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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 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
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1187536
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
WEBSTER PLAZA, WATERBURY, CONNECTICUT 06702
(Address of principal executive offices) (Zip Code)
(203) 753-2921
(Registrant's telephone number, including area code)
Not Applicable
(Securities registered pursuant to Section 12(b) of the Act)
Common Stock, $.01 par value
(Securities registered pursuant to Section 12(g) of the Act,
Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Based upon the closing price of the registrant's common stock as of February 28,
2001, the aggregate market value of the voting common stock held by
non-affiliates of the registrant is $1,342,805,066. Solely for purposes of this
calculation, the shares held by directors and executive officers of the
registrant have been excluded because such persons may be deemed to be
affiliates. This reference to affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date is:
Common Stock (par value $ .01) 49,104,678 Shares
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Class Issued and Outstanding at February 28, 2001
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 26, 2001.
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WEBSTER FINANCIAL CORPORATION
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Page
----
Item 1. Business 3
General 3
Business Combinations 3
Lending Activities 5
Investment Activities 8
Trust Activities 9
Insurance Activities 9
Financial Advisory Services 9
Sources of Funds 10
Bank Subsidiaries 11
Employees 11
Market Area and Competition 12
Regulation 12
Taxation 13
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition & Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 29
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 30
Signatures 34
Exhibit Index 36
2
PART I
ITEM 1. BUSINESS
GENERAL
Webster Financial Corporation ("Webster" or the "Company"), through its
subsidiaries, Webster Bank (the "Bank"), Damman Associates, Inc. ("Damman") and
Webster D&P Holdings, Inc. ("Duff & Phelps"), delivers financial services to
individuals, families and businesses primarily in Connecticut and financial
advisory services to public and private companies throughout the United States.
Webster provides business and consumer banking, mortgage lending, trust and
investment services and insurance services through 114 banking offices and other
offices, over 200 ATM's and the internet (www.websterbank.com). Webster's online
mortgage subsidiary Nowlending, LLC, at www.nowlending.com originates
residential mortgages throughout the United States. Webster Bank was founded in
1935 and converted from a federal mutual to a federal stock institution in 1986.
Webster on a consolidated basis at December 31, 2000 and 1999 had total assets
of $11.2 billion and $9.9 billion, total securities of $3.4 billion and $3.1
billion and net loans receivable of $6.8 billion and $6.0 billion, respectively.
At December 31, 2000 and 1999 total deposits were $6.9 billion and $6.2 billion,
respectively. At December 31, 2000 and 1999 shareholders' equity was $890.4
million and $635.7 million, respectively.
At December 31, 2000, the assets of Webster on an unconsolidated basis consisted
primarily of its investments in the Bank, Damman and Duff & Phelps that totaled
$1.0 billion, investment securities of $95.0 million, $40.4 million of cash and
interest-bearing deposits and receivables and other assets of $24.8 million.
Primary sources of income to Webster on an unconsolidated basis are dividend
payments received from the Bank, interest from and gains on sale of investment
securities and income from interest-bearing deposits. Primary expenses of
Webster on an unconsolidated basis are interest expense on borrowings, capital
securities and allocated operating expenses. See Notes 18 and 21 to the
Consolidated Financial Statements.
Deposits in the Bank are federally insured by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a Bank Insurance Fund ("BIF") member
institution and at December 31, 2000, approximately 75% of the Bank's deposits
were subject to BIF assessment rates and 25% were subject to Savings Association
Insurance Fund ("SAIF") assessment rates. See the "Regulation" section under
this item.
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. Webster's
executive offices are located at Webster Plaza, Waterbury, Connecticut 06702.
The telephone number is (203) 753-2921.
BUSINESS COMBINATIONS
POOLING OF INTERESTS TRANSACTION
Since January 1, 1999, Webster has completed one acquisition which was accounted
for under the pooling of interests method of accounting and includes financial
data as if the business combination occurred at the beginning of the earliest
period presented.
THE NECB ACQUISITION
On December 1, 1999, Webster acquired New England Community Bancorp., Inc.,
("NECB"), a multi-bank holding company headquartered in Windsor, Connecticut.
Three of its wholly-owned bank subsidiaries, New England Bank and Trust, Equity
Bank and Community Bank, were located in Connecticut and one, Olde Port Bank and
Trust, was located in New Hampshire. In connection with the merger with NECB,
Webster issued 7,298,788 shares of its common stock for all of the outstanding
shares of NECB's common stock. Under the terms of the merger agreement, each
outstanding share of NECB's common stock was converted into 1.06 shares of
Webster common stock.
3
PURCHASE TRANSACTIONS
The following acquisitions, effective since January 1, 1999, were accounted for
as purchase transactions, and as such, results of operations are included in the
Consolidated Financial Statements subsequent to acquisition.
THE DUFF & PHELPS ACQUISITION
In November 2000, Webster, through its newly formed company Duff & Phelps,
acquired a 65% interest in Duff & Phelps, LLC, a privately-owned company which
has offices in Chicago, New York, Los Angeles, and Raleigh-Durham, NC. 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. Duff & Phelps is expected to add in excess
of $20 million of fee-based revenue on an annual basis, and further accelerates
progress toward the strategic objective of broadening commercial bank product
offerings and increasing revenue from fee-based services.
THE FLEETBOSTON BRANCH ACQUISITION
In August 2000, Webster purchased four Connecticut branches from FleetBoston
Financial Corporation that were divested as the result of the Fleet-BankBoston
merger. The branches had approximately $138 million in deposit balances at the
time of closing and are located in Brookfield, Guilford, Meriden, and Thomaston.
The transaction includes the purchase of deposits and loans for individual and
small business customers associated with these branches. This transaction
strengthened and extended the Bank's retail franchise.
THE MECHANICS ACQUISITION
In June 2000, Webster acquired MECH Financial, Inc. ("Mechanics"), the holding
company for Mechanics Savings Bank, in a non taxable, stock-for-stock exchange.
Mechanics Savings Bank was a state-chartered, Hartford based savings bank with
$1.1 billion in assets and 16 branch offices in the capital region. Based on the
terms of the agreement, Mechanics shareholders received 1.52 shares of Webster
common stock for each share of Mechanics common stock. The acquisition
strengthened Webster's market share in Hartford County, where Webster already
ranked second in deposit market share.
THE CHASE BRANCH ACQUISITION
In May 2000, Webster purchased six Connecticut branches from The Chase Manhattan
Bank, located in Cheshire, Middlebury, North Haven, Waterbury (2) and Watertown
with approximately $135 million in deposit balances. The transaction included
the purchase of consumer deposits, small business deposits and loans, and
brokerage and custody accounts associated with these branches. This transaction
strengthened and extended the Bank's retail franchise.
THE FOLLIS, WYLIE & LANE ACQUISITION AND THE LEVINE ACQUISITION
Webster also actively engaged during 2000 in building a dynamic statewide
insurance operation, purchasing the Louis Levine Agency, Inc. ("Levine") and
Follis Wylie & Lane, Inc. ("Follis"). Webster entered the insurance agency
business in 1998. Webster Insurance offers a full line of commercial and
personal insurance; risk management services; employee benefit plans; life
insurance and annuities, and writes in excess of $180 million in annual
premiums. In April 2000, Webster through its wholly-owned insurance subsidiary
Damman acquired Follis, a privately owned Hamden, Connecticut-based insurance
agency. Follis offers a full range of insurance services, including property and
casualty, life and health. In February 2000, through Damman, Webster acquired
Levine, a privately-owned Waterford and Norwich, Connecticut based insurance
agency. Founded in 1928, the company includes three entities: Louis Levine
Agency, Inc., Levine Financial Services, Inc. and Retirement Planning
Associates, Inc.
THE VILLAGE ACQUISITION
In May 1999, Webster acquired Village Bancorp, Inc. ("Village"), the holding
company for The Village Bank & Trust Company in a non taxable, stock-for-stock
exchange. Village had approximately $215 million in total assets and $200
million in deposits at six branches.
THE MARITIME ACQUISITION
In April 1999, Webster acquired Maritime Bank & Trust Company ("Maritime"), in a
non taxable, stock-for-stock exchange. Maritime had approximately $95 million in
total assets and $85 million in deposits at three branches.
4
THE ACCESS ACQUISITION
In January 1999, Webster completed its acquisition of Access National Mortgage,
Inc. ("Access"). Access was founded in 1996 as a privately held Internet-based
mortgage lender located in Wilmington, Massachusetts. In October 1999, Access
National Mortgage, LLC was renamed Nowlending, LLC. Nowlending, LLC originates
mortgages in 47 states.
SALE TRANSACTION
THE OLDE PORT BANK & TRUST BRANCH SALE
On December 29, 2000, Webster completed the sale of its two branches that were
located in New Hampshire. The branches were sold to Granite Bank, a New
Hampshire state-chartered commercial bank. The branches had approximately $43
million of loans and $39 million of deposits at the date of sale.
PURCHASE TRANSACTIONS SUBSEQUENT TO DECEMBER 31, 2000
THE CENTER CAPITAL ACQUISITION
In March 2001, Webster acquired Center Capital Corporation ("Center Capital"), a
privately-owned Farmington, Connecticut-based equipment financing company with
assets of $260 million. Center Capital finances commercial and industrial
equipment including trucks, tractors, trailers, machine tools and other heavy
equipment through leasing programs to customers throughout the United States.
THE MUSANTE REIHL ACQUISITION
In January 2001, through Damman, Webster acquired Musante Reihl Associates
("Musante"), a privately-owned Cheshire, Connecticut based insurance agency.
Musante specializes in group benefits, long-term care and life insurance, has
seven employees and had revenues of $850,000 in 2000.
LENDING ACTIVITIES
GENERAL
Webster, through its consolidated Bank subsidiary, originates various types of
residential, commercial and consumer loans. Total gross loans receivable before
the allowance for loan losses were $6.9 billion and $6.1 billion at December 31,
2000 and 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 consumer loans. At December
31, 2000 and 1999, residential loans represented 60% and 64% of Webster's loan
portfolio, respectively.
The Bank's middle market lending unit has lending relationships with companies
primarily located in the State of Connecticut with annual sales of $5 to $250
million. This portfolio has grown due to internal growth as well as the
retention of acquired customers. The Bank provides these customers with a
complete array of traditional commercial credit facilities such as lines of
credit, term loans, owner occupied commercial mortgages, asset based lending and
interest-rate protection products. In addition, the Bank provides state of the
art cash management services including automated investments, lock box and
account reconciliation services. In support of customer's international
business, the Bank provides letters of credit and offers them various export
programs of the Ex-Im Bank.
Webster Bank originates construction, construction-to-permanent, and permanent
commercial real estate loans throughout the New England region. At December 31,
2000, outstanding commercial real estate loans totaled $857.0 million, compared
to $741.2 million as of December 31, 1999. The Bank's strategy is to originate
loans with quality income producing real estate as collateral. The Bank develops
relationships with quality regional developers and participates in loans with
selected banks.
Small Business Banking (SBB) provides a full array of loan and deposit products
to small businesses located throughout Connecticut. Webster's SBB target market
is businesses with annual revenues of up to $5 million. This market represents a
significant percentage of commercial businesses located in Connecticut. SBB uses
the Bank's branch network as well as dedicated business development officers to
fully service its existing customer base and call on potential new customers.
5
In addition to personal customer contact, SBB utilizes a variety of direct mail
and telemarketing programs to increase market penetration. SBB also plays a
major role in supporting the Bank's Community Reinvestment Act goals by
providing credit facilities for numerous local not-for-profit organizations. SBB
uses the Fair-Isaac credit scoring model to assist in loan approvals of up to
$250,000 and offers a $50,000 same day line of credit approval program. SBB
provides all commercial loan products including lines of credit, letters of
credit, term loans and mortgages on owner occupied real estate. The unit has a
conservative loan policy and has a fully staffed portfolio management function
to monitor credit quality. As a result of its expansion efforts, SBB serves as a
referral source for other Bank products including cash management, insurance,
international products and investments. The Bank is also a Small Business
Administration ("SBA") preferred lender authorized to offer all SBA loan
guaranty products and is also active in several loan programs provided through
the Connecticut Development Authority.
The Bank, as part of its strategy to expand its commercial loan portfolio, has
formed a specialized lending unit. The specialized lending unit's objective is
to obtain geographic and industry diversification within the overall commercial
loan portfolio by participating in the syndicated lending market. The loans
administered by the specialized lending unit are monitored by the Shared
National Credit Program ("SNCP"). The SNCP is designed to provide consistent
review and classification by bank regulatory agencies of any loan or loan
commitment that totals $20 million or more and is shared by three or more
supervised institutions. 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 December 31, 2000 and 1999, the specialized lending unit administered $439.9
million and $296.6 million, respectively, of funded loans against commitments of
$637.9 million and $461.2 million. This represented approximately 6.4% and 4.9%
of the total loan portfolio at December 31, 2000 and 1999, respectively.
A summary of loans administered by the specialized lending unit follows:
(In thousands)
PRINCIPAL BALANCES OUTSTANDING AT DECEMBER 31,
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INDUSTRY 2000 1999
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Manufacturing $ 128,704 $ 77,031
Wireless Communications 71,706 43,402
Cable 56,163 53,042
Collateralized debt obligations 45,480 38,520
Radio/TV broadcasting 33,146 26,068
Other Telecom (a) 34,306 9,370
Advertising/Publishing 33,067 23,011
All other (b) 37,372 26,131
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Total $ 439,944 $ 296,575
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(a) Includes PCS, CLEC, ICP and Towers
(b) Includes Service, Leisure and Environmental services
In addition to the loans administered by the specialized lending unit, Webster
had $130.5 million of participation loans that are also monitored by the SNCP
against commitments of $198.1 million at December 31, 2000. These participation
loans are located primarily in the Northeast region and represent service
related industrial loans and real estate loans. The loans are funded through
Webster's regional commercial divisions, whose focus is primarily middle market
lending. The SNCP participation loans are distinguished from the specialized
lending unit SNCP loans by being relatively smaller transactions where the Bank
in most cases, has a direct relationship with the borrower.
The Bank's credit administration department monitors credit risk, which includes
risk that may result from the participation in the specialized lending market.
At December 31, 2000, the Bank had one specialized lending borrower with a total
nonaccrual relationship of $5.1 million.
6
The Bank originates both fixed-rate and adjustable-rate residential mortgage
loans. At December 31, 2000, approximately $2.3 billion or 57% of Webster's
total residential mortgage loans were adjustable-rate loans. Webster offers
adjustable-rate mortgage loans at initial interest rates discounted from the
fully indexed rate. Adjustable-rate loans originated during 2000 and 1999, when
fully indexed, will be 2.75% above the constant maturity one-year U.S. Treasury
yield index. At December 31, 2000, approximately $1.8 billion or 43% of
Webster's total residential mortgage loans had a fixed rate. Webster sells
residential mortgage loans in the secondary market in a manner consistent with
its asset/liability management objectives. At December 31, 2000, Webster had
$17.7 million of residential mortgage loans held for sale.
The following table sets forth the composition of the Bank's loan portfolio in
dollar amounts and percentages at the dates shown.
At December 31,
2000 1999 1998
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(Dollars in thousands) Amount % Amount % Amount %
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Residential mortgage loans:
1-4 family units $ 3,778,522 55.41% $ 3,544,060 58.85% $ 3,679,213 66.81%
Construction 302,776 4.44 302,310 5.02 200,417 3.64
Multi-family units 65,482 0.96 52,573 0.87 689 0.01
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Total residential mortgage loans 4,146,780 60.81 3,898,943 64.74 3,880,319 70.46
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Commercial loans:
Commercial non-mortgage 1,207,398 17.70 915,035 15.20 548,734 9.96
Commercial real estate 784,817 11.51 695,520 11.55 548,487 9.96
Commercial construction 72,216 1.06 45,648 0.76 67,717 1.23
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Total commercial loans 2,064,431 30.27 1,656,203 27.51 1,164,938 21.15
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Consumer loans:
Home equity credit loans 609,293 8.93 492,684 8.18 458,981 8.33
Other consumer 89,514 1.32 47,064 0.78 68,081 1.24
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Total consumer loans 698,807 10.25 539,748 8.96 527,062 9.57
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Loans receivable (net of fees
and costs) 6,910,018 101.33 6,094,894 101.21 5,572,319 101.18
Allowance for loan losses (90,809) (1.33) (72,658) (1.21) (65,201) (1.18)
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Loans receivable, net $ 6,819,209 100.00% $ 6,022,236 100.00% $ 5,507,118 100.00%
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At December 31,
1997 1996
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(Dollars in thousands) Amount % Amount %
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Residential mortgage loans:
1-4 family units $ 3,900,224 70.60% $ 3,720,878 70.66%
Construction 117,619 2.13 109,923 2.09
Multi-family units 16,736 0.30 39,257 0.75
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Total residential mortgage loans 4,034,579 73.03 3,870,058 73.50
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Commercial loans:
Commercial non-mortgage 369,658 6.69 328,375 6.24
Commercial real estate 530,080 9.59 525,697 9.98
Commercial construction 58,888 1.07 34,749 0.66
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Total commercial loans 958,626 17.35 888,821 16.88
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Consumer loans:
Home equity credit loans 494,537 8.95 465,220 8.83
Other consumer 108,775 1.97 104,681 1.99
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Total consumer loans 603,312 10.92 569,901 10.82
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Loans receivable (net of fees
and costs) 5,596,517 101.30 5,328,780 101.20
Allowance for loan losses (71,599) (1.30) (63,047) (1.20)
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Loans receivable, net $ 5,524,918 100.00% $ 5,265,733 100.00%
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7
The following table sets forth the contractual maturity and interest-rate
sensitivity of residential and commercial construction mortgage loans and
commercial non-mortgage loans at December 31, 2000. Additionally, at December
31, 2000, the amount of these loans due after one year with fixed interest rates
was $452.3 million and with adjustable or floating rates was $716.4 million.
Contractual Maturity
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One Year One to More Than
(In thousands) or Less Five Years Five Years Total
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CONTRACTUAL MATURITY
Construction loans:
Residential mortgage $ -- $ 302,776 $ -- $ 302,776
Commercial mortgage 38,567 19,486 14,163 72,216
Commercial non-mortgage loans 375,100 469,459 362,839 1,207,398
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Total $ 413,667 $ 791,721 $ 377,002 $ 1,582,390
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INTEREST-RATE SENSITIVITY
Fixed rates $ 32,343 $ 305,743 $ 146,568 $ 484,654
Variable rates 381,324 485,978 230,434 1,097,736
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Total $ 413,667 $ 791,721 $ 377,002 $ 1,582,390
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WHOLESALE LENDING
Webster's wholesale expansion initiative allows Webster to expand outside its
footprint absent the costs associated with retail offices. The Bank anticipates
increased loan origination volume with the use of licensed mortgage brokers
initially throughout the eastern United States. Mortgage loans are approved,
closed, and funded by Webster Bank. The majority of loans are sold in the
secondary market primarily to Fannie Mae, Federal Home Loan Mortgage Corporation
or Government National Mortgage Association as mortgage-backed securities in
order to achieve optimal pricing while not retaining the assets on Webster's
balance sheet. Through the wholesale initiative, Webster Bank also expects to
offer consumer lending and insurance products. These products include equity
loans, equity lines of credit, as well as homeowners and auto insurance.
NONACCRUAL ASSETS AND DELINQUENCIES
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" Item 7 - "Asset Quality" within this report.
INVESTMENT ACTIVITIES
Webster has the authority to acquire, hold and transact various types of
investment securities that are in accordance with applicable federal
regulations, state statutes and within the guidelines of its internal investment
policy. The types of investments that the Bank may invest in include:
interest-bearing deposits of federally insured banks, federal funds, U.S.
government treasuries and agencies including agency mortgage-backed securities
("MBS") and collateralized mortgage obligations ("CMOs"), private issue MBS and
CMOs, municipal securities, corporate debt, commercial paper, banker's
acceptances, structured notes, trust preferred securities, mutual funds and
equity securities subject to restrictions applicable to federally chartered
institutions. The Corporation's asset/liability management objectives also
influence investment activities at both the holding company and Bank. The Bank
is required to maintain liquid assets at regulatory minimum levels, which vary
from time to time. The Bank uses various investments as permitted by regulation
for meeting its liquidity requirement. See "Regulation" section within this
report.
Webster, directly or through its bank subsidiary, maintains an investment
portfolio that is primarily structured to provide a source of liquidity for
operating demands, generate interest income and to provide a means to balance
interest-rate sensitivity. The investment portfolio is classified into three
major categories consisting of: available for sale, held to maturity, and
trading securities.
The Bank uses interest-rate financial instruments within internal policy
guidelines to hedge and manage interest-rate risk as part of its asset/liability
strategy. See Note 10 to the Consolidated Financial Statements within this
report.
8
At December 31, 2000, the combined investment portfolios of Webster and the Bank
totaled $3.4 billion, with $3.3 billion and $95.0 million held by the Bank and
Webster, respectively. At December 31, 2000 and 1999, the Bank's portfolio
consisted primarily of mortgage-backed securities and agency securities. At
December 31, 1999, the combined investment portfolios of the Bank and Webster
totaled $3.1 billion, with $2.9 billion and $118.6 million held by the Bank and
Webster, respectively. At December 31, 2000 and 1999, all of Webster's portfolio
was classified as available for sale and consisted primarily of equity, mutual
funds and corporate trust preferred securities.
The securities and investment portfolio of the Bank and Webster are managed by
the Bank's Treasury Group in accordance with regulatory guidelines and
established internal corporate investment policy. See Note 3 to the Consolidated
Financial Statements within this report.
TRUST ACTIVITIES
The Bank, through its wholly-owned subsidiary, Webster Trust Company, N.A.
("Webster Trust"), manages the assets of and provides a comprehensive range of
trust, custody, estate and administrative services to individuals, small to
medium size companies and not-for-profit organizations (endowments and
foundations). At December 31, 2000 and 1999, there were approximately $1.0
billion and $828.0 million of trust assets held and $706.0 million and $620.0
million of assets under management, respectively.
In 2000 Webster Trust established Webster Financial Advisors ("WFA"), a team of
professionals that offers a full range of financial services for high-net-worth
individuals and institutions. WFA offers clients one comprehensive source for
all their financial needs. Services include investment management, trust and
estate planning, retirement wealth management and tax planning and sophisticated
credit and banking solutions. WFA also offers institutional services to
Connecticut businesses and not-for-profit organizations.
WFA delivers tailored and sophisticated services through professionals who live
and work in Connecticut and who are readily available for in-person
consultations. In addition, WFA has the expertise that business clients and
not-for-profit organizations require for addressing their retirement plan,
foundation and endowment needs. WFA is based in Waterbury and has offices in
several Connecticut communities, including Hartford, Kensington, New Haven,
Westport and Wethersfield.
INSURANCE ACTIVITIES
Webster, through its wholly-owned subsidiary, Damman, offers a full range of
insurance plans to both individuals and businesses. Damman, which operates under
the name Webster Insurance, is a regional insurance brokerage agency with three
operating divisions: individual and family insurance, financial services, and
business and professional insurance. Insurance products and services include:
commercial and personal property and casualty insurance; life, health,
disability and long-term care insurance for individuals and businesses;
annuities and investment products; risk management services; and pension and
401(k) plan administration. Webster Insurance is one of the largest insurance
agencies based in Connecticut and writes in excess of $180 million in annual
premiums with $14.4 million of insurance commissions in 2000.
FINANCIAL ADVISORY SERVICES
In November 2000, Webster, through its newly formed company Duff & Phelps,
acquired a 65% interest in Duff & Phelps, LLC, a privately-owned company which
has offices in Chicago, New York, Los Angeles, and Raleigh-Durham, NC. 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. Duff & Phelps is expected to add in excess
of $20 million of fee-based revenue on an annual basis, and further accelerates
progress toward the strategic objective of broadening commercial bank product
offerings and increasing revenue from fee-based services.
9
SOURCES OF FUNDS
Deposits, loan repayments, securities sales proceeds and maturities, borrowings
and earnings are the primary sources of the Bank's funds available for use in
its lending and investment activities and in meeting its operational needs.
While scheduled loan repayments and securities payments are a relatively stable
source of funds, deposit flows and loan prepayments are influenced by prevailing
interest rates and local economic conditions. The Bank also uses funding from
Federal Home Loan Bank ("FHLB") advances, repurchase agreements and various
other borrowings.
Webster's main sources of liquidity are dividends from the Bank, interest and
dividends on securities and net proceeds from borrowings and capital offerings.
The main outflow of funds are payments of dividends to common stockholders and
interest expense on capital securities, senior notes and other borrowings.
Webster attempts to control the flow of funds in its deposit accounts according
to its need for funds and the cost of alternative sources of funds. Webster
controls the flow of funds primarily by the pricing of deposits, which is
influenced to a large extent by competitive factors in its market area and
asset/liability management strategies.
DEPOSIT ACTIVITIES
The Bank has developed a variety of innovative deposit programs that are
designed to meet depositors needs and attract both short-term and long-term
deposits from the general public. The Bank's checking account programs offer a
full line of accounts with varying features that include noninterest-bearing and
interest-bearing account types. The Bank's savings account programs include
statement and passbook accounts, money market savings accounts, club accounts
and certificate of deposit accounts that offer short and long-term maturity
options. The Bank offers IRA savings and certificate of deposit accounts that
earn interest on a tax-deferred basis. The Bank also offers special rollover IRA
accounts for individuals who have received lump-sum distributions. The Bank's
checking and savings deposit accounts have several features that include: ATM
Card and Check Card use, direct deposit, combined statements, 24-hour automated
telephone banking services, bank by mail services and overdraft protection.
Deposit customers can access their accounts in a variety of ways including ATMs,
Web banking, telephone banking or by visiting a nearby branch. The Bank had
$25.0 million and $50.0 million of brokered certificate of deposits, at December
31, 2000, and 1999, respectively. The decrease in brokered deposits was due to
the maturity of $25.0 million during 2000.
The Bank receives retail and commercial deposits through its 114 full-service
banking offices in Connecticut. The Bank relies primarily on competitive pricing
policies and effective advertising to attract and retain deposits while
emphasizing the objectives of quality customer service and customer convenience.
The WebsterOne account is a banking relationship that affords customers the
opportunity to avoid fees, receive free checks, earn premium rates on savings
and simplify their bookkeeping with one combined account statement that links
account balances. The Bank's Check Card can be used at over eighteen million
Visa merchants worldwide to pay for purchases with money in a linked checking
account. The Check Card also serves as an ATM Card for receiving cash, for
processing deposits and transfers and obtaining account balances 24 hours per
day.
Customer services also include ATM facilities that use state-of-the-art
technology with membership in NYCE and PLUS networks and provide 24-hour access
to linked accounts. The Bank's Internet Banking service allows customers the
ability to transfer money between accounts, review statements, check balances
and pay bills through personal computer use. The Bank's telephone banking
service provides automated customer access to account information 24 hours per
day, seven days per week, and to service representatives at certain established
hours. Customers can transfer account balances, process stop payments and
address changes, place check reorders, open deposit accounts, inquire about
account transactions and request general information about The Bank's products
and services. The Bank's services provide for automatic loan payment features
from its accounts as well as for direct deposit of Social Security, payroll, and
other retirement benefits. See Note 7 to the Consolidated Financial Statements
for deposit information.
BORROWINGS
The FHLB system functions in a reserve credit capacity for savings institutions
and certain other home financing institutions. Members of the FHLB system are
required to own capital stock in the FHLB. Members are authorized to apply for
advances on the security of such stock and certain home mortgages and other
assets (principally securities which are obligations of, or guaranteed by, the
United States Government) provided certain creditworthiness
10
standards have been met. Under its current credit policies, the FHLB limits
advances based on a member's assets, total borrowings and net worth.
The Bank uses long-term and short-term FHLB advances as a source of funding to
meet liquidity and planning needs when the cost of these funds are favorable as
compared to alternate funding sources. At December 31, 2000 and 1999, FHLB
advances totaled $2.4 billion and $1.7 billion and represented 79% and 61%,
respectively, of total outstanding borrowed funds.
Additional funding sources are available to the Bank through securities sold
under agreement to repurchase, purchased federal funds and lines of credit with
correspondent banks. Total other borrowings were $650.2 million and $1.1 billion
at December 31, 2000 and 1999 and represented 21% and 39%, respectively, of
borrowed funds. Outstanding borrowings through securities sold under agreement
to repurchase totaled $489.4 and $943.8 million at December 31, 2000 and 1999,
respectively.
In November 2000, Webster completed a registered offering of $126.0 million of
8.72% Senior Notes due 2007 (the "Senior Notes"). The net proceeds from the note
placement were generated for general corporate purposes. The Senior Notes are
not redeemable prior to the maturity date of November 30, 2007. The senior notes
outstanding as of December 31, 1999, in the amount of $40 million at 8.75%,
originated from a 1993 offering that matured on June 30, 2000.
BANK SUBSIDIARIES
The Bank's investment in its service corporation subsidiary, Webster Investment
Services, Inc., totaled $4.4 million and $1.5 million at December 31, 2000 and
1999, respectively. The activities of this broker-dealer subsidiary consist
primarily of the selling of mutual funds and annuities. Webster Investment
Services plans to introduce new products and services, including asset
management products and various financial planning tools.
The Bank's investment in its trust subsidiary corporation, Webster Trust,
totaled $8.2 and $8.6 million at December 31, 2000 and 1999, respectively. The
trust had approximately $1.0 billion and $828.0 million of trust assets held and
$706.0 million and $620.0 million in assets under management at December 31,
2000 and 1999, respectively.
The Bank's investment in its operating subsidiary corporation, FCB Properties,
Inc., totaled $157,000 and $2.0 million at December 31, 2000 and 1999,
respectively. The primary function of this operating subsidiary is to dispose of
foreclosed properties.
The Bank's investment in its real estate investment trust ("REIT") operating
subsidiary corporation, Webster Preferred Capital Corporation, totaled $917.8
million and $916.7 million at December 31, 2000 and 1999, respectively. The
primary function of the REIT is to provide a cost-effective means of raising
funds, including capital, on a consolidated basis for the Bank. The REIT's
strategy is to acquire, hold and manage real estate mortgage assets.
The Bank's investment in its internet lending subsidiary, Nowlending LLC,
totaled $3.0 million and $2.3 million at December 31, 2000 and 1999,
respectively. The primary function of this subsidiary is to provide an efficient
national network for the origination of residential mortgages through the
internet.
The Bank's investment in its passive investment subsidiary, Webster Mortgage
Investment Corporation totaled $2.5 billion and $2.1 billion at December 31,
2000 and 1999, respectively. The primary function of this subsidiary is to
provide servicing on passive investments, which include loans secured by real
estate. This passive investment company derives additional state income tax
benefits.
EMPLOYEES
At December 31, 2000, Webster had 2,197 employees (including 369 part-time
employees), none of whom were represented by a collective bargaining group.
Webster maintains a comprehensive employee benefit program providing, among
other benefits, group medical and dental insurance, life insurance, disability
insurance, a pension plan, an
11
employee 401(k) investment plan, an employee stock purchase plan and an employee
stock ownership plan. Management considers Webster's relations with its
employees to be good.
MARKET AREA AND COMPETITION
The Bank is headquartered in Waterbury, Connecticut (New Haven County) and
conducts business from its home office in downtown Waterbury and 113 branch
offices that are located in the state of Connecticut. The branches are in
Waterbury, Ansonia, Bethany, Branford, Cheshire, Derby, East Haven, Guilford,
Hamden, Madison, Meriden, Middlebury, Milford, Naugatuck, New Haven, North
Haven, Orange, Oxford, Prospect, Seymour, Southbury, Wallingford and West Haven
(New Haven County); New Milford, Thomaston, Torrington, Watertown and Winsted
(Litchfield County); Brookfield, Danbury, Fairfield, Ridgefield, Shelton,
Stratford, Trumbull, Westport and Wilton (Fairfield County); Avon, Berlin,
Bloomfield, Bristol, Canton, East Hartford, East Windsor, Enfield, Farmington,
Forestville, Glastonbury, Hartford, Kensington, Manchester, New Britain,
Newington, Plainville, Poquonock, Rocky Hill, Simsbury, Southington, South
Windsor, Suffield, Terryville, West Hartford, Wethersfield and Windsor (Hartford
County); Cromwell, Essex, Middletown and Old Saybrook (Middlesex County); Old
Lyme (New London County) and Ellington, Somers and Vernon (Tolland County).
Waterbury is approximately 30 miles southwest of Hartford and is located on
Route 8 midway between Torrington and the New Haven and Bridgeport metropolitan
areas. Most of the Bank's depositors live, and most of the properties securing
its mortgage loans are located, in the same area or the adjoining counties. The
Bank's market area has a diversified economy with the workforce employed
primarily in manufacturing, financial services, healthcare, industrial and
technology companies.
The Bank faces substantial competition for deposits and loans throughout its
market areas. The primary factors stressed by the Bank in competing for deposits
are interest rates, personalized services, the quality and range of financial
services, convenience of office locations, automated services and office hours.
Competition for deposits comes primarily from other savings institutions,
commercial banks, credit unions, mutual funds and other investment alternatives.
The primary factors in competing for loans are interest rates, loan origination
fees, the quality and range of lending services and personalized service.
Competition for origination of first mortgage loans comes primarily from other
savings institutions, mortgage banking firms, mortgage brokers, commercial banks
and insurance companies. The Bank faces competition for deposits and loans
throughout its market area not only from local institutions but also from
out-of-state financial institutions which have opened loan production offices or
which solicit deposits in its market area.
Webster Trust has offices located in Kensington, New Haven, Waterbury, Westport
and Wethersfield, Connecticut. Webster Investment Services is headquartered in
Bristol, Connecticut with offices located throughout Webster's branch network.
Webster Insurance has offices in Cheshire, East Hartford, Norwich, Wallingford,
Westport and Waterford, Connecticut. Duff & Phelps has offices in Chicago, New
York, Los Angeles and Raleigh-Durham.
REGULATION
Webster, as a savings and loan holding company, and Webster Bank, as a federally
chartered savings bank, are subject to extensive regulation, supervision and
examination by the OTS as their primary federal regulator. Webster Bank is also
subject to regulation, supervision and examination by the FDIC and as to certain
matters by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). See Management's Discussion and Analysis of Financial Condition
& Results of Operations and Notes to the Consolidated Financial Statements
within this report as to the impact of certain laws, rules and regulations on
the operations of the Company and the Bank. Set forth below is a description of
certain regulatory developments.
The Bank is subject to substantial regulatory restrictions on its ability to pay
dividends to Webster. Under OTS capital distribution regulations that became
effective in early 1999, provided that as long as the Bank meets the OTS capital
requirements before and after the payment of dividends, the Bank may pay
dividends to Webster, without prior OTS approval, equal to the net income to
date over the calendar year, plus retained net income over the preceding two
years. In addition, the OTS has discretion to prohibit any otherwise permitted
capital distributions on general safety and soundness grounds, and must be given
30 days' advance notice of all capital distributions, during which time it may
object to any proposed distribution.
12
Legislation, adopted in December 2000, deleted the provisions of the Home
Owners' Loan Act that required federal savings banks to hold a specific
percentage of liquid assets. It is anticipated that the OTS will revise its
liquidity regulations to conform to the legislative changes.
This legislation also made revisions to the Home Owners' Loan Act that will
allow savings and loan holding companies such as Webster to acquire
non-controlling interests of up to 24.9% in another savings association or
savings and loan holding company, subject to receiving the prior approval of the
OTS. Webster does not have any plans to make such an acquisition at this time.
TAXATION
FEDERAL INCOME TAXES
Webster, on behalf of itself and its subsidiaries, files a calendar tax year
consolidated federal income tax return, except for the Bank's REIT subsidiary
and Duff & Phelps, LLC, which file stand alone returns. Webster and its
subsidiaries report income and expenses using the accrual method of accounting.
Tax law changes were enacted in August 1996 to eliminate the thrift bad debt
method of calculating bad debt deductions for tax years after 1995 and to impose
a requirement to recapture into taxable income (over a six-year period) all bad
debt reserves accumulated after 1987. Since Webster previously recorded a
deferred tax liability with respect to these post-1987 reserves, its total tax
expense for financial reporting purposes will not be affected by the recapture
requirement. The tax law changes also provide that taxes associated with the
recapture of pre-1988 bad debt reserves would become payable under more limited
circumstances than under prior law. Under the tax laws, as amended, events that
would result in recapture of the pre-1988 bad debt reserves include stock and
cash distributions to the holding company from the Bank in excess of specified
amounts. Webster does not expect such reserves to be recaptured into taxable
income. At December 31, 2000 and 1999, Webster had pre-1988 reserves of
approximately $50.0 million and $41.0 million, respectively.
Webster will be subject to the alternative minimum tax if such tax is larger
than the regular federal tax otherwise payable. Generally, alternative minimum
taxable income is a taxpayer's regular taxable income, increased by the
taxpayer's tax preference items for the year and adjusted by computing certain
deductions in a special manner which negates the acceleration of such deductions
under the regular federal tax. This amount is then reduced by an exemption
amount and is subject to tax at a 20% rate. In the past, Webster has not
generally paid alternative minimum tax and does not expect to do so for the 2000
year.
Webster's federal income tax returns have been examined by the Internal Revenue
Service or the statute of limitations have expired for tax years through 1996.
Webster and its subsidiaries are under examination by the Internal Revenue
Service for the tax years ended December 31, 1997 and 1998. No significant
changes to the Company's financial statement position are anticipated to result
from these examinations.
STATE 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 legislation exempts PIC's from state income taxation in Connecticut, and
exempts from inclusion in Connecticut taxable income the dividends paid from a
PIC to a related financial institution. Webster Bank qualifies as a financial
institution under the statute, and has organized a PIC that began operations in
the first quarter of 1999. The legislation is effective for tax year beginning
on or after January 1, 1999. Webster's formation of a PIC has reduced its
Connecticut tax expense in 1999 and, as a result of the PIC's formation, a
deferred tax charge was taken in the fourth quarter of 1998. State income
taxation is in accordance with the corporate income tax laws of the State of
Connecticut and other states on an apportioned basis. For the State of
Connecticut, the Corporation and its subsidiaries, exclusive of the REIT
subsidiary and PIC subsidiary, are required to pay taxes under the larger of two
methods but no less than the minimum tax of $250 per entity. Method one is 7.5%
of the year's taxable income (which, with certain exceptions, is equal to
taxable income for federal purposes) or method two (additional tax on capital),
is an amount equal to 3 and 1/10 mills per dollar on its average capital. The
Bank is not required to compute tax under method two.
13
Webster expects to pay no state taxes to Connecticut for the foreseeable future,
due to the operation of its PIC subsidiary. Webster also pays state tax in the
States of Massachusetts and New Hampshire due to having business locations in
New Hampshire and business activity in Massachusetts. Duff & Phelps pays state
taxes in Illinois, California, New York and North Carolina, due to its
investment in Duff & Phelps, LLC. These state taxes are minimal.
ITEM 2. PROPERTIES
At December 31, 2000, Webster had 114 offices, which includes 31 banking
offices, including its main office, in New Haven County, 53 banking offices in
Hartford County, 13 banking offices in Fairfield County, 9 banking offices in
Litchfield County, 4 banking offices in Middlesex County, 3 banking offices in
Tolland County, and 1 banking office in New London County. Of these, 55 offices
are owned and 59 offices are leased. Lease expiration dates range from 1 to 87
years with renewal options of 3 to 35 years. Additionally, the Bank maintains
five trust offices: one in Fairfield County, two in Hartford County and two in
New Haven County.
The total net book value of properties and furniture and fixtures owned and used
for banking and trust offices at December 31, 2000 was $94.3 million. The
following table provides detail for the total book value amount.
At December 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands) Book Value
- ----------------------------------------------------------------------------------------------------------------------------
Land & improvements, net $ 12,325
Buildings & improvements, net 39,112
Leasehold improvements, net 7,060
Furniture & equipment, net 35,766
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 94,263
- ----------------------------------------------------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to its business, to which Webster or any of its
subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Webster is traded on the Nasdaq National Market System under
the symbol "WBST."
The following table shows dividends declared and the market price per share by
quarter for 2000 and 1999. Webster increased its quarterly dividend to $.16 per
share in 2000.
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (PER SHARE)
Cash
Dividends Market Price End of
2000 Declared Low High Period
- -----------------------------------------------------------------------------------------------------------------------------------
Fourth $ .16 $ 21.88 $ 29.63 $ 28.31
Third .16 21.19 27.06 26.94
Second .16 20.19 25.19 22.19
First .14 20.13 24.19 23.00
Cash
Dividends Market Price End of
1999 Declared Low High Period
- -----------------------------------------------------------------------------------------------------------------------------------
Fourth $ .12 $ 21.88 $ 28.75 $ 23.56
Third .12 24.75 28.81 25.50
Second .12 26.19 32.00 27.13
First .11 27.44 31.13 28.88
Webster had approximately 12,437 shareholders of common stock at February 28,
2001. The number of shareholders of record was determined by Webster's stock
transfer agent, American Stock Transfer and Trust Company.
Payment of dividends from the Bank to Webster is subject to certain regulatory
and other restrictions. Payment of dividends by Webster on its stock is subject
to various restrictions, none of which is expected to limit any dividend policy
which the Board of Directors may in the future decide to adopt. Under Delaware
law, Webster may pay dividends out of surplus or, in the event there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the two preceding fiscal years. Dividends may not be paid out of
net profits, however, if the capital of Webster has been diminished to an amount
less than the aggregate amount of capital represented by all classes of issued
and outstanding preferred stock.
OTHER EVENTS
The annual meeting of shareholders of Webster will be held on April 26, 2001.
15
ITEM 6. SELECTED FINANCIAL DATA
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CONDITION
Total assets $ 11,249,508 $ 9,931,744 $ 9,836,029 $ 9,902,775 $ 8,061,569
Loans receivable, net 6,819,209 6,022,236 5,507,118 5,524,918 5,265,733
Securities 3,405,080 3,066,901 3,662,829 3,770,670 2,263,374
Intangible assets 326,142 138,829 83,227 83,731 86,400
Deposits 6,941,522 6,191,091 6,312,974 6,411,505 6,441,412
FHLB advances and other borrowings 3,030,225 2,788,445 2,575,608 2,588,178 963,614
Shareholders' equity 890,374 635,667 626,454 585,603 535,087
OPERATING INCOME
Net interest income $ 326,516 $ 303,513 $ 282,611 $ 285,758 $ 252,643
Provision for loan losses 11,800 9,000 8,103 26,449 15,741
Noninterest income 128,821 92,630 82,638 47,723 56,833
Noninterest expenses:
Acquisition-related expenses -- 9,500 20,993 31,989 500
Other noninterest expenses 267,130 234,961 208,440 197,544 196,686
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 267,130 244,461 229,433 229,533 197,186
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 176,407 142,682 127,713 77,499 96,549
Income taxes 58,116 47,332 49,694 29,887 35,713
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 118,291 95,350 78,019 47,612 60,836
Preferred stock dividends -- -- -- -- 1,149
- -----------------------------------------------------------------------------------------------------------------------------------
Income available to common shareholders $ 118,291 $ 95,350 $ 78,019 $ 47,612 $ 59,687
SIGNIFICANT STATISTICAL INFORMATION
Interest-rate spread 3.16% 3.18% 2.83% 3.18% 3.22%
Net interest margin 3.29 3.32 2.97 3.35 3.40
Return on average shareholders' equity 16.72 15.33 12.82 8.61 11.44
Return on average assets 1.11 0.98 0.77 0.53 0.75
Allowance for loan losses/gross loans 1.31 1.19 1.17 1.28 1.18
Net income per common share:
Basic $ 2.58 $ 2.14 $ 1.72 $ 1.06 $ 1.38
Diluted 2.55 2.10 1.69 1.04 1.32
Dividends declared per common share 0.62 0.47 0.44 0.40 0.33
Dividend payout ratio 24.31% 22.38% 26.04% 38.46% 25.00%
Fee income as a percentage of total revenue 25.20 21.67 17.48 12.81 12.73
Noninterest expenses to average assets 2.51 2.51 2.28 2.57 2.52
Noninterest expenses to average assets,
adjusted (a) 2.11 2.07 1.78 2.04 2.40
Diluted weighted-average shares 46,428 45,393 46,118 45,966 46,434
Book value per common share $ 18.19 $ 14.09 $ 14.02 $ 13.15 $ 12.08
Tangible book value per common share 11.53 11.02 12.16 11.27 10.10
Average shareholders' equity to average assets 6.65% 6.38% 6.04% 6.18% 6.80%
(a) Excludes non-recurring items, intangible amortization, capital securities, preferred dividend and foreclosed property expenses.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For the year 2000, Webster reported net income of $118.3 million, or $2.55 per
diluted common share which exceeded net income of $95.4 million for the previous
year period by $22.9 million or 24%. The improvement for the current year period
was the result of increased net interest income combined with higher noninterest
income that more than offset an increase in operating expenses. The increase in
net interest income primarily reflects an increase of $720.5 million in average
interest-earning assets and higher realized yields for the current year period.
Interest-rate spread was 3.16% and interest margin was 3.29% for the current
year period. Noninterest income reached $128.8 million and increased $36.2
million or 39% when compared to $92.6 million for the previous year period. The
increase in noninterest income was primarily due to increased income from fees,
service charges, commissions and financial advisory services that were $27.0
million over the previous year period. Noninterest expenses compared to the
previous year, excluding $9.5 million of acquisition-related costs, increased
$32.2 million. The increase in noninterest expenses, for the current year period
is primarily the result of purchase acquisitions that were completed during the
2000 year period that increased compensation and benefits expense, occupancy and
furniture and fixture expenses and intangible amortization expense. See Note 2
to the Consolidated Financial Statements for information concerning the purchase
acquisitions.
COMPARISON OF 2000 AND 1999 YEARS
NET INTEREST INCOME
Net interest income before provision for loan losses increased $23.0 million in
2000 to $326.5 million from $303.5 million in 1999. The increase is due
primarily to a higher level of average interest-earning assets and increased
yields on the assets that more than offset the effect of higher interest-bearing
liabilities and higher costs on the liabilities. See "Interest Income" and
"Interest Expense" discussions that follow. Interest-rate spread for 2000 was
3.16% as compared to 3.18% for 1999. The decrease in interest-rate spread was
primarily due to higher costs incurred on time deposits and borrowed funds.
INTEREST INCOME
Total interest income for 2000 amounted to $738.9 million, an increase of $93.1
million or 14.4% when compared to $645.8 million in 1999. The higher interest
income for 2000 was due primarily to an increase in the average volume of loans
and higher yields realized on loans and securities. The average balance on loans
increased $739.2 million in 2000 and the rate earned on loans increased 42 basis
points when 2000 is compared to 1999. The increase on the average balance for
loans is due primarily to higher balances for commercial loans of $458.2 million
and residential mortgages of $188.3 million for 2000. The average balance on
securities decreased $18.7 million in 2000, however the rate earned on the
securities increased 19 basis points when compared to 1999.
INTEREST EXPENSE
Interest expense for 2000 totaled $412.4 million, an increase of $70.1 million
when compared to $342.3 million in 1999. The increased interest expense was due
primarily to higher interest costs on borrowings that increased 92 basis points
for 2000. Average funds for borrowings increased by $410.5 million for 2000 due
primarily to FHLB advances that increased $462.3 million which were offset
partially by lower repurchase agreement borrowings of $43.0 million. Higher
costs on interest-bearing deposits, particularly time deposits, combined with an
average fund increase of $261.8 million were also contributing factors to
increased interest expense in 2000 when compared to 1999.
17
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 or paid by Webster.
Years ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999
Average Average Average Average
(Dollars in thousands) Balance Interest Yields Balance Interest Yields
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net (a) $ 6,541,659 $ 518,315(b) 7.92% $ 5,802,453 $ 435,326(b) 7.50%
Securities and interest-
bearing deposits 3,298,959 220,596 6.49(c) 3,317,708 210,466 6.30(c)
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $ 9,840,618 $ 738,911 7.43% $ 9,120,161 $ 645,792 7.06%
Other assets 799,597 624,963
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $10,640,215 $ 9,745,124
- ----------------------------------------------------------------------------------------------------------------------------------
Savings and escrow $ 1,509,414 $ 31,036 2.06% $ 1,477,856 $ 34,058 2.30%
Money market savings,
NOW and DDA 1,821,948 19,894 1.09 1,519,929 15,185 1.00
Time deposits 3,308,228 173,364 5.24 3,228,480 154,562 4.79
FHLB advances 2,047,743 128,447 6.27 1,585,458 84,498 5.33
Repurchase agreements
and other borrowings 935,629 56,744 6.06 978,581 50,316 5.14
Senior notes 31,142 2,910 9.34 40,000 3,660 9.15
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $ 9,654,104 $ 412,395 4.27% $ 8,830,304 $ 342,279 3.88%
Other liabilities 78,870 93,252
Capital securities and
minority interest 199,577 199,577
Shareholders' equity 707,664 621,991
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income and
interest-rate spread $ 326,516 3.16% $ 303,513 3.18%
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $10,640,215 $ 9,745,124
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 3.29% 3.32%
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ----------------------------------------------------------------------
1998
Average Average
(Dollars in thousands) Balance Interest Yields
- ----------------------------------------------------------------------
Loans, net (a) $ 5,416,531 $ 430,636(b) 7.95%
Securities and interest-
bearing deposits 4,058,354 251,601 6.15(c)
- ----------------------------------------------------------------------
Total interest-earning
assets $ 9,474,885 $ 682,237 7.16%
Other assets 604,943
- ----------------------------------------------------------------------
Total assets $10,079,828
- ----------------------------------------------------------------------
Savings and escrow $ 1,399,519 $ 34,503 2.47%
Money market savings,
NOW and DDA 1,346,043 13,798 1.03
Time deposits 3,651,017 192,880 5.28
FHLB advances 1,675,789 96,140 5.74
Repurchase agreements
and other borrowings 1,049,520 58,645 5.59
Senior notes 40,000 3,660 9.15
- ----------------------------------------------------------------------
Total interest-bearing
liabilities $ 9,161,888 $ 399,626 4.33%
Other liabilities 109,993
Capital securities and
minority interest 199,577
Shareholders' equity 608,370
- ----------------------------------------------------------------------
Net interest income and
interest-rate spread $ 282,611 2.83%
- ----------------------------------------------------------------------
Total liabilities and
shareholders' equity $10,079,828
- ----------------------------------------------------------------------
NET INTEREST MARGIN 2.97%
- ----------------------------------------------------------------------
(a) Interest on nonaccrual loans has been included only to the extent reflected in the Consolidated Statements of Income.
Nonaccrual loans, however, are included in the average balances outstanding.
(b) Includes amortization of net deferred loan costs (net of fees) and premiums (net of discounts) of: $1.5 million, $496,000
and $1.9 million in 2000, 1999 and 1998, respectively.
(c) Unrealized gains (losses) are excluded from the average yield calculations.
18
Net interest income also can be understood in terms of the impact of changing
rates and changing volumes. The following table describes the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have impacted Webster's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rates (changes in rates multiplied by prior volume) and (iii) the net change.
The change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
Years ended December 31, Years ended December 31,
2000 v. 1999 1999 v. 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
(In thousands) Rate Volume Total Rate Volume Total
- ------------------------------------------------------------------------------------------------------------------------------------
Interest on Interest-earning Assets:
Loans $ 25,341 $ 57,648 $ 82,989 $ (17,729) $ 22,419 $ 4,690
Securities 17,737 (7,607) 10,130 6,694 (47,829) (41,135)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 43,078 $ 50,041 $ 93,119 $ (11,035) $ (25,410) $ (36,445)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest on Interest-bearing Liabilities:
Deposits $ 6,891 $ 13,598 $ 20,489 $ (31,096) $ (6,280) $ (37,376)
FHLB advances and other
borrowings 25,962 23,665 49,627 (11,028) (8,943) (19,971)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 32,853 $ 37,263 $ 70,116 $ (42,124) $ (15,223) $ (57,347)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 10,225 $ 12,778 $ 23,003 $ 31,089 $ (10,187) $ 20,902
- ------------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES
The provision for loan losses for 2000 was $11.8 million compared to $9.0
million in 1999. The increase for 2000 is primarily attributable to the increase
in gross loans of $815.1 million and a shift within the loan portfolio to a
higher concentration of commercial loans. The allowance for losses on loans
totaled $90.8 million and represented 221% of nonaccrual loans at December 31,
2000 versus $72.7 million or 189% of nonaccrual loans at December 31, 1999. The
allowance for loan losses to gross loans increased to 1.31% at December 31, 2000
from 1.19% at December 1999, reflecting the changing asset mix.
NONINTEREST INCOME
Noninterest income for 2000 totaled $128.8 million, compared to $92.6 million in
1999. Fees and service charges were $93.9 million in 2000, which was an increase
of $27.0 million, or 40% from 1999 due primarily to revenue related to trust and
investment services, financial advisory services, insurance commissions and
expanded product offerings to Webster's growing customer base. Trust, investment
service and financial advisory services increased $9.2 million to $19.5 million
in 2000 compared to $10.2 million in 1999. Insurance commissions increased $7.2
million or 100%, to $14.4 million in 2000. Gain on the sale of securities
amounted to $8.4 million in 2000 compared to $4.2 million in 1999. The gain on
the sale of deposits of $4.9 million was the result of the sale of two New
Hampshire branches in December 2000. A one-time life insurance benefit of $1.1
million is included in noninterest income for the year 2000.
NONINTEREST EXPENSES
Noninterest expenses for 2000 were $267.1 million compared to $244.5 million in
1999. The 1999 results include acquisition-related expenses totaling $9.5
million related to the NECB acquisition that occurred in December 1999.
Excluding acquisition-related expenses, noninterest expenses for 2000 increased
$32.2 million compared to 1999. The increase in noninterest expense for 2000 is
due primarily to purchase acquisitions that were completed during 2000 that
increased compensation and benefits expense, occupancy and furniture and
equipment expense and intangible amortization expense. Included in noninterest
expenses for 2000 was $1.7 million in non-recurring facilities expenses.
Intangible amortization expense increased $8.6 million to $22.4 million in 2000.
19
INCOME TAXES
Income tax expense for 2000 increased to $58.1 million from $47.3 million in
1999. The increase in income tax expense is due primarily to a $33.7 million
increase in income before taxes. The effective tax rate was 33% for the years
ended December 31, 2000 and 1999.
COMPARISON OF 1999 AND 1998 YEARS
GENERAL
For 1999, Webster reported net income of $95.4 million, or $2.10 per diluted
share. Included in the 1999 results are before-tax acquisition-related expenses
of $9.5 million. Excluding the effect of acquisition-related expenses, net
income for the 1999 year was $102.2 million or $2.25 per diluted share. Net
income for 1998 amounted to $78.0 million or $1.69 per share on a diluted basis.
Included in the 1998 results are before-tax acquisition-related expenses of
$21.0 million and provisions for loan losses of $1.5 million specifically
related to the Eagle acquisition. Also, included in the 1998 results is a
non-recurring net tax expense of $3.2 million. Excluding the effect of
acquisition-related expenses, provisions for loan losses and non-recurring net
tax expense, net income for the 1998 year was $97.0 million or $2.10 per diluted
share.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $20.9 million in
1999 to $303.5 million from $282.6 million in 1998. The increase is primarily
attributable to a reduction of the cost of interest-bearing liabilities. The
cost of interest-bearing liabilities was lower in 1999 due primarily to lower
rates on deposits and borrowings. The average balance for interest-bearing
deposits was $5.6 billion with a yield of 3.63% for 1999 compared to $5.8
billion with a yield of 4.13% for 1998. Interest-rate spread for 1999 increased
to 3.18% compared to 2.83% in 1998.
INTEREST INCOME
Total interest income for 1999 amounted to $645.8 million, a decrease of $36.4
million, or 5.3% compared to $682.2 million in 1998. The lower interest income
for 1999 was due primarily to a decrease in total average interest-earning
assets and lower yields that were partially offset by an increase in net loans.
The yield on the interest-earning assets was 7.06% in 1999 and 7.16% in 1998.
The average balance for investment securities was $3.3 billion with a yield of
6.30% for the 1999 year compared to $4.1 billion with a yield of 6.15% for 1998.
INTEREST EXPENSE
Interest expense for 1999 totaled $342.3 million, a decrease of $57.3 million
compared to $399.6 million in 1998. The lower interest expense for 1999 was due
primarily to a decrease in total interest-bearing liabilities and a lower cost
on these funds. The cost of deposits and borrowings decreased for the 1999
period.
PROVISION FOR LOAN LOSSES
The provision for loan losses for 1999 was $9.0 million compared to $8.1 million
in 1998. The increase for 1999 is attributable to the increase in gross loans
and a shift within the loan portfolio to a higher concentration of commercial
loans. The allowance for losses on loans totaled $72.7 million and represented
189% of nonaccrual loans at December 31, 1999 versus $65.2 million or 212% of
nonaccrual loans at December 31, 1998.
NONINTEREST INCOME
Noninterest income for 1999 totaled $92.6 million compared to $82.6 million in
1998. Fees and service charges were $66.9 million in 1999, an increase of $19.7
million, or 42% from 1998 due primarily to an increase in the customer base and
fees generated as a result of our expanded product offerings, including
insurance and trust and investment services. Gain on the sale of loans and
mortgage loan servicing rights decreased to $4.4 million in 1999 compared to
$5.8 million in 1998, due primarily to the 1998 sale of the credit card
portfolio. Gain on the sale of securities amounted to $4.2 million in 1999
compared to $17.0 million in 1998. Other noninterest income was $9.1 million in
1999, an increase of $2.1 million from $7.0 million in 1998.
NONINTEREST EXPENSES
Noninterest expenses for 1999 were $244.5 million compared to $229.4 million in
1998. Included in the 1999 total are acquisition-related expenses totaling $9.5
million for the NECB acquisition. The 1998 results include acquisition-related
expenses totaling $21.0 million, which include: $17.4 million for the Eagle
acquisition, $3.4 million for the Bank of
20
South Windsor acquisition and $200,000 for the Olde Port acquisition. Excluding
acquisition-related expenses, noninterest expenses for 1999 increased $26.5
million compared to 1998. In 1998, compensation and benefits expense included a
$1.5 million reduction in expenses related to the consolidation of the former
Eagle pension and post-retirement benefits plans into Webster's plans.
INCOME TAXES
Income tax expense for 1999 decreased to $47.3 million from $49.7 million in
1998. The decrease in income tax expense is due to a $3.2 million non-recurring
net tax expense in 1998, related primarily to the formation of a Connecticut
Passive Investment Company and the related reduction in Connecticut income tax
in 1999 (see "Tax Legislation").
FINANCIAL CONDITION
At December 31, 2000, Webster's total assets were $11.2 billion reflecting an
increase of $1.3 billion or 13.3% as compared to total assets of $9.9 billion at
December 31, 1999. The increase in total assets for the current year period was
primarily due to increases in net loans receivable and investment securities of
$797.0 million and $338.0 million, respectively, as compared to balances at
December 31, 1999. At December 31, 2000, Webster's allowance for loan losses
totaled $90.8 million and was 221% of nonaccrual loans and was 1.31% of
outstanding loans. See "Asset Quality" within this section for more information
concerning the allowance for loan losses and delinquencies. Total liabilities
increased $1.1 billion for the current year period primarily due to increases in
deposits and borrowings of $750.4 million and $241.8 million, respectively.
Total equity at December 31, 2000 totaled $890.4 million, which was a $254.7
million increase from $635.7 million at December 31, 1999. Webster Bank's
capital ratios presented in the following table remained strong at December 31,
2000 and exceeded all required regulatory capital ratio levels. See Note 13 to
the Consolidated Financial Statements for information concerning shareholder's
equity.
At December 31, 2000 and 1999, the Bank was in full compliance with all
applicable regulatory capital requirements as detailed below:
OTS Minimum
Actual Capital Requirements Well Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000
Total capital (to risk-weighted assets) $ 773,773 11.45% $ 540,672 8.00% $ 675,839 10.00%
Tier 1 capital (to risk-weighted assets) 689,234 10.20 270,336 4.00 405,504 6.00
Tier 1 capital (to adjusted total assets) 689,234 6.39 431,200 4.00 539,000 5.00
Tangible capital (to adjusted total assets) 686,166 6.37 217,388 2.00 No Requirement
AT DECEMBER 31, 1999
Total capital (to risk-weighted assets) $ 727,399 12.30% $ 473,243 8.00% $ 591,554 10.00%
Tier 1 capital (to risk-weighted assets) 656,561 11.10 236,621 4.00 354,932 6.00
Tier 1 capital (to adjusted total assets) 656,561 6.73 390,374 4.00 487,967 5.00
Tangible capital (to adjusted total assets) 652,439 6.69 195,104 2.00 No Requirement
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 is
currently 4.00% and the Bank's liquidity ratio at December 31, 2000 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 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 AND CAPITAL RESOURCES
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
21
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
December 31, 2000. At that date, the Bank had FHLB advances outstanding of $2.4
billion compared to $1.7 billion at December 31, 1999. See Note 8 to the
Consolidated Financial Statements.
Webster's main sources of liquidity at the holding company level are dividends
from the Bank, investment income and net proceeds from borrowings and capital
offerings. The main uses of liquidity are purchases of available for sale
securities, the payment of dividends to common stockholders, repurchases of
Webster's common stock, and the payment of interest to holders of Webster's
Senior Notes and capital securities. In November 2000, Webster issued $126.0
million of Senior Notes with a fixed rate of 8.72%. See Note 9 to the
Consolidated Financial Statements for further information on the Senior Notes.
There are certain restrictions on the payment of dividends by the Bank to
Webster. See Note 13 to the Consolidated Financial Statements for further
information on dividend restrictions. Webster also maintains $100.0 million in
revolving lines of credit with correspondent banks.
During 2000, Webster repurchased a total of 4,952,814 shares of its common stock
under a repurchase program. See Note 13 to the Consolidated Financial Statements
for further information concerning stock repurchases.
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 December 31, 2000, the Bank was in full compliance with all applicable
capital requirements. See Note 13 to the Consolidated Financial Statements for
further information concerning capital.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
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 the 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.
To a limited degree, Webster also uses 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.
See Notes 3 and 10 to the Consolidated Financial Statements.
22
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.
The following table summarizes the estimated market value of Webster's
interest-sensitive assets and interest-sensitive liabilities at December 31,
2000 and 1999, and the projected change to market values if interest rates
instantaneously increase or decrease by 100 basis points.
Estimated Market Value
Book Market Impact
(Dollars in thousands) Value Value -100 BP +100 BP
- ----------------------------------------------------------------------------------------------------------------------------
2000
Interest Sensitive Assets:
Trading $ 6 $ 6 $ -- $ --
Non-trading 10,111,134 10,166,579 197,377 (232,838)
Interest Sensitive Liabilities 10,011,353 10,033,507 (175,746) 165,869
Net Impact 21,631 (66,969)
Net Impact as % of interest
sensitive assets .21% (.66)%
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 .96% (1.46)%
- ----------------------------------------------------------------------------------------------------------------------------
The tables above exclude interest-earning assets that are not directly impacted
by changes in interest rates. These assets include equity securities of $175.7
million at December 31, 2000 and $198.0 million at December 31, 1999 and
nonaccrual loans of $41.0 million at December 31, 2000 and $38.4 million at
December 31, 1999. 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 include $125.3 million of FHLB stock which is
not sensitive to market fluctuations. The remaining $50.4 million of equity
securities includes $8.2 million of preferred stock and $42.2 million in common
stock at December 31, 2000. See Note 3 to the Consolidated Financial Statements
for further information concerning investment securities. Also see "Asset
Quality" within the MD&A section of this report for further information
concerning nonaccrual loans
Interest-sensitive assets, net of interest-sensitive liabilities, when impacted
by a minus 100 basis point rate change, result in a favorable $21.6 million
change in net market values for 2000 compared to a favorable $84.1 million net
market value change in 1999. These changes represent .21% of interest-sensitive
assets in 2000 and .96% in 1999. A plus 100 basis point rate change results in
an unfavorable $67.0 million or .66% change in 2000 compared to an unfavorable
$127.8 million or 1.46% change in 1999.
Based on Webster's asset/liability mix at December 31, 2000, management
estimates that an instantaneous 100 basis point increase in interest rates would
decrease net interest income over the next twelve months by 3.6% compared to a
3.4% decrease at December 31, 1999. An instantaneous 100 basis point decline in
interest rates would increase net interest income by 0.7% compared to 5.0% at
December 31, 1999. 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 December 31, 2000, represents a reasonable level
of risk.
23
ASSET QUALITY
Nonaccrual assets, loan delinquency and credit losses are considered by Webster
to be key measures of asset quality. Asset quality, accordingly, affects
Webster's determination of the allowance for loan losses. See "Allowance for
Loan Losses" within this section for further loan allowance information.
NONACCRUAL ASSETS
Webster devotes significant attention to maintaining high asset quality through
conservative underwriting standards, active servicing of loans and aggressively
managing nonaccrual assets. Nonaccrual assets, which include nonaccrual loans
and foreclosed properties were $44.3 million and $43.3 million at December 31,
2000 and 1999, respectively. Nonaccrual loans increased $2.6 million in 2000 and
foreclosed properties decreased $1.6 million. The aggregate amount of nonaccrual
assets decreased as a percentage of total assets to .39% at December 31, 2000
from .44% at December 31, 1999. Total allowances for loan losses and nonaccrual
assets of $91.0 million and $72.9 million represented 204% and 167% of
nonaccrual assets, respectively, at December 31, 2000 and 1999.
Nonaccrual loans were $41.0 million at December 31, 2000, compared to $38.4
million at December 31, 1999. The ratio of nonaccrual loans to total loans was
.59% and .63% at December 31, 2000 and 1999, respectively. The allowance for
loan losses at December 31, 2000 was $90.8 million and represented 221% of
nonaccrual loans and 1.3% of total loans. The allowance for loan losses at
December 31, 1999 was $72.7 million and represented 189% of nonaccrual loans and
1.2% of total loans. See "Allowance for Loan Losses" within this section for
further allowance for loan loss information. Interest on nonaccrual loans that
would have been recorded as additional income for the years ended December 31,
2000, 1999 and 1998 had the loans been current in accordance with their original
terms approximated $3.6 million, $3.0 million, and $2.8 million, respectively.
See Note 1 of the "Notes to Consolidated Financial Statements" within this
report for information concerning Webster's nonaccrual loan policy.
The following table details nonaccrual assets for the last five years.
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
NONACCRUAL ASSETS:
Loans accounted for on a nonaccrual basis:
Residential $ 8,842 $ 11,490 $ 12,418 $ 34,731 $ 37,073
Commercial 29,868 25,722 16,449 13,626 18,416
Consumer 2,324 1,182 1,852 3,624 6,143
FORECLOSED PROPERTIES:
Residential and Consumer 2,284 2,698 1,715 8,804 11,099
Commercial 1,011 2,210 3,447 6,335 11,157
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 44,329 $ 43,302 $ 35,881 $ 67,120 $ 83,888
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS PAST DUE 90 DAYS OR MORE AND ACCRUING
The following table shows the Bank's loans ninety days or more past due and
accruing at the periods indicated.
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS PAST DUE 90 DAYS OR MORE AND ACCRUING:
Residential $ -- $ -- $ -- $ -- $ --
Commercial Real Estate -- -- -- -- --
Commercial and Industrial -- 698 1,209 1,060 395
Consumer -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ -- $ 698 $ 1,209 $ 1,060 $ 395
- -----------------------------------------------------------------------------------------------------------------------------------
24
It is Webster's policy that all loans 90 or more days past due are placed in
nonaccruing status. Occasionally, there are circumstances that cause loans to be
placed in the 90 days and accruing category, for example, a matured loan that
will be renewed, or the timing of proper file documentation to effect the
nonaccrual change.
PAST DUE LOANS
The following table sets forth information as to the Bank's loans past due 30-89
days.
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent
Principal of loans Principal of loans Principal of loans Principal of loans
(Dollars in thousands) Balances outstanding Balances outstanding Balances outstanding Balances outstanding
- -------------------------------------------------------------------------------------------------------------------------------
PAST DUE 30-89 DAYS:
Residential $ 20,974 0.30% $ 20,499 0.34% $ 26,727 0.48% $ 31,479 0.56%
Commercial Real Estate 16,101 0.23 11,865 0.19 12,369 0.22 8,686 0.16
Commercial and Industrial 10,883 0.16 7,104 0.12 5,613 0.10 4,061 0.07
Consumer 6,135 0.09 4,746 0.08 6,873 0.13 6,466 0.12
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 54,093 0.78% $ 44,214 0.73% $ 51,582 0.93% $ 50,692 0.91%
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------
1996
- --------------------------------------------------------
Percent
Principal of loans
(Dollars in thousands) Balances outstanding
- --------------------------------------------------------
PAST DUE 30-89 DAYS:
Residential $ 29,826 0.56%
Commercial Real Estate 4,138 0.08
Commercial and Industrial 794 0.01
Consumer 4,074 0.08
- -------------------------------------------------------
Total $ 38,832 0.73%
- -------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
METHODOLOGY
The allowance for loan losses is maintained at a level estimated by management
to provide adequately for probable losses inherent in the loan portfolio.
Probable losses are estimated based upon a quarterly review of the loan
portfolio, loss experience, specific problem loans, economic conditions and
other pertinent factors which, in management's judgment, deserve current
recognition in estimating loan losses. In assessing the specific risks inherent
in the portfolio, management takes into consideration the risk of loss on
Webster's nonaccrual loans, classified loans and watch list loans including an
analysis of the collateral for the loans. Provisions, charged to the business
lines, increase the allowance for loan losses. Webster's allowance for loan
losses at December 31, 2000 and 1999 totaled $90.8 million and $72.7 million,
respectively. Management believes that the allowance for loan losses at December
31, 2000 is adequate to cover expected losses in the portfolio.
Webster's methodology for assessing the appropriateness of the allowance
consists of several key elements. The loan portfolio is segmented into pools of
loans that are similar in type and risk characteristic. These homogeneous pools
are tracked over time and historic delinquency, nonaccrual and loss information
is collected and analyzed. In addition, problem loans are identified and
analyzed individually on a periodic basis to detect specific probable losses.
Webster collects industry delinquency, nonaccrual and loss data using the same
portfolio segments for comparison purposes.
Webster analyzes the data and estimates its probable losses in the portfolio by
calculating formula and specific allowances for nonaccruing loans. The formula
allowance is calculated by applying loss factors to the loan pools and certain
unused commitments, based on the historic default and loss rates, internal risk
ratings, and other risk-based characteristics. Changes in risk ratings, and
other risk factors, from period to period for both performing and nonperforming
loans affect the calculation of the formula allowance. Loss factors are based on
Webster's loss experience, and may be adjusted for significant factors that, in
management's judgment, affect the collectibility of the portfolio as of the
evaluation date. Webster considers the following when determining probable
losses:
o Webster utilizes migration models, which track the dynamic business
characteristics inherent in the specific portfolios. The assumptions
are updated periodically to match changes in the business cycle.
o Pooled loan loss factors (not individually graded loans) are based on
expected net charge-offs. Pooled loans are loans that are homogeneous
in nature, such as residential and consumer loans.
o The loan portfolios are characterized by historical statistics such as
default rates, cure rates, loss in event of default rates and internal
risk ratings.
25
o Webster statistically evaluates the impact of larger concentrations in
the commercial loan portfolio.
o Comparable industry charge-off statistics by line of business, broadly
defined as residential, consumer, home equity & second mortgages,
commercial real estate and commercial & industrial lending, are
utilized as factors in calculating loss estimates in the Webster loan
portfolios.
o Webster reviews actual losses by portfolio segment to validate
estimated future probable losses.
At December 31, 2000, Webster's allowance for loan losses was $90.8 million, or
1.31% of the total loan portfolio, and 221% of total nonaccrual loans. This
compares with an allowance for loan losses of $72.7 million or 1.19% of the
total loan portfolio, and 189% of total nonaccrual loans at December 31, 1999.
The increase in Webster's allowance for loan losses for commercial loans was due
to a reallocation of the loan loss allowance from the residential mortgage
loans. The residential allowance for loan losses were $18.3 million and $25.2
million at December 31, 2000 and December 31, 1999, respectively. The decrease
of $6.9 million in the allowance for loan losses for residential mortgages
reflects a lower estimated requirement based upon the actual losses experienced
over the preceding two years. Management considered the actual loss experience
as part of its decision to reallocate a portion of the residential mortgage loan
loss allowance to the commercial loan loss allowance. In addition, the mix of
the overall loan portfolio changed, which resulted in an increase in commercial
loans. This was due to internal growth and the acquisitions of New England
Community Bank and Mechanics Savings Bank.
A summary of the activity in the allowance for loan losses for the last five
years follows:
For the Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 72,658 $ 65,201 $ 71,599 $ 63,047 $ 69,091
CHARGE-OFFS:
Residential (1,583) (3,246) (13,662) (16,281) (21,218)
Commercial (3,781) (2,376) (4,044) (6,039) (8,895)
Consumer (1,452) (1,784) (3,556) (4,305) (4,350)
- -----------------------------------------------------------------------------------------------------------------------------------
(6,816) (7,406) (21,262) (26,625) (34,463)
RECOVERIES:
Residential 372 838 1,081 4,368 1,103
Commercial 1,571 1,079 2,755 1,697 2,278
Consumer 244 299 302 555 416
- -----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (4,629) (5,190) (17,124) (20,005) (30,666)
Allowances from purchase transactions 10,980 3,647 -- 2,108 8,881
Reclassification of allowance for segregated
asset losses -- -- 2,623 -- --
Provisions charged to operations 11,800 9,000 8,103 26,449 15,741
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 90,809 $ 72,658 $ 65,201 $ 71,599 $ 63,047
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans outstanding 0.1% 0.1% 0.3% 0.4% 0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Net charge-offs for 2000 totaled $4.6 million as compared to $5.2 million for
1999 reflecting a decrease in net charge-offs of $561,000 for the current
period. The decrease was primarily the result of residential and consumer net
charge-offs being $1.5 million lower for 2000 that was partially offset by
commercial loan net charge-offs being $913,000 higher for the current year
period. The increase in the allowance for loan losses of $18.2 million from
December 31, 1999 to 2000 is the result of a provision of $11.8 million, an
allowance of $11.0 million acquired in a purchase acquisition completed during
2000 and net charge-offs of $4.6 million. The $11.0 million increase was
primarily related to the Mechanics purchase acquisition completed in June 2000.
See Item 1 "Business Combinations" under Part I of this report for information
concerning acquisitions completed during 2000. Included in the 1998 charge-offs
were write-downs of $8.6 million related to the bulk sales of $26.3 million of
primarily nonaccrual and delinquent loans. Included in the 1997
26
charge-offs were write-downs of $5.8 million related to a bulk sale of $17.7
million of nonaccrual residential loans and foreclosed properties. The 1998
provisions charged to operations include $1.5 million specifically related to
the acquisition of Eagle.
The following table presents an allocation of the Bank's allowance for loan
losses at the dates indicated and the related percentage of loans in each
category to the Bank's loan receivable portfolio.
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
(Dollars in thousands) Amount loans Amount loans Amount loans Amount loans Amount loans
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end
of period applicable to:
Residential mortgage loans $ 18,321 60.01% $ 25,196 63.97% $ 23,237 69.64% $30,635 72.09% $ 22,397 72.63%
Commercial mortgage loans 20,865 12.40 20,630 12.16 22,309 11.06 17,702 10.52 17,948 10.52
Commercial non-mortgage loans 43,798 17.48 20,566 15.01 13,430 9.85 12,096 6.61 12,923 6.16
Consumer loans 7,825 10.11 6,266 8.86 6,225 9.45 11,166 10.78 9,779 10.69
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 90,809 100.00% $ 72,658 100.00% $ 65,201 100.00% $71,599 100.00% $ 63,047 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASSIFICATION OF ASSETS
Under the OTS' problem assets classification system, a savings institution's
problem assets are classified as "substandard," "doubtful" or "loss"
(collectively "classified assets"), depending on the presence of certain
characteristics. An asset is considered "substandard" if inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard" with the added
characteristic that the weaknesses that are present make "collection or
liquidation in full" on the basis of currently existing facts, conditions and
values, "highly questionable and improbable." Assets classified "loss" are those
considered "uncollectible" and of such little value that to continue to report
them as assets without the establishment of a specific loss reserve is not
warranted. In addition, assets that do not currently warrant classification in
one of the foregoing categories but which are deserving of management's close
attention are designated as "special mention" assets.
When an insured institution classifies problem assets as either "substandard" or
"doubtful," it is required to establish general allowances for loan losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS which can order the establishment of additional
valuation allowances.
At December 31, 2000, the Bank's classified loans totaled $78.3 million,
consisting of $71.9 million in loans classified as "substandard," of which $31.0
million are commercial loans that are accruing interest, $6.4 million in loans
classified as "doubtful" and none classified as "loss". At December 31, 1999,
the Bank's classified loans totaled $40.0 million, consisting of $38.3 million
in loans classified as "substandard," $1.7 million in loans classified as
"doubtful" and none classified as "loss."
At December 31, 2000, the Bank had $17.3 million of potential problem loans or
commitments in its commercial loan portfolio for which management has doubts as
to the ability of such borrowers to comply with present repayment terms or
commitment conditions.
27
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a banking institution are monetary in nature. As a result,
interest rates have a more significant impact on Webster's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services.
RECENT FINANCIAL 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" (the "Standard"). 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. 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. The Company adopted SFAS No. 133 and
the related amendments on January 1, 2001. The effect of adoption was
approximately a $3 million, net of taxes, charge to earnings on January 1, 2001.
On January 1, 2001, in accordance with the provisions of SFAS No. 133, Webster
reclassified all held to maturity securities as available for sale securities.
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 retroactive application is not permitted.
TAX LEGISLATION
Federal tax law changes were enacted in August 1996 to eliminate the "thrift bad
debt" method of calculating bad debt deductions for tax years after 1995 and to
impose a requirement to recapture into taxable income (over a six-year period)
all bad debt reserves accumulated after 1987. Since Webster previously recorded
a deferred tax liability with respect to these post 1987 reserves, its total
income tax expense for financial reporting purposes will not be affected by the
recapture requirement. The tax law changes also provide that taxes associated
with the recapture of pre-1988 bad debt reserves would become payable under more
limited circumstances than under prior law. Under the tax laws, as amended,
events that would result in recapture of the pre-1988 bad debt reserves include
stock and cash distributions to the holding company from the Bank in excess of
specified amounts. Webster does not expect such reserves to be recaptured into
taxable income.
28
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 legislation exempts PICs 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 statute, and has organized a PIC
that began operations in the first quarter of 1999. The legislation is effective
for tax years beginning on or after January 1, 1999. Webster's formation of a
PIC has reduced its Connecticut tax expense in 1999 and, as a result of the
PIC's formation, a deferred tax charge was taken in the fourth quarter of 1998.
FORWARD LOOKING STATEMENTS
This annual report contains 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market risk
appears under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on pages 22 through 23 under the caption
"Asset/Liability Management and Market Risk".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Pages F-1 through F-43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and executive officers of the Corporation is
omitted from this report as the Corporation has filed its definitive proxy
statement within 120 days after the end of the fiscal year covered by this
Report, and the information included therein is incorporated herein by
reference.
29
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers and directors is
omitted from this Report as the Corporation has filed a definitive proxy
statement within 120 days after the end of the fiscal year covered by this
Report, and the information included therein (excluding the Personnel Resources
Committee Report on Executive Compensation and the Comparative Company
Performance information) is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is omitted from this Report as the Corporation
has filed a definitive proxy statement within 120 days after the end of the
fiscal year covered by this Report, and the information included therein is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is omitted
from this Report as the Corporation has filed a definitive proxy statement
within 120 days after the end of the fiscal year covered by this Report, and the
information included therein is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The Consolidated Financial Statements of Registrant and its subsidiaries
are included within Item 8 of Part II of this report.
(a)(2) All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) The following exhibits are either filed as part of this Report or are
incorporated herein by reference; references to First Federal Bank now mean
Webster Bank:
EXHIBIT NO. EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.1 Second Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Corporation's Annual Report on Form 10-K
filed within the SEC on March 29, 2000 and incorporated
herein by reference).
3.2 Certificate of Amendment (filed as Exhibit 3.2 to the
Corporation's Annual Report on Form 10-K filed with the SEC
on March 29, 2000 and incorporated herein by reference).
3.3 Bylaws, as amended (filed as Exhibit 3 to the Corporation's
Registration Statement on Form S-8 filed with the SEC on
July 25, 2000 and incorporated herein by reference).
Exhibit No. 4 Instruments Defining the Rights of Security Holders.
4.1 Specimen common stock certificate (filed as Exhibit 4.1 to
the Corporation's Registration Statement on Form S-3 (File
No. 333-81563) filed with the SEC on June 25, 1999 and
incorporated herein by reference).
30
4.2 Rights Agreement, dated as of February 5, 1996, between the
Corporation and Chemical Mellon Shareholder Services, L.L.C.
(filed as Exhibit 1 to the Corporation's Current Report on
Form 8-K filed with the SEC on February 12, 1996 and
incorporated herein by reference).
4.3 Amendment No. 1 to Rights Agreement, entered into as of
November 4, 1996, by and between the Corporation and
ChaseMellon Shareholder Services, L.L.C. (filed as an
exhibit to the Corporation's Current Report on Form 8-K
filed with the SEC on November 25, 1996 and incorporated
herein by reference).
4.4 Amendment No. 2 to Rights Agreement, entered into as of
October 30, 1998, between the Corporation and American Stock
Transfer & Trust Company (filed as Exhibit 1 to the
Corporation's Current Report on Form 8-K filed with the SEC
on October 30, 1998 and incorporated herein by reference).
Exhibit No. 10. Material Contracts.
10.1 1986 Stock Option Plan, of Webster Financial Corporation
(filed as Exhibit 10(a) to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1986 and
incorporated here in by reference).
10.2 Amendment to [1986] Stock Option Plan (filed as Exhibit 10.3
to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference).
10.3 Mechanics Savings Bank 1996 Officer Stock Plan (filed as
Exhibit 10.1 of MECH Financial, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated
herein by reference).
10.4 Amendment No. 1 to Mechanics Savings Bank 1996 Officer Stock
Option Plan (filed as Exhibit 4.1 (b) of MECH Financial
Inc.'s Registration Statement on Form S-8 as filed with the
SEC on April 2, 1998 and incorporated herein by reference).
10.5 Mechanics Savings Bank 1996 Director Stock Option Plan
(incorporated by reference to Exhibit 10.2 of MECH
Financial, Inc.'s Annual Report on Form 10-K filed with the
SEC on March 30, 1998 and incorporated herein by reference).
10.6 Amendment No.1 to Mechanics Savings Bank 1996 Director Stock
Option Plan (filed as Exhibit 4.2 (b) of MECH Financial,
Inc.'s Registration Statement on Form S-8 as filed with the
SEC on April 2, 1998 and incorporated herein by reference).
10.7 New England Community Bancorp, Inc., 1997 Non-Officer's
Directors' Stock Option Plan (filed as Exhibit 4.1 of New
England Community Bancorp, Inc.'s Registration Statement on
Form S-8 as filed with the SEC on October 6, 1998 and
incorporated herein by reference).
10.8 1992 Stock Option Plan, as amended (filed as Exhibit 99.2 to
the Corporation's Registration Statement on Form S-8, filed
with the SEC on October 25, 2000 and incorporated herein by
reference).
10.9 Economic Value Added Incentive Plan (the description of the
plan in the last paragraph that begins on page 17 of the
Corporation's definitive proxy materials for the 2000 Annual
Meeting of Shareholders is incorporated herein by
reference).
10.10 Performance Incentive Plan (filed as Exhibit A to the
Corporation's definitive proxy materials for the
Corporation's 1996 Annual Meeting of Shareholders and
incorporated herein by reference).
31
10.11 Amendment to Webster Financial Corporation Performance
Incentive Plan as amended and restated effective January 1,
1996 (filed as Exhibit 10.11 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference).
10.12 Amended and Restated Deferred Compensation Plan for
Directors and Officers of Webster Bank (filed as Exhibit
10.12 to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and incorporated
herein by reference).
10.13 First Amended and Restated Directors Retainer Fees Plan
(filed as Exhibit 10.3 to the Corporation's Quarterly Report
on Form 10-Q filed with the SEC on August 14, 1998 and
incorporated herein by reference).
10.14 Supplemental Retirement Plan for Employees of First Federal
Bank, as amended and restated effective as of October 1,
1994 (filed as Exhibit 10.26 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.15 Amendment No. 1 to the Supplemental Retirement Plan for
Employees of First Federal Bank (filed as Exhibit 10.15 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and incorporated herein by
reference).
10.16 Amendment No. 2 to the Supplemental Retirement Plan for
Employees of First Federal Bank (filed as Exhibit 10.16 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and incorporated herein by
reference).
10.17 Amendment No. 3 to the Supplemental Retirement Plan for
Employees of Webster Bank (filed as Exhibit 10.17 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and incorporated herein by
reference).
10.18 Qualified Performance-Based Compensation Plan (filed as
Exhibit A to the Corporation's definitive proxy materials
for the Corporation's 1998 Annual Meeting of Shareholders
and incorporated herein by reference).
10.19 Employee Stock Purchase Plan (filed as Appendix A to the
Company's Definitive Proxy Statement filed with the SEC on
March 23, 2000).
10.20 Employment Agreement, dated as of January 1, 1998, among
James C. Smith, the Corporation and Webster Bank (filed as
Exhibit 10.27 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule 10.27 to that
(Exhibit 10.27) for a list of other executive officers of
the Corporation and Webster Bank who have an Employment
Agreement substantially identical in all material respects
to the Employment Agreement of Mr. Smith, except as to the
name of the executive who is a party to the agreement and as
otherwise indicated on Schedule 10.27).
10.21 Amendment to Employment Agreement, entered into as of March
17, 1998, by and among Webster Bank, the Corporation and
James C. Smith (filed as Exhibit 10.28 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference; see
Schedule 10.28 to that (Exhibit 10.28) for a list of other
executive officers of the Corporation and Webster Bank who
have an Amendment to Employment Agreement substantially
identical in all material respects to the Amendment to
Employment Agreement of Mr. Smith, except as to the name of
the executive who is a party to the agreement).
10.22 Change of Control Employment Agreement, dated as of December
15, 1997, by and between the Corporation and James C. Smith
(filed as Exhibit 10.29 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule
32
10.29 to that (Exhibit 10.29) for a list of other executive
officers of the Corporation who have a Change of Control
Employment Agreement substantially identical in all material
respects to the Change of Control Employment Agreement of
Mr. Smith, except as to the name of the executive who is a
party to the agreement).
10.23 Purchase and Assumption Agreement, dated as of October 2,
1992, among the Federal Deposit Insurance Corporation (the
"FDIC"), in its corporate capacity as receiver of First
Constitution Bank, the FDIC and First Federal Bank (filed as
Exhibit 2 to the Corporation's Current Report on Form 8-K
filed with the SEC on October 19, 1992 and incorporated
herein by reference).
10.24 Amendment No. 1 to Purchase and Assumption Agreement, made
as of August 8, 1994, by and between the FDIC, the FDIC as
receiver of First Constitution Bank, and First Federal Bank
(filed as Exhibit 10.36 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.25 Indenture, dated as of June 15, 1993, between the
Corporation and Chemical Bank, as trustee, relating to the
Corporation's 8 3/4% Senior Notes due 2000 (filed as Exhibit
99.5 to the Corporation's Current Report on Form 8-K/A filed
with the SEC on November 10, 1993 and incorporated herein by
reference).
10.26 Junior Subordinated Indenture, dated as of January 29, 1997
between the Corporation and The Bank of New York, as
trustee, relating to the Corporation's Junior Subordinated
Deferrable Interest Debentures (filed as Exhibit 10.41 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
Exhibit No. 21 Subsidiaries.
Exhibit No. 23 Consent of KPMG L.L.P.
(b) Reports on Form 8-K
No reports were filed for the fourth quarter period ending December
31, 2000.
(c) Exhibits to this Form 10-K are attached or incorporated herein
by reference as stated above.
(d) Not applicable.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, as of
March 1, 2001.
WEBSTER FINANCIAL CORPORATION
By /s/ James C. Smith
------------------------------------
James C. Smith
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of March 1, 2001.
Name: Title:
----- ------
/s/ James C. Smith Chairman and Chief Executive Officer
-------------------------------- (Principal Executive Officer)
James C. Smith
/s/ Peter J. Swiatek Controller
-------------------------------- (Acting Principal Financial Officer and
Peter J. Swiatek Acting Principal Accounting Officer)
/s/ Richard H. Alden Director
--------------------------------
Richard H. Alden
/s/ Achille A. Apicella Director
--------------------------------
Achille A. Apicella
/s/ Joel S. Becker Director
--------------------------------
Joel S. Becker
/s/ O. Joseph Bizzozero, Jr. Director
--------------------------------
O. Joseph Bizzozero, Jr.
/s/ George T. Carpenter Director
--------------------------------
George T. Carpenter
34
/s/ John J. Crawford Director
--------------------------------
John J. Crawford
/s/ Robert A. Finkenzeller Director
--------------------------------
Robert A. Finkenzeller
/s/ Edgar C. Gerwig Director
--------------------------------
Edgar C. Gerwig
/s/ P. Anthony Giorgio Director
--------------------------------
P. Anthony Giorgio
/s/ C. Michael Jacobi Director
--------------------------------
C. Michael Jacobi
/s/ John F. McCarthy Director
--------------------------------
John F. McCarthy
/s/ Michael G. Morris Director
--------------------------------
Michael G. Morris
/s/ Sister Marguerite F. Waite Director
--------------------------------
Sister Marguerite F. Waite
35
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- --------------------------------------------------------------------------------
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.2 Second Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Corporation's Annual Report on Form 10-K
filed within the SEC on March 29, 2000 and incorporated
herein by reference).
3.2 Certificate of Amendment (filed as Exhibit 3.2 to the
Corporation's Annual Report on Form 10-K filed with the SEC
on March 29, 2000 and incorporated herein by reference).
3.3 Bylaws, as amended (filed as Exhibit 3 to the Corporation's
Registration Statement on Form S-8 filed with the SEC on
July 25, 2000 and incorporated herein by reference).
Exhibit No. 4 Instruments Defining the Rights of Security Holders.
4.1 Specimen common stock certificate (filed as Exhibit 4.1 to
the Corporation's Registration Statement on Form S-3 (File
No. 333-81563) filed with the SEC on June 25, 1999 and
incorporated herein by reference).
4.2 Rights Agreement, dated as of February 5, 1996, between the
Corporation and Chemical Mellon Shareholder Services, L.L.C.
(filed as Exhibit 1 to the Corporation's Current Report on
Form 8-K filed with the SEC on February 12, 1996 and
incorporated herein by reference).
4.3 Amendment No. 1 to Rights Agreement, entered into as of
November 4, 1996, by and between the Corporation and
ChaseMellon Shareholder Services, L.L.C. (filed as an
exhibit to the Corporation's Current Report on Form 8-K
filed with the SEC on November 25, 1996 and incorporated
herein by reference).
4.5 Amendment No. 2 to Rights Agreement, entered into as of
October 30, 1998, between the Corporation and American Stock
Transfer & Trust Company (filed as Exhibit 1 to the
Corporation's Current Report on Form 8-K filed with the SEC
on October 30, 1998 and incorporated herein by reference).
Exhibit No. 10. Material Contracts.
10.1 1986 Stock Option Plan, of Webster Financial Corporation
(filed as Exhibit 10(a) to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1986 and
incorporated here in by reference).
10.2 Amendment to [1986] Stock Option Plan (filed as Exhibit 10.3
to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference).
10.3 Mechanics Savings Bank 1996 Officer Stock Plan (filed as
Exhibit 10.1 of MECH Financial, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated
herein by reference).
10.4 Amendment No. 1 to Mechanics Savings Bank 1996 Officer Stock
Option Plan (filed as Exhibit 4.1 (b) of MECH Financial
Inc.'s Registration Statement on Form S-8 as filed with the
SEC on April 2, 1998 and incorporated herein by reference).
10.5 Mechanics Savings Bank 1996 Director Stock Option Plan
(incorporated by reference to Exhibit 10.2 of MECH
Financial, Inc.'s Annual Report on Form 10-K filed with the
SEC on March 30, 1998 and incorporated herein by reference).
36
10.6 Amendment No. 1 to Mechanics Savings Bank 1996 Director
Stock Option Plan (filed as Exhibit 4.2 (b) of MECH
Financial, Inc.'s Registration Statement on Form S-8 as
filed with the SEC on April 2, 1998 and incorporated herein
by reference).
10.7 New England Community Bancorp, Inc., 1997 Non-Officer's
Directors' Stock Option Plan (filed as Exhibit 4.1 of New
England Community Bancorp, Inc.'s Registration Statement on
Form S-8 as filed with the SEC on October 6, 1998 and
incorporated herein by reference).
10.8 1992 Stock Option Plan, as amended (filed as Exhibit 99.2 to
the Corporation's Registration Statement on Form S-8, filed
with the SEC on October 25, 2000 and incorporated herein by
reference).
10.9 Economic Value Added Incentive Plan (the description of the
plan in the last paragraph that begins on page 17 of the
Corporation's definitive proxy materials for the 2000 Annual
Meeting of Shareholders is incorporated herein by
reference).
10.10 Performance Incentive Plan (filed as Exhibit A to the
Corporation's definitive proxy materials for the
Corporation's 1996 Annual Meeting of Shareholders and
incorporated herein by reference).
10.11 Amendment to Webster Financial Corporation Performance
Incentive Plan as amended and restated effective January 1,
1996 (filed as Exhibit 10.11 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference).
10.12 Amended and Restated Deferred Compensation Plan for
Directors and Officers of Webster Bank (filed as Exhibit
10.12 to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and incorporated
herein by reference).
10.13 First Amended and Restated Directors Retainer Fees Plan
(filed as Exhibit 10.3 to the Corporation's Quarterly Report
on Form 10-Q filed with the SEC on August 14, 1998 and
incorporated herein by reference).
10.14 Supplemental Retirement Plan for Employees of First Federal
Bank, as amended and restated effective as of October 1,
1994 (filed as Exhibit 10.26 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.15 Amendment No. 1 to the Supplemental Retirement Plan for
Employees of First Federal Bank (filed as Exhibit 10.15 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and incorporated herein by
reference).
10.16 Amendment No. 2 to the Supplemental Retirement Plan for
Employees of First Federal Bank (filed as Exhibit 10.16 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and incorporated herein by
reference).
10.17 Amendment No. 3 to the Supplemental Retirement Plan for
Employees of Webster Bank (filed as Exhibit 10.17 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and incorporated herein by
reference).
10.18 Qualified Performance-Based Compensation Plan (filed as
Exhibit A to the Corporation's definitive proxy materials
for the Corporation's 1998 Annual Meeting of Shareholders
and incorporated herein by reference).
10.19 Employee Stock Purchase Plan (filed as Appendix A to the
Company's Definitive Proxy Statement filed with the SEC on
March 23, 2000).
37
10.20 Employment Agreement, dated as of January 1, 1998, among
James C. Smith, the Corporation and Webster Bank (filed as
Exhibit 10.27 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule 10.27 to that
(Exhibit 10.27) for a list of other executive officers of
the Corporation and Webster Bank who have an Employment
Agreement substantially identical in all material respects
to the Employment Agreement of Mr. Smith, except as to the
name of the executive who is a party to the agreement and as
otherwise indicated on Schedule 10.27).
10.21 Amendment to Employment Agreement, entered into as of March
17, 1998, by and among Webster Bank, the Corporation and
James C. Smith (filed as Exhibit 10.28 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference; see
Schedule 10.28 to that (Exhibit 10.28) for a list of other
executive officers of the Corporation and Webster Bank who
have an Amendment to Employment Agreement substantially
identical in all material respects to the Amendment to
Employment Agreement of Mr. Smith, except as to the name of
the executive who is a party to the agreement).
10.22 Change of Control Employment Agreement, dated as of December
15, 1997, by and between the Corporation and James C. Smith
(filed as Exhibit 10.29 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference; see Schedule 10.29 to that
(Exhibit 10.29) for a list of other executive officers of
the Corporation who have a Change of Control Employment
Agreement substantially identical in all material respects
to the Change of Control Employment Agreement of Mr. Smith,
except as to the name of the executive who is a party to the
agreement).
10.23 Purchase and Assumption Agreement, dated as of October 2,
1992, among the Federal Deposit Insurance Corporation (the
"FDIC"), in its corporate capacity as receiver of First
Constitution Bank, the FDIC and First Federal Bank (filed as
Exhibit 2 to the Corporation's Current Report on Form 8-K
filed with the SEC on October 19, 1992 and incorporated
herein by reference).
10.24 Amendment No. 1 to Purchase and Assumption Agreement, made
as of August 8, 1994, by and between the FDIC, the FDIC as
receiver of First Constitution Bank, and First Federal Bank
(filed as Exhibit 10.36 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.25 Indenture, dated as of June 15, 1993, between the
Corporation and Chemical Bank, as trustee, relating to the
Corporation's 8 3/4% Senior Notes due 2000 (filed as Exhibit
99.5 to the Corporation's Current Report on Form 8-K/A filed
with the SEC on November 10, 1993 and incorporated herein by
reference).
10.26 Junior Subordinated Indenture, dated as of January 29, 1997
between the Corporation and The Bank of New York, as
trustee, relating to the Corporation's Junior Subordinated
Deferrable Interest Debentures (filed as Exhibit 10.41 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
Exhibit No. 21 Subsidiaries.
Exhibit No. 23 Consent of KPMG L.L.P.
(b) Reports on Form 8-K
No reports were filed for the fourth quarter period ending December
31, 2000.
(c) Exhibits to this Form 10-K are attached or incorporated herein
by reference as stated above.
(d) Not applicable.
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