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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     
[X]
  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2004.

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: 001-31486

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) 578-2476

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X]   Yes   [  ]   No

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

[X]   Yes   [  ]   No

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date.

     
Common Stock (par value $.01)   53,039,877
  		 
 
Class   Outstanding at July 31, 2004

 

Webster Financial Corporation and Subsidiaries

INDEX

         
    Page No.
PART I – FINANCIAL INFORMATION
        
       
    3  
    4  
    6  
    7  
    8  
    10  
    28  
    45  
    45  
       
    45  
    46  
    46  
    47  
    47  
    47  
    49  
EXHIBITS
     50  
 CERTIFICATION
 CERTIFICATION
 CERTIFICATION
 CERTIFICATION

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ITEM 1. INTERIM FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

                 
    June 30,   December 31,
(In thousands, except share and per share data)
   2004
   2003
Assets:
                
Cash and due from depository institutions
   $ 252,818       209,234  
Short-term investments
     39,887       42,420  
Securities (Note 4):
                
Trading, at fair value
     1,944       555  
Available for sale, at fair value
     3,853,154       4,128,255  
Held-to-maturity (fair value of $277,743 and $174,631)
     284,392       173,371  
Loans held for sale (Note 5)
     153,396       89,830  
Loans, net (Notes 6 and 7)
     11,143,683       9,091,135  
Accrued interest receivable
     59,737       52,756  
Goodwill (Note 9)
     603,719       274,113  
Cash surrender value of life insurance
     224,082       180,556  
Premises and equipment, net
     132,842       95,631  
Deferred tax asset, net (Note 8)
     80,563       38,088  
Intangible assets (Note 9)
     77,533       56,816  
Prepaid expenses and other assets
     118,120       135,930  
 
    
 		      
 		  
Total assets
   $ 17,025,870       14,568,690  
 
    
 		      
 		  
Liabilities and Shareholders’ Equity:
                
Deposits (Note 10)
   $ 10,372,922       8,372,135  
Federal Home Loan Bank advances (Note 11)
     2,731,332       2,511,495  
Federal funds purchased and securities sold under agreement to repurchase (Note 12)
     1,670,594       1,892,138  
Other long-term debt
     695,417       532,760  
Accrued expenses and other liabilities
     95,112       97,690  
 
    
 		      
 		  
Total liabilities
     15,565,377       13,406,218  
 
    
 		      
 		  
Preferred stock of subsidiary corporation
     9,577       9,577  
Commitments and contingencies (Notes 5 and 6)
                
Shareholders’ equity (Note 13):
                
Common stock, $.01 par value;
                
Authorized – 200,000,000 shares at June 30, 2004 and December 31, 2003; Issued – 53,015,672 shares at June 30, 2004 and 49,512,045 at December 31, 2003
     530       495  
Paid-in capital
     578,160       412,020  
Retained earnings
     901,598       833,357  
Less: Treasury stock, at cost; no shares at June 30, 2004 and 3,235,826 shares at December 31, 2003
     —       (112,713 )
Accumulated other comprehensive (loss) income
     (29,372 )     19,736  
 
    
 		      
 		  
Total shareholders’ equity
     1,450,916       1,152,895  
 
    
 		      
 		  
Total liabilities and shareholders’ equity
   $ 17,025,870       14,568,690  
 
    
 		      
 		  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME (unaudited)

                                 
    Three months ended June 30,   Six months ended June 30,
(In thousands, except per share data)
   2004
   2003
   2004
   2003
Interest Income:
                                
Loans
   $ 129,084       114,734     $ 247,675       227,944  
Securities and short-term investments
     45,162       45,772       89,770       8,723  
Loans held for sale
     2,139       4,231       3,209       97,517  
 
    
 		      
 		      
 		      
 		  
Total interest income
     176,385       164,737       340,654       334,184  
 
    
 		      
 		      
 		      
 		  
Interest Expense:
                                
Deposits (Note 10)
     29,172       28,750       55,002       58,168  
Federal Home Loan Bank advances and other borrowings
     24,793       30,069       49,228       60,112  
Other long-term debt
     8,953       5,299       17,151       10,609  
 
    
 		      
 		      
 		      
 		  
Total interest expense
     62,918       64,118       121,381       128,889  
 
    
 		      
 		      
 		      
 		  
Net interest income
     113,467       100,619       219,273       205,295  
Provision for loan losses (Note 7)
     5,000       5,000       10,000       10,000  
 
    
 		      
 		      
 		      
 		  
Net interest income after provision for loan losses
     108,467       95,619       209,273       195,295  
 
    
 		      
 		      
 		      
 		  
Noninterest Income:
                                
Deposit service fees
     19,250       17,529       36,435       34,419  
Insurance revenue
     10,596       9,980       22,234       20,944  
Loan fees
     7,305       4,723       13,954       10,628  
Wealth and investment services
     5,849       4,521       10,965       9,099  
Gain on sale of securities, net
     5,616       8,666       11,116       11,299  
Gain on sale of loans and loan servicing, net
     5,321       4,066       6,346       6,837  
Increase in cash surrender value of life insurance
     2,177       2,143       4,131       4,258  
Financial advisory services
     —       5,229       3,808       10,660  
Other income
     964       1,423       2,812       3,284  
 
    
 		      
 		      
 		      
 		  
Total noninterest income
     57,078       58,280       111,801       111,428  
 
    
 		      
 		      
 		      
 		  
Noninterest Expenses:
                                
Compensation and benefits
     53,659       50,506       106,786       101,067  
Occupancy
     8,402       7,672       16,767       15,771  
Furniture and equipment
     8,993       7,575       16,634       15,096  
Intangible amortization (Note 9)
     4,582       3,968       8,674       7,930  
Marketing
     3,630       3,236       6,614       6,721  
Professional services
     2,938       2,994       5,837       5,472  
Capital trust securities
     —       2,743       —       5,665  
Other expenses
     14,975       14,505       28,008       28,283  
 
    
 		      
 		      
 		      
 		  
Total noninterest expenses
     97,179       93,199       189,320       186,005  
 
    
 		      
 		      
 		      
 		  
Income before income taxes
     68,366       60,700       131,754       120,718  
Income taxes
     22,523       20,090       43,588       40,171  
 
    
 		      
 		      
 		      
 		  
Net Income
   $ 45,843       40,610     $ 88,166       80,547  
 
    
 		      
 		      
 		      
 		  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME (unaudited), continued

                                 
    Three months ended June 30,   Six months ended June 30,
(In thousands, except per share data)
   2004
   2003
   2004
   2003
Net income
   $ 45,843       40,610     $ 88,166       80,547  
                                 
Basic earnings per share
   $ 0.92       0.89     $ 1.84       1.77  
Diluted earnings per share
     0.91       0.88       1.81       1.74  
Dividends paid per common share
     0.23       0.21       0.44       0.40  
                                 
Average shares outstanding:
                                
Basic
     49,699       45,446       47,922       45,453  
Diluted
     50,475       46,242       48,767       46,217  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

                 
    Three months ended June 30,
(In thousands)
   2004
   2003
Net Income
   $ 45,843       40,610  
Other comprehensive loss, net of tax:
                
Unrealized net holding (loss) gain on securities available for sale arising during period (net of income tax effect of $(41,265) and $1,517, for 2004 and 2003, respectively)
     (67,595 )     2,261  
Reclassification adjustment for net gains included in net income (net of income tax benefit of $2,112 and $3,416 for 2004 and 2003, respectively)
     (3,922 )     (5,150 )
Reclassification adjustment for cash flow hedge gain amortization included in net income
     (42 )     (27 )
Reclassification adjustment for amortization of unrealized gain upon transfer of securities to held to maturity (net of income tax)
     (73 )     —  
 
    
 		      
 		  
Other comprehensive loss
     (71,632 )     (2,916 )
 
    
 		      
 		  
Comprehensive (loss) income
   $ (25,789 )     37,694  
 
    
 		      
 		  
                 
    Six months ended June 30,
(In thousands)
   2004
   2003
Net Income
   $ 88,166       80,547  
Other comprehensive (loss) income, net of tax:
                
Unrealized net holding (loss) gain on securities available for sale arising during year (net of income tax benefit of $(24,323) and $4,657, for 2004 and 2003, respectively)
     (41,431 )     6,987  
Reclassification adjustment for net gains included in net income (net of income tax effect of $4,016 and $4,456 for 2004 and 2003, respectively)
     (7,457 )     (6,719 )
Deferred gain on cash flow hedge
     —       1,690  
Reclassification adjustment for cash flow hedge gain amortization included in net income
     (84 )     (78 )
Reclassification adjustment for amortization of unrealized gain upon transfer of securities to held to maturity (net of income tax)
     (136 )     —  
 
    
 		      
 		  
Other comprehensive (loss) income
     (49,108 )     1,880  
 
    
 		      
 		  
Comprehensive income
   $ 39,058       82,427  
 
    
 		      
 		  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

                                                 
                                    Accumulated    
                                    Other    
    Common   Paid-in   Retained   Treasury   Comprehensive    
(In thousands, except per share data)
   Stock
   Capital
   Earnings
   Stock
   Income (loss)
   Total
Six months ended June 30, 2003:
                                                
Balance, December 31, 2002
   $ 495       411,154       707,531       (134,318 )     50,596       1,035,458  
Net income for the six months ended June 30, 2003
     —       —       80,547       —       —       80,547  
Dividends paid:
                                                
$.40 per common share
     —       —       (18,251 )     —       —       (18,251 )
Exercise of stock options
     —       (1,358 )     —       5,060       —       3,702  
Common stock repurchased
     —       —       —       (5,795 )     —       (5,795 )
Stock-based compensation
     —       1,863       —       896       —       2,759  
Net unrealized gain on securities available for sale, net of taxes
     —       —       —       —       268       268  
Repurchase of capital trust securities
     —       (991 )     —       —       —       (991 )
Deferred gain from hedge, net of amortization
     —       —       —       —       1,612       1,612  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance, June 30, 2003
   $ 495       410,668       769,827       (134,157 )     52,476       1,099,309  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Six months ended June 30, 2004:
                                                
Balance, December 31, 2003
   $ 495       412,020       833,357       (112,713 )     19,736       1,152,895  
Net income for the six months ended June 30, 2004
     —       —       88,166       —       —       88,166  
Dividends paid:
                                                
$.44 per common share
     —       —       (19,926 )     —       —       (19,926 )
Exercise of stock options
     —       (826 )     —       6,452       —       5,626  
Common stock repurchased
     —       —       —       (2,438 )     —       (2,438 )
Common stock issued in acquisition
     36       164,110       1       108,650       —       272,797  
Common stock retired
     (1 )     1       —       —       —       —  
Stock-based compensation
     —       2,855       —       49       —       2,904  
Net unrealized loss on securities available for sale, net of taxes
     —       —       —       —       (48,888 )     (48,888 )
Amortization of deferred hedging gain
     —       —       —       —       (84 )     (84 )
Amortization of unrealized gain on securities transferred to held to maturities, net of taxes
     —       —       —       —       (136 )     (136 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance, June 30, 2004
   $ 530       578,160       901,598       —       (29,372 )     1,450,916  
 
    
 		      
 		      
 		      
 		      
 		      
 		  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

                 
    Six months ended June 30,
(In thousands)
   2004
   2003
Operating Activities:
                
Net income
   $ 88,166       80,547  
Adjustments to reconcile net income to net cash (used) provided by operating activities:
                
Provision for loan losses
     10,000       10,000  
Depreciation and amortization
     15,454       18,217  
Amortization of intangible assets
     8,674       7,930  
Stock-based compensation
     2,904       2,759  
Net gains on sale of foreclosed properties
     (183 )     (67 )
Net gains on sale of securities
     (11,473 )     (11,175 )
Net gains on sale of loans and servicing
     (6,346 )     (6,837 )
Increase in cash surrender value of life insurance
     (4,131 )     (4,258 )
Net loss (gain) on trading securities
     357       (124 )
(Increase) decrease in trading securities
     (1,746 )     1,983  
Loans originated for sale
     (664,076 )     (1,513,786 )
Proceeds from sale of loans originated for sale
     686,251       1,604,725  
(Increase) decrease in interest receivable
     (6,981 )     567  
Decrease in prepaid expenses and other assets
     83,937       26,073  
Decrease in accrued expenses and other liabilities
     (42,120 )     (101,016 )
 
    
 		      
 		  
Net cash provided by operating activities
     158,687       115,538  
 
    
 		      
 		  
Investing Activities:
                
Purchases of available for sale securities
     (1,011,873 )     (2,318,567 )
Purchases of held to maturity securities
     (113,758 )     —  
Proceeds from maturities and principal payments of available for sale securities
     569,629       1,092,682  
Proceeds from maturities of held to maturity securities
     2,505       —  
Proceeds from sales of available for sale securities
     1,513,448       953,595  
Net decrease (increase) in short-term investments
     5,102       (5,075 )
Net increase in loans
     (524,487 )     (772,448 )
Proceeds from sale of foreclosed properties
     3,037       1,051  
Net purchases of premises and equipment
     (20,712 )     (7,618 )
Net cash from acquisition and sale transactions
     (163,016 )     (27,447 )
 
    
 		      
 		  
Net cash provided (used) by investing activities
     259,875       (1,083,827 )
 
    
 		      
 		  
Financing Activities:
                
Net increase in deposits
     486,554       479,580  
Proceeds from FHLB advances
     35,525,157       20,261,731  
Repayment of FHLB advances
     (36,054,776 )     (20,238,930 )
Net (decrease) increase in federal funds purchased and securities sold under agreement to repurchase
     (465,108 )     286,776  
Other long-term debt issued
     149,933       200,000  
Redemption of capital trust securities
     —       (12,342 )
Cash dividends to common shareholders
     (19,926 )     (18,251 )
Exercise of stock options
     5,626       3,702  
Common stock repurchased
     (2,438 )     (5,795 )
 
    
 		      
 		  
Net cash (used) provided by financing activities
     (374,978 )     956,471  
 
    
 		      
 		  
Increase (decrease) in cash and cash equivalents
     43,584       (11,818 )
Cash and cash equivalents at beginning of period
     209,234       266,463  
 
    
 		      
 		  
Cash and cash equivalents at end of period
   $ 252,818       254,645  
 
    
 		      
 		  

See accompanying Notes to Consolidated Interim Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued

                 
    Six months ended June 30,
(In thousands)
   2004
   2003
Supplemental Disclosures:
                
Income taxes paid
   $ 35,393       38,748  
Interest paid
     115,607       124,142  
Supplemental Schedule of Noncash Investing and Financing Activities:
                
Transfer of loans to foreclosed properties
     1,114       2,588  
Purchase Transactions:
                
Fair value of noncash assets acquired in purchase transaction
   $ 2,639,554       43,058