exchange Act of 1934, as amended. Actual results could differ
materially from 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. Some of these and other factors are discussed in
Webster's annual and quarterly reports previously filed with the Securities and
Exchange Commission. Such developments could have an adverse impact on Webster's
financial position and results of operations.
27
<PAGE>
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
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 - Not Applicable.
Item 5 Other Information - Not Applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K filed during Third Quarter Period
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBSTER FINANCIAL CORPORATION
-----------------------------
Registrant
Date: November 9, 2000 By: /s/ Peter J. Swiatek
------------------------------- -----------------------------------
Peter J. Swiatek
Controller and Acting Principal
Financial Officer and
Acting Principal Accounting Officer
29
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
------------ -----------
27 Financial Data Tables.
30
