ITEM 1. BUSINESS
Webster Financial Corporation is a bank holding company and financial holding company under the Bank Holding CompanyBHC Act, incorporated under the laws of Delaware in 1986, and headquartered in Waterbury,Stamford, Connecticut. Its principal assetWebster Bank, and its HSA Bank Division, is alla leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking. While its core footprint spans the northeastern U.S. from New York to Massachusetts, certain businesses operate in extended geographies. HSA Bank is one of the outstanding capital stocklargest providers of Webster Bank, National Association (Webster Bank).employee benefits solutions in the U.S.
Table of financial services to individuals, families and businesses. Through its HSA Bank division, Webster Bank offers health savings accounts, health reimbursement accounts, flexible spending accounts, and other financial solutions. Through a strategic partnership with LPL, a broker dealer registered with the SEC, a registered investment advisor under federal and applicable state laws, a member of the FINRA, and a member of the SIPC, Webster Bank offers investment and securities-related services.Contents Webster Bank's significant direct subsidiaries include; Webster Mortgage Investment Corporation, a passive investment subsidiary whose primary function is to provide servicing on qualified passive investments, such as residential real estate and commercial mortgage real estate loans acquired from Webster Bank; Webster Business Credit Corporation, which offers asset-based lending services; and Webster Capital Finance, Inc., which offers equipment financing for end users of equipment. Webster Bank also has various other subsidiaries that are not significant to the consolidated group.
Competition
WebsterThe Company is subject to strong competition from other commercial banks, thrifts,savings banks, credit unions, non-bank health savings account trustees, consumer finance companies, investment companies, insurance companies, e-commerceonline lending and savings institutions, and other internet-basednon-bank financial services companies. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems, and a wider array of commercial and consumer banking services than Webster.the Company. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-bank entities,organizations including financial technology companies, greater technological developments in the industry, and continued bank regulatory reforms.
WebsterThe Company faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and hours, mobile banking, and other automated services, and office hours.services. Competition for deposits comes from other commercial banks, savings institutions,banks, credit unions, non-bank health savings account trustees, money market mutual funds, financial technology companies, and other investment alternatives.non-bank financial services companies. The primary factors in competing for consumercommercial and commercialconsumer loans are interest rates, loan origination fees, ease and convenience of loan origination channels, the quality and range of lending services, personalized service, and the ability to close within customers'each customer's desired time frame. Competition for the origination of mortgage loans comes primarily from commercial banks, non-bank lenders, savings institutions, mortgage banking firms, mortgage brokers, other commercial banks,online lenders, and insurance companies. Other factors whichthat affect competition include the general and local economic conditions, current interest rate levels, and volatility in the mortgagelending markets.
Supervision and Regulation
WebsterThe Holding Company and its bank and non-bank subsidiaries are subject to comprehensiveextensive regulation under federal and state laws. The regulatory framework applicable to bank holding companies and their subsidiary banksdepository institutions is intended to protect depositors, the Federal Deposit Insurance Fund (DIF),FDIF, consumers, and the U.S. banking system as a whole. This system is not designed to protect equity investors
Set forth in bank holding companies. Set forththe paragraphs below is a summary of the significant elements of the laws and regulations applicable to Websterthe Holding Company and its bank and non-bank subsidiaries. The description that follows is qualified in its entirety by reference to the full text of the statutes, regulations, and policies that are described. SuchBanking statutes, regulations, and policies are subject to ongoingcontinually under review by Congress, and state legislatures, and federal and state regulatory agencies. A changeChanges in any of the statutes, regulations, or regulatory policies applicable to Websterthe Holding Company and its bank and non-bank subsidiaries, including how they are implemented or interpreted, could have a material effect on the results of the Company.
Regulatory Agencies
Webster Financial CorporationThe Holding Company is a separate and distinct legal entity from Websterthe Bank and its other subsidiaries. As a registered bank holding company and a financial holding company, itWebster Financial Corporation is subject to regulation under the BHC Act and to inspection, examination, and supervision by its primary federal regulator, the Board of Governors of the Federal Reserve System, and is regulated under the Bank Holding Company Act of 1956, as amended (BHC Act).System. As a publicly-traded company, Webster is under the jurisdiction of the SEC and isalso subject to the disclosure and other regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, asboth of which are administered by the SEC. As a publicly-traded company with securities listed on the NYSE, Webster is subject to the rules for companies listed on the New York Stock Exchange. In addition, the Consumer Financial Protection Bureau (CFPB) supervises Webster for compliance with federal consumer financial protection laws. Webster also is subject to oversight by state attorneys general for compliance with state consumer protection laws. Webster's non-bank subsidiaries are subject to federal and state laws and regulations, including regulations of the Federal Reserve System.NYSE.
WebsterThe Bank is organized as a national banking association under the National Bank Act. Webster BankAct, as amended, and is subject to the supervision of and to regular examination by the Office of the Comptroller of the Currency (OCC) asOCC, its primary federal regulator, as well as by the Federal Deposit Insurance Corporation (FDIC) asFDIC, its deposit insurer. Webster Bank's depositsAs a national banking association, the Bank derives its lending, investment, and other bank activity powers from the National Bank Act, as amended, and the regulations of the OCC promulgated thereunder. In addition, the CFPB supervises the Bank to ensure compliance with federal consumer financial protection laws.
The Holding Company’s non-bank subsidiaries are insuredalso subject to regulation by the FDIC up to the applicable deposit insurance limits in accordance with FDIC laws and regulations.
The Dodd-Frank Act significantly changed the financial regulatory regime in the United States. Since the enactmentBoard of Governors of the Dodd-Frank Act, U.S. banksFederal Reserve System and financial services firms have been subject to enhanced regulationother applicable federal and oversight. Several provisions of the Dodd-Frank Act are subject to further rulemaking, guidance, and interpretation by the federal bankingstate agencies. While the current administration and its appointees to the federal banking agencies have expressed interest in reviewing, revising, and perhaps repealing portions of the Dodd-Frank Act and certain of its implementing regulations, it is not clear whether any such legislation or regulatory changes will be enacted or, if enacted, what the effect would be on Webster or Webster Bank.
Bank Holding Company RegulationActivities
Webster Financial Corporation is a bank holding company as defined underIn general, the BHC Act. The BHC Act generally limits the business of bank holding companies to banking, managing, or controlling banks and other activities that the Board of Governors of the Federal Reserve System has determined to be so closely related to banking as to be a proper incident thereto.banking. Bank holding companies that have electedqualify and elect to become financial holding companies, such as Webster Financial Corporation, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Board of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury), or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Board of Governors of the Federal Reserve System). Activities that are financial in nature include securities underwriting, dealing and dealing,market making, sponsoring mutual funds and investment companies, insurance underwriting, and making merchant banking investments.banking. If a financial holding company or its bank ceases to be well capitalized or well managed, the Board of Governors of the Federal Reserve System may impose corrective capital and managerial requirements and activity restrictions.
Mergers and Acquisitions
TheUnder the BHC Act, prior approval from the Board of Governors of the Federal Reserve System is required in order for any bank holding company to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, acquire all or substantially all of the assets of a bank, or merge or consolidate with any other bank holding company. Generally, the Holding Company is not required to obtain prior approval from the Board of Governors of the Federal Reserve System to acquire a non-bank that engages in activities that are financial in nature or incidental to activities that are financial in nature, as long as the Holding Company meets the capital, managerial, and CRA requirements to qualify as a financial holding company. However, the Holding Company is required to receive prior approval from the Board of Governors of the Federal Reserve System for an acquisition in which the total consolidated assets to be acquired exceeds $10 billion.
Pursuant to Section 18(c) of the FDIA, more commonly known as the Bank Merger Act, and for national banks relying on certain other sources of merger authority, prior written approval from a bank's primary federal regulator is required before any insured depository institution may consummate a merger transaction, which includes a merger, consolidation, assumption of deposit liabilities, and state statutes regulatecertain asset transfers between or among two or more institutions. Prior written approval of a bank's primary federal regulator is also required for merger transactions between or among affiliated institutions, as well as for merger transactions between or among non-affiliated institutions. Transactions that do not involve a transfer of deposit liabilities typically do not require prior approval under the direct and indirectBank Merger Act unless the transaction involves the acquisition of all or substantially all of an institution's assets. When evaluating and acting on proposed merger transactions, regulators consider the extent of existing competition between and among the merging institutions, other depository institutions. The BHC Act requiresinstitutions, and other providers of similar or equivalent services in the prior Federal Reserve System approval for a bank holding companyrelevant product and geographic markets, the convenience and needs of the community to acquire, directly or indirectly, 5% or more of any class of voting securities of a commercial bank or its parent holding companybe served, capital adequacy and for a company,earnings prospects, and the effectiveness the merger institutions in combating money-laundering activities, among other than a bank holding company, to acquire 25% or more of any class of voting securities of a bank or bank holding company. Underfactors.
Further, the Change in Bank Control Act of 1978 generally prohibits any person, including a company, may not acquire,acting directly or indirectly or in concert with other persons, from acquiring control of a bankcovered institution without providing at least 60 days prior written notice to the FDIC or upon receipt of written notice that the FDIC does not disapprove of the acquisition.
Capital Adequacy
The Board of Governors of the Federal Reserve System, the OCC, and receiving a non-objection from the appropriate federal banking agency. FDIC have adopted the regulatory capital standards in accordance with Basel III, as developed by the Basel Committee on Banking Supervision. The Basel III Capital Rules strengthened international capital adequacy standards by increasing institutions' minimum capital requirements and holdings of
high-quality liquid assets and decreasing bank leverage.
Under the Bank Merger Act,Basel III Capital Rules, the prior approvalCompany's assets, exposures, and certain off-balance sheet commitments and obligations are subject to risk weights used to determine risk-weighted assets. Risk weights can range from 0% for U.S. government securities to 1,250% for certain tranches of complex securitization or equity exposures. Risk-weighted assets serve as the base against which regulatory capital is measured, and are used to calculate the Holding Company's and the Bank's minimum capital ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1 Leverage Capital, as defined in the regulations, which the Company is required to maintain. CET1 capital consists of common stockholders' equity less deductions for goodwill and other intangible assets, and certain deferred tax adjustments. At the time of initial adoption of the Basel III Capital Rules, the Company had elected to opt-out of the requirement to include certain components of AOCI in CET1 capital. Tier 1 capital consists of CET1 capital plus preferred stock. Total capital consists of Tier 1 capital and Tier 2 capital, as defined in the regulations. Tier 2 capital includes qualifying subordinated debt and the permissible portion of the ACL.
The following table summarizes the ratio thresholds applicable to the Company pursuant to the Basel III Capital Rules as of December 31, 2023:
| | | | | | | | | | | |
| Adequately Capitalized | | Well Capitalized |
CET1 Risk-Based Capital | 4.5 | % | | 6.5 | % |
Tier 1 Risk-Based Capital | 6.0 | | | 8.0 | |
Total Risk-Based Capital | 8.0 | | | 10.0 | |
Tier 1 Leverage Capital | 4.0 | | | 5.0 | |
In addition, the Basel III Capital Rules mandate that most deductions from or adjustments to regulatory capital be made to CET1 capital, not to the other components. For instance, the deduction of mortgage servicing assets, certain DTAs, and capital investments in unconsolidated financial institutions is required to the extent that any one such category exceeds 10% of CET1 capital or exceeds 15% of CET1 capital in the aggregate.
The Basel III Capital Rules also include a capital conservation buffer comprised entirely of CET1 capital, which is considered in addition to the 4.5% CET1 capital ratio and is equal to 2.5% of risk-weighted assets for both the Holding Company and the Bank. This buffer is designed to absorb losses during periods of economic stress, and is generally required in order to avoid limitations on capital distributions and certain discretionary bonus payments to executive officers.
On August 26, 2020, in response to the COVID-19 pandemic, the federal banking agencies issued a final rule that provided banking organizations that had implemented CECL during 2020, the option to delay an estimate of CECL's effect on regulatory capital for two years ending on January 1, 2022, followed by a three-year transition period ending on December 31, 2024. The Company elected to utilize the 2020 capital transition relief and delayed the regulatory capital impact of adopting CECL. Both the Holding Company's and the Bank's ratios remain in excess of being well-capitalized, even without the benefit of the delayed CECL adoption impact. Additional information regarding the delayed CECL adoption impact on regulatory capital can be found in Part II under the section captioned "Liquidity and Capital Resources" contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and within Note 13: Regulatory Matters in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data.
Prompt Corrective Action
Pursuant to Section 38 of the FDIA, the federal banking agencies are required to take prompt corrective action if an insured depository institution fails to meet certain capital adequacy standards. The following table summarizes the prompt corrective action categories:
| | | | | | | | | | | | | | | | | | | | | | | |
| Well | | Adequately | | Under | | Significantly |
| Capitalized | | Capitalized | | Capitalized | | Under Capitalized |
CET1 Risk-Based Capital | 6.5 | % | | 4.5 | % | | < 4.5% | | < 3.0% |
Tier 1 Risk-Based Capital | 8.0 | | | 6.0 | | | < 6.0 | | < 4.0 |
Total Risk-Based Capital | 10.0 | | | 8.0 | | | < 8.0 | | < 6.0 |
Tier 1 Leverage Capital | 5.0 | | | 4.0 | | | < 4.0 | | < 3.0 |
Each of the Bank's capital ratios exceeded those required for an insured depository institution to be considered well capitalized at December 31, 2023.
In addition, an insured depository institution with a ratio of tangible equity less than or equal to 2% is considered to be critically under capitalized. If an insured depository institution has been determined, after notice and opportunity for a hearing, to be in an unsafe or unsound condition, or if it receives a less-than-satisfactory rating for asset quality, management, earnings, or liquidity in its most recent examination, the appropriate federal banking agency is required formay downgrade a well capitalized, adequately capitalized, or under capitalized insured depository institution to the next lower capital category.
All insured depository institutions, regardless of their capital category, are prohibited from making capital distributions or paying management fees if such distributions or payments would result in the insured depository institution becoming under capitalized, unless it is shown that the capital distribution would improve financial condition, or the management fee is being paid to mergea person or enter into purchaseentity without a controlling interest in the insured depository institution. Restrictions are placed on certain brokered deposit activity and assumption transactions. In reviewing applications seeking approval of mergeron deposit rates offered as the capital category declines below well capitalized. Further, if an insured depository institution receives notice that it is under capitalized, significantly under capitalized, or purchase and assumption transactions,critically under capitalized, the insured depository institution generally must file a written capital restoration plan with the appropriate federal banking agencies will consider, among other things, the competitive effect and public benefitsagency within 45 days of the transactions, the capital position of the combined banks, the applicant's performance record under the Community Reinvestment Act of 1977 (CRA),receipt, and the effectivenessbank holding company must guarantee the performance of the merging banks in combating money laundering.that plan.
Enhanced Prudential Standards
Section 165The Board of the Dodd-Frank Act imposes enhanced prudential standards on larger banking organizations. CertainGovernors of these standards are applicable to banking organizations over $10 billion, including Webster Financial Corporation and Webster Bank. Additionally, the FDIC, the OCC, and the Federal Reserve System issued separate but similar rules requiring covered banksestablished enhanced prudential standards for larger bank holding companies based on size and certain risk-based indicators. On October 10, 2019, the Federal Reserve Board, along with other federal bank regulatory agencies, tailored these prudential standards allowing bank holding companies with $10total consolidated assets of $250 billion or less to be exempt from certain enhanced capital and liquidity prudential standards, including company-run stress testing, capital planning, liquidity coverage ratio, and resolution planning requirements, among others. Although the Holding Company's total consolidated assets are beneath the $250 billion threshold, the Company performs certain stress tests internally and incorporates the economic models and information developed through its stress testing program into its risk management and capital planning activities, which continue to be subject to the regular supervisory processes of the Federal Reserve System and the OCC.
In addition, publicly-traded bank holding companies with $50 billion or more in total consolidated assets which includes Webster Financial Corporationare required to maintain a risk committee that is responsible for the oversight of enterprise risk management practices and Webster Bank, to conduct an annual company-run stress test. Annual company-run stress tests are conducted forthat meets other statutory requirements. The Company maintains a standing Risk Committee of the Board of Directors that oversees its risk management program.
Volcker Rule
The Volcker Rule prohibits banking entities, such as the Holding Company and Websterthe Bank, from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures, and options on these investments for their own account, and imposes limits on investments in, and other relationships with hedge funds or private equity funds. Banking entities with significant trading operations (those with between $1 and $20 billion in average trading assets and liabilities) are subject to a simplified Volcker Rule compliance program. The Company has incorporated Volcker Rule compliance by reference to the statutory requirements in existing policies, procedures, and compliance programs where relevant and as required byappropriate for its activities, size, scope, and complexity. The Volcker Rule does not have a material impact on the Dodd-Frank Act. Webster publicly disclosed its most recent company-run capital stress test results on October 17, 2017.Company.
TheOn June 25, 2020, the Federal Reserve System, also issued a rule further implementing the enhanced prudential standards required by the Dodd-Frank Act. Although most of the standards only apply to bank holding companies with more than $50 billion in assets, as directed by the Dodd-Frank Act, the rule contains certain standards that apply to bank holding companies with more than $10 billion in assets, including a requirement to establish a risk committee of the Company's board of directors to manage enterprise-wide risk. Webster meets these requirements.
Debit Card Interchange Fees
The Dodd-Frank Act requires that any interchange transaction fee charged for a debit transaction be reasonableCommodity Futures Trading Commission, FDIC, OCC, and proportional to the cost incurred by the issuer for the transaction, with regulations that establish such fee standards, eliminate exclusivity arrangements between issuers and networks for debit card transactions, and limit restrictions on merchant discounting for use of certain payment forms and minimum or maximum amount thresholds as a condition for acceptance of credit cards. Under the Federal Reserve System's approved final debit card interchange rule pursuant to the Dodd-Frank Act, an issuer's base fee is capped at 21 cents per transaction and allows for an additional amount equal to 5 basis points of the transaction's value. The Federal Reserve System separatelySEC issued a final rule that also allows a fraud-prevention adjustment of 1 cent per transaction conditioned upon an issuer developing, implementing, and updating reasonably designed fraud-prevention policies and procedures.
Identity Theft
The SEC and the Commodity Futures Trading Commission (CFTC) jointly issued final rules and guidelines implementing provisions of the Dodd-Frank Act which require certain regulated entities to establish programs to address risks of identity theft. The rules require financial institutions and creditors to develop and implement a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy these requirements. In addition, the rules establish special requirements for any credit and debit card issuers that are subject to the jurisdiction of the SEC or the CFTC, to assess the validity of notifications of changes of address under certain circumstances. Webster implemented an ID Theft Prevention Program, approved by its Board of Directors, in compliance with these requirements.
Volcker Rule
Section 619 of the Dodd-Frank Act, commonly known asmodified the Volcker Rule, restricts the ability ofRule's prohibition on banking entities such as Webster and Webster Bank, from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certainhedge funds or private equity funds, known as covered funds, subject to certain limited exceptions. Underfunds. The final rule, which became effective on October 1, 2020, modified three areas of the Volcker Rule by streamlining the term covered funds is defined as any issuer that would be an investment company underportion of the Investment Company Act but forrule, addressing the exemption in section 3(c)(1) or 3(c)(7)extraterritorial treatment of that Act, which includes collateralized loan obligation securities and collateralized debt obligation securities. There are also several exemptions from the definition of covered fund, including, among other things, loan securitizations, joint ventures, certain types of foreign funds, and permitting banking entities issuing asset-backed commercial paper,to offer financial services and registered investment companies.engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The Federal Reserve approved Webster's illiquid fundsSystem had granted the Company an extension request, thereby providing Webster with up to five additional years, tountil July 21, 2022 to bring suchits holdings into compliance with the Volcker Rule.
Derivatives Regulation
Title VII of the Dodd-Frank Act imposes requirements related to over-the-counter derivatives. Key provisions of the Title VII regulation are implemented by the CFTC. Among other things, the CFTC's rules apply to swap dealers, major swap participants and commercial entities that enter into OTC derivatives transactions to hedge or mitigate risk. Under rules and guidance of the CFTC, end users are subject to a wide range of requirements including capital, margining, clearing, documentation, reporting, eligibility and business conduct requirements. The Company compliesdissolved its remaining holdings in illiquid covered funds during 2021, and believes its holdings to be fully compliant with all aspectsthe Volcker Rule as of the Title VII regulation that impact derivative activities, including interest rate risk hedges and its customer loan hedge program.
Dividends
The principal source of the Holding Company's liquidity is dividends from Webster Bank. The prior approval of the OCC is required if the total of all dividends declared by a national bank in a year would exceed the sum of its net income for that year and its undistributed net income for the preceding two years, less any required transfers to surplus. Federal law also prohibits a national bank from paying dividends that would be greater than its undivided profits after deducting statutory bad debt in excess of allowance for loan and lease losses (ALLL). Webster Bank paid the Holding Company $120.0 million in dividends during the year ended December 31, 2017, and $368.8 million of undistributed net income available for the payment of dividends remained at December 31, 2017.
In addition, Webster Financial Corporation and Webster Bank are subject to other regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal banking agency authorities have indicated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
2023.
Federal Reserve System
Federal Reserve System regulations require depository institutions to maintain cash reserves against theirits transaction accounts primarily interest-bearing and regular checking accounts.non-personal time deposits for the purposes of implementing monetary policy. The required cash reserves canreserve requirement must be satisfied in the form of vault cash and, if vault cash does not fully satisfy the required cash reserves, in the form ofis insufficient, by maintaining a balance maintained with Federal Reserve Banks.in an account at a FRB. The BoardFRA authorizes different ranges of Governorsreserve requirement ratios depending on the amount of the Federal Reserve System generally makes annual adjustmentstransaction account balances held at each depository institution. Effective March 26, 2020, in response to the tiered cashCOVID-19 pandemic, the reserve requirements. The regulations require that Webster maintain cash reserves against aggregaterequirement ratios on all net transaction accounts in excess of the exempt amount of $15.5 million at December 31, 2017. Amounts greater than $15.5 million upwere reduced to and including $115.1 million have azero percent, thereby eliminating reserve requirement of 3%. Amounts in excess of $115.1 million have a reserve requirement of 10%. Webster Bank is in compliance with these cash reserve requirements.requirements for all depository institutions.
AsFurther, as a national bank and a member of the Federal Reserve System, Webster Bank is required to holdsubscribe to the capital stock of its district FRB in an amount equal to 6% of its capital and surplus, of which 50% is paid. The remaining 50% is subject to call by the Board of Governors of the Federal Reserve System. At December 31, 2023, the Bank (FRB) of Boston. The required shares may be adjusted up or down based on changes to Webster Bank's common stock and paid-in surplus. Webster Bank was in compliance with these requirements, with a total investment inheld an FRB of BostonNew York stock investment of $50.7 million at December 31, 2017. The FRBs pay a semi-annual dividend, to member banks with total assets greater than $10 billion, equal to the lesser of 6% or the high yield of the 10-year Treasury note auctioned at the last auction prior to the dividend payment date. For the semi-annual period ended December 31, 2017, the FRB of Boston declared a cash dividend equal to an annual yield of 2.384%.$227.9 million.
Federal Home Loan Bank System
The Federal Home Loan Bank (FHLB)FHLB System provides a central credit facility for its member institutions. WebsterThe Bank, isas a member of the FHLB, of Boston. Webster Bank (the Bank) is required to purchase and hold shares of FHLB capital stock in the FHLB for bothits membership and activity-based purposes. The capital stock requirement includesother activities in an amount equal to 0.35%0.05% of the aggregate principal amounttotal assets as of the Bank's unpaid residential mortgage loans and similar obligations at the beginning of each year,December 31, 2022, up to a maximum of $25$5 million, and alsoplus an amount based on its FHLB advances, which totaled approximately $1.7 billion at December 31, 2017, that varyvaries from 3.0% to 4.5%4.0% depending on the maturities of those advances.its FHLB advances, of which there were $2.4 billion outstanding at December 31, 2023. The FHLB recently initiated a process, based on current conditions, to redeem the holdings of its member banks in excess of their membership and activity-based requirements. Webster Bank was in compliance with these requirements with a total investment in FHLB stock of $100.9 million at December 31, 2017. On November 2, 2017, the2023, and held a FHLB paid a quarterly cash dividend equal to an annual yieldstock investment of 4.33%.$99.0 million.
Source of Strength Doctrine
Federal Reserve System policy requires bankBank holding companies are required to actserve as a source of financial and managerial strength to their subsidiary banks. Section 616 of the Dodd-Frank Act codified the requirement that bank holding companies act as a source of financial strength. As a result, Webster Financial Corporation is expected tobanks and commit resources to support Webster Bank, includingeach of their subsidiary banks. This support may be required at times when Webster Financial Corporation maythe Holding Company is not be in a financial position to provide such resources. Any capital loans byresources without adversely affecting its ability to meet other obligations. The Federal Reserve System may require a bank holding company to any ofmake capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices if it fails to commit resources to such a subsidiary bank, or if it undertakes actions that the Federal Reserve System believes might jeopardize the bank holding company's ability to commit resources to such subsidiary bank. Capital loans by banking holding companies to its subsidiary banks arewould be subordinate in right of payment to deposits and to certain other indebtednessdebts of suchthe subsidiary banks. The U.S. bankruptcy code provides that, inbank. In the event of a bank holding company's bankruptcy, any commitment by thea bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank willwould be assumed by the bankruptcy trustee and entitled to a priority of payment.
In addition, under the National Bank Act, if the Bank's capital stock of Webster Bank is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the Holding Company. If the assessment is not paid within three months after receiving notice thereof, the OCC could order a sale of the Webster Bank stock held by Webster Financial Corporation to cover any deficiency.
Capital AdequacySafety and Soundness Standards
The capitalfederal banking agencies have adopted the rules and regulations under a global regulatory framework developed by the Basel Committee on Banking Supervision (BASEL III) adopted by the Federal Reserve System, the OCC,Interagency Guidelines Establishing Standards for Safety and the FDIC generally implement the capital framework for strengthening international capital standards. The Capital Rules define the components of regulatory capital,Soundness, which are applicable to all insured depository institutions. These guidelines prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits, asset quality, earnings, and stock valuation, as well as address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also address asset risk weights and other matters affecting the denominator in banking institutions’ regulatory capital ratios.
The Capital Rules: (i) include the capital measure Common Equity Tier 1, defined by Basel III capital rules (CET1 capital) and related regulatory capital ratio of CET1determined to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 capital and additional Tier 1 capital instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 capital and not to the other components of capital; and (iv) expand the scope of deductions from and adjustments to capital as compared to existing regulations. Under the Capital Rules, for most banking organizations, including Webster, the most common form of additional Tier 1 capital is non-cumulative perpetual preferred stock, and the most common forms of Tier 2 capital are subordinated notes and the qualifying portion of allowance for loan and lease losses, in each case, subject to specific requirements of the Capital Rules.
Pursuant to the Capital Rules, the minimum capital ratios are: (i) CET1 to risk-weighted assets of at least 4.5%; (ii) Tier 1 capital to risk-weighted assets of at least 6.0%; (iii) Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%; and Tier 1 capital to adjusted, as defined, quarterly average consolidated assets (called leverage ratio) of at least 4.0%.
appropriate.
The Capital RulesOCC also includehas guidelines establishing heightened standards for large national banks, which establish minimum standards for the design and implementation of a capital conservation buffer, composed entirely of CET1 capital,risk governance framework. A large bank is defined as a bank with more than $50 billion in addition to these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity, and other capital instrument repurchases and compensation based on the amount of the shortfall. When fully phased-in on January 1, 2019, the capital standards applicable to Webster and Webster Bank will include an additional capital conservation buffer of 2.5% of CET1 capital, effectively resulting in minimum ratios inclusive of the capital conservation buffer of: (i) CET1 to risk-weighted assets of at least 7%; (ii) Tier 1 capital to risk-weighted assets of at least 8.5%; and (iii) Total capital to risk-weighted assets of at least 10.5%.
The Capital Rules provide for a number of deductions from and adjustments to CET1 capital. These include, for example, the requirement that mortgage servicing assets, deferred tax assets (DTAs), and significant investments in non-consolidated financial institutions be deducted from CET1 capital to the extent that any one such category exceeds 10% of CET1 capital or all such items, in the aggregate, exceed 15% of CET1 capital.
The Capital Rules also preclude certain hybrid securities, such as trust preferred securities, from inclusion in Tier 1 capital of bank holding companies, subject to phase-out for bank holding companies, such as Webster Financial Corporation, that had $15 billion or more inaverage total consolidated assets as of December 31, 2009. The Company has excluded trust preferred securities from Tier 1 capital since 2016.
Implementation ofits four most recently filed quarterly Call Reports. Upon becoming a covered bank, the deductions and other adjustments to CET1 capital began on January 1, 2015 and was being phased in overbank should have a 4-year period. The transition provisions applicable during 2017 under the banking agencies' regulatory capital rules have been extended indefinitely for certain regulatory capital deductions and risk weight requirements. In addition, implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and increases by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.
The risk-weighting categories are standardized and include a risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset classes. Management believes Webster is in compliance, and will continue to begovernance framework in compliance with the targeted capital ratiosguidelines within 18 months from the as such requirements are phased in.
Prompt Corrective Action and Safety and Soundness
Pursuant to Section 38of date of the Federal Deposit Insurance Act, federal banking agenciesmost recently filed Call Report used to calculate the average. The framework of a parent holding company may be used when the risks are requiredsubstantially similar. With the filing of its Call Report for the quarter ended December 31, 2022, the Bank became a covered bank, and will have 18 months to take prompt corrective action should an insured depository institution failcomply with these heightened OCC guidelines. The Company took steps in 2023 to ensure that its risk governance framework meets the OCC heightened standards, and expects to meet certain capital adequacy standards. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one ofrequired guidelines within the under capitalized categories, it is required to submitmandatory timeframe.
If a capital restoration plan to the appropriate federal banking agency and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well capitalized, adequately capitalized, or under capitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafeinstitution fails to meet any of the established standards, the agency may require the institution to submit an acceptable plan to achieve compliance with the standard. In the event that an institution fails to submit an acceptable plan within the time allowed, or unsound condition, orfails, in any material respect, to implement an unsafe or unsound practice, warrants such treatment.
For purposes of prompt corrective action,accepted plan, the agency must require the institution to be: (i) well-capitalized, an insured depository institution must have a total risk based capital ratio of at least 10%, a Tier 1 risk based capital ratio of at least 8%, a CET1 risk based capital ratio of at least 6.5%,correct the deficiency and a Tier 1 leverage ratio of at least 5%; (ii) adequately capitalized, an insured depository institution must have a total risk based capital ratio of at least 8%, a Tier 1 risk based capital ratio of at least 6%, a CET1 risk based capital ratio of at least 4.5%,may take other supervisory and a Tier 1 leverage ratio of at least 4%; (iii) under-capitalized, an insured depository institution would have a total risk based capital ratio of less than 8%, a Tier 1 risk based capital ratio of less than 6%, a CET1 risk based capital ratio of less than 4.5%, and a Tier 1 leverage ratio of less than 4%; (iv) significantly under-capitalized, an insured depository institution would have a total risk based capital ratio of less than 6%, a Tier 1 risk based capital ratio of less than 4%, a CET1 risk based capital ratio of less than 3%, and a Tier 1 leverage ratio of less than 3%; (v) critically under-capitalized, an insured depository institution would have a ratio of tangible equity to total assets that is less than or equal to 2%.
Bank holding companies and insured depository institutions may also be subject to potential enforcement actions of varying levels of severity byuntil the federal banking agencies for unsafe or unsound practices in conducting their business, or for violation of any law, rule, regulation, condition imposed in writing by the agency or term of a written agreement with the agency. deficiency is corrected.
In more serious cases,instances, enforcement actions may include the issuance of directives to increase capital;capital, the issuance of formal and informal agreements;agreements, the imposition of civil monetary penalties;penalties, the issuance of a cease and desist order that can be judicially enforced;enforced, the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties;parties, the termination of the insured depository institution’s deposit insurance;insurance, the appointment of a conservator or receiver for the insured depository institution;institution, and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
Resolution Planning
6There is currently a moratorium for insured depository institutions with more than $50 billion in assets but less than $100 billion in assets submitting to the FDIC periodic plans for resolution in the event of an insured depository institution's failure. On August 29, 2023, the FDIC proposed amendments to the resolution planning requirements for insured depository institutions with $50 billion or more in total assets. At December 31, 2023, the Company has approximately $75 billion in consolidated assets. The amendments would require insured depository institutions with between $50 billion and $100 billion in assets to submit information filings on a two-year cycle with an interim update of key information. While the Company would have time to prepare and submit a resolution plan, preparing and submitting such plan may increase related compliance costs.
Dividends
dividends to stockholders. Dividends paid by the Bank are subject to federal and state regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels or would exceed the net income for that year combined with the undistributed net income for the preceding two years. During the year ended December 31, 2023, the Bank declared and paid $600.0 million in dividends to the Holding Company and had $788.7 million of undistributed net income available for the declaration and payment of dividends at December 31, 2023.
In addition, federal banking regulators have the authority to prohibit the Company from engaging in unsafe or unsound practices in conducting its business. The declaration and payment of dividends, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice, especially if its capital base is depleted to an inadequate level. The ability of the Bank to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital requirements.
Transactions with Affiliates and Insiders
Under federal law, transactionsTransactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the FRA and Federal Reserve Act (FRA) and implementing Regulation W. In a bank holding company context, at a minimum, the parent holding company of a national bank, and any companies whichthat are controlled by such parent holding company, are considered affiliates of the bank. Generally, sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by (i) limiting the extent to which a bankan institution or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and (ii) requiring that all such transactions be on terms consistent with safesubstantially the same, or at least favorable, to the institution or subsidiary as those provided to a non-affiliate. The term covered transaction includes the making of loans, purchase of assets, the issuance of a guarantee, and sound banking practices.similar types of transactions. Certain covered transactions must be collateralized according to a schedule set forth in the statue.
In addition, Section 22(h) of the FRA and its implementingFederal Reserve Regulation O restricts loans to directors, executive officers, and principal stockholders or insiders. UnderPursuant to Section 22(h), loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution's total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the board of directors. Further, under Section 22(h) of the FRA, loans to directors, executive officers, and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the bank'sinstitution's employees and does not give preference to the insider over the employees. Further, loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive prior approval from the Company's Board of Directors. Section 22(g) of the FRA places additional limitations on loans to executive officers.
Consumer Protection and Consumer Financial Protection Bureau Supervision
The Dodd-Frank Act centralized responsibility for consumer financial protection by creating the CFPB an independent agency charged with responsibilityis responsible for implementing, enforcing, and examining compliance with federal consumer financial protection laws. TheAs an insured depository institution with more than $10 billion in total assets, the Bank is subject to supervision by the CFPB. There are a number of federal laws, which the Company is subject to, a number of federal and state lawsthat are designed to protect borrowers and promote lending, including, but not limited to, various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices Act, various state law counterparts, and the Consumer Financial Protection Act of 2010,2010.
Identity Theft
Certain regulated entities are required to establish programs to address risks of identity theft. In accordance with these rules, financial institutions and creditors are required to develop and implement a written identity theft prevention program designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The Company has an Identity Theft Prevention Program in place, which is partapproved by the Board of the Dodd-Frank Act. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect the Company’s business, financial condition or operations.
The ability-to-repay provision of the Truth in Lending Act requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act and the qualified mortgage provisions of the Truth in Lending Act, commonly known as the qualified mortgage (QM) Rule, loans meeting the definition of qualified mortgage are entitled to a presumption that the lender satisfied the ability-to-repayDirectors, satisfying its compliance with these requirements. The presumption is a conclusive presumption/safe harbor for prime loans meeting QM requirements and a refutable presumption for higher-priced/subprime loans meeting QM requirements. The QM definition incorporates the statutory requirements, such as not allowing negative amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA, and VA underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits. The CFPB is expected to continue to issue and amend rules implementing the consumer financial protection laws, which may impact Webster Bank's operations.
Financial Privacy and Data Security
WebsterThe Company is subject to federal laws, including the Gramm-Leach-Bliley Act and certain state laws and regulations containing consumer privacy and data protection provisions. These provisions limitaddressing the abilitytreatment of banks and other financial institutions to disclose nonpublic personal information about consumers to affiliated and non-affiliated third parties and limit the reuse of certain consumer information received from non-affiliatedby financial institutions. These provisions require notice of privacy policiesSubject to consumers and, in some circumstances, allow consumers to prevent disclosure of certain exceptions, financial institutions are prohibited from disclosing nonpublic personal information about a consumer to affiliates or non-affiliatednonaffiliated third parties, by meansunless the institution satisfies various notice and opt-out requirements, and the consumer has not elected to opt out of opt-out or opt-in authorizations.the disclosure. Regardless as to whether a financial institution shares nonpublic personal information, the institution must provide notice of its privacy policies and practices to its consumers, and must follow redisclosure and reuse limitations on any nonpublic personal information it receives from a nonaffiliated financial institution.
The Gramm-Leach-Bliley Act requires that financial institutions implement comprehensive written information security programs that include administrative, technical, and physical safeguards to protect consumer information. Federalfederal banking regulatory agencies have also adopted guidelines for establishing information security standards and programs to protect such information. Further, pursuantinformation, with an increased focus on risk management and processes related to interpretive guidance issued underinformation technology, and the Gramm-Leach-Bliley Actuse of third-parties. The expectation from the federal banking regulatory agencies is that financial institutions have established lines of defense to ensure that their risk management processes address the risks posed by compromised customer credentials, and certain state laws,that the financial institution has sufficient business continuity planning processes to ensure rapid recovery, resumption, and maintenance of operations after a cyber-attack.
Financial institutions are required to notify customers of security breaches that result in unauthorized access to their non-publicnonpublic personal information.
Depositor Preference
The Federal Deposit Insurance Act providescertain types of computer security incidents that result in harm to the event of the liquidationconfidentiality, integrity, or other resolutionavailability of an insured depository institution,information system or the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
Federal Deposit Insurance
The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank's capital level and supervisory rating. The risk matrix utilizes different risk categories distinguished by capital levels. As a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible equity. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed. FDIC deposit insurance expense includes deposit insurance assessments and Fair Isaac Corporation (FICO) assessments related to outstanding FICO bonds.
The FDIC’s deposit insurance limit is $250,000 per depositor, per insured bank, for each account ownership category. Substantially all of the deposits of Webster Bank are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
The Dodd-Frank Act requiresinformation that the FDIC raise the minimum reserve ratio of the DIF from 1.15% to 1.35%,system processes, stores, or transmits, as soon as possible and that the FDIC offset the effect of this increase on insured depository institutions with total consolidated assets of lessno later than $10 billion. In March 2016, the FDIC issued a final rule affecting insured depository institutions with total consolidated assets of more than $10 billion, such as Webster Bank. The final rule imposes a surcharge of 4.5 cents per $100 of the institution’s assessment base on deposit insurance assessment rates paid by these larger institutions. If the reserve ratio does not reach 1.35% by December 31, 2018, through implementation of the surcharge, the FDIC will impose an additional, one-time shortfall assessment on insured depository institutions with more than $10 billion in assets on March 31, 2019, to be paid by June 30, 2019. The FDIC also has authority to further increase deposit insurance assessments.
Under the Federal Deposit Insurance Act, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Webster's management is not aware of any practice, condition, or violation that might lead to the termination of its deposit insurance.
Incentive Compensation
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including Webster and Webster Bank, with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. The federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized. If the regulations are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured.
The Dodd-Frank Act also requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months36 hours after the date of enactment and at least every three years thereafter and on so-called "golden parachute" payments in connection with approvals of mergers and acquisitions. At Webster's 2011 Annual Meeting of Shareholders, its shareholders voted onbanking organization determines that a non-binding, advisory basis to hold a non-binding, advisory vote on the compensation of named executive officers of Webster annually. As a result of the vote, the Board of Directors determined to hold the vote annually.notification incident has occurred.
Community Reinvestment Act and Fair Lending Laws
WebsterThe Bank has a responsibility under the CRA as implemented by OCC regulations to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution'sinstitution’s discretion to develop the types of products andor services that it believes are best suited to its particular community. TheIn connection with its examination, the OCC examines Webster Bank'sassesses the Bank’s record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Webster Bank'sThe Bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities, andas well as the activities of Webster Financial Corporation. Webster Bank'sthe Company. Further, the Bank’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by the OCC, as well as other federal regulatory agencies, including the CFPB and the Department of Justice. Webster Bank's latest OCCThe Bank received a CRA rating was Satisfactory.
of Outstanding in its most recent examination.
Federal Deposit Insurance
USA PATRIOT ActThe standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, for each account ownership category. The FDIF is funded mainly through quarterly assessments on insured depository institutions, such as the Bank, and provides insurance coverage for certain deposits up to this maximum amount.
Under Title IIIThe Bank's assessment is calculated in accordance with the FDIC's standardized risk-based methodology by multiplying its assessment rate by its assessment base, which are determined and paid each quarter. The assessment base equals the Bank's average consolidated total assets less average tangible equity during the assessment period. As a large bank, or generally one with $10 billion or more in assets, the Bank is assigned an individual rate based on a scorecard, which combines CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the USA PATRIOT Act,bank's failure, to produce a score that is then converted to an assessment rate.
Assessment rates are subject to adjustment by the FDIC. For instance, assessment rates could (i) decrease for the issuance of long-term unsecured debt, including senior unsecured debt and subordinated debt, (ii) increase for holdings of long-term unsecured or subordinated debt issued by other banks, or (iii) increase for significant holdings of brokered deposits for large banks that are not well rated or not well capitalized. On October 18, 2022, the FDIC increased the initial deposit base deposit insurance assessment rate schedules uniformly by 2 basis points for all insured depository institutions, beginning in the first quarterly assessment period of 2023. The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the FDIF reaches the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses incurred by protecting uninsured depositors of Silicon Valley Bank and Signature Bank upon their failure in March 2023. The final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits balance reported as of December 31, 2022. The special assessment is to be collected for an anticipated total of eight quarterly assessment periods beginning with the first quarter of 2024, which has a payment date of June 28, 2024. The FDIC retains the right to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment if actual losses exceed the amounts collected.
The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound, or that the institution has engaged in unsafe and unsound practices, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The Company’s management is not aware of any practice, violation, or condition that might lead to the termination of its deposit insurance.
Depositor Preference
In the event of the liquidation or other resolution of an insured depository institution, including the Bank, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, claims of insured and uninsured depositors, along with claims of the FDIC, would have priority in payment ahead of unsecured, non-deposit creditors, including the Holding Company, with respect to any extensions of credit they have made to such insured depository institution.
Anti-Money Laundering
A major focus of U.S. federal governmental policy as it relates to financial institutions is aimed at combating money laundering and terrorist financing. The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with the relevant laws and regulations, could have serious legal and reputational consequences for the financial institution, including causing the applicable bank regulatory authorities to not approve merger or acquisition transactions or to prohibit such transactions even if prior approval is not required.
Financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the Gramm-Leach-Bliley Act and otherfederal privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign "shell banks"shell banks and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary
Financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act. WebsterThe Company has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.
Office The Company also complies with the sanctions administered by the OFAC of Foreign Assets Control Regulation
The United States government has imposedthe U.S. Department of the Treasury, which is responsible for administering economic sanctions that affect transactions with designated foreign countries, nationals,nations, and others. These are typicallyThe OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring, or engaging in terrorist acts, known as the "OFAC" rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control. The Office of Foreign Assets Control-administered sanctions targeting countries take many different forms. Generally, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports fromSpecially Designated Nationals and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons).Block Persons. Blocked assets (property(i.e., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the Office of Foreign Assets Control.OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Future Legislative InitiativesDebit Card Interchange Fees
The Board of Governors of the Federal Reserve System requires that the amount of any interchange transaction fee that a debit card issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and state legislatures may introduce legislation that will impactproportional to the financial services industry. In addition, federal banking agencies may introduce regulatory initiatives that are likelycost incurred by the debit card issuer with respect to impact the financial services industry, generally. Such initiatives may include proposals to expand or contract the powerstransaction, and imposes requirements regarding routing and exclusivity of bank holding companies and/or depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statuteselectronic debit transactions and the operating environmentusability of debit cards across networks. Interchange fees for certain electronic debit transactions are capped at 21 cents plus 0.05% of the Companytransaction value for issuers with over $10 billion in substantial and unpredictable ways. If enacted,consolidated assets, such legislation could increase or decreaseas the cost of doing business, limit or expand permissible activities, or affectBank. The regulation also allows covered debit card issuers to receive 1 cent per transaction for fraud-prevention costs, provided that the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted,debit card issuer meets the effect that it or any implementing regulations would have onfraud-prevention standards established by the financial condition or results of operations of the Company. A change in statutes, regulations, or regulatory policies applicableFRB. HSA Bank's interchange revenue is not subject to Webster or any of its subsidiaries could have a material effect on the business of the Company.these rules.
Risk Management Framework
Webster takesThe Company defines risk as the potential that events, expected or unexpected, may have an adverse effect on its earnings, capital, or franchise/enterprise value. The Company maintains a comprehensive approach to risk management with a defined enterprisestructured risk management framework that provides an integrated, forward-looking approach to identifying, prioritizing, and managing all risk categories across the organization: Information, Reputational, Operational, Credit, Compliance, Financial, and Strategic.
The Chief Executive Officer and Executive management set the tone at the top and reinforce risk culture through strategy setting, formulating objectives, approving resource allocations, and establishing and maintaining effective systems of internal control. A strong risk culture is the foundation of effective risk management because it influences the decisions of management and employees when weighing risks and benefits. The Chief Executive Officer and Executive management also encourage and support risk self-identification and timely escalation throughout the organization.
The Company has adopted the Three Line Model, in which the First Line manages risks, ensures compliance, performs control activities, and works in coordination with the Second Line, who in turn provides a structured approachadditional expertise, support, and tools, and challenges risk management to enhance efficiency and effectiveness of the control environment. The Third Line provides an independent and objective assurance to management and the Board of Directors and assesses whether the First and Second Line functions are operating effectively. Detailed roles and responsibilities for identifying,each line are outlined below.
Front Line Units, also referred to as First Line functions, represent process owners that engage in activities designed to generate revenue and reduce expenses, provide operational and technology services, and provide operational support and servicing in the delivery of products or services. Since Front Line Unit activities inherently create risk, the Front Line Units are responsible for assessing and managing that risk.
Independent Risk Management, also referred to as the Second Line Function, is responsible for identifying, measuring, monitoring, or controlling risks acrossindependently from the Front Line Units and providing effective challenge to the Front Line Units. Independent Risk Management includes Enterprise Risk that reports to the Chief Risk Officer, Credit Risk Management that reports to the Chief Credit Officer, and the SOX Program Office that reports to the Chief Accounting Officer. The SOX Program Office maintains sufficient autonomy from the Front Line Units to be considered independent.
Internal Audit, also referred to as the Third Line Function, independently assesses the Company’s risk management processes and controls using methodology developed from professional auditing standards and regulatory guidance. Internal Audit undertakes these responsibilities through periodic reviews of the Company’s business activities, operations, and systems, and through special or retrospective reviews that may be specifically requested by the Audit Committee or management. Internal Audit is led by the Chief Audit Executive who reports to the Audit Committee.
Risk identification at the Company inis a coordinated manner, includingcontinuous process and occurs at the transaction, portfolio, and enterprise levels. Approaches used to identify risk include process and data analysis, key risk indicators, and risk assessments. Identified risks are assessed based on qualitative and quantitative factors to understand the likelihood that such events will occur and the degree to which they will impact the Company’s ability to achieve its strategic reputational, credit, market, liquidity, capital, and operationalbusiness objectives if they occur. Risk assessments evaluate inherent risk (likelihood and compliance risks as discussed in detail in the sections below.impact) and existing controls (control environment) to arrive at residual risk.
The enterprise risk management framework enables the aggregation of risk across the enterprise and ensures the Company has established and maintains a Risk Appetite Statement which provides guidance to management regarding the tools, programsnature and processeslevel of residual risk that it is willing to take in place to support informed decision making, anticipate risks before they materialize and maintain Webster's risk profile consistent withpursuit of its risk strategy and appetite.
objectives. The enterprise risk management framework includes an articulatedappetite balances a qualitative risk appetite statement, which is approved annually by the Board of Directors. TheDirectors, with quantitative metrics in the form of board-level and management-level scorecards comprising key risk appetite statement is supported by board and business level scorecardsindicators with definedestablished risk tolerance limitslevels. Tolerance levels are periodically reviewed by the respective oversight committees to ensure that Webster maintains an acceptable risk profile by providing a common framework and a comparable setthe alignment of measures to indicate the level of risk that the Company is willing to accept. The risk appetite is refreshed annually in conjunction with the strategic plan to align risk appetite with Webster's strategythe Company’s risk profile.
The Company has established operating and financial plan.
Webster promotes proactive risk management by all Webster employeesroles and clear ownership and accountability across three linesresponsibilities. The Board of defenseDirectors oversees the Company's approach to enable an effective and credible challenge in line with Webster's strong risk culture. Employees in each line of business serve as the first line of defense and have responsibility for identifying, managing and owning the risks in their businesses. Risk and enterprise support functions, for example third party risk management and legal departments, serve asdelegates its authority to the second line of defense and are responsible for providing guidance,Risk Committee to provide oversight and challenge to the first line of defense. Internal Audit and Credit Risk Review, both of which are independent of management, serve as the third line of defense and ensure, through review and testing, that appropriate risk management controls, processes and systems are in place and functioning effectively.
The Risk Committee ofeffective challenge. Along with assisting the Board of Directors comprised of independent directors, oversees all of Webster's risk-related matters and provides input and guidance to the Board of Directors and the executive team, as appropriate. Webster's Enterprise Risk Management Committee, which reports directly toin fulfilling its oversight responsibilities, the Risk Committee is responsible for reviewing information regarding the Company's policies, procedures, and practices relating to risk. The Chief Risk Officer has the primary responsibility for the design and implementation of the Board of Directors,Company's risk management framework.
The ERMC, which is chaired by the Chief Risk Officer, and is comprised of Webster's executivethe management and senior risk officers.
The Chief Risk Officer is responsible for establishing and maintaining Webster's enterprise risk management framework and overseeing credit risk, operational and compliance risk, Bank Secrecy Act compliance and loan workout/recovery programs. The Corporate Treasurer, who reports to the Chief Financial Officer, iscommittee responsible for overseeing market, liquidity, and capitalthe Company's risk management activities.
Credit Risk
Webster managesprocess, including monitoring the severity, direction, and controls credittrend of current and emerging risks relative to business strategies and market conditions, assessing the quality of risk in its loanprograms to manage and investment portfolios through established underwriting practices, adherence to standards,mitigate risks, and utilization of various portfolio and transaction monitoring tools and processes. Credit policies and underwriting guidelines provide limits on exposure and establish various other standards as deemed necessary and prudent. Additional approval requirements and reporting are implemented to ensure proper risk identification, decision rationale, risk ratings, and disclosure of policy exceptions.
Credit risk management policies and transaction approvals are managed under the supervision of the Chief Credit Officer who reports to the Chief Risk Officer. The Chief Credit Officer and team of credit executives are independent of the loan production and treasury areas. The credit risk function oversees the underwriting, approval and portfolio management process, establishes and ensures adherence to credit policies, and manages the collections and problem asset resolution activities.
As part of credit risk management governance, Webster established a Credit Risk Management Committee that meets regularly to review key credit risk topics, issues, and policies. The Credit Risk Management Committee reviews Webster's credit risk scorecard, which covers key risk indicators and limits established as partensuring implementation of the Company's risk appetite framework. Theand strategy. To support the ERMC in its oversight responsibilities, it has seven subcommittees: (i) Information Risk Committee, (ii) Operational Risk Management Committee, (iii) Litigation Risk Management Committee (iv) Credit Risk Management Committee, (v) Regulatory Compliance Committee, (vi) Bank Secrecy Act and Fraud Oversight Committee, and (vii) Asset Liability Committee.
Information Risk
Information risk encompasses Information Technology and Information Security risks. Informational Technology risk is chaireddefined as the risk that systems handing information and process flows may not meet quality and efficiency standards in line with industry, customer, and regulatory expectations, or may fail causing outages, or that new systems may not be implemented in a timely manner. Information Security risk is defined as the risk of unauthorized access, use, disclosure, disruption, modification, perusal, inspection, recording, or destruction of electronic or physical data.
The increased use of technology to store and process information, particularly the ability to conduct financial transactions on mobile devices and cloud technologies, exposes the Company to moderate risk of potential operational disruption or information security incidents, whether caused by deliberate or accidental acts. The Company is committed to preventing, detecting, and responding timely to incidents that may impact the confidentiality, integrity, and availability of information assets through its information security and technology risk programs, which are managed under the direction of the Chief CreditInformation Security Officer and includes senior managers responsible for lending as well as senior managers from the credit risk management function. Important findings regarding credit quality and trends within the loan and investment portfolios are regularly reported by the Chief Credit Officer to the EnterpriseSenior Managing Director of Information Risk Management Committee (ERMC) andManagement. The Information Risk Committee ofprovides primary oversight to Information Risk.
Reputational Risk
Reputational risk is defined as the Board of Directors.potential that negative publicity regarding the Company's conduct, business practices, or associations, whether true or not, will adversely affect its revenues, operations, and customer base, or require costly litigation or other defensive measures. Reputational risk may also impair the Company's competitiveness by affecting its ability to establish new relationships or continue servicing existing customers. Reputational risk is inherent in all Company's activities, especially when dealing with stakeholders such as customers, counterparties, investors, regulators, colleagues, and communities.
In addition, toreputational risk arises when the creditCompany associates its brand with solutions and services offered through outsourced arrangements, negative publicity regarding matters such as unethical or deceptive business practices, violations of laws or regulations, high profile litigation, poor financial performance, poor execution, or inferior customer service.
Reputational risk management team, there is an independent Credit Risk Review function that assessesmanaged through strong corporate governance, risk ratingsculture, and credit underwriting process for all areasa Code of Ethics. Setting the organization that incur credit risk. The head of Credit Risk Review reports directly totone at the Risk Committee oftop, the Board of Directors and administrativelyexecutive leadership actively support risk awareness by mandating accurate and timely management information and communication. The Company's ethical standards are reinforced through recruiting, training, and performance management. The Company also maintains strong fair and responsible banking practices, which permeate interactions with clients, vendors, and counterparties. The ERMC provides primary oversight to Reputational risk.
Operational Risk
Operational risk is defined as the risk of loss, whether direct or indirect, due to the Chiefinadequacy or failure of processes and systems, human error, or from external events. Operational risk encompasses the following risks: Fraud, Third Parties, Human Capital, Business Operations, Model, Legal, and Physical Security.
The Company mitigates Operational risk through the establishment of an Operational Risk Officer. Credit Risk Review findingsManagement Program, which provides for a set of tools to identify, assess, monitor, and report operational risk activities. The program enables the lines of business and corporate functions to establish accountability for performance and execution, and allows for timely and effective management of identified risks, control failures, or other related gap/deficiencies that are reportedreinforced through incentive structures. The Company seeks to control operational risk within an acceptable range, which is determined by the Credittypes of businesses in which it engages, and the volume of activity within those lines of business. Control of operational losses depends on identifying the types of transactions and operational risks faced at the enterprise and business level, and ensuring effective internal control processes are in place to mitigate these risks. The Operational Risk Management Committee ERMC andprovides primary oversight to Operational risk as a whole. The Litigation Risk Committee of the Board of Directors. Corrective measures are monitored and testedprovides primary oversight to ensureLegal risk.
Credit Risk
Credit risk issues are mitigated or resolved.
Operational and Compliance Risks
Operational risk representsis defined as the risk of loss resulting from inadequatethe failure of a borrower or failed internal processes, peoplecounterparty to honor its financial or contractual obligations to the Company. Credit risk arises in the Company's lending operations, and systemsin its funding and investment activities where counterparties have repayment or other obligations to the Company. Credit risk can also arise from external events, such as fraud, cyber-attacks,other solutions or natural disasters. services that involve customer obligations for the transfer of funds.
The Operational Risk functionoverall focus of Credit risk management is responsible for establishing processesto balance returns relative to risk while operating within stated risk tolerances. The Company maintains underwriting standards consistent with its desired risk profile and toolsrobust credit process. The Company's loan portfolio, which includes both commercial and consumer lending activity, is actively managed to identify, manage,avoid significant concentrations in borrowers, counterparties, industries, and aggregate operational risksolutions that could create excessive correlated risk.
Diversification of the loan portfolio across the organization; providing guidancecommercial and advice on operational risk matters;industrial, specialty finance, and educating the organization on operational risks. Compliance risk represents the risk of non-adherencereal estate lending is important in managing credit risk. Accordingly, management aims to applicable lawsactively measure and regulations, including fines penaltiesmanagement concentrations by portfolio, industry sector and reputation damage. Specific programs and functions have been implemented to manage the risks associated with legal and regulatory requirements, suppliersspecific sub-sectors, geography, single obligor, and other third-parties, information security, business disruption, fraud, analyticalguidelines. The Company is primarily a relationship lender. In addition, the Company will only assume credit risk when it can effectively manage from an infrastructure or operational perspective, and forecasting models,it has industry, product, and new products and services.market expertise.
Webster's OperationalThe Credit Risk Management Committee provides primary oversight to Credit risk.
Compliance Risks
Compliance risk is defined as the risk to current or anticipated earnings or capital arising from violations of, or non-compliance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or prudent ethical standards. Compliance risk exposes the Company to fines, civil monetary penalties, payment of damages, and the voiding of contracts. The Company's activities subject to overall compliance, consumer protection, and regulatory risk include deposit account management, lending products and services, privacy protections, investment management, and fiduciary services.
Compliance risk is managed through the execution of a comprehensive Compliance Management Program, which consistsis designed to identify and evaluate risks of seniornon-compliance, assess, test, and monitor the effectiveness of internal controls, and report and escalate significant issues. The Regulatory Compliance Committee provides primary oversight to Compliance risk officersas a whole. The BSA and senior managers responsible for operationalFraud Oversight Committee provides primary oversight to Compliance risks specific to the BSA.
Financial Risk
Financial risk encompasses Treasury and complianceAccounting risk. Treasury risk includes the risk (i) of capital levels falling below supervisory expectations or being incommensurate with the level of risk; (ii) that the value of a security or investment will decrease; (iii) changes in interest rates could contribute to a reduction in earnings and net worth; and (iv) from decreases or changes in funding sources. Accounting risk includes the risks that arise from the inability to (i) comply with GAAP and regulatory laws/guidelines; (ii) ensure a high integrity financial reporting process; and (iii) disclose appropriate information.
The Treasury components of Financial risk are managed through interest rate, liquidity, and capital scenario analysis and stress testing. Accounting risk is managed through internal control over financial reporting. The Company's Treasury and Accounting Risk Programs are respectively managed by the Treasurer and Chief Accounting Officer. The Asset Liability Committee provides primary oversight of Treasury risk. The Disclosure and SOX Committees provide primary oversight of Accounting risk.
Strategic Risk
Strategic risk is defined as the risk to the Company's current or projected financial condition, expected returns and resilience arising from the inability to select and execute strategic choices, suboptimal company positioning, ineffective organizational structures, poor implementation of priorities and initiatives, inadequate risk management acrossinfrastructure, or the lack of responsiveness to changes in the financial services ecosystem and operating environment.
The Company seeks to achieve its performance objectives by making management decisions, such as the selection of strategic choices, applying planning assumptions, assessing internal capabilities and the external environment, ensuring capital and resources are dedicated to the right priorities, and ensuring effective execution by periodically reviewsreviewing specific plans. Strategic risk underscores the aforementioned programs, as well as key operationalneed for balance between risk trends, issues, and mitigation activities. The Director of Operating Risk Management chairs the Operational Risk Management Committee and is responsible for overseeing the development and implementation of Webster's operational risk management framework.
Market Risk
Market risk refers toreturn, evaluating opportunity against the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity prices,of value.
The long-range strategic planning process ensures that strategic choices and other relevant market rates and prices, such as equity prices. The risk of loss is assessed frominitiatives are viewed with the perspective of adverse changes in fair values, cash flows, and future earnings. Due to the nature of its operations, Webster is primarily exposed to interest rate risk. Webster's interest rate sensitivity is monitored on an ongoing basis by its Asset/Liability Committee (ALCO). The primaryoverarching goal of ALCOallocating capital and resources to support strategies that create value for customers and stockholders and sustainably grow economic profit over time. The impact of a strategic plan on the Company's risk appetite and risk profile is to manage interest rate risk to maximize earnings and net economic value in changing interest rate and business environments, subject to Board approved risk limits. ALCOevaluated as part of the strategic planning process. The long-range strategic planning process is chairedmanaged by Webster'sthe Corporate Treasurer and members include the Chief Executive Officer, Chief Financial Officer and Chief RiskStrategy Officer. ALCO activities and findings are regularly reported to theThe ERMC and Risk Committee of the Board of Directors.
Liquidity Risk
Liquidity risk refersprovide primary oversight to the ability to meet a demand for funds by converting assets into cash or cash equivalents and by increasing liabilities at an acceptable cost. Liquidity management for Webster Bank involves maintaining the ability to meet day-to-day and longer-term cash flow requirements of customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Sources of funds include deposits, borrowings, or sales of assets such as unencumbered investment securities.
The Holding Company requires funds for dividends to shareholders, payment of debt obligations, repurchase of shares, potential acquisitions, and for general corporate purposes. Its sources of funds include dividends from Webster Bank, income from investment securities, the issuance of equity, and debt in the capital markets.
Both the Holding Company and Webster Bank maintain a level of liquidity necessary to achieve their business objectives under both normal and stressed conditions. Liquidity risk is monitored and managed by ALCO and reviewed regularly with the ERMC and Risk Committee of the Board of Directors.
Capital Risk
Webster aims to maintain adequate capital in both normal and stressed environments to support its business objectives and risk appetite. ALCO monitors regulatory and tangible capital levels according to regulatory requirements and management operating ranges and recommends capital conservation, generation, and/or deployment strategies. ALCO also has responsibility for the annual capital plan, capital ratio range setting, contingency planning and stress testing, which are all reviewed and approved by the ERMC and Risk Committee of the Board of Directors, at least annually.
Internal Audit
Internal Audit provides an independent, objective assurance and advisory services by testing and evaluating the design and operating effectiveness of internal controls throughout Webster. This evaluation function brings a systematic and disciplined approach to enhancing the effectiveness of Webster's governance, risk management, and internal control processes.
Results of Internal Audit reviews are reported to management and the Audit Committee of the Board of Directors. Corrective measures are monitored to ensure risk issues are mitigated or resolved. The General Auditor reports functionally to the Audit Committee and administratively to the Chief Executive Officer. The appointment or replacement of the General Auditor is overseen by the Audit Committee.Strategic risk.
Additional information onregarding risks and uncertainties, and additionalrelevant risk factors that could affectimpact the Company's business, results of operations, or financial condition can be found in Part I - Item 1A1A. Risk Factors and elsewhere withinthroughout Part II of this Form 10-K for the year ended December 31, 2017, and in other reports Webster Financial Corporation files with the SEC.
report.
ITEM 1A. RISK FACTORS
An investmentInvestment in our securitiesWebster stock involves risks and uncertainties, some of which are inherent in the financial services industry and others of which are more specific to our business. The discussion in the paragraphs below addresses the material risks and uncertainties, of which we are currently aware, that could adversely affect our business, results of operations, andor financial condition. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. If any of thethese events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations, or financial condition could suffer.be significantly impacted.
Risks Relating to the Economy, Financial Markets,Information Risk
A failure or breach of our information systems, or those of our third-party vendors and Interest Rates.
Difficult conditionsservice providers, including as a result of cyber-attacks, could disrupt our businesses, result in the economymisuse of confidential or proprietary information, damage our reputation, and cause losses.
As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions. Accordingly, our operational systems and technology infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting, data processing, or other operating systems and facilities, including mobile banking and other recently developed technologies, may stop operating properly or become disabled or compromised as a result of a number of factors that may be beyond our control. For example, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, natural disasters, pandemics, events arising from political or social matters, including terrorist acts and cyber-attacks, all of which may contribute to a cybersecurity threat.
Although we have business continuity plans and information security and technology processes and controls in place, we are at risk of cybersecurity threats due to disruptions or failures in the financial markets mayoperational systems or technology infrastructures that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems, or devices on which information assets are stored or are used by customers to access our products and services. Any of these incidents could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement, or other compensation costs, which could have a materiallymaterial adverse effect on our business strategy, results of operations, or financial condition.
Additionally, third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational risk and information security risk, including breakdowns or failures of their own systems, capacity constraints, and cyber-attacks, each of which could pose a cybersecurity risk.
In recent years, information security risks for financial institutions have risen due to the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, customer information or the destruction or theft of corporate data. There have also been highly publicized cases where hackers have requested ransom-payments in exchange for allowing access to systems and/or not disclosing customer information.
Our inherent risk and exposure to information security matters remains heightened, and as a result, the continued development and enhancement of our controls, processes, and practices designed to protect operational systems, computers, software, data, and networks from attack, damage, or unauthorized access remains a high priority for us. While we have purchased network and privacy liability insurance coverage, which includes digital asset loss, business interruption loss, network security liability, privacy liability, network extortion, and data breach coverage, such insurance may not cover any and all actual losses. As cybersecurity threats and related regulations continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.
Reputational Risk
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG-related compliance costs for us as well as among our third-party suppliers, vendors, and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our stock.
We are subject to financial and reputational risks from potential liability arising from lawsuits.
The nature of our business ordinarily results in certain legal proceedings and claims. Whether claims or legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect how the market perceives us, the products and services we offer, as well as customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which could have a material adverse effect on our financial condition and results of operations.
Our financial performance is highly dependent upon the business environment in the markets where we operateWe assess our liabilities and in the United States as a whole. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, decreases in business activity, weakening of investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation, changes in interest rates, changes in tax laws, high unemployment, natural disasters or a combination of these or other factors.
In particular, we may face the following riskscontingencies in connection with developmentsoutstanding legal proceedings and certain threatened claims and assessments using the latest and most reliable information. For matters identified where it is probable that we will incur a loss and we can reasonably estimate the amount, we will establish an accrual for the loss. Once established, the accrual is then adjusted, as needed, to reflect any relevant developments. However, the actual cost of an outstanding legal proceeding or threatened claim and assessment may be substantially higher than the amount accrued by management.
Operational Risk
We rely on third parties to perform significant operational services for us.
Third parties perform significant operational services on our behalf. For instance, we depend on our vendor-provided core banking processing systems to process a large number of increasingly complex transactions on a daily basis. Accordingly, we are exposed to the risk that vendors and third-party service providers might not perform in accordance with their contracts or service agreements, whether due to changes in their organizational structure, strategic focus, support for existing products, technology, services, financial condition, or for any other reason. Their failure to perform could be disruptive to our operations, which could have a materially adverse impact on our business, results of operations, and financial condition. Although we require third-party service providers to have business continuity and disaster recovery plans that are aligned with our plans, such plans may not operate successfully or in a timely manner so as to prevent any such material adverse impact.
Our business may be adversely affected by fraud.
As a financial institution, we are inherently exposed to risk in the current economicform of theft and market environment:
consumerother fraudulent activities by employees, customers, or other third parties targeting Webster or Webster’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering, and business confidence levelsother dishonest acts. Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may decline and lead to less credit usage and increases in delinquencies and default rates;
our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future behaviors;
customer desire to do business with us may decline, whetherexperience financial losses or reputational harm as a result of a decreased demand for loansfraud.
Our internal controls may be ineffective, circumvented, or other financial productsfail.
Management regularly reviews and services or decreased deposits or other investmentsupdates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in accounts with us;
competition in our industry could intensify as a resultpart on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the increasing consolidationsystem are met. Any failure or circumvention of financial services companies;our controls and
the effects procedures, failure to implement any necessary improvement of recentcontrols and proposed changes in laws such as the Tax Act.
The business environment in the U.S. has experienced volatility in recent yearsprocedures, or failure to comply with regulations related to controls and may continue to do so for the foreseeable future. There can be no assurance that economic conditions will not worsen. Difficult economic conditionsprocedures could adversely affecthave a material adverse effect on our business, results of operations, and financial condition.
Changes in local economic conditionsWe are exposed to environmental liability risk with respect to properties to which we obtain title.
A significant portion of our loan portfolio is secured by real property. In the normal course of business, we may foreclose on and take title of properties securing certain loans, and there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be held liable for remediation costs, including significant investigation and clean-up costs and for personal injury or property damage. In addition, environmental contamination could materially reduce the affected property’s value or limit our ability to use or sell the affected property. Although we have policies and procedures to perform environmental reviews prior to lending against or initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. Further, if we are the owner or former owner of a contaminated site, we may be subject to common law claims based on damages and costs incurred by others due to environmental contamination emanating from the property. These remediation costs and liabilities could have a material adverse effect on our financial condition and results of operations.
Climate change manifesting as physical or transition risks could adversely affect our business.operations, businesses, and customers.
A significant percentageThere is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include discrete events, such as flooding and wildfires, and longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations, those of our loans are secured by real estate, primarily across the Northeast. Our success depends in part upon economic conditions in Southern New Englandcustomers, or third parties on which we rely, including through direct damage to assets and our other geographic markets. Adverseindirect impacts from supply chain disruption and market volatility. In addition, transitioning to a low-carbon economy may entail extensive policy, legal, technological, and market initiatives. Transition risks, including changes in such local marketsconsumer preferences and additional regulatory requirements or taxes, could reduceincrease our growthexpenses and undermine our strategies. Our reputation and client relationships may be damaged as a result of our practices related to climate change, including our direct or indirect involvement in loans and deposits, impaircertain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to conduct or change our activities in response to managing climate risk. Further, our ability to collectattract and retain employees may also be harmed if our loans, increase problemresponse to climate change is perceived as ineffective or insufficient. We have developed and continue to enhance processes to assess and monitor the Bank's exposure to climate risk. However, because the timing and impact of climate change have limited predictability, our risk management strategies may not be effective in mitigating climate risk exposure.
Credit Risk
Our allowance for credit losses on loans and charges-offs,leases may be insufficient.
We maintain an ACL on loans and otherwise negatively affectleases, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of expected credit losses over the life of the loan or lease within our performanceexisting portfolio. The determination of the appropriate level of ACL on loans and leases inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends using existing qualitative and quantitative information and reasonable supportable forecasts of future economic conditions, all of which may undergo frequent and material changes. Changes in economic conditions affecting borrowers, the softening of macroeconomic variables that we are more susceptible to, along with new information regarding existing loans, identification of additional problems loans, and other factors, both within and outside our control, may indicate the need for an increase in the ACL on loans and leases.
Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the ACL, we may need, depending on an analysis of the adequacy of the ACL, additional provisions to increase the ACL. An increase in the ACL would result in a decrease in net income, and could have a material adverse effect on our financial condition.condition, results of operations, and regulatory capital position.
The soundness of other financial institutions could adversely affect us.our business.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companiesinstitutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about one or more financial services companies, or the financial services industry generally,in general, have led, and may further lead to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions could expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbatedimpacted if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivativefinancial instrument’s exposure due to us. There is no assurance that anyAny such losses would notcould materially andor adversely affect our business, financial condition, or results of operations.
We are subject to the risk of default by our counterparties and clients, particularly with respect to certain types of commercial loans.
Many of our routine transactions expose us to credit risk in the event of default of our counterparties or clients. Our credit risk may not pay dividends if we are not ablebe exacerbated when the collateral held cannot be realized or is liquidated at prices insufficient to receive dividends from our subsidiary, Webster Bank.
We are a separate and distinct legal entity from our banking and non-banking subsidiaries and depend oncover the paymentfull amount of cash dividends from Webster Bank and our existing liquid assets as the principal sources of funds for paying cash dividends on our common stock. Unless we receive dividends from Webster Bankloan or choosederivative exposure to use our liquid assets,us. In deciding whether to extend credit or enter into other transactions, we may not be ablerely on information furnished by or on behalf of counterparties and clients, including financial statements, credit reports, and other information. We may also rely on representations of those counterparties, clients, or other third parties, such as independent auditors, as to pay dividends. Webster Bank’sthe accuracy and completeness of that information. The inaccuracy of that information or those representations affects our ability to pay dividends is subjectevaluate the default risk of a counterparty or client accurately and could cause us to its ability to earn net income and to meet certain regulatory requirements. See the sub-section captioned "Dividends" in Item 1 of this report for a discussion of regulatory and other restrictions on dividend declarations.
Changes in interest rates and spreads could have an impact on earnings and results of operationsenter into unfavorable transactions, which could have a negative impact on the value of our stock.
Our consolidated earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect our earnings and financial condition. We cannot predict with certainty or control changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense. While we have ongoing policies and procedures designed to manage the risks associated with changes in market interest rates, changes in interest rates still may have anmaterial adverse effect on our profitability. For example, highfinancial condition and results of operations.
In addition, we consider our commercial real estate loans and commercial and industrial loans to be higher risk categories in our loan portfolio because these loans are particularly sensitive to economic conditions. Commercial real estate loans generally have large balances and can be significantly affected by adverse economic conditions that are outside of the borrower’s control because payments on such loans typically depend on the successful operation and management of the businesses that hold the loans. In the case of commercial and industrial loans, related collateral often consists of accounts receivable, inventory, and equipment. This type of collateral typically does not yield substantial recovery in the event of foreclosure and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure. In addition, many of our commercial real estate and commercial and industrial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss. The risks associated with these types of loans could have a significant negative affect on our earnings in any quarter. In 2023, higher interest rates could affectand inflation affected the amountprofitability of new commercial real estate developments, the feasibility of some projects, and the volume of commercial real estate investments. The commercial real estate market has experienced increased property vacancies and declining rent growth.
We are subject to commercial lending concentration risks.
At December 31, 2023, approximately 75% of our loan and lease portfolio consisted of commercial non-mortgage, commercial real estate, and multi-family loans, that we can originate because higher rates could cause customersand a large portion of the borrowers or properties associated with these loans are geographically concentrated in New York City and proximate areas. We continue to apply for fewer mortgages, or cause depositors to shift funds from accounts that have a comparatively lower cost to accountsmonitor risks associated with a higher cost, or experience customer attrition due to competitor pricing. Ifoffice space, anchor tenants, and the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If we were not able to reduce our funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then our net interest margin would decline.
Our stock price can be volatile.
Stock price volatility may negatively impact the price at which our common stock may be sold, and may also negatively impact the timing of any sale. Our stock price can fluctuate widely in response to a variety of factors including, among other things:
actual or anticipated variations in operating results;
changes in recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services and healthcare industries;
new technology used, or services offered, by competitors;
perceptions in the marketplace regarding us and/or our competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
additional investments from third parties;
issuance of additional shares of stock;
changes in government regulations or actions by government regulators; and
geo-political conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditionsphysical risks (such as severe weather, public health, and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, could also causepersonal safety risks), affecting commercial properties and borrowers in the Greater New York City area. Additional information regarding our stock price to decrease regardlesscommercial lending business can be found in Part II under the section captioned "Loans and Leases" contained in Item 7. Management's Discussion and Analysis of our operating results.Financial Condition and Results of Operations.
Regulatory, Compliance Environmental and Legal RisksRisk
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our financial results.operations.
We are subject to extensive federal and applicable state regulation and supervision, primarily through Webster Bank and certain non-bank subsidiaries, are subject to extensive federal and state regulation and supervision.subsidiaries. Banking regulations are primarily intended to protect depositors’ funds,depositors, the DIFFDIF, and the safety and soundness of the U.S banking system as a whole, not shareholders.stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continuallycontinuously review banking laws, regulations, and policies for possible changes.changes, and proposed changes are to be expected if there is a change in the office of the President of the U.S. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies,thereof, could affect us in substantial and unpredictable ways. SuchFor example, such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or limitand restrict what we mayare able to charge for certain banking services, among other things. Additionally, recent changes to the legal and regulatory framework governing our operation, including the continued implementation of Dodd-Frank Act have and will continue to affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act imposed additional regulatory obligations and increased scrutiny from federal banking agencies. In general, federal banking agencies have increased their focus on risk management and compliance with consumer financial protection obligations, and we expect this focus to continue. Additional compliance requirements are likely and can be costly to implement. Compliance personnel and resources may increase our costs of operations and adversely impact our earnings.
services. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/orand reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations.
While we have policies and procedures designed to prevent any suchthese types of violations, there can be no assurance that such violations will not occur. See
We face risks related to the section captioned "Supervisionadoption of future legislation and Regulation"potential changes in Item 1federal regulatory agency leadership, policies, and priorities.
As a result of this report for further information.the bank failures in 2023, it is expected that the banking sector will be subject to more extensive legal and regulatory requirements within the next few years. In addition, changes in key personnel at the regulatory agencies, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines, including more stringent enforcement and more severe penalties than previously. Disagreements between, or in, the U.S. Congress on the federal budget and debt ceiling may lead to total or partial government shutdowns, which can create economic instability and negatively affect our business and financial performance. New federal or state laws and regulations regarding lending and funding practices and liquidity standards could negatively impact the Bank’s business operations, increase the cost of compliance, and adversely affect profitability. The failure of banks to follow existing laws and regulations contributes to bank failures, which also adversely affects the banking industry and can lead to special FDIC assessments, such as what we will be paying in 2024.
Changes in federal, state, or local tax laws may negatively impact our financial performance.
We are subject to changes in tax laws that could increase our effective tax rates or cause an increase or decrease in our income tax liabilities. These law changes may be retroactive to previous periods and as a result, could negatively impact our current and future financial performance.
We are subject to examinations and reputational riskschallenges by taxing authorities.
We are subject to federal and applicable state and local income tax regulations. Income tax regulations are often complex and require interpretation. In the normal course of business, we are routinely subject to examinations and challenges from potential liability arising from lawsuits.
The nature of our business ordinarily results in a certainfederal and applicable state and local taxing authorities regarding the amount of claimstaxes due in connection with investments we have made and legal action. Whether claimsthe businesses in which we have engaged. Recently, federal and related legal actionsstate and local taxing authorities have been increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to compliance, sales and use, franchise, gross receipts, payroll, property, and income tax issues such as tax base, apportionment, and tax credit planning. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. If any such challenges are founded or unfounded, if such claimsmade and legal actions are not resolved in our favor, they could have a manner favorable to us they may result in significantmaterial adverse effect on our financial liability and/or adversely affect our market perception, the productscondition and services we offer, as well as impact customer demand for those products and services. We assess our liabilities and contingencies in connection with outstanding legal proceedings as well as certain threatened claims utilizing the latest and most reliable information. For matters where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable we will incur a loss and the amount can be reasonably estimated, we establish an accrual for the loss. Once established, the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings or threatened claims, however, may turn out to be substantially higher than the amount accrued. These costs may adversely affect our business, results of operations and prospects.operations.
We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.
A large portion of our loan portfolio is secured by real estate. In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations and prospects.
Proposed healthHealth care reformsreform could adversely affect our HSA Bank division and our revenues, financial position and our results of operations.division.
The enactment of future health care reformsreform affecting health savings accountsHSAs at the federal or state level may affect our HSA Bank division which isas a bank custodian of health savings accounts.HSAs. We cannot predict if any such reforms will occur, ultimately become law, or if enacted, what theirthe terms or the regulations promulgated pursuant to such laws will be. Any health care reformsreform enacted may be phased in over a number of years, but if enacted, could, with respect to the operations of HSA Bank, reduce our revenues, increase our costs, and require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition, our results of operations, financial position, and cash flows could be materially adversely affected by such changes.
ChangesFinancial Risk
Difficult conditions or volatility in the federal, state or local tax laws may negatively impact ourU.S. economy and financial performance.
We are subject to changes in tax law that could increase our effective tax rates. The Tax Act, the full impact of which is subject to further evaluation and analysis, is likely to have both positive and negative effects on our financial performance. For example, the new legislation reduced the federal corporate tax rate from 35% to 21% beginning in 2018, which will have a favorable impact on our earnings and capital generation abilities. However, the new legislation also enacted limitations on certain deductions, such as FDIC deposit insurance premiums, which will partially offset the anticipated increase in net earnings from the lower tax rate. In addition, changes in interpretations, guidance or regulations that may be promulgated, or actions that we may take as a result of the Tax Act could negatively impact our business. Similarly, our customers are likely to experience varying effects from both the individual and business tax provisions of the Tax Act and such effects, whether positive or negative,markets may have a corresponding impactmaterially adverse effect on our business, financial condition, and results of operations.
As a financial services company, our business and overall financial performance is highly dependent upon the U.S. economy and strength of its financial markets. Difficult economic and market conditions could adversely affect our business, results of operations, and financial condition.
The risks associated with our business become more acute in periods of a slowing economy or slow growth. In particular, we could face some of the following risks in connection with a downturn in the U.S. economic and market environment:
•loss of confidence in the financial services industry and the debt and equity markets by investors, placing pressure on our common share price;
•decreased consumer and business confidence levels may decrease credit usage and investment or increase in delinquencies and default rates;
•decreased household or corporate incomes, which could reduce demand for our products and services;
•decreased value of collateral securing loans to borrowers, causing a decrease in the asset quality of our loan and lease portfolio and/or an increase in charge-offs;
•decreased confidence in the creditworthiness of the U.S. government and agency securities that we hold;
•increased concern over and scrutiny of capital and liquidity levels;
•increased competition or consolidation in the financial services industry; and
•increased limitations on or potential additional regulation of financial service companies.
The U.S. economy asand financial markets have experienced volatility in recent years and may continue to do so in the foreseeable future. Robust demand, labor shortages and supply chain constraints has led to persistent inflationary pressures throughout the economy. In response to these inflationary pressures, the FRB has raised benchmark interest rates in recent months and may continue to raise interest rates in response to economic conditions, particularly a whole.continued high rate of inflation. Amidst these uncertainties, financial markets have continued to experience volatility. If financial markets remain volatile or if the aforementioned conditions result in further economic stress or recession, the performance of various segments of our business, including the value of our investment securities portfolio, could be significantly impacted.
Risks RelatingInflation rose sharply throughout 2022, and continued to rise through the third quarter of 2023, at levels not seen for over 40 years. Prolonged periods of inflation may further impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention. If significant inflation continues, our business could be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for new credit extensions. In addition, a prolonged period of inflation could cause an increase in wages and other costs to the Competitive EnvironmentCompany. These inflationary pressures could result in Whichmissed earnings and budgetary projections causing our stock price to suffer. We Operatecontinue to closely monitor the pace of inflation and the impacts of inflation on the larger market, including labor and supply chain impacts.
Our profitability depends significantly on local economic conditions in the states in which we conduct business.
The success of our business also depends on the general economic conditions of the significant markets in which we operate, particularly Connecticut, Massachusetts, Rhode Island, New York, and New Jersey. Difficult economic conditions or adverse changes in such local markets, whether caused by inflation, recession, unemployment, changes in housing or securities markets, or other factors, could reduce demand for our loans and deposits, increase problem loans and charge-offs, cause a decline in the value of collateral securing loans, and otherwise negatively affect our performance and financial condition.
Changes in interest rates and spreads may have a materially adverse effect on our business, financial condition, and results of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, the competitive industryenvironment within our markets, consumer preferences for specific loan and deposit products, and policies of various governmental and regulatory agencies, in particular the FRB. Changes in monetary policy, including changes in interest rates, could influence the amount of interest we receive on loans and securities, the amount of interest we pay on deposits and borrowings, our ability to originate loans and obtain deposits, and the fair market area.value of our financial assets and liabilities.
Increased interest rates may decrease demand for interest-rate based products and services, including loans and deposits, and make it more difficult for borrowers to meet obligations under variable-rate or adjustable-rate loans and other debt instruments. Decreased interest rates often increase prepayments on loans and securities as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are further subject to reinvestment risk to the extent that we cannot reinvest the cash received from such prepayments with interest rates comparable to pre-existing loans and securities.
In a rising interest rate environment, which has occurred recently, competition for cost-effective deposits increases, making it more costly for the Bank to fund loan growth. Rapid and unexpected volatility in interest rates creates additional uncertainty and potential for adverse financial effects. There can be no assurance that the Bank will not be materially adversely affected by future changes in interest rates.
To a large degree, our consolidated earnings are dependent on net interest income, which is the difference between the interest income earned from our interest-earning assets and the interest expense paid on our interest-bearing liabilities. If we failthe rates paid on interest-bearing liabilities increase at a faster rate than the yields received on interest-earning assets, our net interest income, and therefore earnings, could be adversely affected. Conversely, earnings could also be adversely affected if the yields received on interest-earning assets fall more quickly than the rates paid on interest-bearing liabilities.
Although management believes that it has designed and implemented effective asset and liability management strategies to compete effectively,reduce the potential effects of changes in interest rates on our financial condition and results of operations, may be materially adversely affected.
We face substantial competition in all areasinterest rates are affected by many factors outside of our operations from a varietycontrol and any unexpected or prolonged period of different competitors, many of which are larger and may have more financial resources than we do. Such competitors primarily include national, regional, and community banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, non-bank health savings account trustees, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. Some of the financial services organizations with which the Company competes are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions, which may give them certain advantages over the Company in accessing funding and in providing various services. The financial services industry could become even more competitive as a result of legislative, regulatory and technologicalinterest rate changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we do, as well as better pricing for those products and services.
Our ability to compete successfully depends on a number of factors, including, among other things:
the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets;
the ability to expand market position;
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations. Further, our interest rate modeling techniques and assumption may not fully predict or capture the impact of actual interest rate changes on net interest income.
TheChanges in our financial condition or in the general banking industry, or changes in interest rates, could result in a loss of key partnerships could adversely affectdepositor confidence.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend credit and to repay liabilities as they become due or as demanded by customers. Our primary source of liquidity is our HSA Bank division.
Our HSA Bank division relieslarge supply of interest-bearing and non-interest bearing deposits. The continued availability of this supply of deposits depends on partnershipscustomer willingness to maintain deposit balances with various health insurance carriers to maximize our distribution model. These health plan partners, who provide high deductible health plan options, are a significant sourcebanks in general and us in particular, as well as the continued inflow of deposits for new and existing HSA account holders. If these health plan partners choose to align withcustomers. The availability of deposits can also be impacted by regulatory changes (e.g., changes in FDIC insurance, liquidity requirements, healthcare reform etc.), changes in financial condition of the Bank, other banks, or the banking industry in general, changes in the interest rates our competitors pay on their deposits, and other events which can impact the perceived safety or economic benefits of bank deposits. While we make significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market-related, geopolitical, or other events could impact the liquidity derived from deposits.
Unrealized losses in our available-for-sale securities portfolio could negatively impact our business.
As market interest rates have increased, we have experienced significant unrealized losses on our available-for-sale securities portfolio. Unrealized losses related to available-for-sale securities are reflected in (AOCL) in our Consolidated Balance Sheets and reduce the level of our tangible common equity. Such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available-for-sale securities portfolio and believe that it is not more likely than not that the Company will be required to sell securities before the recovery of the amortized cost basis. Nonetheless, our access to liquidity sources, financial condition, and results of operations, business and prospects could be adversely affected.affected by unrealized losses if securities must be sold at a loss. Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and result in an increase in withdrawals, particularly among those with uninsured deposits.
The proportion of our deposit account balances that exceed the FDIC insurance limits may notexpose the Bank to enhanced liquidity risk in times of financial distress.
In its assessment of the failures of Silicon Valley Bank and Signature Bank in the first quarter of 2023, the FDIC concluded that a significant contributing factor to the failures of these institutions was the proportion of deposits held by each institution that exceeded FDIC insurance limits. The FDIC similarly concluded that an overreliance on uninsured deposits contributed to the subsequent failure of First Republic Bank in the second quarter of 2023.
In response to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, many large depositors across the industry withdrew deposits in excess of the applicable deposit insurance limits and deposited these funds in other financial institutions. If a significant portion of our deposits were to be ablewithdrawn within a short period of time such that additional sources of funding would be required to attract and retain skilled people.
Our success depends, in large part,meet withdrawal demands, the Company may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Additionally, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Further, interest rates paid for borrowings generally exceed interest rates paid on deposits. Our ability to attract and retain key people. Competition fordepositors during a time of actual or perceived distress of instability in the best peoplemarketplace may be limited.
Higher mortgage rates and low inventory adversely impact our ability to originate or refinance residential mortgage loans.
The residential mortgage lending business is sensitive to changes in mostinterest rates, especially long-term interest rates. Lower interest rates generally increase the volume of mortgage originations and refinancing, while higher interest rates generally cause that volume to decrease. Therefore, our residential mortgage performance is typically correlated to fluctuations in interest rates. The 10-year Treasury rate averaged 3.96% during 2023, which is 251 basis points higher than average rates experienced during 2021. The sustained higher rates experienced throughout 2023 and 2022 have negatively impacted the mortgage market, including our loan origination volume and refinancing activity. Adverse market conditions, including increased volatility, changes in interest rates and mortgage spreads, and reduced market demand could result in greater risk in retaining mortgage loans. A reduction in our residential mortgage origination and refinancing volume could have a materially adverse effect on our financial condition and results of operations.
We may be subject to more stringent capital and liquidity requirements, which could limit our business activities.
The Holding Company and the Bank are subject to capital and liquidity requirements and standards. Regulators have and may implement changes to these standards. If we fail to meet the minimum capital adequacy and liquidity guidelines and other requirements, our business activities, including lending and our ability to expand, either organically or through acquisitions, could be limited. It could also result in which we engageus being required to take steps to increase our regulatory capital that may be dilutive to stockholders or limit our ability to pay dividends, or sell or refrain from acquiring assets.
Our stock price can be intensevolatile.
Stock price volatility may make it more difficult for stockholders to resell their common stock when they want and at prices that they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
•actual or anticipated variations in results of operations;
•recommendations or projections by securities analysts;
•operating and stock price performance of other companies that investors deem comparable to us;
•news reports relating to trends, concerns, and other issues in the financial services and healthcare industries;
•perceptions in the marketplace regarding us and/or our competitors;
•new technology used, or services offered, by competitors;
•significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;
•changes in dividends and capital returns;
•issuance of additional shares of Webster common stock;
•changes in government regulations; and
•geopolitical conditions such as acts or threats of terrorism or military conflicts, including any military conflict between Russia and Ukraine, or actions between Israel and its neighbors.
General market fluctuations, including real or anticipated changes in the strength of the economy, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends, among other factors, could also cause our stock price to decrease regardless of operating results.
The Holding Company may not pay dividends to stockholders if it is not able to receive dividends from its subsidiary, Webster Bank.
The Holding Company is a separate and distinct legal entity from the Bank and its non-banking subsidiaries. A substantial portion of the Holding Company’s revenues comes from dividends paid by the Bank. These dividends are the principal source of funds to pay dividends to common and preferred stockholders. Whether the Bank is able to pay dividends depends on its ability to generate sufficient net income and meet certain regulatory requirements, and the amount of such dividends may then be limited by federal and state laws. In the event the Bank is unable to pay the Holding Company dividends, we may not be able to hire peoplepay dividends to our common and preferred stockholders.
Changes in our accounting policies or in accounting standards could materially impact how we report our financial results.
Our accounting policies and methods are fundamental to retain them.understanding how we record and report our results of operations and financial condition. Accordingly, we exercise judgment in selecting and applying these accounting policies and methods so they comply with GAAP. The unexpected lossFASB, SEC, and other regulatory bodies that establish accounting standards periodically change the financial accounting and reporting standards, or the interpretation of services of one or morethose standards, that govern the preparation of our key personnelfinancial statements. These changes are beyond our control, can be hard to predict, and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retrospectively, which may result in us having to restate our prior period financial statements by material amounts.
The preparation of our consolidated financial statements requires the use of estimates that may vary from actual results.
The preparation of the Company's Consolidated Financial Statements, and the accompanying Notes thereto, in conformity with GAAP requires management to make difficult, subjective, or complex judgments about matters that are uncertain, which include assumptions and estimates of current risks and future trends, all of which may undergo material changes. Materially different amounts could be reported under different conditions or using different assumptions and estimates. Because of the inherent uncertainty of estimates involved in preparing our financial statements, we may be required to significantly adjust the financial statements as actual events unfold, which could have a material adverse impacteffect on the business because we would lose their skills, knowledge of the market, years of industry experience and may have difficulty promptly finding qualified replacement personnel.
Risks Relating to Risk Management
We continually encounter technological change. The failure to understand and adapt to these changes could negatively impact our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology can increase efficiency and enable financial institutions to better serve customers and to reduce costs. However, some new technologies needed to compete effectively result in incremental operating costs and capital investments. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers within the same time frame as our large competitors. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. Material estimates subject to change include, among other items, the allowance for credit losses, the carrying value of goodwill or other intangible assets, the fair value estimates of certain assets and liabilities, and the realization of deferred tax assets and liabilities.
A significant merger or acquisition requires us to make estimates, including the fair values of assets acquired and liabilities assumed.
GAAP requires us to record the assets and liabilities of an acquired business to their fair values at the time of the acquisition. With larger transactions, fair value and other estimations can take up to four quarters to finalize. These estimates, and their revisions, can have a substantial effect on the presentation of our financial condition and operating results after the transaction closes. In addition, the excess of the purchase price over the fair value of the assets acquired, net of liabilities assumed, is recorded as goodwill. If the estimates that we have used at any financial statement date are significantly revised in the future, there could be a material negative impact on our goodwill or other acquisition-related intangibles and our results of operations for the period in which the revisions are made.
If our goodwill were determined to be impaired, it could have a negative impact on our profitability.
GAAP requires that goodwill be tested for impairment at the reporting unit level on at least an annual basis or more frequently upon the occurrence of a triggering event. An impairment loss is to be recognized if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit. A significant decline in our expected future cash flows, a continued period of local and national economic disruption, changes to financial markets, slower growth rates, or other external factors, all of which can be highly unpredictable, may impact fair value calculations and require us to recognize an impairment loss in the future. Such an impairment loss may be significant and have a material adverse effect on our financial condition and results of operations.
Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all, and may have an adverse impact on our results of operations.
We invest in certain tax-advantaged investments that support qualified affordable housing projects and other community development initiatives. Our investments in these projects rely on the ability of the projects to generate a return primarily through the realization of federal and state income tax credits and other tax benefits. We face the risk that tax credits, which remain subject to recapture by taxing authorities based on compliance with relevant requirements at the project level, may not be able to be realized. The risk of not being able to realize the tax credits and other tax benefits associated with a particular project depends on many factors that are outside of our control. A project’s failure to realize these tax credits and other tax benefits may have a negative impact on our investment, and as a result, on our financial condition and results of operations.
Strategic Risk
New lines of business or new products and services may subject us to additional risks. A failure to successfully manage these risks may have a material adverse effect on our business.risk.
From time to time,On occasion, we may implement new lines of business or offer new products and services within existing lines of business or shift our asset mix.business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, and/or shifting asset mix, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove attainable.feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore,Further, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business, results of operations, and financial condition.
A failureWe may not be able to attract and retain skilled people, and the loss of key employees or breach ofthe inability to maintain appropriate staffing may disrupt relationships with customers and adversely impact our systems, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, resultbusiness.
Our success depends, in the misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.
As a large financial institution, we dependpart, on our ability to process, record,attract, develop, compensate, motivate, and monitor a large number of customer transactions,retain skilled people, including executives, managers, and customer, publicother key employees with the skills and regulatory expectations regarding operational and information security have increased over time. Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled as a result of a number of factors that may be wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages;
natural disasters; pandemics; events arising from political or social matters, including terrorist acts; and cyber attacks. Although we have business continuity plans and believe we have robust information security procedures and controls in place, disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of the networks, systems or devices on which customers’ personal information is stored and that our customers use to access our products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, which could have a materially adverse effect on our results of operations and financial condition.
Third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems, capacity constraints and cyber attacks.
Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened and as a result the continued development and enhancement of our controls, processes and practices designed to protect and facilitate the recovery of our systems, computers, software, data and networks from attack, damage or unauthorized access remain a high priority for us. As an additional layer of protection, we have purchased network and privacy liability risk insurance coverage which includes digital asset loss, business interruption loss, network security liability, privacy liability, network extortion and data breach coverage. As cyber threats continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.
Disruptions in services provided by third-party vendors that we rely on may result in a material adverse effect on our business.
We rely on third-party vendors to provide products and servicesknow-how necessary to maintain day-to-day operations. For example, we are dependent onrun our vendor-provided core banking processing systems to process a large number of increasingly complex transactions. Accordingly, we are exposed to the risk that these vendors might not perform in accordance with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products, services and technology strategic focus or for any other reason. Suchbusiness. The failure to perform could be disruptive to our operations, which could have a materially adverse impact on our business, results of operationsattract or retain talented executives, managers, and financial condition. While we require third-party outsourced service providers to have business continuityemployees with diverse backgrounds and disaster recovery plans that are aligned with our overall recovery plans, we cannot be assured that such plans will operate successfullyexperiences, or in a timely manner so as to prevent any such material adverse impact.
Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures, failure to implement any necessary improvement of our controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
We face risks in connection with completed or potential acquisitions.
From time to time we may evaluate expansion through the acquisition of banks or branches, or other financial businesses or assets. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:
The possible loss of certain executives, managers, and key employees, and customers of the target;
Potential disruption of the target business;
Potential changes in banking or tax laws or regulations that may affect the target business;
Potential exposure to unknown or contingent liabilities of the target; and
Potential difficulties in integrating the target business into our own.
Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on the Company’s business, financial condition and results of operations.
Our business may be adversely affected by fraud.
As a financial institution, we are inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers, and other third parties targeting the Company or the Company’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.
Risks Relating to Accounting Estimates
Our allowance for loan and lease losses may be insufficient.
Our business is subject to periodic fluctuations based on national and local economic conditions. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our business. These risks may be heightened when U.S. labor markets, or segments of those markets, are especially competitive.
Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire sufficiently skilled people or retain them. The recent transition towards companies offering remote and hybrid work environments, which is expected to endure, as well as our workplace policies (or perceptions of those policies by current and potential employees), including policies with respect to remote and hybrid work, could impact our ability to attract and retain talent with the necessary skills and experience. In addition, the transition to remote and hybrid work environments may exacerbate the challenges of attracting and retaining skilled employees because job markets may be less constrained by physical geography. The unexpected loss of services of our key personnel could have a material adverse impact on the business because of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.
Further, our business is primarily relationship-driven, in that many of our key employees have extensive customer relationships. The loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider. While we believe that our relationships with key personnel are good, we cannot guarantee that all of our key personnel will remain with our organization.
We operate in a highly competitive industry and market area.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our financial condition. For example, declinesmarkets, many of which are larger and may have more financial resources than we do. Such traditional competitors primarily include national, regional, community, and internet banks within the various markets in housing activitywhich we operate, including declinesthe HSA market. We also face competition from many other types of financial institutions, including savings and loans, credit unions, non-bank health savings account trustees, finance companies, brokerage firms, insurance companies, online lenders, factoring companies, and other financial intermediaries. Some of these organizations are not subject to the same degree of regulation that is imposed on bank holding companies and federally insured depository institutions, which may give them greater flexibility in building permits, housing startsaccessing funding and home prices,providing various services. Moreover, organizations that are larger than we are may make itbe able to achieve greater economies of scale or offer a broader range of products and services, or better pricing on products and services, than what we can offer.
The financial services industry could become even more difficult for our borrowers to sell their homes or refinance their debt. Sales may also slow, which could strain the resources of real estate developers and builders. We may suffer higher loan and lease lossescompetitive as a result of theselegislative and regulatory changes, and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and has made it possible for non-banks to offer products and services traditionally provided by banks. The financial services industry also faces increasing competitive pressure from the introduction of disruptive new technologies, such as blockchain and digital payments, often by non-traditional competitors and financial technology companies. Among other things, technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction.
Our ability to compete successfully depends on a number of factors, and the resulting impact on our borrowers. Recent economic uncertainty continues to affect employment levels and impact including, among other things:
•the ability of our borrowers to service their debt. Bank regulatory agencies also periodically review our allowance for loandevelop, maintain, and lease losses and may require an increase in the provision for loan and lease losses or the recognition of further loan charge-offs,build upon long-term customer relationships based on judgments different than thosetop quality service, high ethical standards, and safe, sound financial position;
•the ability to expand our market position;
•the scope, relevance, and pricing of management. In addition, if charge-offsproducts and services offered to meet customer needs and demands, including within the HSA market;
•the rate at which we introduce new products and services relative to our competitors;
•customer satisfaction with our level of service and products; and
•industry and general economic trends.
Failure to perform in future periods exceed the allowance for loanany of these areas could significantly weaken our competitive position, which could adversely affect our growth and lease losses, we may need, depending on an analysis of the adequacy of the allowance for loanprofitability, and lease losses, additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan and lease losses will result in a decrease in net income and, possibly, capital, and mayturn, could have a material adverse effect on our financial condition and results of operations.
IfFailure to keep pace with and adapt to technological change could adversely impact our goodwill were determinedbusiness.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services and the use of artificial intelligence. These new technologies may be superior to, or render obsolete, the technologies currently used in our products and services. Our future success depends, in part, upon our ability to address the needs of our customers by using technology and information to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements because of their larger size and available capital. Developing or acquiring new technologies and incorporating them into our products and services may require significant investment, take considerable time, and ultimately may not be impaired itsuccessful. We cannot predict which technological developments or innovations will become widely adopted or how those technologies may be regulated. We also may not be able to effectively market new technology-driven products and services to our customers. Failure to successfully keep pace with and adapt to technological change affecting the financial services industry could have a negativematerial adverse impact on our profitability.business and, in turn, our financial condition and results of operations.
Applicable accounting standards requireThe loss of key partnerships could adversely affect our HSA Bank division and deposit administration activities.
Our HSA Bank division, the sweep deposit management program that we acquired with interLINK in January 2023, and the purchase method of accounting be used forinsurance claim settlement funds platform that we acquired in with Ametros in January 2024, all business combinations. Under purchase accounting, ifrely on partnerships with either health insurance carriers or other financial services partners to maximize our distribution model. To the purchase price of an acquired company exceeds the fair value of the acquired company’s net assets, the excess is carried on the balance sheet as goodwill, by the acquirer. A significant decline in our expected future cash flows, a continuing period of market disruption, market capitalizationextent that we fail to book value deterioration, or slower growth rates may require us to record charges in the future related to the impairment of our goodwill. If we were to conclude that a future write-down is necessary, we would record the appropriate charge,maintain such partnerships, which may be due to mergers and/or acquisitions and may result in changes to their business processes, or our partners choosing to align with competitors or develop their own solutions, our business, financial condition, and results of operations could be adversely affected. In particular, health plan partners who provide high deductible health plan options are a significant source of new and existing HSA holders. If these health plan partners or other partners choose to align with our competitors or develop their own solutions, our business, financial condition, and results of operations could be adversely affected.
There is significant competition for our existing partners, and our failure to retain our existing larger partner relationships upon expiration or the earlier loss of a relationship upon the exercise of a partner's early termination rights, or the expiration or termination of a substantial number of small partner relationships, could have a material adverse effect on our results of operations (including growth rates) and financial condition and results of operations.
If all or a significant portion of the unrealized losses in our portfolio of investment securities were determined to be other-than-temporarily impaired, we would recognize a material charge to our earnings and our capital ratios would be adversely impacted.
When the fair value of a security declines, management must assess whether that decline is other-than-temporary. When management reviews whether a decline in fair value is other-than-temporary, it considers numerous factors, many of which involve significant judgment. No assurance can be provided that the amount of the unrealized losses will not increase.
To the extent that any portion of the unrealized losses in our investment securities portfolio is determined to be other-than-temporary impairment (OTTI), we will recognize a charge to our earnings in the quarter during which such determination is made and our capital ratios will be adversely impacted. If any such charge is deemed significant, a rating agency might downgrade our credit rating or put us on a credit watch. A downgrade or a significant reduction in our capital ratios might adversely impact our ability to access the capital markets or might increase our cost of capital. Even if we do not determine thatacquire new partners of similar size and profitability or otherwise grow our business. In addition, existing relationships may be renewed with less favorable terms to the unrealized losses associated with the investment portfolio require an impairment charge, increasesCompany in response to increased competition for such unrealized losses adversely impact the tangible common equity ratio, which may adversely impact credit rating agencyrelationships. The competition for new partners is also significant, and investor sentiment. Any such negative perception also may adversely impact our abilityfailure to access the capital markets or might increase our cost of capital.
We may not be able to fully realize the balance of our net DTA including net operating loss carryforwards.
The value of our DTA is partially reduced by valuation allowance. A valuation allowance is provided when it is more-likely-than-not that some portion of our DTA will not be realized. We regularly assess available positive and negative evidence to determine whether it is more-likely-than-not that our net DTA will not be realized. Realization of a DTA requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty. If we were to conclude that a significant portion of our remaining DTA is not more-likely-than-not to be realized, the required valuation allowanceattract new partners could adversely affect our financial position, results of operations and regulatory capital ratios.ability to grow.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy. The Company has processes for assessing, identifying, and managing material risks from cybersecurity threats, and is committed to the prevention, detection, and timely response to cybersecurity threats that may impact the confidentiality, integrity, and availability of its information systems and information assets.
The Company has an Information Security Risk Management Program and a Technology Risk Management Program under its Risk Management Framework for the identification, assessment, measurement, mitigation, monitoring, and internal reporting of risks associated with its information systems, information assets, and third parties, including vendors and service providers. The Information Security Risk Management Program and Technology Risk Management Program align with the Company’s Third-Party Risk Management Program in regard to protecting information assets.
The Information Security Risk Management Program and Technology Risk Management Program are managed by the Company’s Corporate Information Security team, led by the Chief Information Security Officer. On average, the Corporate Information Security team members have over a decade of cybersecurity experience and hold over 100 industry-leading certifications in cybersecurity. All information security managers have attained a bachelor’s degree in a related field of study, with several also having a related master’s degree.
“Zero trust principles” drive the Company’s information security architecture, and the Company deploys a “defense in-depth” strategy to protect against cybersecurity threats, layering multiple levels of information security and technology controls within business processes for information assets and relationships with third parties based on the National Institute of Standards and Technology Special Publication 800-53 Framework. The Company’s information systems and risk management are also subject to regulatory requirements and examination by federal banking regulators.
The identification of control weaknesses and vulnerabilities affecting information assets and/or relationships with third parties allows the Company to mitigate risk from, and respond to, cybersecurity threats. Initial risk assessments are performed upon the acquisition, or as part of the development of, information assets in order to evaluate the inherent risk associated with network and host environments and assess the adequacy of implemented technology operation processes and controls. Risk and control self-assessments are conducted on an annual basis to identify gaps resulting from any process changes that occurred during the year, and to evaluate whether the levels of cybersecurity risk remain within the tolerance set in the Company’s Risk Appetite Statement or whether a risk needs to be mitigated.
Due diligence is performed prior to onboarding all third parties with access to the Company’s information assets to ensure such parties maintain security controls contractually required by the Company as part of its Third Party Risk Management Program. The Company provides ongoing monitoring, including cybersecurity maturity assessments, of third parties using a risk-based approach to determine the extent and frequency of periodic assessments. Semi-annual cybersecurity maturity assessments are conducted by the Company’s Corporate Information Security team on its information systems using industry-standard guidelines and tools, including the Federal Financial Institutions Examination Council Cybersecurity Assessment Tool and the Center for Internet Security Critical Security Controls.
Because cybersecurity threats continue to evolve, thereby increasing inherent risk, the Company’s Corporate Information Security team is augmented by contracted external managed security service providers, who collectively work 24/7 to monitor cybersecurity threats through processes such as endpoint and network security, email protection, data loss prevention, vulnerability scanning and mitigation, identity and access management, logging and monitoring, and threat hunting. Independent third parties test the Company’s cyber capabilities and audit its cloud security. The Company regularly tests its systems to discover and address any potential vulnerabilities. Senior and Executive management also participate in cybersecurity industry collaboration and information-sharing forums and utilize the information gained to drive protective and detective cybersecurity strategies and tactics.
The Company requires information security education, training at the time of hire, and annually thereafter, by its employees (including contractors and other third parties for training purposes), designed to mitigate accidental information security incidents. Phishing simulation activities are regularly conducted to assess employees’ competency at identifying potential threats. Employees are assigned incremental training requirements should they fail to identify simulated phishing emails through the initial training.
The Company’s Corporate Information Security team members are also responsible for completing additional mandatory annual training to understand the processes, procedures, and technical requirements for securing information assets across the enterprise. The Company also offers ongoing practice and specialized education for Corporate Information Security team members to stay up to date with emerging trends in cybersecurity threat protection, detection, and response.
The Information Security Management Program sets forth enterprise-wide coordinated responses to identified threats, ensuring timely mitigation and remediation, and facilitating awareness and communication. Tabletop exercises are held regularly at the Senior and Executive management levels, and annually at the Board of Directors level, to validate roles and responsibilities, and response protocols respective to cybersecurity threats.
Employees, contractors, and third parties are required to immediately report any suspected cybersecurity threats to the Corporate Information Security team for triaging. Any threat assessed by the Corporate Information Security team that could impact the safety of customers or personnel, cause damage to, or threaten the confidentiality, integrity, or availability of information assets, or bring about significant business interruption, are escalated for further assessment. In the event that the Chief Information Security Officer, in consultation with the Company’s Legal and Compliance teams, determines that a material cybersecurity incident has occurred, a dedicated Crisis Incident Response Team comprised of individuals from various departments across the organization is assigned to coordinate all planned cybersecurity incident-related response activities. The Company will engage third party specialists to assist in any cybersecurity incident investigation, as needed.
Cybersecurity threats that are identified and deemed material are escalated and communicated directly to Senior and Executive Management and the Risk Committee of the Board of Directors. Materiality determinations are made under the Company's Disclosure Controls and Procedures to ensure timely cybersecurity incident disclosure notification in accordance with securities laws and/or regulations.
Material Cybersecurity Threat Risks. The Company has not experienced any material losses relating to cybersecurity threats or incidents for the year ended December 31, 2023. However, it is possible that the Company could suffer such losses in the future. Information regarding risks from material cybersecurity threats can be found under the section captioned "Information Risk" contained in Item 1A. Risk Factors.
Governance. Oversight of information security risk and information technology risk is the operational responsibility of the Information Risk Committee, which is a management committee, with additional oversight from the Enterprise Risk Management Committee, which is also a management committee, and the Risk Committee of the Board of Directors.
Additional information regarding the Company’s risk management framework, including management-level and Board-level committee experience and expertise, oversight responsibilities, and information risk governance, can be found under the section captioned “Risk Management Framework” contained in Item 1. Business.
ITEM 2. PROPERTIES
The Company maintains itsCompany's corporate headquarters is located in Waterbury,Stamford, Connecticut. This ownedleased facility houses the Company'sCompany’s primary executive and primary administrative functions as welland serves as the principal banking headquarters of Websterthe Bank. Additional corporate functions are housed in owned facilities in Waterbury, Connecticut, and in leased facilities in Southington, Hartford, and New Haven, Connecticut; Providence, Rhode Island; Boston, Massachusetts; Jericho, White Plains, and New York, New York; and Paramus, New Jersey. The Company considers its properties to be suitable and adequate for presentits current business needs.
In additionCommercial Banking maintains offices across a geographic footprint that ranges from Massachusetts to the property noted above,California. Premises are located in Boston, Massachusetts; Westerly, Rhode Island; Conshohocken, and Radnor, Pennsylvania; Baltimore, and Columbia, Maryland; Atlanta, Georgia; Dallas, Texas; and Laguna Niguel, and Ladera Ranch, California.
HSA Bank is headquartered in Milwaukee, Wisconsin, with an additional leased office in Sheboygan, Wisconsin.
Consumer Banking operates a distribution network that consists of 198 banking centers:
| | | | | | | | | | | |
Location | Leased | Owned | Total |
Connecticut | 61 | | 34 | | 95 | |
Massachusetts | 9 | | 9 | | 18 | |
Rhode Island | 4 | | 3 | | 7 | |
New York | 38 | | 40 | | 78 | |
Total | 112 | | 86 | | 198 | |
Additional information regarding the Company's segments maintain the followingowned facilities and leased or owned offices. Lease expiration dates vary, up to 70 years, with renewal options for 1 to 25 years. For additional information regarding leaseslocations can be found within Note 6: Premises and rental payments seeEquipment and Note 20: Commitments and Contingencies7: Leasing, respectively, in the Notes to Consolidated Financial Statements contained elsewhere in this report.
Part II - Item 8. Financial Statements and Supplementary Data.
Commercial Banking
The Commercial Banking segment maintains offices across a footprint that primarily ranges from Boston, Massachusetts to Washington, D.C. Significant properties are located in: Hartford, New Haven, Stamford, and Waterbury, Connecticut; Boston, Massachusetts; New York City and White Plains, New York; Conshohocken, Pennsylvania; and Providence, Rhode Island.
The Commercial Banking segment also includes: Webster Capital Finance with headquarters in Kensington, Connecticut; Webster Business Credit Corporation with headquarters in New York, New York and offices in Atlanta, Georgia, Baltimore, Maryland, Boston, Massachusetts, Chicago, Illinois, Conshohocken, Pennsylvania, and New Milford, Connecticut; and Private Banking with headquarters in Stamford, Connecticut and offices in Hartford, New Haven, Waterbury, Greenwich, and Wilton, Connecticut, Boston, Massachusetts, White Plains, New York, and Providence, Rhode Island.
HSA Bank
The HSA Bank segment is headquartered in Milwaukee, Wisconsin with an office in Sheboygan, Wisconsin.
Community Banking
The Community Banking segment maintains the following banking centers:
|
| | | | | | |
Location | Leased | Owned | Total |
Connecticut | 73 |
| 42 |
| 115 |
|
Massachusetts | 24 |
| 11 |
| 35 |
|
Rhode Island | 7 |
| 3 |
| 10 |
|
New York | 7 |
| — |
| 7 |
|
Total banking centers | 111 |
| 56 |
| 167 |
|
ITEM 3. LEGAL PROCEEDINGS
From time to time, Webster Financial Corporation or its subsidiaries are subject to certainInformation regarding legal proceedings can be found within Note 23: Commitments and claimsContingencies in the ordinary course of business. Management presently believes that the ultimate outcome of these proceedings, individuallyNotes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and in the aggregate, will not be material to Webster or its consolidated financial position. Webster establishes an accrual for specific legal matters when it determines that the likelihood of an unfavorable outcomeSupplementary Data, which is probable and the loss is reasonably estimable. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings could occur that could cause Webster to adjust its litigation accrual or could have, individually or in the aggregate, a material adverse effect on its business, financial condition, or operating results.incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMONUNREGISTERED SALES OF EQUITY RELATED STOCKHOLDER MATTERS,SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Webster Financial Corporation'sThe Company's common shares tradestock is traded on the New York Stock ExchangeNYSE under the symbol WBS.
The following table sets forth the high and low intra-day sales prices per share of Webster Financial Corporation's common stock and the cash dividends declared per share:
|
| | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| High | Low | Cash Dividends Declared | | High | Low | Cash Dividends Declared |
Fourth quarter | $ | 59.25 |
| $ | 51.68 |
| $ | 0.26 |
| | $ | 55.80 |
| $ | 36.96 |
| $ | 0.25 |
|
Third quarter | 55.04 |
| 44.04 |
| 0.26 |
| | 38.97 |
| 31.45 |
| 0.25 |
|
Second quarter | 54.96 |
| 46.85 |
| 0.26 |
| | 39.61 |
| 31.29 |
| 0.25 |
|
First quarter | 57.50 |
| 47.59 |
| 0.25 |
| | 37.18 |
| 30.09 |
| 0.23 |
|
On January 30, 2018, Webster Financial Corporation’s Board of Directors declared a quarterly dividend of $0.26 per share.
On At February 16, 2018,23, 2024, there were 5,693 shareholders
8,352 holders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., the Company’sCompany's transfer agent.
Restrictions on Dividends
Holders of Webster Financial Corporation's common stock are entitled to receive such dividends asInformation regarding dividend restrictions can be found under the Board of Directors may declare out of funds legally available for such payments. Webster Financial Corporation, as a bank holding company, is dependent on dividend payments from Webster Bank for its legally available funds. The Bank paid the Holding Company $120 million in dividends during the year ended December 31, 2017.
The Bank’s ability to make dividend payments to the Holding Company is subject to certain regulatory and other requirements. Under OCC regulations, subject to the Bank meeting applicable regulatory capital requirements before and after payment of dividends, the Bank may declare a dividend, without prior regulatory approval, limited to net income for the current year to date as of the declaration date, plus undistributed net income from the preceding two years. At December 31, 2017, Webster Bank was in compliance with all applicable minimum capital requirements, and there was $368.8 million of undistributed net income available for the payment of dividends by the Bank to the Holding Company.
Under the regulations, the OCC may grant specific approval permitting divergence from the requirements and also has the discretion to prohibit any otherwise permitted capital distribution on general safety and soundness grounds. In addition, the payment of dividends is subject to certain other restrictions, none of which is expected to limit any dividend policy that the Board of Directors may in the future decide to adopt.
If the capital of Webster is diminished by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, no dividends may be paid out of net profits until such deficiency has been repaired. See thesection captioned "Supervision and Regulation" section in Part I - Item 1 contained elsewhere in this report for additional information on dividends.
Webster Financial Corporation has 6,000,000 outstanding Depository Shares, each representing 1/1000th interest in a share of 5.25% Series F Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $25,000 per share, or $25 per depository share. The Series F Preferred Stock is redeemable at Webster Financial Corporation's option, in whole or in part, on December 15, 2022, or any dividend payment date thereafter, or in whole but not in part, upon a "regulatory capital treatment event" as defined1. Business and within Note 14: Regulatory Capital and Restrictions in the Prospectus Supplement. The terms of the Series F Preferred Stock prohibit the Holding Company from declaring or paying any cash dividends on its common stock, unless the Holding Company has declaredNotes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and paid full dividends on the Series F Preferred Stock for the most recently completed dividend period.
Exchanges of Registered Securities
Registered securitiesSupplementary Data, which are exchanged as part of employee and director stock compensation plans.incorporated herein by reference.
Recent Sales of Unregistered Securities
NoThere were no unregistered securities were sold by Webster Financial Corporationthe Company during the three year period ended December 31, 2017.
2023.
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of equity securities for Webster Financial Corporation'sthe Company’s common stock made by or on behalf of Websterthe Company or any "affiliated“affiliated purchaser,"” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended December 31, 2017:2023:
| | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Amount Available for Purchase Under the Plans or Programs (3) | | | |
October 1, 2023 - October 31, 2023 | 11,505 | | $ | 38.25 | | — | | $ | 293,356,942 | | | | |
November 1, 2023 - November 30, 2023 | 537 | | 42.21 | | — | | 293,356,942 | | | | |
December 1, 2023 - December 31, 2023 | 1,058 | | 47.78 | | — | | 293,356,942 | | | | |
Total | 13,100 | | 39.18 | | — | | 293,356,942 | | | | |
|
| | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Amount Available for Repurchase Under the Plans or Programs (1) | | Total Number of Warrants Purchased (2) | Average Price Paid Per Warrant |
October 1-31, 2017 | 42,832 |
| $ | 54.21 |
| — |
| $ | 103,903,923 |
| | — |
| $ | — |
|
November 1-30, 2017 | 1,138 |
| 52.72 |
| — |
| 103,903,923 |
| | — |
| — |
|
December 1-31, 2017 | 305 |
| 57.69 |
| — |
| 103,903,923 |
| | — |
| — |
|
Total | 44,275 |
| 54.20 |
| — |
| 103,903,923 |
| | — |
| — |
|
| |
(1) | On October 24, 2017,(1)All 13,100 of the Company announced that its Board of Directors had approved a common stock repurchase program which authorizes management to repurchase, in open market or privately negotiated transactions, subject to market conditions and other factors, up to a maximum of $100 million of common stock. This approval is in addition to the $3.9 million remaining authorization on a similar common stock repurchase program announced on December 6, 2012. Both programs will remain in effect until fully utilized or until modified, superseded, or terminated. |
All 44,275 shares purchased during the three months ended December 31, 20172023, were acquired outside of the Company's common stock repurchase program at market prices and related to stockemployee share-based compensation plan activity, atactivity.
(2)The average price paid per share is calculated on a trade date basis and excludes commissions and other transaction costs.
(3)The Company maintains a common stock repurchase program, which was approved by the Board of Directors on October 24, 2017, that authorizes management to purchase shares of Webster common stock in open market prices.or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to the availability and trading price of stock, general market conditions, alternative uses for capital, regulatory considerations, and the Company's financial performance. On April 27, 2022, the Board of Directors increased the Company's authority to repurchase shares of Webster common stock under the repurchase program by $600.0 million in shares. This existing repurchase program will remain in effect until fully utilized or until modified, superseded, or terminated.
| |
(2) | On June 3, 2011, the Company announced that, with approval from its Board of Directors, it had repurchased a significant number of the warrants issued as part of Webster's participation in the U.S. Treasury's Capital Purchase Program in a public auction conducted on behalf of the U.S. Treasury. The Board approved plan provides for additional repurchases from time-to-time, as permitted by securities laws and other legal requirements. There remain 8,752 outstanding warrants to purchase a share (1:1) of the Company's common stock, which carry an exercise price of $18.28 per share and expire on November 21, 2018. |
Performance Graph
The performance graph compares Webster Financial Corporation’sthe yearly percentage change in the Company's cumulative shareholdertotal stockholder return on its common stock over the last five fiscal years to the cumulative total return of (i) the Standard & Poor’s 500 Index ("S(S&P 500 Index")Index) and (ii) the Keefe, Bruyette & Woods Regional Banking Index ("(KRX Index), assuming the reinvestment of dividends and an initial investment of $100 on December 31, 2018. The KRX Index").Index is a market-capitalization weighted index comprised of 50 regional banks or thrifts located throughout the United States.
Cumulative shareholdertotal stockholder return is measured by dividing totalthe sum of the cumulative amount of dividends (assuming dividend reinvestment) for the measurement period, plusassuming dividend reinvestment, and the difference between the share price change for aat the end and the beginning of the measurement period, by the share price at the beginning of the measurement period. The plotted points represent the cumulative shareholdertotal stockholder return over a five-year period assumes a simultaneous initial investment of $100, on December 31, 2012, in Webster Financial Corporation common stock and in eachthe last trading day of the indices above.year indicated. Historical performance shown on the graph is not necessarily indicative of future performance.
| | | | | | | | | | | | | | | | | | | | |
| Period Ending December 31, |
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
Webster Financial Corporation | $ | 100 | | $ | 112 | | $ | 93 | | $ | 126 | | $ | 111 | | $ | 123 | |
S&P 500 Index | $ | 100 | | $ | 131 | | $ | 156 | | $ | 200 | | $ | 164 | | $ | 207 | |
KRX Index | $ | 100 | | $ | 124 | | $ | 113 | | $ | 155 | | $ | 144 | | $ | 143 | |
|
| | | | | | | | | | | | | | | | | | |
| Period Ending December 31, |
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
Webster Financial Corporation | $ | 100 |
| $ | 155 |
| $ | 166 |
| $ | 194 |
| $ | 292 |
| $ | 308 |
|
S&P 500 Index | $ | 100 |
| $ | 132 |
| $ | 150 |
| $ | 153 |
| $ | 171 |
| $ | 208 |
|
KRX Index | $ | 100 |
| $ | 147 |
| $ | 150 |
| $ | 159 |
| $ | 222 |
| $ | 226 |
|
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
The required information is set forth below, in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the section captioned "Results of Operations," which is incorporated herein by reference.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management believes is necessary to understand the Company's financial condition, results of operations, and cash flows for the year ended December 31, 2023, as compared to 2022. This information should be read in conjunction with the Company's Consolidated Financial Statements, and the accompanying Notes thereto, of Webster Financial Corporation contained elsewhere in this report.
Critical Accounting Policies and Accounting Estimates
The Company's significant accounting policies, as described in the Notes to Consolidated Financial Statements, are fundamental to understanding its results of operations and financial condition. As disclosed in Note 1: Summary of Significant Accounting Policies, the preparation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP) requires management to make judgments and accounting estimates that affect the amounts reported in the ConsolidatedPart II - Item 8. Financial Statements and the accompanying Notes thereto. While the Company bases estimates on historical experience, currentSupplementary Data, as well as other information set forth throughout this report. For discussion and other factors deemed to be relevant, actual results could differ materially from those estimates.
Accounting estimates are necessary in the application of certain accounting policies and procedures and can be susceptible to significant change. Critical accounting policies are defined as those that are most important to the portrayalanalysis of the Company's financial condition and2022 results, of operation, and that require managementas compared to make the most difficult, subjective, and complex judgments about matters that are inherently uncertain and which could potentially result in materially different amounts using different assumptions or under different conditions. Critical accounting policies identified by management, which are discussed with the appropriate committees of the Board of Directors, are summarized below.
The Company has identified four such policies, which govern:
allowance for loan and lease losses;
fair value measurements for valuation of investments;
evaluation for impairment of goodwill; and
assessing the realizability of DTAs and the measurement of uncertain tax position (UTP)s.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is a reserve established through a provision for loan and lease losses charged2021, refer to expense, which represents management’s best estimation of probable losses that are inherent within the Company’s portfolio of loans and leases as of the balance sheet date. For a description of our related accounting policies, see Note 1: Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements contained elsewhere in this report.
Changes in the allowance for loan and lease losses and, therefore, in the related provision for loan and lease losses can materially affect net income. The level of the allowance for loan and lease losses reflects management’s judgment based on continuing evaluation of specific credit risks, loss experience, current portfolio quality, present economic, political, and regulatory conditions and inherent risks not captured in quantitative modeling and methodologies, as well as trends therein. The allowance balance may be allocated for specific portfolio segments; however, the entire allowance balance is available to absorb credit losses inherent in the total loan and lease portfolio. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for loan and lease losses is dependent upon a variety of factors beyond the Company’s control, including performance of the Company’s loan portfolio, the economy, interest rate sensitivity, and other external factors.
Composition of the allowance for loan and lease losses, including valuation methodology, is more fully illustrated in Note 4: Loans and Leases in the Notes to Consolidated Financial Statements and inPart II - Item 7, Management's7. Management’s Discussion and Analysis of Financial Condition and Results of Operations see section captioned "Allowanceof the Company’s Annual Report on Form 10-K for Loanthe year ended December 31, 2022, which was filed with the SEC on March 10, 2023. The Company's financial condition and Lease Losses Methodology," contained elsewhereoperating results for the year ended December 31, 2023, are not necessarily indicative of the financial condition or operating results that may be attained in this report.future periods.
Executive Overview
22Banking Industry Developments
Fair Value Measurements for Valuation of Investments
The Company records certain assetscommercial real estate portfolios, and liabilities at fair valueeroding consumer confidence in the Consolidated Financial Statementsbanking system.
Despite these negative industry developments, the Company's total deposits at December 31, 2023, were $60.8 billion, representing a net $6.8 billion increase as compared to its total deposits at December 31, 2022. The Holding Company's and the accompanying Notes thereto. Fair value isBank's regulatory capital ratios at December 31, 2023, also remained in excess of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,well-capitalized minimum as defined by applicable accounting guidance.
To increase consistency and comparability in fair value measures, management adheres to the three-level hierarchy established to prioritize the inputs used in valuation techniques, which consists of: (i) unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; (ii) significant inputs other than quoted prices that are directly or indirectly observable for the asset or liability; and (iii) inputs that are not observable, rather are reliant upon pricing models and techniques that require significant management judgment or estimation. Assets and liabilities recorded at fair value are categorized, in accordance with guidance, either on a recurring or nonrecurring basis into the above three levels. At the end of each quarter, management assesses the valuation hierarchy for each asset or liability and, as a result, assets or liabilities may be transferred between hierarchy levels due to changes in availability of observable market inputs used to measure fair value at that measurement date.
When observable market prices are not available, fair value is estimated using modeling techniques such as discounted cash flow analysis. These modeling techniques utilize assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset,capital adequacy guidelines and the risk of nonperformance. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating the instrument’s fair value. In addition, changesregulatory framework for prompt corrective action.
Additional information regarding regulatory capital ratios can be found in legislation or regulatory environment could further impact these assumptions.
Available-for-sale securities classified as level 2 in the hierarchy consists of Agency collateralized mortgage obligations (Agency CMO), Agency mortgage-backed securities (Agency MBS), Agency commercial mortgage-backed securities (Agency CMBS), Non-agency commercial mortgage-backed securities (CMBS), CLO, corporate debt, and single issuer-trust preferred, as quoted market prices are not available for these asset classes. Management employs an independent pricing service that utilizes matrix pricing to calculate fair value. This fair value measurement considers observable data such as dealer quotes, dealer price indications, market spreads, credit information, and the respective terms and conditions for debt instruments. Procedures are in place to monitor assumptions and establish processes to challenge valuations received from pricing services that appear unusual or unexpected.
Composition of investment securities, the related impairment analysis, and fair value methodology and amounts, are more fully illustrated in Note 3: Investment Securities and Note 16: Fair Value Measurements in the Notes to Consolidated Financial Statements.
Evaluation for Impairment of Goodwill
Goodwill represents the excess purchase price of a business acquired over the fair value, at acquisition, of the identifiable net assets acquired and is assigned to specific reporting units. Goodwill is evaluated for impairment, at least annually, in accordance with ASC Topic 350, "Intangibles - Goodwill and Other." Quarterly, an assessment of potential triggering events is performed and should events or circumstances be present that, more likely than not, would reduce the fair value of a reporting unit below its carrying value, the Company would then evaluate: periods of market disruption; market capitalization to book value erosion; financial services industry-wide factors; geo-economic factors; and internally developed forecasts to determine if its recorded goodwill may be impaired. Goodwill is evaluated for impairment by performing a two-step quantitative test. The quantitative analysis utilizes both the discounted cash flow methodology and a comparable company methodology on an equally weighted basis. Discounted cash flow estimates, which include significant management assumptions relating to asset and revenue growth rates, net interest and operating margins, capital requirements, weighted-average cost of capital, and future economic and market conditions, are used to determine fair valuePart I under the two-step quantitative test. A comparable company methodology is based on a comparison of financialsection captioned "Supervision and operating statistics of publicly traded companies to each of the reporting units,Regulation" contained in Item 1. Business and the appropriate multiples, such as equity value-to-tangible book value, core deposit premium multiples and/or price-to-earnings per share multiples, are applied to arrive at indications of value for each reporting unit.
Under Step 1, the fair value of a reporting unit is compared to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired,within Note 14: Regulatory Capital and it is not necessary to continue to Step 2 of the impairment process. Otherwise, Step 2 is performed where the implied fair value of goodwill is compared to the carrying value of goodwill in the reporting unit. If a reporting unit's carrying value of goodwill exceeds fair value, an impairment is recognized and this difference is charged to non-interest expense.
Webster performed its annual impairment test under Step 1 as of its elected measurement date of November 30. The valuation of goodwill involves estimates which require significant management judgment. The Company utilizes a combined, equally weighted, income approach based on discounted cash flows and comparable company market approach to arrive at an indicated fair value range for the reporting unit.
The income approach involves several management estimates, including developing a discounted cash flow valuation model which utilizes variables such as asset and revenue growth rates, expense trends, capital requirements, discount rates, and terminal values. Based upon an evaluation of key data and market factors, management selects the specific variables to be incorporated into the valuation model. Projected future cash flows are discounted using estimated rates based on the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta, and unsystematic risk and size premium adjustments specific to the reporting unit. In the income approach the discount rate used for Consumer Deposits, Business Banking and HSA Bank was 7.6%, 9.8%, and 9.6%, respectively. The long-term growth rate used in determining the terminal value of the reporting unit's cash flows was estimated at 4.0% and is based on management's assessment of the minimum expected growth rate of each reporting unit as well as broader economic and regulatory considerations.
The comparable company market approach includes small to mid-sized banks primarily based in the Northeast with significant geographic or product line overlap to Webster and its reporting units to determine a fair value of each reporting unit.
At November 30, 2017, Webster calculated the following multiples for the selected comparable companies, as appropriate for each reporting unit: core deposit premium, equity value-to-tangible book value and price-to-earnings per share. In determining the appropriate multiples to be applied for each reporting unit, the financial and operating statistics of the reporting units were compared to the comparable companies. Certain financial statistics were compared in identifying the reporting unit’s most appropriate comparable companies whose multiples were used as the basis for the selected multiple range. For price-to-earnings per share, 2017 to 2019 net income compound annual growth rate and 2019 net income margins were used, while the return on tangible book value and return on assets were used for equity value-to-tangible book value multiples. For core deposit premium multiples, each of those four financial statistics were used. Additionally, a control premium was applied as the comparable company multiples are on a minority basis.
The indicated values derived from the discounted cash flows and the market comparable company methodologies were equally weighted to derive the fair value of each reporting unit. This fair value was then compared against the carrying value of each reporting unit to determine if a Step 2 test is required. In estimating the carrying value of each reporting unit, Webster uses a methodology that is based upon Basel III asset risk weightings and fully allocates book capital to all assets and liabilities of each reporting unit. Capital is allocated to assets based on risk weightings and to funding liabilities based on an assessment of operational risk, collateral needs and residual leverage capital as appropriate.
There was no impairment indicated as a result of the Step 1 test performed as of November 30, 2017. The fair value of the Consumer Deposits, Business Banking, and HSA Bank reporting units where goodwill resides exceeded carrying value by 1.6x, 1.7x, and 10.3x, respectively. The Consumer Deposits, Business Banking and HSA Bank reporting units had $377.6 million, $139.0 million, and $21.8 million of goodwill at December 31, 2017, respectively.
Assessing the Realizability of Deferred Tax Assets and the Measurement of Uncertain Tax Positions
In accordance with ASC Topic 740, "Income Taxes," certain aspects of accounting for income taxes require significant management judgment, including assessing the realizability of DTAs and the measurement of UTPs. Such judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ materially from those used by management, the actual realization of DTAs and resolution of UTPs could differ materially from the amounts recorded in the Consolidated Financial Statements and the accompanying Notes thereto.
DTAs generally represent items for which a benefit has been recognized for financial accounting purposes that cannot be realized for tax purposes until a future period. The realization of DTAs depends upon future sources of taxable income . Valuation allowances are established for those DTAs determined not likely to be realized based on management's judgment. Income taxes are more fully described in Note 8: Income TaxesRestrictions in the Notes to Consolidated Financial Statements contained elsewhere in this report.Part II - Item 8. Financial Statements and Supplementary Data.
Recently Issued Accounting Standards UpdatesAmetros Acquisition
Refer toOn January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology platform. The Company believes that the acquisition will provide a fast-growing source of low-cost and long-duration deposits, new sources of non-interest income, and enhance its employee benefit and healthcare financial services expertise.
Additional information regarding the acquisition of Ametros can be found within Note 1: Summary of Significant Accounting Policies25: Subsequent Events in the Notes to Consolidated Financial Statements contained elsewhere in this report forPart II - Item 8. Financial Statements and Supplementary Data.
interLINK Acquisition
On January 11, 2023, the Bank acquired interLINK, a summarytechnology-enabled deposit management platform that administers over $9 billion of recently issued ASUsdeposits from FDIC-insured cash sweep programs between banks and their expected impact onbroker/dealers and clearing firms. The acquisition expanded the Company's financial statements.core deposit funding sources and scalable liquidity and added another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities. At December 31, 2023, interLINK provided the Company with an additional $5.7 billion of money market deposits.
Additional information regarding the acquisition of interLINK can be found within Note 2: Mergers and Acquisitions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Sterling Integration Update
On January 31, 2022, the Company completed its merger with Sterling. In July 2023, the Company executed and completed its transition to a unified core operating system (“core conversion”). This involved changing and/or merging the legacy Webster and legacy Sterling platforms and software that had historically been used to process the Bank's daily operating activities, as well as other internal systems and applications. The completion of such core conversion marked a significant milestone in the Company's overall integration process.
During the year ended December 31, 2023, the Company recorded merger-related expenses, primarily as it relates to the merger with Sterling, totaling $162.5 million, which comprised of $40.5 million in Compensation and benefits, $1.4 million in Occupancy, $19.2 million in Technology and equipment, $2.5 million in Marketing, $67.3 million in Professional and outside services, and $31.6 million in Other expense.
Additional information regarding the merger with Sterling can be found within Note 2: Mergers and Acquisitions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Results of Operations
SelectedThe following table summarizes selected financial data is presented inhighlights and key performance indicators:
| | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
Income and performance ratios: | | | | | |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Net income available to common stockholders | 851,190 | | | 628,364 | | | 400,989 | |
Earnings per diluted common share | 4.91 | | | 3.72 | | | 4.42 | |
Return on average assets | 1.18 | % | | 0.99 | % | | 1.19 | % |
Return on average tangible common stockholders' equity (non-GAAP) | 16.95 | | | 13.34 | | | 15.35 | |
Return on average common stockholders' equity | 10.59 | | | 8.44 | | | 12.56 | |
Non-interest income as a percentage of total revenue | 11.85 | | | 17.81 | | | 26.41 | |
| | | | | |
Asset quality: | | | | | |
ACL on loans and leases | $ | 635,737 | | | $ | 594,741 | | | $ | 301,187 | |
Non-performing assets (1) | 218,600 | | | 206,136 | | | 112,590 | |
ACL on loans and leases / total loans and leases | 1.25 | % | | 1.20 | % | | 1.35 | % |
Net charge-offs / average loans and leases | 0.21 | | | 0.15 | | | 0.02 | |
Non-performing loans and leases / total loans and leases (1) | 0.41 | | | 0.41 | | | 0.49 | |
Non-performing assets / total loans and leases plus OREO and repossessed assets (1) | 0.43 | | | 0.41 | | | 0.51 | |
ACL on loans and leases / non-performing loans and leases (1) | 303.39 | | | 291.84 | | | 274.36 | |
| | | | | |
Other ratios: | | | | | |
| | | | | |
Tangible common equity (non-GAAP) | 7.73 | % | | 7.38 | % | | 7.97 | % |
Tier 1 risk-based capital | 11.62 | | | 11.23 | | | 12.32 | |
Total risk-based capital | 13.72 | | | 13.25 | | | 13.64 | |
CET1 risk-based capital | 11.11 | | | 10.71 | | | 11.72 | |
Stockholders' equity / total assets | 11.60 | | | 11.30 | | | 9.85 | |
Net interest margin | 3.52 | | | 3.49 | | | 2.84 | |
Efficiency ratio (non-GAAP) | 42.15 | | | 43.42 | | | 56.16 | |
| | | | | |
Equity and share related: | | | | | |
Common equity | $ | 8,406,017 | | | $ | 7,772,207 | | | $ | 3,293,288 | |
Book value per common share | 48.87 | | | 44.67 | | | 36.36 | |
Tangible book value per common share (non-GAAP) | 32.39 | | | 29.07 | | | 30.22 | |
Common stock closing price | 50.76 | | | 47.34 | | | 55.84 | |
Dividends and equivalents declared per common share | 1.60 | | | 1.60 | | | 1.60 | |
Common shares issued and outstanding | 172,022 | | | 174,008 | | | 90,584 | |
Weighted-average common shares outstanding - basic | 171,775 | | | 167,452 | | | 89,983 | |
Weighted-average common shares outstanding - diluted | 171,883 | | | 167,547 | | | 90,206 | |
(1)Non-performing asset balances and related asset quality ratios exclude the following table:impact of net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs on loans and leases.
31
|
| | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
(Dollars in thousands, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 |
BALANCE SHEETS | | | | | |
Total assets | $ | 26,487,645 |
| $ | 26,072,529 |
| $ | 24,641,118 |
| $ | 22,497,175 |
| $ | 20,843,577 |
|
Loans and leases, net | 17,323,864 |
| 16,832,268 |
| 15,496,745 |
| 13,740,761 |
| 12,547,203 |
|
Investment securities | 7,125,429 |
| 7,151,749 |
| 6,907,683 |
| 6,666,828 |
| 6,465,652 |
|
Deposits | 20,993,729 |
| 19,303,857 |
| 17,952,778 |
| 15,651,605 |
| 14,854,420 |
|
Borrowings | 2,546,141 |
| 4,017,948 |
| 4,040,799 |
| 4,335,193 |
| 3,612,416 |
|
Series A preferred stock | — |
| — |
| — |
| 28,939 |
| 28,939 |
|
Series E preferred stock | — |
| 122,710 |
| 122,710 |
| 122,710 |
| 122,710 |
|
Series F preferred stock | 145,056 |
| — |
| — |
| — |
| — |
|
Total shareholders' equity | 2,701,958 |
| 2,527,012 |
| 2,413,960 |
| 2,322,815 |
| 2,209,348 |
|
STATEMENTS OF INCOME | | | | | |
Interest income | $ | 913,605 |
| $ | 821,913 |
| $ | 760,040 |
| $ | 718,941 |
| $ | 687,640 |
|
Interest expense | 117,318 |
| 103,400 |
| 95,415 |
| 90,500 |
| 90,912 |
|
Net interest income | 796,287 |
| 718,513 |
| 664,625 |
| 628,441 |
| 596,728 |
|
Provision for loan and lease losses | 40,900 |
| 56,350 |
| 49,300 |
| 37,250 |
| 33,500 |
|
Non-interest income (less securities and one-time gain amounts) | 259,604 |
| 256,882 |
| 237,278 |
| 197,754 |
| 197,615 |
|
Gain on sale of investment securities, net | — |
| 414 |
| 609 |
| 5,499 |
| 712 |
|
Impairment loss on securities recognized in earnings | (126 | ) | (149 | ) | (110 | ) | (1,145 | ) | (7,277 | ) |
One-time gain on redemption of an asset | — |
| 7,331 |
| — |
| — |
| — |
|
Non-interest expense | 661,075 |
| 623,191 |
| 555,341 |
| 501,600 |
| 497,709 |
|
Income before income tax expense | 353,790 |
| 303,450 |
| 297,761 |
| 291,699 |
| 256,569 |
|
Income tax expense | 98,351 |
| 96,323 |
| 93,032 |
| 91,973 |
| 77,113 |
|
Net income | $ | 255,439 |
| $ | 207,127 |
| $ | 204,729 |
| $ | 199,726 |
| $ | 179,456 |
|
Earnings applicable to common shareholders | $ | 246,831 |
| $ | 198,423 |
| $ | 195,361 |
| $ | 188,496 |
| $ | 168,036 |
|
Per Share Data | | | | | |
Basic earnings per common share | $ | 2.68 |
| $ | 2.17 |
| $ | 2.15 |
| $ | 2.10 |
| $ | 1.90 |
|
Diluted earnings per common share | 2.67 |
| 2.16 |
| 2.13 |
| 2.08 |
| 1.86 |
|
Dividends and dividend equivalents declared per common share | 1.03 |
| 0.98 |
| 0.89 |
| 0.75 |
| 0.55 |
|
Dividends declared per Series A preferred stock share | — |
| — |
| 21.25 |
| 85.00 |
| 85.00 |
|
Dividends declared per Series E preferred stock share | 1,600.00 |
| 1,600.00 |
| 1,600.00 |
| 1,600.00 |
| 1,648.89 |
|
Book value per common share | 27.76 |
| 26.17 |
| 24.99 |
| 23.99 |
| 22.77 |
|
Tangible book value per common share (non-GAAP) | 21.59 |
| 19.94 |
| 18.69 |
| 18.10 |
| 16.85 |
|
Key Performance Ratios | | | | | |
Tangible common equity ratio (non-GAAP) | 7.67 | % | 7.19 | % | 7.12 | % | 7.46 | % | 7.50 | % |
Return on average assets | 0.97 |
| 0.82 |
| 0.87 |
| 0.93 |
| 0.89 |
|
Return on average common shareholders’ equity | 9.92 |
| 8.44 |
| 8.70 |
| 8.85 |
| 8.44 |
|
Return on average tangible common shareholders' equity (non-GAAP) | 13.00 |
| 11.36 |
| 11.96 |
| 11.90 |
| 11.77 |
|
Net interest margin | 3.30 |
| 3.12 |
| 3.08 |
| 3.21 |
| 3.26 |
|
Efficiency ratio (non-GAAP) | 60.33 |
| 62.01 |
| 59.93 |
| 59.18 |
| 60.32 |
|
Asset Quality Ratios | | | | | |
Non-performing loans and leases as a percentage of loans and leases | 0.72 | % | 0.79 | % | 0.89 | % | 0.93 | % | 1.28 | % |
Non-performing assets as a percentage of loans and leases plus OREO | 0.76 |
| 0.81 |
| 0.92 |
| 0.98 |
| 1.34 |
|
Non-performing assets as a percentage of total assets | 0.50 |
| 0.53 |
| 0.59 |
| 0.61 |
| 0.82 |
|
ALLL as a percentage of non-performing loans and leases | 158.00 |
| 144.98 |
| 125.05 |
| 122.62 |
| 94.10 |
|
ALLL as a percentage of loans and leases | 1.14 |
| 1.14 |
| 1.12 |
| 1.15 |
| 1.20 |
|
Net charge-offs as a percentage of average loans and leases | 0.20 |
| 0.23 |
| 0.23 |
| 0.23 |
| 0.47 |
|
Ratio of ALLL to net charge-offs | 5.68 x | 5.25 x | 5.21 x | 5.21 x | 2.63 x |
Non-GAAP Financial Measures
The non-GAAP financial measures identified in the preceding table providesprovide both management and investors with information useful in understanding the Company's financial performance, performance trendsposition, results of operations, the strength of its capital position, and overall business performance. These non-GAAP financial position. These measures are used by management for performance measurement purposes, as well as for internal planning and forecasting, purposes, as well asand by securities analysts, investors, and other interested parties to compareassess peer company operating performance. Management believes that thethis presentation, together with the accompanying reconciliations, provides investors with a more complete understanding of the factors and trends affecting the Company's business and allows investors to view its performance in a similar manner.
Tangible book value per common share represents stockholders’ equity less preferred stock and goodwill and other intangible assets (tangible common equity) divided by common shares outstanding at the end of the reporting period. The tangible common equity ratio represents tangible common equity divided by total assets less goodwill and other intangible assets (tangible assets). Both of these measures are used by management to evaluate the Company's capital position. The annualized return on average tangible common stockholders' equity is calculated using net income available to common stockholders, adjusted for the annualized tax-effected amortization of intangible assets, as a percentage of average tangible common equity. This measure is used by management to assess the Company's performance against its peer financial institutions. The efficiency ratio, which represents the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items in order to measure how well the Company is managing its recurring operating expenses.
These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and results.financial measures. Because
non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies that present financial measures having the same or similar names.
The following tables reconcile non-GAAP financial measures withto the most comparable financial measures defined by GAAP:
| | | | | | | | | | | | | | | | | |
| At December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
Tangible book value per common share: | | | | | |
Stockholders' equity | $ | 8,689,996 | | | $ | 8,056,186 | | | $ | 3,438,325 | |
Less: Preferred stock | 283,979 | | | 283,979 | | | 145,037 | |
Goodwill and other intangible assets | 2,834,600 | | | 2,713,446 | | | 556,242 | |
Tangible common stockholders' equity | $ | 5,571,417 | | | $ | 5,058,761 | | | $ | 2,737,046 | |
Common shares outstanding | 172,022 | | | 174,008 | | | 90,584 | |
Tangible book value per common share | $ | 32.39 | | | $ | 29.07 | | | $ | 30.22 | |
Book value per common share (GAAP) | $ | 48.87 | | | $ | 44.67 | | | $ | 36.36 | |
| | | | | |
Tangible common equity ratio: | | | | | |
Tangible common stockholders' equity | $ | 5,571,417 | | | $ | 5,058,761 | | | $ | 2,737,046 | |
Total assets | $ | 74,945,249 | | | $ | 71,277,521 | | | $ | 34,915,599 | |
Less: Goodwill and other intangible assets | 2,834,600 | | | 2,713,446 | | | 556,242 | |
Tangible assets | $ | 72,110,649 | | | $ | 68,564,075 | | | $ | 34,359,357 | |
Tangible common equity ratio | 7.73 | % | | 7.38 | % | | 7.97 | % |
Common stockholders' equity to total assets (GAAP) | 11.22 | % | | 10.90 | % | | 9.43 | % |
| | | | | |
|
| | | | | | | | | | | | | | | |
| At December 31, |
(Dollars and shares in thousands, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 |
Tangible book value per common share (non-GAAP): | | | | | |
Shareholders' equity (GAAP) | $ | 2,701,958 |
| $ | 2,527,012 |
| $ | 2,413,960 |
| $ | 2,322,815 |
| $ | 2,209,348 |
|
Less: Preferred stock (GAAP) | 145,056 |
| 122,710 |
| 122,710 |
| 151,649 |
| 151,649 |
|
Goodwill and other intangible assets (GAAP) | 567,984 |
| 572,047 |
| 577,699 |
| 532,553 |
| 535,238 |
|
Tangible common shareholders' equity (non-GAAP) | $ | 1,988,918 |
| $ | 1,832,255 |
| $ | 1,713,551 |
| $ | 1,638,613 |
| $ | 1,522,461 |
|
Common shares outstanding | 92,101 |
| 91,868 |
| 91,677 |
| 90,512 |
| 90,369 |
|
Tangible book value per common share (non-GAAP) | $ | 21.59 |
| $ | 19.94 |
| $ | 18.69 |
| $ | 18.10 |
| $ | 16.85 |
|
| | | | | |
Tangible common equity ratio (non-GAAP): | | | | | |
Tangible common shareholders' equity (non-GAAP) | $ | 1,988,918 |
| $ | 1,832,255 |
| $ | 1,713,551 |
| $ | 1,638,613 |
| $ | 1,522,461 |
|
Total assets (GAAP) | $ | 26,487,645 |
| $ | 26,072,529 |
| $ | 24,641,118 |
| $ | 22,497,175 |
| $ | 20,843,577 |
|
Less: Goodwill and other intangible assets (GAAP) | 567,984 |
| 572,047 |
| 577,699 |
| 532,553 |
| 535,238 |
|
Tangible assets (non-GAAP) | $ | 25,919,661 |
| $ | 25,500,482 |
| $ | 24,063,419 |
| $ | 21,964,622 |
| $ | 20,308,339 |
|
Tangible common equity ratio (non-GAAP) | 7.67 | % | 7.19 | % | 7.12 | % | 7.46 | % | 7.50 | % |
| | | | | |
| For the years ended December 31, |
(Dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 |
Return on average tangible common shareholders' equity (non-GAAP): | | | | | |
Net Income (GAAP) | $ | 255,439 |
| $ | 207,127 |
| $ | 204,729 |
| $ | 199,726 |
| $ | 179,456 |
|
Less: Preferred stock dividends (GAAP) | 8,184 |
| 8,096 |
| 8,711 |
| 10,556 |
| 10,803 |
|
Add: Intangible assets amortization, tax-affected at 35% (GAAP) | 2,640 |
| 3,674 |
| 4,121 |
| 1,745 |
| 3,197 |
|
Income adjusted for preferred stock dividends and intangible assets amortization (non-GAAP) | $ | 249,895 |
| $ | 202,705 |
| $ | 200,139 |
| $ | 190,915 |
| $ | 171,850 |
|
Average shareholders' equity (non-GAAP) | $ | 2,617,275 |
| $ | 2,481,417 |
| $ | 2,387,286 |
| $ | 2,289,699 |
| $ | 2,149,873 |
|
Less: Average preferred stock (non-GAAP) | 124,978 |
| 122,710 |
| 134,682 |
| 151,649 |
| 151,649 |
|
Average goodwill and other intangible assets (non-GAAP) | 570,054 |
| 574,785 |
| 579,366 |
| 533,549 |
| 537,650 |
|
Average tangible common shareholders' equity (non-GAAP) | $ | 1,922,243 |
| $ | 1,783,922 |
| $ | 1,673,238 |
| $ | 1,604,501 |
| $ | 1,460,574 |
|
Return on average tangible common shareholders' equity (non-GAAP) | 13.00 | % | 11.36 | % | 11.96 | % | 11.90 | % | 11.77 | % |
| | | | | |
Efficiency ratio (non-GAAP): | | | | | |
Non-interest expense (GAAP) | $ | 661,075 |
| $ | 623,191 |
| $ | 555,341 |
| $ | 501,600 |
| $ | 497,709 |
|
Less: Foreclosed property activity (GAAP) | (238 | ) | (326 | ) | 517 |
| (74 | ) | 43 |
|
Intangible assets amortization (GAAP) | 4,062 |
| 5,652 |
| 6,340 |
| 2,685 |
| 4,919 |
|
Other expense (non-GAAP) | 9,029 |
| 3,513 |
| 975 |
| 3,029 |
| 5,649 |
|
Non-interest expense (non-GAAP) | $ | 648,222 |
| $ | 614,352 |
| $ | 547,509 |
| $ | 495,960 |
| $ | 487,098 |
|
Net interest income (GAAP) | $ | 796,287 |
| $ | 718,513 |
| $ | 664,625 |
| $ | 628,441 |
| $ | 596,728 |
|
Add: Tax-equivalent adjustment (non-GAAP) | 16,953 |
| 13,637 |
| 10,617 |
| 11,124 |
| 13,221 |
|
Non-interest income (GAAP) | 259,478 |
| 264,478 |
| 237,777 |
| 202,108 |
| 191,050 |
|
Other (non-GAAP) | 1,798 |
| 1,780 |
| 1,111 |
| 1,889 |
| 7,277 |
|
Less: Gain on sale of investment securities, net (GAAP) | — |
| 414 |
| 609 |
| 5,499 |
| 712 |
|
One-time gain on the sale of an asset (GAAP) | — |
| 7,331 |
| — |
| — |
| — |
|
Income (non-GAAP) | $ | 1,074,516 |
| $ | 990,663 |
| $ | 913,521 |
| $ | 838,063 |
| $ | 807,564 |
|
Efficiency ratio (non-GAAP) | 60.33 | % | 62.01 | % | 59.93 | % | 59.18 | % | 60.32 | % |
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Return on average tangible common stockholders' equity: | | | | | |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Less: Preferred stock dividends | 16,650 | | | 15,919 | | | 7,875 | |
Add: Intangible assets amortization, tax-affected | 28,604 | | | 25,233 | | | 3,565 | |
Net income adjusted for preferred stock dividends and intangible assets amortization | $ | 879,794 | | | $ | 653,597 | | | $ | 404,554 | |
Average stockholders' equity | $ | 8,323,955 | | | $ | 7,721,488 | | | $ | 3,338,764 | |
Less: Average preferred stock | 283,979 | | | 272,179 | | | 145,037 | |
Average goodwill and other intangible assets | 2,848,114 | | | 2,548,254 | | | 558,462 | |
Average tangible common stockholders' equity | $ | 5,191,862 | | | $ | 4,901,055 | | | $ | 2,635,265 | |
Return on average tangible common stockholders' equity | 16.95 | % | | 13.34 | % | | 15.35 | % |
Return on average common stockholders' equity (GAAP) | 10.59 | % | | 8.44 | % | | 12.56 | % |
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Efficiency ratio: | | | | | |
Non-interest expense | $ | 1,416,355 | | | $ | 1,396,473 | | | $ | 745,100 | |
Less: Foreclosed property activity | (1,282) | | | (906) | | | (535) | |
Intangible assets amortization | 36,207 | | | 31,940 | | | 4,513 | |
Operating lease depreciation | 5,569 | | | 8,193 | | | — | |
Merger-related expenses | 162,517 | | | 246,461 | | | 37,454 | |
Strategic initiatives charges | — | | | (3,032) | | | 7,168 | |
Common stock contribution to charitable foundation | — | | | 10,500 | | | — | |
FDIC special assessment | 47,164 | | | — | | | — | |
Other expense (1) | — | | | — | | | 2,526 | |
Non-interest expense | $ | 1,166,180 | | | $ | 1,103,317 | | | $ | 693,974 | |
Net interest income | $ | 2,337,269 | | | $ | 2,034,286 | | | $ | 901,089 | |
Add: Tax-equivalent adjustment | 68,939 | | | 47,128 | | | 9,813 | |
Non-interest income | 314,337 | | | 440,783 | | | 323,372 | |
Other income (2) | 18,059 | | | 22,887 | | | 1,344 | |
Less: Operating lease depreciation | 5,569 | | | 8,193 | | | — | |
(Loss) on sale of investment securities | (33,620) | | | (6,751) | | | — | |
Gain on extinguishment of borrowings | — | | | 2,548 | | | — | |
Income | $ | 2,766,655 | | | $ | 2,541,094 | | | $ | 1,235,618 | |
Efficiency ratio | 42.15 | % | | 43.42 | % | | 56.16 | % |
Non-interest expense as a percentage of total revenue (GAAP) | 53.41 | % | | 56.42 | % | | 60.85 | % |
(1)Other expense (non-GAAP) includes debt prepayments costs in 2021.
(2)Other income (non-GAAP) includes the taxable equivalent of net income generated from LIHTC investments.
Net Interest Income
Net interest income is the Company's primary source of revenue, representing 88.1%, and 82.2% of total revenues for the years ended December 31, 2023, and 2022, respectively. Net interest income is the difference between interest income on
interest-earning assets (i.e., loans and leases and investment securities) and interest expense on interest-bearing liabilities
(i.e., deposits and borrowings), which are used to fund interest-earning assets and other activities. Net interest margin is calculated as the ratio of FTE net interest income to average interest-earning assets.
Net interest income, net interest margin, yields, and ratios on an FTE basis are considered non-GAAP financial measures, and are used by management to evaluate the comparability of the Company's revenue arising from both taxable and non-taxable sources. FTE adjustments are determined assuming a statutory federal income tax rate of 21%.
Net interest income and net interest margin are influenced by the volume and mix of interest-earning assets and interest-bearing liabilities, changes in interest rate levels, re-pricing frequencies, contractual maturities, prepayment behavior, and the use of interest rate derivative financial instruments. These factors are affected by changes in economic conditions which impacts monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.
Given the merger with Sterling on January 31, 2022, net interest income for the year ended December 31, 2022, does not reflect a full year of combined average balances and combined average yields/rates when compared to the year ended December 31, 2023. The timing of the Sterling merger was a contributing factor to the year over year change in the majority of the Company's interest-earning assets and interest-bearing liabilities, in addition to the drivers that are discussed in more detail below.
Net interest income increased $0.3 billion, or 14.9%, from $2.0 billion for the year ended December 31, 2022, to $2.3 billion for the year ended December 31, 2023. On an FTE basis, net interest income also increased $0.3 billion. Net interest margin increased 3 basis points from 3.49% for the year ended December 31, 2022, to 3.52% for the year ended December 31, 2023. These net increases are primarily attributed to higher average loan and lease balances, higher average deposit balances, the impact of the higher interest rate environment, and lower purchase accounting accretion on interest-earning assets that were acquired from Sterling.
Average total interest-earning assets increased $8.3 billion, or 14.0%, from $59.2 billion for the year ended December 31, 2022, to $67.5 billion for the year ended December 31, 2023, primarily due to increases of $6.8 billion, $1.0 billion, $0.3 billion, and $0.1 billion in average loans and leases, average interest-bearing deposits, average total investment securities, and average FHLB and FRB stock, respectively. The average yield on interest-earning assets increased 151 basis points from 3.91% for the year ended December 31, 2022, to 5.42% for the year ended December 31, 2023, primarily due to the higher interest rate environment, partially offset by lower purchase accounting accretion on interest-earning assets that were acquired from Sterling.
Average loans and leases increased $6.8 billion, or 15.7%, from $43.8 billion for the year ended December 31, 2022, to $50.6 billion for the year ended December 31, 2023, primarily due to organic loan growth. At December 31, 2023, and 2022, average loans and leases comprised 75.0% and 73.9% of average total interest-earning assets, respectively. The average yield on loans and leases increased 165 basis points from 4.50% for the year ended December 31, 2022, to 6.15% for the year ended December 31, 2023, primarily due to the higher interest rate environment, partially offset by lower purchase accounting accretion on loans and leases that were acquired from Sterling.
Average interest-bearing deposits held at the FRB increased $1.0 billion, or 162.1%, from $0.6 billion for the year ended December 31, 2022, to $1.6 billion for the year ended December 31, 2023, which was a direct result of the Company's risk management approach to hold higher levels of on-balance sheet liquidity in 2023. At December 31, 2023, and 2022, average interest-bearing deposits comprised 2.32% and 1.01% of average total interest-earning assets, respectively. The average yield on interest-bearing deposits increased 352 basis points from 1.62% for the year ended December 31, 2022, to 5.14% for the year ended December 31, 2023, primarily due to the higher rate environment.
Average total investment securities increased $0.3 billion, or 2.1%, from $14.5 billion for the year ended December 31, 2022, to $14.8 billion for the year ended December 31, 2023, primarily due to a higher volume of purchase activity net of paydowns, partially offset by sales of U.S. Treasury notes and Corporate debt securities. At December 31, 2023, and 2022, average total investment securities comprised 22.0% and 24.6% of average total interest-earning assets, respectively. The average yield on total investment securities increased 75 basis points from 2.31% for the year ended December 31, 2022, to 3.06% for the year ended December 31, 2023, primarily due to the reinvestment of funds received from securities that either had matured or were sold at higher yields.
Average FHLB and FRB stock increased $0.1 billion, or 41.1%, from $0.3 billion for the year ended December 31, 2022, to $0.4 billion for the year ended December 31, 2023, primarily due to the additional FHLB stock investment required as a result of the increase in average FHLB advances. At December 31, 2023, and 2022, average FHLB and FRB stock comprised 0.6% and 0.5% of total average interest-earning assets, respectively. The average yield on FHLB and FRB stock increased 303 basis points from 3.03% for the year ended December 31, 2022, to 6.06% for the year ended December 31, 2023, primarily due to the higher interest rate environment.
Average total interest-bearing liabilities increased $8.1 billion, or 14.4%, from $55.9 billion for the year ended December 31, 2022, to $64.0 billion for the year ended December 31, 2023, primarily due to increases of $6.4 billion and $2.3 billion in average total deposits and average FHLB advances, respectively, partially offset by decreases of $0.4 billion, and $0.3 billion in average federal funds purchased and average securities sold under agreements to repurchase, respectively. The average rate on interest-bearing liabilities increased 157 basis points from 0.45% for the year ended December 31, 2022, to 2.02% for the year ended December 31, 2023, primarily due to the higher interest rate environment.
Average total deposits increased $6.4 billion, or 12.4%, from $51.8 billion for the year ended December 31, 2022, to $58.2 billion for the year ended December 31, 2023, reflecting an increase of $7.7 billion in interest-bearing deposits, partially offset by a decrease of $1.3 billion in non-interest-bearing deposits. The overall increase in deposits was primarily due to the acquisition of interLINK, as well as time deposit and HSA deposit growth, partially offset by decreases in non-interest-bearing and savings deposits. The decreases in non-interest bearing and savings deposits, and the increase in time deposits, were driven by increased market interest rates as customers sought higher yielding deposit products. December 31, 2023, and 2022, average total deposits comprised 91.1% and 92.7% of average total interest-bearing liabilities, respectively. The average rate on deposits increased 148 basis points from 0.27% for the year ended December 31, 2022, to 1.75% for the year ended December 31, 2023, primarily due to the higher interest rate environment and growth in higher costing deposit products. Average higher cost time deposits as a percentage of average total interest-bearing deposits increased from 7.3% for the year ended December 31, 2022, to 14.0% for the year ended December 31, 2023, primarily due to a shift in customer preferences from lower rate checking and savings products into higher rate certificates of deposit products.
Average FHLB advances increased $2.3 billion, or 117.5%, from $2.0 billion for the year ended December 31, 2022, to $4.3 billion for the year ended December 31, 2023, primarily due to short-term funding needs and a direct result of the Company's risk management approach to hold higher levels of on-balance sheet liquidity in 2023. At December 31, 2023, and 2022, average FHLB advances comprised 6.7% and 3.5% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances increased 223 basis points from 2.98% for the year ended December 31, 2022, to 5.21% for the year ended December 31, 2023, primarily due to the higher interest rate environment.
Average federal funds purchased decreased $0.4 billion, or 72.0%, from $0.6 billion for the year ended December 31, 2022, to $0.2 billion for the year ended December 31, 2023, primarily due to the additional liquidity generated from the interLINK deposit sweep program, which allowed for the Company to decrease its federal funds borrowing volume in 2023. At December 31, 2023, and 2022, average federal funds purchased comprised 0.3% and 1.1% of total average interest-bearing liabilities, respectively. The average rate on federal funds purchased increased 212 basis points from 2.58% for the year ended December 31, 2022, to 4.70% for the year ended December 31, 2023, primarily due to the higher interest rate environment.
Average securities sold under agreements to repurchase decreased $0.3 billion, or 54.8%, from $0.5 billion for the year ended December 31, 2022, to $0.2 billion for the year ended December 31, 2023, primarily due to the Company's extinguishment of its two long-term structured repurchase agreements in the third quarter of 2022, and the overall timing of maturities. At December 31, 2023, and 2022, average securities sold under agreements to repurchase comprised 0.3% and 0.8% of total average interest-bearing liabilities, respectively. The average rate on securities sold under agreements to repurchase decreased 20 basis points from 0.78% for the year ended December 31, 2022, to 0.58% for the year ended December 31, 2023, primarily due to the Company's extinguishment of its two long-term structured repurchase agreements in the third quarter of 2022, which were contracted at a higher cost.
The following table summarizes daily average balances, interest, and yield,average yield/rate by major category, and net interest margin on a fully tax-equivalentan FTE basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Average Balance | Interest Income/Expense | Average Yield/Rate | | Average Balance | Interest Income/Expense | Average Yield/Rate | | Average Balance | Interest Income/Expense | Average Yield/Rate |
Assets | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | |
Loans and leases (1) | $ | 50,637,569 | | $ | 3,113,709 | | 6.15 | % | | $ | 43,751,112 | | $ | 1,967,761 | | 4.50 | % | | $ | 21,584,872 | | $ | 765,682 | | 3.55 | % |
Investment securities: (2) | | | | | | | | | | | |
Taxable | 12,350,012 | | 423,289 | | 3.22 | | | 12,067,294 | | 295,158 | | 2.36 | | | 8,507,766 | | 155,902 | | 1.88 | |
Non-taxable | 2,489,732 | | 54,207 | | 2.18 | | | 2,461,428 | | 50,442 | | 2.05 | | | 720,977 | | 27,728 | | 3.85 | |
Total investment securities | 14,839,744 | | 477,496 | | 3.06 | | | 14,528,722 | | 345,600 | | 2.31 | | | 9,228,743 | | 183,630 | | 2.03 | |
FHLB and FRB stock | 408,673 | | 24,785 | | 6.06 | | | 289,595 | | 8,775 | | 3.03 | | | 76,015 | | 1,224 | | 1.61 | |
Interest-bearing deposits (3) | 1,564,255 | | 80,475 | | 5.14 | | | 596,912 | | 9,651 | | 1.62 | | | 1,379,081 | | 1,875 | | 0.14 | |
Loans held for sale | 28,710 | | 734 | | 2.56 | | | 9,842 | | 78 | | 0.80 | | | 10,705 | | 246 | | 2.30 | |
Total interest-earning assets | 67,478,951 | | $ | 3,697,199 | | 5.42 | % | | 59,176,183 | | $ | 2,331,865 | | 3.91 | % | | 32,279,416 | | $ | 952,657 | | 2.97 | % |
| | | | | | | | | | | |
Non-interest-earning assets | 6,344,931 | | | | | 5,586,025 | | | | | 1,955,330 | | | |
Total assets | $ | 73,823,882 | | | | | $ | 64,762,208 | | | | | $ | 34,234,746 | | | |
Liabilities and Equity | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Demand deposits | $ | 11,596,949 | | $ | — | | — | % | | $ | 12,912,894 | | $ | — | | — | % | | $ | 6,897,464 | | $ | — | | — | % |
Health savings accounts | 8,249,332 | | 12,366 | | 0.15 | | | 7,826,576 | | 6,315 | | 0.08 | | | 7,390,702 | | 5,777 | | 0.08 | |
Interest-bearing checking, money market, and savings | 31,874,457 | | 756,521 | | 2.37 | | | 28,266,128 | | 115,271 | | 0.41 | | | 12,843,843 | | 6,936 | | 0.05 | |
Time deposits | 6,531,610 | | 252,531 | | 3.87 | | | 2,838,502 | | 16,966 | | 0.60 | | | 2,105,809 | | 7,418 | | 0.35 | |
Total deposits | 58,252,348 | | 1,021,418 | | 1.75 | | | 51,844,100 | | 138,552 | | 0.27 | | | 29,237,818 | | 20,131 | | 0.07 | |
| | | | | | | | | | | |
Securities sold under agreements to repurchase | 210,676 | | 1,231 | | 0.58 | | | 466,282 | | 3,614 | | 0.78 | | | 527,250 | | 3,027 | | 0.57 | |
Federal funds purchased | 167,495 | | 7,871 | | 4.70 | | | 598,269 | | 15,444 | | 2.58 | | | 16,036 | | 13 | | 0.08 | |
Other borrowings | — | | — | | — | | | — | | 1 | | — | | | — | | — | | — | |
FHLB advances | 4,275,394 | | 222,537 | | 5.21 | | | 1,965,577 | | 58,557 | | 2.98 | | | 108,216 | | 1,708 | | 1.58 | |
Long-term debt (2) | 1,058,621 | | 37,934 | | 3.69 | | | 1,031,446 | | 34,283 | | 3.44 | | | 565,271 | | 16,876 | | 3.22 | |
| | | | | | | | | | | |
Total interest-bearing liabilities | 63,964,534 | | $ | 1,290,991 | | 2.02 | % | | 55,905,674 | | $ | 250,451 | | 0.45 | % | | 30,454,591 | | $ | 41,755 | | 0.14 | % |
Non-interest-bearing liabilities | 1,535,393 | | | | | 1,135,046 | | | | | 441,391 | | | |
Total liabilities | 65,499,927 | | | | | 57,040,720 | | | | | 30,895,982 | | | |
| | | | | | | | | | | |
Preferred stock | 283,979 | | | | | 272,179 | | | | | 145,037 | | | |
Common stockholders' equity | 8,039,976 | | | | | 7,449,309 | | | | | 3,193,727 | | | |
Total stockholders' equity | 8,323,955 | | | | | 7,721,488 | | | | | 3,338,764 | | | |
Total liabilities and equity | $ | 73,823,882 | | | | | $ | 64,762,208 | | | | | $ | 34,234,746 | | | |
| | | | | | | | | | | |
Net interest income (FTE) | | 2,406,208 | | | | | 2,081,414 | | | | | 910,902 | | |
| | | | | | | | | | | |
Less: FTE adjustment | | (68,939) | | | | | (47,128) | | | | | (9,813) | | |
Net interest income | | $ | 2,337,269 | | | | | $ | 2,034,286 | | | | | $ | 901,089 | | |
Net interest margin (FTE) | | | 3.52 | % | | | | 3.49 | % | | | | 2.84 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
(Dollars in thousands) | Average Balance | Interest | Yield/Rate | | Average Balance | Interest | Yield/Rate | | Average Balance | Interest | Yield/Rate |
Assets | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | |
Loans and leases | $ | 17,295,027 |
| $ | 712,794 |
| 4.12 | % | | $ | 16,266,101 |
| $ | 624,300 |
| 3.84 | % | | $ | 14,746,168 |
| $ | 554,632 |
| 3.76 | % |
Securities (based upon historical amortized cost) | 7,047,744 |
| 210,044 |
| 2.97 |
| | 6,910,649 |
| 203,467 |
| 2.95 |
| | 6,846,297 |
| 207,675 |
| 3.04 |
|
FHLB and FRB stock | 155,949 |
| 5,988 |
| 3.84 |
| | 188,854 |
| 6,039 |
| 3.20 |
| | 188,631 |
| 6,479 |
| 3.43 |
|
Interest-bearing deposits | 63,397 |
| 698 |
| 1.10 |
| | 57,747 |
| 295 |
| 0.51 |
| | 107,569 |
| 281 |
| 0.26 |
|
Loans held for sale | 29,680 |
| 1,034 |
| 3.49 |
| | 44,560 |
| 1,449 |
| 3.25 |
| | 41,101 |
| 1,590 |
| 3.87 |
|
Total interest-earning assets | 24,591,797 |
| $ | 930,558 |
| 3.78 | % | | 23,467,911 |
| $ | 835,550 |
| 3.56 | % | | 21,929,766 |
| $ | 770,657 |
| 3.52 | % |
Non-interest-earning assets | 1,669,370 |
| | | | 1,753,316 |
| | | | 1,625,196 |
| | |
Total assets | $ | 26,261,167 |
| | | | $ | 25,221,227 |
| | | | $ | 23,554,962 |
| | |
| | | | | | | | | | | |
Liabilities and equity | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Demand deposits | $ | 4,079,493 |
| $ | — |
| — | % | | $ | 3,853,700 |
| $ | — |
| — | % | | $ | 3,564,751 |
| $ | — |
| — | % |
Savings, checking, & money market deposits | 14,348,404 |
| 36,899 |
| 0.26 |
| | 13,072,577 |
| 27,331 |
| 0.21 |
| | 11,846,049 |
| 21,472 |
| 0.18 |
|
Time deposits | 2,137,574 |
| 25,354 |
| 1.19 |
| | 2,027,029 |
| 22,527 |
| 1.11 |
| | 2,138,778 |
| 24,559 |
| 1.15 |
|
Total deposits | 20,565,471 |
| 62,253 |
| 0.30 |
| | 18,953,306 |
| 49,858 |
| 0.26 |
| | 17,549,578 |
| 46,031 |
| 0.26 |
|
| | | | | | | | | | | |
Securities sold under agreements to repurchase and other borrowings | 876,660 |
| 14,365 |
| 1.64 |
| | 947,858 |
| 14,528 |
| 1.53 |
| | 1,144,963 |
| 16,861 |
| 1.47 |
|
FHLB advances | 1,764,347 |
| 30,320 |
| 1.72 |
| | 2,413,309 |
| 29,033 |
| 1.20 |
| | 2,084,496 |
| 22,858 |
| 1.10 |
|
Long-term debt | 225,639 |
| 10,380 |
| 4.60 |
| | 225,607 |
| 9,981 |
| 4.42 |
| | 226,292 |
| 9,665 |
| 4.27 |
|
Total borrowings | 2,866,646 |
| 55,065 |
| 1.92 |
| | 3,586,774 |
| 53,542 |
| 1.49 |
| | 3,455,751 |
| 49,384 |
| 1.43 |
|
Total interest-bearing liabilities | 23,432,117 |
| $ | 117,318 |
| 0.50 | % | | 22,540,080 |
| $ | 103,400 |
| 0.46 | % | | 21,005,329 |
| $ | 95,415 |
| 0.45 | % |
Non-interest-bearing liabilities | 211,775 |
| | | | 199,730 |
| | | | 162,347 |
| | |
Total liabilities | 23,643,892 |
| | | | 22,739,810 |
| | | | 21,167,676 |
| | |
| | | | | | | | | | | |
Preferred stock | 124,978 |
| | | | 122,710 |
| | | | 134,682 |
| | |
Common shareholders' equity | 2,492,297 |
| | | | 2,358,707 |
| | | | 2,252,604 |
| | |
Webster Financial Corporation shareholders' equity | 2,617,275 |
| | | | 2,481,417 |
| | | | 2,387,286 |
| | |
Total liabilities and equity | $ | 26,261,167 |
| | | | $ | 25,221,227 |
| | | | $ | 23,554,962 |
| | |
Tax-equivalent net interest income | | 813,240 |
| | | | 732,150 |
| | | | 675,242 |
| |
Less: Tax-equivalent adjustments | | (16,953 | ) | | | | (13,637 | ) | | | | (10,617 | ) | |
Net interest income | | $ | 796,287 |
| | | | $ | 718,513 |
| | | | $ | 664,625 |
| |
Net interest margin | | | 3.30 | % | | | | 3.12 | % | | | | 3.08 | % |
(1)Non-accrual loans have been included in the computation of average balances.Net interest income(2)For the purposes of our average yield/rate and net interest margin computations, unsettled trades on investment securities, unrealized gains (losses) on available-for-sale investment securities, and basis adjustments on long-term debt from de-designated fair value hedges are impacted byexcluded.
(3)Interest-bearing deposits are a component of cash and cash equivalents on the levelConsolidated Statements of interest rates, mix of assets earningCash Flows included in Part II - Item 8. Financial Statements and liabilities paying those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These conditions are influenced by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing strategies, as well as the extent of interest lost to non-performing assets.
Supplementary Data.
Net interest income is the difference between interest income on earning assets, such as loans and investments, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company's largest source of revenue, representing 75.4% of total revenue for the year ended December 31, 2017. Net interest margin is the ratio of tax-equivalent net interest income to average earning assets for the period.
Webster manages the risk of changes in interest rates on net interest income and net interest margin through ALCO and through related interest rate risk monitoring and management policies. ALCO meets at least monthly to make decisions on the investment and funding portfolios based on the economic outlook, its interest rate expectations, the portfolio risk position, and other factors.
Four main tools are used for managing interest rate risk:
the size, duration and credit risk of the investment portfolio,
the size and duration of the wholesale funding portfolio,
off-balance sheet interest rate contracts, and
the pricing and structure of loans and deposits.
The Federal Open Market Committee increased the federal funds rate target range three times in 2017, from 0.50-0.75% at December 31, 2016, to 0.75-1.00% effective March 16, 2017, to 1.00-1.25% effective June 15, 2017, and to 1.25-1.50% effective December 13, 2017. See the "Asset/Liability Management and Market Risk" section for further discussion of Webster's interest rate risk position.
Comparison of 2017 to 2016
Financial Performance
Net income of $255.4 million for the year ended December 31, 2017 increased 23.3% over the year ended December 31, 2016. Strong loan growth, funded with growth in low-cost long-duration HSA deposits, resulted in an 18 basis points increase in net interest margin, and a lower provision for loan and lease losses, driven by stable credit performance throughout the year also positively impacted net interest margin. Non-interest income improved, excluding a one-time gain on the sale of an asset in 2016, while non-interest expense increases for strategic growth initiatives partially offset the net interest growth.
Income before income tax expense was $353.8 million for the year ended December 31, 2017, an increase of $50.3 million from $303.5 million for the year ended December 31, 2016.
The primary factors positively impacting income before income tax expense include:
net interest income increased $77.8 million; and
provision for loan and lease losses decreased $15.5 million.
The primary factors negatively impacting income before income tax expense include:
non-interest expense increased $37.9 million; and
one-time gain on the sale of an asset in 2016 of $7.3 million.
The impact of the items outlined above, coupled with the effect from income tax expense of $98.4 million and $96.3 million for the years ended December 31, 2017 and 2016, respectively, resulted in net income of $255.4 million and diluted earnings per share of $2.67 for the year ended December 31, 2017 compared to net income of $207.1 million and diluted earnings per share of $2.16 for the year ended December 31, 2016. See the "Income Taxes" section for additional information with regard to the effect from income taxes, including the impact of the Tax Cuts and Jobs Act.
The efficiency ratio, a non-GAAP financial measure which quantifies the cost expended to generate a dollar of revenue was 60.33% for 2017 and 62.01% for 2016. The improvement in the ratio highlights the Company's strong net interest income growth accelerating at a rate greater than the increase in non-interest expense.
Credit quality remained stable to slightly improved as demonstrated by the asset quality ratios. Net charge-offs as a percentage of average loans and leases was 0.20% for the year ended December 31, 2017 as compared to 0.23% for the year ended December 31, 2016. Non-performing assets as a percentage of loans, leases, and other real estate owned (OREO) decreased to 0.76% at December 31, 2017 from 0.81% at December 31, 2016, primarily driven by lower non-performing asset balances and, to a lesser extent, further reduced by loan growth.
Net Interest Income
Net interest income totaled $796.3 million for the year ended December 31, 2017 compared to $718.5 million for the year ended December 31, 2016, an increase of $77.8 million. Average interest-earning assets during 2017 increased $1.1 billion compared to 2016, substantially due to a significant increase in loan balances, with yield improvement of 28 basis points, up 6.3%. Net interest income increased primarily due to these increases, although the securities portfolio average balances and yields were modestly improved as well. The overall average yield on interest-earning assets increased 22 basis points to 3.78% during 2017 from 3.56% during 2016. The average yield on interest-earning assets is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-earning assets. Average interest-bearing liabilities during 2017 increased $0.9 billion compared to 2016, primarily from health savings account growth, as other deposit balance increases and FHLB advance balance decreases basically offset, and the average cost of interest-bearing liabilities increased 4 basis points to 0.50% during 2017 compared to 0.46% during 2016. The average cost of borrowings increase is a result of the federal funds rate being increased four times between December 2016 and December 2017.
Net interest margin increased 18 basis points to 3.30% for the year ended December 31, 2017 from 3.12% for the year ended December 31, 2016. The increase in net interest margin is primarily due to an increase in commercial loan yields and balances, as well as improved investment portfolio yields, partially offset by an increased cost of borrowing due to the federal funds rate increases, somewhat mitigated by a shift from FHLB advances to deposit balances which are generally lower cost and also not as sensitive to the federal funds rate increases.
Changes in Net Interest Income
The following table presents the components ofsummarizes the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalentan FTE basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 vs. 2022 Increase (decrease) due to | | 2022 vs. 2021 Increase (decrease) due to |
(In thousands) | Rate (1) | Volume | Total | | Rate (1) | Volume | Total |
Change in interest on interest-earning assets: | | | | | | | |
Loans and leases | $ | 833,430 | $ | 312,518 | $ | 1,145,948 | | $ | 580,849 | $ | 621,230 | $ | 1,202,079 |
Investment securities | 124,572 | 7,324 | 131,896 | | 67,152 | 94,818 | 161,970 |
FHLB and FRB stock | 12,402 | 3,608 | 16,010 | | 4,113 | 3,438 | 7,551 |
Interest-bearing deposits | 55,184 | 15,640 | 70,824 | | 8,840 | (1,064) | 7,776 |
Loans held for sale | 364 | 292 | 656 | | 48 | (216) | (168) |
Total interest income | $ | 1,025,952 | $ | 339,382 | $ | 1,365,334 | | $ | 661,002 | $ | 718,206 | $ | 1,379,208 |
Change in interest on interest-bearing liabilities: | | | | | | | |
| | | | | | | |
Health savings accounts | $ | 5,710 | $ | 341 | $ | 6,051 | | $ | 197 | $ | 341 | $ | 538 |
Interest-bearing checking, money market, and savings | 596,023 | 45,227 | 641,250 | | 108,272 | 63 | 108,335 |
Time deposits | 178,262 | 57,303 | 235,565 | | 11,274 | (1,726) | 9,548 |
Securities sold under agreements to repurchase | (402) | (1,981) | (2,383) | | 937 | (350) | 587 |
Federal funds purchased | 3,547 | (11,120) | (7,573) | | 14,960 | 471 | 15,431 |
Other borrowings | (1) | — | (1) | | 1 | — | 1 |
FHLB advances | 95,168 | 68,812 | 163,980 | | 27,530 | 29,319 | 56,849 |
Long-term debt | 2,715 | 936 | 3,651 | | 2,388 | 15,019 | 17,407 |
Total interest expense | $ | 881,022 | $ | 159,518 | $ | 1,040,540 | | $ | 165,559 | $ | 43,137 | $ | 208,696 |
Net change in net interest income | $ | 144,930 | $ | 179,864 | $ | 324,794 | | $ | 495,443 | $ | 675,069 | $ | 1,170,512 |
|
| | | | | | | | | |
| Years ended December 31, |
| 2017 vs. 2016 Increase (decrease) due to |
(In thousands) | Rate (1) | Volume | Total |
Change in interest on interest-earning assets: | | | |
Loans and leases | $ | 50,509 |
| $ | 37,985 |
| $ | 88,494 |
|
Loans held for sale | 120 |
| (534 | ) | (414 | ) |
Investments (2) | 2,744 |
| 4,185 |
| 6,929 |
|
Total interest income | $ | 53,373 |
| $ | 41,636 |
| $ | 95,009 |
|
Change in interest on interest-bearing liabilities: |
|
|
|
Deposits | $ | 8,574 |
| $ | 3,821 |
| $ | 12,395 |
|
Borrowings | 10,327 |
| (8,803 | ) | 1,524 |
|
Total interest expense | $ | 18,901 |
| $ | (4,982 | ) | $ | 13,919 |
|
Change in tax-equivalent net interest income | $ | 34,472 |
| $ | 46,618 |
| $ | 81,090 |
|
| |
(1) | (1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate. |
| |
(2) | Investments include: Securities; FHLB and FRB stock; and Interest-bearing deposits. |
Average loans and leases for the year ended December 31, 2017 increased $1.0 billion compared to the average for the year ended December 31, 2016. The loan and lease portfolio comprised 70.3% of the average interest-earning assets at December 31, 2017 compared to 69.3% of the average interest-earning assets at December 31, 2016. The loan and lease portfolio yield increased 28 basis points to 4.12% for the year ended December 31, 2017, compared to the loan and lease portfolio yield of 3.84% for the year ended December 31, 2016. The increase in the yield on average loans and leases is due to increased yield on floating rate loans as well as increased spreads on loan originations.rate.
Average investments for the year ended December 31, 2017 increased $109.8 million compared to the average for the year ended December 31, 2016. The investment portfolio comprised 29.6% of the average interest-earning assets at December 31, 2017 compared to 30.5% of the average interest-earnings assets at December 31, 2016. The investment portfolio yield increased 5 basis points to 2.98% for the year ended December 31, 2017 compared to the investment portfolio yield of 2.93% for the year ended December 31, 2016. The increase in the yield on the investment portfolio is primarily due to a reduction in premium amortization from slower prepayment speeds and increased yields on floating-rate securities, more than offsetting lower current market rates on investment securities purchases compared to the yield on investment securities paydowns and maturities.
Average deposits for the year ended December 31, 2017 increased $1.6 billion compared to the average for the year ended December 31, 2016. The increase is comprised of an increase of $225.8 million in non-interest-bearing deposits and an increase of $1.4 billion in average interest-bearing deposits. The increase in average interest-bearing deposits, and an improved product mix to low-cost deposits, was primarily due to health savings account deposit growth. The average cost of deposits increased 4 basis points to 0.30% for the year ended December 31, 2017 from 0.26% for the year ended December 31, 2016. The increase in average cost of deposits is mainly the result of an increase in the rate paid on public money market accounts. Higher cost time deposits decreased to 13.0% for the year ended December 31, 2017 from 13.4% for the year ended December 31, 2016, as a percentage of total interest-bearing deposits.
Average borrowings for the year ended December 31, 2017 decreased $720.1 million compared to the average for the year ended December 31, 2016. Average securities sold under agreements to repurchase and other borrowings decreased $71.2 million, and average FHLB advances decreased $649.0 million as utilization of advances maturing within one year declined significantly. The average cost of borrowings increased 43 basis points to 1.92% for the year ended December 31, 2017 from 1.49% for the year ended December 31, 2016. The increase in average cost of borrowings is the result of the federal funds rate being increased four times between December 2016 and December 2017.
Cash flow hedges impacted the average cost of borrowings as follows:
|
| | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 |
Interest rate swaps on repurchase agreements | $ | — |
| | $ | 361 |
|
Interest rate swaps on FHLB advances | 6,799 |
| | 8,315 |
|
Interest rate swaps on senior fixed-rate notes | 306 |
| | 306 |
|
Interest rate swaps on brokered CDs and deposits | 780 |
| | 780 |
|
Net increase to interest expense on borrowings | $ | 7,885 |
| | $ | 9,762 |
|
Provision for Loan and LeaseCredit Losses
The provision for loan and lease losses is the expense necessary to maintain the allowance for loan and lease losses at levels appropriate to absorb estimated credit losses in the loantotaled $150.7 million and lease portfolio.
The provision for loan and lease losses was $40.9$280.6 million for the year ended December 31, 2017, which decreased $15.5 million compared to the year ended December 31, 2016.2023, and 2022, respectively. The decrease in provision for loan and lease losses was due primarily to lower loan growth as compared to the rate for 2016. Total net charge-offs was $35.2 million and $37.0 millionbalance for the year ended December 31, 20172022, included the establishment of the initial ACL of $175.1 million for non-PCD loans and 2016, respectively. The decrease wasleases that were acquired from Sterling in the merger. Excluding this charge, the provision for credit losses increased $45.2 million, primarily due to lower commercial real estate and other commercial loan related net charge-offs.
Allowance for Loan and Lease Losses
The ALLL is a significant accounting estimate that is determined through periodic and systematic detailed reviewsthe impact of the current macroeconomic environment on credit performance and organic loan growth.
Additional information regarding the Company's loanprovision for credit losses and lease portfolio. The ALLL is determined based on an analysis which assesses the inherent risk for probable losses within the portfolio. Significant judgments and estimates are necessary in the determination of the ALLL. Significant judgments include, among others, loan risk ratings and classifications, the probability of loan defaults, the net loss exposure in the event of loan defaults, the loss emergence period, the determination and measurement of impaired loans, and other quantitative and qualitative considerations.
At December 31, 2017, the ALLL totaled $200.0 million, or 1.14% of total loans and leases, as compared to $194.3 million, or 1.14% of total loans and leases, at December 31, 2016.
SeeACL can be found under the sections captioned "Loans and Leases" through "Allowance for LoanCredit Losses on Loans and Lease Losses Methodology,"Leases" contained elsewhere in this report for further details.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Non-Interest Income
| | | | | | | | | | | | Years ended December 31, |
| Years ended December 31, | | Increase (decrease) |
(Dollars in thousands) | 2017 | 2016 | | Amount | Percent |
(In thousands) | | (In thousands) | 2023 | | 2022 | | 2021 |
Deposit service fees | $ | 151,137 |
| $ | 140,685 |
| | $ | 10,452 |
| 7.4 | % |
Loan and lease related fees | 26,448 |
| 26,581 |
| | (133 | ) | (0.5 | ) |
Wealth and investment services | 31,055 |
| 28,962 |
| | 2,093 |
| 7.2 |
|
Mortgage banking activities | 9,937 |
| 14,635 |
| | (4,698 | ) | (32.1 | ) |
Increase in cash surrender value of life insurance policies | 14,627 |
| 14,759 |
| | (132 | ) | (0.9 | ) |
Gain on sale of investment securities, net | — |
| 414 |
| | (414 | ) | (100.0 | ) |
Impairment loss on securities recognized in earnings | (126 | ) | (149 | ) | | 23 |
| 15.4 |
|
Cash surrender value of life insurance policies | |
(Loss) on sale of investment securities | |
| Other income | |
Other income | |
Other income | 26,400 |
| 38,591 |
| | (12,191 | ) | (31.6 | ) |
Total non-interest income | $ | 259,478 |
| $ | 264,478 |
| | $ | (5,000 | ) | (1.9 | )% |
Total non-interest income was $259.5decreased $126.5 million, or 28.7%, from $440.8 million for the year ended December 31, 2017, a decrease of $5.0 million, compared2022, to $264.5$314.3 million for the year ended December 31, 2016. The decrease is2023, primarily attributabledue to lower otherdecreases in Other income, and mortgage banking activities, more than offsetting higher deposit service fees and wealth and investment services.
Deposit service fees, totaled $151.1 million for 2017 compared to $140.7 million for 2016. The increase was a result of higher checking account service chargesLoan and check card interchange attributable to health savings account growthlease related fees, and usage activity.
Wealth and investment services, totaled $31.1 million for 2017 compared to $29.0 million for 2016. Theand an increase was primarily due to increased sales coupled with growth in assets under management.
Mortgage banking activities totaled $9.9 million for 2017 compared to $14.6 million for 2016. The decrease was due to lower volume(Loss) on sale of conforming residential mortgage originations, driven by a decrease in refinance activity.investment securities.
Other income totaled $26.4 million for 2017 compared todecreased $38.6 million, for 2016. The decrease was primarily due to the following items recorded in 2016: a $7.3 million gain on the redemption of an ownership interest in a privately held investment; a $2.7 million favorable adjustment to the fair value of a contingent receivable; and a $2.0 million gain on the sale of commercial loans, which did not repeat in 2017. Other income was also impacted by lower net client interest rate hedging activities/hedging revenues, nearly offset by a settlement gain and increased alternative investment gains.
Non-Interest Expense
|
| | | | | | | | | | | | |
| Years ended December 31, | | Increase (decrease) |
(Dollars in thousands) | 2017 | 2016 | | Amount | Percent |
Compensation and benefits | $ | 359,926 |
| $ | 332,127 |
| | $ | 27,799 |
| 8.4 | % |
Occupancy | 60,490 |
| 61,110 |
| | (620 | ) | (1.0 | ) |
Technology and equipment | 89,464 |
| 79,882 |
| | 9,582 |
| 12.0 |
|
Intangible assets amortization | 4,062 |
| 5,652 |
| | (1,590 | ) | (28.1 | ) |
Marketing | 17,421 |
| 19,703 |
| | (2,282 | ) | (11.6 | ) |
Professional and outside services | 16,858 |
| 14,801 |
| | 2,057 |
| 13.9 |
|
Deposit insurance | 25,649 |
| 26,006 |
| | (357 | ) | (1.4 | ) |
Other expense | 87,205 |
| 83,910 |
| | 3,295 |
| 3.9 |
|
Total non-interest expense | $ | 661,075 |
| $ | 623,191 |
| | $ | 37,884 |
| 6.1 | % |
Total non-interest expense was $661.1or 50.8%, from $75.9 million for the year ended December 31, 2017, an increase of $37.92022, to $37.3 million fromfor the year ended December 31, 2016.2023, primarily due to lower income generated from customer interest rate derivative activities and direct investments.
Deposit service fees decreased $29.2 million, or 14.7%, from $198.5 million for the year ended December 31, 2022, to
$169.3 million for the year ended December 31, 2023, primarily due to lower customer account service fees and cash management and analysis fees, partially offset by higher interchange income.
Loan and lease related fees decreased $18.1 million, or 17.6%, from $103.0 million for the year ended December 31, 2022, to $84.9 million for the year ended December 31, 2023, primarily due to lower loan servicing fee income, syndication fees, and prepayment penalties.
Wealth and investment services decreased $11.3 million, or 28.0%, from $40.3 million for the year ended December 31, 2022, to $29.0 million for the year ended December 31, 2023, primarily due to lower net investment services income in 2023, which is a direct result of the outsourcing of the consumer investment services platform effective as of the fourth quarter of 2022.
During the year ended December 31, 2023, the Company sold $827.0 million of U.S. Treasury notes, Corporate debt securities, and Municipal bonds and notes classified as available-for-sale for proceeds of $789.6 million, which resulted in $37.4 million of gross realized losses. The increase is primarily attributable$33.6 million loss on sale of investment securities included in non-interest income for the
year ended December 31, 2023, represents the portion of the total charge that was not attributed to higher compensationa decline in credit quality.
During the year ended December 31, 2022, the Company sold $179.7 million of Municipal bonds and notes classified as available-for-sale for proceeds of $172.9 million, which resulted in $6.8 million of gross realized losses.
Non-Interest Expense | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Compensation and benefits | $ | 711,752 | | | $ | 723,620 | | | $ | 419,989 | |
Occupancy | 77,520 | | | 113,899 | | | 55,346 | |
Technology and equipment | 197,928 | | | 186,384 | | | 112,831 | |
Intangible assets amortization | 36,207 | | | 31,940 | | | 4,513 | |
Marketing | 18,622 | | | 16,438 | | | 12,051 | |
Professional and outside services | 107,497 | | | 117,530 | | | 47,235 | |
Deposit insurance | 98,081 | | | 26,574 | | | 15,794 | |
Other expense | 168,748 | | | 180,088 | | | 77,341 | |
Total non-interest expense | $ | 1,416,355 | | | $ | 1,396,473 | | | $ | 745,100 | |
Total non-interest expense remained relatively flat at approximately $1.4 billion for both the years ended December 31, 2023 and 2022. Although the financial statement caption as a whole did not change significantly, notable fluctuations were experienced in Compensation and benefits, technologyOccupancy, Technology and equipment, professionalProfessional and outside services, Deposit insurance, and other expenses, somewhat offset by lower marketing and intangible assets amortization.Other expense.
Compensation and benefits totaled $359.9decreased $11.9 million, or 1.6%, from $723.6 million for 2017 comparedthe year ended December 31, 2022, to $332.1$711.7 million for 2016. The increase was driven by strategic hires within HSA Bankthe year ended December 31, 2023, primarily due to a $38.5 million decrease in merger-related expenses, particularly as wellit relates to severance and retention, the outsourcing of the consumer investment services platform effective as additional annual meritof the fourth quarter of 2022, and decreases in incentive compensation and commissions, partially offset by increases in salaries, group insurance, and other compensation costs. In addition, in response
Occupancy decreased $36.4 million, or 31.9%, from $113.9 million for the year ended December 31, 2022, to $77.5 million for the year ended December 31, 2023, primarily due to the Tax Cutslaunch of the Company's corporate real estate consolidation plan in the second quarter of 2022, which resulted in a $23.1 million ROU asset impairment charge and Jobs Act,a combined $12.3 million in related exit costs and accelerated depreciation on property and equipment for the Company announced a further investment in its employees and communities. As a result, an expense of $2.6 million is included in compensation and benefitsyear ended December 31, 2022. There were no such charges, or similar charges, for 2017 to cover a one-time cash bonus to full-time employees who are below the vice president level.
Occupancy totaled $60.5 million for 2017 compared to $61.1 million for 2016. Charges related to banking center optimization were offset by lower utilities and depreciation of premises and equipment.year ended December 31, 2023.
Technology and equipment totaled $89.5increased $11.5 million, or 6.2%, from $186.4 million for 2017 comparedthe year ended December 31, 2022, to $79.9$197.9 million for 2016. The increase wasthe year ended December 31, 2023, primarily due to increasedan increase in technology service contracts and additional depreciation on infrastructure to support bank growth.
Marketing totaled $17.4automated services, partially offset by a $5.5 million for 2017 compared to $19.7 million for 2016. The decrease was due to lower media spend.in merger-related expenses.
Professional and outside services totaled $16.9decreased $10.0 million, or 8.5%, from $117.5 million for 2017 comparedthe year ended December 31, 2022, to $14.8$107.5 million for 2016. The increase wasthe year ended December 31, 2023, primarily due to a $5.7 million decrease in merger-related expenses and decreased consulting services usedcosts, partially offset by an increase in legal fees.
Deposit insurance increased $71.5 million, or 269.1%, from $26.6 million for strategic projects.the year ended December 31, 2022, to
$98.1 million for the year ended December 31, 2023, primarily due to the $47.2 million FDIC special assessment charge recorded in the fourth quarter of 2023, and the impact of the increased initial base deposit insurance assessment rate schedules adopted by the FDIC, which took effect in the first quarter of 2023 for all insured depository institutions.
Other expense totaled $87.2decreased $11.4 million, or 6.3%, from $180.1 million for 2017 comparedthe year ended December 31, 2022, to $83.9$168.7 million for 2016. The increase wasthe year ended December 31, 2023, primarily due to $3.8the $10.5 million common stock contribution to the Webster Bank Charitable Foundation in the third quarter of cost associated with2022, as there was no such charge for the redemptionyear ended December 31, 2023.
Income Taxes
WebsterFor the years ended December 31, 2023, and 2022, the Company recognized income tax expense of $98.4$216.7 million and $153.7 million, respectively, reflecting effective tax rates of 20.0% and 19.3%, respectively.
The $63.0 million increase in 2017 and $96.3 millionincome tax expense is primarily due the increase in 2016, andpre-tax income in 2023, which included lower one-time charges associated with the Sterling merger as compared to 2022. The 0.7% point increase in the effective tax rate primarily reflects the effects of the lower one-time charges and related tax benefits in 2023 associated with the Sterling merger, partially offset by the effects of higher tax-exempt income and lower SALT expense in 2023 as compared to 2022.
At December 31, 2023, and 2022, the Company recorded a valuation allowance on its DTAs of $28.7 million and $29.2 million, respectively. The valuation allowance at December 31, 2023, is primarily related to the portion of SALT net operating loss carryforwards that, in management's judgment, is not more likely than not to be realized. At December 31, 2023, and 2022, the Company's gross DTAs included $64.2 million and $66.9 million, respectively, applicable to SALT net operating loss and credit carryforwards that are available to offset future taxable income, generally through 2032.
The ultimate realization of DTAs is dependent on the generation of future taxable income during the periods in which the net operating loss and credit carryforwards are available. In making its assessment, management considers the Company's forecasted future results of operations, estimates the content and apportionment of its income by legal entity over the near term for SALT purposes, and also applies longer-term growth rate assumptions. Based on its estimates, management believes it is more likely than not that the Company will realize its DTAs, net of the valuation allowance, at December 31, 2023. However, it is possible that some or all of the Company's net operating loss and credit carryforwards could expire unused, or that more net operating loss and credit carryforwards could be utilized than estimated, either as a result of changes in future forecasted levels of taxable income or if future economic or market conditions or interest rates were 27.8%to vary significantly from the Company's forecasts and, 31.7%, respectively. The increase in tax expense principally reflectsturn, impact its future results of operations.
Additional information regarding the higher level of pre-tax income in 2017, while the decrease in the effective rate principally reflects the $7.8 million net benefit recognized in the fourth quarter of 2017, the $28.7 million net benefit related to state and local tax (SALT) DTAs and the $20.9 million expense attributable to the Tax Act, and $7.1 million of excess tax benefits recognized under Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share Based Payment Accounting, which the Company adopted effective January 1, 2017.
For additional information on Webster'sCompany's income taxes, including its DTAs, and UTPs, seecan be found within Note 8:9: Income Taxes in the Notes to Consolidated Financial Statements contained elsewhere in this report.
Part II - Item 8. Financial Statements and Supplementary Data.
Comparison of 2016 to 2015
Financial Performance
Net income of $207.1 million for the year ended December 31, 2016 increased 1.2% over the year ended December 31, 2015, primarily due to strong loan growth, an increase in the net interest margin, and increased non-interest income, offset primarily by increased non-interest expenses.
Income before income tax expense was $303.5 million for the year ended December 31, 2016, an increase of $5.7 million from $297.8 million for the year ended December 31, 2015.
The primary factors positively impacting income before income tax expense include:
interest income increased $61.9 million; and
non-interest income increased $26.7 million.
The primary factors negatively impacting income before income tax expense include:
non-interest expense increased $67.9 million; and
provision for loan and lease losses increased $7.1 million.
The impact of the items outlined above, coupled with the effect from income tax expense of $96.3 million and $93.0 million for the years ended December 31, 2016 and 2015, respectively, resulted in net income of $207.1 million and diluted earnings per share of $2.16 for the year ended December 31, 2016 compared to net income of $204.7 million and diluted earnings per share of $2.13 for the year ended December 31, 2015.
The efficiency ratio, a non-GAAP financial measure which quantifies the cost expended to generate a dollar of revenue was 62.01% for 2016 and 59.93% for 2015. The increase in the ratio highlights the Company's investing in strategic opportunities such as HSA Bank's strategic initiatives and Community Banking's Boston expansion.
Credit quality improved as demonstrated by the asset quality ratios. Net charge-offs as a percentage of average loans and leases was 0.23% for both the year ended December 31, 2016 and 2015. Non-performing assets as a percentage of loans, leases, and OREO decreased to 0.81% at December 31, 2016 from 0.92% at December 31, 2015, driven by loan growth, partially offset by an increase in non-performing assets.
Net Interest Income
Net interest income totaled $718.5 million for the year ended December 31, 2016 compared to $664.6 million for the year ended December 31, 2015, an increase of $53.9 million. Average interest-earning assets during 2016 increased $1.5 billion compared to 2015, substantially due to strong loan growth of 8.6% with overall improved yields. Net interest income decreased primarily due to the increase in average interest-earning assets, partially offset by a relatively flat securities portfolio with declining reinvestment spreads on those assets. The average yield on interest-earning assets increased 4 basis points to 3.56% during 2016 from 3.52% during 2015. The average yield on interest-earning assets is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-earning assets. Average interest-bearing liabilities during 2016 increased $1.5 billion compared to 2015, primarily from health savings account growth, while the average cost of interest-bearing liabilities increased 1 basis point to 0.46% during 2016 compared to 0.45% during 2015, primarily from a slight increase in the average cost of borrowings.
Net interest margin increased 4 basis points to 3.12% for the year ended December 31, 2016 from 3.08% for the year ended December 31, 2015. The increase in net interest margin is due primarily to increase in commercial loan yields, flat deposit costs partially offset by lower investment portfolio yields.
Changes in Net Interest Income
The following table presents the components of the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:
|
| | | | | | | | | |
| Years ended December 31, |
| 2016 vs. 2015 Increase (decrease) due to |
(In thousands) | Rate (1) | Volume | Total |
Change in interest on interest-earning assets: | | | |
Loans and leases | $ | 5,627 |
| $ | 64,041 |
| $ | 69,668 |
|
Loans held for sale | (77 | ) | (65 | ) | (142 | ) |
Investments (2) | (6,297 | ) | 1,664 |
| (4,633 | ) |
Total interest income | $ | (747 | ) | $ | 65,640 |
| $ | 64,893 |
|
Change in interest on interest-bearing liabilities: | | | |
Deposits | $ | 2,554 |
| $ | 1,273 |
| $ | 3,827 |
|
Borrowings | 2,663 |
| 1,495 |
| 4,158 |
|
Total interest expense | $ | 5,217 |
| $ | 2,768 |
| $ | 7,985 |
|
Change in tax-equivalent net interest income | $ | (5,964 | ) | $ | 62,872 |
| $ | 56,908 |
|
| |
(1) | The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate. |
| |
(2) | Investments include: Securities; FHLB and FRB stock; and Interest-bearing deposits. |
Average loans and leases for the year ended December 31, 2016 increased $1.5 billion compared to the average for the year ended December 31, 2015. The loan and lease portfolio comprised 69.3% of the average interest-earning assets at December 31, 2016 compared to 67.2% of the average interest-earning assets at December 31, 2015. The loan and lease portfolio yield increased 8 basis points to 3.84% for the year ended December 31, 2016, compared to the loan and lease portfolio yield of 3.76% for the year ended December 31, 2015. The increase in the yield on average loans and leases is due to floating rate loans as well as increased spreads on loan originations.
Average investments for the year ended December 31, 2016 increased $14.8 million compared to the average for the year ended December 31, 2015. The investment portfolio comprised 30.5% of the average interest-earning assets at December 31, 2016 compared to 32.6% of the average interest-earnings assets at December 31, 2015. The investment portfolio yield decreased 7 basis points to 2.93% for the year ended December 31, 2016 compared to the investment portfolio yield of 3.00% for the year ended December 31, 2015. The decrease in the investment portfolio yield is due to reinvestment yields that are lower than yields on securities paydowns and maturities during 2016.
Average deposits for the year ended December 31, 2016 increased $1.4 billion compared to the average for the year ended December 31, 2015. The increase is comprised of an increase of $288.9 million in non-interest-bearing deposits and an increase of $1.1 billion in average interest-bearing deposits, driven by continued growth in health savings account deposits. The average cost of deposits was 0.26% for the year ended December 31, 2016 or flat compared with the year ended December 31, 2015. This was as a result of product mix. Higher cost time deposits decreased to 13.4% for the year ended December 31, 2016 from 15.3% for the year ended December 31, 2015, as a percentage of total interest-bearing deposits.
Average borrowings for the year ended December 31, 2016 increased $131.0 million compared to the average for the year ended December 31, 2015. Average securities sold under agreements to repurchase and other borrowings decreased $197.1 million, and average FHLB advances increased $328.8 million. The average cost of borrowings increased 6 basis points to 1.49% for the year ended December 31, 2016 from 1.43% for the year ended December 31, 2015. The increase in average cost of borrowings is due primarily to an increase to the federal funds rate.
Cash flow hedges impacted the average cost of borrowings as follows:
|
| | | | | | | |
| Years ended December 31, |
(In thousands) | 2016 | | 2015 |
Interest rate swaps on repurchase agreements | $ | 361 |
| | $ | 1,442 |
|
Interest rate swaps on FHLB advances | 8,315 |
| | 8,272 |
|
Interest rate swaps on senior fixed-rate notes | 306 |
| | 306 |
|
Interest rate swaps on brokered CDs and deposits | 780 |
| | 632 |
|
Net increase to interest expense on borrowings | $ | 9,762 |
| | $ | 10,652 |
|
Provision for Loan and Lease Losses
Management performs a quarterly review of the loan and lease portfolio to determine the adequacy of the ALLL. At December 31, 2016, the ALLL totaled $194.3 million, or 1.14% of total loans and leases, compared to $175.0 million, or 1.12% of total loans and leases, at December 31, 2015.
Several factors are considered when determining the level of the ALLL, including loan growth, portfolio composition, portfolio risk profile, credit performance, changes in the levels of non-performing loans and leases and changes in the economic environment. These factors, coupled with current and projected net charge-offs, impact the required level of the provision for loan and lease losses. For the year ended December 31, 2016, total net charge-offs were $37.0 million compared to $33.6 million for the year ended December 31, 2015. The increase is primarily the result of a large charge-off for one commercial loan.
The provision for loan and lease losses totaled $56.4 million for the year ended December 31, 2016, an increase of $7.1 million compared to the year ended December 31, 2015. The increase in provision for loan and lease losses was due primarily to the increase in loan balances, partially offset by improved credit quality.
Non-Interest Income
|
| | | | | | | | | | | | |
| Years ended December 31, | | Increase (decrease) |
(Dollars in thousands) | 2016 | 2015 | | Amount | Percent |
Deposit service fees | $ | 140,685 |
| $ | 135,057 |
| | $ | 5,628 |
| 4.2 | % |
Loan and lease related fees | 26,581 |
| 25,594 |
| | 987 |
| 3.9 |
|
Wealth and investment services | 28,962 |
| 32,486 |
| | (3,524 | ) | (10.8 | ) |
Mortgage banking activities | 14,635 |
| 7,795 |
| | 6,840 |
| 87.7 |
|
Increase in cash surrender value of life insurance policies | 14,759 |
| 13,020 |
| | 1,739 |
| 13.4 |
|
Gain on sale of investment securities, net | 414 |
| 609 |
| | (195 | ) | (32.0 | ) |
Impairment loss on securities recognized in earnings | (149 | ) | (110 | ) | | (39 | ) | (35.5 | ) |
Other income | 38,591 |
| 23,326 |
| | 15,265 |
| 65.4 |
|
Total non-interest income | $ | 264,478 |
| $ | 237,777 |
| | $ | 26,701 |
| 11.2 | % |
Total non-interest income was $264.5 million for the year ended December 31, 2016, an increase of $26.7 million, compared to $237.8 million for the year ended December 31, 2015. The increase is attributable to higher other income, deposit service fees, loan and lease related fees, and mortgage banking activities, partially offset by lower wealth and investment services.
Deposit service fees totaled $140.7 million for 2016 compared to $135.1 million for 2015. The increase was a result of increased account service charges driven by HSA Bank's account growth, check card interchange income, and cash management fees, offset by lower NSF fees.
Loan and lease related fees totaled $26.6 million for 2016 compared to $25.6 million for 2015. The increase was primarily due to increased syndication activity, deferred loan origination fee activity, loan servicing fees net of mortgage servicing right amortization, and increased amendment fees offset by decreases in prepayment fees and line usage fees.
Wealth and investment services totaled $29.0 million for 2016 compared to $32.5 million for 2015. The decrease was primarily due to lower investment management activity.
Mortgage banking activities totaled $14.6 million for 2016 compared to $7.8 million for 2015. The increase was due to higher margins on loans sold, partially offset by slightly lower volume of loan sale settlements.
Other income totaled $38.6 million for 2016 compared to $23.3 million for 2015. The increase was primarily due to a $7.3 million gain on the redemption of an ownership interest in a privately held investment, $4.9 million increase in client interest rate hedging activities, and a $2.0 million increase related to the gain on sale of commercial loans.
Non-Interest Expense
|
| | | | | | | | | | | | |
| Years ended December 31, | | Increase (decrease) |
(Dollars in thousands) | 2016 | 2015 | | Amount | Percent |
Compensation and benefits | $ | 332,127 |
| $ | 297,517 |
| | $ | 34,610 |
| 11.6 | % |
Occupancy | 61,110 |
| 48,836 |
| | 12,274 |
| 25.1 |
|
Technology and equipment | 79,882 |
| 80,813 |
| | (931 | ) | (1.2 | ) |
Intangible assets amortization | 5,652 |
| 6,340 |
| | (688 | ) | (10.9 | ) |
Marketing | 19,703 |
| 16,053 |
| | 3,650 |
| 22.7 |
|
Professional and outside services | 14,801 |
| 11,156 |
| | 3,645 |
| 32.7 |
|
Deposit insurance | 26,006 |
| 24,042 |
| | 1,964 |
| 8.2 |
|
Other expense | 83,910 |
| 70,584 |
| | 13,326 |
| 18.9 |
|
Total non-interest expense | $ | 623,191 |
| $ | 555,341 |
| | $ | 67,850 |
| 12.2 | % |
Total non-interest expense was $623.2 million for the year ended December 31, 2016, an increase of $67.9 million from the year ended December 31, 2015. The increase for the year ended December 31, 2016 is primarily attributable to higher compensation and benefits, occupancy, marketing, professional and outside services, deposit insurance and other expenses.
Compensation and benefits totaled $332.1 million for 2016 compared to $297.5 million for 2015. The increase was driven by strategic hires within HSA Bank and the Boston expansion, variable compensation tied to Webster's share price increase, higher medical, and increased pension related expenses.
Occupancy costs totaled $61.1 million for 2016 compared to $48.8 million for 2015. The increase was primarily due to the Boston expansion and charges related to facilities optimization.
Marketing expenses totaled $19.7 million for 2016 compared to $16.1 million for 2015. The increase was primarily due to increased media spend.
Professional and outside services totaled $14.8 million for 2016 compared to $11.2 million for 2015. The increase was primarily due to strategic consulting services.
Deposit Insurance totaled $26.0 million for 2016 compared to $24.0 million for 2015. The increase was primarily due to asset growth which increased the assessment base.
Other expense totaled $83.9 million for 2016 compared to $70.6 million for 2015. The increase was due to a favorable adjustment recorded in the prior year to the unfunded reserve related to a refined estimate of the draw down factor assumption within the reserve, a favorable adjustment recorded in the prior year related to a reduced deposit insurance assessment for years prior to 2015, and increased operational expenses as a result of HSA Bank strategic initiatives and the Boston expansion.
Income Taxes
Webster recognized income tax expense of $96.3 million in 2016 and $93.0 million in 2015, and the effective tax rates were 31.7% and 31.2%, respectively. The increase in the effective rate principally reflects a $4.4 million net deferred tax benefit recognized in 2015, representing the portion of the $5.8 million reduction in the Company’s valuation allowance on its state and local deferred tax assets recognized that year for a change in their estimated realizability in future years, and $1.8 million associated with higher levels of tax-exempt interest income recognized in 2016, compared to 2015.
Segment Reporting
Webster’sThe Company's operations are organized into three reportable segments that represent its primary businesses -businesses: Commercial Banking, HSA Bank, and CommunityConsumer Banking. These three segments reflect how executive management responsibilities are assigned, the primary businesses, the products and services provided,how discrete financial information is evaluated, the type of customer served, and how discrete financial information is currently evaluated. The Corporateproducts and services are provided. Segments are evaluated using PPNR. Certain Treasury unitactivities, including the operations of the Company,interLINK, along with adjustmentsthe amounts required to reconcile profitability metrics to amountsthose reported in accordance with GAAP, are included in the Corporate and Reconciling category. Additional information regarding the Company's reportable segments and its segment reporting methodology can be found within Note 21: Segment Reporting in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Given the merger with Sterling on January 31, 2022, operating results for the Commercial Banking and Consumer Banking segments for the year ended December 31, 2022, do not reflect a full year of combined business activities when compared to the year ended December 31, 2023. Similarly, operating results for the HSA Bank segment for the year ended December 31, 2022, do not reflect a full year of business activities associated with Bend given the acquisition on February 18, 2022. The timing of both the Sterling merger and Bend acquisition was a contributing factor to the year over year change in their corresponding segments' PPNR, in addition to the drivers that are discussed in more detail throughout this section.
The following is a description of the Company’s three reportable segments and their primary services at December 31, 2023:
Commercial Banking is comprisedserves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Private Banking operating segments.
Commercial Banking provides commercial and industrial lending and leasing, commercial real estate lending, and treasury and payment solutions. Specifically, Webster Bank deploys lending through middle market, commercial real estate, equipment financing, asset-based lending and specialty lending units. These groups utilize a relationship approach model throughout its footprint when providing lending, deposit, and cash management services to middle market companies. In addition, Commercial Banking serves as a referral source within Commercial Banking and to the other lines of business.
Private Banking provides local, full relationship banking that serves high net worth clients, not-for-profit organizations, andTreasury Management business clients for asset management, financial planning services, trust services, loan products, and deposit products. These client relationships generate fee revenue on assets under management or administration, while a majority of the relationships also include lending and/or deposit accounts which provide net interest income and other ancillary fees.units.
HSA Bankoffers a comprehensive consumer - directedconsumer-directed healthcare solution that includes health savings accounts,HSAs, health reimbursement accounts,arrangements, flexible spending accounts, and other financial solutions. Health savings accountscommuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and retirement savings, in accordance with applicable laws. Health savings accounts are offered through employers for the benefit of their employees or directly to individual consumers andHSAs are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors.
HSA Bank deposits provide long duration, low-cost funding that is used to minimize the Company’s use of wholesale funding in support of the Company’sits loan growth. As such, net interest income represents the difference between a funding credit allocation, reflecting the value of the duration funding, and the interest paid on deposits. In addition, non-interest revenue is generated predominantly through service fees and interchange income.
CommunityConsumer Banking is comprisedserves individual customers and small businesses with less than $2 million of Personalrevenues by offering consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and investment services. Consumer Banking and Business Banking operating segments.
Throughoperates a distribution network consisting of 167198 banking centers 334and 349 ATMs, a customer care center, and a full range of web and mobile-based banking services, it serves consumer and business customers primarily throughout southern New England and into Westchester County,the New York.York Metro and Suburban markets.
Personal Banking offers consumer deposit and fee-based services, residential mortgages, home equity lines/loans, unsecured consumer loans, and credit card products. In addition, investment and securities-related services, including brokerage and investment advice is offered through a strategic partnership with LPL, a broker dealer registered with the SEC, a registered investment advisor under federal and applicable state laws, a memberEffective as of the FINRA,fourth quarter of 2022, the presentation of Consumer Banking's operating results was impacted by the restructuring of a process by which the Company offers brokerage, investment advisory, and a membercertain insurance-related services to customers. The staff providing these services, which had previously been employees of the SIPC. Webster Bank, hasare now employees located throughout its banking center network, who, through LPL, are registered representatives.
Business Banking offers credit, deposit, and cash flow management products to businesses and professionalof a third-party service firms with annual revenues of up to $25 million. This group builds broad customer relationships through business bankers and business certified banking center managers, supported byprovider. As a team of customer care center bankers and industry and product specialists.
Description of Segment Reporting Methodology
Webster’s reportable segment results are intended to reflect each segment as if it were a stand-alone business. Webster uses an internal profitability reporting system to generate information by operating segment, which is basedresult, the Company now recognizes income from this program on a seriesnet basis, which thereby reduces gross reported non-interest income and corresponding compensation non-interest expense.
Commercial Banking
Operating Results: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net interest income | $ | 1,537,031 | | | $ | 1,346,384 | | | $ | 585,297 | |
Non-interest income | 132,660 | | | 171,437 | | | 83,538 | |
Non-interest expense | 439,290 | | | 398,100 | | | 192,977 | |
Pre-tax, pre-provision net revenue | $ | 1,230,401 | | | $ | 1,119,721 | | | $ | 475,858 | |
Commercial Banking's PPNR increased $110.6 million, or 9.9%, for loan and lease losses, non-interest expense, income taxes, and equity capital. These estimates and allocations, certain of which are subjectivethe year ended December 31, 2023, as compared to the year ended December 31, 2022, due to increases in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the reported results of any operating segment do not affect the consolidated financial position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each operating segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.
Webster allocatesboth net interest income and interest expense to each business, while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category, using a matched maturity funding concept called Funds Transfer Pricing. The allocation process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an Funds Transfer Pricing, a matched maturity funding concept (FTP) rate for loans and deposits originated each day. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. This process is executed by the Company’s Financial Planning and Analysis division and is overseen by ALCO.
Webster allocates the provision for loan and lease losses to each reportable segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. Management believes the reserve level is adequate to cover inherent losses in each reportable segment. For additional discussion related to asset quality metrics, see the "Asset Quality" section elsewhere within this report.
Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Income tax expense is allocated to each reportable segment based on the consolidated effective income, tax rate for the period shown.
Segment Results
The 2016 and 2015 segment results have been adjusted for comparability to the 2017 segment presentation for the following changes:
To further strengthen Webster's ability to deliver the totality of its products and services to the owners and executives of commercial clients and other high net worth individuals, an organizational change was made during the second quarter of 2017. Effective April 1, 2017, the head of Private Banking reports directly to the head of Commercial Banking. The current organizational structure reflects how executive management responsibilities are assigned and reviewed. As a result of this change, the Private Banking and Commercial Banking operating segments are aggregated into one reportable segment, Commercial Banking.
In late 2007 Webster discontinued its indirect residential construction lending and its indirect home equity lending outside of its primary New England market area, referred to as National Wholesale Lending. Webster placed these two portfolios into a liquidating loan portfolio included within the Corporate and Reconciling category. The balance of the home equity liquidating loan portfolio was $65.0 million at December 31, 2016. As the remainder of this portfolio has been performing in the same manner as the continuing home equity portfolio, management has decided to combine the liquidating loan portfolio with the continuing home equity loan portfolio. The combined portfolio is included in the Community Banking reportable segment.
The following tables present net income (loss), selected balance sheet information, and assets under administration/management for Webster’s reportable segments and the Corporate and Reconciling category for the periods presented:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net income (loss): | | | | | |
Commercial Banking | $ | 133,594 |
| | $ | 115,366 |
| | $ | 105,203 |
|
Community Banking | 83,468 |
| | 60,959 |
| | 76,335 |
|
HSA Bank | 49,774 |
| | 38,230 |
| | 37,443 |
|
Corporate and Reconciling | (11,397 | ) | | (7,428 | ) | | (14,252 | ) |
Consolidated Total | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2017 |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Total |
Total assets | $ | 9,350,028 |
| $ | 8,909,671 |
| $ | 76,308 |
| $ | 8,151,638 |
| $ | 26,487,645 |
|
Loans and leases | 9,323,376 |
| 8,200,154 |
| 328 |
| — |
| 17,523,858 |
|
Goodwill | — |
| 516,560 |
| 21,813 |
| — |
| 538,373 |
|
Deposits | 4,122,608 |
| 11,476,334 |
| 5,038,681 |
| 356,106 |
| 20,993,729 |
|
Not included in above amounts: | | | | | |
Assets under administration/management | 2,039,375 |
| 3,376,185 |
| 1,268,402 |
| — |
| 6,683,962 |
|
| At December 31, 2016 |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Total |
Total assets | $ | 9,069,445 |
| $ | 8,721,046 |
| $ | 83,987 |
| $ | 8,198,051 |
| $ | 26,072,529 |
|
Loans and leases | 9,066,905 |
| 7,959,558 |
| 125 |
| — |
| 17,026,588 |
|
Goodwill | — |
| 516,560 |
| 21,813 |
| — |
| 538,373 |
|
Deposits | 3,592,531 |
| 10,970,977 |
| 4,362,503 |
| 377,846 |
| 19,303,857 |
|
Not included in above amounts: | | | | | |
Assets under administration/management | 1,781,840 |
| 2,980,113 |
| 878,190 |
| — |
| 5,640,143 |
|
Commercial Banking
Operating Results:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net interest income | $ | 322,393 |
| | $ | 287,596 |
| | $ | 266,085 |
|
Provision for loan and lease losses | 38,518 |
| | 37,455 |
| | 30,546 |
|
Net interest income after provision | 283,875 |
| | 250,141 |
| | 235,539 |
|
Non-interest income | 55,194 |
| | 57,253 |
| | 46,967 |
|
Non-interest expense | 154,037 |
| | 138,379 |
| | 129,499 |
|
Income before income taxes | 185,032 |
| | 169,015 |
| | 153,007 |
|
Income tax expense | 51,438 |
| | 53,649 |
| | 47,804 |
|
Net income | $ | 133,594 |
| | $ | 115,366 |
| | $ | 105,203 |
|
Comparison of 2017 to 2016
Net income increased $18.2 million in 2017 compared to 2016. Net interest income increased $34.8 million, primarily due to loan and deposit growth. The provision for loan and lease losses increased $1.1 million, primarily due to loan growth. Non-interest income decreased $2.1 million, primarily due to lower client interest rate hedging activities. Non-interest expense increased $15.7 million, related to strategic hires and investments in cash management product enhancements and support functions.
Comparison of 2016 to 2015
Net income increased $10.2 million in 2016 compared to 2015. Net interest income increased $21.5 million, primarily due to greater loan and deposit volumes. The provision for loan and lease losses increased $6.9 million, due primarily to the growth in loans. Non-interest income increased $10.3 million, primarily due to fees related to loan activities, client interest rate hedging activities and gain on loan sales. Non-interest expense increased $8.9 million, primarily due to strategic new hires and investments in technology.
Selected Balance Sheet Information and Assets Under Administration/Management:
|
| | | | | | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Total assets | $ | 9,350,028 |
| | $ | 9,069,445 |
| | $ | 7,999,084 |
|
Loans and leases | 9,323,376 |
| | 9,066,905 |
| | 7,999,565 |
|
Deposits | 4,122,608 |
| | 3,592,531 |
| | 3,301,773 |
|
| | | | | |
Assets under administration/management (not included in above amounts) | 2,039,375 |
| | 1,781,840 |
| | 1,726,385 |
|
Loans and leases increased $0.3 billion at December 31, 2017 compared to December 31, 2016, due to loan originations near prior year levels partially offset by an increase in prepayments. non-interest expense. The $190.6 million increase in net interest income is primarily due to organic loan growth, the impact of the higher interest rate environment, and lower deposit balances. The $38.8 million decrease in non-interest income is primarily due to lower customer interest rate derivative activities, other loan servicing fees, prepayment penalties, syndication fees, cash management fees, and other miscellaneous income. The $41.2 million increase in non-interest expense is primarily due to an increase in both technology and employee-related costs in order to support balance sheet growth.
Selected Balance Sheet and Off-Balance Sheet Information: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Loans and leases | $ | 40,934,356 | | | $ | 40,115,067 | |
Deposits | 18,245,575 | | | 19,563,227 | |
Assets under administration / management (off-balance sheet) | 2,911,293 | | | 2,258,635 | |
Loans and leases increased $1.1$0.8 billion, or 2.0%, at December 31, 20162023, as compared to at December 31, 2015,2022, primarily due to neworganic growth in the commercial real estate and commercial non-mortgage categories, partially offset by net principal paydowns in the warehouse lending, equipment finance, and asset-based lending categories. Total portfolio originations for the years ended December 31, 2023, and 2022, were $9.2 billion and $14.7 billion, respectively. The $5.5 billion decrease was primarily due to a decrease in commercial real estate and commercial non-mortgage originations.
Loan originations were $3.2Deposits decreased $1.3 billion, $3.3 billion and $3.2 billion in 2017, 2016 and 2015, respectively.
Deposits increased $530.1 millionor 6.7%, at December 31, 20172023, as compared to at December 31, 2016,2022, primarily due to growtha decrease in clientnon-interest-bearing deposits, as increased interest rates drove customers to seek higher yielding deposit products and operating funds maintained for cash management services. Deposits increased $290.8 million at December 31, 2016 compared to December 31, 2015, due to growth in client and operating funds maintained for cash management services.other alternatives elsewhere. This decrease was partially offset by the seasonal inflow of municipal deposits.
Through Private Banking, Commercial Banking held approximately $357.5 million, $271.7 million,$0.9 billion and $276.1 million$0.6 billion in assets under administration and $1.7 billion, $1.5$2.0 billion and $1.5$1.7 billion in assets under management at December 31, 2017, December 31, 2016,2023, and December 31, 2015,2022, respectively.
The combined increase of $0.6 billion, or 28.9%, was primarily due to customers shifting their deposits into investment accounts to purchase U.S. Treasury securities with government-backing, and higher valuations in the equity markets during 2023.
HSA Bank
Operating Results: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net interest income | $ | 302,856 | | | $ | 218,149 | | | $ | 168,595 | |
Non-interest income | 88,113 | | | 104,586 | | | 102,814 | |
Non-interest expense | 168,160 | | | 151,329 | | | 134,258 | |
Pre-tax net revenue | $ | 222,809 | | | $ | 171,406 | | | $ | 137,151 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net interest income | $ | 104,704 |
| | $ | 81,451 |
| | $ | 73,433 |
|
Non-interest income | 77,378 |
| | 71,710 |
| | 62,475 |
|
Non-interest expense | 113,143 |
| | 97,152 |
| | 81,449 |
|
Income before income taxes | 68,939 |
| | 56,009 |
| | 54,459 |
|
Income tax expense | 19,165 |
| | 17,779 |
| | 17,016 |
|
Net income | $ | 49,774 |
| | $ | 38,230 |
| | $ | 37,443 |
|
Comparison of 2017 to 2016
Net incomeHSA Bank's pre-tax net revenue increased $11.5$51.4 million, in 2017or 30.0%, for the year ended December 31, 2023, as compared to 2016. Netthe year ended December 31, 2022, due to an increase in net interest income, partially offset by a decrease in non-interest income and an increased $23.3 in non-interest expense. The $84.7 million reflecting the growthincrease in deposits and improved deposit spreads. Non-interestnet interest income increased $5.7 million, due to growth in accounts. Non-interest expense increased $16.0 million,is primarily due to increasedan increase in the net deposit interest rate spread and organic deposit growth. The $16.5 million decrease in non-interest income is primarily due to lower customer fees. The $16.8 million increase in non-interest expense is primarily due to an increase in compensation and benefits, cost, increased processing costs in support of business growth as well as continued investment in key initiativeshigher service contract expenses related to continuous improvement, customer service,additional account holders, and expanded distribution.costs associated with the ongoing HSA Bank user experience build out.
Comparison of 2016 to 2015Selected Balance Sheet and Off-Balance Sheet Information: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Deposits | $ | 8,287,705 | | | $ | 7,944,919 | |
Assets under administration, through linked brokerage accounts (off-balance sheet) | 4,641,830 | | | 3,393,832 | |
Net incomeDeposits increased $0.8 million in 2016$0.3 billion, or 4.3%, at December 31, 2023, as compared to 2015. Net interest income increased $8.0 million,at December 31, 2022, primarily due to both account growth and deposit balance growth, offset by an adjustmentincrease in the funding credit due to a change in the duration valuenumber of deposits. Non-interest income increased $9.2 million, primarily due to service feesaccount holders and interchange income growth related to health savings accountorganic deposit growth. Non-interest expense increased $15.7 million, primarily due to increased processing costs needed to support the account growth and investments made in human capital and technology.
Selected Balance Sheet Information and Assets Under Administration, through linked brokerage accounts:
|
| | | | | | | | | | | |
| At December 31, 2017 |
(In thousands) | 2017 | | 2016 | | 2015 |
Total assets | $ | 76,308 |
| | $ | 83,987 |
| | $ | 95,815 |
|
Deposits | 5,038,681 |
| | 4,362,503 |
| | 3,802,313 |
|
| | | | | |
Assets under administration, through linked brokerage accounts (not included in above amounts) | 1,268,402 |
| | 878,190 |
| | 692,306 |
|
HSA Bank deposits accounted for 24.0%approximately 13.6% and 22.6%14.7% of the Company’sCompany's total consolidated deposits as of December 31, 2017 and December 31, 2016, respectively.
Deposits increased $0.7 billion at December 31, 2017 compared to December 31, 2016. The increase is related to organic account growth. Deposits increased $0.6 billion at December 31, 2016 compared to December 31, 2015. The increase is related to organic deposit2023, and account growth.2022, respectively.
Assets under administration, through linked brokerage accounts, increased $390.2 million$1.2 billion, or 36.8%, at December 31, 20172023, as compared to at December 31, 2016,2022, primarily due to the increasing number ofadditional account holders with investment accounts and market value increases. Assets under administrationhigher valuations in the equity markets during 2023.
Consumer Banking
Operating Results: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net interest income | $ | 798,483 | | | $ | 720,789 | | | $ | 375,318 | |
Non-interest income | 107,456 | | | 119,691 | | | 95,887 | |
Non-interest expense | 425,281 | | | 426,133 | | | 297,217 | |
Pre-tax, pre-provision net revenue | $ | 480,658 | | | $ | 414,347 | | | $ | 173,988 | |
Consumer Banking's PPNR increased $185.9$66.3 million, ator 16.0%, for the year ended December 31, 20162023, as compared to the year ended December 31, 2015, driven primarily by organic account growth.
The combination of deposit balances and assets under administration is known as total footings. Total footings were $6.3 billion, comprised of deposit balances of $5.0 billion and assets under administration of $1.3 billion at December 31, 2017, compared2022, due to total footings of $5.2 billion, comprised of deposit balances of $4.4 billion and assets under administration of $878.2 million at December 31, 2016.
Community Banking
Operating Results:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net interest income | $ | 383,700 |
| | $ | 367,137 |
| | $ | 356,881 |
|
Provision for loan and lease losses | 2,382 |
| | 18,895 |
| | 18,754 |
|
Net interest income after provision | 381,318 |
| | 348,242 |
| | 338,127 |
|
Non-interest income | 107,368 |
| | 110,197 |
| | 108,647 |
|
Non-interest expense | 373,081 |
| | 369,132 |
| | 335,834 |
|
Income before income taxes | 115,605 |
| | 89,307 |
| | 110,940 |
|
Income tax expense | 32,137 |
| | 28,348 |
| | 34,605 |
|
Net income | $ | 83,468 |
| | $ | 60,959 |
| | $ | 76,335 |
|
Comparison of 2017 to 2016
Net income increased $22.5 millionan increase in 2017 compared to 2016. Netnet interest income, increased $16.6partially offset by a decrease in non-interest income and an increase in non-interest expense. The $77.7 million increase in net interest income is primarily due to portfolio balances growth in both loans and deposits, coupled with improved spreads on deposits as a result of widening interest spreads. The overall increase was partially offset by the effects of tightening spreads on the loan portfolio. The provision fororganic loan and lease losses decreased by $16.5deposit growth, and the impact of the higher interest rate environment. The $12.2 million primarily due to loan portfolio quality improvementsdecrease in the residential, home-equity and business banking portfolios. Non-interestnon-interest income decreased $2.8 million,is primarily due to lower net investment services income driven by the outsourcing of the consumer investment services platform in the fourth quarter of 2022, and lower deposit fees from mortgage banking activities and business client interest rate hedging activities;loan servicing fee income, partially offset by higher miscellaneous fee income. The $0.8 million decrease in non-interest expense is primarily due to lower technology and lower compensation and benefits expenses driven by the outsourcing of the consumer investment services platform effective as of the fourth quarter of 2022, partially offset by increased fee income from investment management activity and deposit related service charges. Non-interest expense increased $3.9 million, primarily due to charges related to banking centers optimization, increased compensation and benefits, and increased investment and consulting in technology infrastructure, partially offset by lowerstaffing, marketing, and the absence, in 2017, of coreservicing costs associated with deposit intangible amortization which ended in 2016.growth initiatives.
Comparison of 2016 to 2015Selected Balance Sheet Information: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Loans | $ | 9,781,332 | | | $ | 9,624,465 | |
Deposits | 24,059,997 | | | 23,609,941 | |
Assets under administration (off-balance sheet) | 7,876,437 | | | 7,872,397 | |
Net income decreased $15.4 million in 2016Loans increased $0.2 billion, or 1.6%, at December 31, 2023, as compared to 2015. Net interest income increased $10.1 million,at December 31, 2022, primarily due to growth in residential mortgages and small business commercial loans, partially offset by net principal paydowns in home equity and other consumer loans. Total portfolio originations for the years ended December 31, 2023, and 2022, were $1.3 billion and $2.8 billion, respectively. The $1.5 billion decrease was primarily due to the increase in market rates and low housing inventories, which resulted in lower residential mortgage originations, particularly mortgage refinances.
Deposits increased $0.5 billion, or 1.9%, at December 31, 2023, as compared to at December 31, 2022, primarily due to the impact of the higher interest rate environment, which has attracted consumers to certificates of deposit products, partially offset by lower money market, savings, and demand deposit account balances.
Assets under administration remained flat at $7.9 billion at both December 31, 2023, and 2022, as customer investment activities were offset by higher valuations in the equity markets during 2023.
Financial Condition
Total assets increased $3.6 billion, or 5.1%, from $71.3 billion at December 31, 2022, to $74.9 billion at December 31, 2023. The change in total assets was primarily attributed to the following, which experienced changes greater than $100 million:
•Cash and cash equivalents increased $875.9 million, primarily due to the Company's risk management approach to hold higher levels of on-balance sheet liquidity in 2023;
•Total investment securities, net increased $1.6 billion, reflecting increases of $1.1 billion and $0.5 billion in the available-for-sale and held-to-maturity portfolios, respectively. The increase in total investment securities was primarily due to purchases exceeding paydown activities, primarily across the Agency MBS and Agency CMBS categories, partially offset by $0.8 billion in sales of available-for-sale U.S. Treasury notes, Corporate debt securities, and Municipal bonds and notes;
•FHLB and FRB stock decreased $119.0 million, primarily due to the lower FHLB stock investment required as a result of the decrease in FHLB advances;
•Loans and leases increased $1.0 billion, primarily due to $10.5 billion of originations during the year ended December 31, 2023, particularly across the commercial non-mortgage and commercial real estate categories, partially offset by net principal paydowns and sales of commercial and consumer loans not originated for sale;
•Goodwill and deposits,other net intangible assets increased a combined $121.2 million. Goodwill increased $117.4 million, which wasreflects the $143.2 million recognized in connection with the interLINK acquisition, partially offset by the impact of the Sterling merger measurement period adjustments recorded during the first quarter of 2023. The $3.8 million increase in other net intangible assets is primarily due to the $36.0 million broker dealer relationship and $4.0 million non-competition agreement recognized in connection with the interLINK acquisition, partially offset by amortization charges; and
•Accrued interest receivable and other assets increased $271.9 million. Notable drivers of the change included increases in LIHTC and other alternative investments, and accrued interest receivable, which were partially offset by decreases in miscellaneous receivables and income taxes receivable.
Total liabilities increased $3.1 billion, or 4.8%, from $63.2 billion at December 31, 2022, to $66.3 billion at December 31, 2023. The change in total liabilities was attributed to the following:
•Total deposits increased $6.8 billion, reflecting a historically low interest environment reducing the value of$8.9 billion increase in interest-bearing deposits, partially offset by a $2.2 billion decrease in non-interest-bearing deposits. The provisionoverall increase in deposits is primarily due to $5.7 billion of sweep money market deposits added at December 31, 2023, as a result of the interLINK acquisition, as well as time deposit and HSA deposit growth, partially offset by decreases in checking and savings account products;
•Securities sold under agreements to repurchase and other borrowings decreased $0.7 billion, primarily due to the additional liquidity generated from the interLINK deposit sweep program, which allowed for loan and lease losses increased $0.1 million,a $0.8 billion decrease in federal funds.
•FHLB advances decreased $3.1 billion, primarily due primarily to loan portfolio growth. Non-interest income increased $1.6the additional liquidity generated from the interLINK deposit sweep program, which also allowed for a decrease in FHLB advances;
•Long-term debt decreased $24.3 million, primarily due to an increasethe repurchase and retirement of $17.5 million of the 4.375% Senior fixed-rate notes due February 15, 2024; and
•Accrued expenses and other liabilities increased $122.3 million. Notable drivers of the change included increases in fees from mortgage banking activities, credit cardunfunded LIHTC commitments and clientaccrued interest rate hedging activities, partially offset by lower NSF fees collected and reduced investment income driven by lower average per sale revenue due to the implementation of regulatory changes. Non-interest expense increased $33.3 million, primarily due to $21.7 million in expense associated with the Boston expansionpayable, as well as increases in compensation, benefits, marketing expenses and expenses tied to branch optimization, partially offset by lower loan workout expenses.
Selected Balance Sheet Information and Assets Under Administration:
|
| | | | | | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Total assets | $ | 8,909,671 |
| | $ | 8,721,046 |
| | $ | 8,521,672 |
|
Loans | 8,200,154 |
| | 7,959,558 |
| | 7,672,116 |
|
Deposits | 11,476,334 |
| | 10,970,977 |
| | 10,449,231 |
|
| | | | | |
Assets under administration (not included in above amounts) | 3,376,185 |
| | 2,980,113 |
| | 2,762,759 |
|
Loan portfolio balances increased $240.6 million at December 31, 2017 compared to December 31, 2016. The net increase is related to growth in jumbo residential mortgages and business banking loans; partially offset by net decreasesthe impact of the FDIC special assessment charge recorded in the equity and unsecured personal loan portfolios. Loan portfolio balances increased $287.4 million at December 31, 2016 compared to December 31, 2015, due to growth in the business banking, residential mortgages, home equity lines, and personal loans.
Loan originationsfourth quarter of 2023, which were $1.9 billion, $2.3 billion, and $2.4 billion for the years ended 2017, 2016 and 2015, respectively. The decrease of $359.1 million in originations for the year ended December 31, 2017 is driven by lower conforming residential mortgages and home equity products.
Deposits increased $505.4 million at December 31, 2017 compared to December 31, 2016, due to the Boston expansion and continued growth in all major deposit product types. Deposits increased $521.7 million at December 31, 2016 compared to December 31, 2015, due to growth in business and personal transaction account balances which was partially offset by a decrease in time deposit balances.treasury derivative liabilities.
Additionally, investment and securities-related services had assets under administration, in its strategic partnership with LPL, of $3.4Total stockholders' equity increased $0.6 billion, or 7.9%, from $8.1 billion at December 31, 2017, compared2022, to $3.0$8.7 billion at December 31, 20162023. The change in stockholders' equity was attributed to the following:
•The adoption of ASU No. 2022-02, which resulted in a $4.3 million cumulative-effect adjustment to retained earnings;
•Net income recognized of $867.8 million;
•Other comprehensive income, net of tax, of $134.4 million;
•Dividends paid to common and $2.8 billion at December 31, 2015.preferred stockholders of $278.3 million and $16.7 million, respectively;
•Stock-based compensation expense of $54.1 million;
•Stock options exercised of $1.7 million; and
•Repurchases of common stock of $108.8 million under the Company's common stock repurchase program and $16.3 million related to employee share-based compensation plans.
Financial Condition
Webster had total assets of $26.5 billion at December 31, 2017 compared to $26.1 billion at December 31, 2016, an increase of $415.1 million, or 1.6%.
Loans and leases of $17.3 billion, net of ALLL of $200.0 million, at December 31, 2017 increased $0.5 billion compared to loans and leases of $16.8 billion, net of ALLL of $194.3 million, at December 31, 2016. The increases were driven by strong commercial loan origination activity.
Total deposits of $21.0 billion at December 31, 2017 increased $1.7 billion compared to $19.3 billion at December 31, 2016. Non-interest-bearing deposits increased 4.2%, and interest-bearing deposits increased 9.9% during the year ended December 31, 2017, primarily due to growth in health savings accounts, while time deposit and money market balances increased to a lesser extent.
At December 31, 2017, total shareholders' equity was $2.7 billion compared to $2.5 billion at December 31, 2016, an increase of $174.9 million or, 6.9%. Changes in shareholders' equity for the year ended December 31, 2017 consisted of an increase of $255.4 million for net income and $1.1 million for other comprehensive income, partially offset by $94.9 million for dividends to common shareholders, and $8.1 million for dividends paid to preferred shareholders.
The quarterly cash dividend to common shareholders was increased for the seventh consecutive year, on April 24, 2017, to $0.26 per common share from $0.25 per common share. See the "Selected Financial Highlights" section contained elsewhere in this item and Note 13: Regulatory Matters in the Notes to Consolidated Financial Statements contained elsewhere in this report for information on Webster’s regulatory capital levels and ratios.
Investment Securities
Webster Bank'sThrough its Corporate Treasury function, the Company maintains and invests in debt securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage the Company's
interest-rate risk. The Company's investment securities portfolio is managed withinare classified into two major categories: available-for-sale and
held-to-maturity.
The ALCO manages the Company's investment securities in accordance with regulatory guidelines and corporate policy,policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. TheIn addition, the OCC may further establish additional individual limits on a certain typetypes of investmentinvestments if the concentration in such investmentsecurity presents a safety and soundness concern. In addition toAt December 31, 2023, and 2022, the Company had total investment securities of $16.0 billion and $14.5 billion, respectively, with an average risk weighting for regulatory purposes of 17.2% and 19.0%, respectively. Although the Bank held the entirety of the Company's investment securities portfolio at both December 31, 2023, and 2022, the Holding Company may also may directly hold investments.
The following table summarizes the balances and percentage composition of the Company's investment securities from time-to-time.securities: | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Amount | % | | Amount | % |
Available-for-sale: | | | | | |
U.S. Treasury notes | $ | — | | — | % | | $ | 717,040 | | 9.1 | % |
Government agency debentures | 264,633 | | 3.0 | | | 258,374 | | 3.3 | |
Municipal bonds and notes | 1,573,233 | | 17.6 | | | 1,633,202 | | 20.7 | |
Agency CMO | 48,941 | | 0.5 | | | 59,965 | | 0.8 | |
Agency MBS | 3,347,098 | | 37.4 | | | 2,158,024 | | 27.3 | |
Agency CMBS | 2,288,071 | | 25.5 | | | 1,406,486 | | 17.8 | |
CMBS | 763,749 | | 8.5 | | | 896,640 | | 11.4 | |
CLO | — | | — | | | 2,107 | | — | |
Corporate debt | 622,155 | | 6.9 | | | 704,412 | | 8.9 | |
Private label MBS | 42,808 | | 0.5 | | | 44,249 | | 0.6 | |
Other | 9,041 | | 0.1 | | | 12,198 | | 0.1 | |
Total available-for-sale | $ | 8,959,729 | | 100.0 | % | | $ | 7,892,697 | | 100.0 | % |
| | | | | |
Held-to-maturity: | | | | | |
Agency CMO | $ | 23,470 | | 0.3 | % | | $ | 28,358 | | 0.4 | % |
Agency MBS | 2,409,521 | | 34.1 | | | 2,626,114 | | 40.0 | |
Agency CMBS | 3,625,627 | | 51.2 | | | 2,831,949 | | 43.1 | |
Municipal bonds and notes (1) | 916,104 | | 13.0 | | | 928,845 | | 14.2 | |
CMBS | 100,075 | | 1.4 | | | 149,613 | | 2.3 | |
Total held-to-maturity | $ | 7,074,797 | | 100.0 | % | | $ | 6,564,879 | | 100.0 | % |
Total investment securities | $ | 16,034,526 | | | | $ | 14,457,576 | | |
(1)The Company maintains, through its Corporate Treasury Unit, an investment securities portfolio that is primarily structured to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest-rate risk. The portfolio is classified into two major categories, available-for-sale and held-to-maturity. The available-for-sale portfolio consists primarily of Agency CMO, Agency MBS, Agency CMBS, CMBS, and CLO. The held-to-maturity portfolio consists primarily of Agency CMO, Agency MBS, Agency CMBS, municipal bonds and notes, and CMBS. Atbalances at both December 31, 2017,2023, and 2022, exclude the Company had no investments in obligations of individual states, counties,$0.2 million ACL recorded on held-to-maturity securities.
Available-for-sale securities increased $1.1 billion, or municipalities which exceeded 10% of consolidated shareholders’ equity.
The combined carrying value of investment securities totaled $7.1 billion and $7.213.5%, from $7.9 billion at December 31, 2017 and2022, to $9.0 billion at December 31, 2016, respectively. Available-for-sale securities decreased by $353.1 million,2023, primarily due to principal paydownspurchases exceeding purchase activity. Held-to-maturity securities increasedpaydown activities, particularly across the Agency MBS and Agency CMBS categories, partially offset by $326.7 million, primarily due to the purchase activity exceeding principal paydowns. On a tax-equivalent basis, the yield in the securities portfolio for the years ended December 31, 2017 and 2016 was 2.97% and 2.95%, respectively.
The Company held $5.1sales of $0.8 billion in investment securities that are in an unrealized loss position at December 31, 2017. Approximately $2.2 billion of this total has been in an unrealized loss position for less than twelve months, while the remainder, $2.9 billion, has been in an unrealized loss position for twelve months or longer. The total unrealized loss was $103.7 million at December 31, 2017. These investment securities were evaluated by management and were determined not to be other-than-temporarily impaired. The Company does not have the intent to sell these investmentU.S. Treasury notes, Corporate debt securities, and it is more likely than not that it will not have to sell theseMunicipal bonds and notes. The sale of available-for-sale securities before the recovery of their cost basis. To the extent that credit movements and other related factors influence the fair value of investments, the Company may be required to record impairment charges for OTTI in future periods.
Forduring the year ended December 31, 2017,2023, resulted in $37.4 million of gross realized losses, $3.8 million of which was attributed to a decline in credit quality, and therefore has been included in the Provision for credit losses. The average FTE yield on the available-for-sale portfolio was 3.11% for the year ended December 31, 2023, as compared to 2.29% for the year ended December 31, 2022. The 82 basis point increase is primarily due to higher market rates on securities purchased throughout 2023.
At December 31, 2023, and 2022, gross unrealized losses on available-for-sale securities were $0.8 billion and $0.9 billion, respectively. The $0.1 billion decrease is primarily due to lower long-term market rates. Available-for-sale securities are evaluated for credit losses on a quarterly basis. At both December 31, 2023, and 2022, no ACL was recorded on available-for-sale securities as each of the securities in the Company's portfolio are investment grade and current as to principal and interest, and their price changes are consistent with interest and credit spreads when adjusting for convexity, rating, and industry differences. As of December 31, 2023, based on current market conditions and the Company's targeted balance sheet composition strategy, the Company recorded OTTI of $126 thousand onintends to hold its available-for-sale securities. The amortized costsecurities in unrealized loss positions through the anticipated recovery period.
Held-to-maturity securities is net of $1.4 million and $3.2 million of OTTIincreased $0.5 billion, or 7.8%, from $6.6 billion at December 31, 2017 and2022, to $7.1 billion at December 31, 2016, respectively, related2023, primarily due to previously impaired collateralized loan obligationpurchases exceeding paydown activities, particularly across the Agency MBS and Agency CMBS categories. The average FTE yield on the held-to-maturity portfolio was 2.99% for the year ended December 31, 2023, as compared to 2.33% for the year ended December 31, 2022. The 66 basis point increase is primarily due to higher market rates on securities (CLO) identified as Covered Fund investments as definedpurchased throughout 2023.
At both December 31, 2023, and 2022, gross unrealized losses on held-to-maturity securities were $0.8 billion. Held-to-maturity securities are evaluated for credit losses on a quarterly basis under the Volcker Rule.CECL methodology. At both December 31, 2023, and 2022, the ACL on held-to-maturity securities was $0.2 million.
The following table summarizes the book value of investment securities by the earlier of either contractual maturity or call date, as applicable, along with the respective weighted-average yields:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| 1 Year or Less | 1 - 5 Years | 5 - 10 Years | After 10 Years | Total |
(In thousands) | Amount | Weighted- Average Yield (1) | Amount | Weighted- Average Yield (1) | Amount | Weighted- Average Yield (1) | Amount | Weighted- Average Yield (1) | Amount | Weighted- Average Yield (1) |
Available-for-sale: | | | | | | | | | | |
| | | | | | | | | | |
Government agency debentures | $ | — | | — | % | $ | 75,557 | | 2.41 | % | $ | 7,661 | | 2.20 | % | $ | 181,415 | | 3.26 | % | $ | 264,633 | | 2.99 | % |
Municipal bonds and notes | 19,427 | | 1.79 | | 174,479 | | 1.68 | | 691,790 | | 1.56 | | 687,537 | | 1.61 | | 1,573,233 | | 1.60 | |
Agency CMO | — | | — | | 290 | | 4.04 | | 4,567 | | 3.10 | | 44,084 | | 2.86 | | 48,941 | | 2.89 | |
Agency MBS | 4 | | (4.41) | | 18,388 | | 1.31 | | 137,261 | | 1.77 | | 3,191,445 | | 3.85 | | 3,347,098 | | 3.75 | |
Agency CMBS | 8,345 | | 0.85 | | 101,209 | | 1.11 | | 31,895 | | 2.12 | | 2,146,622 | | 4.41 | | 2,288,071 | | 4.22 | |
CMBS | — | | — | | 68,718 | | 6.94 | | — | | — | | 695,031 | | 6.92 | | 763,749 | | 6.92 | |
| | | | | | | | | | |
Corporate debt | 9,182 | | 3.45 | | 172,687 | | 2.88 | | 386,533 | | 3.22 | | 53,753 | | 3.54 | | 622,155 | | 3.16 | |
Private label MBS | — | | — | | — | | — | | — | | — | | 42,808 | | 4.01 | | 42,808 | | 4.01 | |
Other | — | | — | | 4,848 | | 3.80 | | 4,193 | | 2.70 | | — | | — | | 9,041 | | 3.29 | |
Total available-for-sale | $ | 36,958 | | 1.99 | % | $ | 616,176 | | 2.60 | % | $ | 1,263,900 | | 2.12 | % | $ | 7,042,695 | | 4.08 | % | $ | 8,959,729 | | 3.70 | % |
Held-to-maturity: | | | | | | | | | | |
Agency CMO | $ | — | | — | % | $ | — | | — | % | $ | — | | — | % | $ | 23,470 | | 2.90 | % | $ | 23,470 | | 2.90 | % |
Agency MBS | 77 | | 2.81 | | 673 | | 2.14 | | 28,266 | | 2.60 | | 2,380,505 | | 2.49 | | 2,409,521 | | 2.49 | |
Agency CMBS | — | | — | | — | | — | | 120,928 | | 2.67 | | 3,504,699 | | 3.53 | | 3,625,627 | | 3.50 | |
Municipal bonds and notes | 8,045 | | 3.30 | | 59,259 | | 3.23 | | 214,304 | | 2.69 | | 634,496 | | 3.22 | | 916,104 | | 3.10 | |
CMBS | — | | — | | — | | — | | — | | — | | 100,075 | | 2.66 | | 100,075 | | 2.66 | |
Total held-to-maturity | $ | 8,122 | | 3.29 | % | $ | 59,932 | | 3.22 | % | $ | 363,498 | | 2.67 | % | $ | 6,643,245 | | 3.11 | % | $ | 7,074,797 | | 3.09 | % |
Total investment securities | $ | 45,080 | | 2.22 | % | $ | 676,108 | | 2.66 | % | $ | 1,627,398 | | 2.24 | % | $ | 13,685,940 | | 3.61 | % | $ | 16,034,526 | | 3.43 | % |
(1)Weighted-average yields exclude FTE adjustments, and are calculated using the sum of the total book value multiplied by the yield divided by the sum of the total book value for each security, major type, and maturity bucket.
Additional information regarding the Company's investment securities' portfolios can be found within Note 3: Investment Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Loans and Leases
The following table summarizes the amortized cost and fair valuepercentage composition of investment securities:the Company's loans and leases:
| | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Amount | % | | Amount | % |
Commercial non-mortgage | $ | 16,885,475 | | 33.3 | % | | $ | 16,392,795 | | 32.9 | % |
Asset-based | 1,557,841 | | 3.1 | | | 1,821,642 | | 3.7 | |
Commercial real estate | 13,569,762 | | 26.7 | | | 12,997,163 | | 26.1 | |
Multi-family | 7,587,970 | | 15.0 | | | 6,621,982 | | 13.3 | |
Equipment financing | 1,328,786 | | 2.6 | | | 1,628,393 | | 3.3 | |
Warehouse lending | — | | — | | | 641,976 | | 1.3 | |
Residential | 8,227,923 | | 16.2 | | | 7,963,420 | | 16.0 | |
Home equity | 1,516,955 | | 3.0 | | | 1,633,107 | | 3.3 | |
Other consumer | 51,340 | | 0.1 | | | 63,948 | | 0.1 | |
Total loans and leases (1) | $ | 50,726,052 | | 100.0 | % | | $ | 49,764,426 | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value |
Available-for-sale: | | | | | | | | | |
U.S. Treasury Bills | $ | 1,247 |
| $ | — |
| $ | — |
| $ | 1,247 |
| | $ | 734 |
| $ | — |
| $ | — |
| $ | 734 |
|
Agency CMO | 308,989 |
| 1,158 |
| (3,814 | ) | 306,333 |
| | 419,865 |
| 3,344 |
| (3,503 | ) | 419,706 |
|
Agency MBS | 1,124,960 |
| 2,151 |
| (19,270 | ) | 1,107,841 |
| | 969,460 |
| 4,398 |
| (19,509 | ) | 954,349 |
|
Agency CMBS | 608,276 |
| — |
| (20,250 | ) | 588,026 |
| | 587,776 |
| 63 |
| (14,567 | ) | 573,272 |
|
CMBS | 358,984 |
| 2,157 |
| (74 | ) | 361,067 |
| | 473,974 |
| 4,093 |
| (702 | ) | 477,365 |
|
CLO | 209,075 |
| 910 |
| (134 | ) | 209,851 |
| | 425,083 |
| 2,826 |
| (519 | ) | 427,390 |
|
Single issuer-trust preferred | 7,096 |
| — |
| (46 | ) | 7,050 |
| | 30,381 |
| — |
| (1,748 | ) | 28,633 |
|
Corporate debt | 56,504 |
| 797 |
| (679 | ) | 56,622 |
| | 108,490 |
| 1,502 |
| (350 | ) | 109,642 |
|
Equities-financial institutions | — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
|
Securities available-for-sale | $ | 2,675,131 |
| $ | 7,173 |
| $ | (44,267 | ) | $ | 2,638,037 |
| | $ | 3,015,763 |
| $ | 16,226 |
| $ | (40,898 | ) | $ | 2,991,091 |
|
| | | | | | | | | |
Held-to-maturity: | | | | | | | | | |
Agency CMO | $ | 260,114 |
| $ | 664 |
| $ | (4,824 | ) | $ | 255,954 |
| | $ | 339,455 |
| $ | 1,977 |
| $ | (3,824 | ) | $ | 337,608 |
|
Agency MBS | 2,569,735 |
| 16,989 |
| (37,442 | ) | 2,549,282 |
| | 2,317,449 |
| 26,388 |
| (41,768 | ) | 2,302,069 |
|
Agency CMBS | 696,566 |
| — |
| (10,011 | ) | 686,555 |
| | 547,726 |
| 694 |
| (1,348 | ) | 547,072 |
|
Municipal bonds and notes | 711,381 |
| 8,584 |
| (6,558 | ) | 713,407 |
| | 655,813 |
| 4,389 |
| (25,749 | ) | 634,453 |
|
CMBS | 249,273 |
| 2,175 |
| (620 | ) | 250,828 |
| | 298,538 |
| 4,107 |
| (411 | ) | 302,234 |
|
Private Label MBS | 323 |
| 1 |
| — |
| 324 |
| | 1,677 |
| 12 |
| — |
| 1,689 |
|
Securities held-to-maturity | $ | 4,487,392 |
| $ | 28,413 |
| $ | (59,455 | ) | $ | 4,456,350 |
| | $ | 4,160,658 |
| $ | 37,567 |
| $ | (73,100 | ) | $ | 4,125,125 |
|
(1)The amortized cost balances at December 31, 2023, and 2022, exclude the ACL recorded on loans and leases of $635.7 million and $594.7 million, respectively.The following table summarizes the amountloans and weighted-average yieldleases by contractual maturity, including called securities, for debt securities:along with the indication of whether interest rates are fixed or variable:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 |
| Within 1 Year | 1 - 5 Years | 5 - 10 Years | After 10 Years | Total |
(Dollars in thousands) | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield |
Available-for-sale: | | | | | | | | | | |
U.S. Treasury Bills | $ | 1,247 |
| 1.29 | % | $ | — |
| — | % | $ | — |
| — | % | $ | — |
| — | % | $ | 1,247 |
| 1.29 | % |
Agency CMO | — |
| — |
| — |
| — |
| 13,163 |
| 2.47 |
| 293,169 |
| 2.48 |
| 306,332 |
| 2.48 |
|
Agency MBS | — |
| — |
| — |
| — |
| 19,774 |
| 2.09 |
| 1,088,067 |
| 2.47 |
| 1,107,841 |
| 2.46 |
|
Agency CMBS | — |
| — |
| — |
| — |
| — |
| — |
| 588,026 |
| 2.51 |
| 588,026 |
| 2.51 |
|
CMBS | — |
| — |
| 19,229 |
| 2.99 |
| 128,085 |
| 2.78 |
| 213,754 |
| 2.89 |
| 361,068 |
| 2.86 |
|
CLO | — |
| — |
| — |
| — |
| 165,859 |
| 3.25 |
| 43,992 |
| 3.49 |
| 209,851 |
| 3.30 |
|
Single issuer-trust preferred | — |
| — |
| — |
| — |
| 7,050 |
| 2.57 |
| — |
| — |
| 7,050 |
| 2.57 |
|
Corporate debt | — |
| — |
| 21,218 |
| 2.90 |
| — |
| — |
| 35,404 |
| 2.66 |
| 56,622 |
| 2.75 |
|
Securities available-for-sale | $ | 1,247 |
| 1.29 | % | $ | 40,447 |
| 2.94 | % | $ | 333,931 |
| 2.96 | % | $ | 2,262,412 |
| 2.54 | % | $ | 2,638,037 |
| 2.60 | % |
Held-to-maturity: | | | | | | | | | | |
Agency CMO | $ | — |
| — | % | $ | — |
| — | % | $ | 2,623 |
| 2.93 | % | $ | 257,491 |
| 2.47 | % | $ | 260,114 |
| 2.47 | % |
Agency MBS | 1,924 |
| 3.60 |
| — |
| — |
| 18,443 |
| 2.83 |
| 2,549,368 |
| 2.64 |
| 2,569,735 |
| 2.64 |
|
Agency CMBS | — |
| — |
| — |
| — |
| — |
| — |
| 696,566 |
| 2.79 |
| 696,566 |
| 2.79 |
|
Municipal bonds and notes | 31,407 |
| 7.50 |
| 3,839 |
| 7.00 |
| 16,804 |
| 5.80 |
| 659,331 |
| 4.83 |
| 711,381 |
| 4.98 |
|
CMBS | — |
| — |
| — |
| — |
| — |
| — |
| 249,273 |
| 3.04 |
| 249,273 |
| 3.04 |
|
Private Label MBS | 323 |
| 4.50 |
| — |
| — |
| — |
| — |
| — |
| — |
| 323 |
| 4.50 |
|
Securities held-to-maturity | $ | 33,654 |
| 7.25 | % | $ | 3,839 |
| 7.00 | % | $ | 37,870 |
| 4.16 | % | $ | 4,412,029 |
| 3.00 | % | $ | 4,487,392 |
| 3.05 | % |
| | | | | | | | | | |
Total debt securities | $ | 34,901 |
| 7.03 | % | $ | 44,286 |
| 3.30 | % | $ | 371,801 |
| 3.08 | % | $ | 6,674,441 |
| 2.85 | % | $ | 7,125,429 |
| 2.88 | % |
The benchmark 10-year U.S. Treasury rate decreased to 2.41% on December 31, 2017 from 2.45% on December 31, 2016. Webster Bank has the ability to use its investment portfolio as well as interest-rate derivative financial instruments, within internal policy guidelines to manage interest rate risk as part of its asset/liability strategy. See Note 15: Derivative Financial Instruments in the Notes to Consolidated Financial Statements contained elsewhere in this report for additional information concerning the use of derivative financial instruments.
Alternative Investments | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | 1 Year or Less | 1 - 5 Years | 5 - 15 Years | After 15 Years | Total |
Fixed rate: | | | | | |
Commercial non-mortgage | $ | 179,863 | | $ | 671,268 | | $ | 2,286,452 | | $ | 1,520,997 | | $ | 4,658,580 | |
Asset-based | 5,237 | | 82,268 | | — | | — | | 87,505 | |
Commercial real estate | 562,651 | | 1,902,473 | | 1,155,443 | | 109,287 | | 3,729,854 | |
Multi-family | 340,938 | | 3,239,735 | | 1,227,315 | | 63,427 | | 4,871,415 | |
Equipment financing | 121,617 | | 960,431 | | 246,738 | | — | | 1,328,786 | |
| | | | | |
Residential | 703 | | 45,960 | | 384,135 | | 5,578,347 | | 6,009,145 | |
Home equity | 3,128 | | 24,893 | | 173,002 | | 210,931 | | 411,954 | |
Other consumer | 19,626 | | 7,708 | | 975 | | 131 | | 28,440 | |
Total fixed rate loans and leases | $ | 1,233,763 | | $ | 6,934,736 | | $ | 5,474,060 | | $ | 7,483,120 | | $ | 21,125,679 | |
Variable rate: | | | | | |
Commercial non-mortgage | $ | 4,052,885 | | $ | 7,608,188 | | $ | 493,831 | | $ | 71,991 | | $ | 12,226,895 | |
Asset-based | 444,341 | | 1,025,995 | | — | | — | | 1,470,336 | |
Commercial real estate | 2,180,159 | | 4,757,420 | | 2,213,151 | | 689,178 | | 9,839,908 | |
Multi-family | 432,243 | | 1,093,364 | | 1,161,328 | | 29,620 | | 2,716,555 | |
| | | | | |
| | | | | |
Residential | 673 | | 19,570 | | 290,941 | | 1,907,594 | | 2,218,778 | |
Home equity | 2,656 | | 6,581 | | 130,675 | | 965,089 | | 1,105,001 | |
Other consumer | 9,311 | | 11,862 | | 1,727 | | — | | 22,900 | |
Total variable rate loans and leases (2) | $ | 7,122,268 | | $ | 14,522,980 | | $ | 4,291,653 | | $ | 3,663,472 | | $ | 29,600,373 | |
Total loans and leases (1) | $ | 8,356,031 | | $ | 21,457,716 | | $ | 9,765,713 | | $ | 11,146,592 | | $ | 50,726,052 | |
Investments in Private Equity Funds(1).Amounts due exclude total accrued interest receivable of $270.4 million.
(2)The Company has investments in private equity funds. These investments, which totaled $11.8 million at December 31, 2017 and $10.8 million at December 31, 2016, are included in other assets in the accompanying Consolidated Balance Sheets. The majority of these funds are held at cost based on ownership percentage in the fund, while some are accounted for at fair value using a net asset value. See a further discussion of fair value in Note 16: Fair Value Measurements in the Notes to Consolidated Financial Statements contained elsewhere in this report. The Company recognized a net gain of $2.6 million, $865 thousand, and $2.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. These amounts are included in other non-interest income in the accompanying Consolidated Statements of Income.
Other Non-Marketable Investments. The Company holds certain non-marketable investments, which include preferred share ownership in other equity ventures. These investments, which totaled $6.3 million and $5.7 million at December 31, 2017 and December 31, 2016, respectively, are included in other assets in the accompanying Consolidated Balance Sheets. These funds are held at cost and subject to impairment testing. The Company recorded a net gain of $45 thousand, a net gain of $35 thousand, and a net loss of $398 thousand for the years ended December 31, 2017, 2016, and 2015, respectively, related to these investments. These amounts are included in other non-interest income in the accompanying Consolidated Statements of Income.
The Volcker Rule prohibits investments in private equity funds and non-public funds that are considered Covered Funds, as defined in the regulation. Webster must comply with the rule provisions by July 21, 2022. See the "Supervision and Regulation" section contained elsewhere in this report for additional information on the Volcker Rule, including Covered Funds.
Loans and Leases
The following table provides the composition of loans and leases:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
(Dollars in thousands) | Amount | % | | Amount | % | | Amount | % | | Amount | % | | Amount | % |
Residential | $ | 4,464,651 |
| 25.5 | | $ | 4,232,771 |
| 24.9 | | $ | 4,042,960 |
| 25.8 | | $ | 3,498,675 |
| 25.2 | | $ | 3,353,967 |
| 26.5 |
Consumer: | | | | | | | | | | | | | | |
Home equity | 2,336,846 |
| 13.3 | | 2,395,483 |
| 14.1 | | 2,439,415 |
| 15.6 | | 2,459,458 |
| 17.7 | | 2,460,159 |
| 19.3 |
Other consumer | 237,695 |
| 1.4 | | 274,336 |
| 1.6 | | 248,830 |
| 1.6 | | 75,307 |
| 0.5 | | 60,681 |
| 0.5 |
Total consumer | 2,574,541 |
| 14.7 | | 2,669,819 |
| 15.7 | | 2,688,245 |
| 17.2 | | 2,534,765 |
| 18.2 | | 2,520,840 |
| 19.8 |
Commercial: | | | | | | | | | | | | | | |
Commercial non-mortgage | 4,551,580 |
| 26.0 | | 4,151,740 |
| 24.4 | | 3,575,042 |
| 22.8 | | 3,098,892 |
| 22.3 | | 2,734,025 |
| 21.5 |
Asset-based | 837,490 |
| 4.8 | | 808,836 |
| 4.8 | | 755,709 |
| 4.8 | | 662,615 |
| 4.8 | | 560,666 |
| 4.4 |
Total commercial | 5,389,070 |
| 30.8 | | 4,960,576 |
| 29.1 | | 4,330,751 |
| 27.6 | | 3,761,507 |
| 27.1 | | 3,294,691 |
| 25.9 |
Commercial real estate: | | | | | | | | | | | | | | |
Commercial real estate | 4,249,549 |
| 24.3 | | 4,141,025 |
| 24.3 | | 3,696,596 |
| 23.6 | | 3,326,906 |
| 23.9 | | 2,856,110 |
| 22.5 |
Commercial construction | 279,531 |
| 1.6 | | 375,041 |
| 2.2 | | 300,246 |
| 1.9 | | 235,449 |
| 1.7 | | 205,397 |
| 1.6 |
Total commercial real estate | 4,529,080 |
| 25.9 | | 4,516,066 |
| 26.5 | | 3,996,842 |
| 25.5 | | 3,562,355 |
| 25.6 | | 3,061,507 |
| 24.1 |
Equipment financing | 545,877 |
| 3.1 | | 630,040 |
| 3.7 | | 594,984 |
| 3.8 | | 532,117 |
| 3.8 | | 455,434 |
| 3.6 |
Net unamortized premiums | 15,316 |
| 0.1 | | 9,402 |
| 0.1 | | 7,477 |
| — | | 2,580 |
| — | | 5,466 |
| — |
Net deferred fees | 5,323 |
| — | | 7,914 |
| — | | 10,476 |
| 0.1 | | 8,026 |
| 0.1 | | 7,871 |
| 0.1 |
Total loans and leases | $ | 17,523,858 |
| 100.0 | | $ | 17,026,588 |
| 100.0 | | $ | 15,671,735 |
| 100.0 | | $ | 13,900,025 |
| 100.0 | | $ | 12,699,776 |
| 100.0 |
Total residential loans were $4.5 billion at December 31, 2017, a net increase of $231.9 million from December 31, 2016, primarily the result of originations of $749.6 million during the year ended December 31, 2017, partially offset by loan payments.
Total consumer loans were $2.6 billion at December 31, 2017, a net decrease of $95.3 million from December 31, 2016, primarily the result of net paydowns in the equity line and loan products partially offset by originations of $633.3 million during the year ended December 31, 2017.
Total commercial loans were $5.4 billion at December 31, 2017, a net increase of $428.5 million from December 31, 2016. The growth in commercial loans is primarily related to new originations of $1.9 billion in commercial non-mortgage loans for the year ended December 31, 2017, partially offset by loan payments. Asset-based loans increased $28.7 million from December 31, 2016, reflective of $413.8 million in originations and line usage during the year ended December 31, 2017, partially offset by loan payments.
Total commercial real estate loans were $4.5 billion at December 31, 2017, a net increase of $13.0 million from December 31, 2016 as a result of originations of $1.0 billion during the year ended December 31, 2017, partially offset by loan payments.
Equipment financing loans and leases were $545.9 million at December 31, 2017, a net decrease of $84.2 million from December 31, 2016, primarily the result of $130.4 million in originations during the year ended December 31, 2017, partially offset by loan payments.
The following table provides contractual maturity and interest-rate sensitivity information for loans and leases:
|
| | | | | | | | | | | | |
| At December 31, 2017 |
| Contractual Maturity |
(In thousands) | One Year Or Less | More Than One To Five Years | More Than Five Years | Total |
Residential | $ | 2,041 |
| $ | 31,138 |
| $ | 4,457,699 |
| $ | 4,490,878 |
|
Consumer: | | | | |
Home equity | 2,294 |
| 107,199 |
| 2,242,775 |
| 2,352,268 |
|
Other consumer | 19,437 |
| 205,021 |
| 13,499 |
| 237,957 |
|
Total consumer | 21,731 |
| 312,220 |
| 2,256,274 |
| 2,590,225 |
|
Commercial: | | | | |
Commercial non-mortgage | 669,745 |
| 3,120,899 |
| 743,271 |
| 4,533,915 |
|
Asset-based | 84,470 |
| 743,553 |
| 6,756 |
| 834,779 |
|
Total commercial | 754,215 |
| 3,864,452 |
| 750,027 |
| 5,368,694 |
|
Commercial real estate: | | | | |
Commercial real estate | 396,497 |
| 1,495,734 |
| 2,352,043 |
| 4,244,274 |
|
Commercial construction | 161,621 |
| 92,075 |
| 25,858 |
| 279,554 |
|
Total commercial real estate | 558,118 |
| 1,587,809 |
| 2,377,901 |
| 4,523,828 |
|
Equipment financing | 24,957 |
| 427,127 |
| 98,149 |
| 550,233 |
|
Total loans and leases | $ | 1,361,062 |
| $ | 6,222,746 |
| $ | 9,940,050 |
| $ | 17,523,858 |
|
| | | | |
| Interest-Rate Sensitivity |
(In thousands) | One Year Or Less | More Than One To Five Years | More Than Five Years | Total |
Fixed rate | $ | 303,905 |
| $ | 986,768 |
| $ | 4,118,811 |
| $ | 5,409,484 |
|
Variable rate | 1,057,157 |
| 5,235,978 |
| 5,821,239 |
| 12,114,374 |
|
Total loans and leases | $ | 1,361,062 |
| $ | 6,222,746 |
| $ | 9,940,050 |
| $ | 17,523,858 |
|
Asset Quality
Management maintains asset quality within established risk tolerance levels through its underwriting standards, servicing, and management of loan and lease performance. Loans and leases, particularly where a heightened risk of loss has been identified, are regularly monitored to mitigate further deterioration which could potentially impact key measures of asset quality in future periods. Past due loans and leases, non-performing assets, and credit loss levels are considered to be key measures of asset quality.
The following table provides key asset quality ratios:
|
| | | | | | | | | | | | | | |
| At or for the years ended December 31, |
| 2017 |
| 2016 | | 2015 | | 2014 | | 2013 |
Non-performing loans and leases as a percentage of loans and leases | 0.72 | % | | 0.79 | % | | 0.89 | % | | 0.93 | % | | 1.28 | % |
Non-performing assets as a percentage of loans and leases plus OREO | 0.76 |
| | 0.81 |
| | 0.92 |
| | 0.98 |
| | 1.34 |
|
Non-performing assets as a percentage of total assets | 0.50 |
| | 0.53 |
| | 0.59 |
| | 0.61 |
| | 0.82 |
|
ALLL as a percentage of non-performing loans and leases | 158.00 |
| | 144.98 |
| | 125.05 |
| | 122.62 |
| | 94.10 |
|
ALLL as a percentage of loans and leases | 1.14 |
| | 1.14 |
| | 1.12 |
| | 1.15 |
| | 1.20 |
|
Net charge-offs as a percentage of average loans and leases | 0.20 |
| | 0.23 |
| | 0.23 |
| | 0.23 |
| | 0.47 |
|
Ratio of ALLL to net charge-offs | 5.68x |
| | 5.25x |
| | 5.21x |
| | 5.21x |
| | 2.63x |
|
Potential Problem Loans and Leases
Potential problem loans and leases are defined by management as certain loans and leases that, for;
commercial, commercial real estate, and equipment financing are performing loans and leases classified as Substandard and have a well-defined weakness that could jeopardize the full repayment of the debt, and
residential and consumer are performing loans 60-89 days past due and accruing.
Potential problem loans and leases exclude loans and leases past due 90 days or more and accruing, non-accrual loans and leases, and troubled debt restructuring (TDR)s.
Management monitors potential problem loans and leases due to a higher degree of risk associated with them. The current expectation of probable losses is included in the ALLL, however management cannot predict whether these potential problem loans and leases ultimately will become non-performing or result in a loss. The Company had potential problem loans and leases of $271.5 million at December 31, 2017 compared to $263.3 million at December 31, 2016.
Past Due Loans and Leases
The following table provides information regarding loans and leases past due 30 days or more and accruing income:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
(Dollars in thousands) | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) |
Residential | $ | 13,771 |
| 0.31 | | $ | 11,202 |
| 0.26 | | $ | 15,032 |
| 0.37 | | $ | 17,216 |
| 0.49 | | $ | 18,285 |
| 0.55 |
Consumer: | | | | | | | | | | | | | | |
Home equity | 18,397 |
| 0.79 | | 14,578 |
| 0.61 | | 13,261 |
| 0.54 | | 16,415 |
| 0.67 | | 20,096 |
| 0.82 |
Other consumer | 3,997 |
| 1.68 | | 3,715 |
| 1.35 | | 2,000 |
| 0.80 | | 1,110 |
| 1.47 | | 636 |
| 1.05 |
Commercial: | | | | | | | | | | | | | | |
Commercial non-mortgage | 5,809 |
| 0.13 | | 1,949 |
| 0.05 | | 4,052 |
| 0.11 | | 2,099 |
| 0.07 | | 4,100 |
| 0.15 |
Commercial real estate: | | | | | | | | | | | | | | |
Commercial real estate | 551 |
| 0.01 | | 8,173 |
| 0.20 | | 2,250 |
| 0.06 | | 2,714 |
| 0.08 | | 4,897 |
| 0.17 |
Equipment financing | 2,358 |
| 0.43 | | 1,596 |
| 0.25 | | 602 |
| 0.10 | | 701 |
| 0.13 | | 362 |
| 0.08 |
Loans and leases past due 30-89 days | 44,883 |
| 0.26 | | 41,213 |
| 0.24 | | 37,197 |
| 0.24 | | 40,255 |
| 0.29 | | 48,376 |
| 0.38 |
Residential | — |
| — | | — |
| — | | 2,029 |
| 0.05 | | 2,039 |
| 0.06 | | 781 |
| 0.02 |
Commercial non-mortgage | 644 |
| 0.01 | | 749 |
| 0.02 | | 22 |
| — | | 48 |
| — | | 4,269 |
| 0.16 |
Commercial real estate | 243 |
| 0.01 | | — |
| — | | — |
| — | | — |
| — | | 232 |
| 0.01 |
Loans and leases past due 90 days and accruing | 887 |
| 0.01 | | 749 |
| — | | 2,051 |
| 0.01 | | 2,087 |
| 0.02 | | 5,282 |
| 0.04 |
Total loans and leases over 30 days past due and accruing income | 45,770 |
| 0.26 | | 41,962 |
| 0.25 | | 39,248 |
| 0.25 | | 42,342 |
| 0.30 | | 53,658 |
| 0.42 |
Deferred costs and unamortized premiums | 77 |
| | | 86 |
| | | 86 |
| | | 96 |
| | | 189 |
| |
Total | $ | 45,847 |
| | | $ | 42,048 |
| | | $ | 39,334 |
| | | $ | 42,438 |
| | | $ | 53,847 |
| |
| |
(1) | Past due loan and lease balances exclude non-accrual loans and leases. |
| |
(2) | Represents the principal balance of past due loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category. The percentage excludes the impact of deferred costs and unamortized premiums. |
Non-performing Assets
The following table provides information regarding lending-related non-performing assets:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
(Dollars in thousands) | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) | | Amount (1) | % (2) |
Residential | $ | 44,407 |
| 0.99 | | $ | 47,201 |
| 1.12 | | $ | 54,101 |
| 1.34 | | $ | 64,022 |
| 1.83 | | $ | 80,589 |
| 2.40 |
Consumer: | | | | | | | | | | | | | | |
Home equity | 35,601 |
| 1.52 | | 35,875 |
| 1.50 | | 37,279 |
| 1.53 | | 39,950 |
| 1.62 | | 51,679 |
| 2.10 |
Other consumer | 1,706 |
| 0.72 | | 1,663 |
| 0.61 | | 558 |
| 0.22 | | 280 |
| 0.37 | | 139 |
| 0.23 |
Total consumer | 37,307 |
| 1.45 | | 37,538 |
| 1.41 | | 37,837 |
| 1.41 | | 40,230 |
| 1.59 | | 51,818 |
| 2.06 |
Commercial: | | | | | | | | | | | | | | |
Commercial non-mortgage | 39,402 |
| 0.87 | | 38,550 |
| 0.93 | | 27,086 |
| 0.76 | | 6,436 |
| 0.21 | | 10,933 |
| 0.40 |
Asset-based loans | 589 |
| 0.07 | | — |
| — | | — |
| — | | — |
| — | | — |
| — |
Total commercial | 39,991 |
| 0.74 | | 38,550 |
| 0.78 | | 27,086 |
| 0.63 | | 6,436 |
| 0.17 | | 10,933 |
| 0.33 |
Commercial real estate: | | | | | | | | | | | | | | |
Commercial real estate | 4,484 |
| 0.11 | | 9,859 |
| 0.24 | | 16,750 |
| 0.45 | | 15,016 |
| 0.45 | | 13,428 |
| 0.47 |
Commercial construction | — |
| — | | 662 |
| 0.18 | | 3,461 |
| 1.15 | | 3,659 |
| 1.55 | | 4,235 |
| 2.06 |
Total commercial real estate | 4,484 |
| 0.10 | | 10,521 |
| 0.23 | | 20,211 |
| 0.51 | | 18,675 |
| 0.52 | | 17,663 |
| 0.58 |
Equipment financing | 393 |
| 0.07 | | 225 |
| 0.04 | | 706 |
| 0.12 | | 518 |
| 0.10 | | 1,141 |
| 0.25 |
Total non-performing loans and leases (3) | 126,582 |
| 0.72 | | 134,035 |
| 0.79 | | 139,941 |
| 0.89 | | 129,881 |
| 0.94 | | 162,144 |
| 1.28 |
Deferred costs and unamortized premiums | (69 | ) | | | (219 | ) | | | 128 |
| | | 267 |
| | | 303 |
| |
Total | $ | 126,513 |
| | | $ | 133,816 |
| | | $ | 140,069 |
| | | $ | 130,148 |
| | | $ | 162,447 |
| |
| | | | | | | | | | | | | | |
Total non-performing loans and leases | $ | 126,582 |
| | | $ | 134,035 |
| | | $ | 139,941 |
| | | $ | 129,881 |
| | | $ | 162,144 |
| |
Foreclosed and repossessed assets: | | | | | | | | | | | | | | |
Residential and consumer | 5,759 |
| | | 3,911 |
| | | 5,029 |
| | | 3,517 |
| | | 4,930 |
| |
Commercial | 305 |
| | | — |
| | | — |
| | | 2,999 |
| | | 3,752 |
| |
Total foreclosed and repossessed assets | 6,064 |
| | | 3,911 |
| | | 5,029 |
| | | 6,516 |
| | | 8,682 |
| |
Total non-performing assets | $ | 132,646 |
| | | $ | 137,946 |
| | | $ | 144,970 |
| | | $ | 136,397 |
| | | $ | 170,826 |
| |
| |
(1) | Balances by class exclude the impact of net deferred costs and unamortized premiums. |
| |
(2) | Represents the principal balance of non-performing loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category. The percentage excludes the impact of deferred costs and unamortized premiums. |
| |
(3) | Includes non-accrual restructured loans and leases of $74.3 million, $75.7 million, $100.9 million, $76.9 million and $103.0 million as of December 31, 2017, 2016, 2015, 2014 and 2013, respectively. |
The following table provides detail of non-performing loan and lease activity:
|
| | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | 2016 |
Beginning balance | $ | 134,035 |
| $ | 139,941 |
|
Additions | 139,095 |
| 109,002 |
|
Paydowns/draws | (100,417 | ) | (64,057 | ) |
Charge-offs | (37,903 | ) | (39,738 | ) |
Other reductions | (8,228 | ) | (11,113 | ) |
Ending balance | $ | 126,582 |
| $ | 134,035 |
|
Impaired Loans and Leases
Loans are considered impaired when, based on current information and events,back-to-back swap program, whereby it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated on a pooled basis for smaller-balance loans of a similar nature. Consumer and residential loans for which the borrower has been discharged in Chapter 7 bankruptcy are considered collateral dependent impaired loans at the date of discharge. Commercial, commercial real estate, and equipment financing loans and leases over a specific dollar amount, risk rated substandard or worse and non-accruing, all TDRs, and all loans that have had a partial charge-off are evaluated individually for impairment. Impairment may be evaluated at the present value of estimated future cash flows using the originalenters into an interest rate of the loan or at the fair value of collateral, less estimated selling costs. To the extent thatswap with a qualified customer and simultaneously enters into an impaired loan or lease balance is collateral dependent, the Company determines the fair value of the collateral.
For residentialequal and consumer collateral dependent loans,opposite interest-rate swap with a third-party appraisal is obtained upon loan default. Fair value of the collateral for residential and consumer collateral dependent loans is reevaluated every six months, by either a new appraisal or other internal valuation methods. Fair value is also reassessed, with any excess amount charged off, for consumer loans that reach 180 days past due per Federal Financial Institutions Examination Council guidelines. For commercial, commercial real estate, and equipment financing collateral dependent loans and leases, Webster's impairment process requires the Companyswap counterparty, to determine the fair value of the collateral by obtaining a third-party appraisal or asset valuation, an interim valuation analysis, blue book reference, or other internal methods. Fair value of the collateral for commercial loans is reevaluated quarterly. Whenever the Company has a third-party real estate appraisal performed by independent licensed appraisers, a licensed in-house appraisal officer or qualified individual reviews these appraisals for compliance with the Financial Institutions Reform Recovery and Enforcement Act and the Uniform Standards of Professional Appraisal Practice.
A fair value shortfall is recorded as an impairment reserve against the ALLL. Subsequent to an appraisal or other fair value estimate, should reliable information come to management's attention that the value has declined further, additional impairment may be recorded to reflect the particular situation, thereby increasing the ALLL. Any impaired loan for which no specific valuation allowance was necessary at December 31, 2017 and December 31, 2016 is the result of either sufficient cash flow or sufficient collateral coverage of the book balance.
hedge interest rate risk. At December 31, 2017,2023, there were 1,606 impaired loans and leases880 customer interest rate swaps arrangements with a recorded investment balancetotal notional amount of $246.8 million, which included loans and leases of $105.4 million with an impairment allowance of $16.6 million, compared$7.0 billion to 1,635 impaired loans and leases with a recorded investment balance of $249.4 million, which included loans and leases of $152.6 million, with an impairment allowance of $18.6 million at December 31, 2016.convert floating-rate loan payments to fixed-rate loan payments.
The overall reduction in the number of impaired loans is due primarily to small dollar consumer loans being resolved. Overall commercial impaired balances did not change, due to four credits entering impaired status offset by the resolution of four credits. The reduction of $2.0 million in impaired reserve balance reflects management's current assessment on the resolution of these credits based on collateral considerations, guarantees, or expected future cash flows of the impaired loans.
Troubled Debt Restructurings
A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties; and (ii) the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. The most common types of modifications include covenant modifications, forbearance, and/or other concessions. If the buyer does not perform in accordance with the modified terms, the loan is reevaluated to determine the most appropriate course of action, which may include foreclosure. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDR and thus, impaired at the date of discharge and charged down to the fair value of collateral less cost to sell.
The Company’s policy is to place each consumer loan TDR, except those that were performing prior to TDR status, on non-accrual status for a minimum period of 6 months. Commercial TDR are evaluated on a case-by-case basis for determination of whether or not to place them on non-accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of 6 months. Initially, all TDR are reported as impaired. Generally, TDR are classified as impaired loans and reported as TDR for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of 6 months and through one fiscal year-end, and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring. In the limited circumstance that a loan is removed from TDR classification, it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified by the loan agreement.
The following tables provide information for TDR:
|
| | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 |
Beginning balance | $ | 223,528 |
| | $ | 272,690 |
|
Additions | 36,253 |
| | 41,662 |
|
Paydowns/draws | (31,641 | ) | | (66,596 | ) |
Charge-offs | (3,178 | ) | | (18,588 | ) |
Transfers to OREO | (3,558 | ) | | (5,640 | ) |
Ending balance | $ | 221,404 |
| | $ | 223,528 |
|
| | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Accrual status | $ | 147,113 |
| | $ | 147,809 |
|
Non-accrual status | 74,291 |
| | 75,719 |
|
Total recorded investment of TDR (1) | $ | 221,404 |
| | $ | 223,528 |
|
| | | |
Specific reserves for TDR included in the balance of ALLL | $ | 12,384 |
| | $ | 14,583 |
|
Additional funds committed to borrowers in TDR status | 2,736 |
| | 459 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
(In thousands) | Amount | % (3) | | Amount | % (3) | | Amount | % (3) | | Amount | % (3) | | Amount | % (3) |
Residential | $ | 114,295 |
| 2.55 | | $ | 119,391 |
| 2.81 | | $ | 134,448 |
| 3.31 | | $ | 141,982 |
| 4.05 | | $ | 142,413 |
| 4.24 |
Consumer | 45,436 |
| 1.75 | | 45,673 |
| 1.70 | | 48,425 |
| 1.79 | | 50,249 |
| 1.97 | | 52,092 |
| 2.05 |
Commercial (1) | 61,673 |
| 0.59 | | 58,464 |
| 0.58 | | 89,817 |
| 1.01 | | 126,563 |
| 1.61 | | 146,428 |
| 2.15 |
Total recorded investment of TDR (2) | $ | 221,404 |
| 1.26 | | $ | 223,528 |
| 1.31 | | $ | 272,690 |
| 1.74 | | $ | 318,794 |
| 2.29 | | $ | 340,933 |
| 2.68 |
| |
(1) | Consists of commercial, commercial real estate and equipment financing loans and leases. |
| |
(2) | Excludes accrued interest receivable of $0.1 million, $0.7 million, $1.1 million, $1.4 million and $1.0 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. |
| |
(3) | Represents the balance of TDR as a percentage of the outstanding balance within the comparable loan and lease category. The percentage includes the impact of deferred costs and unamortized premiums. |
Allowance for Loan and Lease Losses Methodology
The ALLL policy is considered a critical accounting policy. Executive management reviews and advises on the adequacy of the ALLL reserve, which is maintained at a level deemed sufficient by management to cover probable losses inherent within the loan and lease portfolios.
The quarterly process for estimating probable losses is based on predictive models, to measure the current risk profile of the loan portfolio and combines other quantitative and qualitative factors together with the impairment reserve to determine the overall reserve requirement. Management's judgment and assumptions influence loss estimates and ALLL balances. Quantitative and qualitative factors that management considers include factors such as the nature and volume of portfolio growth, national and regional economic conditions and trends, other internal performance metrics, and how each of these factors is expected to impact near term loss trends. While actual future conditions and realized losses may vary significantly from assumptions, management believes the ALLL is adequate as of December 31, 2017.
The Company’s methodology for assessing an appropriate level of the ALLL includes three key elements:
Impaired loans and leases are either analyzed on an individual or pooled basis and assessed for specific reserves measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan or lease, except that as a practical expedient, impairment may be measured based on a loan or lease's observable market price, or the fair value of the collateral, if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral. The Company considers the pertinent facts and circumstances for each impaired loan or lease when selecting the appropriate method to measure impairment and evaluates, on a quarterly basis, each selection to ensure its continued appropriateness.
Loans and leases that are not considered impaired and have similar risk characteristics, are segmented into homogeneous pools and modeled using quantitative methods. The Company's loss estimate for its commercial portfolios utilizes an expected loss methodology that is based on probability of default (PD) and loss given default (LGD) models. The PD and LGD models are based on borrower and facility risk ratings assigned to each loan and are updated throughout the year as the borrower's financial condition changes. PD and LGD models are derived using the Company's portfolio specific historic data and are refreshed annually. Residential and consumer portfolio loss estimates are based on roll rate models that utilize the Company's historic delinquency and default data. For each segmentation the loss estimates incorporate a loss emergence period (LEP) model which represents an amount of time between when a loss event first occurs to when it is charged-off. A LEP is determined for each loan type based on the Company's historical experience and is reassessed at least annually.Portfolio Concentrations
The Company also considers qualitative factors, consistent with interagency regulatory guidance,actively monitors and manages concentrations of credit risk pertaining to specific industries and geographies that are not explicitly factoredmay exist in the quantitative models but that can have an incremental or regressive impact on losses incurred in the currentits loan and lease portfolio.
WebsterAt December 31, 2023, and 2022, commercial non-mortgage, commercial real estate, and multi family loans comprised 75.0% and 72.3%, respectively, of the Company's loan and lease portfolio, with a large portion of the borrowers or properties associated with these loans geographically concentrated in New York City and the proximate areas.
The following table summarizes commercial non-mortgage loans by industry, as determined using standardized industry classification codes, which are used by the Company to categorize loans based on the borrower's type of business. | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2023 | | 2022 |
(In thousands) | | Amount | % | | Amount | % |
Finance | | $ | 4,109,280 | | 24.4 | % | | $ | 3,780,409 | | 23.1 | % |
Services | | 2,928,621 | | 17.3 | | | 3,038,338 | | 18.5 | |
Communications | | 1,166,668 | | 6.9 | | | 1,073,233 | | 6.5 | |
Manufacturing | | 1,163,798 | | 6.9 | | | 1,141,943 | | 7.0 | |
Retail & Wholesale | | 874,547 | | 5.2 | | | 1,003,892 | | 6.1 | |
Healthcare | | 848,867 | | 5.0 | | | 751,779 | | 4.6 | |
Real Estate | | 815,769 | | 4.8 | | | 656,002 | | 4.0 | |
Transportation & Public Utilities | | 547,967 | | 3.3 | | | 762,935 | | 4.7 | |
Construction | | 477,303 | | 2.8 | | | 491,365 | | 3.0 | |
Other | | 3,952,655 | | 23.4 | | | 3,692,899 | | 22.5 | |
Total Commercial non-mortgage | | $ | 16,885,475 | | 100.0 | % | | $ | 16,392,795 | | 100.0 | % |
As illustrated above, the Company's commercial non-mortgage portfolio is well diversified across industries, and concentrations are generally consistent year over year. Any change in composition is consistent with the Company's portfolio growth strategy.
The following table summarizes commercial real estate and multifamily loans by geography and property type:
| | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
(In thousands) | | 2023 | | 2022 |
Geography: | | Amount | % | | Amount | % |
New York City | | $ | 7,482,324 | | 35.4 | % | | $ | 7,043,329 | | 35.9 | % |
Other New York County | | 3,321,313 | | 15.7 | | | 3,169,801 | | 16.2 | |
Connecticut | | 1,749,839 | | 8.3 | | | 1,558,888 | | 7.9 | |
New Jersey | | 1,729,139 | | 8.2 | | | 1,525,757 | | 7.8 | |
Massachusetts | | 1,338,936 | | 6.3 | | | 1,375,289 | | 7.0 | |
Southeast | | 2,311,574 | | 10.9 | | | 1,991,929 | | 10.1 | |
Other | | 3,224,607 | | 15.2 | | | 2,954,152 | | 15.1 | |
Total Commercial real estate & Multifamily | | $ | 21,157,732 | | 100.0 | % | | $ | 19,619,145 | | 100.0 | % |
| | | | | | |
Property Type: | | | | | | |
Multifamily | | $ | 7,587,970 | | 35.9 | % | | $ | 6,621,982 | | 33.8 | % |
Industrial & Warehouse | | 3,467,859 | | 16.4 | | | 3,102,205 | | 15.8 | |
Retail | | 1,765,512 | | 8.3 | | | 1,821,498 | | 9.3 | |
Healthcare & Senior Living | | 1,576,511 | | 7.5 | | | 1,605,075 | | 8.2 | |
Construction | | 1,442,621 | | 6.8 | | | 1,143,153 | | 5.8 | |
Office | | 1,041,451 | | 4.9 | | | 1,322,492 | | 6.7 | |
Hotel | | 489,379 | | 2.3 | | | 498,716 | | 2.5 | |
Other | | 3,786,429 | | 17.9 | | | 3,504,024 | | 17.9 | |
Total Commercial real estate & Multifamily | | $ | 21,157,732 | | 100.0 | % | | $ | 19,619,145 | | 100.0 | % |
Given the foundational change in office demand driven by the acceptance of remote work options, the commercial real estate market has experienced an increase in office property vacancies following the COVID-19 pandemic. As such, commercial real estate performance across the United States related to the office sector continues to be an area of uncertainty.
At December 31, 2023, the Company's outstanding balance for commercial real estate office loans was $1.0 billion, or 2.1% of total loans and leases. In addition, at December 31, 2023, the Company has established reserves of $35.7 million against commercial real estate office loans. While the Company does anticipate ongoing change in the office sector, management believes that its reserve levels reflect the expected credit losses in the portfolio.
Credit Policies and Procedures
The Bank has credit policies and procedures in place designed to support its lending activityactivities within an acceptable level of risk. Management reviewsrisk, which are reviewed and approves these policiesapproved by management and proceduresthe Board of Directors on a regular basis. To assist with this process, management with its review,inspects reports generated by the Company's loan reporting systems related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated by loan reporting systems.loans.
Commercial non-mortgage, asset-based, equipment finance, and warehouse lending loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Underwriting standards are designed in support forAssessment of the promotionborrower's management is a critical element of relationships rather than transactional banking.the underwriting process and credit decision. Once it ishas been determined that the borrower’s management possesses sound ethics and a solid business acumen, the Company examines current and projected cash flows are examined to determine the ability of the borrower to repay obligations, as agreed.contracted. Commercial non-mortgage, asset-based, and industrialequipment finance loans are primarily made based on the identified cash flows of the borrower, and secondarily on the underlying collateral provided by the borrower. TheWarehouse lending loans are primarily made based on the borrower's ability to originate high-quality, first-mortgage residential loans that can be sold into the agency, government, or private jumbo markets, and secondarily on the underlying cash flows of the borrower. However, the cash flows of borrowers however, may not be as expected, and the collateral securing these loans, as applicable, may fluctuate in value. Most commercial non-mortgage, asset-based, and industrialequipment finance loans are secured by the assets being financed and may incorporate personal guarantees of the principals.principal balance. Warehouse lending loans are generally uncommitted facilities.
Commercial real estate loans, including multi-family, are subject to underwriting standards and processes similar to those for commercial non-mortgage, asset-based, equipment finance, and industrial loans, in addition to those specific to real estatewarehouse lending loans. These loans are primarily viewed primarily as cash flow loans, and secondarily as loans secured by real estate. Repayment of thesecommercial real estate loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. All transactions are appraised to determine market value. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The CompanyManagement periodically utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.
Commercial constructionConsumer loans have uniqueare subject to policies and procedures developed to manage the specific risk characteristics and are provided to experienced developers/sponsors with strong track records of successful completion and sound financial condition and are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Commercial construction loans are generally based upon estimates of costs and value associated with the complete project.portfolio. These estimates may be subject to change as the construction project proceeds. In addition, these loans often include partial or full completion guarantees. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored with on-site inspections by third-party professionals and the Company's internal staff.
Policies and procedures are in place to manage consumer loan risk and are developed and modified, as needed. Policiespolicies and procedures, coupled with relatively small individual loan amounts and predominately collateralized loan structures, are spread across many individualdifferent borrowers, minimizeminimizing the level of credit risk. Trend and outlook reports are reviewed by management on a regular basis.basis, and policies and procedures are modified or developed, as needed. Underwriting factors for residential mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s debt to income level and are also influenced by regulatory requirements. Additionally, Websterdebt-to-income level. The Bank originates both qualified mortgage and non-qualified mortgage loans, as defined by theapplicable CFPB rules that went into effectrules.
Allowance for Credit Losses on January 10, 2014.Loans and Leases
At December 31, 2017 the ALLL was $200.0The ACL on loans and leases increased $41.0 million, compared to $194.3or 6.9%, from $594.7 million at December 31, 2016. The increase of $5.72022, to $635.7 million in the reserve at December 31, 2017 compared to December 31, 2016 is2023, primarily due to growth in both commercial bankingthe impact of the current macroeconomic environment on credit performance and community banking portfoliosorganic loan growth, partially offset by lower reservesnet charge-offs.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories: | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Amount | % (1) | | Amount | % (1) |
Commercial non-mortgage | $ | 211,699 | 33.3 | % | | $ | 197,950 | 33.3 | % |
Asset-based | 15,828 | 2.5 | | | 16,094 | 2.7 | |
Commercial real estate | 248,921 | 39.2 | | | 214,771 | 36.1 | |
Multi-family | 80,582 | 12.7 | | | 80,652 | 13.6 | |
Equipment financing | 20,633 | 3.2 | | | 23,081 | 3.9 | |
Warehouse lending | — | — | | | 577 | 0.1 | |
Residential | 29,739 | 4.7 | | | 26,907 | 4.5 | |
Home equity | 26,154 | 4.1 | | | 32,296 | 5.4 | |
Other consumer | 2,181 | 0.3 | | | 2,413 | 0.4 | |
Total ACL on loans and leases | $ | 635,737 | 100.0 | % | | $ | 594,741 | 100.0 | % |
(1)The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories.
Methodology
The Company's ACL on impaired loans inand leases is considered to be a critical accounting policy. The ACL on loans and leases is a contra-asset account that offsets the residentialamortized cost basis of loans and home-equity loan portfolios. The ALLL reserve remains adequateleases for the credit losses that are expected to occur over the life of the asset. Executive management reviews and advises on the adequacy of the allowance, which is maintained at a level that management deems to be sufficient to cover inherentexpected losses inwithin the loan and lease portfolios. ALLL
The ACL on loans and leases is determined using the CECL model, whereby an expected lifetime credit loss is recognized at the origination or purchase of an asset, including those acquired through a business combination, which is then reassessed at each reporting date over the contractual life of the asset. The calculation of expected credit losses includes consideration of past events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Generally, expected credit losses are determined through a pooled, collective assessment of loans and leases with similar risk characteristics. However, if the risk characteristics of a loan or lease change such that it no longer matches that of the collectively assessed pool, it is removed from the population and individually assessed for credit losses. The total ACL on loans and leases recorded by management represents the aggregated estimated credit loss determined through both the collective and individual assessments.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on product type and credit quality, and expected losses are determined using models that follow a PD, LGD, EAD, or loss rate framework. For portfolios using the PD, LGD, and EAD framework, expected credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. The Company's PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, loan-level risk attributes, and credit quality indicators. The calculation of EAD follows an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans of a similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses, the loan's amortization schedule, and prepayment rates. Under the loss rate framework, expected credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date. For each loan segment identified, management applies an expected historical loss trend based on third-party loss estimates, and correlates them to observed economic metrics, and reasonable and supportable forecasts of economic conditions.
The Company's models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. The development of the reasonable and supportable forecast assumes each macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start date and is complete within three to five years. Certain models use output reversion and revert to mean historical portfolio loss rates on a
straight-line basis in the third year of the forecast. Other models incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the Company's assets.
The Company incorporates forecasts of macroeconomic variables in the determination of expected credit losses. Macroeconomic variables are selected for each class of financing receivable based on relevant factors, such as asset type and the correlation of the variables to credit losses, among others. Data from the forecast scenario of these macroeconomic variables are used as inputs to the modeled loss calculation.
A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics that are not reflected or captured in the quantitative models, but are likely to impact the measurement of estimated credit losses. Qualitative factors are based on management's judgement of the Company, market, industry, or business specific data including loan trends, portfolio segment composition, and loan rating or credit scores. Qualitative adjustments may be applied in relation to economic forecasts when relevant facts and circumstances are expected to impact credit losses, particularly in times of significant volatility in economic activity.
Individually Assessed Loans and Leases. If the risk characteristics of a loan or lease change such that it no longer matches the risk characteristics of the collectively assessed pool, it is removed from the population and individually assessed for credit losses. Generally, all non-accrual loans and loans with a charge-off are individually assessed. The measurement method used to calculate the expected credit loss on an individually assessed loan or lease is dependent on the type and whether the loan or lease is considered to be collateral dependent. Methods for collateral dependent loans are either based on the fair value of the collateral less estimated cost to sell (when the basis of repayment is the sale of collateral), or the present value of the expected cash flows from the operation of the collateral. For non-collateral dependent loans, either a discounted cash flow method or other loss factor method is used. Any individually assessed loan or lease for which no specific valuation allowance is deemed necessary is either the result of sufficient cash flows or sufficient collateral coverage relative to the amortized cost of the asset.
Additional information regarding the Company's ACL methodology can be found within Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Asset Quality Ratios
The Company manages asset quality using risk tolerance levels established through the Company's underwriting standards, servicing, and management of its loan and lease portfolio. Loans and leases for which a heightened risk of loss has been identified are regularly monitored to mitigate further deterioration and preserve asset quality in future periods. Non-performing assets, credit losses, and net charge-offs are considered by management to be key measures of asset quality.
The following table summarizes key asset quality ratios and their underlying components: | | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Non-performing loans and leases (1) | $ | 209,544 | | | $ | 203,791 | | | $ | 109,778 | |
Total loans and leases | 50,726,052 | | | 49,764,426 | | | 22,271,729 | |
Non-performing loans and leases as a percentage of loans and leases | 0.41 | % | | 0.41 | % | | 0.49 | % |
| | | | | |
Non-performing assets (1) | $ | 218,600 | | | $ | 206,136 | | | $ | 112,590 | |
Total loans and leases | $ | 50,726,052 | | | $ | 49,764,426 | | | $ | 22,271,729 | |
Add: OREO and repossessed assets | 9,056 | | | 2,345 | | | 2,812 | |
Total loans and leases plus OREO and repossessed assets | $ | 50,735,108 | | | $ | 49,766,771 | | | $ | 22,274,541 | |
Non-performing assets as a percentage of loans and leases plus OREO and repossessed assets | 0.43 | % | | 0.41 | % | | 0.51 | % |
| | | | | |
Non-performing assets (1) | $ | 218,600 | | | $ | 206,136 | | | $ | 112,590 | |
Total assets | 74,945,249 | | | 71,277,521 | | | 34,915,599 | |
Non-performing assets as a percentage of total assets | 0.29 | % | | 0.29 | % | | 0.32 | % |
| | | | | |
ACL on loans and leases | $ | 635,737 | | | $ | 594,741 | | | $ | 301,187 | |
Non-performing loans and leases (1) | 209,544 | | | 203,791 | | | 109,778 | |
ACL on loans and leases as a percentage of non-performing loans and leases | 303.39 | % | | 291.84 | % | | 274.36 | % |
| | | | | |
ACL on loans and leases | $ | 635,737 | | | $ | 594,741 | | | $ | 301,187 | |
Total loans and leases | 50,726,052 | | | 49,764,426 | | | 22,271,729 | |
ACL on loans and leases as a percentage of loans and leases | 1.25 | % | | 1.20 | % | | 1.35 | % |
| | | | | |
ACL on loans and leases | $ | 635,737 | | | $ | 594,741 | | | $ | 301,187 | |
Net charge-offs (2) | 108,086 | | | 67,288 | | | 3,829 | |
Ratio of ACL on loans and leases to net charge-offs | 5.88x | | 8.84x | | 78.66x |
(1)Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs on loans and leases.
(2)The $40.8 million increase in net charge-offs from December 31, 2022, to December 31, 2023, is primarily due to the impact of the current macroeconomic environment on credit performance and higher commercial portfolio optimization charges in 2023.
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases also knownfor each category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Net Charge-offs (Recoveries) | Average Balance | % | | Net Charge-offs (Recoveries) | Average Balance | % | | Net Charge-offs (Recoveries) | Average Balance | % |
Commercial non-mortgage | $ | 13,531 | $ | 16,900,423 | | 0.08 | % | | $ | 44,250 | $ | 13,625,382 | | 0.32 | % | | $ | 2,305 | $ | 6,829,799 | | 0.03 | % |
Asset-based | 17,088 | 1,699,064 | | 1.01 | | | 4,473 | 1,746,888 | | 0.26 | | | (1,447) | 950,602 | | (0.15) | |
Commercial real estate | 62,208 | 13,397,036 | | 0.46 | | | 20,471 | 11,299,259 | | 0.18 | | | 4,483 | 5,324,853 | | 0.08 | |
Multi-family | 3,447 | 7,072,507 | | 0.05 | | | 1,298 | 6,025,702 | | 0.02 | | | — | 1,114,977 | | — | |
Equipment financing | 4,949 | 1,509,948 | | 0.33 | | | 931 | 1,660,935 | | 0.06 | | | 375 | 614,055 | | 0.06 | |
Warehouse lending | — | 316,729 | | — | | | — | 537,430 | | — | | | — | — | | — | |
Residential | 3,601 | 8,126,878 | | 0.04 | | | (1,377) | 7,112,890 | | (0.02) | | | (1,149) | 4,953,100 | | (0.02) | |
Home equity | (123) | 1,560,707 | | (0.01) | | | (4,201) | 1,663,198 | | (0.25) | | | (4,289) | 1,681,921 | | (0.26) | |
Other consumer | 3,385 | 54,277 | | 6.24 | | | 1,443 | 79,428 | | 1.82 | | | 3,551 | 115,565 | | 3.07 | |
Total | $ | 108,086 | $ | 50,637,569 | | 0.21 | % | | $ | 67,288 | $ | 43,751,112 | | 0.15 | % | | $ | 3,829 | $ | 21,584,872 | | 0.02 | % |
Liquidity and Capital Resources
The Company manages its cash flow requirements through proactive liquidity measures at both the Holding Company and the Bank. In order to maintain stable, cost-effective funding, and to promote overall balance sheet strength, the liquidity position of the Company is continuously monitored, and adjustments are made to balance sources and uses of funds, as the reserve coverage, remained at 1.14% atappropriate.
At December 31, 2017 as compared2023, management is not aware of any events that are reasonably likely to 1.14% at December 31, 2016,have a material adverse effect on the Company’s liquidity position, capital resources, or operating activities. Although regulatory agencies have not issued formal guidance mandating more stringent liquidity and reflects an updated assessmentcapital requirements, the Company is anticipating a greater focus on the liquidity and capital adequacy of inherent lossesfinancial institutions in response to the high-profile bank failures that occurred in 2023, and impaired reserves conducted throughouthas taken appropriate measures to mitigate the year. ALLL asrisk that such requirements, if implemented, may have on its business, financial positions, and results of operations.
Cash inflows are provided through a percentagevariety of non-performingsources, including principal and interest payments on loans and leases increasedinvestments, unpledged securities that can be sold or utilized to 158.00%secure funding, and new deposits. The Company is committed to maintaining a strong base of core deposits, which consist of demand, interest-bearing checking, savings, health savings, and money market accounts, to support growth in its loan portfolios. Management actively monitors the interest rate environment and makes adjustments to its deposit strategy in response to evolving market conditions, bank funding needs, and client relationship dynamics.
Holding Company Liquidity. The primary source of liquidity at December 31, 2017the Holding Company is dividends from 144.98% at December 31, 2016 duethe Bank. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The Holding Company generally uses its funds for principal and interest payments on senior notes, subordinated notes, and junior subordinated debt, dividend payments to lower non-accrual loans.preferred and common stockholders, repurchases of its common stock, and purchases of investment securities, as applicable.
The following table provides an allocation of the ALLL by portfolio segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
(Dollars in thousands) | Amount | % (1) | | Amount | % (1) | | Amount | % (1) | | Amount | % (1) | | Amount | % (1) |
Residential | $ | 19,058 |
| 0.42 | | $ | 23,226 |
| 0.55 | | $ | 25,876 |
| 0.64 | | $ | 25,452 |
| 0.73 | | $ | 23,027 |
| 0.69 |
Consumer | 36,190 |
| 1.40 | | 45,233 |
| 1.68 | | 42,052 |
| 1.56 | | 43,518 |
| 1.71 | | 41,951 |
| 1.65 |
Commercial | 89,533 |
| 1.67 | | 71,905 |
| 1.46 | | 59,977 |
| 1.39 | | 47,068 |
| 1.26 | | 46,655 |
| 1.42 |
Commercial real estate | 49,407 |
| 1.09 | | 47,477 |
| 1.05 | | 41,598 |
| 1.04 | | 37,148 |
| 1.05 | | 36,754 |
| 1.20 |
Equipment financing | 5,806 |
| 1.06 | | 6,479 |
| 1.02 | | 5,487 |
| 0.91 | | 6,078 |
| 1.13 | | 4,186 |
| 0.91 |
Total ALLL | $ | 199,994 |
| 1.14 | | $ | 194,320 |
| 1.14 | | $ | 174,990 |
| 1.12 | | $ | 159,264 |
| 1.15 | | $ | 152,573 |
| 1.20 |
| |
(1) | Percentage represents allocated ALLL to total loans and leases within the comparable category. However, the allocation of a portion of the allowance to one category of loans and leases does not preclude its availability to absorb losses in other categories. |
The ALLL reserve allocated to the residential loan portfolio at December 31, 2017 decreased $4.2 million compared to December 31, 2016. The year-over-year decrease is primarily attributable to reduction in the impaired loan reserves partially offset by loan growth of $236.2 million.
The ALLL reserve allocated to the consumer portfolio at December 31, 2017 decreased $9.0 million compared to December 31, 2016. The year-over-year decrease is primarily attributable to improved credit quality and a decrease in loans of $94.3 million.
The ALLL reserve allocated to the commercial portfolio at December 31, 2017 increased $17.6 million compared to December 31, 2016. The year-over-year increase is primarily attributable to a $427.8 million increase in loans during the year and asset quality migration.
The ALLL reserve allocated to the commercial real estate portfolio at December 31, 2017 increased $1.9 million compared to December 31, 2016. The year-over-year increase is primarily attributable to loan growth of $13.0 million, partially offset by an improvement in asset quality.
The ALLL reserve allocated to the equipment financing portfolio at December 31, 2017 decreased $0.7 million compared to December 31, 2016. The year-over-year decrease is primarily attributable to a reduction in the loan balance of $85.4 million.
The following table provides detail of activity in the ALLL:
|
| | | | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Beginning balance | $ | 194,320 |
| | $ | 174,990 |
| | $ | 159,264 |
| | $ | 152,573 |
| | $ | 177,129 |
|
Provision | 40,900 |
| | 56,350 |
| | 49,300 |
| | 37,250 |
| | 33,500 |
|
Charge-offs: | | | | | | | | | |
Residential | (2,500 | ) | | (4,636 | ) | | (6,508 | ) | | (6,214 | ) | | (11,592 | ) |
Consumer | (24,447 | ) | | (20,669 | ) | | (17,679 | ) | | (20,712 | ) | | (29,037 | ) |
Commercial | (8,147 | ) | | (18,360 | ) | | (11,522 | ) | | (13,668 | ) | | (19,126 | ) |
Commercial real estate | (9,275 | ) | | (2,682 | ) | | (7,578 | ) | | (3,237 | ) | | (15,425 | ) |
Equipment financing | (558 | ) | | (565 | ) | | (273 | ) | | (595 | ) | | (279 | ) |
Total charge-offs | (44,927 | ) | | (46,912 | ) | | (43,560 | ) | | (44,426 | ) | | (75,459 | ) |
Recoveries: | | | | | | | | | |
Residential | 1,024 |
| | 1,756 |
| | 875 |
| | 1,324 |
| | 1,402 |
|
Consumer | 6,037 |
| | 5,343 |
| | 4,366 |
| | 5,055 |
| | 6,185 |
|
Commercial | 2,358 |
| | 1,626 |
| | 2,738 |
| | 4,369 |
| | 5,123 |
|
Commercial real estate | 165 |
| | 631 |
| | 647 |
| | 885 |
| | 1,648 |
|
Equipment financing | 117 |
| | 536 |
| | 1,360 |
| | 2,234 |
| | 3,045 |
|
Total recoveries | 9,701 |
| | 9,892 |
| | 9,986 |
| | 13,867 |
| | 17,403 |
|
Net charge-offs | | | | | | | | | |
Residential | (1,476 | ) | | (2,880 | ) | | (5,633 | ) | | (4,890 | ) | | (10,190 | ) |
Consumer | (18,410 | ) | | (15,326 | ) | | (13,313 | ) | | (15,657 | ) | | (22,852 | ) |
Commercial | (5,789 | ) | | (16,734 | ) | | (8,784 | ) | | (9,299 | ) | | (14,003 | ) |
Commercial real estate | (9,110 | ) | | (2,051 | ) | | (6,931 | ) | | (2,352 | ) | | (13,777 | ) |
Equipment financing | (441 | ) | | (29 | ) | | 1,087 |
| | 1,639 |
| | 2,766 |
|
Net charge-offs | (35,226 | ) | | (37,020 | ) | | (33,574 | ) | | (30,559 | ) | | (58,056 | ) |
Ending balance | $ | 199,994 |
| | $ | 194,320 |
| | $ | 174,990 |
| | $ | 159,264 |
| | $ | 152,573 |
|
Net charge-offs for the years ended December 31, 2017 and 2016 were $35.2 million and $37.0 million, respectively. Net charge-offs decreased by $1.8 million duringDuring the year ended December 31, 2017 compared2023, the Bank paid $600.0 million in dividends to the Holding Company. At December 31, 2023, there was $788.7 million of retained earnings available for the payment of dividends by the Bank to the Holding Company. On January 24, 2024, the Bank was approved to pay the Holding Company $175.0 million in dividends for the first quarter of 2024.
There are certain restrictions on the Bank's payment of dividends to the Holding Company, which can be found within the section captioned "Supervision and Regulation" in Part I - Item 1. Business, and within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
The quarterly cash dividend to common stockholders remained at $0.40 per common share throughout 2023. On January 24, 2024, it was announced that the Holding Company's Board of Directors had declared a quarterly cash dividend of $0.40 per share on Webster common stock. For Series F Preferred Stock and Series G Preferred Stock, quarterly cash dividends of $328.125 per share and $16.25 per share were declared, respectively. The Company continues to monitor economic forecasts, anticipated earnings, and its capital position in the determination of its dividend payments.
The Holding Company maintains a common stock repurchase program, which was approved by the Board of Directors, that authorizes management to purchase shares of its common stock in open market or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions. During the year ended December 31, 2016. The decrease in net charge-off activity is primarily due2023, the Holding Company repurchased 2,667,149 shares under the repurchase program at a weighted-average price of $40.49 per share, totaling $108.0 million. At December 31, 2023, the Holding Company's remaining purchase authority was $293.4 million. In addition, the Company will periodically acquire common shares outside of the repurchase program related to improved asset quality in commercial loans, partially offset byemployee stock compensation plan activity. During the year ended December 31, 2023, the Company repurchased 315,729 shares at a large charge-off in commercial real estate.weighted-average price of $51.48 per share, totaling $16.3 million, for this purpose.
The following table providesIRA imposed a summary1% excise tax on the value of net stock repurchased by certain publicly traded corporations, including the Company, after December 31, 2022. At December 31, 2023, the Company has recorded a $0.8 million liability for such excise tax owed, with an offset to Treasury stock on the Consolidated Balance Sheet.
Webster Bank Liquidity. The Bank's primary source of funding is its core deposits. Including time deposits, the Bank had a loan to total net charge-offs (recoveries) to average loansdeposit ratio of 83.5% and leases by category:
|
| | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Residential | 0.03 | % | | 0.07 | % | | 0.15 | % | | 0.14 | % | | 0.31 | % |
Consumer | 0.70 |
| | 0.56 |
| | 0.51 |
| | 0.61 |
| | 0.89 |
|
Commercial | 0.11 |
| | 0.36 |
| | 0.22 |
| | 0.26 |
| | 0.46 |
|
Commercial real estate | 0.20 |
| | 0.05 |
| | 0.18 |
| | 0.07 |
| | 0.48 |
|
Equipment financing | 0.07 |
| | — |
| | (0.20 | ) | | (0.34 | ) | | (0.67 | ) |
Total net charge-offs to total average loans and leases | 0.20 | % | | 0.23 | % | | 0.23 | % | | 0.23 | % | | 0.47 | % |
Reserve for Unfunded Credit Commitments
A reserve for unfunded credit commitments provides for probable losses inherent with funding the unused portion of legal commitments to lend. Reserve calculation factors are consistent with the ALLL methodology for funded loans using the LGD, PD, probability of default,92.1% at December 31, 2023, and a draw down factor applied to the underlying borrower risk and facility grades.2022, respectively.
The following tables provide detailBank is required by OCC regulations to maintain a sufficient level of activityliquidity to ensure safe and sound operations. The adequacy of liquidity, as assessed by the OCC, depends on factors such as overall asset and liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. At December 31, 2023, the Bank exceeded all regulatory liquidity requirements. The Company has designed a detailed contingency plan in the reserve for unfunded credit commitments:order to respond to any liquidity concerns in a prompt and comprehensive manner, including early detection of potential problems and corrective action to address liquidity stress scenarios.
53
|
| | | | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Beginning balance | $ | 2,287 |
| | $ | 2,119 |
| | $ | 5,151 |
| | $ | 4,384 |
| | $ | 5,662 |
|
Provision (benefit) (1) | 75 |
| | 168 |
| | (3,032 | ) | | 767 |
| | (1,278 | ) |
Ending balance | $ | 2,362 |
| | $ | 2,287 |
| | $ | 2,119 |
| | $ | 5,151 |
| | $ | 4,384 |
|
| |
(1) | See Note 20: Commitments and Contingencies in the Notes to Consolidated Financial Statements contained elsewhere in this report for information regarding a change in the draw down factor estimation for 2015. |
Capital Requirements. The Holding Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that could have a direct material effect on the Company’s Consolidated Financial Statements. Under capital adequacy guidelines and/or the the regulatory framework for prompt corrective action (applies to the Bank only), both the Holding Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant to regulatory directives. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by Basel III to ensure capital adequacy require the Holding Company and the Bank to maintain minimum ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1 Leverage Capital, as defined in the regulations. At December 31, 2023, both the Holding Company and the Bank were classified as well-capitalized. Management believes that no events or changes have occurred subsequent to year-end that would change this designation.
In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of the adoption of CECL on its regulatory capital over a two-year deferral period, which ended on January 1, 2022, and subsequent three-year transition period ending on December 31, 2024. During the three-year transition period, capital ratios will phase out the aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption in the initial two years. For 2022, 2023, and 2024, the Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, with full absorption occurring in 2025. At December 31, 2023, the regulatory capital benefit allowed from the delayed CECL adoption resulted in a 6, 6, and 4 basis point increase to the Holding Company's and the Bank's CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Tier 1 Leverage Capital, respectively, and a 1 basis point decrease to Total Risk-Based Capital. Both the Holding Company's and the Bank's regulatory ratios remain in excess of being well-capitalized, even without the regulatory capital benefit of the delayed CECL adoption impact.
Additional information regarding the required regulatory capital levels and ratios applicable to the Holding Company and the Bank can be found within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Sources and Uses of Funds and Liquidity
Sources of Funds. TheDeposits are the primary source of Webster Bank’s cash flows for use inthe Bank’s lending activities and meeting its general operational needs is deposits. Operating activities, such as loanneeds. Loan and mortgage-backed securities repayments, proceeds from sales of loans and securities held for sale, proceeds and maturities also provide cash flows. While scheduled loan and securitysecurities repayments are a relatively stable source of funds, loanprepayments and investment security prepayments andother deposit inflows are influenced by economic conditions and prevailing interest rates, and local economic conditions andthe timing of which are inherently uncertain. Additional sources of funds are provided by both short-term and long-term borrowings, and to a lesser extent, dividends received as part of the Bank's membership with the FHLB and FRB.
Deposits. The Bank offers a wide variety of checking and savings deposit products designed to meet the transactional and investment needs of both its consumer and business customers. The Bank’s deposit services include, but are not limited to, ATM and debit card use, direct deposit, ACH payments, mobile banking, internet-based banking, banking by mail, account transfers, and overdraft protection, among others. The Bank manages the flow of funds in its deposit accounts and interest rates consistent with FDIC regulations. The Bank’s Consumer and Digital Pricing Committee and its Commercial and Institutional Liability and Loan Pricing Committee both meet regularly to determine pricing and marketing initiatives.
With the acquisition of interLINK during the first quarter of 2023, the Bank received $5.7 billion of money market deposits at December 31, 2023, which added a unique source of core deposit funding and scalable liquidity to the Company's already differentiated, omnichannel deposit gathering capabilities.
Total deposits were $60.8 billion and $54.0 billion at December 31, 2023, and 2022, respectively. The $6.8 billion increase was primarily due to the interLINK money market deposits, as well as time deposit and HSA deposit growth, partially offset by decreases in non-interest-bearing and savings deposits. Throughout 2023, customer preferences have shifted from checking and savings account products to certificates of deposit and money market products, which are currently more attractive in the higher interest rate environment.
The following table summarizes daily average balances of deposits by type and the weighted-average rates paid thereon: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | | Average Balance | Average Rate |
Non-interest-bearing: | | | | | | | | |
Demand | $ | 11,596,949 | | — | % | | $ | 12,912,894 | | — | % | | $ | 6,897,464 | | — | % |
Interest-bearing: | | | | | | | | |
Checking | 8,845,284 | | 1.48 | | | 8,842,792 | | 0.34 | | | 3,929,941 | | 0.04 | |
Health savings accounts | 8,249,332 | | 0.15 | | | 7,826,576 | | 0.08 | | | 7,390,702 | | 0.08 | |
Money market | 15,769,533 | | 3.61 | | | 10,797,645 | | 0.66 | | | 3,526,373 | | 0.11 | |
Savings | 7,259,640 | | 0.78 | | | 8,625,691 | | 0.16 | | | 5,387,529 | | 0.02 | |
Time deposits | 6,531,610 | | 3.87 | | | 2,838,502 | | 0.60 | | | 2,105,809 | | 0.35 | |
Total interest-bearing | 46,655,399 | | 2.19 | | | 38,931,206 | | 0.36 | | | 22,340,354 | | 0.09 | |
Total average deposits | $ | 58,252,348 | | 1.75 | % | | $ | 51,844,100 | | 0.27 | % | | $ | 29,237,818 | | 0.07 | % |
Uninsured deposits represent the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regime and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regimes. The Company calculates its uninsured deposit balances based on the methodologies and assumptions used for regulatory reporting requirements, which includes an estimated portion and affiliate deposits. At December 31, 2023, and 2022, total uninsured deposits as per regulatory reporting requirements and reported on Schedule RC-O of the Bank's Call Report were $21.0 billion and $22.5 billion, respectively.
The following table summarizes additional uninsured deposits information after certain exclusions: | | | | | | | | | |
(In thousands) | At December 31, 2023 | | | | |
Uninsured deposits, per regulatory reporting requirements | $ | 20,956,950 | | | | | |
Less: Affiliate deposits | (4,414,203) | | | | | |
Collateralized deposits | (2,737,575) | | | | | |
Uninsured deposits, after exclusions | $ | 13,805,172 | | | | | |
| | | | | |
Immediately available liquidity (1) | $ | 20,426,445 | | | | | |
Uninsured deposits coverage | 148.0 | % | | | | |
(1)Reflects $12.5 billion and $6.6 billion of additional borrowing capacity from the FHLB and the FRB, respectively, and $1.3 billion of interest-bearing deposits held at the FRB.
Uninsured deposits, after adjusting for affiliate deposits and collateralized deposits, represented 22.7% of total deposits at December 31, 2023. Management believes that this presentation provides a more accurate view of deposits at risk given that affiliate deposits are not customer facing, and therefore are eliminated upon consolidation, and collateralized deposits are secured by other means. As of the date of this Annual Report on Form 10-K, the Company's uninsured deposits as a percentage of total deposits, adjusted for affiliate deposits and collateralized deposits, is consistent with the percentage reported at December 31, 2023.
The following table summarizes the portion of U.S. time deposits in excess of the FDIC insurance limit and time deposits otherwise uninsured by contractual maturity: | | | | | |
(In thousands) | At December 31, 2023 |
Portion of U.S. time deposits in excess of insurance limit | $ | 463,387 |
Time deposits otherwise uninsured with a maturity of: | |
3 months or less | $ | 172,427 |
Over 3 months through 6 months | 178,642 |
Over 6 months through 12 months | 105,791 |
Over 12 months | 6,527 |
Additional information regarding period-end deposit balances and rates can be found within Note 10: Deposits in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Borrowings. The Bank's primary borrowing sources include securities sold under agreements to repurchase, federal funds purchased, FHLB advances, and long-term debt. Total borrowed funds were $3.9 billion and $7.7 billion at December 31, 2023, and 2022, respectively, and represented 5.2% and 10.8% of total assets, respectively. The $3.8 billion decrease is primarily due to decreases of $3.1 billion and $0.8 billion in FHLB advances and federal funds purchased, respectively, partially offset by an increase of $0.1 billion in securities sold under agreements to repurchase.
The Bank had additional borrowing capacity from the FHLB of $12.5 billion and $4.3 billion at December 31, 2023, and 2022, respectively. The Bank also had additional borrowing capacity from the FRB of $6.6 billion and $1.2 billion at December 31, 2023, and 2022, respectively. Unencumbered investment securities of $1.2 billion at December 31, 2023, could have been used for collateral on borrowings or other borrowings.to increase borrowing capacity by either $0.8 billion with the FHLB or $1.0 billion with the FRB.
Securities sold under agreements to repurchase are generally a form of short-term funding for the Bank in which it sells securities to counterparties with an agreement to buy them back in the future at a fixed price. Securities sold under agreements to repurchase totaled $0.4 billion and $0.3 billion at December 31, 2023, and 2022, respectively. The $0.1 billion increase is primarily due to short-term funding needs.
The Bank may also purchase term and overnight federal funds to meet its short-term liquidity needs. Federal funds purchased totaled $0.1 billion and $0.9 billion at December 31, 2023, and 2022, respectively. The $0.8 billion decrease is primarily due to the additional liquidity generated from the interLINK deposit sweep program, which allowed for the Company to reduce its federal funds purchase volume in 2023.
FHLB advances are not only utilized as a source of funding, but also for interest rate risk management purposes. FHLB advances totaled $2.4 billion and $5.5 billion at December 31, 2023, and 2022, respectively. The $3.1 billion decrease is also primarily due to the additional liquidity generated from the interLINK deposit sweep program, which allowed for the Company to reduce its FHLB advances in 2023.
Long-term debt consists of senior fixed-rate notes maturing in 2024 and 2029, subordinated fixed-to-floating-rate notes maturing in 2029 and 2030, and floating-rate junior subordinated notes maturing in 2033. Long-term debt remained relatively flat on a comparative basis, totaling approximately $1.1 billion at both December 31, 2023, and 2022.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | | Average Balance | Average Rate |
Securities sold under agreements to repurchase | $ | 210,676 | | 0.58 | % | | $ | 466,282 | | 0.78 | % | | $ | 527,250 | | 0.57 | % |
Federal funds purchased | 167,495 | | 4.70 | | | 598,269 | | 2.58 | | | 16,036 | | 0.08 | |
| | | | | | | | |
FHLB advances | 4,275,394 | | 5.21 | | | 1,965,577 | | 2.98 | | | 108,216 | | 1.58 | |
Long-term debt | 1,058,621 | | 3.69 | | | 1,031,446 | | 3.44 | | | 565,271 | | 3.22 | |
Total average borrowings | $ | 5,712,186 | | 4.74 | % | | $ | 4,061,574 | | 2.78 | % | | $ | 1,216,773 | | 1.84 | % |
Additional information regarding period-end borrowings balances and rates can be found within Note 11: Borrowings in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Federal Home Loan Bank and Federal Reserve Bank Stock. WebsterThe Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks,FHLBs, each of which is subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based FHLB capital stock investment in the FHLB is required in order for Websterthe Bank to maintain its membership and access to advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in thatas there is no market for it, and it can only be redeemed by the FHLB. WebsterThe Bank held FHLB Boston capital stock of $100.9$99.0 million and $221.4 million at December 31, 20172023, and $143.9 million at2022, respectively. During the year ended December 31, 2016 for its membership and for outstanding advances and other extensions of credit. Webster2023, the Bank received $4.8$15.6 million in dividends from the FHLB. The most recent FHLB Boston during 2017.quarterly cash dividend was paid on November 2, 2023, in an amount equal to an annual yield of 8.31%.
Additionally, WebsterThe Bank is also required to hold FRB of Boston stock equal to 6% of its capital and surplus, of which 50% is paid. The remaining 50% is subject to call when deemed necessary by the Federal Reserve System. ASimilar to FHLB stock, the FRB capital stock investment is restricted in thatas there is no market for it, and it can only be redeemed by the FRB. At bothThe Bank held FRB capital stock of $227.9 million and $224.5 million at December 31, 20172023, and 2022, respectively. During the year ended December 31, 2016, Webster Bank held $50.7 million of FRB of Boston capital stock. The semi-annual dividend payment from2023, the FRB is calculated as the lesser of three percent or yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of the dividend. Webster Bank received $1.2$9.2 million in dividends from the FRB. The most recent FRB semi-annual cash dividend was paid on December 29, 2023, in an amount equal to an annual yield of Boston during 2017.4.30%.
Deposits.Uses of Funds. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use; direct deposit; ACH payments; combined statements; mobile banking services; internet-based banking; bank by mail; as well as overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and investment needs for both consumer and business customers throughout 167 banking centers within its primary market area. Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with FDIC regulations. Webster Bank’s Retail Pricing Committee and its Commercial and Institutional Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.
Total deposits were $21.0 billion, $19.3 billion, and $18.0 billion at December 31, 2017, 2016, and 2015, respectively, with time deposits that meet or exceed the FDIC limit, presently $250 thousand, representing approximately 2.7%, 2.5%, and 2.0%, respectively, of total deposits.
Daily average balances of deposits by type and weighted-average rates paid thereon for the periods as indicated:
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | | Average Balance | Average Rate |
Non-interest-bearing: | | | | | | | | |
Demand | $ | 4,079,493 |
| | | $ | 3,853,700 |
| | | $ | 3,564,751 |
| |
Interest-bearing: | | | | | | | | |
Checking | 2,601,962 |
| 0.07 | % | | 2,422,862 |
| 0.07 | % | | 2,245,015 |
| 0.06 | % |
Health savings accounts | 4,839,988 |
| 0.20 |
| | 4,150,733 |
| 0.23 |
| | 3,561,900 |
| 0.24 |
|
Money market | 2,488,422 |
| 0.61 |
| | 2,279,301 |
| 0.36 |
| | 2,076,770 |
| 0.23 |
|
Savings | 4,418,032 |
| 0.23 |
| | 4,219,681 |
| 0.19 |
| | 3,962,364 |
| 0.18 |
|
Time deposits | 2,137,574 |
| 1.19 |
| | 2,027,029 |
| 1.11 |
| | 2,138,778 |
| 1.15 |
|
Total interest-bearing | 16,485,978 |
| 0.38 |
| | 15,099,606 |
| 0.33 |
| | 13,984,827 |
| 0.33 |
|
Total average deposits | $ | 20,565,471 |
| 0.30 | % | | $ | 18,953,306 |
| 0.26 | % | | $ | 17,549,578 |
| 0.26 | % |
Total average deposits increased $1.6 billion, or 8.5%, in 2017 compared to 2016 and increased $1.4 billion, or 8.0%, in 2016 compared to 2015. The increase was driven by continued growth in health savings account deposits. Additionally, there has also been steady growth in all core deposit categories.
For additional information, see Note 9: DepositsCompany enters into various contractual obligations in the Notes to Consolidated Financial Statements contained elsewhere in this report.
The following table presents time deposits with a denomination of $100 thousand or more at December 31, 2017 by maturity periods:
|
| | | |
(In thousands) | |
Due within 3 months | $ | 291,993 |
|
Due after 3 months and within 6 months | 217,318 |
|
Due after 6 months and within 12 months | 252,984 |
|
Due after 12 months | 646,843 |
|
Time deposits with a denomination of $100 thousand or more | $ | 1,409,138 |
|
Borrowings. Utilized as a source of funding forbusiness that require future cash payments and that could impact its short-term and long-term liquidity and interest rate risk management purposes, borrowings primarily consist of FHLB advances and securities sold under agreements to repurchase, whereby securities are delivered to counterparties under an agreement to repurchase the securities at a fixed price in the future. At December 31, 2017 and December 31, 2016, FHLB advances totaled $1.7 billion and $2.8 billion, respectively. Webster Bank had additional borrowing capacity from the FHLB of approximately $2.6 billion and $1.2 billion at December 31, 2017 and December 31, 2016, respectively. Webster Bank also had additional borrowing capacity from the FRB of $0.5 billion and $0.6 billion at December 31, 2017 and December 31, 2016, respectively. In addition, unpledged securities of $4.4 billion at December 31, 2017 could have been used to increase borrowing capacity by $4.1 billion with the FHLB, by $4.2 billion with the FRB, or alternatively used to collateralize other borrowings such as repurchase agreements.
In addition, Webster Bank may utilize term and overnight Fed funds to meet short-term liquiditycapital resource needs. The Company's long-term debt consists of senior fixed-rate notes maturing in 2024 and junior subordinated notes maturing in 2033. Total borrowed funds were $2.5 billion, $4.0 billion and $4.0 billion, and represented 9.6%, 15.4% and 16.4% of total assets at December 31, 2017, 2016 and 2015, respectively. For additional information, see Note 10: Borrowings in the Notes to Consolidated Financial Statements contained elsewhere in this report.
Daily average balances of borrowings by type and weighted-average rates paid thereon for the periods as indicated:
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | | Average Balance | Average Rate |
FHLB advances | $ | 1,764,347 |
| 1.72 | % | | $ | 2,413,309 |
| 1.20 | % | | $ | 2,084,496 |
| 1.10 | % |
Securities sold under agreements to repurchase | 695,922 |
| 1.79 |
| | 744,957 |
| 1.82 |
| | 842,207 |
| 1.93 |
|
Federal funds | 180,738 |
| 1.06 |
| | 202,901 |
| 0.46 |
| | 302,756 |
| 0.21 |
|
Long-term debt | 225,639 |
| 4.60 |
| | 225,607 |
| 4.42 |
| | 226,292 |
| 4.27 |
|
Total average borrowings | $ | 2,866,646 |
| 1.92 | % | | $ | 3,586,774 |
| 1.49 | % | | $ | 3,455,751 |
| 1.43 | % |
Total average borrowings decreased $720.1 million, or 20.1%, in 2017 compared to 2016 and increased $131.0 million, or 3.8%, in 2016 compared to 2015. The decrease in 2017 compared to 2016 was primarily due to a decrease in FHLB borrowings. The increase in 2016 compared to 2015 was due an increase in FHLB borrowings. Average borrowings represented 10.9%, 14.2%, and 14.7% of average total assets for December 31, 2017, 2016, and 2015, respectively.
The following table sets forth additional information for short-term borrowings:
|
| | | | | | | | | | | | | | | | | |
| At or for the years ended December 31, |
| 2017 | | 2016 | | 2015 |
(Dollars in thousands) | Amount | Rate | | Amount | Rate | | Amount | Rate |
Securities sold under agreements to repurchase: | | | | | | | | |
At end of year | $ | 288,269 |
| 0.17 | % | | $ | 340,526 |
| 0.16 | % | | $ | 334,400 |
| 0.15 | % |
Average during year | 310,853 |
| 0.18 |
| | 321,460 |
| 0.16 |
| | 325,015 |
| 0.15 |
|
Highest month-end balance during year | 335,902 |
| — |
| | 365,361 |
| — |
| | 409,756 |
| — |
|
Federal funds: | | | | | | | | |
At end of year | 55,000 |
| 1.37 |
| | 209,000 |
| 0.60 |
| | 317,000 |
| 0.39 |
|
Average during year | 180,738 |
| 1.06 |
| | 202,893 |
| 0.46 |
| | 302,756 |
| 0.21 |
|
Highest month-end balance during year | 182,000 |
| — |
| | 294,000 |
| — |
| | 479,000 |
| — |
|
The following table summarizes significant fixed and determinable contractual obligations to make future payments as ofat December 31, 2017:2023. The actual timing and amounts of future cash payments may differ from the amounts presented. Based on the Company's current liquidity position, it is expected that our sources of funds will be sufficient to fulfill these obligations when they come due.
| | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period (1) | |
(In thousands) | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total |
Senior notes | $ | 132,550 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 300,000 | | $ | 432,550 | |
Subordinated notes | — | | — | | — | | — | | — | | 499,000 | | 499,000 | |
Junior subordinated debt | — | | — | | — | | — | | — | | 77,320 | | 77,320 | |
FHLB advances | 2,350,000 | | — | | — | | 235 | | 228 | | 9,555 | | 2,360,018 | |
Securities sold under agreements to repurchase | 358,387 | | — | | — | | — | | — | | — | | 358,387 | |
Federal funds purchased | 100,000 | | — | | — | | — | | — | | — | | 100,000 | |
Time deposits | 8,217,683 | | 138,769 | | 53,807 | | 32,865 | | 21,335 | | — | | 8,464,459 | |
Operating lease liabilities | 38,575 | | 39,449 | | 35,665 | | 31,128 | | 26,999 | | 81,918 | | 253,734 | |
Contingent consideration | 12,500 | | 4,826 | | — | | — | | — | | — | | 17,326 | |
Royalty liabilities | 9,482 | | 1,560 | | — | | — | | — | | — | | 11,042 | |
Purchase obligations (2) | 79,644 | | 34,294 | | 17,485 | | 12,583 | | 4,333 | | 14,287 | | 162,626 | |
Total contractual obligations | $ | 11,298,821 | | $ | 218,898 | | $ | 106,957 | | $ | 76,811 | | $ | 52,895 | | $ | 982,080 | | $ | 12,736,462 | |
|
| | | | | | | | | | | | | | | |
| Payments Due by Period (1) | |
(In thousands) | Less than one year | 1-3 years | 3-5 years | After 5 years | Total |
Senior notes | $ | — |
| $ | — |
| $ | — |
| $ | 150,000 |
| $ | 150,000 |
|
Junior subordinated debt | — |
| — |
| — |
| 77,320 |
| 77,320 |
|
FHLB advances | 1,150,000 |
| 318,026 |
| 200,170 |
| 8,909 |
| 1,677,105 |
|
Securities sold under agreements to repurchase | 588,269 |
| — |
| — |
| — |
| 588,269 |
|
Fed funds purchased | 55,000 |
| — |
| — |
| — |
| 55,000 |
|
Deposits with stated maturity dates | 1,381,899 |
| 930,509 |
| 155,873 |
| 127 |
| 2,468,408 |
|
Operating leases | 29,181 |
| 54,289 |
| 45,437 |
| 77,541 |
| 206,448 |
|
Purchase obligations | 47,614 |
| 72,309 |
| 8,142 |
| — |
| 128,065 |
|
Total contractual obligations | $ | 3,251,963 |
| $ | 1,375,133 |
| $ | 409,622 |
| $ | 313,897 |
| $ | 5,350,615 |
|
| |
(1) | Amounts for(1)Interest payments on borrowings do not include interest. Amounts for leases are reflected as specified in the underlying contracts.
|
The Company also has the following obligations which have been excluded fromexcluded.
(2)Purchase obligations represent agreements to purchase goods or services of $1.0 million or more that are enforceable and legally binding and specify all significant terms.
In addition, in the above table:
unfunded commitments remaining for particular investments in private equity fundsnormal course of $9.1 million, for which neitherbusiness, the payment timing, nor eventual obligation is certain;
credit relatedCompany offers financial instruments with contractual amounts totaling $5.8 billion,off-balance sheet risk to meet the financing needs of its customers. These transactions include commitments to extend credit and commercial and standby letters of credit, which involve, to a varying degree, elements of credit risk. Since many of these commitments are expected to expire unused or be only partially used, and therefore,funded, the total commitment amount of these commitments$12.6 billion at December 31, 2023, does not necessarily reflect future cash payments;payments.
The Company also enters into commitments to invest in venture capital and
liabilities private equity funds and tax credit structures to assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for UTPs totaling $5.5 million, for which uncertainty exists regarding the amount that may ultimately be paid, as well asthese alternative investments was $0.7 billion at December 31, 2023. However, the timing of any such payment.
Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive liquidity management at both the Holding Companycapital calls cannot be reasonably estimated, and Webster Bank. Liquidity comes from a variety of cash flow sources such as operating activities, including principal and interest paymentsdepending on loans and investments, or financing activities, including unpledged securities which can be utilized to secure funding or sold, and new deposits. Webster is committed to maintaining a strong, increasing base of core deposits to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in order to maintain stable, cost effective funding to promote overall balance sheet strength.
Holding Company Liquidity. Webster’s primary source of liquidity at the Holding Company level is dividends from Webster Bank. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and capital securities, the payment of dividends to preferred and common shareholders, repurchases of its common stock, and purchases of available-for-sale securities. There are certain restrictions on the payment of dividends by Webster Bank to the Holding Company, which are described in the section captioned "Supervision and Regulation" in Item 1 contained elsewhere in this report. At December 31, 2017, there was $368.8 million of retained earnings available for the payment of dividends by Webster Bank to the Holding Company. Webster Bank paid $120.0 million in dividends to the Holding Company during the year ended December 31, 2017.
The Company has a common stock repurchase program authorized by the Board of Directors, with $103.9 million of remaining repurchase authority at December 31, 2017. In addition, Webster periodically acquires common shares outside of the repurchase program related to stock compensation plan activity. The Company records the purchase of shares of common stock at cost based on the settlement date for these transactions. During the year ended December 31, 2017, a total of 434,227 shares of common stock were repurchased at a cost of approximately $23.3 million, of which 222,000 shares were purchased under the common stock repurchase program at a cost of approximately$11.6 million, and 212,227 shares were purchased related to stock compensation plan activity at a cost of approximately $11.7 million.
Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits, consisting of demand, checking, savings, health savings, and money market accounts. The primary use of this funding is for loan portfolio growth. Webster Bank had a loan to total deposit ratio of 83.5% and 88.2% at December 31, 2017 and December 31, 2016, respectively.
Webster Bank is required by regulations adopted by the OCC to maintain liquidity sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on such factors as the overall asset/liability structure, market conditions, competition, and the nature of the institution’s depositcontract, the entirety of the capital committed by the Company may not be called.
Pension obligations are funded by the Company, as needed, to provide for participant benefit payments as it relates to the Company's frozen, non-contributory, qualified defined benefit pension plan. Decisions to contribute to the defined benefit pension plan are made based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and loan customers. Webstertrends in the regulatory environment. The Company was not required to contribute to the defined benefit pension plan in 2023, nor does it currently anticipate that it will be required to contribute in 2024. The Company's non-qualified supplemental executive retirement plans and other post-employment benefit plans are unfunded. Expected future net benefit payments related to the Company's defined benefit pension and other postretirement benefit plans include $14.0 million in less than one year, $28.7 million in one to three years, $29.4 million in three to five years, and $73.2 million after five years.
At December 31, 2023, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of $13.8 million and $3.8 million of accrued interest and penalties, respectively. The ultimate timing and amount of any related future cash settlements cannot be predicted with reasonable certainty.
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses incurred by protecting uninsured depositors of Silicon Valley Bank exceeded all regulatory liquidity requirementsand Signature Bank upon their failure in March 2023. The final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits balance reported as of December 31, 2017.2022. The special assessment is to be collected for an anticipated total of eight quarterly assessment periods beginning with the first quarter of 2024, which has a payment date of June 28, 2024. Based on the final rule, the Company estimates that its special assessment charge is approximately $47.2 million. However, the FDIC retains the right to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment if actual losses exceed the amounts collected.
On February 23, 2024, the Company received notification from the FDIC that the estimated loss attributable to the protection of uninsured depositors at Silicon Valley Bank and Signature Bank is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion described in the final rule. The FDIC plans to provide institutions subject to the special assessment with an updated estimate of each institution's quarterly and total special assessment expense with its first quarter 2024 special assessment invoice, to be released in June 2024. The Company has a detailed liquidity contingency plan designedwill continue to respond to liquidity concerns in a promptevaluate new information as it becomes available.
Additional information regarding credit-related financial instruments and comprehensive manner. It is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.
Applicable OCC regulations require Webster Bank, as a commercial bank, to satisfy certain minimum leverage and risk-based capital requirements. As an OCC regulated commercial institution, it is also subject to minimum tangible capital requirements. As of December 31, 2017, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC requirements for a well capitalized institution. Seespecial assessment, alternative investments, defined benefit pension and other postretirement benefit plans, and income taxes can be found within Note 13: Regulatory Matters23: Commitments and Contingencies, Note 15: Variable Interest Entities, Note 19: Retirement Benefit Plans, and Note 9: Income Taxes, respectively, in the Notes to Consolidated Financial Statements contained elsewhere in this report for a further discussionPart II - Item 8. Financial Statements and Supplementary Data.
The liquidity position of the Company is continuously monitored, and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which, if implemented, would have a material adverse effect on the Company.
Off-Balance Sheet Arrangements
Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business, for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit, interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements or facilitate certain trade arrangements. These transactions give rise to, in varying degrees, elements of credit, interest rate, and liquidity risk. For the year ended December 31, 2017, Webster did not engage in any off-balance sheet transactions that would have a material effect on its financial condition.
Asset/Liability Management and Market Risk
An effective asset/liability management process must balance the risks and rewards from both shortshort-term and long-term interest rate risks inrisk when determining managementthe Company's strategy and action. To facilitate and manage this process, interest rate sensitivity is monitored on an ongoing basis by ALCO. Thethe Company's ALCO, whose primary goal of ALCO is to manage interest rate risk toand maximize net income and net economic value over time in changing interest rate environments subject to Board approved risk limits. The Board sets policy limitsenvironments. Limits for earnings at risk are set for parallel ramps in interest rates over twelve monthsa twelve-month period of plusup and minusdown 100, and 200, and 300 basis points, as well asand for interest rate curve twist shocks of plusup and minusdown 50 and 100 basis points. EconomicLimits for net economic value, orreferred to as equity at risk, limits are set for parallel shocks in interest rates of plusup and minusdown 100, 200, and 300 basis points. Based on the near historic lows in short-term interest rates at December 31, 2016, the declining interest rate scenarios of minus 100 basis points or more for both earnings at risk and equity at risk were temporarily suspended by ALCO policy. During the year ended December 31, 2017, these declining interest rate scenarios were re-instituted. The results of these re-instituted minus rate scenarios are outside of the established interest rate risk limits due to the impact of deposit floors. Due to the low probability of occurrence and the current level of rates, the Board has approved a temporary exception to policy. ALCO also regularly reviews earnings at risk scenarios for non-parallel changes in interest rates, as well as longer-term scenarios ofearnings at risk for up to four years in the future.
Management measures interest rate risk using simulation analysis and asset/liability modeling software to calculate the Company's earnings at risk and equity at risk. These risk measures are quantified using simulation software from one of the leading firms in the field of asset/liability modeling. Key assumptions relate to the behavior of interest rates and spreads, prepayment speeds, and the run-off of deposits. From suchthese simulations, interest rate risk is quantified, and appropriate strategies are formulated and implemented.
Earnings at risk is defined as the change in earnings (excluding provision for loan and lease losses andnet interest income tax expense) due to changes in interest rates. InterestEssentially, interest rates are assumed to change up or down in a parallel fashion, and earningsthe net interest income results in each scenario are compared to a flat rate scenario as a base.base scenario. The flat rate base scenario holds the end of the period yield curve constant over the twelve montha twelve-month forecast horizon. EarningsThe earnings at risk simulation analysis incorporates assumptions about balance sheet changes such as asset(i.e., product mix, growth, and liability growth, loan and deposit pricing, and changes to the mix of assets and liabilities. Itpricing). Overall, it is a measure of short-term interest rate risk.
At December 31, 2023, and 2022, the flat rate base scenario assumed a federal funds rate of 5.50% and 4.50%, respectively. The federal funds rate target range was 5.25-5.50% at December 31, 2023, and 4.25-4.50% at December 31, 2022. Since interest rates rose sharply throughout 2022, and continued to rise into the third quarter of 2023, management has incorporated the up and down 300 basis point rate scenarios back into its assessment of interest rate risk.
Equity at risk is defined as the change in the net economic value of financial assets and financial liabilities due to changes in interest rates compared to a base net economic value. Equity at risk analyzes sensitivity in the present value of cash flows over the expected life of existing financial assets, financial liabilities, and off-balance sheet contracts.financial instruments. It is a measure of the long-term interest rate risk to future earningsearnings' streams embedded in the current balance sheet.
Asset sensitivity is defined as earnings or net economic value increasing compared to a base scenario when interest rates rise and decreasing when interest rates fall.fall, as compared to a base scenario. In other words, financial assets are more sensitive to changing interest rates than liabilities, and therefore, re-price faster. Likewise, liability sensitivity is defined as earnings or net economic value decreasing compared to a base scenario when interest rates rise and increasing when interest rates fall.
fall, as compared to a base scenario.
Key assumptions underlying the present value of cash flows include the behavior of interest rates and spreads, asset prepayment speeds, and attrition rates on deposits. Cash flow projections from the model are compared to market expectations for similar collateral types and adjusted based on experience with Websterthe Bank's own portfolio. The model's valuation results are compared to observable market prices for similar instruments whenever possible. The behavior of deposit and loan customers is studied using historical time series analysis to model future customer behavior under varying interest rate environments.
The equity at risk simulation process uses multiple interest rate paths generated by an arbitrage-free trinomial lattice term structure model. The Base Casebase case rate scenario, against which all others are compared, currently uses the month-end London Interbank Offered Rate (LIBOR)/SwapSOFR/swap yield curve as a starting point to derive forward rates for future months. Using interest rate swap option volatilities as inputs, the model creates multiple rate paths for this scenario with forward rates as the mean. In shock scenarios, the starting yield curve is shocked up or down in a parallel fashion. Future rate paths are then constructed in a similar manner to the Base Case.base case scenario.
Cash flows for all financial instruments are generated using product specific prepayment models and account specific system data for properties such as maturity date, amortization type, coupon rate, repricing frequency, and repricing date. The asset/liability simulation software is enhanced with a mortgage prepayment model and a collateralized mortgage obligation database. InstrumentsFinancial instruments with explicit options such as(i.e., caps, floors, puts, and calls,calls) and implicit options such as(i.e., prepayment and early withdrawal abilityabilities) require such a rate and cash flow modeling approach to more accurately quantify value and risk. risk more accurately.
On the asset side, risk is impacted the most by residential mortgage loans and mortgage-backed securities, which can typically prepay at any time without penalty and may have embedded caps and floors. In the loan portfolio, floors are a benefit to interest income in low interest rate environments. Floating-rate loans at floors pay a higher interest rate than a loan at a fully indexed rate without a floor, as with a floor, there is a limit on how low the interest rate can fall. As market rates rise, however, the interest rate paid on these loans does not rise until the fully indexed rate rises through the contractual floor.
On the liability side, there is a large concentration of customers with indeterminate maturity deposits who have options to add or withdraw funds from their accounts at any time. Implicit floors on deposits, based on historical data, are modeled. WebsterThe Bank also has the option to change the interest rate paid on these deposits at any time.
Webster's earnings at risk model incorporates net interest income (NII) and non-interest income and expense items, some
Four main tools are used for managing interest rate risk:
•the size, duration, and durationcredit risk of the investment portfolio;
•the size and duration of the wholesale funding portfolio;
off-balance sheet •interest rate contracts; and
•the pricing and structure of loans and deposits.
The ALCO meets at least monthlyfrequently to make decisions on the investment and funding portfolios based on the economic outlook, the Committee'sits interest rate expectations, the risk position, and other factors. The ALCO delegates pricing and product design responsibilities to individuals and sub-committees, but continuously monitors and influences their actions on a regular basis.
Various interest rate contracts, including futures, and options, interest rate swaps, and interest rate caps, and floors, can be used to manage interest rate risk. These interest rate contracts involve, to varying degrees, levels of credit risk and interest rate 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. The notional amount of interest rate contracts isthe derivative instrument, or the amount uponfrom which interest and other payments are based. The notional amountderived, is not exchanged, and therefore, should not be takenused as a measure of credit risk. See
In addition, certain derivative instruments are used by the Bank to manage the risk of loss associated with its mortgage banking activities. Generally, prior to closing and funds disbursement, an interest-rate lock commitment is extended to the borrower. During this time, the Bank is subject to the risk that market interest rates may change, which could impact pricing on loan sales. In an effort to mitigate this risk, the Bank establishes forward delivery sales commitments, thereby setting the sales price.
The Company will also hold futures, options, and forward foreign currency exchange contracts to minimize the price volatility of certain financial assets and financial liabilities. Changes in the market value of these derivative positions are recognized in earnings. Additional information regarding derivatives can be found within Note 15:17: Derivative Financial Instruments in the Notes to Consolidated Financial Statements contained elsewhere in this report for additional information.
Certain derivative instruments, primarily forward sales of mortgage-backed securities, are utilized by Webster Bank in its efforts to manage risk of loss associated with its mortgage banking activities. Prior to closingPart II - Item 8. Financial Statements and funds disbursement, an interest-rate lock commitment is generally extended to the borrower. During such time, Webster Bank is subject to risk that market rates of interest may change impacting pricing on loan sales. In an effort to mitigate this risk, forward delivery sales commitments are established, thereby setting the sales price.
The following table summarizes the estimated impact that gradual parallel changes in income of 100 and 200 basis points, over a twelve month period starting December 31, 2017 and December 31, 2016, might have on Webster’s NII for the subsequent twelve month period compared to NII assuming no change in interest rates:
|
| | | | |
| -200bp | -100bp | +100bp | +200bp |
December 31, 2017 | N/A | (5.9)% | 3.4% | 6.4% |
December 31, 2016 | N/A | N/A | 2.4% | 4.7% |
Supplementary Data.The following table summarizes the estimated impact that gradual parallel changes in interest rates of up and down 100, 200, and 200300 basis points over a twelve month period starting December 31, 2017 and December 31, 2016, might have on Webster’s pre-tax, pre-provisionthe Company’s net revenue (PPNR) for the subsequent twelve monthinterest income over a twelve-month period starting at December 31, 2023, and 2022, as compared to PPNRactual net interest income and assuming no changechanges in interest rates:
| | | | | | | | | | | | | | | | | | | | |
| -300bp | -200bp | -100bp | +100bp | +200bp | +300bp |
December 31, 2023 | (7.2)% | (4.5)% | (2.0)% | 1.7% | 3.3% | 5.4% |
December 31, 2022 | n/a | (6.9)% | (3.3)% | 3.2% | 6.5% | n/a |
|
| | | | |
| -200bp | -100bp | +100bp | +200bp |
December 31, 2017 | N/A | (10.4)% | 5.3% | 9.9% |
December 31, 2016 | N/A | N/A | 2.9% | 6.3% |
Interest rates are assumed to change up or downAsset sensitivity in a parallel fashion, and NII and PPNR results in each scenario are compared to a flat rate scenario as a base. The flat rate scenario holds the endterms of period yield curve constant over a twelve month forecast horizon. The flat rate scenario as ofnet interest income decreased at December 31, 2016 assumed a Fed Funds rate of 0.75%, while the flat rate scenario as of December 31, 2017 assumed a Fed Funds rate of 1.50%. Asset sensitivity for both NII and PPNR on December 31, 2017 was higher2023, as compared to at December 31, 2016,2022, primarily due to growth in deposits, mainly health savings accounts, a reduction in borrowings, and loans moving further away from floors.
Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets and liabilities. Changeschanges in the market valueoverall balance sheet composition, which included the addition of $5.7 billion in price-sensitive deposits from interLINK, an increase in interest paid on deposits, and the implementation of incremental asset sensitivity measures, such as hedges and the investment of fixed-rate debt securities to extend duration. Loans at floors were $0.3 billion and $0.4 billion at December 31, 2023, and 2022, respectively. While loans with floors, which are considered “in the money”, have the impact of reducing overall asset sensitivity, as interest rates continue to rise, these positions are recognized in earnings.loans will move through their floors and reprice accordingly.
The following table summarizes the estimated impact that immediate non-parallel changes in income might have on Webster’s NII for the subsequent twelve month period starting December 31, 2017 and December 31, 2016:
|
| | | | | | | | | |
| Short End of the Yield Curve | | Long End of the Yield Curve |
| -100bp | -50bp | +50bp | +100bp | | -100bp | -50bp | +50bp | +100bp |
December 31, 2017 | (8.5)% | (4.3)% | 2.0% | 3.9% | | (3.9)% | (1.7)% | 1.3% | 2.3% |
December 31, 2016 | N/A | N/A | 1.2% | 2.3% | | (3.8)% | (1.6)% | 1.3% | 2.3% |
The following table summarizes the estimated impact thatyield curve twists or immediate non-parallel changes in interest rates of up and down 50 and 100 basis points might have on Webster’s PPNRthe Company's net interest income for the subsequent twelve monthtwelve-month period starting at December 31, 20172023, and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short End of the Yield Curve | | Long End of the Yield Curve |
| -100bp | -50bp | +50bp | +100bp | | -100bp | -50bp | +50bp | +100bp |
December 31, 2023 | (1.8)% | (0.8)% | 0.4% | 0.7% | | (2.3)% | (1.1)% | 1.1% | 2.2% |
December 31, 2022 | (4.2)% | (2.0)% | 1.7% | 3.3% | | (2.4)% | (1.2)% | 1.3% | 2.6% |
|
| | | | | | | | | |
| Short End of the Yield Curve | | Long End of the Yield Curve |
| -100bp | -50bp | +50bp | +100bp | | -100bp | -50bp | +50bp | +100bp |
December 31, 2017 | (14.8)% | (7.5)% | 2.9% | 5.7% | | (4.8)% | (2.2)% | 2.2% | 4.0% |
December 31, 2016 | N/A | N/A | 1.4% | 2.7% | | (5.6)% | (2.1)% | 1.7% | 3.7% |
TheThese non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa. The short end of the yield curve is defined as terms of less than eighteen months, and the long end of the yield curve is defined as terms of greater than eighteen months. TheseThe results above reflect the annualized impact of immediate interest rate changes. The actual impact can be uneven during
Sensitivity to the year especially inboth the short end scenarios where asset yields tied to Prime or LIBOR change immediately, while certain deposit rate changes take more time.
Sensitivity to increases in the shortand long end of the yield curve for NII and PPNR increased from December 31, 2016 due to higher forecasted health savings accounts and demand deposit balances.
Sensitivity to increases in the long end of the yield curve was more positive than December 31, 2016 in PPNR due to higher marketnet interest rates and the resultingincome decreased forecast prepayment speeds in the residential loan and investment portfolios. Sensitivity to decreases in the long end of the yield curve was less negative than at December 31, 2016 in PPNR2023, as compared to December 31, 2022, primarily due to decreased forecasted prepayment speedschanges in the residential loan and investment portfolios.
overall balance sheet composition.
The following table summarizes the estimated economic value of financial assets, financial liabilities, and off-balance sheet contracts at December 31, 2017 and December 31, 2016financial instruments and the projectedcorresponding estimated change toin economic valuesvalue if interest rates were to instantaneously increase or decrease by 100 basis points:points at December 31, 2023, and 2022:
| | | | | | | | | | | | Book Value | Estimated Economic Value | Estimated Economic Value Change |
| Book Value | Estimated Economic Value | Estimated Economic Value Change | |
|
(Dollars in thousands) | -100 bp | +100 bp |
At December 31, 2017 | |
(In thousands) | | (In thousands) | Book Value | Estimated Economic Value | -100bp | +100bp |
At December 31, 2023 | |
Assets | |
Assets | |
Assets | $ | 26,487,645 |
| $ | 25,971,043 |
| $ | 505,148 |
| $ | (631,744 | ) |
Liabilities | 23,785,687 |
| 22,509,322 |
| 729,967 |
| (624,789 | ) |
Net | $ | 2,701,958 |
| $ | 3,461,721 |
| $ | (224,819 | ) | $ | (6,955 | ) |
Net change as % base net economic value | | (0.2 | )% | Net change as % base net economic value | | | (7.7) | % | 5.0 | % |
| |
At December 31, 2016 | |
At December 31, 2022 | |
At December 31, 2022 | |
At December 31, 2022 | |
Assets | |
Assets | |
Assets | $ | 26,072,529 |
| $ | 25,527,648 |
| N/A | $ | (633,934 | ) |
Liabilities | 23,545,517 |
| 22,650,967 |
| N/A | (555,854 | ) |
Net | $ | 2,527,012 |
| $ | 2,876,681 |
| N/A | $ | (78,080 | ) |
Net change as % base net economic value | | (2.7 | )% | Net change as % base net economic value | | | (6.7)% | 3.9 | % |
Changes in economic value can best be best described using duration. Durationthrough duration, which is a measure of the price sensitivity of financial instruments for smalldue to changes in interest rates. For fixed-rate financial instruments, it can also be thought of as the weighted-average expected time to receive future cash flows. Forflows, whereas for floating-rate financial instruments, it can be thought of as the weighted-average expected time until the next rate reset. TheOverall, the longer the duration, the greater the price sensitivity for givendue to changes in interest rates. Generally, increases in interest rates reduce the economic value of fixed-rate financial assets as future discounted cash flows are worth less at higher interest rates. In a rising interest rate environment, the economic value of financial liabilities decreases for the same reason. A reduction in the economic value of financial liabilities is a benefit to the Company. Floating-rate financial instruments may have durations as short as one day, and therefore, may have very little price sensitivity due to changes in interest rates. Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in value of a liability is a benefit to Webster.
Duration gap isrepresents the difference between the duration of financial assets and the duration offinancial liabilities. A duration gap at or near zero implieswould imply that the balance sheet is matched, and therefore, would exhibit no or minimal changes (positive or negative)change in estimated economic value for a small changechanges in interest rates, however, larger rate movements typically result in a measurable level of price sensitivity. Webster'srates. At December 31, 2023, and 2022, the Company's duration gap was negative 0.91.1 years at December 31, 2017 when measured using 50 basis point changes in rates. At December 31, 2016, the duration gap was aand negative 0.4 years. During 2017 changes in long term market rates impacted forecast prepayment speeds in the residential loan and investment portfolios resulting in an extension of asset duration. Rising market rate shortened the duration of liabilities but the shortening was partially offset due to the growth of health savings accounts and demand deposits. Combining the two effects resulted in the narrowing of the duration gap in 2017. An increase of 100 basis points would result in a slightly positive duration gap.
1.4 years, respectively. A positivenegative duration gap implies that the duration of financial liabilities are shorteris longer than the duration of financial assets, and therefore, theyliabilities have lessmore price sensitivity than assets and will reset their interest rates faster than assets forat a small change inslower pace. Consequently, the Company's net estimated economic value would generally be expected to increase when interest rates leadingrise, as the benefit of the decreased value of financial liabilities would more than offset the decreased value of financial assets. The opposite would generally be expected to aoccur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise, and decrease when interest rates fall over the long term, absent the effects of any new business booked in the future.
These earnings and net economic value when rates rise.
These estimates are subject to factors that could cause actual results to differ, and also assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates. The earnings and economic values estimates are subject to factors that could cause actual results to differ. Management believes that Webster'sthe Company's interest rate risk position at December 31, 20172023, represents a reasonable level of risk given the current interest rate outlook. Management as always,continues to monitor interest rates and other relevant factors given recent market volatility and is prepared to act intake additional action, as necessary.
Critical Accounting Estimates
The preparation of the event that interest rates do change rapidly.
Impact of Inflation and Changing Prices
TheCompany's Consolidated Financial Statements, and related data presented herein have been preparedaccompanying notes thereto, in accordance with GAAP and practices generally applicable to the financial services industry, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. While management's estimates are made based on historical experience, current available information, and other factors that are deemed to be relevant, actual results could significantly differ from those estimates.
Accounting estimates are necessary in the application of certain accounting policies and can be susceptible to significant change in the near term. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on the Company's financial condition or results of operations. Management has identified that the Company's most critical accounting estimates are those related to the ACL on loans and leases and business combinations accounting policies. These accounting policies and their underlying estimates are discussed directly with the Audit Committee of the Board of Directors.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of expected lifetime credit losses within the Company's loan and lease portfolios at the balance sheet date. The calculation of expected credit losses is determined using predictive methods and models that follow a
PD, LGD, EAD, or loss rate framework, and include consideration of past events, current conditions, macroeconomic variables (i.e., unemployment, gross domestic product, property values, and interest rate spreads), and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Changes to the ACL on loans and leases, and therefore, to the related provision for credit losses, can materially affect financial results.
The determination of the appropriate level of ACL on loans and leases inherently involves a high degree of subjectivity and requires the measurementCompany to make significant estimates of financial positioncurrent credit risks and operating resultstrends using existing qualitative and quantitative information, and reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and material changes. Changes in termseconomic conditions affecting borrowers and macroeconomic variables that the Company is more susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans, identification of historical dollars without consideringadditional problem loans, the fair value of underlying collateral, and other factors, both within and outside the Company's control, may indicate the need for an increase or decrease in the ACL on loans and leases.
It is difficult to estimate the sensitivity of how potential changes in any one economic factor or input might affect the relative purchasing poweroverall reserve because a wide variety of money over time due to inflation.factors and inputs are considered in estimating the ACL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
Unlike most industrial companies, substantially allExecutive management reviews and advises on the adequacy of the ACL on loans and leases on a quarterly basis. Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for any of the loan and lease portfolios.
Additional information regarding the determination of the ACL on loans and leases, including the Company's valuation methodology, can be found in Part II under the section captioned "Allowance for Credit Losses on Loans and Leases" contained elsewhere in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and within Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data.
Business Combinations
The acquisition method of accounting generally requires that the identifiable assets acquired and liabilities assumed in business combinations are recorded at fair value as of a banking institution are monetary in nature. As a result, interest rates have a more significant impact on Webster's performance than the effectsacquisition date. The determination of general levelsfair value often involves the use of inflation. Interest rates do not necessarily moveinternal or third-party valuation techniques, such as discounted cash flow analyses or appraisals. Particularly, the valuation techniques used to estimate the fair value of loans and leases and the core deposit intangible asset acquired in the same direction orSterling merger include estimates related to discount rates, credit risk, and other relevant factors, which are inherently subjective. A description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed from the Sterling merger can be found within Note 2: Mergers and Acquisitions in the same magnitude as the price of goodsNotes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and services.Supplementary Data.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required information is set forth above,Information regarding quantitative and qualitative disclosures about market risk can be found in Part II under the section captioned "Asset/Liability Management and Market Risk" contained in Item 7, Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations, seeand within Note 17: Derivative Financial Instruments in the section captioned "Asset/Liability ManagementNotes to Consolidated Financial Statements contained in Item 8. Financial Statements and Market Risk,"Supplementary Data, which isare incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
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| Page No. |
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| Page No. |
Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets | |
Consolidated Statements of Income | |
Consolidated Statements of Comprehensive Income | |
Consolidated Statements of Shareholders'Stockholders' Equity | |
Consolidated Statements of Cash Flows | |
Notes to Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors
Webster Financial Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Webster Financial Corporation and subsidiaries (the "Company")Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, shareholders’stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes (collectively, the "consolidatedconsolidated financial statements")statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)("PCAOB") (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2018February 27, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for credit losses for certain commercial and consumer loans and leases evaluated on a collective basis
As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s total allowance for credit losses as of December 31, 2023 was $635.7 million, a portion of which related to the allowance for credit losses for certain commercial and consumer loans and leases evaluated on a collective basis (the Collective Allowance). The Collective Allowance includes the measure of expected credit losses on a collective (pooled) basis for those loans and leases with similar risk characteristics. The Company’s collectively assessed loans and leases are segmented based on product type and credit quality and expected losses are determined using models that follow a probability of default (PD), loss given default (LGD), exposure at default (EAD), or loss rate framework. The expected credit losses are calculated as the product of the Company’s estimate of PD, LGD, and individual loan level EAD. The Company’s PD and LGD calculations use predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, loan-level risk attributes and credit quality indicators. The Company’s models incorporate a single economic forecast scenario and macroeconomic variables over a reasonable and supportable forecast period. The development of the reasonable and supportable forecast assumes each macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start date and is complete within three to five years. Certain models use output reversion and revert to mean historical portfolio loss rates on a straight-line basis in the third year of the forecast. Other models incorporate a
reasonable and supportable forecast of various macroeconomic variables over the remaining life of the Company’s assets. A portion of the Collective Allowance is comprised of qualitative adjustments for risk characteristics that are not reflected or captured in the quantitative models but are likely to impact the measurement of expected credit losses.
We identified the assessment of the Collective Allowance as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the Collective Allowance methodology, including the methods and models used to estimate (1) the PD, LGD, EAD, and loss rate and their significant assumptions, including the single economic forecast scenario and macroeconomic variables and (2) qualitative adjustments and their significant assumptions not reflected in the PD, LGD, and loss rate models and EAD method. The assessment also included an evaluation of the conceptual soundness and performance of the PD, LGD, and loss rate models and EAD method. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the Collective Allowance estimate, including controls over the:
•evaluation of the Collective Allowance methodology;
•continued use and appropriateness of changes made to certain PD, LGD, and loss rate models and EAD method;
•identification and determination of the significant assumptions used in the PD, LGD, and loss rate models and EAD method;
•performance monitoring of certain PD, LGD, and loss rate models and EAD method;
•evaluation of qualitative adjustments, including the significant assumptions; and
•analysis of the Collective Allowance results, trends, and ratios.
We evaluated the Company’s process to develop the Collective Allowance estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s Collective Allowance methodology for compliance with U.S. generally accepted accounting principles;
•evaluating judgments made by the Company relative to the assessment and performance testing of the PD, LGD, and loss rate models and EAD method by comparing them to relevant Company-specific metrics and trends and the applicable industry practices;
•evaluating the selection of the economic forecast scenario and underlying macroeconomic variables by comparing them to the Company’s business environment and relevant industry practices; and
•evaluating the methodology and assumptions used to develop the qualitative factors and the effect of those factors on the Collective Allowance compared with credit trends and identified limitations of the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the Collective Allowance estimate by evaluating the cumulative results of the audit procedures and potential bias in the accounting estimate.
/s/ KPMG LLP (185)
We have served as the Company's auditor since 2013.
New York, New York
Hartford, Connecticut
March 1, 2018
February 27, 2024
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | | December 31, |
| December 31, | | | December 31, |
(In thousands, except share data) | 2017 | | 2016 | (In thousands, except share data) | 2023 | | 2022 |
Assets: | | | |
Cash and due from banks | $ | 231,158 |
| | $ | 190,663 |
|
Cash and due from banks | |
Cash and due from banks | |
Interest-bearing deposits | 25,628 |
| | 29,461 |
|
Securities available-for-sale, at fair value | 2,638,037 |
| | 2,991,091 |
|
Investment securities held-to-maturity (fair value of $4,456,350 and $4,125,125) | 4,487,392 |
| | 4,160,658 |
|
Investment securities available-for-sale, at fair value | |
| Investment securities held-to-maturity, net of allowance for credit losses of $209 and $182 | |
| Investment securities held-to-maturity, net of allowance for credit losses of $209 and $182 | |
| Investment securities held-to-maturity, net of allowance for credit losses of $209 and $182 | |
Federal Home Loan Bank and Federal Reserve Bank stock | 151,566 |
| | 194,646 |
|
Loans held for sale (valued under fair value option $20,888 and $60,260) | 20,888 |
| | 67,577 |
|
Loans held for sale ($2,610 and $1,991 valued under fair value option) | |
Loans and leases | 17,523,858 |
| | 17,026,588 |
|
Allowance for loan and lease losses | (199,994 | ) | | (194,320 | ) |
Allowance for credit losses on loan and leases | |
Loans and leases, net | 17,323,864 |
| | 16,832,268 |
|
Deferred tax assets, net | 92,630 |
| | 84,391 |
|
Premises and equipment, net | 130,001 |
| | 137,413 |
|
Goodwill | 538,373 |
| | 538,373 |
|
Other intangible assets, net | 29,611 |
| | 33,674 |
|
Cash surrender value of life insurance policies | 531,820 |
| | 517,852 |
|
Accrued interest receivable and other assets | 286,677 |
| | 294,462 |
|
Total assets | $ | 26,487,645 |
| | $ | 26,072,529 |
|
Liabilities and shareholders' equity: | | | |
Liabilities and stockholders' equity: | |
Deposits: | | | |
Deposits: | |
Deposits: | |
Non-interest-bearing | |
Non-interest-bearing | |
Non-interest-bearing | $ | 4,191,496 |
| | $ | 4,021,061 |
|
Interest-bearing | 16,802,233 |
| | 15,282,796 |
|
Total deposits | 20,993,729 |
| | 19,303,857 |
|
Securities sold under agreements to repurchase and other borrowings | 643,269 |
| | 949,526 |
|
Federal Home Loan Bank advances | 1,677,105 |
| | 2,842,908 |
|
Long-term debt | 225,767 |
| | 225,514 |
|
Accrued expenses and other liabilities | 245,817 |
| | 223,712 |
|
Total liabilities | 23,785,687 |
| | 23,545,517 |
|
Shareholders’ equity: | | | |
Preferred stock, $.01 par value: Authorized - 3,000,000 shares; | | | |
Series F issued and outstanding (6,000 shares at December 31, 2017) | 145,056 |
| | — |
|
Series E issued and outstanding (5,060 shares at December 31, 2016) | — |
| | 122,710 |
|
Common stock, $.01 par value: Authorized - 200,000,000 shares; | | | |
Issued (93,680,291 and 93,651,601 shares) | 937 |
| | 937 |
|
Stockholders’ equity: | |
Preferred stock, $0.01 par value: Authorized—3,000,000 shares; | |
Preferred stock, $0.01 par value: Authorized—3,000,000 shares; | |
Preferred stock, $0.01 par value: Authorized—3,000,000 shares; | |
Series F issued and outstanding—6,000 shares | |
Series F issued and outstanding—6,000 shares | |
Series F issued and outstanding—6,000 shares | |
Series G issued and outstanding—135,000 shares | |
Common stock, $0.01 par value: Authorized—400,000,000 shares; | |
Issued—182,778,045 shares | |
Issued—182,778,045 shares | |
Issued—182,778,045 shares | |
Paid-in capital | 1,122,164 |
| | 1,125,937 |
|
Retained earnings | 1,595,762 |
| | 1,425,320 |
|
Treasury stock, at cost (1,658,526 and 1,899,502 shares) | (70,430 | ) | | (70,899 | ) |
Accumulated other comprehensive loss, net of tax | (91,531 | ) | | (76,993 | ) |
Total shareholders' equity | 2,701,958 |
| | 2,527,012 |
|
Total liabilities and shareholders' equity | $ | 26,487,645 |
| | $ | 26,072,529 |
|
Treasury stock, at cost—10,756,089 and 8,770,472 shares | |
Accumulated other comprehensive (loss), net of tax | |
Total stockholders' equity | |
Total liabilities and stockholders' equity | |
See accompanying Notes to Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands, except per share data) | 2017 | | 2016 | | 2015 |
Interest Income: | | | | | |
Interest and fees on loans and leases | $ | 708,566 |
| | $ | 621,028 |
| | $ | 552,441 |
|
Taxable interest and dividends on securities | 181,131 |
| | 180,346 |
| | 190,061 |
|
Non-taxable interest on securities | 22,874 |
| | 19,090 |
| | 15,948 |
|
Loans held for sale | 1,034 |
| | 1,449 |
| | 1,590 |
|
Total interest income | 913,605 |
| | 821,913 |
| | 760,040 |
|
Interest Expense: | | | | | |
Deposits | 62,253 |
| | 49,858 |
| | 46,031 |
|
Securities sold under agreements to repurchase and other borrowings | 14,365 |
| | 14,528 |
| | 16,861 |
|
Federal Home Loan Bank advances | 30,320 |
| | 29,033 |
| | 22,858 |
|
Long-term debt | 10,380 |
| | 9,981 |
| | 9,665 |
|
Total interest expense | 117,318 |
| | 103,400 |
| | 95,415 |
|
Net interest income | 796,287 |
| | 718,513 |
| | 664,625 |
|
Provision for loan and lease losses | 40,900 |
| | 56,350 |
| | 49,300 |
|
Net interest income after provision for loan and lease losses | 755,387 |
| | 662,163 |
| | 615,325 |
|
Non-interest Income: | | | | | |
Deposit service fees | 151,137 |
| | 140,685 |
| | 135,057 |
|
Loan and lease related fees | 26,448 |
| | 26,581 |
| | 25,594 |
|
Wealth and investment services | 31,055 |
| | 28,962 |
| | 32,486 |
|
Mortgage banking activities | 9,937 |
| | 14,635 |
| | 7,795 |
|
Increase in cash surrender value of life insurance policies | 14,627 |
| | 14,759 |
| | 13,020 |
|
Gain on sale of investment securities, net | — |
| | 414 |
| | 609 |
|
Impairment loss on securities recognized in earnings | (126 | ) | | (149 | ) | | (110 | ) |
Other income | 26,400 |
| | 38,591 |
| | 23,326 |
|
Total non-interest income | 259,478 |
| | 264,478 |
| | 237,777 |
|
Non-interest Expense: | | | | | |
Compensation and benefits | 359,926 |
| | 332,127 |
| | 297,517 |
|
Occupancy | 60,490 |
| | 61,110 |
| | 48,836 |
|
Technology and equipment | 89,464 |
| | 79,882 |
| | 80,813 |
|
Intangible assets amortization | 4,062 |
| | 5,652 |
| | 6,340 |
|
Marketing | 17,421 |
| | 19,703 |
| | 16,053 |
|
Professional and outside services | 16,858 |
| | 14,801 |
| | 11,156 |
|
Deposit insurance | 25,649 |
| | 26,006 |
| | 24,042 |
|
Other expense | 87,205 |
| | 83,910 |
| | 70,584 |
|
Total non-interest expense | 661,075 |
| | 623,191 |
| | 555,341 |
|
Income before income tax expense | 353,790 |
| | 303,450 |
| | 297,761 |
|
Income tax expense | 98,351 |
| | 96,323 |
| | 93,032 |
|
Net income | 255,439 |
| | 207,127 |
| | 204,729 |
|
Preferred stock dividends and other | (8,608 | ) | | (8,704 | ) | | (9,368 | ) |
Earnings applicable to common shareholders | $ | 246,831 |
| | $ | 198,423 |
| | $ | 195,361 |
|
| | | | | |
Earnings per common share: | | | | | |
Basic | $ | 2.68 |
| | $ | 2.17 |
| | $ | 2.15 |
|
Diluted | 2.67 |
| | 2.16 |
| | 2.13 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
Interest income: | | | | | |
Interest and fees on loans and leases | $ | 3,071,378 | | | $ | 1,946,558 | | | $ | 762,713 | |
Taxable interest on investment securities | 396,681 | | | 269,233 | | | 155,902 | |
Non-taxable interest on investment securities | 54,207 | | | 50,442 | | | 20,884 | |
Loans held for sale | 734 | | | 78 | | | 246 | |
Other interest and dividends | 105,260 | | | 18,426 | | | 3,099 | |
Total interest income | 3,628,260 | | | 2,284,737 | | | 942,844 | |
Interest expense: | | | | | |
Deposits | 1,021,418 | | | 138,552 | | | 20,131 | |
Securities sold under agreements to repurchase and other borrowings | 9,102 | | | 19,059 | | | 3,040 | |
Federal Home Loan Bank advances | 222,537 | | | 58,557 | | | 1,708 | |
Long-term debt | 37,934 | | | 34,283 | | | 16,876 | |
Total interest expense | 1,290,991 | | | 250,451 | | | 41,755 | |
Net interest income | 2,337,269 | | | 2,034,286 | | | 901,089 | |
Provision (benefit) for credit losses | 150,747 | | | 280,619 | | | (54,500) | |
Net interest income after provision (benefit) for credit losses | 2,186,522 | | | 1,753,667 | | | 955,589 | |
Non-interest income: | | | | | |
Deposit service fees | 169,318 | | | 198,472 | | | 162,710 | |
Loan and lease related fees | 84,861 | | | 102,987 | | | 36,658 | |
Wealth and investment services | 28,999 | | | 40,277 | | | 39,586 | |
Mortgage banking activities | 1,240 | | | 705 | | | 6,219 | |
Cash surrender value of life insurance policies | 26,228 | | | 29,237 | | | 14,429 | |
(Loss) on sale of investment securities | (33,620) | | | (6,751) | | | — | |
Other income | 37,311 | | | 75,856 | | | 63,770 | |
Total non-interest income | 314,337 | | | 440,783 | | | 323,372 | |
Non-interest expense: | | | | | |
Compensation and benefits | 711,752 | | | 723,620 | | | 419,989 | |
Occupancy | 77,520 | | | 113,899 | | | 55,346 | |
Technology and equipment | 197,928 | | | 186,384 | | | 112,831 | |
Intangible assets amortization | 36,207 | | | 31,940 | | | 4,513 | |
Marketing | 18,622 | | | 16,438 | | | 12,051 | |
Professional and outside services | 107,497 | | | 117,530 | | | 47,235 | |
Deposit insurance | 98,081 | | | 26,574 | | | 15,794 | |
Other expense | 168,748 | | | 180,088 | | | 77,341 | |
Total non-interest expense | 1,416,355 | | | 1,396,473 | | | 745,100 | |
Income before income taxes | 1,084,504 | | | 797,977 | | | 533,861 | |
Income tax expense | 216,664 | | | 153,694 | | | 124,997 | |
Net income | 867,840 | | | 644,283 | | | 408,864 | |
Preferred stock dividends | (16,650) | | | (15,919) | | | (7,875) | |
Net income available to common stockholders | $ | 851,190 | | | $ | 628,364 | | | $ | 400,989 | |
| | | | | |
Earnings per common share: | | | | | |
Basic | $ | 4.91 | | | $ | 3.72 | | | $ | 4.43 | |
Diluted | 4.91 | | | 3.72 | | | 4.42 | |
See accompanying Notes to Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net income | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
Other comprehensive (loss) income, net of tax: | | | | | |
Total available-for-sale and transferred securities | (7,590 | ) | | (9,069 | ) | | (22,828 | ) |
Total derivative instruments | 4,565 |
| | 5,912 |
| | 2,550 |
|
Total defined benefit pension and postretirement benefit plans | 4,135 |
| | 4,270 |
| | (1,567 | ) |
Other comprehensive income (loss), net of tax | 1,110 |
| | 1,113 |
| | (21,845 | ) |
Comprehensive income | $ | 256,549 |
| | $ | 208,240 |
| | $ | 182,884 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Other comprehensive income (loss), net of tax: | | | | | |
Investment securities available-for-sale | 113,710 | | | (635,696) | | | (62,888) | |
Derivative instruments | 6,005 | | | (14,944) | | | (13,848) | |
Defined benefit pension and postretirement benefit plans | 14,674 | | | (11,740) | | | 11,900 | |
Other comprehensive income (loss), net of tax | 134,389 | | | (662,380) | | | (64,836) | |
Comprehensive income (loss) | $ | 1,002,229 | | | $ | (18,097) | | | $ | 344,028 | |
See accompanying Notes to Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’STOCKHOLDERS’ EQUITY
|
| | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | Preferred Stock | Common Stock | Paid-In Capital | Retained Earnings | Treasury Stock, at cost | Accumulated Other Comprehensive Loss, Net of Tax | Total Shareholders' Equity |
Balance at December 31, 2014 | $ | 151,649 |
| $ | 936 |
| $ | 1,127,534 |
| $ | 1,202,251 |
| $ | (103,294 | ) | $ | (56,261 | ) | $ | 2,322,815 |
|
Net income | — |
| — |
| — |
| 204,729 |
| — |
| — |
| 204,729 |
|
Other comprehensive loss, net of tax | — |
| — |
| — |
| — |
| — |
| (21,845 | ) | (21,845 | ) |
Dividends and dividend equivalents declared on common stock $0.89 per share | — |
| — |
| 119 |
| (81,316 | ) | — |
| — |
| (81,197 | ) |
Dividends on Series A preferred stock $21.25 per share | — |
| — |
| — |
| (615 | ) | — |
| — |
| (615 | ) |
Dividends on Series E preferred stock $1,600.00 per share | — |
| — |
| — |
| (8,096 | ) | — |
| — |
| (8,096 | ) |
Common stock issued | — |
| 1 |
| (1 | ) | — |
| — |
| — |
| — |
|
Preferred stock conversion | (28,939 | ) | — |
| (3,429 | ) | — |
| 32,368 |
| — |
| — |
|
Stock-based compensation, net of tax impact | — |
| — |
| 2,906 |
| (1,005 | ) | 11,046 |
| — |
| 12,947 |
|
Exercise of stock options | — |
| — |
| (2,781 | ) | — |
| 5,841 |
| — |
| 3,060 |
|
Common shares acquired related to stock compensation plan activity | — |
| — |
| — |
| — |
| (5,251 | ) | — |
| (5,251 | ) |
Common stock repurchase program | — |
| — |
| — |
| — |
| (12,564 | ) | — |
| (12,564 | ) |
Common stock warrants repurchased | — |
| — |
| (23 | ) | — |
| — |
| — |
| (23 | ) |
Balance at December 31, 2015 | 122,710 |
| 937 |
| 1,124,325 |
| 1,315,948 |
| (71,854 | ) | (78,106 | ) | 2,413,960 |
|
Net income | — |
| — |
| — |
| 207,127 |
| — |
| — |
| 207,127 |
|
Other comprehensive income, net of tax | — |
| — |
| — |
| — |
| — |
| 1,113 |
| 1,113 |
|
Dividends and dividend equivalents declared on common stock $0.98 per share | — |
| — |
| 149 |
| (90,062 | ) | — |
| — |
| (89,913 | ) |
Dividends on Series E preferred stock $1,600.00 per share | — |
| — |
| — |
| (8,096 | ) | — |
| — |
| (8,096 | ) |
Stock-based compensation, net of tax impact | — |
| — |
| 2,976 |
| 403 |
| 10,713 |
| — |
| 14,092 |
|
Exercise of stock options | — |
| — |
| (1,350 | ) | — |
| 13,112 |
| — |
| 11,762 |
|
Common shares acquired related to stock compensation plan activity | — |
| — |
| — |
| — |
| (11,664 | ) | — |
| (11,664 | ) |
Common stock repurchase program | — |
| — |
| — |
| — |
| (11,206 | ) | — |
| (11,206 | ) |
Common stock warrants repurchased | — |
| — |
| (163 | ) | — |
| — |
| — |
| (163 | ) |
Balance at December 31, 2016 | 122,710 |
| 937 |
| 1,125,937 |
| 1,425,320 |
| (70,899 | ) | (76,993 | ) | 2,527,012 |
|
Adoption of ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from AOCI | — |
| — |
| — |
| 15,648 |
| — |
| (15,648 | ) | — |
|
Net income | — |
| — |
| — |
| 255,439 |
| — |
| — |
| 255,439 |
|
Other comprehensive income, net of tax | — |
| — |
| — |
| — |
| — |
| 1,110 |
| 1,110 |
|
Dividends and dividend equivalents declared on common stock $1.03 per share | — |
| — |
| 168 |
| (95,097 | ) | — |
| — |
| (94,929 | ) |
Dividends on Series E preferred stock $1,600.00 per share | — |
| — |
| — |
| (8,096 | ) | — |
| — |
| (8,096 | ) |
Dividends accrued on Series F preferred stock | — |
| — |
| — |
| (88 | ) | — |
| — |
| (88 | ) |
Stock-based compensation, net of tax impact | — |
| — |
| — |
| 2,636 |
| 11,548 |
| — |
| 14,184 |
|
Exercise of stock options | — |
| — |
| (3,941 | ) | — |
| 12,200 |
| — |
| 8,259 |
|
Common shares acquired related to stock compensation plan activity | — |
| — |
| — |
| — |
| (11,694 | ) | — |
| (11,694 | ) |
Common stock repurchase program | — |
| — |
| — |
| — |
| (11,585 | ) | — |
| (11,585 | ) |
Redemption of Series E preferred stock | (122,710 | ) | — |
| — |
| — |
| — |
| — |
| (122,710 | ) |
Issuance of Series F preferred stock | 145,056 |
| — |
| — |
| — |
| — |
| — |
| 145,056 |
|
Balance at December 31, 2017 | $ | 145,056 |
| $ | 937 |
| $ | 1,122,164 |
| $ | 1,595,762 |
| $ | (70,430 | ) | $ | (91,531 | ) | $ | 2,701,958 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | Preferred Stock | Common Stock | Paid-In Capital | Retained Earnings | Treasury Stock, at cost | Accumulated Other Comprehensive Income (Loss), Net of Tax | Total Stockholders' Equity |
Balance at December 31, 2020 | $ | 145,037 | | $ | 937 | | $ | 1,109,532 | | $ | 2,077,522 | | $ | (140,659) | | $ | 42,256 | | $ | 3,234,625 | |
| | | | | | | |
Net income | — | | — | | — | | 408,864 | | — | | — | | 408,864 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (64,836) | | (64,836) | |
Common stock dividends and equivalents—$1.60 per share | — | | — | | — | | (145,223) | | — | | — | | (145,223) | |
Series F preferred stock dividends—$1,312.50 per share | — | | — | | — | | (7,875) | | — | | — | | (7,875) | |
| | | | | | | |
Stock-based compensation | — | | — | | 4,235 | | — | | 9,427 | | — | | 13,662 | |
Exercise of stock options | — | | — | | (5,173) | | | 8,665 | | — | | 3,492 | |
| | | | | | | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (4,384) | | — | | (4,384) | |
| | | | | | | |
| | | | | | | |
Balance at December 31, 2021 | 145,037 | | 937 | | 1,108,594 | | 2,333,288 | | (126,951) | | (22,580) | | 3,438,325 | |
| | | | | | | |
Net income | — | | — | | — | | 644,283 | | — | | — | | 644,283 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (662,380) | | (662,380) | |
Common stock dividends and equivalents—$1.60 per share | — | | — | | — | | (247,791) | | — | | — | | (247,791) | |
Series F preferred stock dividends—$1,312.50 per share | — | | — | | — | | (7,875) | | — | | — | | (7,875) | |
Series G preferred stock dividends—$65.00 per share | — | | — | | — | | (8,044) | | — | | — | | (8,044) | |
Issued in business combination | 138,942 | | 891 | | 5,040,291 | | — | | — | | — | | 5,180,124 | |
Common stock contribution to charitable foundation | — | | — | | (1,701) | | — | | 12,201 | | — | | 10,500 | |
Stock-based compensation | — | | — | | 26,748 | | — | | 27,351 | | — | | 54,099 | |
Exercise of stock options | — | | — | | (692) | | — | | 1,395 | | — | | 703 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (23,655) | | — | | (23,655) | |
Common stock repurchase program | — | | — | | — | | — | | (322,103) | | — | | (322,103) | |
Balance at December 31, 2022 | 283,979 | | 1,828 | | 6,173,240 | | 2,713,861 | | (431,762) | | (684,960) | | 8,056,186 | |
Adoption of ASU No. 2022-02 | — | | — | | — | | (4,245) | | — | | — | | (4,245) | |
Net income | — | | — | | — | | 867,840 | | — | | — | | 867,840 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | 134,389 | | 134,389 | |
Common stock dividends and equivalents—$1.60 per share | — | | — | | — | | (278,276) | | — | | — | | (278,276) | |
Series F preferred stock dividends—$1,312.50 per share | — | | — | | — | | (7,875) | | — | | — | | (7,875) | |
Series G preferred stock dividends—$65.00 per share | — | | — | | — | | (8,775) | | — | | — | | (8,775) | |
| | | | | | | |
| | | | | | | |
Stock-based compensation | — | | — | | 8,539 | | — | | 45,548 | | — | | 54,087 | |
Exercise of stock options | — | | — | | (2,026) | | — | | 3,749 | | — | | 1,723 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (16,278) | | — | | (16,278) | |
Common stock repurchase program | — | | — | | — | | — | | (108,780) | | — | | (108,780) | |
Balance at December 31, 2023 | $ | 283,979 | | $ | 1,828 | | $ | 6,179,753 | | $ | 3,282,530 | | $ | (507,523) | | $ | (550,571) | | $ | 8,689,996 | |
See accompanying Notes to Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Operating Activities: | | | | | |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Provision (benefit) for credit losses | 150,747 | | | 280,619 | | | (54,500) | |
Deferred income tax (benefit) | (53,634) | | | (69,664) | | | (4,998) | |
Stock-based compensation | 54,087 | | | 54,099 | | | 13,662 | |
Common stock contribution to charitable foundation | — | | | 10,500 | | | — | |
Depreciation and amortization of property and equipment and intangible assets | 76,490 | | | 81,800 | | | 35,913 | |
Net (accretion) and amortization of interest-earning assets and borrowings | (23,267) | | | (26,215) | | | 133,069 | |
Amortization of low-income housing tax credit investments | 71,775 | | | 44,208 | | | 3,918 | |
Amortization of mortgage servicing rights | 1,063 | | | 870 | | | 5,593 | |
Reduction of right-of-use lease assets | 30,616 | | | 56,783 | | | 22,781 | |
Net (gain) on sale, net of write-downs, of foreclosed properties and repossessed assets | (337) | | | (1,130) | | | (744) | |
Net loss (gain) on sale, net of write-downs, of property and equipment | 4,020 | | | 8,293 | | | (1,236) | |
Loss on sale of investment securities | 33,620 | | | 6,751 | | | — | |
| | | | | |
Originations of loans held for sale | (13,319) | | | (33,107) | | | (235,066) | |
Proceeds from sale of loans held for sale | 13,882 | | | 36,335 | | | 247,634 | |
Net (gain) on mortgage banking activities | (1,126) | | | (580) | | | (5,912) | |
Net (gain) on sale of loans not originated for sale | (860) | | | (3,322) | | | (3,862) | |
(Increase) in cash surrender value of life insurance policies | (26,228) | | | (29,237) | | | (14,429) | |
(Gain) from life insurance policies | (3,566) | | | (6,311) | | | (4,402) | |
Net (increase) decrease in derivative contract assets and liabilities | (73,295) | | | 536,820 | | | 173,506 | |
Net (increase) in accrued interest receivable and other assets | (13,774) | | | (106,740) | | | (69,263) | |
Net (decrease) increase in accrued expenses and other liabilities | (116,085) | | | (149,103) | | | 38,064 | |
Net cash provided by operating activities | 978,649 | | | 1,335,952 | | | 688,592 | |
Investing Activities: | | | | | |
Purchases of available-for-sale securities | (2,372,249) | | | (1,099,810) | | | (1,957,562) | |
Proceeds from principal payments, maturities, and calls of available-for-sale securities | 591,207 | | | 754,545 | | | 935,621 | |
Proceeds from sale of available-for-sale securities | 789,603 | | | 172,947 | | | — | |
Purchases of held-to-maturity securities | (891,761) | | | (1,150,023) | | | (1,968,133) | |
Proceeds from principal payments, maturities, and calls of held-to-maturity securities | 390,073 | | | 750,752 | | | 1,288,140 | |
Net decrease (increase) in Federal Home Loan Bank and Federal Reserve Bank stock | 119,018 | | | (223,562) | | | 5,758 | |
Alternative investments (capital calls), net of distributions | (27,430) | | | (24,887) | | | (11,361) | |
Net (increase) in loans | (1,653,257) | | | (7,501,545) | | | (773,443) | |
Proceeds from sale of loans not originated for sale | 625,968 | | | 679,693 | | | 82,187 | |
Proceeds from sale of foreclosed properties and repossessed assets | 4,033 | | | 2,568 | | | 1,998 | |
Proceeds from sale of property and equipment | 6,894 | | | 300 | | | 3,221 | |
Additions to property and equipment | (40,303) | | | (28,762) | | | (16,589) | |
Proceeds from life insurance policies | 20,098 | | | 21,893 | | | 5,074 | |
Net cash paid for acquisition of interLINK | (157,646) | | | — | | | — | |
Net cash paid for acquisition of Bend | — | | | (54,407) | | | — | |
Net cash received in merger with Sterling | — | | | 513,960 | | | — | |
Net cash (used for) investing activities | (2,595,752) | | | (7,186,338) | | | (2,405,089) | |
See accompanying Notes to Consolidated Financial Statements.
|
70
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Operating Activities: | | | | | |
Net income | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Provision for loan and lease losses | 40,900 |
| | 56,350 |
| | 49,300 |
|
Deferred tax (benefit) expense | (9,074 | ) | | 17,700 |
| | (15,513 | ) |
Depreciation and amortization | 37,172 |
| | 36,449 |
| | 34,678 |
|
Amortization of earning assets and funding premium/discount, net | 45,444 |
| | 57,331 |
| | 54,555 |
|
Stock-based compensation | 12,276 |
| | 11,438 |
| | 10,935 |
|
Gain on sale, net of write-down, on foreclosed and repossessed assets | (784 | ) | | (976 | ) | | (311 | ) |
(Gain on sale) write-down, net on premises and equipment | (15 | ) | | 397 |
| | (244 | ) |
Impairment loss on securities recognized in earnings | 126 |
| | 149 |
| | 110 |
|
Gain on the sale of investment securities, net | — |
| | (414 | ) | | (609 | ) |
Increase in cash surrender value of life insurance policies | (14,627 | ) | | (14,759 | ) | | (13,020 | ) |
Mortgage banking activities | (9,937 | ) | | (14,635 | ) | | (7,795 | ) |
Proceeds from sale of loans held for sale | 333,027 |
| | 438,925 |
| | 452,590 |
|
Originations of loans held for sale | (287,634 | ) | | (452,886 | ) | | (449,048 | ) |
Net decrease (increase) in derivative contract assets net of liabilities | 32,763 |
| | 27,929 |
| | (6,489 | ) |
Gain on redemption of other assets | — |
| | (7,331 | ) | | — |
|
Net (increase) decrease in accrued interest receivable and other assets | (19,790 | ) | | 54,269 |
| | (44,554 | ) |
Net increase (decrease) in accrued expenses and other liabilities | 29,680 |
| | (18,918 | ) | | 33,478 |
|
Net cash provided by operating activities | 444,966 |
| | 398,145 |
| | 302,792 |
|
Investing Activities: | | | | | |
Net decrease (increase) in interest-bearing deposits | 3,833 |
| | 126,446 |
| | (23,212 | ) |
Purchases of available-for-sale securities | (660,106 | ) | | (980,870 | ) | | (903,240 | ) |
Proceeds from maturities and principal payments of available-for-sale securities | 984,732 |
| | 672,965 |
| | 558,301 |
|
Proceeds from sales of available-for-sale securities | — |
| | 259,283 |
| | 123,270 |
|
Purchases of held-to-maturity securities | (1,043,278 | ) | | (1,066,156 | ) | | (761,033 | ) |
Proceeds from maturities and principal payments of held-to-maturity securities | 687,439 |
| | 795,953 |
| | 681,124 |
|
Net proceeds (purchase) of Federal Home Loan Bank stock | 43,080 |
| | (6,299 | ) | | 4,943 |
|
Alternative investments return of capital (capital call), net | 873 |
| | (381 | ) | | 458 |
|
Net increase in loans | (549,213 | ) | | (1,440,141 | ) | | (1,813,811 | ) |
Proceeds from loans not originated for sale | 14,679 |
| | 34,170 |
| | 33,644 |
|
Purchase of life insurance policies | — |
| | — |
| | (50,000 | ) |
Proceeds from life insurance policies | 746 |
| | — |
| | 3,912 |
|
Proceeds from the sale of foreclosed properties and repossessed assets | 7,603 |
| | 9,205 |
| | 10,511 |
|
Proceeds from the sale of premises and equipment | 3,357 |
| | 1,550 |
| | 650 |
|
Additions to premises and equipment | (28,546 | ) | | (40,731 | ) | | (36,115 | ) |
Proceeds from redemption of other assets
| 7,581 |
| | — |
| | — |
|
Acquisition of business, net cash acquired | — |
| | — |
| | 1,396,414 |
|
Net cash used for investing activities | (527,220 | ) | | (1,635,006 | ) | | (774,184 | ) |
|
See accompanying Notes to Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | | | |
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, continued |
|
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Financing Activities: | | | | | |
Net increase in deposits | 6,721,028 | | | 936,001 | | | 2,511,163 | |
Net (decrease) increase in Federal Home Loan Bank advances | (3,100,534) | | | 5,449,555 | | | (122,167) | |
| | | | | |
Proceeds from extinguishment of borrowings | — | | | 2,548 | | | — | |
Net increase (decrease) in securities sold under agreements to repurchase and other borrowings | (693,443) | | | 447,202 | | | (320,459) | |
Repayment of long-term debt | (16,752) | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Dividends paid to common stockholders | (278,155) | | | (247,767) | | | (144,807) | |
Dividends paid to preferred stockholders | (16,650) | | | (13,725) | | | (7,875) | |
Exercise of stock options | 1,723 | | | 703 | | | 3,492 | |
Common stock repurchase program | (107,984) | | | (322,103) | | | — | |
Common shares acquired related to stock compensation plan activity | (16,278) | | | (23,655) | | | (4,384) | |
Net cash provided by financing activities | 2,492,955 | | | 6,228,759 | | | 1,914,963 | |
Net increase in cash and cash equivalents | 875,852 | | | 378,373 | | | 198,466 | |
Cash and cash equivalents, beginning of period | 839,943 | | | 461,570 | | | 263,104 | |
Cash and cash equivalents, end of period | $ | 1,715,795 | | | $ | 839,943 | | | $ | 461,570 | |
| | | | | |
Supplemental disclosure of cash flow information: | | | | | |
Interest paid | $ | 1,248,620 | | | $ | 240,851 | | | $ | 42,151 | |
Income taxes paid | 268,598 | | | 193,544 | | | 112,587 | |
Non-cash investing and financing activities: | | | | | |
Transfer of loans and leases to foreclosed properties and repossessed assets | $ | 10,485 | | | $ | 774 | | | $ | 1,757 | |
Transfer of returned finance lease equipment to assets held for sale | 5,139 | | | — | | | — | |
Transfer of loans to loans held for sale | 629,172 | | | 652,855 | | | 78,316 | |
| | | | | |
Deposits assumed | — | | | 313 | | | — | |
Merger with Sterling: (1) | | | | | |
Tangible assets acquired | 17,607 | | | 26,922,010 | | | — | |
Goodwill and other intangible assets | (25,561) | | | 2,149,865 | | | — | |
Liabilities assumed | (7,954) | | | 24,405,711 | | | — | |
Common stock issued | — | | | 5,041,182 | | | — | |
Preferred stock exchanged | — | | | 138,942 | | | — | |
Acquisition of Bend: (1) | | | | | |
Tangible assets acquired | 294 | | | 15,731 | | | — | |
Goodwill and other intangible assets | (294) | | | 38,966 | | | — | |
Liabilities assumed | — | | | 290 | | | — | |
Acquisition of interLINK: | | | | | |
Tangible assets acquired | 6,417 | | | — | | | — | |
Goodwill and other intangible assets | 183,216 | | | — | | | — | |
Liabilities assumed | 15,948 | | | — | | | — | |
Contingent consideration | 16,039 | | | — | | | — | |
|
| | | | | | | | | | | |
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, continued |
|
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Financing Activities: | | | | | |
Net increase in deposits | 1,690,197 |
| | 1,351,609 |
| | 853,921 |
|
Contingent consideration | — |
| | 5,000 |
| | — |
|
Proceeds from Federal Home Loan Bank advances | 12,255,000 |
| | 19,630,000 |
| | 13,505,000 |
|
Repayments of Federal Home Loan Bank advances | (13,420,791 | ) | | (19,451,219 | ) | | (13,700,279 | ) |
Net decrease in securities sold under agreements to repurchase and other borrowings | (306,257 | ) | | (201,874 | ) | | (99,356 | ) |
Redemption of Series E preferred stock | (122,710 | ) | | — |
| | — |
|
Issuance of Series F preferred stock | 145,056 |
| | — |
| | — |
|
Dividends paid to common shareholders | (94,630 | ) | | (89,522 | ) | | (80,964 | ) |
Dividends paid to preferred shareholders | (8,096 | ) | | (8,096 | ) | | (8,711 | ) |
Exercise of stock options | 8,259 |
| | 11,762 |
| | 3,060 |
|
Excess tax benefits from stock-based compensation | — |
| | 3,204 |
| | 2,338 |
|
Common stock repurchase program | (11,585 | ) | | (11,206 | ) | | (12,564 | ) |
Common shares acquired related to stock compensation plan activity | (11,694 | ) | | (11,664 | ) | | (5,251 | ) |
Common stock warrants repurchased | — |
| | (163 | ) | | (23 | ) |
Net cash provided by financing activities | 122,749 |
| | 1,227,831 |
| | 457,171 |
|
Net increase (decrease) in cash and due from banks | 40,495 |
| | (9,030 | ) | | (14,221 | ) |
Cash and due from banks at beginning of period | 190,663 |
| | 199,693 |
| | 213,914 |
|
Cash and due from banks at end of period | $ | 231,158 |
| | $ | 190,663 |
| | $ | 199,693 |
|
| | | | | |
Supplemental disclosure of cash flow information: | | | | | |
Interest paid | $ | 114,046 |
| | $ | 102,438 |
| | $ | 95,428 |
|
Income taxes paid | 109,059 |
| | 80,143 |
| | 106,991 |
|
Noncash investing and financing activities: | | | | | |
Transfer of loans and leases to foreclosed properties and repossessed assets | $ | 8,972 |
| | $ | 6,769 |
| | $ | 8,714 |
|
Transfer of loans from portfolio to loans held for sale | 7,234 |
| | 39,383 |
| | 585 |
|
Deposits assumed in business acquisition | — |
| | — |
| | 1,446,899 |
|
Preferred stock conversion | — |
| | — |
| | 28,939 |
|
(1)The non-cash merger and acquisition activities presented for 2023 reflect adjustments recorded within the one-year measurement period, which were identified as a result of extended information gathering and new information that arose from integration activities during the first quarter of 2023. Additional information regarding these amounts can be found within Note 2: Mergers and Acquisitions and Note 8: Goodwill and Other Intangible Assets.See accompanying Notes to Consolidated Financial Statements.
Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation is a bank holding company and financial holding company under the Bank Holding CompanyBHC Act, incorporated under the laws of Delaware in 1986, and headquartered in Waterbury,Stamford, Connecticut. At December 31, 2017, Webster Financial Corporation's principal assetBank, and its HSA Bank Division, is alla leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking. While its core footprint spans the outstanding capital stock of Webster Bank.
Webster delivers financial services to individuals, families, and businesses primarily within its regional footprintnortheastern U.S. from New York to Massachusetts. Webster provides business and consumer banking, mortgage lending, financial planning, trust, and investment services through banking offices, ATMs, mobile banking and its internet website (www.websterbank.com or www.wbst.com). Webster also offers equipment financing, commercial real estate lending, and asset-based lending primarily across the Northeast. On a nationwide basis, through itsMassachusetts, certain businesses operate in extended geographies. HSA Bank division, Webster Bank offers and administers health savings accounts, flexible spending accounts, health reimbursement accounts, and commuter benefits.is one of the largest providers of employee benefits solutions in the U.S.
Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with GAAP, and the accompanying Notes thereto include the accounts of Webster Financial Corporationthe Company and all other entities in which itthe Company has a controlling financial interest. Intercompany accountstransactions and transactionsbalances have been eliminated in consolidation. Webster's accounting and financial reporting policies conform, in all material respects, to GAAP and to general practices within the financial services industry.
Assets under administration or assets under management that the Company holds or manages in a fiduciary or agency capacity for customers typically referred to as assets under administration or assets under management are not included inon the accompanying Consolidated Balance Sheets since those assets are not Webster's, and the Company is not the primary beneficiary.
Sheets. Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effectdid not have a significant impact on net income, comprehensive income, total assets, total liabilities, total shareholders' equity, net cash provided by operating activities,the Company's Consolidated Financial Statements.
Principles of Consolidation
The purpose of Consolidated Financial Statements is to present the results of operations and net cash usedthe financial position of the Company and its subsidiaries as if the consolidated group were a single economic entity. In accordance with the applicable accounting guidance for investing activities.
Variable Interest Entities
A variableconsolidations, the Consolidated Financial Statements include any VOE in which the Company has a controlling financial interest and any VIE for which the Company is deemed to be the primary beneficiary. The Company generally consolidates its VOEs if the Company, directly or indirectly, owns more than 50% of the outstanding voting shares of the entity, (VIE) is an entity that has either a total equity investment that is insufficient to finance its activities without additional subordinated financial supportand if the non-controlling stockholders do not hold any substantive participating or whose equity investors lack the ability to control the entity’s activities or lack the ability to receive expected benefits or absorb obligations in a manner that’s consistent with their investment in the entity.controlling rights. The Company evaluates each VIEVIEs to understand the purpose and design of the entity, and its involvement in the ongoing activities of the VIE.
The CompanyVIE, and will consolidate the VIE if it has:
has (i) the power to direct the activities of the VIE that most significantly affect the VIE's economic performance;performance, and
(ii) an obligation to absorb losses of the VIE, or the right to receive benefits from the VIE, that could potentially be significant to the VIE.
See The Company accounts for unconsolidated partnerships and certain other investments using the equity method of accounting if it has the ability to significantly influence the operating and financial policies of the investee. This is generally presumed to exist when the Company owns between 20% and 50% of a corporation, or when it has greater than 3% to 5% interest in a limited partnership or similarly structured entity. Additional information regarding consolidated and non-consolidated VIEs can be found within Note 2:15: Variable Interest Entities for further information.Entities.
Use of Estimates
The preparation of financial statementsthe Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities asand the disclosure of contingent assets and liabilities at the date of the financial statements as well as incomeConsolidated Financial Statements, and expensethe reported amounts of revenues and expenses during the reporting period. The allowance for loan and lease losses, the fair value measurements for valuation of investments and other financial instruments, evaluation of investments for OTTI, valuation of goodwill and other intangible assets, and assessing the realizability of deferred tax assets and the measurement of uncertain tax position, as well as the status of contingencies, are particularly subject to change. Actual results could differ from those estimates.
Business Combinations
Business combinations are accounted for under the acquisition method, in which the identifiable assets acquired and liabilities assumed are generally measured and recognized at fair value as of the acquisition date, with the excess of the purchase price over the fair value of the net assets acquired recognized as goodwill. Items such as acquired ROU lease assets and operating lease liabilities as lessee, employee benefit plans, and income-tax related balances are recognized in accordance with other applicable GAAP, which may result in measurements that differ from fair value. After the adoption of ASU No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, contract assets and contract liabilities from contracts with customers discussed below, may result in measurements that differ from fair value as well.
Business combinations are included in the Consolidated Financial Statements from the respective dates of acquisition. Historical reporting periods reflect only the results of legacy Webster operations. Merger-related costs are expensed in the period incurred and presented within the applicable non-interest expense category. Additional information regarding the Company's mergers and acquisitions can be found within Note 2: Mergers and Acquisitions.
Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash and due from banks and interest-bearing deposits. Cash equivalents have aan original maturity of three months or less.
Cash and due from banks.banks Cash equivalents, includingincludes cash on hand, certain cash due from banks, and deposits at the FRB, of Boston,and cash due from banks. Restricted cash related to Federal Reserve System requirements and cash collateral received on derivative positions are referenced as cashalso included in Cash and due from banks in the accompanying Consolidated Balance Sheets and Consolidated Statements of Cash Flows.banks.
Interest-bearing deposits. depositsCash equivalents, primarily representing includes deposits at the FRB of Boston in excess of reserve requirements, if any, and federal funds sold which essentially represent uncollateralized loans to other financial institutions,institutions.
Investments in Debt Securities
Debt security transactions are referenced as interest-bearing depositsrecognized on the trade date, which is the date the order to buy or sell the security is executed. Investments in the accompanying Consolidated Balance Sheets and Consolidated Statements of Cash Flows. The Company regularly evaluates the credit risk associated with those financial institutions to assess that Webster is not exposed to any significant credit risk on cash equivalents.
Investment Securities
Investmentdebt securities are classified as available-for-sale or held-to-maturity at the time of purchase. Any classification change subsequent to the trade date is reviewed for compliance with corporate objectives and accounting policy. policies.
Debt securities classified as available-for-sale are recorded at fair value with unrealized gains and losses recorded as a component of (AOCL). If a debt security is transferred from available-for-sale to held-to-maturity, it is recorded at fair value at the time of transfer and any respective gain or loss would be recorded as a separate component of (AOCL) and amortized as an adjustment to interest income over the remaining life of the security. Debt securities classified as available-for-sale are reviewed for credit losses when the fair value of a security falls below the amortized cost basis and the decline is evaluated to determine if any portion is attributable to credit loss. The decline in fair value attributable to credit loss is recorded directly to earnings, with a corresponding allowance for credit loss, limited to the amount that fair value is less than the amortized cost. If the credit quality subsequently improves, previously recorded allowance amounts may be reversed. An available-for-sale debt security will be placed on non-accrual status if collection of principal and interest in accordance with contractual terms is doubtful. When the Company intends to sell an impaired available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovery of the amortized cost basis, the entire fair value adjustment will immediately be recognized in earnings through non-interest income. The gain or loss on sale is calculated using the carrying value plus any related (AOCL) balance associated with the securities sold.
Debt securities classified as held-to-maturity are those in which Websterthe Company has the ability and intent to hold to maturity. SecuritiesDebt securities classified as held-to-maturity are recorded at amortized cost net of unamortized premiums and discounts. Discount accretion income and premium amortization expense are recognized as interest income according to a constant yield methodology,using the effective interest method, with consideration given to prepayment assumptions on mortgage backedmortgage-backed securities. SecuritiesPremiums are amortized to the earliest call date for debt securities purchased at a premium, with explicit, non-contingent call features and are callable at a fixed price and preset date. Debt securities classified as held-to-maturity are reviewed for credit losses under the CECL model with an allowance recorded on the balance sheet for expected lifetime credit losses. The ACL is calculated on a pooled basis using statistical models which include forecasted scenarios of future economic conditions. Forecasts revert to long-run loss rates implicitly through the economic scenario, generally over three years. If the risk for a particular security no longer matches the collective assessment pool, it is removed and individually assessed for credit deterioration. The non-accrual policy for held-to-maturity debt securities is the same as for available-for-sale debt securities.
A zero credit loss assumption is maintained for U.S. Treasuries and agency-backed securities in both the available-for-sale and held-to-maturity portfolios, as applicable. This assumption is subject to quarterly review to ensure it remains appropriate. Additional information regarding investments in debt securities can be found within Note 3: Investment Securities.
Investments in Equity Securities
The Company’s accounting treatment for non-consolidated equity investments differs for those with and without readily determinable fair values. Equity investments with readily determinable fair values are recorded at fair value with unrealized gains and losses recorded as a component of other comprehensive income (OCI)/other comprehensive loss (OCL). Securities transferred from available-for-sale to held-to-maturity are recorded atchanges in fair value recorded in non-interest income. For equity investments without readily determinable fair values, the Company elected the measurement alternative, and therefore carries these investments at cost, less impairment, if any, plus or minus changes in observable prices. Certain equity investments that do not have a readily available fair value may qualify for NAV measurement based on specific requirements. The Company's alternative investments accounted for at NAV consist of investments in non-public entities that generally cannot be redeemed since the time of transfer, andCompany’s investments are distributed as the respective gain or lossunderlying equity is recorded as a separate component of OCI/OCL and amortized as an adjustment to interest income over the remaining life of the security.
Securities classified as available-for-sale or held-to-maturity and in an unrealized loss position are evaluated for OTTI onliquidated. On a quarterly basis. The evaluation considers several qualitative factors, includingbasis, the period of time the security has been in a loss position, and the amount of the unrealized loss.Company reviews its equity investments without readily determinable fair values for impairment. If the Company intends to sell the security or it is more likely than not the Company will be required to sell the security prior to recovery of its amortized cost basis, the security is written down to fair value, and the loss is recognized in non-interest income in the accompanying Consolidated Statements of Income. If the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security prior to recovery of its amortized cost basis, only the credit component of the unrealized loss is recorded as an impairment charge to a debt security and recognized as a loss. The remaining loss component would be recorded to accumulated other comprehensive loss, net of tax (AOCL) in the accompanying Consolidated Balance Sheets. The entire amount of an unrealized loss position of an equity security thatinvestment is considered OTTI is recorded asimpaired, an impairment loss equal to the amount by which the carrying value exceeds its fair value is recorded through a charge to earnings. The impairment loss may be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at a higher amount than the carrying amount that was established when the impairment was recognized. Impairments, as well as upward or downward adjustments resulting from observable price changes in orderly transactions for identical or similar investments, are included in non-interest incomeincome.
Equity investments in entities that finance affordable housing and other community development projects provide a return primarily through the accompanying Consolidated Statementsrealization of Income.tax benefits. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.
The specific identification method is used to determine realized gains and losses on sales of securities. See Note 3: Investment Securities for further information.
in Federal Home Loan Bank and Federal Reserve Bank Stock
WebsterThe Bank is a member of the FHLB and the Federal Reserve System, and is required to maintain an investment in capital stock of both the FHLB of Boston and FRB of Boston.FRB. Based on redemption provisions, the stock of both the FHLB and the FRB stock has no quoted market value and is carried at cost. Membership stock is reviewed for impairment asif economic circumstances would warrant special review.
Loans Held for Sale
Effective January 1, 2016, on a loan by loan election, residential mortgage loansLoans that are classified as held for sale at the time of origination are accounted for under either the fair value option method of accounting or the lower of cost or fair value method of accounting with the election being made at the time the asset is first recognized. The Company has elected the fair value option to mitigate accounting mismatches between held for sale derivative commitments and loan valuations. Prior to January 1, 2016,residential mortgage loans that were classified as held for sale were accounted for at the lower of cost or fair value method of accounting and were valued on an individual asset basis.
option. Loans not originated for sale but subsequently transferred to held for sale continue to beare valued at the lower of cost or fair value method of accounting and are valued on an individual asset basis. Any cost amount in excess of fair value is recorded as a valuation allowance and recognized as a reduction of other income in the Consolidated Statements of Income.
non-interest income. Gains or losses on the sale of loans held for sale are recorded either as mortgagepart of Mortgage banking activities.activities or Other income on the accompanying Consolidated Statements of Income. Cash flows from the sale of loans made by the Company that were acquired specificallyoriginated for resalesale are presented as operating cash flows. All otherwithin Operating activities on the accompanying Consolidated Statements of Cash Flows, whereas cash flows from the sale of loans that were originated for investment and then subsequently transferred to held for sale are presented as investing cash flows. Seewithin Investing activities. Additional information regarding mortgage banking activities and loans sold can be found within Note 5: Transfers and Servicing of Financial Assets for further information.
Assets.
Transfers and Servicing of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.Control over transferred assets is generally considered to have been surrendered when: (i) the transferred assets are legally isolated from the Company or its consolidated affiliates, even in bankruptcy or other receivership;receivership, (ii) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company;Company, and (iii) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets.
The Company sells financial assets in the normal course of business, the majority of which are residential mortgage loan sales primarily to government-sponsored enterprises through established programs, as well as commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. With the exception of servicing, and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal, and generally is limited to market customary representation and warranty clauses covering certain characteristics of the mortgage loans that were sold, and the Company's origination process. The gain or loss on sale depends on the previous carrying amount of the transferred financial assets, the consideration received, and any other assets obtained or liabilities incurred in exchange for the transferred assets.
When the Company sells financial assets, it may retain servicing rights and/or other interests in the financial assets. Servicing assets and any other interests held by the Company are recorded at fair value upon transfer, and thereafter aresubsequently carried at the lower of cost or fair value. SeeAdditional information regarding transfers of financial assets and mortgage servicing assets can be found within Note 5: Transfers and Servicing of Financial Assets for further information.Assets.
Loans and Leases
Loans and leases are stated at the principal amount outstanding, net of amounts charged off, unearned income,charged-off, unamortized premiums and discounts, and deferred loan and lease fees/fees or costs, which are recognized as yield adjustments in interest income using the effective interest method. These yield adjustments are amortized over the contractual life of the related loans and leases and are adjusted for prepayments, whenas applicable. Interest on loans and leases is credited to interest income as earned based on the interest rate applied to principal amounts outstanding. Prepayment fees are recognized in non-interest income. Cash flows fromAmounts of cash receipts and cash payments for loans and leases are presented as investing cash flows.net within Investing activities on the Consolidated Statements of Cash Flows.
Non-accrual Loans
Loans and leases are placed on non-accrual status when full collection of principal and interest in accordance with contractual terms is doubtful,not expected based on available information, which generally occurs when principal or interest payments become 90 days delinquent unless the loan or lease is well secured and in the process of collection, or sooner if management concludes circumstances indicate that the borrower may be unable to meet contractual principal or interest payments. ResidentialThe Company considers a loan to be “well-secured” when it is secured by collateral in the form of liens on or pledges of real estate loans, excluding loans fully insured against loss andor personal property that have a realizable value sufficient to discharge the debt in full, or when it is secured by a contractual guarantee of a financially responsible party. The Company considers a loan “in the process of collection” if collection and consumer loans are placed on non-accrual status at 90 days past due, or at the date when the Company is notified that the borrower is discharged in bankruptcy. A charge-off for the balance in excess of the fair valuedebt is proceeding in due course either through legal action or through collection efforts not involving legal action that are reasonably expected to result in repayment of the collateral less costdebt or in its restoration to sell, is recorded at 180 days if the loan balance exceeds the fair value of the collateral less costs to sell. Residential loans that are more than 90 days past due, fully insured against loss, anda current status in the processnear future.
When loans and leases are placed on non-accrual status, the accrual of interest income and the amortization or accretion of premiums, discounts, and deferred fees and costs is discontinued, and any unpaidpreviously accrued interest is reversed and charged againstas a reduction of interest income. If ultimateFor commercial loans and leases, if the Company determines that repayment of a non-accrual loan or lease is expected, any payments received are applied in accordance with contractual terms. If ultimate repaymentloans and leases is not expected, on commercial, commercial real estate, and equipment finance loans and leases, any payment received on a non-accrual loan or lease is applied to principal until the unpaid balance has been fully recovered. Any excess is then credited to interest income when received. Ifincome. For consumer loans, if the Company determines through a current valuation analysis, that principal can be repaid, on residential real estate and consumer loans, interest payments may beare taken into income as received on a cash basis. Except for loans discharged under Chapter 7 of the U.S. bankruptcy code, loans
Loans are generally removed from non-accrual status when they become current as to principal and interest or demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For commercial loans, a sustained period of repayment performance is generally required. Pursuant to regulatory guidance, a loan discharged under Chapter 7 dischargedof the U.S. bankruptcy loancode is removed from non-accrual status when the bank expects full repayment of the remaining pre-discharged contractual principal and interest the loan is a closed-end amortizing loan, it is fully collateralized,expected, and post-discharge the loan hadthere have been at least six consecutive months of current payments. SeeAdditional information regarding non-accrual loans and leases can be found within Note 4: Loans and Leases for further information.Leases.
Allowance for LoanCredit Losses on Loans and Lease LossesLeases
The ALLLACL on loans and leases, which is a reserve established through a provision for loan and lease losses charged to expense, is a contra-asset account that offsets the amortized cost basis of loans and represents management’s best estimate of probableleases for the credit losses that may be incurred withinare expected to occur over the existing loan and lease portfolio aslife of the balance sheet date. The level of the allowance reflects management’s view of trends in losses, current portfolio quality,asset. Executive management reviews and present economic, political, and regulatory conditions. The ALLL may be allocated for specific portfolio segments; however, the entire allowance balance is
available to absorb credit losses inherent in the total loan and lease portfolio. A charge-off is recorded when all or a portion of the loan or lease is deemed to be uncollectible. Back-testing is performed to compare original estimated losses and actual observed losses, resulting in ongoing refinements. While management utilizes its best judgment basedadvises on the information available at the time, the ultimate adequacy of the allowance, which is dependent uponmaintained at a varietylevel that management deems to be sufficient to cover expected credit losses within the loan and lease portfolios. The Company has elected to present accrued interest receivable separately from the amortized cost basis of factors that are beyondLoans and leases on the Company’s control,accompanying Consolidated Balance Sheets. An ACL on accrued interest for a loan is not measured as accrued interest income is reversed against interest income for non-accrual loans immediately after their non-accrual classification.
The ACL on loans and leases is determined using the CECL model, whereby an expected lifetime credit loss is recognized at the origination or purchase of an asset, including those acquired through a business combination, which includeis then reassessed at each reporting date over the performancecontractual life of the Company’s portfolio,asset. The calculation of expected credit losses includes consideration of past events, current conditions, and reasonable and supportable economic conditions, interest rate sensitivity, and other external factors.
The ALLL consistsforecasts that affect the collectability of the following three elements: (i) specific valuation allowances established for probablereported amounts. Generally, expected credit losses on impaired loans and leases; (ii) quantitative valuation allowances calculated using loss experience for likeare determined through a pooled, collective assessment of loans and leases with similar risk characteristics. However, if the risk characteristics of a loan or lease change such that it no longer matches that of the collectively assessed pool, it is removed from the population and trends, adjusted,individually assessed for credit losses. The total ACL on loans and leases recorded by management represents the aggregated estimated credit loss determined through both the collective and individual assessments.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on product type and credit quality, and expected losses are determined using a PD, LGD, EAD, or loss rate framework. For portfolios using the PD, LGD, and EAD framework, expected credit losses are calculated as necessary,the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. The Company’s PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, loan-level risk attributes, and credit quality indicators. The calculation of EAD follows an iterative process to reflectdetermine the expected remaining principal balance of a loan based on historical paydown rates for loans of a similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses, the loan's amortization schedule, and prepayment rates. Under the loss rate framework, expected credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date. For each loan segment identified, management applies an expected historical loss trend based on third-party loss estimates, and correlates them to observed economic metrics, and reasonable and supportable forecasts of economic conditions.
The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. The development of the reasonable and supportable forecast period assumes that each macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start date and is complete within three to five years. Certain models use output reversion and revert to mean historical loss rates on a straight-line basis in the third year of the forecast. Other models incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the Company's assets. Historical loss rates are based on approximately 10 years of recently available data and are updated annually.
Macroeconomic variables are used as inputs to the loss models and are selected based on the correlation of the variables to credit losses for each class of financing receivable as follows: the commercial models use unemployment, gross domestic product, commercial real estate price indices, and retail sales (for commercial unfunded); the residential model uses the Case-Shiller Home Price Index; the home equity loan and line of credit models use interest rate spreads between U.S. Treasuries and corporate bonds and, in addition, the home equity loan model also uses the Federal Housing Finance Agency Home Price Index; and the personal loan and credit line models use the Case-Shiller Home Price Index and Federal Housing Finance Agency Home Price Index. Forecasted economic scenarios are sourced from a third party. Data from the baseline forecast scenario is used as the input to the modeled loss calculation. Changes in forecasts of macroeconomic variables will impact expectations of lifetime credit losses calculated by the loss models. However, the impact of current conditions;changes in macroeconomic forecasts may be different for each portfolio and (iii)will reflect the credit quality and nature of the underlying assets at that time.
A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics that are not reflected or captured in the quantitative models, but are likely to impact the measurement of estimated credit losses. Qualitative factors determinedare based on general economic conditionsmanagement's judgement of the Company, market, industry, or business specific data including loan trends, portfolio segment composition, and other factors thatloan rating or credit scores. Qualitative adjustments may be internal or externalapplied in relation to economic forecasts when relevant facts and circumstances are expected to impact credit losses, particularly in times of significant volatility in economic activity.
In addition to the Company.above considerations, the ACL calculation includes expectations of prepayments and recoveries. Extensions, renewals, and modifications are not included in the collective assessment.
Individually Assessed Loans and leases are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated on a pooled basis for smaller-balance homogeneous residential, consumer loans and small business loans. Commercial, commercial real estate, and equipment financingLeases. When loans and leases over a specific dollar amount and all TDR are evaluated individually for impairment. A loan identified as a TDR is considered an impaired loan forno longer match the entire termrisk characteristics of the loan,collectively assessed pool, they are removed from the collectively assessed population and individually assessed for credit losses. Generally, all non-accrual loans and loans with few exceptions.a charge-off are individually assessed.
Individual assessment for commercial loans that are considered to be collateral dependent is based on the fair value of the collateral less estimated cost to sell, the present value of the expected cash flows from the operation of the collateral, or a scenario weighted approach of both of these methods. If a loan is impaired,not collateral dependent, the individual assessment is based on a specificdiscounted cash flow approach. For collateral dependent commercial loans and leases, the Company's process requires the Company to determine the fair value of the collateral by obtaining a third-party appraisal or asset valuation, allowance may be established,an interim valuation analysis, blue book reference, or other internal methods. Fair value of the collateral for commercial loans is reevaluated quarterly. Whenever the Company has a third-party real estate appraisal performed by independent licensed appraisers, a licensed in-house appraisal officer or qualified individual reviews these appraisals for compliance with the Financial Institutions Reform Recovery and Enforcement Act and the loan is reported net, at the present valueUniform Standards of estimated futureProfessional Appraisal Practice.
Individual assessments for residential and home equity loans are based on a discounted cash flows using the loan’s original interest rateflow approach or at the fair value of collateral less costthe estimated costs to sell if repayment is expected from collateral liquidation. Interest payments on non-accruing impairedsell. Other consumer loans are typically applied to principal unless collectability of the principal amountindividually assessed using a loss factor approach based on historical loss rates. For residential and consumer collateral dependent loans, a third-party appraisal is reasonably assured, in which case interest is recognized on a cash basis. Loans and leases, or portions thereof, are charged off when deemed uncollectible. Factors considered by management in determining impairment include payment status, collateral value, discharged bankruptcy, and the likelihood of collecting scheduled principal and interest payments. The current or weighted-average (for multiple notes within a commercial borrowing arrangement) interest rate of theobtained upon loan is used as the discount rate, for determining net presentdefault. Fair value of the collateral for residential and consumer collateral dependent loans is reevaluated every six months, by either obtaining a new appraisal or other internal valuation method. Fair value is also reassessed, with any excess amount charged off, for residential and home equity loans that reach 180 days past due per Federal Financial Institutions Examination Council guidelines.
A fair value shortfall relative to the amortized cost balance is reflected as a valuation allowance within the ACL on loans and leases. Subsequent to an appraisal or other fair value estimate, should reliable information come to management's attention that the value has declined further, an additional allowance may be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases. If the credit quality subsequently improves, the allowance is reversed up to a maximum of the previously recorded credit losses. Any individually assessed loan evaluated for impairment, whenwhich no specific valuation allowance is necessary is the interest rate floats with a specified index. A change in termsresult of either sufficient cash flow or payments wouldsufficient collateral coverage relative to the amortized cost. Additional information regarding the ACL on loans and leases can be included in the impairment calculation. Seefound within Note 4: Loans and LeasesLeases.
Charge-off of Uncollectible Loans
If all or a portion of a loan is deemed to be no longer collectible upon the occurrence of a loss-confirming event, a charge-off may be recognized. Charge-offs reduce the amortized cost basis of the loan with a corresponding reduction to the ACL. For commercial loans, loss confirming events usually involve the receipt of specific adverse information about the borrower. The Company will generally recognize charge-offs for further information.commercial loans on a case-by-case basis based on the review of the entire credit relationship and financial condition of the borrower. Loss-confirming events for consumer loans, such as bankruptcy or protracted delinquency, are typically based on established thresholds rather than by specific adverse information about the borrower.
PCD Loans and Leases
PCD loans and leases are defined as those that have experienced a more-than-insignificant deterioration in credit quality since origination. The Company considers a variety of factors to evaluate and identify whether acquired loans are PCD, including but not limited to, nonaccrual status, delinquency, whether the borrower is experiencing financial difficulty, partial charge-offs, decreases in FICO scores, risk rating downgrades, and other factors. Upon acquisition, expected credit losses are added to the fair value of individual PCD loans and leases to determine the amortized cost basis. After initial recognition, any changes to the estimate of expected credit losses, favorable or unfavorable, are recorded as a provision for credit loss during the period of change.
PCD accounting is also applied to loans and leases previously charged-off by the acquiree if the Company has contractual rights to the cash flows at the acquisition date. The Company recognizes an additional ACL for amounts previously charged-off by the acquiree with a corresponding increase to the amortized costs basis of the acquired asset. Balances deemed to be uncollectible are immediately charged-off in accordance with the Company’s charge-off policies, resulting in the establishment of the initial ACL for PCD loans and leases to be recorded net of these uncollectible balances.
Allowance for Credit Losses on Unfunded Loan Commitments
The reserve forACL on unfunded loan commitments provides for probable lossespotential exposure inherent with funding the unused portion of legal commitments to lend.lend that are not unconditionally cancellable by the Company. Accounting for unfunded loan commitments follows the CECL model. The unfunded reserve calculation of the allowance includes the probability of funding to occur and a corresponding estimate of expected lifetime credit losses on amounts assumed to be funded. Loss calculation factors that are consistent with the ALLLACL methodology for funded loans using the PD LGD, and a draw down factorLGD applied to the underlying borrower risk and facility grades.grades, a draw down factor applied to utilization rates, relevant forecast information, and management's qualitative factors. The reserve forACL on unfunded credit commitments is included within Accrued expenses and other liabilities inon the accompanying Consolidated Balance Sheets, and changes inSheets. Additional information regarding the reserve are reported as a component of other expense in the accompanying Consolidated Statements of Income. See ACL on unfunded loan commitments can be found within
Note 20:23: Commitments and Contingencies for further information.Contingencies.
Troubled Debt Restructurings
APrior to the adoption of ASU No. 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, a modified loan iswas considered a TDR when the following two conditions arewere met: (i) the borrower iswas experiencing financial difficulties;difficulty, and (ii) the modification constitutes a concession. The Company considers all aspects of the restructuring in determining whetherconstituted a concession has been granted, including the debtor's ability to access funds at a market rate. In general, a concession exists when(i.e., the modified terms of the loan arewere more attractive to the borrower than standard market terms. Modified terms are dependent upon the financial position and needs of the individual borrower.terms). The Company's most common types of modifications includeTDRs included covenant modifications and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDR, impaired at the date of discharge, and charged down to the fair value of collateral less cost to sell, if management considers that loss potential likely exists.
The Company’s policy iswas to place consumer loan TDR,TDRs, except those that were performing prior to TDR status,classification, on non-accrual status for a minimum period of six months. Commercial TDR areloan TDRs were evaluated on a case-by-case basis for determination ofwhen determining whether or not to place them on non-accrual status. Loans qualifyqualified for return to accrualreturn-to-accrual status once they havewhen the borrower had demonstrated performance with the restructured terms of the loan agreement for a minimum period of six months. Initially, all TDRs arewere also to be reported as impaired. Generally, TDRs are classified as impaired loans and reported as TDRsuch for the remaining life of the loan. Impairedloan and TDR classification may be removed ifindividually assessed for expected credit losses under the borrower demonstrates compliance withCompany’s ACL methodology.
Upon adoption of ASU No. 2022-02 on January 1, 2023, the modified termsexisting measurement and disclosure requirements for a minimum of six monthsTDRs by creditors were eliminated and through a fiscal year-enddisclosure requirements for certain loan refinancings and the restructuring agreement specifies a market rate of interest equal to that which would be provided torestructurings by creditors when a borrower with similar credit atis experiencing financial difficulty were enhanced. Additional information regarding modifications to borrowers experiencing financial difficulty can be found under the time of restructuring. Insection captioned “Accounting Standards Adopted During the limited circumstance that a loan is removed from TDR classification, it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified by the loan agreement. The Company’s loanCurrent Year” and lease portfolio includes loans that have been restructured into an A-Note/B-Note structure as a result of evaluating the cash flow of the borrowers to support repayment. Following these restructurings, Webster immediately charged off the balances of the B-Notes. The restructuring agreements specify a market interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. Seewithin Note 4: Loans and Leases for further information.
Leases.
Foreclosed and Repossessed Assets
Real estate acquired through foreclosure or completion of a deed in lieu of foreclosure and other assets acquired through repossession are recorded at fair value less estimated cost to sell at the date of transfer. Subsequent to the acquisition date, the foreclosed and repossessed assets are carried at the lower of cost or marketfair value less estimated selling costs and are included within otherOther assets inon the accompanying Consolidated Balance Sheets. Independent appraisals generally are obtained to substantiate fair value and may be subject to adjustment based upon historical experience or specific geographic trends impacting the property. Within 90 days of a loan being foreclosed upon,Upon transfer to OREO, the excess of the loan balance over fair value less cost to sell is charged off against the ALLL.ACL. Subsequent write-downs in value, maintenance costs as incurred, and gains or losses upon sale are charged to non-interestOther expense inon the accompanying Consolidated Statements of Income.
Property and Equipment
PremisesProperty and equipment areis carried at cost, less accumulated depreciation.depreciation and amortization. Depreciation of premises and equipmentamortization is computed on a straight-line basis over the estimated useful lives of the assets, as follows:illustrated in the following table. If shorter, leasehold improvements are amortized over the terms of the respective leases.
|
| | | | |
| Minimum | | Maximum | |
Building and Improvements | 5 | - | 40 | years |
Leasehold improvements | 5 | - | 20 | years (or term or lease, if shorter) |
Fixtures and equipment | 5 | - | 10 | years |
Data processing and software | 3 | - | 7 | years |
| | | | | | | | | | | | | | |
| Minimum | | Maximum | |
Building and improvements | 5 | - | 40 | years |
Leasehold improvements | 5 | - | 20 | years |
Furniture, fixtures, and equipment | 5 | - | 10 | years |
Data processing equipment and software | 3 | - | 7 | years |
Repairs and maintenance costs are charged to non-interest expenseexpensed as incurred. Premisesincurred, while significant improvements are capitalized. Property and equipment beingthat is actively marketed for sale areis reclassified asto assets held for disposition. The cost and accumulated depreciation relating to premisesand amortization of property and equipment that is sold, retired, or otherwise disposed of, areis eliminated from accounts and any resulting losses are charged to non-interest expense. Seegain or loss is recorded as Other income or Other expense, respectively, on the accompanying Consolidated Statements of Income. Additional information regarding property and equipment can be found within Note 6: Premises and EquipmentEquipment.
Operating Leases
As lessee, ROU lease assets and their corresponding lease liabilities are recognized on the lease commencement date. A ROU asset is measured based on the present value of the future minimum lease payments, adjusted for further information.any initial direct costs, incentives, or other payments prior to the lease commencement date. A lease liability represents a legal obligation to make lease payments and is measured based on the present value of the future minimum lease payments, discounted using the rate implicit in the lease or the Company’s incremental borrowing rate. Variable lease payments that are dependent on either an index or rate are initially measured using the index or rate at the commencement date and included in the measurement of the lease liability. Renewal options are not included as part of the ROU asset or lease liability unless the renewal option is deemed reasonably certain to exercise. ROU lease assets and operating lease liabilities are included in Premises and equipment and Accrued expenses and other liabilities, respectively, on the accompanying Consolidated Balance Sheets.
For real estate leases, lease components and non-lease components are accounted for as a single lease component if the
non-lease components are fixed and separately if they are variable. For equipment leases, lease components and non-lease components are accounted for separately. Operating lease expense, which is comprised of operating lease costs and variable lease costs, net of sublease income, is amortized on a straight-line basis and reflected as a part of Occupancy expense on the accompanying Consolidated Statements of Income. Additional information regarding the Company's lessee arrangements can be found within Note 7: Leasing.
Goodwill
Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired and is assigned to specific reporting units. Goodwill is not subject to amortization but rather is evaluated for impairment annually, or more frequently in interim periods if events occur or circumstances change indicating it would more likely than not result in a reduction of the fair value of athe reporting unitunits below itstheir carrying value.value, including goodwill.
Goodwill ismay be evaluated for impairment by eitherfirst performing a qualitative evaluation or a two-step quantitative test. Theassessment. If the qualitative evaluation is an assessment of factors to determine whetherindicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.goodwill, or, if for any other reason the Company determines to it be appropriate, then a quantitative assessment will be performed. The Companyquantitative assessment process utilizes an equally weighted combined income and market approach to arrive at an indicated fair value range for the reporting unit. In Step 1, theunits. The fair value of acalculated for each reporting unit is compared to its carrying amount, including goodwill, to ascertain if a goodwill impairment exists. If the fair value ofexceeds the carrying amount, including goodwill for a reporting unit, exceeds its carrying amount, goodwill of the reporting unitit is not considered impaired, and it is not necessary to continue to Step 2 ofbe impaired. If the impairment process. Otherwise, Step 2 is performed where the implied fair value is below the carrying amount, including goodwill for a reporting unit, then an impairment charge is recognized for the amount by which the carrying amount exceeds the calculated fair value, up to but not exceeding the amount of goodwill is comparedallocated to the carrying value of goodwill in the reporting unit. If a reporting unit's carrying value exceeds fair value, the differenceThe resulting amount is charged to non-interest expense. SeeOther expense on the accompanying Consolidated Statements of Income.
The Company completed a quantitative assessment for its reporting units during its most recent annual impairment review. Based on this qualitative assessment, the Company determined that there was no evidence of impairment to the balance of its goodwill. Additional information regarding goodwill can be found within Note 7:8: Goodwill and Other Intangible Assets for further information.Assets.
Other Intangible Assets
Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights, or because the assetit is capable of being sold or exchanged either separately or in combination with a related contract, asset, or liability. Other intangible assets with finite useful lives, such as core deposits and customer relationships, are amortized to non-interest expense over their estimated useful lives and are evaluated for impairment whenever events occur or circumstances change indicating that the carrying amount of the asset may not be recoverable. Core deposit and customer relationshipAdditional information regarding other intangible assets are amortized over their estimated useful lives. Seecan be found within Note 7:8: Goodwill and Other Intangible Assets for further information.Assets.
Cash Surrender Value of Life Insurance
The investment inBank-owned life insurance represents the cash surrender value of life insurance policies on certain current and former officersemployees of Webster. Increases in the cashWebster and Sterling. Cash surrender value increases and decreases are recorded asin non-interest income. Decreases are the result of collection on the policies due to the death of an insured. Death benefit proceeds in excess of the cash surrender value are recorded in other non-interest income when realized.
the insured.
Securities Sold Under Agreements to Repurchase
These agreements are accounted for as secured financing transactions since Websterthe Company maintains effective control over the transferred investment securities and the transfer meets the other criteria for such accounting.treatment. Obligations to repurchase the sold investment securities are reflected as a liability inon the accompanying Consolidated Balance Sheets. The investment securities underlying the agreementssold with agreement to repurchase to wholesale dealers are deliveredtransferred to a custodial account for the benefit of the dealer or to the bank with whom each transaction is executed. The dealers or banks which may sell, loan, or otherwise hypothecatedispose of such securities to other parties in the normal course of their operations and agree to resell to Websterthe Company the same securities at the maturity date of the agreements. The investment securities underlying theCompany also enters into repurchase agreements with Bank customers. The investment securities sold with agreement to repurchase to Bank customers are pledged; however,not transferred, but internally pledged to the customer doesrepurchase agreement transaction. Additional information regarding securities sold under agreements to repurchase can be found within Note 11: Borrowings.
Revenue From Contracts With Customers
Revenue from contracts with customers comprises non-interest income earned in exchange for services provided to customers and is recognized either when services are completed or as they are rendered. These revenue streams include Deposit service fees, Wealth and investment services, and non-significant portions of Loan and lease related fees and Other income on the accompanying Consolidated Statements of Income. The Company identifies the performance obligations included in its contracts with customers, determines the transaction price, allocates the transaction price to the performance obligations, as applicable, and recognizes revenue when the performance obligations are satisfied. Services provided over a period of time are generally transferred to customers evenly over the term of the contracts, and revenue is recognized evenly over the period the services are provided. Contract assets are included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets. Payment terms vary by services offered, and generally the time between the completion of performance obligations and receipt of payment is not have ability to hypothecate the underlying securities. Seesignificant. Additional information regarding contracts with customers can be found within Note 10: Borrowings for further information.22: Revenue from Contracts with Customers.
Share-Based Compensation
WebsterThe Company maintains a stock compensation plans under which non-qualifiedplan that provides for the grant of stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights, may be grantedrestricted stock, performance-based stock, and stock units to employees and directors. Share awards are issued from available treasury shares. Share-basedStock compensation costexpense is recognized over the required service vesting period isfor each award based on the grant-dategrant date fair value, net of a reduction for estimated forfeitures which is adjusted for actual forfeitures as they occur, and is reported as a component of compensationincluded within Compensation and benefits expense. Awards are generallyexpense on the accompanying Consolidated Statements of Income. For time-based restricted stock awards and average return on equity performance-based restricted stock awards, fair value is measured using the closing price of Webster common stock at the grant date. For total stockholder return performance-based restricted stock awards, fair value is measured using the Monte Carlo simulation model. Performance-based restricted stock awards ultimately vest in a range from 0% to 150% of the target number of shares under the grant. Compensation expense may be subject to a 3-year vesting period, while certain conditions provide for a 1-year vesting period.adjustment based on management's assessment of the Company's average return on equity performance relative to the target number of shares condition. Stock option awards use the Black-Scholes Option-Pricing Model to measure fair value at the grant date. Excess tax benefits or tax deficiencies result when tax return deductions exceeddiffer from recognized compensation cost determined using the grant-date fair value approach for financial statement purposes.
For time-based restricted stock and restricted stock unit awards, fair value is measured using the Company's common stock closing price at the date of grant. For performance-based restricted stock awards, fair value is measured using the Monte Carlo valuation methodology, which provides for the 3-year performance period. Awards ultimately vest in a range from zero to 150% of the target number of shares under the grant. Compensation expense is subject to adjustment based on management's assessment of Webster's return on equity performance relative to the target number of shares condition. For stock option awards the Black-Scholes Option-Pricing Model was used to measure fair value at the date of grant.
Dividends are paid on the time-based shares upon grant and are non-forfeitable, while dividends are accrued on the performance-based awards and are paid on earnedwith the vested shares when the performance target is met. SeeAdditional information regarding share-based compensation can be found within Note 18:20: Share-Based Plans for further information.Plans.
Income Taxes
Income tax expense or benefit,(benefit) is comprised of two components, current and deferred. The current component reflectsrepresents income taxes payable or refundable for athe current period based on applicable tax laws, andwhile the deferred component represents the tax effects of temporary differences between amounts recognized for financial accounting and tax purposes. Deferred tax assetsDTAs and liabilitiesDTLs reflect the tax effects of such differences that are anticipated to result in taxable or deductible amounts in the future when the temporary differences reverse. DTAs are recognized if it is more likely than not that they will be realized, and may be reduced by a valuation allowance if it is more likely than not that all or some portion will not be realized.
TaxUncertain tax positions that are uncertain but meet a more likely than not recognition threshold are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has fullbased on knowledge of all relevant information. The determination of whether or not a tax position meets the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management'smanagement judgment. WebsterThe Company recognizes interest expense and penalties on uncertain tax positions as a component of income tax expense and recognizes interest income on refundable income taxes as a component of other non-interest income. SeeIncome tax expense and Other income, respectively, on the accompanying Consolidated Statements of Income. Additional information regarding income taxes can be found within Note 8:9: Income Taxes for further information.Taxes.
Earnings Perper Common Share
Earnings per common share is computedcalculated under the two-class method. Basic earnings per common share is computed by dividing earnings allocatedapplicable to common shareholdersstockholders by the weighted-average number of common shares outstanding, excluding outstanding participating securities, during the applicable period, excluding outstanding non-participating securities.pertinent period. Certain non-vestedunvested restricted stock awards are considered participating securities as they have non-forfeitable rights to dividends or dividend equivalents.dividends. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of shares resulting from stock compensation and warrants for common stock using the treasury stock method. A reconciliation ofbetween the weighted-average common shares used in calculating basic earnings per common share and the weighted-average common shares used in calculating diluted earnings per common share is provided incan be found within Note 14:16: Earnings Per Common Share.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in shareholders’ equity during athe period, except those resulting from transactions with shareholders.stockholders. Comprehensive income consists of(loss) comprises net income and the after-tax effect ofchanges in the following items; changes initems: net unrealized gain/lossgain (loss) on available-for-sale securities, available for sale, changes in net unrealized gain/lossgain (loss) on derivative instruments, and changes in net actuarial gain/loss and prior service cost forgain (loss) related to defined benefit pension and other postretirement benefit plans. Comprehensive income (loss) is reported inon the accompanying Consolidated Statements of Shareholders'Stockholders' Equity and the accompanying Consolidated Statements of Comprehensive Income, andComprehensive Income. Additional information regarding comprehensive income (loss) can be found within Note 12:13: Accumulated Other Comprehensive Loss,(Loss) Income, Net of Tax.
Derivative Instruments and Hedging Activities
Derivatives are recognized asat fair value and are included in Accrued interest receivable and other assets and Accrued expenses and other liabilities, inas applicable, on the accompanying Consolidated Balance Sheets and measured at fair value. ForSheets. The value of exchange-traded contracts fair value is based on quoted market prices. Forprices, whereas non-exchange traded contracts fair value isare valued based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques forin which the determination of fair value may require management judgment or estimation, relatingestimation. Net cash flows from derivative contract assets and liabilities are presented within Operating activities on the accompanying Consolidated Statements of Cash Flows.
Derivatives Designated in Hedge Relationships. The Company uses derivatives to future rates and credit activities.
Interest Rate Swap Agreements. For asset/liability management purposes, the Company may use interest rate swaps or interest rate caps to hedge various exposures or to modify interest rate characteristics of variousfor certain balance sheet accounts. Interest rate swaps are contracts in which a series ofaccounts under its interest rate risk management strategy. The Company designates derivatives in qualifying hedge relationships either as fair value or cash flow hedges for accounting purposes. Derivative financial instruments receive hedge accounting treatment if they are qualified and are properly designated as a hedge, and remain highly effective in offsetting changes in the fair value or cash flows are exchanged over a prescribed period of time. The notional amountattributable to the risk being hedged, both at hedge inception and on whichan ongoing basis throughout the interest payments are based is not exchanged. Swap agreements entered into for hedge purposes are derivative instruments and generally convert a portionlife of the Company’s variable-rate debthedge. Quarterly prospective and retrospective assessments are performed to ensure hedging relationships continue to be highly effective. If a fixed-rate (cash flow hedge), or convert a portion of its fixed-rate debt to a variable-rate (fair value hedge).
Webster uses forward-settle interest rate swaps to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on forecasted debt issuances. Forward-settle swaps typically have a futurehedge relationship is no longer highly effective, date that coincides with the expected debt issuance date. The forward-settle swaps are typically terminated and cash settled upon hedge debt issuance date. accounting would be discontinued.
The gain or losschange in fair value on a derivative that is designated and qualifyingqualifies as a fair value hedging instrument,hedge, as well as the offsetting gain or losschange in fair value on the hedged item attributable to the risk being hedged, is recognized currently in earnings in the same accounting period.earnings. The effective portion of the gain or loss on a derivative that is designated and qualifyingqualifies as a cash flow hedging instrumenthedge is initially reportedrecorded as a component of AOCL(AOCL), and either subsequently reclassified into earnings into interest income as hedged interest payments are received or to interest expense as hedged interest payments are made during the same period or periods duringin which the hedged transaction affects earnings.
Derivatives Not Designated in Hedge Relationships. The ineffective portion of the gain or loss on theCompany also enters into derivative instrument, if any, is recognizedtransactions that are not designated in non-interest income.
Interest rate derivativehedge relationships. Derivative financial instruments receivenot designated in hedge accounting treatment only if they are qualified and properly designated as hedges and are expected to be, and are, effective in substantially reducing interest rate risk arising from specifically identified assets and liabilities. A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk. The Company expects that the hedging relationship will be highly effective; however, it does not assume there is no ineffectiveness. The Company performs quarterly prospective and retrospective assessments of the hedge effectiveness to ensure the hedging relationship continues to be highly effective and that hedge accounting can continue to be applied. Those derivative financial instruments that do not meet specified hedging criteriarelationships are recorded at fair value with changes in fair value recordedrecognized in income.
Cash flows from derivative financial instruments designated for hedge accounting are classified in the cash flow statement in the same category as the cash flows of the asset or liability being hedged.
Derivative Loan Commitments. Mortgage loan commitments related to the origination of mortgages that will be held for sale upon funding are considered derivative instruments. Loan commitments that are derivatives are recognized at fair valueOther income on the accompanying Consolidated Balance Sheets in other assets and other liabilities with changes in their fair values recorded in non-interest income.Statements of Income.
Counterparty Credit Risk. The Company's exposure from bilateral, non-cleared derivatives is collateralized and subject to daily margin call settlements. Credit exposure related to non-cleared derivatives may be offset by the amount of collateral pledged by the counterparty. The Company's credit exposure on interest rate swaps consists of the net favorable value plus interest payments of all swaps by each of the counterparties.
Cleared derivative transactions are with our selected clearing exchange, Chicago Mercantile Exchange, and exposure is settled to market on a daily basis. There is additional credit exposure related to initial margin collateral pledged to Chicago Mercantile Exchange at trade execution.
In accordance with Webster policies, institutional counterparties are underwritten and approved through the Company’s independent credit approval process. The Company evaluates the credit risk of its counterparties, taking into account such factors as the likelihood of default, its net exposures, and remaining contractual life, among other things, in determining if any adjustments related to credit risk are required. See Note 15: Derivative Financial Instruments for further information.
Offsetting Assets and Liabilities
The Company presents derivative receivables. Derivative assets and derivative payablesliabilities with the same counterparty and the related variation margin of cash collateral receivables and payablesare presented on a net basis on the Consolidated Balance Sheets when a legally enforceable master netting agreement exists. The cash collateral, relating to the initial margin, is included within accruedin Accrued interest receivable and other assets inon the accompanying Consolidated Balance Sheets.Sheets when master netting agreements are in place. Cash collateral paid or received for non-exchange cleared transactions are presented net with the associated derivative assets and derivative liabilities. Securities collateral is not offset. Amounts paid to dealers for initial margin are also included in Accrued interest receivable and other assets. Additional information regarding derivatives can be found within Note 17: Derivative Financial Instruments.
Fair Value Measurements
The Company measures many of its assets and liabilities on a fair value basis in accordance with ASC Topic 820, "Fair Value Measurement." Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is used to measure certain assets and liabilities on a recurring basis for certain assets and liabilities in whichwhen fair value is the primary basis of accounting. Examples of these include derivative instruments, available-for-sale securitiesaccounting, and loans held for sale where the Company has elected the fair value option. Additionally, fair value is used on a non-recurring basis to evaluatewhen evaluating assets or liabilities for impairment. Examples of these include impaired loans and leases, mortgage servicing assets, long-lived assets, goodwill, and loans not originated for sale but subsequently transferred to held for sale, which are accounted for at the lower of cost or fair value. FurtherAdditional information regarding the Company's policies and methodologymethodologies used to measure fair value is presented incan be found within Note 16:18: Fair Value Measurements.
Employee Retirement Benefit PlanPlans
WebsterThe Company sponsors defined contribution postretirement benefit plans that are established under Section 401(k) of the Internal Revenue Code. Expenses to maintain the plans, as well as employer contributions, are charged to Compensation and benefits expense on the accompanying Consolidated Statements of Income.
The Bank maintainshad offered a qualified noncontributory defined benefit pension plan covering alland a non-qualified SERP to eligible employees thatand key executives who met certain age and service requirements, both of which were participants on or beforefrozen effective December 31, 2007. Costs relatedThe Bank also provides for OPEB to this qualified plan,certain retired employees. In connection with the merger with Sterling, the Company also assumed the benefit obligations of Sterling's non-qualified SERP and OPEB plans.
Pension contributions are funded in accordance with the requirements of the Employee Retirement Income Security Act. Net periodic benefit cost (income), which is based upon actuarial computations of current and future benefits for eligible employees, are charged to non-interestOther expense on the accompanying Consolidated Statements of Income. The funded status of the plans is recorded as an asset when over-funded or a liability when under-funded. Additional information regarding the defined benefit pension and postretirement benefit plans can be found within Note 19: Retirement Benefit Plans.
Accounting Standards Adopted During the Current Year
ASU No. 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU No. 2022-02, which eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. In addition, the Update requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6.
Modifications to borrowers experiencing financial difficulty include principal forgiveness, interest rate reductions, payment delays, term extensions, or combinations thereof. Expected losses or recoveries on loans where modifications have been granted to borrowers experiencing financial difficulty have been factored into the ACL on loans and leases. Upon adoption of ASU 2022-02, the Company is no longer required to use a discounted cash flow (or reconcilable) method to measure the ACL resulting from a modification with a borrower experiencing financial difficulty. Accordingly, the Company now applies the same credit loss methodology it uses for similar loans that were not modified.
The Company adopted the Update on January 1, 2023. The Company elected the option to apply the modified retrospective transition method related to the recognition and measurement of TDRs, which resulted in a $5.9 million increase to the Allowance for credit losses on loans and leases and a $1.6 million increase to DTAs, net, with a corresponding $4.3 million cumulative-effect adjustment to retained earnings as of the adoption date. The enhanced disclosure requirements provided for by the Update were adopted on a prospective basis. Reporting periods prior to the adoption of the Update are fundedaccounted for and presented in accordance with the requirements of the Employee Retirement Income Security Act. An asset is recognized for an overfunded plan and a liability is recognized for an underfunded plan. A supplemental retirement plan is also maintained for select executive level employees that were participants on or before December 31, 2007. Webster Bank also provides postretirement healthcare benefits to certain retired employees.
In December 2016, the Company elected to change the approach to estimating service and interest components of net periodic pension cost for the retirement benefit plans. Effective January 2017, a full yield curve approach was utilized to measure the benefit obligation. The Company changed to the new estimate method to improve the correlation between projected benefit cash flows and the corresponding yield spot rates and to provide a more precise measurement of service and interest costs.
Historically the Company estimated service and interest costs utilizing a single-weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The new method measures service and interest costs separately using the full yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit obligation.
Fee Revenue
Generally, fee revenue from deposit service charges and loans is recorded when earned, except where ultimate collection is uncertain, in which case revenue is recognized as received. Trust revenue is recorded as earned on individual accounts based upon a percentage of asset value. Fee income on managed institutional accounts is recognized as earned and collected quarterly based on the quarter-end value of assets managed.
Marketing Costs
Marketing costs are expensed as incurred over the projected benefit period.
applicable GAAP.
Additional information regarding modifications granted to borrowers experiencing financial difficulty can be found within
Recently Adopted Accounting Standards Updates
Effective January 1, 2017, the following new accounting guidance was adopted by the Company:Note 4: Loans and Leases.
ASU No. 2016-09, Compensation - Stock Compensation2022-01—Derivatives and Hedging (Topic 718) - Improvements815): Fair Value Hedging—Portfolio Layer Method
In March 2022, the FASB issued ASU No. 2022-01—Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, which expands the current last-of-layer method of hedge accounting that permits only one hedged layer to Employee Share Based Payment Accounting.
The Update impactedallow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. Additionally, the amendments in this Update: (i) expand the scope of the portfolio layer method to include non-prepayable assets; (ii) specify eligible hedging instruments in a single-layer hedge; (iii) provide additional guidance on the accounting for employee share-based payment transactions, includingand disclosure of hedge basis adjustments; and (iv) specify how hedge basis adjustments should be considered when determining credit losses for the income tax consequences, and classification on the statement of cash flows. The Update requires the Company to recognize the income tax effects of awardsassets included in the income statementclosed portfolio. An entity may also reclassify debt securities classified in the held-to-maturity category at the date of adoption to the available-for-sale category only if the entity applies portfolio layer method hedging to one or more closed portfolios that include those debt securities within a 30-day period.
The Company adopted the Update on January 1, 2023 on a prospective basis when the awards vest or are settled, compared to within additional paid-in capital. As a result, applicable excess tax benefits and tax deficiencies are recorded as an income tax benefit or expense, respectively. The Company elected to present the classification on the statement of cash flows on a prospective basis to better align this presentation with the income tax effects.
The impact of the Update will vary from period to period based on the Company's stock price and the quantity of shares that vest or are settled within a given period.
The Update also requires the Company to elect the accounting for forfeitures of share-based payments by either (i) recognizing forfeitures of awards as they occur or (ii) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The Company elected to account for forfeitures of share-based payments by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, which is in accordance with the Company's previous accounting practices.
basis. The adoption of this accounting standardguidance did not have a material impact on the Company's financial statements.Consolidated Financial Statements. The Company did not reclassify any debt securities from the held-to-maturity category to the available-for-sale category as permitted upon adoption.
ASU No. 2018-02, Income Statement - Reporting Comprehensive Income2021-08—Business Combinations (Topic 220) - Reclassification of Certain Tax Effects805)—Accounting for Contract Assets and Contract Liabilities from Accumulated Other Comprehensive Income.Contracts with Customers
The UpdateIn October 2021, the FASB issued ASU No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in February 2018, providesa business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the reclassificationrelated revenue contracts in accordance with Topic 606 as if it had originated the contracts. The Company adopted the Update on January 1, 2023 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.
Relevant Accounting Standards Issued But Not Yet Adopted
ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, to provide more transparency about income tax information through improvements to income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. Specifically, the amendments in this Update require disclosure of: (i) a tabular reconciliation, using both percentages and reporting currency amounts, with prescribed categories that are required to be disclosed, and the separate disclosure and disaggregation of prescribed reconciling items with an effect equal to 5% or more of the amount determined by multiplying pretax income from continuing operations by the application statutory rate; (ii) a qualitative description of the states and local jurisdictions that make up the majority (greater than 50%) of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive loss,the state and local income taxes; and (iii) amount of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes and by individual jurisdictions that comprise 5% or more of total income taxes paid, net of refunds received. The amendments in this Update also include certain other amendments to improve the effectiveness of income tax to retained earnings resulting from the Tax Act.disclosures.
The Update is effective for the Companyannual periods beginning after December 15, 2024, with early adoption permitted. The amendments should be applied on January 1, 2019 and early adoptiona prospective basis; however, retrospective application is permitted. The Company electedis currently evaluating this guidance to early adoptdetermine the Update during the fourth quarter 2017. As a result, the Company reclassified $15.6 million from accumulated other comprehensive loss, net ofimpact on its income tax to retained earnings.
Accounting Standards Issued but not yet Adopted
The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:disclosures.
ASU No. 2017-12, Derivatives and Hedging2023-07—Segment Reporting (Topic 815) - Targeted 280)—Improvements to AccountingReportable Segment Disclosures
In November 2023, the FASB issued ASU No. 2023-07—Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Specifically, the amendments in this Update require disclosure of: (i) significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss; (ii) an amount for Hedging Activities.
The purposeother segment items by reportable segment and a description of its composition; and (iii) the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses each reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources.
In addition, all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280, will be required in interim periods. Overall, the Update isdoes not change how a public entity identifies its operating segments, aggregates those operating segments, or determines its reportable segments, or applies the quantitative thresholds to better align a company’s financial reporting for hedging activities with the economic objectivesdetermine its reportable segments.
The Update is effective for the Company on January 1, 2019fiscal years beginning after December 15, 2023, and earlyinterim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements, in which, upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is incurrently evaluating this guidance to determine the process of assessing all potential impacts of the standard including the potential to early adopt the Update.impact on its segment reporting disclosures.
ASU No. 2017-08, Receivables - Nonrefundable Fees2023-02—Investments—Equity Method and Other Costs (Subtopic 310-20) - PremiumJoint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issue Task Force)
In March 2023, the FASB issued ASU No. 2023-02—Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force), which permits reporting entities to elect to account for their tax equity investments, regardless of the program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. A reporting entity may make an accounting policy election to apply the proportional amortization method in accordance with paragraph 323-740-25-4 on Purchased Callable Debt Securities.a tax-credit-program by tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.
The Update is intendedA reporting entity that applies the proportional amortization method to enhance the accountingqualifying tax equity investments must account for the amortizationreceipt of premiums for purchased callable debt securities. Specifically, the Update shortensinvestment tax credits using the amortization period for certain investments in callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. The Update is being issued in response to concerns from stakeholders that, current GAAP excludes certain callable debt securities from consideration of early repayment of principalflow-through method under Topic 740, Income Taxes, even if the holder is certain thatentity applies the call will be exercised.
The Update, upon adoption, is expected to accelerate the Company’s recognition of premium amortization on debt securities held within the portfolio.deferral method for other investment tax credit received. The amendments inalso remove certain guidance for Qualified Affordable Housing Project Investments, require the Update willapplication of the delayed equity contribution guidance to all tax equity investments, and require specific disclosures that must be applied onto all investments that generate income tax credits and other income tax benefits from a modified retrospective basis through a cumulative-effect adjustment directly through retained earnings upon adoption.
Management istax credit program for which the entity has elected to apply the proportional amortization method in the process of evaluating the full impact of adopting the Update including, but not limited to the following:
Modifying system amortization requirements;
Evaluation of premiums associatedaccordance with debt securities to determine the appropriate cumulative-effect adjustment; and
Establishing new accounting policies pertaining to premium amortization on purchased callable debt securities.Subtopic 323-740.
The Update is effective for the Company on January 1, 2019fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption is permitted. The Company is evaluating the potential to early adopt the Update.
ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The Update requires the Company to retrospectively report service cost as part of compensation expense and the other components of net periodic benefit cost separately from service cost in the Company's Consolidated Statements of Income. The Company currently includes all components of net periodic benefit cost in "compensation and benefits" expense in the Consolidated Statements of Income. Upon adoption of this Update in the first quarter 2018, only service cost will remain in compensation and benefits expense, and the other components (interest cost on benefit obligations, expected return on plan assets, amortization of prior service cost, and recognized net loss) will be included in "other expense" in the Consolidated Statements of Income.
The other components of net periodic benefit cost were $3.4 million and $6.1 million for the years ended December 31, 2017 and 2016, respectively.
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
The Update simplifies quantitative goodwill impairment testing by requiring entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit.
This changes current guidance by eliminating the second step to the goodwill impairment analysis which involves calculating the implied fair value of goodwill determined in the same manner as the amount of goodwill recognized in a business combination upon acquisition. Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
The updateamendments generally must be applied prospectively and is effectiveon either a modified retrospective or retrospective basis with a cumulative-effect adjustment to retained earnings reflecting the difference between the previous method used to account for the Company on January 1, 2020. Early adoption is permitted. The Company does not expecttax equity investment and the new guidance to have a material impact on its financial statements.
ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.
The Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Update addresses the following eight issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.proportional amortization method since the investment was entered into.
The Update will be implemented using a retrospective transition approach during the first quarter 2018, and will not have a significant impact on the Company's financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.
Current GAAP requires an "incurred loss" methodology for recognizing credit losses. This approach delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the "probable" threshold.
The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.
The Change from an "incurred loss" method to an "expected loss" method represents a fundamental shift from existing GAAP, and is likely to result in a material increase to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company has established a project lead and has formalized a cross functional steering committee comprised of members from different disciplines including Credit, Finance and Treasury as well as specific working groups to focus on key components of the development process. In addition, through one of the working groups, the Company has begun to evaluate the effect that this Update will have on its financial statements and related disclosures. An implementation project plan has been created and is made up of targeted work streams focused on credit models, data management, accounting, and governance. These work streams are collectively assessing resources that may be required, use of existing and new models, data availability, and system solutions to facilitate implementation. The Update will be effective for the Company on January 1, 2020. While we are currently unable to reasonably estimate the impact of adopting the Update, we expect the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the economic conditions as of the adoption date.
ASU No. 2016-02, Leases (Topic 842).
The Update introduces a lessee model that brings most leases onto the balance sheet. The Update also aligns certain of the underlying principles of the new lessor model with those in ASC 606 "Revenue from Contracts with Customers", the FASB’s new revenue recognition standard (e.g., evaluating how collectability should be considered and determining when profit can be recognized).
Furthermore, the Update addresses other concerns including the elimination of the required use of bright-line tests for determining lease classification. Lessors are required to provide additional transparency into the exposure to the changes in value of their residual assets and how they manage that exposure.
The Update is effective for the Company on January 1, 2019. A modified retrospective transition approach is required for leases existing at or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The Company is in the early assessment stage and will continue to review the existing lease portfolio to evaluate the impact of the new accounting guidance on the financial statements.
ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities.
This Update included targeted amendments in connection with the recognition, measurement, presentation and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practicability exception, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. With the exception of disclosure requirements that will be adopted prospectively, the Update must be adopted on a modified retrospective basis.
The Update also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. The Company will adopt the Update during the first quarteron January 1, 2024. The adoption of 2018 andthis guidance will not have a material impact on the Company's financial statements.Consolidated Financial Statements and disclosures as its investments in tax credit structures are currently limited to LIHTC investments, which are already being accounted for using the proportional amortization method.
ASU No. 2014-09, Revenue from Contracts with Customers2023-01—Leases (Topic 606). Also, subsequent ASUs issued to clarify this Topic.842): Common Control Arrangements
In May 2014,March 2023, the FASB issued new accounting guidance for recognizing revenue from contractsASU No. 2023-01—Leases (Topic 842): Common Control Arrangements, which requires that leasehold improvements associated with customers, which is effective on January 1, 2018. ASU 2014-09 and subsequent related updates establish a single comprehensive model forleases between entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The Update is intended to increase comparability across industries. The core principleunder common control be: (i) amortized by the lessee over the useful lives of the revenue model is thatleasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a company will recognize revenuelease; however, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group; and (ii) accounted for as a transfer between entities under common control through an adjustment to equity, if, and when, it transfers controlthe lessee no longer controls the use of goods or servicesthe underlying asset. Additionally, those leasehold improvements are subject to customers at an amount that reflects the consideration to which it expects to be entitledimpairment guidance in exchange for those goods or services. Topic 360, Property, Plant, and Equipment.
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The amendments either may be applied prospectively to all new and existing leasehold improvements recognized on or after the first quarteradoption date with any remaining unamortized balance of 2018, and can be adopted through either a full retrospective transition,existing leasehold improvements amortized over their remaining useful life to the common control group determined at that date; or a modified retrospective transition approach.
The Update excludesretrospectively to the Company's revenue associated with net interest income, and certain non-interest income line items (loan and lease related fees, mortgage banking activities, increase in cash surrender value of life insurance policies, gain on sale of investment securities, net, impairment loss on securities recognized in earnings, and a majority of other income). As a result a substantial amountbeginning of the Company's revenue willperiod in which the entity first applied Topic 842, with any leasehold improvements that otherwise would not be affected.
The Company's deposit service fees, wealth and investment services, and certain other non-interest income line items are withinhave been amortized or impaired recognized through a cumulative-effect adjustment to the scopeopening balance of retained earnings at the beginning of the Update. The Update will require the Company to change how we present certain recurring revenue streams within wealth and investment services and other insignificant components of non-interest income; however, these changes will not have a significant impact on the Company's financial statements. The Update is effective for the first quarter of 2018. earliest period presented in accordance with Topic 842.
The Company will adopt the Update using the modified retrospective transition approach effectiveon January 1, 2018.2024. The adoption of this guidance will not have a material impact on the Company's financial statementsConsolidated Financial Statements and disclosures as its operating lease arrangements in which it is lessee are currently not between entities under common control.
ASU No. 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction
In June 2022, the FASB issued ASU No. 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction, and requires the following disclosures for equity securities subject to contractual sale restrictions: (i) the fair value of equity securities subject to contractual sale restrictions reflected on the balance sheet; (ii) the nature and remaining duration of the restriction(s); and (iii) the circumstances that could cause a lapse in the restriction(s).
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. For all entities except investment companies, the amendments should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.
The Company will adopt the Update on January 1, 2024. The adoption of this guidance will not have a material impact on the Company's Consolidated Financial Statements and disclosures. The Company does not currently consider contractual restrictions on the sale of an equity security in measuring fair value.
Note 2: Mergers and Acquisitions
Merger with Sterling
On January 31, 2022, the Company completed its merger with Sterling pursuant to an Agreement and Plan of Merger dated as of April 18, 2021. Pursuant to the merger agreement, Sterling Bancorp merged with and into the Holding Company, with the Holding Company continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling Bancorp, merged with and into the Bank, with the Bank continuing as the surviving bank. Sterling was a full-service regional bank headquartered in Pearl River, New York, that primarily served the Greater New York metropolitan area. The merger expanded the Company's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeastern U.S.
Pursuant to the merger agreement, each share of Sterling common stock issued and outstanding immediately prior to the merger, other than certain shares held by the Company and Sterling, was converted into the right to receive a fixed 0.4630 share of Webster common stock. Furthermore, certain equity awards granted under Sterling's equity compensation plans were converted into a corresponding award with respect to Webster common stock, generally subject to the same terms and conditions, with the number of shares underlying such awards adjusted based on the 0.4630 fixed exchange ratio. Cash was also paid to Sterling common stockholders in lieu of fractional shares, as applicable.
In addition, each share of Sterling 6.50% Series A Non-Cumulative Perpetual Preferred Stock issued and outstanding immediately prior to the merger was converted into the right to receive one share of newly created Webster 6.50% Series G Non-Cumulative Perpetual Preferred Stock, having substantially the same terms.
The following table summarizes the determination of the purchase price consideration:
| | | | | |
(In thousands, except share and per share data) | |
Webster common stock issued | 87,965,239 | |
Price per share of Webster common stock on January 31, 2022 | $ | 56.81 | |
Consideration for outstanding common stock | 4,997,305 | |
Consideration for preferred stock exchanged | 138,942 | |
Consideration for replacement equity awards (1) | 43,877 | |
Cash in lieu of fractional shares | 176 | |
Total purchase price consideration | $ | 5,180,300 | |
(1)The fair value of the replacement equity awards issued by the Company and included in the consideration transferred pertains to services performed prior to the merger effective date. The fair value attributed to services performed after the merger effective date is being recognized over the required service vesting period for each award and recorded as Compensation and benefits expense on the accompanying Consolidated Statements of Income. During the years ended December 31, 2023, and 2022, the Company recognized an increase of $22.8 million and $18.8 million in stock compensation expense related to timingthe replacement equity awards.
The merger was accounted for as a business combination. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values as of revenue recognition, however, certain immaterial changesthe merger effective date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are expectedhighly subjective in presentation.nature and are subject to change. Fair value estimates of the assets acquired and liabilities assumed were subject to adjustment during the one-year measurement period following the closing date of the merger if new information was obtained about facts and circumstances that existed as of the merger effective date that, if known, would have affected the measurement of the amounts recognized as of that date.
Measurement period adjustments pertaining to other assets and other liabilities and their deferred tax impact were made during the first quarter of 2023, totaling a net $25.6 million. The Company's valuations of the assets acquired and liabilities assumed in the merger with Sterling were considered final as of March 31, 2023.
The following table summarizes the final allocation of the purchase price to the fair value of the identifiable assets acquired and liabilities assumed from Sterling:
| | | | | | | | | | | | | |
(In thousands) | | | Unpaid Principal Balance | | Fair Value |
Purchase price consideration | | | | | $ | 5,180,300 | |
Assets: | | | | | |
Cash and due from banks | | | | | 510,929 | |
Interest-bearing deposits | | | | | 3,207 | |
Investment securities available-for-sale | | | | | 4,429,948 | |
Federal Home Loan Bank and Federal Reserve Bank Stock | | | | | 150,502 | |
Loans held for sale | | | | | 23,517 | |
Loans and leases: | | | | | |
Commercial non-mortgage | | | $ | 5,570,782 | | | 5,527,657 | |
Asset-based | | | 694,137 | | | 683,958 | |
Commercial real estate | | | 6,790,600 | | | 6,656,405 | |
Multi-family | | | 4,303,381 | | | 4,255,906 | |
Equipment financing | | | 1,350,579 | | | 1,314,311 | |
Warehouse lending | | | 647,767 | | | 643,754 | |
Residential | | | 1,313,785 | | | 1,281,637 | |
Home equity | | | 132,758 | | | 122,553 | |
Other consumer | | | 12,559 | | | 12,525 | |
Total loans and leases | | | $ | 20,816,348 | | | 20,498,706 | |
Deferred tax assets, net | | | | | (59,716) | |
Premises and equipment (1) | | | | | 264,421 | |
Other intangible assets | | | | | 210,100 | |
Bank-owned life insurance policies | | | | | 645,510 | |
Accrued interest receivable and other assets | | | | | 986,729 | |
Total assets acquired | | | | | $ | 27,663,853 | |
Liabilities: | | | | | |
Non-interest-bearing deposits | | | | | $ | 6,620,248 | |
Interest-bearing deposits | | | | | 16,643,755 | |
Securities sold under agreements to repurchase and other borrowings | | | | | 27,184 | |
Long-term debt | | | | | 516,881 | |
| | | | | |
Accrued expenses and other liabilities (1) | | | | | 589,689 | |
Total liabilities assumed | | | | | $ | 24,397,757 | |
Net assets acquired | | | | | 3,266,096 | |
Goodwill | | | | | $ | 1,914,204 | |
(1)Includes $100.0 million of ROU lease assets and $106.9 million of operating lease liabilities reported within Premises and equipment and Accrued expenses and other liabilities, respectively, which were measured based upon the estimated present value of the remaining lease payments. In addition, ROU lease assets were adjusted for favorable and unfavorable terms of the lease when compared to market terms, as applicable.
In connection with the merger with Sterling, the Company recorded $1.9 billion of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired. Information regarding the allocation of goodwill to the Company's reportable segments, as well as the carrying amounts and amortization of the core deposit intangible asset and customer relationship intangible assets, can be found within Note 21: Segment Reporting and Note 8: Goodwill and Other Intangible Assets, respectively.
The following is a description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed:
Cash and due from banks and Interest-bearing deposits. The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities available-for-sale. The fair values for investment securities available-for-sale were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs, including quoted market prices for similar instruments. Investment securities held-to-maturity were classified as investment securities available-for-sale based on the Company's intent at closing.
Loans and leases. The fair values for loans and leases were estimated using a discounted cash flow methodology that considered factors including the type of loan or lease and the related collateral, classification status, fixed or variable interest rate, remaining term, amortization status, and current discount rates. In addition, the PD, LGD, and prepayment assumptions that were derived based on loan and lease characteristics, historical loss experience, comparable market data, and current and forecasted economic conditions were used to estimate expected credit losses. Loans and leases generally were valued individually. The discount rates used for loans and leases were based on current market rates for new originations or comparable loans and leases and include adjustments for liquidity. The discount rate did not include credit losses as that was included as a reduction to the estimated cash flows.
Premises and equipment. The fair values for land and buildings were based on appraised values using the cost approach, which estimates the price a buyer would pay if they were to rebuild or reconstruct a similar property on a comparable piece of land.
Intangible assets. A core deposit intangible asset represents the value of relationships with deposit clients. The fair value of the core deposit intangible asset was estimated using a net cost savings method, a form of discounted cash flow methodology that gave appropriate consideration to expected client attrition rates and other applicable adjustments to the projected deposit balance, the interest cost and net maintenance cost associated with the client deposit base, alternative cost of funds, and a discount rate used to discount the future economic benefits of the core deposit intangible asset to present value. The core deposit intangible asset is being amortized on an accelerated basis over 10 years based upon the period over which the estimated economic benefits are estimated to be received. Customer relationship intangible assets for payroll finance, factoring receivables finance, and wealth businesses were estimated using a discounted cash flow methodology that reflects the estimated value of the future net earnings for each relationship with adjustments for attrition. The customer relationship intangible assets are being amortized on an accelerated basis over their estimated useful life of 10 years.
Bank-owned life insurance policies. The cash surrender value of these insurance policies is a reasonable estimate of fair value since it reflects the amount that would be realized by the contract owner upon discontinuance or surrender.
Deposits. The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the merger date. The fair values for time deposits were estimated using a discounted cash flow methodology that applies interest rates currently being offered to the contractual interest rates on such time deposits.
Securities sold under agreements to repurchase and other borrowings. The carrying amount of these liabilities is a reasonable estimate of fair value based on the short-term nature of these liabilities.
Long-term debt. The fair values of long-term debt instruments were estimated based on quoted market prices for the instrument, if available, or for similar instruments, if not available, or by using a discounted cash flow methodology based on current incremental borrowing rates for similar types of instruments.
PCD Loans and Leases
Purchased loans and leases that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses was recognized as an adjustment to the unpaid principal balance and non-credit discount at acquisition. Subsequent to the merger effective date, the Company recorded an ACL for non-PCD loans and leases of $175.1 million through an increase to the Provision for credit losses. There was no carryover of Sterling's previously recorded ACL on loans and leases.
The following table reconciles the unpaid principal balance to the fair value of PCD loans and leases by portfolio segment:
| | | | | | | | | | | | | | | | | |
(In thousands) | Commercial | | Consumer | | Total |
Unpaid principal balance | $ | 3,394,963 | | | $ | 541,471 | | | $ | 3,936,434 | |
ACL at acquisition | (115,464) | | | (20,852) | | | (136,316) | |
Non-credit (discount) | (40,947) | | | (2,784) | | | (43,731) | |
Fair value | $ | 3,238,552 | | | $ | 517,835 | | | $ | 3,756,387 | |
Supplemental Pro Forma Financial Information (Unaudited)
The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2021: | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
(In thousands) | | | | | 2022 | | 2021 |
Net interest income | | | | | $ | 1,961,005 | | | $ | 1,802,862 | |
Non-interest income | | | | | 440,783 | | | 487,301 | |
Net income | | | | | 869,639 | | | 574,927 | |
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company merged with Sterling on January 1, 2021. The supplemental pro forma financial information includes the impact of (i) accreting and amortizing the discounts and premiums associated with the estimated fair value adjustments to acquired loans and leases, investment securities, deposits, and long-term debt, (ii) the amortization of recognized intangible assets, (iii) the elimination of Sterling's historical accretion and amortization of discounts and premiums and deferred origination fees and costs on loans and leases, (iv) the elimination of Sterling's historical accretion and amortization of discounts and premiums on investment securities, and (v) the related estimated income tax effects. Cost savings and other business synergies related to the merger are not included in the supplemental pro forma financial information.
In addition, the supplemental pro forma financial information was adjusted for merger-related expenses, as follows: | | | | | | | | | | | | | | | | |
| | | | Years ended December 31, |
(In thousands) | | | | | | 2022 | | 2021 |
Compensation and benefits (1) | | | | | | $ | 79,001 | | | $ | 13,987 | |
Occupancy (2) | | | | | | 36,586 | | | 256 | |
Technology and equipment (3) | | | | | | 24,688 | | | 290 | |
Marketing | | | | | | 416 | | | — | |
Professional and outside services (4) | | | | | | 73,070 | | | 22,273 | |
Other expense (5) | | | | | | 32,700 | | | 648 | |
Total merger-related expenses | | | | | | $ | 246,461 | | | $ | 37,454 | |
(1)Comprised primarily of employee severance and retention costs, and executive restricted stock awards.
(2)Comprised primarily of charges associated with the Company’s 2022 corporate real estate consolidation plan.
(3)Comprised primarily of technology contract termination costs.
(4)Comprised primarily of advisory, legal, accounting, and other professional fees.
(5)Comprised primarily of disposals on property and equipment, contract termination costs, and other miscellaneous expenses.
The Company's operating results for the years ended December 31, 2023, and 2022, include the operating results of acquired assets and assumed liabilities of Sterling subsequent to the merger on January 31, 2022. Due to the various conversions of Sterling systems during the years ended December 31, 2023, and 2022, as well as other streamlining and integration of operating activities into those of the Company, historical reporting for the former Sterling operations after January 31, 2022, is impracticable, and thus disclosures of Sterling's revenue and earnings since the merger effective date that are included in the accompanying Consolidated Statements of Income for the reporting period is impracticable.
Bend Acquisition
On February 18, 2022, the Company acquired 100% of the equity interests of Bend, a cloud-based platform solution provider for HSAs, in exchange for cash of $55.3 million. The acquisition accelerated the Company's efforts underway to deliver enhanced user experiences at HSA Bank. The transaction was accounted for as a business combination, and resulted in the addition of $19.6 million in net assets, which primarily comprised $15.9 million of internal use software and a $3.0 million customer relationship intangible asset. The Company's valuations of the assets acquired and liabilities assumed in the Bend acquisition were considered final as of March 31, 2023.
Inland Bank and Trust HSA Portfolio Acquisition
On November 7, 2022, the Company acquired a portfolio of HSAs from Inland Bank and Trust. The transaction was accounted for as an asset acquisition, and the Company received $15.6 million in both cash and deposits on the acquisition date. The Company also paid a 2.00% deposit premium based on the final settlement of deposits, which resulted in the recognition of a $0.3 million core deposit intangible asset. The accounts and associated deposits obtained from this transaction provided stable funding for future loan growth and increased the Company's revenues.
interLINK Acquisition
On January 11, 2023, the Company acquired 100% ownership of interLINK from StoneCastle Partners LLC. interLINK is a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The acquisition provided the Company with access to a unique source of core deposit funding and scalable liquidity and added another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities.
The total purchase price of the acquisition was $174.6 million, which included cash paid of $158.6 million and $16.0 million of contingent consideration measured at fair value. The contingent consideration is payable in cash upon the achievement of discrete customer and deposit growth events within three years of the acquisition date. Additional information regarding the determination of fair value for contingent consideration liabilities can be found within Note 18: Fair Value Measurements.
The transaction was accounted for as a business combination, and resulted in the addition of $31.4 million in net assets measured at fair value, which primarily comprised $36.0 million of broker dealer relationship intangible assets, $6.0 million of developed technology, a $4.0 million non-competition agreement intangible asset, and $15.9 million of royalty liabilities. The $143.2 million of goodwill recognized is deductible for tax purposes. The Company's valuations of the assets acquired and liabilities assumed in the interLINK acquisition were considered final as of June 30, 2023.
Exit Activities
The following table summarizes the change in Accrued expenses and other liabilities as it relates to severance and contract termination costs, which were primarily incurred in connection with the Sterling merger:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2023 | | 2022 |
(In thousands) | | Severance | | Contract Termination (1) | | Total | | Severance (2) | | Contract Termination | | Total |
Balance, beginning of period | | $ | 7,583 | | | $ | 30,362 | | | $ | 37,945 | | | $ | 10,835 | | | $ | — | | | $ | 10,835 | |
Additions charged to expense | | 18,069 | | | 14,000 | | | 32,069 | | | 36,092 | | | 34,152 | | | 70,244 | |
Cash payments | | (14,247) | | | (30,551) | | | (44,798) | | | (35,014) | | | (3,790) | | | (38,804) | |
Other | | (1,300) | | | (6,587) | | | (7,887) | | | (4,330) | | | — | | | (4,330) | |
Balance, end of period | | $ | 10,105 | | | $ | 7,224 | | | $ | 17,329 | | | $ | 7,583 | | | $ | 30,362 | | | $ | 37,945 | |
(1)Other contract termination includes (i) a reduction of $4.8 million to a previously recorded technology-related contract termination charge recorded in Technology and equipment expense due to a change in the expected use of certain services after core conversion in 2023, and (ii) a reduction of $1.7 million to a previously recorded contract termination charge recorded in Other expense due to a decrease in volume usage in 2023.
(2)Other severance reflects the release of $4.1 million from the Company's severance accrual in 2022, as the Company re-evaluated its strategic priorities as a combined organization in connection with the Sterling merger, which resulted in modifications to the Company's strategic initiatives that were announced in December 2020.
Note 2: Variable Interest Entities
The Company has an investment interest in several entities that meet the definition of a VIE. The following discussion provides information about the Company's VIEs.
Consolidated
Rabbi Trust. The Company established a Rabbi Trust to meet the obligations due under its Deferred Compensation Plan for Directors and Officers and to mitigate the expense volatility of the aforementioned plan. The funding of the Rabbi Trust and the discontinuation of the Deferred Compensation Plan for Directors and Officers occurred during 2012.
Investments held in the Rabbi Trust primarily consist of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that significantly affect the VIE's economic performance and it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE.
The Company consolidates the invested assets of the trust along with the total deferred compensation obligations and includes them in accrued interest receivable and other assets and accrued expenses and other liabilities, respectively, in the accompanying Consolidated Balance Sheets. Earnings in the Rabbi Trust, including appreciation or depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation and benefits, in the accompanying Consolidated Statements of Income. Refer to Note 16: Fair Value Measurements for additional information.
Non-Consolidated
Securitized Investments. The Company, through normal investment activities, makes passive investments in securities issued by VIEs for which Webster is not the manager. The investment securities consist of Agency CMO, Agency MBS, Agency CMBS, CLO, and single issuer-trust preferred. The Company has not provided financial or other support with respect to these investment securities other than its original investment. For these investment securities, the Company determined it is not the primary beneficiary due to the relative size of its investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss is limited to the amount of its investment in the VIEs. Refer to Note 3: Investment Securities for additional information.
Tax Credit - Finance Investments. The Company makes equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as Webster is not involved in its management. For these investments, the Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.
At December 31, 2017 and December 31, 2016, the aggregate carrying value of the Company's tax credit-finance investments were $33.5 million and $22.8 million, respectively, which represents the Company's maximum exposure to loss. At December 31, 2017 and December 31, 2016, unfunded commitments have been recognized, totaling $17.3 million and $14.0 million, respectively, and are included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.
Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The trust, is a VIE in which the Company is not the primary beneficiary and therefore, is not consolidated. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt in the accompanying Consolidated Balance Sheets, and the related interest expense is reported as interest expense on long-term debt in the accompanying Consolidated Statements of Income.
Other Investments. The Company invests in various alternative investments in which it holds a variable interest. Alternative investments are non-public entities which cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. For these investments, the Company has determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.
At December 31, 2017 and December 31, 2016, the aggregate carrying value of the Company's other investments in VIEs was $13.8 million and $12.3 million, respectively, and the maximum exposure to loss of the Company's other investments in VIEs, including unfunded commitments, was $22.9 million and $19.9 million, respectively. Refer to Note 16: Fair Value Measurements for additional information.
The Company's equity interests in Tax Credit-Finance Investments, Webster Statutory Trust, and Other Investments are included in accrued interest receivable and other assets in the accompanying Consolidated Balance Sheets.
Note 3: Investment Securities
A Summary ofAvailable-for-Sale
The following table summarizes the amortized cost and fair value of investmentavailable-for-sale securities by major type: | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value |
| | | | |
Government agency debentures | $ | 302,212 | | $ | — | | $ | (37,579) | | $ | 264,633 | |
Municipal bonds and notes | 1,626,126 | | 8 | | (52,901) | | 1,573,233 | |
Agency CMO | 52,994 | | — | | (4,053) | | 48,941 | |
Agency MBS | 3,568,140 | | 32,461 | | (253,503) | | 3,347,098 | |
Agency CMBS | 2,569,438 | | 18,204 | | (299,571) | | 2,288,071 | |
CMBS | 788,478 | | — | | (24,729) | | 763,749 | |
| | | | |
Corporate debt | 704,569 | | — | | (82,414) | | 622,155 | |
Private label MBS | 46,635 | | — | | (3,827) | | 42,808 | |
Other | 9,830 | | — | | (789) | | 9,041 | |
Total available-for-sale | $ | 9,668,422 | | $ | 50,673 | | $ | (759,366) | | $ | 8,959,729 | |
| | | | |
| At December 31, 2022 |
(In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value |
U.S. Treasury notes | $ | 755,968 | | $ | — | | $ | (38,928) | | $ | 717,040 | |
Government agency debentures | 302,018 | | — | | (43,644) | | 258,374 | |
Municipal bonds and notes | 1,719,110 | | 5 | | (85,913) | | 1,633,202 | |
Agency CMO | 64,984 | | — | | (5,019) | | 59,965 | |
Agency MBS | 2,461,337 | | 26 | | (303,339) | | 2,158,024 | |
Agency CMBS | 1,664,600 | | — | | (258,114) | | 1,406,486 | |
CMBS | 929,588 | | — | | (32,948) | | 896,640 | |
CLO | 2,108 | | — | | (1) | | 2,107 | |
Corporate debt | 795,999 | | — | | (91,587) | | 704,412 | |
Private label MBS | 48,895 | | — | | (4,646) | | 44,249 | |
Other | 12,548 | | — | | (350) | | 12,198 | |
Total available-for-sale | $ | 8,757,155 | | $ | 31 | | $ | (864,489) | | $ | 7,892,697 | |
(1)Accrued interest receivable on available-for-sale securities of $42.5 million and $36.9 million at December 31, 2023, and 2022, respectively, is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value |
Available-for-sale: | | | | | | | | | |
U.S. Treasury Bills | $ | 1,247 |
| $ | — |
| $ | — |
| $ | 1,247 |
| | $ | 734 |
| $ | — |
| $ | — |
| $ | 734 |
|
Agency CMO | 308,989 |
| 1,158 |
| (3,814 | ) | 306,333 |
| | 419,865 |
| 3,344 |
| (3,503 | ) | 419,706 |
|
Agency MBS | 1,124,960 |
| 2,151 |
| (19,270 | ) | 1,107,841 |
| | 969,460 |
| 4,398 |
| (19,509 | ) | 954,349 |
|
Agency CMBS | 608,276 |
| — |
| (20,250 | ) | 588,026 |
| | 587,776 |
| 63 |
| (14,567 | ) | 573,272 |
|
CMBS | 358,984 |
| 2,157 |
| (74 | ) | 361,067 |
| | 473,974 |
| 4,093 |
| (702 | ) | 477,365 |
|
CLO | 209,075 |
| 910 |
| (134 | ) | 209,851 |
| | 425,083 |
| 2,826 |
| (519 | ) | 427,390 |
|
Single issuer-trust preferred | 7,096 |
| — |
| (46 | ) | 7,050 |
| | 30,381 |
| — |
| (1,748 | ) | 28,633 |
|
Corporate debt | 56,504 |
| 797 |
| (679 | ) | 56,622 |
| | 108,490 |
| 1,502 |
| (350 | ) | 109,642 |
|
Total available-for-sale | $ | 2,675,131 |
| $ | 7,173 |
| $ | (44,267 | ) | $ | 2,638,037 |
| | $ | 3,015,763 |
| $ | 16,226 |
| $ | (40,898 | ) | $ | 2,991,091 |
|
Held-to-maturity: | | | | | | | | | |
Agency CMO | $ | 260,114 |
| $ | 664 |
| $ | (4,824 | ) | $ | 255,954 |
| | $ | 339,455 |
| $ | 1,977 |
| $ | (3,824 | ) | $ | 337,608 |
|
Agency MBS | 2,569,735 |
| 16,989 |
| (37,442 | ) | 2,549,282 |
| | 2,317,449 |
| 26,388 |
| (41,768 | ) | 2,302,069 |
|
Agency CMBS | 696,566 |
| — |
| (10,011 | ) | 686,555 |
| | 547,726 |
| 694 |
| (1,348 | ) | 547,072 |
|
Municipal bonds and notes | 711,381 |
| 8,584 |
| (6,558 | ) | 713,407 |
| | 655,813 |
| 4,389 |
| (25,749 | ) | 634,453 |
|
CMBS | 249,273 |
| 2,175 |
| (620 | ) | 250,828 |
| | 298,538 |
| 4,107 |
| (411 | ) | 302,234 |
|
Private Label MBS | 323 |
| 1 |
| — |
| 324 |
| | 1,677 |
| 12 |
| — |
| 1,689 |
|
Total held-to-maturity | $ | 4,487,392 |
| $ | 28,413 |
| $ | (59,455 | ) | $ | 4,456,350 |
| | $ | 4,160,658 |
| $ | 37,567 |
| $ | (73,100 | ) | $ | 4,125,125 |
|
Other-Than-Temporary Impairment
The balance of OTTI,excluded from amortized cost and is included in the amortized cost columns above, is related to certain CLO positions that were previously considered Covered Funds as defined by Section 619 of the Dodd-Frank Act commonly known as the Volcker Rule. The Company has taken measures to bring its CLO positions into conformance with the Volcker Rule.
To the extent that changes occur inAccrued interest rates, credit movements,receivable and other factors that impact fair value and expected recovery of amortized cost of its investment securities,assets on the Company may be required to recognize OTTI in earnings, in future periods.
The following table presents the changes in OTTI:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Beginning balance | $ | 3,243 |
| | $ | 3,288 |
| | $ | 3,696 |
|
Reduction for securities sold or called | (2,005 | ) | | (194 | ) | | (518 | ) |
Additions for OTTI not previously recognized | 126 |
| | 149 |
| | 110 |
|
Ending balance | $ | 1,364 |
| | $ | 3,243 |
| | $ | 3,288 |
|
accompanying Consolidated Balance Sheets.
Fair Value and Unrealized Losses
The following tables provide information onsummarize the gross unrealized losses and fair value and unrealized losses for the individualof available-for-sale securities with an unrealized loss, aggregated by investment security type and length of time that the individual securities haveeach major security type has been in a continuous unrealized loss position: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Less Than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | Number of Holdings | Fair Value | Unrealized Losses |
| | | | | | | | | |
Government agency debentures | $ | — | | $ | — | | | $ | 264,633 | | $ | (37,579) | | | 19 | $ | 264,633 | | $ | (37,579) | |
Municipal bonds and notes | 18,066 | | (124) | | | 1,536,656 | | (52,777) | | | 386 | 1,554,722 | | (52,901) | |
Agency CMO | — | | — | | | 48,941 | | (4,053) | | | 36 | 48,941 | | (4,053) | |
Agency MBS | 71,187 | | (272) | | | 1,945,221 | | (253,231) | | | 457 | 2,016,408 | | (253,503) | |
Agency CMBS | 430,070 | | (16,137) | | | 1,314,681 | | (283,434) | | | 145 | 1,744,751 | | (299,571) | |
CMBS | 43,844 | | (856) | | | 719,905 | | (23,873) | | | 42 | 763,749 | | (24,729) | |
| | | | | | | | | |
Corporate debt | 4,278 | | (27) | | | 617,877 | | (82,387) | | | 91 | 622,155 | | (82,414) | |
Private label MBS | — | | — | | | 42,808 | | (3,827) | | | 3 | 42,808 | | (3,827) | |
Other | — | | — | | | 9,041 | | (789) | | | 2 | 9,041 | | (789) | |
Total | $ | 567,445 | | $ | (17,416) | | | $ | 6,499,763 | | $ | (741,950) | | | 1,181 | $ | 7,067,208 | | $ | (759,366) | |
90
|
| | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 |
| Less Than Twelve Months | | Twelve Months or Longer | | Total |
(Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | # of Holdings | Fair Value | Unrealized Losses |
Available-for-sale: | | | | | | | | | |
Agency CMO | $ | 81,001 |
| $ | (449 | ) | | $ | 119,104 |
| $ | (3,365 | ) | | 27 | $ | 200,105 |
| $ | (3,814 | ) |
Agency MBS | 416,995 |
| (2,920 | ) | | 606,021 |
| (16,350 | ) | | 135 | 1,023,016 |
| (19,270 | ) |
Agency CMBS | 54,182 |
| (851 | ) | | 533,844 |
| (19,399 | ) | | 36 | 588,026 |
| (20,250 | ) |
CMBS | 23,869 |
| (74 | ) | | — |
| — |
| | 6 | 23,869 |
| (74 | ) |
CLO | 56,335 |
| (134 | ) | | — |
| — |
| | 3 | 56,335 |
| (134 | ) |
Single issuer-trust preferred | 7,050 |
| (46 | ) | | — |
| — |
| | 1 | 7,050 |
| (46 | ) |
Corporate debt | 11,082 |
| (395 | ) | | 6,265 |
| (284 | ) | | 4 | 17,347 |
| (679 | ) |
Total available-for-sale in an unrealized loss position | $ | 650,514 |
| $ | (4,869 | ) | | $ | 1,265,234 |
| $ | (39,398 | ) | | 212 | $ | 1,915,748 |
| $ | (44,267 | ) |
Held-to-maturity: | | | | | | | | | |
Agency CMO | $ | 98,090 |
| $ | (1,082 | ) | | $ | 106,775 |
| $ | (3,742 | ) | | 22 | $ | 204,865 |
| $ | (4,824 | ) |
Agency MBS | 762,107 |
| (4,555 | ) | | 1,197,839 |
| (32,887 | ) | | 205 | 1,959,946 |
| (37,442 | ) |
Agency CMBS | 576,770 |
| (7,599 | ) | | 109,785 |
| (2,412 | ) | | 56 | 686,555 |
| (10,011 | ) |
Municipal bonds and notes | 6,432 |
| (38 | ) | | 226,861 |
| (6,520 | ) | | 92 | 233,293 |
| (6,558 | ) |
CMBS | 92,670 |
| (413 | ) | | 14,115 |
| (207 | ) | | 13 | 106,785 |
| (620 | ) |
Total held-to-maturity in an unrealized loss position | $ | 1,536,069 |
| $ | (13,687 | ) | | $ | 1,655,375 |
| $ | (45,768 | ) | | 388 | $ | 3,191,444 |
| $ | (59,455 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2016 |
| Less Than Twelve Months | | Twelve Months or Longer | | Total |
(Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | # of Holdings | Fair Value | Unrealized Losses |
Available-for-sale: | | | | | | | | | |
Agency CMO | $ | 107,853 |
| $ | (2,168 | ) | | $ | 67,351 |
| $ | (1,335 | ) | | 15 | $ | 175,204 |
| $ | (3,503 | ) |
Agency MBS | 512,075 |
| (10,503 | ) | | 252,779 |
| (9,006 | ) | | 97 | 764,854 |
| (19,509 | ) |
Agency CMBS | 554,246 |
| (14,567 | ) | | — |
| — |
| | 32 | 554,246 |
| (14,567 | ) |
CMBS | 12,427 |
| (24 | ) | | 63,930 |
| (678 | ) | | 12 | 76,357 |
| (702 | ) |
CLO | 49,946 |
| (54 | ) | | 50,237 |
| (465 | ) | | 5 | 100,183 |
| (519 | ) |
Single issuer-trust preferred | — |
| — |
| | 28,633 |
| (1,748 | ) | | 5 | 28,633 |
| (1,748 | ) |
Corporate debt | — |
| — |
| | 7,384 |
| (350 | ) | | 2 | 7,384 |
| (350 | ) |
Total available-for-sale in an unrealized loss position | $ | 1,236,547 |
| $ | (27,316 | ) | | $ | 470,314 |
| $ | (13,582 | ) | | 168 | $ | 1,706,861 |
| $ | (40,898 | ) |
Held-to-maturity: | | | | | | | | | |
Agency CMO | $ | 163,439 |
| $ | (3,339 | ) | | $ | 17,254 |
| $ | (485 | ) | | 16 | $ | 180,693 |
| $ | (3,824 | ) |
Agency MBS | 1,394,623 |
| (32,942 | ) | | 273,779 |
| (8,826 | ) | | 150 | 1,668,402 |
| (41,768 | ) |
Agency CMBS | 347,725 |
| (1,348 | ) | | — |
| — |
| | 25 | 347,725 |
| (1,348 | ) |
Municipal bonds and notes | 384,795 |
| (25,745 | ) | | 1,192 |
| (4 | ) | | 196 | 385,987 |
| (25,749 | ) |
CMBS | 60,768 |
| (411 | ) | | — |
| — |
| | 8 | 60,768 |
| (411 | ) |
Total held-to-maturity in an unrealized loss position | $ | 2,351,350 |
| $ | (63,785 | ) | | $ | 292,225 |
| $ | (9,315 | ) | | 395 | $ | 2,643,575 |
| $ | (73,100 | ) |
Impairment Analysis | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
| Less Than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | Number of Holdings | Fair Value | Unrealized Losses |
U.S. Treasury notes | $ | 337,563 | | $ | (19,167) | | | $ | 379,477 | | $ | (19,761) | | | 23 | $ | 717,040 | | $ | (38,928) | |
Government agency debentures | 258,374 | | (43,644) | | | — | | — | | | 19 | 258,374 | | (43,644) | |
Municipal bonds and notes | 1,616,771 | | (85,913) | | | — | | — | | | 444 | 1,616,771 | | (85,913) | |
Agency CMO | 55,693 | | (4,640) | | | 4,272 | | (379) | | | 39 | 59,965 | | (5,019) | |
Agency MBS | 1,641,544 | | (206,412) | | | 515,206 | | (96,927) | | | 460 | 2,156,750 | | (303,339) | |
Agency CMBS | 485,333 | | (68,674) | | | 921,153 | | (189,440) | | | 132 | 1,406,486 | | (258,114) | |
CMBS | 273,150 | | (8,982) | | | 598,490 | | (23,966) | | | 52 | 871,640 | | (32,948) | |
CLO | — | | — | | | 2,107 | | (1) | | | 1 | 2,107 | | (1) | |
Corporate debt | 692,990 | | (89,692) | | | 8,421 | | (1,895) | | | 105 | 701,411 | | (91,587) | |
Private label MBS | 44,249 | | (4,646) | | | — | | — | | | 3 | 44,249 | | (4,646) | |
Other | 12,198 | | (350) | | | — | | — | | | 4 | 12,198 | | (350) | |
Total | $ | 5,417,865 | | $ | (532,120) | | | $ | 2,429,126 | | $ | (332,369) | | | 1,282 | $ | 7,846,991 | | $ | (864,489) | |
The following impairment analysis by$105.1 million decrease in gross unrealized losses from December 31, 2022, to December 31, 2023, is primarily due to lower long-term market rates. The Company assesses each available-for-sale security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis is a result from a credit loss or other factors. At both December 31, 2023, and 2022, no ACL was recorded on available-for-sale securities as each of the securities in the Company's portfolio are investment security type, summarizesgrade, current as to principal and interest, and their price changes are consistent with interest and credit spreads when adjusting for convexity, rating, and industry differences.
As of December 31, 2023, based on current market conditions and the basis for evaluating if investment securities within the Company’s available-for-sale and held-to-maturity portfolios have been impacted by OTTI. Unless otherwise noted for an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not thatCompany's targeted balance sheet composition strategy, the Company will not be requiredintends to sell thesehold its available-for-sale securities before the recovery of their amortized cost. As such, based on the following impairment analysis, the Company does not consider these securities, inwith unrealized loss positions to be other-than-temporarily impaired at December 31, 2017.
Available-for-Sale Securities
Agency CMO. There were unrealized lossesthrough the anticipated recovery period. The issuers of $3.8 million onthese available-for-sale securities have not, to the Company’s investment in Agency CMO at December 31, 2017, comparedknowledge, established any cause for default. Market prices are expected to $3.5 million at December 31, 2016. Unrealized losses increased slightly due to higher market rates while principal balances decreased for this asset class since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performingapproach par as expected.
Agency MBS. There were unrealized losses of $19.3 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at December 31, 2017, compared to $19.5 million at December 31, 2016. Unrealized losses decreased slightly due to paydowns and purchase activity, while principal balances increased for this asset class since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS. There were unrealized losses of $20.3 million on the Company's investment in commercial mortgage-backed securities issued by government agencies at December 31, 2017, compared to $14.6 million at December 31, 2016. Unrealized losses increased due to higher market rates while principal balances increased for this asset class since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
CMBS. There were unrealized losses of $74 thousand on the Company’s investment in CMBS at December 31, 2017, compared to $702 thousand at December 31, 2016. The portfolio of mainly floating rate CMBS experienced reduced market spreads which resulted in higher market prices and smaller unrealized losses at December 31, 2017 compared to December 31, 2016. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.
CLO. There were unrealized losses of $134 thousand on the Company’s investments in CLO at December 31, 2017 compared to $519 thousand unrealized losses at December 31, 2016. Unrealized losses decreased due to reduced market spreads while principal balances decreased since December 31, 2016. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.
Single issuer-trust preferred. There were unrealized losses of $46 thousand on the Company's investment in single issuer-trust preferred at December 31, 2017, compared to $1.7 million at December 31, 2016. Unrealized losses decreased due to lower principal balances for this asset class as a conversion feature for two securities was exercised by the issuer resulting in the reclassification of those securities into corporate debt. Single issuer-trust preferred consists of one investment issued by a large capitalization money center financial institution, which continues to service its debt. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Corporate debt. There were $679 thousand unrealized losses on the Company's corporate debt portfolio at December 31, 2017, compared to $350 thousand at December 31, 2016. Unrealized losses increased as reclassified security balances with unrealized losses exceeded maturing corporate debt balances since December 31, 2016. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Held-to-Maturity Securities
Agency CMO. There were unrealized losses of $4.8 million on the Company’s investment in Agency CMO at December 31, 2017, compared to $3.8 million at December 31, 2016. Unrealized losses increased due to higher market rates while principal balances decreased since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency MBS. There were unrealized losses of $37.4 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at December 31, 2017, compared to $41.8 million at December 31, 2016. Unrealized losses decreased due to paydowns and purchase activity while principal balances increased for this asset class since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS. There were unrealized losses of $10.0 million on the Company’s investment in commercial mortgage-backed securities issued by government agencies at December 31, 2017, compared to $1.3 million at December 31, 2016. Unrealized losses increased due to higher market rates while principal balances increased since December 31, 2016. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Municipal bonds and notes. There were unrealized losses of $6.6 million on the Company’s investment in municipal bonds and notes at December 31, 2017, compared to $25.7 million at December 31, 2016. Unrealized losses decreased due to lower market spreads while principal balances increased since December 31, 2016. The Company performs periodic credit reviews of the issuers and the securities are currently performing as expected.approach maturity.
Contractual Maturities
CMBS. There were unrealized losses of $620 thousand on the Company’s investment in CMBS at December 31, 2017, compared to $411 thousand unrealized losses at December 31, 2016. Unrealized losses increased due to higher market rates on mainly seasoned fixed rate conduit transactions while principal balances decreased since December 31, 2016. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios.
Sales of Available-for Sale Securities
The following table provides information on sales of available-for-sale securities:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Proceeds from sales (1) | $ | — |
| | $ | 259,273 |
| | $ | 95,101 |
|
| | | | | |
Gross realized gains on sales | $ | — |
| | $ | 2,891 |
| | $ | 1,029 |
|
Less: Gross realized losses on sales | — |
| | 2,477 |
| | 420 |
|
Gain on sale of investment securities, net | $ | — |
| | $ | 414 |
| | $ | 609 |
|
| |
(1) | There were no sales duringsummarizes the year ended December 31, 2017. |
Contractual Maturities
The amortized cost and fair value of
debtavailable-for-sale securities by contractual
maturity, including calledmaturity: | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Amortized Cost | | Fair Value |
Maturing within 1 year | $ | 37,908 | | | $ | 36,958 | |
After 1 year through 5 years | 644,959 | | | 616,176 | |
After 5 years through 10 years | 1,363,257 | | | 1,263,900 | |
After 10 years | 7,622,298 | | | 7,042,695 | |
Total available-for-sale | $ | 9,668,422 | | | $ | 8,959,729 | |
Available-for-sale securities are set forth below:
|
| | | | | | | | | | | | | |
| At December 31, 2017 |
| | | |
| Available-for-Sale | | Held-to-Maturity |
(In thousands) | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
Due in one year or less | $ | 1,247 |
| $ | 1,247 |
| | $ | 33,654 |
| $ | 34,145 |
|
Due after one year through five years | 40,066 |
| 40,447 |
| | 3,839 |
| 3,857 |
|
Due after five through ten years | 332,558 |
| 333,931 |
| | 37,870 |
| 38,450 |
|
Due after ten years | 2,301,260 |
| 2,262,412 |
| | 4,412,029 |
| 4,379,898 |
|
Total debt securities | $ | 2,675,131 |
| $ | 2,638,037 |
| | $ | 4,487,392 |
| $ | 4,456,350 |
|
For the maturity schedule above, mortgage-backed securities and CLO, whichthat are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentationcategorization as borrowers have the right to prepay their obligations with or without prepayment penalties.
Sales of Available-for Sale Securities
During the year ended December 31, 2023, the Company sold U.S. Treasury notes, Corporate debt securities, and Municipal bonds and notes classified as available-for-sale for proceeds of $789.6 million, which resulted in gross realized losses of $37.4 million. Because $3.8 million of the total loss recognized for the year ended December 31, 2023, was attributed to a decline in credit quality, this portion of the charge has been included in the Provision for credit losses on the accompanying Consolidated Statements of Income.
During the year ended December 31, 2022, the Company sold Municipal bonds and notes classified as available-for-sale for proceeds of $172.9 million, which resulted in gross realized losses of $6.8 million.
There were no sales of available-for-sales securities during the year ended December 31, 2021.
Other Information
The following table summarizes the carrying value of available-for-sale securities pledged for deposits, borrowings, and other purposes:
| | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Pledged for deposits | $ | 2,102,115 | | $ | 2,573,072 |
Pledged for borrowings and other | 6,111,430 | | 1,195,101 |
Total available-for-sale securities pledged | $ | 8,213,545 | | $ | 3,768,173 |
At December 31, 2017,2023, the Company had acallable available-for-sale securities with an aggregate carrying value of $1.2 billion in callable$3.0 billion.
Held-to-Maturity
The following table summarizes the amortized cost, fair value, and ACL on held-to-maturity securities in its CMBS, CLO,by major type:
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value |
Agency CMO | $ | 23,470 | | $ | — | | $ | (1,728) | | $ | 21,742 | | | $ | — | | $ | 23,470 | |
Agency MBS | 2,409,521 | | 1,141 | | (284,776) | | 2,125,886 | | | — | | 2,409,521 | |
Agency CMBS | 3,625,627 | | 18,586 | | (514,534) | | 3,129,679 | | | — | | 3,625,627 | |
Municipal bonds and notes | 916,104 | | 2,440 | | (24,877) | | 893,667 | | | 209 | | 915,895 | |
CMBS | 100,075 | | — | | (6,426) | | 93,649 | | | — | | 100,075 | |
Total held-to-maturity | $ | 7,074,797 | | $ | 22,167 | | $ | (832,341) | | $ | 6,264,623 | | | $ | 209 | | $ | 7,074,588 | |
| | | | | | | |
| At December 31, 2022 |
(In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value |
Agency CMO | $ | 28,358 | | $ | — | | $ | (2,060) | | $ | 26,298 | | | $ | — | | $ | 28,358 | |
Agency MBS | 2,626,114 | | 827 | | (339,592) | | 2,287,349 | | | — | | 2,626,114 | |
Agency CMBS | 2,831,949 | | 845 | | (407,648) | | 2,425,146 | | | — | | 2,831,949 | |
Municipal bonds and notes | 928,845 | | 1,098 | | (47,183) | | 882,760 | | | 182 | | 928,663 | |
CMBS | 149,613 | | — | | (9,713) | | 139,900 | | | — | | 149,613 | |
Total held-to-maturity | $ | 6,564,879 | | $ | 2,770 | | $ | (806,196) | | $ | 5,761,453 | | | $ | 182 | | $ | 6,564,697 | |
(1)Accrued interest receivable on held-to-maturity securities of $24.9 million and municipal bond portfolios. The Company considers prepayment risk in the evaluation of its interest rate risk profile. These maturities do not reflect actual duration which are impacted by prepayments.
Investment securities with a carrying value totaling $2.4 billion$24.2 million at December 31, 20172023, and $2.5 billion2022, respectively, is excluded from amortized cost and is included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
An ACL on held-to-maturity securities is recorded for certain Municipal bonds and notes to account for expected lifetime credit losses. Agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federally-related entity and are either explicitly or implicitly guaranteed, and therefore, assumed to be zero loss. Held-to-maturity securities with gross unrealized losses and no ACL are considered to be high credit quality, and therefore, zero credit loss has been recorded.
The following table summarizes the activity in the ACL on held-to-maturity securities: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Balance, beginning of period | $ | 182 | | $ | 214 | | $ | 299 |
| | | | | |
Provision (benefit) for credit losses | 27 | | (32) | | (85) |
Balance, end of period | $ | 209 | | $ | 182 | | $ | 214 |
Contractual Maturities
The following table summarizes the amortized cost and fair value of held-to-maturity securities by contractual maturity:
| | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Amortized Cost | | Fair Value |
Maturing within 1 year | $ | 8,122 | | | $ | 8,136 | |
After 1 year through 5 years | 59,932 | | | 60,434 | |
After 5 years through 10 years | 363,498 | | | 349,083 | |
After 10 years | 6,643,245 | | | 5,846,970 | |
Total held-to-maturity | $ | 7,074,797 | | | $ | 6,264,623 | |
Held-to-maturity securities that are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this categorization as borrowers have the right to prepay their obligations with or without prepayment penalties.
Credit Quality Information
The Company monitors the credit quality of held-to-maturity securities through credit ratings provided by Standard & Poor's Rating Services, Moody's, Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about the credit quality of a security and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P, or Baa3 or higher by Moody's, and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade held-to-maturity securities at December 31, 20162023, or December 31, 2022. Held-to-maturity securities that are not rated are collateralized with U.S. Treasury obligations.
The following tables summarize the amortized cost of held-to-maturity securities based on their lowest publicly available credit rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Investment Grade | | |
(In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | A3 | | | Not Rated |
Agency CMOs | $ | — | | $ | 23,470 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | $ | — | |
Agency MBS | — | | 2,409,521 | | — | | — | | — | | — | | — | | | | — | |
Agency CMBS | — | | 3,625,627 | | — | | — | | — | | — | | — | | | | — | |
Municipal bonds and notes | 333,479 | | 162,615 | | 253,671 | | 115,404 | | 32,732 | | — | | 4,165 | | | | 14,038 | |
CMBS | 100,075 | | — | | — | | — | | — | | — | | — | | | | — | |
Total held-to-maturity | $ | 433,554 | | $ | 6,221,233 | | $ | 253,671 | | $ | 115,404 | | $ | 32,732 | | $ | — | | $ | 4,165 | | | | $ | 14,038 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
| Investment Grade | | |
(In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | A3 | | | Not Rated |
Agency CMOs | $ | — | | $ | 28,358 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | $ | — | |
Agency MBS | — | | 2,626,114 | | — | | — | | — | | — | | — | | | | — | |
Agency CMBS | — | | 2,831,949 | | — | | — | | — | | — | | — | | | | — | |
Municipal bonds and notes | 336,035 | | 163,312 | | 255,235 | | 116,870 | | 38,177 | | 4,165 | | — | | | | 15,051 | |
CMBS | 149,613 | | — | | — | | — | | — | | — | | — | | | | — | |
Total held-to-maturity | $ | 485,648 | | $ | 5,649,733 | | $ | 255,235 | | $ | 116,870 | | $ | 38,177 | | $ | 4,165 | | $ | — | | | | $ | 15,051 | |
| | | | | | | | | | |
At December 31, 2023, and 2022, there were no held-to-maturity debt securities past due under the terms of their agreements or in non-accrual status.Other Information
The following table summarizes the carrying value of held-to-maturity securities pledged to secure public funds, trustfor deposits, repurchase agreements,borrowings, and for other purposes, as required or permitted by law.purposes: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Pledged for deposits | $ | 1,212,824 | | $ | 1,596,777 |
Pledged for borrowings and other | 5,582,379 | | 260,735 |
Total held-to-maturity securities pledged | $ | 6,795,203 | | $ | 1,857,512 |
At December 31, 2023, the Company had callable held-to-maturity securities with an aggregate carrying value of $0.9 billion.
Note 4: Loans and Leases
The following table summarizes loans and leases:leases by portfolio segment and class: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Commercial non-mortgage | $ | 16,885,475 | | | $ | 16,392,795 | |
Asset-based | 1,557,841 | | | 1,821,642 | |
Commercial real estate | 13,569,762 | | | 12,997,163 | |
Multi-family | 7,587,970 | | | 6,621,982 | |
Equipment financing | 1,328,786 | | | 1,628,393 | |
Warehouse lending | — | | | 641,976 | |
Commercial portfolio | 40,929,834 | | | 40,103,951 | |
Residential | 8,227,923 | | | 7,963,420 | |
Home equity | 1,516,955 | | | 1,633,107 | |
Other consumer | 51,340 | | | 63,948 | |
Consumer portfolio | 9,796,218 | | | 9,660,475 | |
Loans and leases | $ | 50,726,052 | | | $ | 49,764,426 | |
The carrying amount of loans and leases at December 31, 2023, and 2022, includes net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs totaling $(33.8) million and $(68.7) million, respectively. Accrued interest receivable of $270.4 million and $226.3 million at December 31, 2023, and 2022, respectively, is excluded from the carrying amount of loans and leases and is included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Residential | $ | 4,490,878 |
| | $ | 4,254,682 |
|
Consumer | 2,590,225 |
| | 2,684,500 |
|
Commercial | 5,368,694 |
| | 4,940,931 |
|
Commercial Real Estate | 4,523,828 |
| | 4,510,846 |
|
Equipment Financing | 550,233 |
| | 635,629 |
|
Loans and leases (1) (2) | $ | 17,523,858 |
| | $ | 17,026,588 |
|
At December 31, 2023, the Company had pledged $16.6 billion of eligible loans as collateral to support borrowing capacity at the FHLB.
| |
(1) | Loans and leases include net deferred fees and net premiums and discounts of $20.6 million and $17.3 million at December 31, 2017 and December 31, 2016, respectively. |
| |
(2) | At December 31, 2017, the Company had pledged $6.7 billion of eligible loans as collateral to support borrowing capacity at the FHLB of Boston and the FRB of Boston. |
Non-Accrual and Past Due Loans and Leases Portfolio Aging
The following tables summarize the aging of accrual and non-accrual loans and leases by class: | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | 90 or More Days Past Due and Accruing | Non-accrual | Total Past Due and Non-accrual | Current | Total Loans and Leases |
Commercial non-mortgage | $ | 2,270 | | $ | 890 | | $ | 94 | | $ | 122,855 | | $ | 126,109 | | $ | 16,759,366 | | $ | 16,885,475 | |
Asset-based | — | | — | | — | | 35,068 | | 35,068 | | 1,522,773 | | 1,557,841 | |
Commercial real estate | 1,459 | | — | | 184 | | 11,383 | | 13,026 | | 13,556,736 | | 13,569,762 | |
Multi-family | 5,198 | | 2,340 | | — | | — | | 7,538 | | 7,580,432 | | 7,587,970 | |
Equipment financing | 3,966 | | 8 | | — | | 9,828 | | 13,802 | | 1,314,984 | | 1,328,786 | |
| | | | | | | |
Commercial portfolio | 12,893 | | 3,238 | | 278 | | 179,134 | | 195,543 | | 40,734,291 | | 40,929,834 | |
Residential | 14,894 | | 6,218 | | — | | 5,704 | | 26,816 | | 8,201,107 | | 8,227,923 | |
Home equity | 5,676 | | 3,285 | | — | | 23,545 | | 32,506 | | 1,484,449 | | 1,516,955 | |
Other consumer | 410 | | 94 | | — | | 142 | | 646 | | 50,694 | | 51,340 | |
Consumer portfolio | 20,980 | | 9,597 | | — | | 29,391 | | 59,968 | | 9,736,250 | | 9,796,218 | |
Total | $ | 33,873 | | $ | 12,835 | | $ | 278 | | $ | 208,525 | | $ | 255,511 | | $ | 50,470,541 | | $ | 50,726,052 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
(In thousands) | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | 90 or More Days Past Due and Accruing | Non-accrual | Total Past Due and Non-accrual | Current (1) | Total Loans and Leases |
Commercial non-mortgage | $ | 8,434 | | $ | 821 | | $ | 645 | | $ | 71,884 | | $ | 81,784 | | $ | 16,311,011 | | $ | 16,392,795 | |
Asset-based | 5,921 | | — | | — | | 20,024 | | 25,945 | | 1,795,697 | | 1,821,642 | |
Commercial real estate | 1,494 | | 23,492 | | 68 | | 39,057 | | 64,111 | | 12,933,052 | | 12,997,163 | |
Multi-family | 1,157 | | — | | — | | 636 | | 1,793 | | 6,620,189 | | 6,621,982 | |
Equipment financing | 806 | | 9,988 | | — | | 12,344 | | 23,138 | | 1,605,255 | | 1,628,393 | |
Warehouse Lending | — | | — | | — | | — | | — | | 641,976 | | 641,976 | |
Commercial portfolio | 17,812 | | 34,301 | | 713 | | 143,945 | | 196,771 | | 39,907,180 | | 40,103,951 | |
Residential | 8,246 | | 3,083 | | — | | 25,424 | | 36,753 | | 7,926,667 | | 7,963,420 | |
Home equity | 5,293 | | 2,820 | | — | | 27,924 | | 36,037 | | 1,597,070 | | 1,633,107 | |
Other consumer | 1,028 | | 85 | | 13 | | 148 | | 1,274 | | 62,674 | | 63,948 | |
Consumer portfolio | 14,567 | | 5,988 | | 13 | | 53,496 | | 74,064 | | 9,586,411 | | 9,660,475 | |
Total | $ | 32,379 | | $ | 40,289 | | $ | 726 | | $ | 197,441 | | $ | 270,835 | | $ | 49,493,591 | | $ | 49,764,426 | |
(1)At December 31, 2022, there were $28.5 million of commercial loans that had reached their contractual maturity but were actively in the process of being refinanced with the Company. Due to the status of the refinancing, these commercial loans have been reported as current in the table above.
The following table provides additional information on non-accrual loans and leases:
|
| | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 |
(In thousands) | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | 90 or More Days Past Due and Accruing | Non-accrual | Total Past Due and Non-accrual | Current | Total Loans and Leases |
Residential | $ | 8,643 |
| $ | 5,146 |
| $ | — |
| $ | 44,481 |
| $ | 58,270 |
| $ | 4,432,608 |
| $ | 4,490,878 |
|
Consumer: | | | | | | | |
Home equity | 12,668 |
| 5,770 |
| — |
| 35,645 |
| 54,083 |
| 2,298,185 |
| 2,352,268 |
|
Other consumer | 2,556 |
| 1,444 |
| — |
| 1,707 |
| 5,707 |
| 232,250 |
| 237,957 |
|
Commercial: | | | | | | | |
Commercial non-mortgage | 5,212 |
| 603 |
| 644 |
| 39,214 |
| 45,673 |
| 4,488,242 |
| 4,533,915 |
|
Asset-based | — |
| — |
| — |
| 589 |
| 589 |
| 834,190 |
| 834,779 |
|
Commercial real estate: | | | | | | | |
Commercial real estate | 478 |
| 77 |
| 248 |
| 4,484 |
| 5,287 |
| 4,238,987 |
| 4,244,274 |
|
Commercial construction | — |
| — |
| — |
| — |
| — |
| 279,554 |
| 279,554 |
|
Equipment financing | 1,732 |
| 626 |
| — |
| 393 |
| 2,751 |
| 547,482 |
| 550,233 |
|
Total | $ | 31,289 |
| $ | 13,666 |
| $ | 892 |
| $ | 126,513 |
| $ | 172,360 |
| $ | 17,351,498 |
| $ | 17,523,858 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2016 |
(In thousands) | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | 90 or More Days Past Due and Accruing | Non-accrual | Total Past Due and Non-accrual | Current | Total Loans and Leases |
Residential | $ | 8,631 |
| $ | 2,609 |
| $ | — |
| $ | 47,279 |
| $ | 58,519 |
| $ | 4,196,163 |
| $ | 4,254,682 |
|
Consumer: | | | | | | | |
Home equity | 8,831 |
| 5,782 |
| — |
| 35,926 |
| 50,539 |
| 2,359,354 |
| 2,409,893 |
|
Other consumer | 2,233 |
| 1,485 |
| — |
| 1,663 |
| 5,381 |
| 269,226 |
| 274,607 |
|
Commercial: | | | | | | | |
Commercial non-mortgage | 1,382 |
| 577 |
| 749 |
| 38,190 |
| 40,898 |
| 4,094,727 |
| 4,135,625 |
|
Asset-based | — |
| — |
| — |
| — |
| — |
| 805,306 |
| 805,306 |
|
Commercial real estate: | | | | | | | |
Commercial real estate | 6,357 |
| 1,816 |
| — |
| 9,871 |
| 18,044 |
| 4,117,742 |
| 4,135,786 |
|
Commercial construction | — |
| — |
| — |
| 662 |
| 662 |
| 374,398 |
| 375,060 |
|
Equipment financing | 903 |
| 693 |
| — |
| 225 |
| 1,821 |
| 633,808 |
| 635,629 |
|
Total | $ | 28,337 |
| $ | 12,962 |
| $ | 749 |
| $ | 133,816 |
| $ | 175,864 |
| $ | 16,850,724 |
| $ | 17,026,588 |
|
| | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Non-accrual | Non-accrual With No Allowance | | Non-accrual | Non-accrual With No Allowance |
Commercial non-mortgage | $ | 122,855 | | $ | 20,066 | | | $ | 71,884 | | $ | 12,598 | |
Asset-based | 35,068 | | 1,330 | | | 20,024 | | 1,491 | |
Commercial real estate | 11,383 | | 2,681 | | | 39,057 | | 90 | |
Multi-family | — | | — | | | 636 | | — | |
Equipment financing | 9,828 | | 1,584 | | | 12,344 | | 2,240 | |
| | | | | |
Commercial portfolio | 179,134 | | 25,661 | | | 143,945 | | 16,419 | |
Residential | 5,704 | | 856 | | | 25,424 | | 10,442 | |
Home equity | 23,545 | | 12,471 | | | 27,924 | | 15,193 | |
Other consumer | 142 | | 49 | | | 148 | | 5 | |
Consumer portfolio | 29,391 | | 13,376 | | | 53,496 | | 25,640 | |
Total | $ | 208,525 | | $ | 39,037 | | | $ | 197,441 | | $ | 42,059 | |
Interest income on non-accrual loans and leases that would have been recorded as additional interest income for the years ended December 31, 2017, 2016, and 2015,recognized had the loans and leases been current in accordance with their originalcontractual terms totaled $8.4$22.9 million, $16.9 million, and $11.0 million for the years ended December 31, 2023, 2022, and $8.2 million,2021, respectively.
Allowance for Loan and LeaseCredit Losses
The following tables summarize the activity in, as well as the loan and lease balances that were evaluated for, the ALLL:
|
| | | | | | | | | | | | | | | | | | |
| At or for the Year ended December 31, 2017 |
(In thousands) | Residential | Consumer | Commercial | Commercial Real Estate | Equipment Financing | Total |
Allowance for loan and lease losses: | | | | | | |
Balance at January 1, 2017 | $ | 23,226 |
| $ | 45,233 |
| $ | 71,905 |
| $ | 47,477 |
| $ | 6,479 |
| $ | 194,320 |
|
Provision (benefit) charged to expense | (2,692 | ) | 9,367 |
| 23,417 |
| 11,040 |
| (232 | ) | 40,900 |
|
Losses charged off | (2,500 | ) | (24,447 | ) | (8,147 | ) | (9,275 | ) | (558 | ) | (44,927 | ) |
Recoveries | 1,024 |
| 6,037 |
| 2,358 |
| 165 |
| 117 |
| 9,701 |
|
Balance at December 31, 2017 | $ | 19,058 |
| $ | 36,190 |
| $ | 89,533 |
| $ | 49,407 |
| $ | 5,806 |
| $ | 199,994 |
|
Individually evaluated for impairment | $ | 4,805 |
| $ | 1,668 |
| $ | 9,786 |
| $ | 272 |
| $ | 23 |
| $ | 16,554 |
|
Collectively evaluated for impairment | $ | 14,253 |
| $ | 34,522 |
| $ | 79,747 |
| $ | 49,135 |
| $ | 5,783 |
| $ | 183,440 |
|
| | | | | | |
Loan and lease balances: | | | | | | |
Individually evaluated for impairment | $ | 114,295 |
| $ | 45,436 |
| $ | 72,471 |
| $ | 11,226 |
| $ | 3,325 |
| $ | 246,753 |
|
Collectively evaluated for impairment | 4,376,583 |
| 2,544,789 |
| 5,296,223 |
| 4,512,602 |
| 546,908 |
| 17,277,105 |
|
Loans and leases | $ | 4,490,878 |
| $ | 2,590,225 |
| $ | 5,368,694 |
| $ | 4,523,828 |
| $ | 550,233 |
| $ | 17,523,858 |
|
|
| | | | | | | | | | | | | | | | | | |
| At or for the Year ended December 31, 2016 |
(In thousands) | Residential | Consumer | Commercial | Commercial Real Estate | Equipment Financing | Total |
Allowance for loan and lease losses: | | | | | | |
Balance at January 1, 2016 | $ | 25,876 |
| $ | 42,052 |
| $ | 59,977 |
| $ | 41,598 |
| $ | 5,487 |
| $ | 174,990 |
|
Provision (benefit) charged to expense | 230 |
| 18,507 |
| 28,662 |
| 7,930 |
| 1,021 |
| 56,350 |
|
Losses charged off | (4,636 | ) | (20,669 | ) | (18,360 | ) | (2,682 | ) | (565 | ) | (46,912 | ) |
Recoveries | 1,756 |
| 5,343 |
| 1,626 |
| 631 |
| 536 |
| 9,892 |
|
Balance at December 31, 2016 | $ | 23,226 |
| $ | 45,233 |
| $ | 71,905 |
| $ | 47,477 |
| $ | 6,479 |
| $ | 194,320 |
|
Individually evaluated for impairment | $ | 8,090 |
| $ | 2,903 |
| $ | 7,422 |
| $ | 169 |
| $ | 9 |
| $ | 18,593 |
|
Collectively evaluated for impairment | $ | 15,136 |
| $ | 42,330 |
| $ | 64,483 |
| $ | 47,308 |
| $ | 6,470 |
| $ | 175,727 |
|
| | | | | | |
Loan and lease balances: | | | | | | |
Individually evaluated for impairment | $ | 119,424 |
| $ | 45,719 |
| $ | 53,037 |
| $ | 24,755 |
| $ | 6,420 |
| $ | 249,355 |
|
Collectively evaluated for impairment | 4,135,258 |
| 2,638,781 |
| 4,887,894 |
| 4,486,091 |
| 629,209 |
| 16,777,233 |
|
Loans and leases | $ | 4,254,682 |
| $ | 2,684,500 |
| $ | 4,940,931 |
| $ | 4,510,846 |
| $ | 635,629 |
| $ | 17,026,588 |
|
|
| | | | | | | | | | | | | | | | | | |
| At or for the Year ended December 31, 2015 |
(In thousands) | Residential | Consumer | Commercial | Commercial Real Estate | Equipment Financing | Total |
Allowance for loan and lease losses: | | | | | | |
Balance at January 1, 2015 | $ | 25,452 |
| $ | 43,518 |
| $ | 47,068 |
| $ | 37,148 |
| $ | 6,078 |
| $ | 159,264 |
|
Provision (benefit) charged to expense | 6,057 |
| 11,847 |
| 21,693 |
| 11,381 |
| (1,678 | ) | 49,300 |
|
Losses charged off | (6,508 | ) | (17,679 | ) | (11,522 | ) | (7,578 | ) | (273 | ) | (43,560 | ) |
Recoveries | 875 |
| 4,366 |
| 2,738 |
| 647 |
| 1,360 |
| 9,986 |
|
Balance at December 31, 2015 | $ | 25,876 |
| $ | 42,052 |
| $ | 59,977 |
| $ | 41,598 |
| $ | 5,487 |
| $ | 174,990 |
|
Individually evaluated for impairment | $ | 10,364 |
| $ | 3,477 |
| $ | 5,197 |
| $ | 3,163 |
| $ | 3 |
| $ | 22,204 |
|
Collectively evaluated for impairment | $ | 15,512 |
| $ | 38,575 |
| $ | 54,780 |
| $ | 38,435 |
| $ | 5,484 |
| $ | 152,786 |
|
| | | | | | |
Loan and lease balances: | | | | | | |
Individually evaluated for impairment | $ | 134,448 |
| $ | 48,425 |
| $ | 56,581 |
| $ | 39,295 |
| $ | 422 |
| $ | 279,171 |
|
Collectively evaluated for impairment | 3,926,553 |
| 2,654,135 |
| 4,259,418 |
| 3,952,354 |
| 600,104 |
| 15,392,564 |
|
Loans and leases | $ | 4,061,001 |
| $ | 2,702,560 |
| $ | 4,315,999 |
| $ | 3,991,649 |
| $ | 600,526 |
| $ | 15,671,735 |
|
Impaired on Loans and Leases
The following tables summarize impairedthe change in the ACL on loans and leases:leases by portfolio segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At or for the Years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Commercial Portfolio | Consumer Portfolio | Total | | Commercial Portfolio | Consumer Portfolio | Total | | Commercial Portfolio | Consumer Portfolio | Total |
ACL on loans and leases: | | | | | | | | | | | |
Balance, beginning of period | $ | 533,125 | | $ | 61,616 | | $ | 594,741 | | | $ | 257,877 | | $ | 43,310 | | $ | 301,187 | | | $ | 312,244 | | $ | 47,187 | | $ | 359,431 | |
Adoption of ASU No. 2022-02 | 7,704 | | (1,831) | | 5,873 | | | — | | — | | — | | | — | | — | | — | |
Initial allowance for PCD loans and leases (1) | — | | — | | — | | | 78,376 | | 9,669 | | 88,045 | | | — | | — | | — | |
Provision (benefit) | 138,057 | | 5,152 | | 143,209 | | | 268,295 | | 4,502 | | 272,797 | | | (48,651) | | (5,764) | | (54,415) | |
Charge-offs | (104,509) | | (12,703) | | (117,212) | | | (82,860) | | (4,662) | | (87,522) | | | (9,437) | | (9,217) | | (18,654) | |
Recoveries | 3,286 | | 5,840 | | 9,126 | | | 11,437 | | 8,797 | | 20,234 | | | 3,721 | | 11,104 | | 14,825 | |
Balance, end of period | $ | 577,663 | | $ | 58,074 | | $ | 635,737 | | | $ | 533,125 | | $ | 61,616 | | $ | 594,741 | | | $ | 257,877 | | $ | 43,310 | | $ | 301,187 | |
Individually evaluated for credit losses | 43,559 | | 4,635 | | 48,194 | | | 34,793 | | 12,441 | | 47,234 | | | 16,965 | | 4,108 | | 21,073 | |
Collectively evaluated for credit losses | $ | 534,104 | | $ | 53,439 | | $ | 587,543 | | | $ | 498,332 | | $ | 49,175 | | $ | 547,507 | | | $ | 240,912 | | $ | 39,202 | | $ | 280,114 | |
(1)Represents the establishment of the initial reserve for PCD loans and leases, which is reported net of $48.3 million of day one charge-offs recognized at the date of acquisition in accordance with GAAP.
|
| | | | | | | | | | | | | | | |
| At December 31, 2017 |
(In thousands) | Unpaid Principal Balance | Total Recorded Investment | Recorded Investment No Allowance | Recorded Investment With Allowance | Related Valuation Allowance |
Residential: | | | | | |
1-4 family | $ | 125,352 |
| $ | 114,295 |
| $ | 69,759 |
| $ | 44,536 |
| $ | 4,805 |
|
Consumer home equity | 50,809 |
| 45,436 |
| 34,418 |
| 11,018 |
| 1,668 |
|
Commercial: | | | | | |
Commercial non-mortgage | 79,900 |
| 71,882 |
| 27,313 |
| 44,569 |
| 9,786 |
|
Asset-based | 3,272 |
| 589 |
| 589 |
| — |
| — |
|
Commercial real estate: | | | | | |
Commercial real estate | 11,994 |
| 11,226 |
| 6,387 |
| 4,839 |
| 272 |
|
Commercial construction | — |
| — |
| — |
| — |
| — |
|
Equipment financing | 3,409 |
| 3,325 |
| 2,932 |
| 393 |
| 23 |
|
Total | $ | 274,736 |
| $ | 246,753 |
| $ | 141,398 |
| $ | 105,355 |
| $ | 16,554 |
|
95
|
| | | | | | | | | | | | | | | |
| At December 31, 2016 |
(In thousands) | Unpaid Principal Balance | Total Recorded Investment | Recorded Investment No Allowance | Recorded Investment With Allowance | Related Valuation Allowance |
Residential: | | | | | |
1-4 family | $ | 131,468 |
| $ | 119,424 |
| $ | 21,068 |
| $ | 98,356 |
| $ | 8,090 |
|
Consumer home equity | 52,432 |
| 45,719 |
| 22,746 |
| 22,973 |
| 2,903 |
|
Commercial: | | | | | |
Commercial non-mortgage | 57,732 |
| 53,037 |
| 26,006 |
| 27,031 |
| 7,422 |
|
Asset based | — |
| — |
| — |
| — |
| — |
|
Commercial real estate: | | | | | |
Commercial real estate | 24,146 |
| 23,568 |
| 19,591 |
| 3,977 |
| 169 |
|
Commercial construction | 1,188 |
| 1,187 |
| 1,187 |
| — |
| — |
|
Equipment financing | 6,398 |
| 6,420 |
| 6,197 |
| 223 |
| 9 |
|
Total | $ | 273,364 |
| $ | 249,355 |
| $ | 96,795 |
| $ | 152,560 |
| $ | 18,593 |
|
The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
(In thousands) | Average Recorded Investment | Accrued Interest Income | Cash Basis Interest Income | | Average Recorded Investment | Accrued Interest Income | Cash Basis Interest Income | | Average Recorded Investment | Accrued Interest Income | Cash Basis Interest Income |
Residential | $ | 116,859 |
| $ | 4,138 |
| $ | 1,264 |
| | $ | 126,936 |
| $ | 4,377 |
| $ | 1,200 |
| | $ | 138,215 |
| $ | 4,473 |
| $ | 1,139 |
|
Consumer home equity | 45,578 |
| 1,323 |
| 1,046 |
| | 47,072 |
| 1,361 |
| 985 |
| | 49,337 |
| 1,451 |
| 1,099 |
|
Commercial | | | | | | | | | | | |
Commercial non-mortgage | 62,459 |
| 1,095 |
| — |
| | 54,708 |
| 1,540 |
| — |
| | 46,379 |
| 1,319 |
| — |
|
Asset based | 295 |
| — |
| — |
| | — |
| — |
| — |
| | — |
| — |
| — |
|
Commercial real estate: | | | | | | | | | | | |
Commercial real estate | 17,397 |
| 417 |
| — |
| | 28,451 |
| 511 |
| — |
| | 64,495 |
| 1,165 |
| — |
|
Commercial construction | 594 |
| 12 |
| — |
| | 3,574 |
| 92 |
| — |
| | 6,062 |
| 133 |
| — |
|
Equipment financing | 4,872 |
| 207 |
| — |
| | 3,421 |
| 184 |
| — |
| | 527 |
| 16 |
| — |
|
Total | $ | 248,054 |
| $ | 7,192 |
| $ | 2,310 |
| | $ | 264,162 |
| $ | 8,065 |
| $ | 2,185 |
| | $ | 305,015 |
| $ | 8,557 |
| $ | 2,238 |
|
Credit Quality Indicators.Indicators
To measure credit risk for the commercial commercial real estate, and equipment financing portfolios,portfolio, the Company employs a dual grade credit risk grading system for estimating the PD and the LGD. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of loss. Grades (1) -to (6) are considered pass ratings, and grades (7) -to (10) are considered criticized, as defined by the regulatory agencies. A (7) "Special Mention" rating has a potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the asset. An (8) "Substandard" rating has a well-defined weakness that jeopardizes the full repayment of the debt. A (9) "Doubtful" rating has all of the same weaknesses as a substandard asset with the added characteristic that the weakness makes collection or liquidation in full given current facts, conditions, and values improbable. Assets classified as a (10) "Loss" rating are considered uncollectible and charged-off. Risk ratings, which are assigned to differentiate risk within the portfolio, are reviewed on an ongoing basis and revised to reflect changes in a borrowers’borrower's current financial position and outlook, risk profile, and the related collateral and structural position. Loan officers review updated financial information or other loan factors on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring.
A (7) "Special Mention"To measure credit has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospectsrisk for the asset. An (8) "Substandard" asset hasconsumer portfolio, the most relevant credit characteristic is the FICO score, which is a well defined weaknesswidely used credit scoring system that jeopardizes the full repaymentranges from 300 to 850. A lower FICO score is indicative of the debt. An asset rated (9) "Doubtful" has allhigher credit risk and a higher FICO score is indicative of the same weaknesses aslower credit risk. FICO scores are updated at least on a substandard credit with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, improbable. Assets classified as (10) "Loss" in accordance with regulatory guidelines are considered uncollectible and charged off.
quarterly basis. The following table summarizes commercial, commercial real estate and equipment financing loans and leases segregated by risk rating exposure:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | Commercial Real Estate | | Equipment Financing |
| At December 31, | | At December 31, | | At December 31, |
(In thousands) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
(1) - (6) Pass | $ | 5,048,162 |
| | $ | 4,655,007 |
| | $ | 4,355,916 |
| | $ | 4,357,458 |
| | $ | 525,105 |
| | $ | 618,084 |
|
(7) Special Mention | 104,594 |
| | 56,240 |
| | 62,065 |
| | 69,023 |
| | 8,022 |
| | 1,324 |
|
(8) Substandard | 206,883 |
| | 226,603 |
| | 105,847 |
| | 84,365 |
| | 17,106 |
| | 16,221 |
|
(9) Doubtful | 9,055 |
| | 3,081 |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 5,368,694 |
| | $ | 4,940,931 |
| | $ | 4,523,828 |
| | $ | 4,510,846 |
| | $ | 550,233 |
| | $ | 635,629 |
|
For residential and consumer loans, the Company considers factors such as past due status, updated FICO scores, employment status, collateral, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans, asare also considered to be consumer portfolio credit quality indicators. On an ongoing basis forFor portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for home equity and residential first mortgage lending products.products on an ongoing basis. The estimate is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The realReal estate price data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.
The following tables summarize the amortized cost basis of commercial loans and leases by Composite Credit Risk Profile grade and origination year:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial non-mortgage: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ | 2,602,444 | | $ | 4,089,327 | | $ | 1,371,139 | | $ | 711,362 | | $ | 610,199 | | $ | 952,097 | | $ | 5,970,588 | | $ | 16,307,156 | |
Special mention | 15,184 | | 60,240 | | 61,235 | | 33,111 | | — | | 720 | | 48,561 | | 219,051 | |
Substandard | 48,849 | | 104,087 | | 23,258 | | 28,222 | | 44,612 | | 30,426 | | 79,778 | | 359,232 | |
Doubtful | — | | 8 | | — | | — | | 3 | | 25 | | — | | 36 | |
Total commercial non-mortgage | 2,666,477 | | 4,253,662 | | 1,455,632 | | 772,695 | | 654,814 | | 983,268 | | 6,098,927 | | 16,885,475 | |
Current period gross write-offs | 325 | | 7,637 | | 1,775 | | 512 | | 969 | | 4,391 | | — | | 15,609 | |
Asset-based: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 23,007 | | — | | — | | — | | 3,280 | | 34,999 | | 1,333,271 | | 1,394,557 | |
Special mention | 651 | | 763 | | — | | — | | 3,676 | | — | | 29,610 | | 34,700 | |
Substandard | — | | — | | — | | — | | 1,330 | | — | | 127,254 | | 128,584 | |
Total asset-based | 23,658 | | 763 | | — | | — | | 8,286 | | 34,999 | | 1,490,135 | | 1,557,841 | |
Current period gross write-offs | — | | — | | — | | — | | 13,189 | | 3,900 | | — | | 17,089 | |
Commercial real estate: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 2,265,428 | | 3,502,425 | | 1,831,005 | | 1,195,732 | | 1,193,642 | | 3,112,770 | | 176,668 | | 13,277,670 | |
Special mention | 850 | | 4,675 | | 14,463 | | 31,405 | | 23,443 | | 37,688 | | 1,210 | | 113,734 | |
Substandard | 25,802 | | 16,179 | | 9,545 | | 15,418 | | 58,602 | | 52,812 | | — | | 178,358 | |
| | | | | | | | |
Total commercial real estate | 2,292,080 | | 3,523,279 | | 1,855,013 | | 1,242,555 | | 1,275,687 | | 3,203,270 | | 177,878 | | 13,569,762 | |
Current period gross write-offs | 4,632 | | — | | 12,617 | | 3,813 | | 2,754 | | 38,569 | | — | | 62,385 | |
Multi-family: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 1,597,599 | | 1,934,100 | | 1,041,416 | | 442,888 | | 595,676 | | 1,920,618 | | — | | 7,532,297 | |
Special mention | — | | — | | — | | — | | 260 | | 35,942 | | — | | 36,202 | |
Substandard | — | | — | | — | | 364 | | 11,563 | | 7,544 | | — | | 19,471 | |
| | | | | | | | |
| | | | | | | | |
Total multi-family | 1,597,599 | | 1,934,100 | | 1,041,416 | | 443,252 | | 607,499 | | 1,964,104 | | — | | 7,587,970 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 3,447 | | — | | 3,447 | |
Equipment financing: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 335,874 | | 297,186 | | 232,304 | | 176,061 | | 183,679 | | 69,927 | | — | | 1,295,031 | |
Special mention | — | | — | | 116 | | — | | 90 | | — | | — | | 206 | |
Substandard | — | | 9,144 | | 8,064 | | 6,600 | | 4,285 | | 5,456 | | — | | 33,549 | |
Total equipment financing | 335,874 | | 306,330 | | 240,484 | | 182,661 | | 188,054 | | 75,383 | | — | | 1,328,786 | |
Current period gross write-offs | — | | — | | — | | 2,633 | | 3,304 | | 42 | | — | | 5,979 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total commercial portfolio | $ | 6,915,688 | | $ | 10,018,134 | | $ | 4,592,545 | | $ | 2,641,163 | | $ | 2,734,340 | | $ | 6,261,024 | | $ | 7,766,940 | | $ | 40,929,834 | |
Current period gross write-offs | $ | 4,957 | | $ | 7,637 | | $ | 14,392 | | $ | 6,958 | | $ | 20,216 | | $ | 50,349 | | $ | — | | $ | 104,509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial non-mortgage: | | | | | | | | |
Pass | $ | 5,154,781 | | $ | 1,952,158 | | $ | 965,975 | | $ | 792,977 | | $ | 593,460 | | $ | 780,200 | | $ | 5,670,532 | | $ | 15,910,083 | |
Special mention | 104,277 | | 15,598 | | 21,168 | | 263 | | 14,370 | | 7,770 | | 40,142 | | 203,588 | |
Substandard | 28,203 | | 11,704 | | 69,954 | | 36,604 | | 70,634 | | 16,852 | | 41,917 | | 275,868 | |
Doubtful | — | | — | | — | | 1 | | — | | — | | 3,255 | | 3,256 | |
Total commercial non-mortgage | 5,287,261 | | 1,979,460 | | 1,057,097 | | 829,845 | | 678,464 | | 804,822 | | 5,755,846 | | 16,392,795 | |
Asset-based: | | | | | | | | |
Pass | 19,659 | | 3,901 | | 9,424 | | 14,413 | | 5,163 | | 55,553 | | 1,551,250 | | 1,659,363 | |
Special mention | — | | — | | — | | — | | — | | — | | 80,476 | | 80,476 | |
Substandard | — | | — | | — | | 1,491 | | — | | — | | 80,312 | | 81,803 | |
Total asset-based | 19,659 | | 3,901 | | 9,424 | | 15,904 | | 5,163 | | 55,553 | | 1,712,038 | | 1,821,642 | |
Commercial real estate: | | | | | | | | |
Pass | 3,420,635 | | 2,246,672 | | 1,556,185 | | 1,605,869 | | 1,058,730 | | 2,681,052 | | 97,832 | | 12,666,975 | |
Special mention | 21,878 | | 8,995 | | 7,264 | | 37,570 | | 47,419 | | 66,652 | | 1,000 | | 190,778 | |
Substandard | 519 | | 2,459 | | 216 | | 31,163 | | 47,021 | | 57,997 | | — | | 139,375 | |
Doubtful | — | | — | | — | | 1 | | — | | 34 | | — | | 35 | |
Total commercial real estate | 3,443,032 | | 2,258,126 | | 1,563,665 | | 1,674,603 | | 1,153,170 | | 2,805,735 | | 98,832 | | 12,997,163 | |
Multi-family: | | | | | | | | |
Pass | 1,992,980 | | 1,057,705 | | 507,065 | | 694,066 | | 444,564 | | 1,748,337 | | 51,655 | | 6,496,372 | |
Special mention | 37,677 | | — | | — | | 95 | | 40,307 | | 726 | | 8,838 | | 87,643 | |
Substandard | — | | — | | 382 | | — | | 12,681 | | 24,904 | | — | | 37,967 | |
Total multi-family | 2,030,657 | | 1,057,705 | | 507,447 | | 694,161 | | 497,552 | | 1,773,967 | | 60,493 | | 6,621,982 | |
Equipment financing: | | | | | | | | |
Pass | 388,641 | | 345,792 | | 331,419 | | 308,441 | | 98,874 | | 83,264 | | — | | 1,556,431 | |
Special mention | — | | 185 | | — | | 11,965 | | 6,775 | | 25 | | — | | 18,950 | |
Substandard | 314 | | 16,711 | | 18,436 | | 5,016 | | 5,307 | | 7,228 | | — | | 53,012 | |
Total equipment financing | 388,955 | | 362,688 | | 349,855 | | 325,422 | | 110,956 | | 90,517 | | — | | 1,628,393 | |
Warehouse lending: | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 641,976 | | 641,976 | |
Total warehouse lending | — | | — | | — | | — | | — | | — | | 641,976 | | 641,976 | |
Total commercial portfolio | $ | 11,169,564 | | $ | 5,661,880 | | $ | 3,487,488 | | $ | 3,539,935 | | $ | 2,445,305 | | $ | 5,530,594 | | $ | 8,269,185 | | $ | 40,103,951 | |
The following tables summarize the amortized cost basis of consumer loans by FICO score and origination year: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total |
Residential: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | $ | 214,446 | | $ | 847,009 | | $ | 1,096,109 | | $ | 451,307 | | $ | 141,919 | | $ | 910,117 | | $ | — | | $ | 3,660,907 | |
740-799 | 363,696 | | 703,568 | | 755,750 | | 279,946 | | 112,303 | | 633,578 | | — | | 2,848,841 | |
670-739 | 137,460 | | 293,699 | | 292,255 | | 95,838 | | 48,412 | | 346,663 | | — | | 1,214,327 | |
580-669 | 20,208 | | 52,962 | | 45,770 | | 14,840 | | 10,492 | | 106,497 | | — | | 250,769 | |
579 and below | 6,909 | | 52,690 | | 11,749 | | 1,345 | | 128,714 | | 51,672 | | — | | 253,079 | |
Total residential | 742,719 | | 1,949,928 | | 2,201,633 | | 843,276 | | 441,840 | | 2,048,527 | | — | | 8,227,923 | |
Current period gross write-offs | — | | — | | 387 | | — | | 153 | | 4,630 | | — | | 5,170 | |
Home equity: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | 27,047 | | 27,439 | | 35,927 | | 25,586 | | 8,110 | | 56,062 | | 391,616 | | 571,787 | |
740-799 | 24,772 | | 20,069 | | 27,147 | | 13,888 | | 5,158 | | 34,190 | | 355,926 | | 481,150 | |
670-739 | 15,857 | | 15,655 | | 15,389 | | 5,992 | | 3,189 | | 29,454 | | 242,189 | | 327,725 | |
580-669 | 3,080 | | 3,786 | | 1,991 | | 1,658 | | 1,115 | | 9,988 | | 70,102 | | 91,720 | |
579 and below | 696 | | 1,109 | | 1,079 | | 576 | | 552 | | 6,319 | | 34,242 | | 44,573 | |
Total home equity | 71,452 | | 68,058 | | 81,533 | | 47,700 | | 18,124 | | 136,013 | | 1,094,075 | | 1,516,955 | |
Current period gross write-offs | — | | 4 | | 81 | | — | | 104 | | 3,114 | | — | | 3,303 | |
Other consumer: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | 432 | | 356 | | 1,913 | | 189 | | 255 | | 77 | | 25,699 | | 28,921 | |
740-799 | 1,318 | | 586 | | 486 | | 730 | | 690 | | 381 | | 7,180 | | 11,371 | |
670-739 | 526 | | 570 | | 358 | | 981 | | 1,210 | | 79 | | 3,549 | | 7,273 | |
580-669 | 69 | | 169 | | 129 | | 153 | | 303 | | 56 | | 1,983 | | 2,862 | |
579 and below | 125 | | 97 | | 61 | | 11 | | 28 | | 1 | | 590 | | 913 | |
Total other consumer | 2,470 | | 1,778 | | 2,947 | | 2,064 | | 2,486 | | 594 | | 39,001 | | 51,340 | |
Current period gross write-offs | 3,263 | | 7 | | 2 | | 218 | | 377 | | 363 | | — | | 4,230 | |
Total consumer portfolio | 816,641 | | 2,019,764 | | 2,286,113 | | 893,040 | | 462,450 | | 2,185,134 | | 1,133,076 | | 9,796,218 | |
Current period gross write-offs | $ | 3,263 | | $ | 11 | | $ | 470 | | $ | 218 | | $ | 634 | | $ | 8,107 | | $ | — | | $ | 12,703 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Residential: | | | | | | | | |
800+ | $ | 527,408 | | $ | 954,568 | | $ | 469,518 | | $ | 160,596 | | $ | 28,361 | | $ | 997,409 | | $ | — | | $ | 3,137,860 | |
740-799 | 963,026 | | 946,339 | | 311,295 | | 111,913 | | 43,684 | | 689,771 | | — | | 3,066,028 | |
670-739 | 381,515 | | 350,671 | | 103,999 | | 62,365 | | 18,451 | | 384,687 | | — | | 1,301,688 | |
580-669 | 40,959 | | 49,648 | | 14,484 | | 5,836 | | 2,357 | | 138,107 | | — | | 251,391 | |
579 and below | 52,464 | | 3,693 | | 2,057 | | 84,032 | | 1,299 | | 62,908 | | — | | 206,453 | |
Total residential | 1,965,372 | | 2,304,919 | | 901,353 | | 424,742 | | 94,152 | | 2,272,882 | | — | | 7,963,420 | |
Home equity: | | | | | | | | |
800+ | 25,475 | | 35,129 | | 25,612 | | 7,578 | | 12,545 | | 55,352 | | 465,318 | | 627,009 | |
740-799 | 26,743 | | 35,178 | | 17,621 | | 8,111 | | 7,765 | | 32,270 | | 398,692 | | 526,380 | |
670-739 | 18,396 | | 16,679 | | 8,175 | | 3,635 | | 7,614 | | 30,060 | | 259,646 | | 344,205 | |
580-669 | 2,848 | | 3,068 | | 1,520 | | 1,456 | | 1,163 | | 13,607 | | 76,614 | | 100,276 | |
579 and below | 426 | | 386 | | 651 | | 661 | | 563 | | 4,736 | | 27,814 | | 35,237 | |
Total home equity | 73,888 | | 90,440 | | 53,579 | | 21,441 | | 29,650 | | 136,025 | | 1,228,084 | | 1,633,107 | |
Other consumer: | | | | | | | | |
800+ | 495 | | 218 | | 544 | | 1,045 | | 247 | | 56 | | 19,196 | | 21,801 | |
740-799 | 888 | | 2,624 | | 1,959 | | 2,494 | | 941 | | 364 | | 12,218 | | 21,488 | |
670-739 | 977 | | 603 | | 2,480 | | 4,238 | | 1,041 | | 118 | | 6,107 | | 15,564 | |
580-669 | 211 | | 117 | | 337 | | 801 | | 173 | | 54 | | 2,223 | | 3,916 | |
579 and below | 169 | | 101 | | 29 | | 116 | | 36 | | 21 | | 707 | | 1,179 | |
Total other consumer | 2,740 | | 3,663 | | 5,349 | | 8,694 | | 2,438 | | 613 | | 40,451 | | 63,948 | |
Total consumer portfolio | 2,042,000 | | 2,399,022 | | 960,281 | | 454,877 | | 126,240 | | 2,409,520 | | 1,268,535 | | 9,660,475 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Collateral Dependent Loans and Leases
A non-accrual loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and when repayment is substantially expected to be provided through the operation or sale of collateral. Commercial non-mortgage loans,
asset-based loans, and equipment financing loans and leases are generally secured by machinery and equipment, inventory, receivables, or other non-real estate assets, whereas commercial real estate, multi-family, residential, home equity, and other consumer loans are secured by real estate.
At December 31, 2023, and 2022, the carrying amount of collateral dependent loans was $66.1 million and $43.8 million, respectively, for commercial loans and leases, and $22.7 million and $45.2 million, respectively, for consumer loans. The ACL for collateral dependent loans and leases is individually assessed based on the fair value of the collateral less costs to sell at the reporting date. At December 31, 2023, and 2022, the collateral value associated with collateral dependent loans and leases was $93.7 million and $108.0 million, respectively.
Modifications to Borrowers Experiencing Financial Difficulty
On January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and enhanced the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. For a description of the Company's accounting policies related to the accounting and reporting of TDRs, for which comparative period information is presented, refer to Note 1: Summary of Significant Accounting Policies.
In certain circumstances, the Company enters into agreements to modify the terms of loans to borrowers experiencing financial difficulty. A variety of solutions are offered to borrowers experiencing financial difficulty, including loan modifications that may result in principal forgiveness, interest rate reductions, payment delays, term extension, or a combination thereof. The following is a description of each of these types of modifications:
•Principal forgiveness – The outstanding principal balance of a loan may be reduced by a specified amount. Principal forgiveness may occur voluntarily as part of a negotiated agreement with a borrower, or involuntarily through a bankruptcy proceeding.
•Interest rate reductions – Includes modifications where the contractual interest rate of the loan has been reduced.
•Payment delays – Deferral arrangements that allow borrowers to delay a scheduled loan payment to a later date. Deferred loan payments do not affect the original contracted maturity terms of the loan. Modifications that result in only an insignificant payment delay are not disclosed. The Company generally considers a payment delay of three months or less to be insignificant.
•Term extensions – Extensions of the original contractual maturity date of the loan.
•Combination – Combination includes loans that have undergone more than one of the above loan modification types.
Significant judgment is required to determine if a borrower is experiencing financial difficulty. These considerations vary by portfolio class. The Company has identified modifications to borrowers experiencing financial difficulty that are included in its disclosures as follows:
•Commercial: The Company evaluates modifications of loans to commercial borrowers that are rated substandard or worse, and includes the modification in its disclosures to the extent that the modification is considered
other-than-insignificant.
•Consumer: The Company generally evaluates all modifications of loans to consumer borrowers subject to its loss mitigation program and includes them in its disclosures to the extent that the modification is considered other-than-insignificant.
The following table summarizes the amortized cost basis at December 31, 2023, of loans modified to borrowers experiencing financial difficulty, disaggregated by class and type of concession granted: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2023 |
(In thousands) | Interest Rate Reduction | | Term Extension | | Payment Delay | | CombinationTerm Extension & Interest Rate Reduction | | CombinationTerm Extension & Payment Delay | | CombinationInterest Rate Reduction & Payment Delay | | | | CombinationTerm Extension, Interest Rate Reduction, & Payment Delay | | Total | | % of Total Class (2) |
Commercial non-mortgage | $ | — | | | $ | 96,895 | | | $ | 5,858 | | | $ | 1,062 | | | $ | 28,860 | | | $ | 35 | | | | | $ | 425 | | | $ | 133,135 | | | 0.8 | % |
Asset-based | — | | | 45,042 | | | — | | | — | | | — | | | — | | | | | — | | | 45,042 | | | 2.9 | |
Commercial real estate | — | | | 3,090 | | | 174 | | | 17,107 | | | 511 | | | — | | | | | — | | | 20,882 | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | |
Equipment financing | — | | | 357 | | | 1,284 | | | — | | | — | | | — | | | | | — | | | 1,641 | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | |
Residential | — | | | 186 | | | 804 | | | 136 | | | — | | | — | | | | | — | | | 1,126 | | | — | |
Home equity | 62 | | | 76 | | | — | | | 513 | | | — | | | — | | | | | — | | | 651 | | | — | |
| | | | | | | | | | | | | | | | | | | |
Total (1) | $ | 62 | | | $ | 145,646 | | | $ | 8,120 | | | $ | 18,818 | | | $ | 29,371 | | | $ | 35 | | | | | $ | 425 | | | $ | 202,477 | | | 0.4 | % |
(1)The total amortized cost excludes accrued interest receivable of $0.7 million for the year ended December 31, 2023.
(2)Represents the total amortized cost of the loans modified as a percentage of the total period end loan balance by class.
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty: | | | | | |
| For the year ended December 31, 2023 |
| Financial Effect |
Interest Rate Reduction: | |
| |
| |
Home equity | Reduced weighted average interest rate by 0.5% |
Term Extension: | |
Commercial non-mortgage | Extended term by a weighted average of 1.3 years |
Asset-based | Extended term by a weighted average of 0.7 years |
Commercial real estate | Extended term by a weighted average of 2.2 years |
Equipment financing | Extended term by a weighted average of 4.5 years |
Residential | Extended term by a weighted average of 2.8 years |
Home equity | Extended term by a weighted average of 10.1 years |
Payment Delay: | |
Commercial non-mortgage | Provided partial payment deferrals for a weighted average of 0.5 years |
Commercial real estate | Provided payment deferrals for a weighted average of 0.3 years to be received at contractual maturity |
Equipment financing | Provided partial payment deferrals for a weighted average of 0.5 years |
Residential | Provided payment deferrals for a weighted average of 1.0 year |
| |
Combination Term Extension & Interest Rate Reduction: |
Commercial non-mortgage | Extended term by a weighted average of 1.4 years and reduced weighted average interest rate by 1.8% |
Commercial real estate | Extended term by a weighted average of 3.0 years and reduced weighted average interest rate by 2.4% |
Residential | Extended term by a weighted average of 17.9 years and reduced weighted average interest rate by 0.3% |
Home equity | Extended term by a weighted average of 16.8 years and reduced weighted average interest rate by 2.1% |
Combination Term Extension & Payment Delay: |
Commercial non-mortgage | Extended term by a weighted average of 1.1 years and provided partial payment deferrals for a weighted average of 1.0 year |
Commercial real estate | Extended term by a weighted average of 0.5 years and provided payment deferrals for a weighted average of 0.5 years |
Combination Interest Rate Reduction & Payment Delay: |
Commercial non-mortgage | Reduced weighted average interest rate by 2.0% and provided payment deferrals for a weighted average of 0.5 years |
|
| |
Combination Term Extension, Interest Rate Reduction, & Payment Delay: |
Commercial non-mortgage | Extended term by a weighted average of 0.5 years, reduced weighted average interest rate by 2.0%, and provided payment deferrals for a weighted average of 0.5 years |
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table summarizes the aging of loans that have been modified in the year ended December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Current | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Non-Accrual | | Total |
Commercial non-mortgage | $ | 107,852 | | $ | — | | $ | — | | $ | — | | $ | 25,283 | | $ | 133,135 |
Asset-based | 45,042 | | — | | — | | — | | — | | 45,042 |
Commercial real estate | 20,708 | | — | | — | | — | | 174 | | 20,882 |
| | | | | | | | | | | |
Equipment financing | 1,284 | | — | | — | | — | | 357 | | 1,641 |
| | | | | | | | | | | |
Residential | 990 | | — | | — | | — | | 136 | | 1,126 |
Home equity | 547 | | — | | — | | — | | 104 | | 651 |
| | | | | | | | | | | |
Total | $ | 176,423 | | $ | — | | $ | — | | $ | — | | $ | 26,054 | | $ | 202,477 |
Loans made to borrowers experiencing financial difficulty that were modified during the year ended December 31, 2023, and that subsequently defaulted were not significant. For the purposes of this disclosure, a payment default is defined as 90 or more days past due and still accruing. Non-accrual loans that are modified to borrowers experiencing financial difficulty remain on non-accrual status until the borrower has demonstrated performance under the modified terms. Commitments to lend additional funds to borrowers experiencing financial difficulty whose loans had been modified were not significant.
Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02
The following table summarizes information forrelated to TDRs:
|
| | | | | | | |
| At December 31, |
(Dollars in thousands) | 2017 | | 2016 |
Accrual status | $ | 147,113 |
| | $ | 147,809 |
|
Non-accrual status | 74,291 |
| | 75,719 |
|
Total recorded investment of TDR (1) | $ | 221,404 |
| | $ | 223,528 |
|
Specific reserves for TDR included in the balance of ALLL | $ | 12,384 |
| | $ | 14,583 |
|
Additional funds committed to borrowers in TDR status | 2,736 |
| | 459 |
|
| | | | | |
(In thousands) | At December 31, 2022 |
(1)Accrual status | $ | 110,868 | |
Non-accrual status | 83,954 | |
Total recorded investment ofTDRs | $ | 194,822 | |
| |
Additional funds committed to borrowers in TDR status | $ | 1,724 | |
Specific reserves for TDRs exclude $0.1 millionincluded in the ACL on loans and $0.7 million at December 31, 2017 and December 31, 2016, respectively, of accrued interest receivable.leases: | |
Commercial portfolio | $ | 14,578 | |
Consumer portfolio | 3,559 | |
| |
The following table summarizes loans and leases modified as TDRs by class and modification type: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 |
| Number of Contracts | Recorded Investment (1) | | Number of Contracts | Recorded Investment (1) |
(Dollars in thousands) |
Commercial non-mortgage: | | | | | |
Extended maturity | 5 | $ | 291 | | 8 | $ | 605 |
| | | | | |
Maturity / rate combined | 8 | 765 | | 9 | 352 |
Other (2) | 19 | 52,070 | | 12 | 14,160 |
Asset-based: | | | | | |
Other (2) | 1 | 23,298 | | — | — |
Commercial real estate: | | | | | |
Extended maturity | — | — | | 1 | 183 |
| | | | | |
Other (2) | — | — | | 1 | 1,582 |
Equipment financing: | | | | | |
Other (2) | 3 | 1,692 | | — | — |
Residential: | | | | | |
Extended maturity | 2 | 1,185 | | 1 | 99 |
Maturity / rate combined | 2 | 133 | | 2 | 401 |
Other (2) | 8 | 3,158 | | 3 | 280 |
Home equity: | | | | | |
Extended maturity | — | — | | 85 | 1,809 |
Adjusted interest rate | 1 | 74 | | — | — |
Maturity / rate combined | 21 | 2,623 | | 6 | 1,025 |
Other (2) | 37 | 2,134 | | 22 | 1,481 |
Total TDRs | 107 | $ | 87,423 | | 150 | $ | 21,977 |
(1)Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs due to restructurings was not significant.
(2)Other includes covenant modifications, forbearance, discharges under Chapter 7 bankruptcy, or other concessions.
For the years ended December 31, 2017, 20162022, and 2015, Webster charged off $3.2 million, $18.6 million, and $11.8 million, respectively, for2021, the portion of TDRs deemed to be uncollectible.uncollectible and charged-off were $14.7 million and $3.0 million for the commercial portfolio, respectively, and $0.3 million and $0.4 million for the consumer portfolio, respectively.
The following table provides information on the type of concession for loans$3.6 million, $0.6 million, and leases$0.3 million, respectively, that were modified as TDRs:
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
| Number of Loans and Leases | Post- Modification Recorded Investment(1) | | Number of Loans and Leases | Post- Modification Recorded Investment(1) | | Number of Loans and Leases | Post- Modification Recorded Investment(1) |
(Dollars in thousands) |
Residential: | | | | | | | | |
Extended Maturity | 16 |
| $ | 2,569 |
| | 17 |
| $ | 2,801 |
| | 27 |
| $ | 4,909 |
|
Adjusted Interest rates | 2 |
| 335 |
| | 2 |
| 528 |
| | 3 |
| 573 |
|
Combination Rate and Maturity | 12 |
| 1,733 |
| | 13 |
| 1,537 |
| | 26 |
| 5,315 |
|
Other (2) | 39 |
| 6,200 |
| | 24 |
| 4,090 |
| | 30 |
| 4,366 |
|
Consumer home equity: | | | | | | | | |
Extended Maturity | 12 |
| 976 |
| | 11 |
| 484 |
| | 12 |
| 1,012 |
|
Adjusted Interest rates | 1 |
| 247 |
| | — |
| — |
| | — |
| — |
|
Combination Rate and Maturity | 14 |
| 3,469 |
| | 15 |
| 1,156 |
| | 12 |
| 945 |
|
Other (2) | 73 |
| 4,907 |
| | 52 |
| 3,131 |
| | 68 |
| 3,646 |
|
Commercial non mortgage: | | | | | | | | |
Extended Maturity | 12 |
| 1,233 |
| | 12 |
| 14,883 |
| | 3 |
| 254 |
|
Adjusted Interest rates | — |
| — |
| | — |
| — |
| | 1 |
| 24 |
|
Combination Rate and Maturity | 18 |
| 9,592 |
| | 2 |
| 648 |
| | 7 |
| 5,361 |
|
Other (2) | 4 |
| 6,375 |
| | 13 |
| 1,767 |
| | 20 |
| 22,048 |
|
Commercial real estate: | | | | | | | | |
Extended Maturity | — |
| — |
| | 3 |
| 4,921 |
| | 1 |
| 315 |
|
Adjusted Interest rates | — |
| — |
| | 1 |
| 237 |
| | — |
| — |
|
Combination Rate and Maturity | — |
| — |
| | 2 |
| 335 |
| | 1 |
| 42 |
|
Other (2) | — |
| — |
| | 1 |
| 509 |
| | 1 |
| 405 |
|
Equipment Financing | | | | | | | | |
Extended Maturity | — |
| — |
| | 7 |
| 6,642 |
| | — |
| — |
|
Total | 203 |
| $ | 37,636 |
| | 175 |
| $ | 43,669 |
| | 212 |
| $ | 49,215 |
|
| |
(1) | Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings was not significant. |
| |
(2) | Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, and/or other concessions. |
TheTDRs within the previous twelve months and for which there was a payment default. For the year ended December 31, 2021, there were no significant amounts of loans and leases modified as TDRs within the previous 12twelve months and for which there was a payment default for the years ended December 31, 2017, 2016 and 2015.
The recorded investment of TDRs in commercial, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:default.
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
(1) - (6) Pass | $ | 8,268 |
| | $ | 10,210 |
|
(7) Special Mention | 355 |
| | 7 |
|
(8) Substandard | 53,050 |
| | 45,509 |
|
(9) Doubtful | — |
| | 2,738 |
|
Total | $ | 61,673 |
| | $ | 58,464 |
|
103
Note 5: Transfers and Servicing of Financial Assets
Transfers of Financial Assets
The Company originates and sells financial assetsresidential mortgage loans in the normal course of business, primarily residential mortgage loans sold to government-sponsored enterprisesentities through established programs and securitizations. TheResidential mortgage origination fees, adjustments for changes in fair value, and any gain or loss recognized on residential mortgage loans sold and the fair value adjustment to loans held for sale are included as mortgagein Mortgage banking activities in on the accompanying Consolidated Statements of Income.
The following table summarizes information related to mortgage banking activities: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net gain on sale | $ | 1,126 | | | $ | 580 | | | $ | 5,192 | |
Origination fees | 68 | | | 219 | | | 1,440 | |
Fair value adjustments | 46 | | | (94) | | | (413) | |
Mortgage banking activities | $ | 1,240 | | | $ | 705 | | | $ | 6,219 | |
| | | | | |
Proceeds from sale | $ | 13,882 | | | $ | 36,335 | | | $ | 247,634 | |
Loans sold with servicing rights retained | 6,499 | | | 32,056 | | | 237,834 | |
Under certain circumstances, the Company may decide to sell loans that were not originated or otherwise acquired with the intent to sell. During the years ended December 31, 2023, 2022, and 2021, the Company sold loans not originated for sale for proceeds of $626.0 million, $679.7 million, and $82.2 million, respectively, which resulted in net gains on sale of $0.9 million, $3.3 million, and $3.9 million, respectively.
At December 31, 2023, and 2022, the aggregate principal balance of residential mortgage loans serviced for others was $1.8 billion and $2.0 billion, respectively.
The Company may be required to repurchase a loanretain servicing rights on its residential mortgage loans sold in the eventnormal course of certain breaches of the representations and warranties, or in the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases provides for estimated losses pertaining to the potential repurchase of loans associated with the Company's mortgage banking activities. The reserve reflects management’s evaluation of the identity of counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintagesbusiness. Mortgage servicing rights are held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s expectation of losses from repurchase requests for which the Company has not yet been notified, as the performance of loans sold and the quality of the servicing provided by the acquirer may also impact the reserve. The provision recorded at the timelower of the loan sale is netted from the gaincost, net of accumulated amortization, or loss recordedfair market value, and are included in mortgage banking activities, while any incremental provision, post loan sale, is recorded inAccrued interest receivable and other non-interest expense inassets on the accompanying Consolidated Statements of Income.
The following table provides a summary of activity in the reserve for loan repurchases:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Beginning balance | $ | 790 |
| | $ | 1,192 |
| | $ | 1,059 |
|
Provision (benefit) charged to expense | 100 |
| | (303 | ) | | 133 |
|
Repurchased loans and settlements charged off | (18 | ) | | (99 | ) | | — |
|
Ending balance | $ | 872 |
| | $ | 790 |
| | $ | 1,192 |
|
The following table provides information for mortgage banking activities:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Residential mortgage loans held for sale: | | | | | |
Proceeds from sale | $ | 335,656 |
| | $ | 438,925 |
| | $ | 452,590 |
|
Loans sold with servicing rights retained | 304,788 |
| | 399,318 |
| | 416,277 |
|
| | | | | |
Net gain on sale | 6,211 |
| | 11,629 |
| | 7,795 |
|
Ancillary fees | 2,629 |
| | 3,532 |
| | — |
|
Fair value option adjustment | 1,097 |
| | (526 | ) | | — |
|
Balance Sheets. The Company has retainedassesses mortgage servicing rights on residential mortgage loans totaling $2.6 billion at both December 31, 2017for impairment each quarter and 2016.establishes or adjusts the valuation allowance to the extent that amortized cost exceeds the estimated fair market value.
The following table presents the changeschange in the carrying valueamount for mortgage servicing assets:rights: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Balance, beginning of period | $ | 9,515 | | | $ | 9,237 | | | $ | 13,422 | |
Acquired from Sterling | — | | | 859 | | | — | |
Additions | 71 | | | 289 | | | 2,053 | |
Amortization (1) | (1,063) | | | (870) | | | (5,593) | |
Adjustment to valuation allowance | — | | | — | | | (645) | |
Balance, end of period | $ | 8,523 | | | $ | 9,515 | | | $ | 9,237 | |
(1)The Company implemented a change in the method of amortization applied to its mortgage servicing rights during the year ended December 31, 2022, to better reflect the pattern of consumption, where estimated future cash flows are now assessed at the individual loan level as opposed to on a pooled basis. |
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Beginning balance | $ | 24,466 |
| | $ | 20,698 |
| | $ | 19,379 |
|
Additions | 9,249 |
| | 11,312 |
| | 8,027 |
|
Amortization | (8,576 | ) | | (7,544 | ) | | (6,708 | ) |
Ending balance | $ | 25,139 |
| | $ | 24,466 |
| | $ | 20,698 |
|
During the fourth quarter of 2023, the Company committed to and initiated a plan to actively market and sell the majority of its mortgage servicing portfolio (over nine thousand individual mortgage loans with an aggregate unpaid principal balance of approximately $1.4 billion). The Company treated the related mortgage servicing rights as assets held for disposition and ceased recognizing amortization expense on these assets. At December 31, 2023, the carrying amount of mortgage servicing rights held for disposition was $8.3 million. The Company expects the sale to close in the first quarter of 2024.Loan servicing fees, net of mortgage servicing rights amortization, were $0.8 million, $1.1 million, and $1.5 million, for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, totaled $4.0 million, $5.9 million, and $1.7 million, respectively, and are included as a component of loanin Loan and lease related fees inon the accompanying Consolidated Statements of Income.
See Note 16: Fair Value Measurements for additional Information regarding the fair value information onof loans held for sale and mortgage servicing assets.rights can be found within Note 18: Fair Value Measurements.
Additionally, loans not originated for sale were sold approximately at carrying value, except as noted, for cash proceeds of $7.4 million for certain residential loans and for cash proceeds of $7.2 million for certain commercial loans for the year ended December 31, 2017; for cash proceeds of $26.5 million, resulting in a gain of $2.1 million, for certain commercial loans and for cash proceeds of $7.6 million for certain residential loans for the year ended December 31, 2016; and for cash proceeds of $0.7 million for certain commercial loans and for cash proceeds of $32.9 million for certain consumer loans for the year ended December 31, 2015.
Note 6: Premises and Equipment
A summaryThe following table summarizes the components of premises and equipment follows:
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Land | $ | 11,302 |
| | $ | 12,595 |
|
Buildings and improvements | 80,646 |
| | 83,903 |
|
Leasehold improvements | 82,067 |
| | 83,971 |
|
Fixtures and equipment | 76,665 |
| | 76,146 |
|
Data processing and software | 234,667 |
| | 220,002 |
|
Total premises and equipment | 485,347 |
| | 476,617 |
|
Less: Accumulated depreciation and amortization | (355,346 | ) | | (339,204 | ) |
Premises and equipment, net | $ | 130,001 |
| | $ | 137,413 |
|
equipment: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Land | $ | 73,916 | | | $ | 73,916 | |
Buildings and improvements | 107,794 | | | 106,180 | |
Leasehold improvements | 88,065 | | | 84,477 | |
Furniture, fixtures, and equipment | 68,680 | | | 71,542 | |
Data processing equipment and software | 94,030 | | | 128,153 | |
Property and equipment | 432,485 | | | 464,268 | |
Less: Accumulated depreciation and amortization | (186,365) | | | (225,152) | |
Property and equipment, net | 246,120 | | | 239,116 | |
ROU lease assets, net | 183,441 | | | 191,068 | |
Premises and equipment, net | $ | 429,561 | | | $ | 430,184 | |
Depreciation and amortization of premisesproperty and equipment was $33.1$34.7 million, $30.8$41.7 million, and $28.4$31.4 million for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, respectively, and is included in both Occupancy and Technology and equipment expense on the accompanying Consolidated Statements of Income.
The Company recognized $4.6 million and $6.3 million in losses on disposals of property and equipment for the years ended December 31, 2023, and 2022, respectively, which primarily pertained to retired internal use software and construction in progress due to the Company's decision to stop further project development. Losses on disposal of property and equipment for the year ended December 31, 2021, were not significant.
Additional information regarding ROU lease assets can be found within Note 7: Leasing.
Property Held for Sale
Assets held for disposition are included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
During the year ended December 31, 2022, the Company launched and completed a corporate real estate consolidation strategy in which the Company closed 14 locations in order to reduce its corporate real estate facility square footage by approximately 45%. In connection with this corporate real estate consolidation plan, in the third quarter of 2022, the Company had arranged to sell its New Britain, Connecticut facility, which comprised of land, buildings, and improvements, within the next twelve months. This resulted in a $1.8 million write-down to the fair market value of the property and the subsequent transfer of the property, which was valued at $4.8 million, to assets held for disposition.
The sale of the New Britain property closed during the third quarter of 2023. The Company received cash proceeds of $4.1 million and recognized a loss on sale of $0.7 million.
Note 7: Leasing
Lessor Arrangements
The Company leases certain types of machinery and equipment to its customers through sales-type and direct financing leases as part of its equipment financing portfolio. These leases generally have remaining lease terms of one to ten years, some of which include renewal options and/or options for the lessee to purchase the lease near or at the end of the lease term. The Company recognized interest income from its sales-type and direct financing lessor activities of $18.7 million, $15.4 million, and $7.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. The Company does not have any significant operating leases in which it is the lessor. Additional information regarding the Company's equipment financing portfolio can be found within Note 4: Loans and Leases.
The following table providessummarizes the components of the Company's net investment in its sales-type and direct financing leases: | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | 2022 |
Lease receivables | $ | 347,827 | $ | 330,690 |
Unguaranteed residual values | 60,747 | 100,368 |
Total net investment | $ | 408,574 | $ | 431,058 |
The following table reconciles undiscounted future lease payments to the total sales-type and direct financing leases' net investment: | | | | | |
(In thousands) | At December 31, 2023 |
2024 | $ | 116,506 |
2025 | 107,211 |
2026 | 98,157 |
2027 | 51,058 |
2028 | 31,179 |
Thereafter | 44,911 |
Total lease payments receivable | 449,022 |
Present value adjustment | (40,448) |
Total net investment | $ | 408,574 |
Lessee Arrangements
The Company enters into operating leases in the normal course of business, primarily for office space, banking centers, and other operational activities. These leases generally have remaining lease terms of one to fifteen years. The Company does not have any finance leases in which it is the lessee, nor any significant sub-lease arrangements.
The following table summarizes the Company's ROU lease assets and operating lease liabilities: | | | | | | | | | | | | | | |
| | | At December 31, |
(In thousands) | Consolidated Balance Sheet Line Item | | 2023 | 2022 |
ROU lease assets | Premises and equipment, net | | $ | 183,441 | $ | 191,068 |
Operating lease liabilities | Accrued expenses and other liabilities | | 222,439 | 239,281 |
ROU lease asset impairment charges were zero, $23.1 million and $1.2 million for the years ended December 31, 2023, 2022, and 2021, respectively, and are included in Occupancy on the accompanying Consolidated Statements of Income. The ROU lease asset impairment charge recognized for the year ended December 31, 2022, pertained to the Company's corporate real estate consolidation plan, discussed previously in Note 6: Premises and Equipment, and was calculated as the difference between the estimated fair value of the assets determined using a summary of activity for assets held for disposition:discounted cash flow technique, relative to their book value.
|
| | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 |
Beginning balance | $ | 637 |
| | $ | 637 |
|
Additions | 2,006 |
| | — |
|
Write-downs | (529 | ) | | — |
|
Sales | (1,970 | ) | | — |
|
Ending balance | $ | 144 |
| | $ | 637 |
|
106
The following table summarizes the components of operating lease expense and other relevant information: | | | | | | | | | | | |
| At or for the Years ended December 31, |
(In thousands) | 2023 | 2022 | 2021 |
Lease Cost: | | | |
Operating and variable lease costs | $ | 38,497 | $ | 44,654 | $ | 30,936 |
Sublease income | (223) | (1,383) | (554) |
Total operating lease expense | $ | 38,274 | $ | 43,271 | $ | 30,382 |
| | | |
Other Information: | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 37,615 | $ | 44,767 | $ | 30,487 |
ROU lease assets obtained in exchange for operating lease liabilities (1) | 22,989 | 27,897 | 15,226 |
Weighted-average remaining lease term (in years) | 7.46 | 7.72 | 7.50 |
Weighted-average discount rate | 2.96 | % | 2.65 | % | 3.04 | % |
(1)The amount for the year ended December 31, 2022, excludes ROU lease assets acquired from Sterling in the merger.
The following table reconciles undiscounted future lease payments to total operating lease liabilities: | | | | | | |
(In thousands) | At December 31, 2023 | |
2024 | $ | 38,575 | |
2025 | 39,449 | |
2026 | 35,665 | |
2027 | 31,128 | |
2028 | 26,999 | |
Thereafter | 81,918 | |
Total operating lease payments | 253,734 | |
Present value adjustment | (31,295) | |
Total operating lease liabilities | $ | 222,439 | |
Note 7:8: Goodwill and Other Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill:
| | | | | | | | | | | | | | | |
| | | | | At December 31, |
(In thousands) | | | 2023 | | 2022 |
Balance, beginning of period | | | | | $ | 2,514,104 | | | $ | 538,373 | |
interLINK acquisition | | | | | 143,216 | | | — | |
Sterling merger (1) | | | | | (25,561) | | | 1,939,765 | |
Bend acquisition (1) | | | | | (294) | | | 35,966 | |
Balance, end of period | | | | | $ | 2,631,465 | | | $ | 2,514,104 | |
(1)The 2023 changes reflect adjustments recorded within the one-year measurement period, which were identified in the first quarter as a result of extended information gathering and other intangible assetsnew information that arose from integration activities. The allocation of the purchase price and goodwill calculations for both the Sterling merger and Bend acquisition were final as of March 31, 2023.
Information regarding goodwill by reportable segment consistedcan be found within Note 21: Segment Reporting.
Other Intangible Assets
The following table summarizes other intangible assets: | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Gross Carrying Amount (1) | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Core deposits | $ | 146,037 | | $ | 53,986 | | $ | 92,051 | | | $ | 146,037 | | $ | 36,710 | | $ | 109,327 | |
Customer relationships (1) | 151,000 | | 43,116 | | 107,884 | | | 115,000 | | 24,985 | | 90,015 | |
Non-competition agreement (1) | 4,000 | | 800 | | 3,200 | | | — | | — | | — | |
Other intangible assets | $ | 301,037 | | $ | 97,902 | | $ | 203,135 | | | $ | 261,037 | | $ | 61,695 | | $ | 199,342 | |
(1)The increase in the gross carrying amount is attributed to the acquisition of interLINK during the following:
|
| | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Goodwill: | | | | | | | |
Community Banking | $ | 516,560 |
| | $ | 516,560 |
| | $ | 516,560 |
| | $ | 516,560 |
|
HSA Bank | 21,813 |
| | 21,813 |
| | 21,813 |
| | 21,813 |
|
Total goodwill | $ | 538,373 |
| | $ | 538,373 |
| | $ | 538,373 |
| | $ | 538,373 |
|
| | | | | | | |
Other intangible assets: | | | | | | | |
HSA Bank - Core deposit intangible assets | $ | 22,000 |
| $ | (8,610 | ) | $ | 13,390 |
| | $ | 22,000 |
| $ | (6,162 | ) | $ | 15,838 |
|
HSA Bank - Customer relationships | 21,000 |
| (4,779 | ) | 16,221 |
| | 21,000 |
| (3,164 | ) | 17,836 |
|
Total other intangible assets | $ | 43,000 |
| $ | (13,389 | ) | $ | 29,611 |
| | $ | 43,000 |
| $ | (9,326 | ) | $ | 33,674 |
|
first quarter of 2023, in which the Company identified and recorded a $36.0 million intangible asset for broker dealer relationships, which is being amortized on an accelerated basis over an estimated useful life of 10 years, and a $4.0 million non-competition agreement, which is being amortized on a straight-line basis over an estimated useful life of 5 years.As of December 31, 2017, theThe remaining estimated aggregate future amortization expense for other intangible assets is as follows: | | | | | |
(In thousands) | At December 31, 2023 |
2024 | $ | 29,618 | |
2025 | 25,956 | |
2026 | 25,565 | |
2027 | 25,565 | |
2028 | 23,216 | |
Thereafter | 73,215 | |
|
| | | |
(In thousands) | |
2018 | $ | 3,847 |
|
2019 | 3,847 |
|
2020 | 3,847 |
|
2021 | 3,847 |
|
2022 | 3,847 |
|
Thereafter | 10,376 |
|
Note 8:9: Income Taxes
Income tax expense reflects the following expense (benefit) components:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 96,364 |
| | $ | 73,194 |
| | $ | 97,575 |
|
State and local | 11,061 |
| | 5,429 |
| | 10,970 |
|
Total current | 107,425 |
| | 78,623 |
| | 108,545 |
|
Deferred: | | | | | |
Federal | 39,568 |
| | 12,542 |
| | (7,279 | ) |
State and local | (48,642 | ) | | 5,158 |
| | (8,234 | ) |
Total deferred | (9,074 | ) | | 17,700 |
| | (15,513 | ) |
| | | | | |
Total federal | 135,932 |
| | 85,736 |
| | 90,296 |
|
Total state and local | (37,581 | ) | | 10,587 |
| | 2,736 |
|
Income tax expense | $ | 98,351 |
| | $ | 96,323 |
| | $ | 93,032 |
|
The Company's deferred state and local benefit in 2017 includes $47.5 million related to a reduction in its beginning-of-year valuation allowance for SALT DTA's, or $37.5 million net of deferred federal expense of $10.0 million. The deferred state and local benefit in 2017 also includes $1.8 million from other SALT DTA adjustments, net of federal effects.
The Company's deferred federal expense in 2017 also includes $31.5 million from a re-measurement of its DTA upon the enactment of the Tax Act. Due to a $10.6 million impact of the Tax Act on the $39.3 million of net SALT DTA adjustments noted above, the Company reported a $20.9 million expense attributable to the Tax Act, and a $28.7 million net benefit from SALT DTAs, for a net benefit of $7.8 million in its results for the quarter ended December 31, 2017. | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Current: | | | | | |
Federal | $ | 219,548 | | | $ | 170,779 | | | $ | 109,621 | |
State and local | 50,750 | | | 52,579 | | | 20,374 | |
Total current | 270,298 | | | 223,358 | | | 129,995 | |
Deferred: | | | | | |
Federal | (43,615) | | | (45,421) | | | (9,844) | |
State and local | (10,019) | | | (24,243) | | | 4,846 | |
Total deferred | (53,634) | | | (69,664) | | | (4,998) | |
| | | | | |
Total federal | 175,933 | | | 125,358 | | | 99,777 | |
Total state and local | 40,731 | | | 28,336 | | | 25,220 | |
Income tax expense | $ | 216,664 | | | $ | 153,694 | | | $ | 124,997 | |
Included in the Company's income tax expense for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, are net tax credits of approximately $11.9 million, $14.0 million, and $2.6 million, respectively. These amounts relate primarily to LIHTC investments and include associated SALT credits and benefits.
Also included in the Company's income tax expense for the years ended December 31, 2023, 2022, and 2021 are benefits offrom operating loss carryforwards of $25.1$0.2 million, none, and $3.0$10.3 million, and net tax credits of $1.6$0.4 million, $1.0respectively. The 2022 amount includes a $9.9 million and $2.1 million, respectively, exclusive of Tax Act impacts.benefit related to a reduction in the Company's beginning-of-year valuation allowance for its SALT DTAs.
The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the federal statutory rate of 35.0%21.0%:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 | | 2022 | | 2021 |
(In thousands) | Amount | Percent | | Amount | Percent | | Amount | Percent |
Income tax expense at federal statutory rate | $ | 227,746 | | 21.0 | % | | $ | 167,575 | | 21.0 | % | | $ | 112,111 | | 21.0 | % |
Reconciliation to reported income tax expense: | | | | | | | | |
SALT expense, net of federal | 32,177 | | 3.0 | | | 32,259 | | 4.1 | | | 19,924 | | 3.7 | |
Tax-exempt interest income, net | (44,473) | | (4.1) | | | (35,371) | | (4.4) | | | (6,814) | | (1.3) | |
Increase in cash surrender value of life insurance | (5,469) | | (0.5) | | | (6,122) | | (0.8) | | | (3,030) | | (0.6) | |
| | | | | | | | |
Non-deductible FDIC deposit insurance premiums | 10,693 | | 1.0 | | | 5,581 | | 0.7 | | | 2,064 | | 0.4 | |
Low income housing tax credits and other benefits, net | (3,866) | | (0.4) | | | (7,627) | | (1.0) | | | (615) | | (0.1) | |
Non-deductible compensation expense | 4,167 | | 0.4 | | | 7,948 | | 1.0 | | | 786 | | 0.1 | |
Non-deductible merger-related expenses, excluding compensation | 45 | | — | | | 2,717 | | 0.3 | | | 3,451 | | 0.7 | |
DTA valuation allowance adjustment, net | (368) | | — | | | (9,874) | | (1.2) | | | — | | — | |
Other, net | (3,988) | | (0.4) | | | (3,392) | | (0.4) | | | (2,880) | | (0.5) | |
Income tax expense and effective tax rate | $ | 216,664 | | 20.0 | % | | $ | 153,694 | | 19.3 | % | | $ | 124,997 | | 23.4 | % |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
(Dollars in thousands) | Amount | Percent | | Amount | Percent | | Amount | Percent |
Income tax expense at federal statutory rate | $ | 123,826 |
| 35.0 | % | | $ | 106,208 |
| 35.0 | % | | $ | 104,217 |
| 35.0 | % |
Reconciliation to reported income tax expense: | | | | | | | | |
SALT expense, net of federal | 8,189 |
| 2.3 |
| | 6,882 |
| 2.3 |
| | 7,563 |
| 2.5 |
|
Tax-exempt interest income, net | (10,826 | ) | (3.1 | ) | | (8,917 | ) | (2.9 | ) | | (7,117 | ) | (2.4 | ) |
SALT DTA adjustments, net of federal | (28,724 | ) | (8.1 | ) | | — |
| — |
| | (5,785 | ) | (1.9 | ) |
Tax Act impacts, net | 20,891 |
| 5.9 |
| | — |
| — |
| | — |
| — |
|
Excess tax benefits, net | (6,349 | ) | (1.8 | ) | | — |
| — |
| | — |
| — |
|
Increase in cash surrender value of life insurance | (5,120 | ) | (1.4 | ) | | (5,166 | ) | (1.7 | ) | | (4,557 | ) | (1.5 | ) |
Other, net | (3,536 | ) | (1.0 | ) | | (2,684 | ) | (1.0 | ) | | (1,289 | ) | (0.5 | ) |
Income tax expense and effective tax rate | $ | 98,351 |
| 27.8 | % | | $ | 96,323 |
| 31.7 | % | | $ | 93,032 |
| 31.2 | % |
109
The following table reflects the significant components of the DTAs, net:
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Deferred tax assets: | | | |
Allowance for loan and lease losses | $ | 51,203 |
| | $ | 77,908 |
|
Net operating loss and credit carry forwards | 71,813 |
| | 64,644 |
|
Compensation and employee benefit plans | 25,023 |
| | 46,433 |
|
Net losses on derivative instruments | 3,767 |
| | 8,624 |
|
Net unrealized loss on securities available for sale | 9,548 |
| | 9,898 |
|
Other | 12,273 |
| | 17,682 |
|
Gross deferred tax assets | 173,627 |
| | 225,189 |
|
Valuation allowance | (38,292 | ) | | (71,474 | ) |
Total deferred tax assets, net of valuation allowance | $ | 135,335 |
| | $ | 153,715 |
|
Deferred tax liabilities: | | | |
Equipment-financing leases | $ | 27,955 |
| | $ | 41,910 |
|
Deferred income on repurchase of debt | 1,275 |
| | 4,251 |
|
Intangible assets | 6,164 |
| | 9,952 |
|
Mortgage servicing assets | 4,445 |
| | 7,313 |
|
Other | 2,866 |
| | 5,898 |
|
Gross deferred tax liabilities | 42,705 |
| | 69,324 |
|
Deferred tax assets, net | $ | 92,630 |
| | $ | 84,391 |
|
| | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Deferred tax assets: | | | |
ACL on loans and leases | $ | 171,870 | | | $ | 161,932 | |
Net operating loss and credit carry forwards | 68,103 | | | 72,035 | |
Compensation and employee benefit plans | 46,670 | | | 55,093 | |
Lease liabilities under operating leases | 60,331 | | | 64,899 | |
Net unrealized loss on available-for-sale securities | 191,922 | | | 233,978 | |
Other | 72,546 | | | 38,314 | |
Gross deferred tax assets | 611,442 | | | 626,251 | |
Valuation allowance | (28,746) | | | (29,176) | |
Total deferred tax assets, net of valuation allowance | $ | 582,696 | | | $ | 597,075 | |
Deferred tax liabilities: | | | |
| | | |
| | | |
ROU assets under operating leases | $ | 49,754 | | | $ | 51,822 | |
Equipment financing leases | 54,300 | | | 74,295 | |
| | | |
Goodwill and other intangible assets | 59,817 | | | 56,223 | |
Purchase accounting and fair value adjustments | 15,527 | | | 11,529 | |
Other | 34,086 | | | 31,572 | |
Gross deferred tax liabilities | 213,484 | | | 225,441 | |
Deferred tax assets, net | $ | 369,212 | | | $ | 371,634 | |
The Company's DTA, net increasedDTAs decreased by $8.2$2.4 million during 2017,2023, reflecting primarilya $49.7 million expense allocated directly to (AOCL) and a $7.9 million net DTL recognized as part of purchase accounting adjustments related to the $9.1merger with Sterling and acquisition of Bend, partially offset by the $53.6 million deferred tax benefit and a $0.7$1.6 million expense allocated directlybenefit recorded to shareholders equity.equity upon the adoption of ASU 2022-02 .
The $38.3 million valuation allowance of $28.7 million at December 31, 2017 consisted2023, is primarily attributable to SALT net operating loss carryforwards, as compared to $29.2 million at December 31, 2022, consisting of $38.2approximately $28.6 million attributable to SALT net operating loss carryforwards and $0.1$0.6 million to a capital loss carryforward.of federal credit carryforwards. The $33.2 million net decrease in the valuation allowance includes: (i)during 2023 primarily reflects a $27.0 million reduction in the beginning-of-year valuation allowance applicablerelated to a change in management's estimate about the estimated realizability of the Company's federal credits.
SALT DTAs in future years, (ii) a $3.5 million decrease applicablenet operating loss carryforwards approximated $1.1 billion at December 31, 2023, including those related to the estimated utilizationSterling merger and expiration of capitalBend acquisition, and are generally scheduled to expire in varying amounts during tax years 2024 through 2032. Federal net operating loss carryforwards of $2.1approximately $16.8 million and $1.4federal credit carryforwards of $0.4 million respectively,at December 31, 2023, related to the Bend acquisition are subject to annual limitations on utilization, with the net operating losses able to be carried forward indefinitely and (iii) a $2.7the credits scheduled to expire in varying amounts between 2038 and 2042. The valuation allowance reflects approximately $486.6 million net decrease inof those SALT net DTAs, including Tax Act-related impacts.
The reduction in the Company's valuation allowance for SALT DTAs noted above resulted from the completion of a review of its current and projected multi-jurisdictional SALT structure reflecting Webster's continued business expansion and growth. In connection with the review, an evaluation of the Company's net SALT DTAs, including valuation allowances previously established for DTAs not expectedoperating loss carryforwards that are estimated to be realized, was performed and a change in their estimated realizability was recognized.expire unused.
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize its total DTA,DTAs, net of the valuation allowance. Although taxable income in prior years is no longer able to be included as a source of taxable income, due to the general repeal of the carryback of net operating losses under the Tax Cuts and Jobs Act of 2017, significant positive evidence remains in support of management's conclusion regarding the realizability of Webster'sthe Company's DTAs, including projected future reversals of existing taxable temporary differences and book-taxable income levels in recent years and projected in future years. There can, however, be no assurance that any specific level of future income will be generated or that the Company’s DTAs will ultimately be realized.
A capital loss carryforwardDTLs of $1.1$63.2 million exists at both December 31, 20172023, and is scheduled to expire in 2018. A valuation allowance of $0.1 million has been established for the $0.4 million portion of the carryforward scheduled to expire.
SALT net operating loss carryforwards approximating $1.2 billion at December 31, 2017 are scheduled to expire in varying amounts during tax years 2023 through 2032, and credits, totaling $0.8 million at December 31, 2017,2022, have a five-year carryover period, with excess credits subject to expiration annually. A valuation allowance of $38.2 million has been established for approximately $644 million of those net operating loss carryforwards estimated to expire.
A deferred tax liability of $14.9 million has not been recognized for certain thrift bad-debt reserves, established before 1988, that would become taxable upon the occurrence of certain events: distributions by Websterthe Bank in excess of certain earnings and profits; the redemption of Websterthe Bank’s stock; or liquidation. WebsterThe Company does not expect any of those events to occur. At both December 31, 20172023, and 2022, the cumulative taxable temporary differences applicable to those reserves approximated $58.0$233.1 million.
110
The following table reflects a reconciliation of the beginning and ending balances of unrecognized tax benefits (UTBs):
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Beginning balance | $ | 3,847 |
| | $ | 5,094 |
| | $ | 4,593 |
|
Additions as a result of tax positions taken during the current year | 584 |
| | 613 |
| | 865 |
|
Additions as a result of tax positions taken during prior years | 7 |
| | — |
| | 1,254 |
|
Reductions as a result of tax positions taken during prior years | (61 | ) | | (625 | ) | | (247 | ) |
Reductions relating to settlements with taxing authorities | (392 | ) | | (693 | ) | | (992 | ) |
Reductions as a result of lapse of statute of limitation periods | (390 | ) | | (542 | ) | | (379 | ) |
Ending balance | $ | 3,595 |
| | $ | 3,847 |
| | $ | 5,094 |
|
UTBs: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Beginning balance | $ | 9,875 | | | $ | 4,249 | | | $ | 4,252 | |
Additions as a result of tax positions taken during the current year | 359 | | | 223 | | | 294 | |
Additions as a result of tax positions taken during prior years | 4,255 | | | 8,807 | | | 434 | |
Reductions as a result of tax positions taken during prior years | — | | | (503) | | | (186) | |
Reductions relating to settlements with taxing authorities | — | | | (2,110) | | | (267) | |
Reductions as a result of lapse of statute of limitation periods | (653) | | | (791) | | | (278) | |
Ending balance | $ | 13,836 | | | $ | 9,875 | | | $ | 4,249 | |
At December 31, 2017, 2016,2023, 2022, and 2015,2021, there are $2.8were $12.4 million, $2.5$9.1 million, and $3.3$3.5 million, respectively, of UTBs that if recognized would affect the effective tax rate.
WebsterThe Company recognizes interest and penalties related to UTBs, where applicable, in income tax expense. DuringThe Company recognized expense of $1.8 million, $0.1 million, and $0.3 million during the years ended December 31, 2017, 2016,2023, 2022, and 2015, Webster recognized an expense of $0.2 million, a benefit of $0.2 million, and an expense of $1.1 million,2021, respectively. At December 31, 20172023 and 2016,2022, the Company had accrued interest and penalties related to UTBs of $1.9$3.8 million and $1.7$2.0 million respectively.
WebsterThe Company has determined it is reasonably possible that its total UTBs could decrease by an amount in the range of $0.6between $0.4 million to $1.8and $9.3 million by the end of 2018, primarily2024 as a result of potential lapses in statute-of-limitation periods and/or potential settlements with taxing authorities, primarily concerning various depreciation and state and local taxing authorities concerning apportionment and tax-base determinations and/or potential lapses in statute-of-limitation periods.determinations.
Webster is currently under, or subject to, examination by various taxing authorities. FederalThe Company's federal tax returns for all years subsequent to 20132018 remain open to examination. For Webster'sexamination, including the carryback of a Sterling 2019 net operating loss under the CARES Act in 2020 to tax years 2014 and 2016, currently under audit by the Internal Revenue Service. The Company's tax returns filed in its other principal state tax jurisdictions (Connecticut, Massachusetts,of Connecticut, New York State, New York City, Massachusetts and Rhode Island) returnsNew Jersey for years subsequent to 20132014 are either under or remain open to examination.
Note 9:10: Deposits
A summary ofThe following table summarizes deposits by type follows:type: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Non-interest-bearing: | | | |
Demand | $ | 10,732,516 | | | $ | 12,974,975 | |
Interest-bearing: | | | |
Health savings accounts | 8,287,889 | | | 7,944,892 | |
Checking | 8,994,095 | | | 9,237,529 | |
Money market | 17,662,826 | | | 11,062,652 | |
Savings | 6,642,499 | | | 8,673,343 | |
Time deposits | 8,464,459 | | | 4,160,949 | |
Total interest-bearing | 50,051,768 | | | 41,079,365 | |
Total deposits | $ | 60,784,284 | | | $ | 54,054,340 | |
| | | |
Time deposits, money market, and interest-bearing checking obtained through brokers (1) | $ | 3,673,733 | | | $ | 1,964,873 | |
Aggregate amount of time deposit accounts that exceeded the FDIC limit | 1,221,887 | | | 1,894,950 | |
Demand deposit overdrafts reclassified as loan balances | 10,432 | | | 8,721 | |
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Non-interest-bearing: | | | |
Demand | $ | 4,191,496 |
| | $ | 4,021,061 |
|
Interest-bearing: | | | |
Checking | 2,736,952 |
| | 2,528,274 |
|
Health savings accounts | 5,038,681 |
| | 4,362,503 |
|
Money market | 2,209,492 |
| | 2,047,121 |
|
Savings | 4,348,700 |
| | 4,320,090 |
|
Time deposits | 2,468,408 |
| | 2,024,808 |
|
Total interest-bearing | 16,802,233 |
| | 15,282,796 |
|
Total deposits | $ | 20,993,729 |
| | $ | 19,303,857 |
|
| | | |
Time deposits and interest-bearing checking, included in above balances, obtained through brokers | $ | 898,157 |
| | $ | 848,618 |
|
Time deposits, included in above balance, that meet or exceed the FDIC limit | 561,512 |
| | 490,721 |
|
Demand deposit overdrafts reclassified as loan balances | 2,210 |
| | 1,885 |
|
(1)Excludes $5.7 billion of interLINK money market sweep deposits at December 31, 2023.The following table summarizes the scheduled maturities of time deposits are as follows:deposits: | | | | | |
(In thousands) | At December 31, 2023 |
2024 | $ | 8,217,683 | |
2025 | 138,769 | |
2026 | 53,807 | |
2027 | 32,865 | |
2028 | 21,335 | |
| |
Total time deposits | $ | 8,464,459 | |
|
| | | |
(In thousands) | At December 31, 2017 |
2018 | $ | 1,381,899 |
|
2019 | 693,554 |
|
2020 | 236,955 |
|
2021 | 106,042 |
|
2022 | 49,831 |
|
Thereafter | 127 |
|
Total time deposits | $ | 2,468,408 |
|
112
Note 10:11: Borrowings
Total borrowings of $2.5 billion at December 31, 2017 and $4.0 billion at December 31, 2016, are described in detail below.
The following table summarizes securities sold under agreements to repurchase and other borrowings: | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Total Outstanding | Rate | | Total Outstanding | Rate |
| | | | | |
| | | | | |
| | | | | |
Securities sold under agreements to repurchase (1) | $ | 358,387 | | 3.43 | % | | $ | 282,005 | | 0.11 | % |
Federal funds purchased | 100,000 | | 5.48 | | | 869,825 | | 4.44 | |
Securities sold under agreements to repurchase and other borrowings | $ | 458,387 | | 3.88 | % | | $ | 1,151,830 | | 3.38 | % |
|
| | | | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
| Total Outstanding | Rate | | Total Outstanding | Rate |
Securities sold under agreements to repurchase: | | | | | |
Original maturity of one year or less | $ | 288,269 |
| 0.17 | | $ | 340,526 |
| 0.16 |
Original maturity of greater than one year, non-callable | 300,000 |
| 3.10 | | 400,000 |
| 3.09 |
Total securities sold under agreements to repurchase | 588,269 |
| 1.66 | | 740,526 |
| 1.82 |
Fed funds purchased | 55,000 |
| 1.37 | | 209,000 |
| 0.46 |
Securities sold under agreements to repurchase and other borrowings | $ | 643,269 |
| 1.64 | | $ | 949,526 |
| 1.53 |
(1)Repurchase agreements are used as a source of borrowed funds and are collateralized by U.S. Government agency mortgage-backed securities which are delivered to broker/dealers. Repurchase agreements counterparties are limited to primary dealers in government securities and commercial/municipal customers through Webster’s Treasury Unit. Dealer counterparties have the right to pledge, transfer, or hypothecate purchased securities during the term of the transaction. The Company has the right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase represents theare presented as gross amount for these transactions, as only liabilities are outstanding for the periods presented.
Securities sold under agreements to repurchase, all of which have an original maturity of one year or less for the periods presented, are used as a source of borrowed funds and are collateralized by Agency MBS and Corporate debt. The Company's repurchase agreement counterparties are limited to primary dealers in government securities, and commercial and municipal customers through the Corporate Treasury function. The Company may also purchase unsecured term and overnight federal funds to satisfy its short-term liquidity needs.
The following table providessummarizes information for FHLB advances: | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Total Outstanding | Weighted-Average Contractual Coupon Rate | | Total Outstanding | Weighted-Average Contractual Coupon Rate |
Maturing within 1 year | $ | 2,350,000 | | 5.53 | % | | $ | 5,450,187 | | 4.40 | % |
After 1 but within 2 years | — | | — | | | — | | — | |
After 2 but within 3 years | — | | — | | | — | | — | |
After 3 but within 4 years | 235 | | — | | | — | | — | |
After 4 but within 5 years | 228 | | 2.75 | | | 252 | | — | |
After 5 years | 9,555 | | 2.07 | | | 10,113 | | 2.09 | |
FHLB advances | $ | 2,360,018 | | 5.52 | % | | $ | 5,460,552 | | 4.39 | % |
| | | | | |
Aggregate market value of assets pledged as collateral | $ | 20,734,035 | | | | $ | 13,692,379 | | |
Remaining borrowing capacity at FHLB | 12,535,423 | | | | 4,291,326 | | |
|
| | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(Dollars in thousands) | Total Outstanding | Weighted- Average Contractual Coupon Rate | | Total Outstanding | Weighted- Average Contractual Coupon Rate |
Maturing within 1 year | $ | 1,150,000 |
| 1.48 | % | | $ | 2,130,500 |
| 0.71 | % |
After 1 but within 2 years | 103,026 |
| 1.81 |
| | 200,000 |
| 1.36 |
|
After 2 but within 3 years | 215,000 |
| 1.73 |
| | 128,026 |
| 1.73 |
|
After 3 but within 4 years | 200,000 |
| 4.13 |
| | 175,000 |
| 1.77 |
|
After 4 but within 5 years | 170 |
| — |
| | 200,000 |
| 1.81 |
|
After 5 years | 8,909 |
| 1.96 |
| | 9,370 |
| 2.59 |
|
| 1,677,105 |
| 1.85 |
| | 2,842,896 |
| 0.95 |
|
Premiums on advances | — |
| | | 12 |
| |
Federal Home Loan Bank advances | $ | 1,677,105 |
| | | $ | 2,842,908 |
| |
| | | | | |
Aggregate carrying value of assets pledged as collateral | $ | 6,402,066 |
| | | $ | 5,967,318 |
| |
Remaining borrowing capacity | $ | 2,600,624 |
| | | $ | 1,192,758 |
| |
WebsterThe Bank was in compliance withmay borrow up to the amount of eligible mortgages and securities that have been pledged as collateral to secure FHLB collateral requirements for the periods presented. Eligible collateral, primarilyadvances, which includes certain residential and commercial real estate loans, has been pledged to securehome equity lines of credit, CMBS, Agency MBS, Agency CMO, and U.S. Treasury notes. The Bank was in compliance with its FHLB advances.collateral requirements at both December 31, 2023, and 2022.
The following table summarizes long-term debt: | | | | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
4.375% | Senior fixed-rate notes due February 15, 2024 (2) | $ | 132,550 | | | $ | 150,000 | |
4.100 | % | Senior fixed-rate notes due March 25, 2029 (3) | 328,104 | | | 333,458 | |
4.000% | Subordinated fixed-to-floating rate notes due December 30, 2029 | 274,000 | | | 274,000 | |
3.875 | % | Subordinated fixed-to-floating rate notes due November 1, 2030 | 225,000 | | | 225,000 | |
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (4) | 77,320 | | | 77,320 | |
Total senior and subordinated debt | 1,036,974 | | | 1,059,778 | |
Discount on senior fixed-rate notes | (537) | | | (756) | |
Debt issuance cost on senior fixed-rate notes | (1,419) | | | (1,824) | |
Premium on subordinated fixed-to-floating rate notes | 13,802 | | | 15,930 | |
Long-term debt (1) | $ | 1,048,820 | | | $ | 1,073,128 | |
(1)The classification of debt as long-term is based on the initial terms of greater than one year as of the date of issuance. |
| | | | | | | | |
| At December 31, |
(Dollars in thousands) | 2017 | | 2016 |
4.375% | Senior fixed-rate notes due February 15, 2024 | $ | 150,000 |
| | $ | 150,000 |
|
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (1) | 77,320 |
| | 77,320 |
|
Total notes and subordinated debt | 227,320 |
| | 227,320 |
|
Discount on senior fixed-rate notes | (727 | ) | | (845 | ) |
Debt issuance cost on senior fixed-rate notes | (826 | ) | | (961 | ) |
Long-term debt | $ | 225,767 |
| | $ | 225,514 |
|
| |
(1) | The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%, was 4.55% at December 31, 2017 and 3.94% at December 31, 2016. |
these senior notes at 96 cents on the dollar in May 2023. The resulting
Note 11: Shareholders' Equity
Share activity during$0.7 million gain recognized on extinguishment is included in Other income on the accompanying Consolidated Statements of Income for the year ended December 31, 20172023.
(3)The Company de-designated its fair value hedging relationship on these senior notes in 2020. A basis adjustment of $28.1 million and $33.5 million at December 31, 2023, and 2022, respectively, is as follows:included in the carrying value and is being amortized over the remaining life of the senior notes.
(4)The interest rate on the Webster Statutory Trust I floating-rate notes varies quarterly based on 3-month SOFR plus a credit spread adjustment plus a market spread of 2.95%. Prior to LIBOR cessation on July 1, 2023, the notes varied quarterly based on 3-month LIBOR plus a market spread of 2.95%. The interest rates yielded 8.59% and 7.69% at December 31, 2023, and 2022, respectively.
The Company assumed $274.0 million in aggregate principal amount of 4.00% fixed-to-floating rate subordinated notes due on December 30, 2029 (the 2029 subordinated notes), in connection with the Sterling merger. The 2029 subordinated notes were issued by Sterling on December 16, 2019, through a public offering, and are redeemable at a price equal to the total principal amount plus any accrued and unpaid interest thereon, in whole or in part by the Company on December 30, 2024, or any interest payment date thereafter, upon the occurrence of certain specified events. Until December 30, 2024, the interest rate is fixed at 4.00% and payable semi-annually in arrears on each June 30 and December 30. From and including December 30, 2024, through the earlier of maturity or redemption, the 2029 subordinated notes will bear interest at a floating rate per annum equal to three-month term SOFR plus 253 basis points, payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year, commencing on March 30, 2025.
The Company also assumed $225.0 million in aggregate principal amount of 3.875% fixed-to-floating rate subordinated notes due on November 1, 2030 (the 2030 subordinated notes), in connection with the Sterling merger. The 2030 subordinated notes were issued by Sterling on October 30, 2020, through a public offering, and are redeemable at a price equal to the total principal amount plus any accrued and unpaid interest thereon, in whole or in part by the Company on November 1, 2025, or any interest payment date thereafter, upon the occurrence of certain specified events. Until November 1, 2025, the interest rate is fixed at 3.875% and payable semi-annually in arrears on each May 1 and November 1. From and including November 1, 2025, through the earlier of maturity or redemption, the 2030 subordinated notes will bear interest at a floating rate per annum equal to three-month term SOFR plus 369 basis points, payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on February 1, 2026.
The Company recorded the 2029 and 2030 subordinated notes at their estimated fair value of $281.0 million and $235.9 million, respectively, on January 31, 2022. The corresponding purchase premiums are being amortized into interest expense over the remaining lives of the subordinated notes.
|
| | | | | | | | | | |
| Preferred Stock Series E | Preferred Stock Series F | Common Stock Issued | Treasury Stock Held | Common Stock Outstanding |
Balance at January 1, 2017 | 5,060 |
| — |
| 93,651,601 |
| 1,899,502 |
| 91,752,099 |
|
Restricted share activity | — |
| — |
| — |
| (124,800 | ) | 124,800 |
|
Stock options exercised | — |
| — |
| — |
| (338,176 | ) | 338,176 |
|
Common stock repurchased | — |
| — |
| — |
| 222,000 |
| (222,000 | ) |
Warrant exercise | — |
| — |
| 28,690 |
| — |
| 28,690 |
|
Series F Preferred Stock issuance | — |
| 6,000 |
| — |
| — |
| — |
|
Series E Preferred Stock redemption | (5,060 | ) | — |
| — |
| — |
| — |
|
Balance at December 31, 2017 | — |
| 6,000 |
| 93,680,291 |
| 1,658,526 |
| 92,021,765 |
|
114
Note 12: Stockholders' Equity
The following table summarizes the changes in shares of preferred and common stock issued and common stock held as treasury shares for the year ended December 31, 2023: | | | | | | | | | | | | | | | | | | |
| | Preferred Stock Series F Issued | Preferred Stock Series G Issued | Common Stock Issued | Treasury Stock Held | Common Stock Outstanding |
Balance, beginning of period | | 6,000 | | 135,000 | | 182,778,045 | | 8,770,472 | | 174,007,573 | |
| | | | | | |
| | | | | | |
Restricted stock compensation plan activity | | — | | — | | — | | (605,684) | | 605,684 | |
Stock options exercised | | — | | — | | — | | (75,848) | | 75,848 | |
Common stock repurchase program | | — | | | — | | 2,667,149 | | (2,667,149) | |
Balance, end of period | | 6,000 | | 135,000 | | 182,778,045 | | 10,756,089 | | 172,021,956 | |
Repurchases of Common Stock
On October 24, 2017, Webster announced that its Board of Directors had authorizedThe Company maintains a $100 million common stock repurchase program, under which was approved by the Board of Directors on
October 24, 2017, that authorizes management to purchase shares may be repurchased from time to timeof Webster common stock in the open market or in privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan subject to the availability and trading price of stock, general market conditions, alternative uses for capital, regulatory considerations, and other factors. This program is in additionthe Company's financial performance. On April 27, 2022, the Board of Directors increased the Company's authority to an existingrepurchase shares of Webster common stock under the repurchase program authorized onby $600.0 million in shares. During the year ended December 6, 2012,31, 2023, the Company repurchased 2,667,149 shares under which $100 million had been authorized. Common stock repurchased during 2017the repurchase program at a weighted-average price of $40.49 per share, totaling $108.0 million. At December 31, 2023, the Company's remaining purchase authority was acquired, at an average cost of $52.18 per common share, which results in a remaining repurchase authority for$293.4 million.
In addition, the Company will periodically acquire Webster common stock outside of the repurchase programs of $103.9 million atprogram related to employee stock compensation plan activity. During the year ended December 31, 2017.2023, the Company repurchased 315,729 shares at a weighted-average price of $51.48 per share, totaling $16.3 million for this purpose.
Contribution to Charitable Foundation
On JuneJuly 8, 2011,2022, the U.S. Treasury closedCompany made an underwritten public offeringunrestricted and unconditional contribution of 3,282,276 warrants issuedWebster common shares to the Webster Bank Charitable Foundation, a nonprofit charitable organization with a focus on education and community development that serves communities in the Greater New York City, Lower Hudson Valley, Long Island, and New Jersey areas. The fair value of these shares based on their closing price on the contribution date was $10.5 million.
Change in Common Shares Authorized
The number of authorized shares of Webster common stock was increased from 200.0 million shares to 400.0 million shares on January 31, 2022, in connection with the Company’s participationcompletion of the merger with Sterling and in the Capital Purchase Program, each representing the right to purchase one share of Webster common stock, $0.01 par value per share. The warrants have an exercise price of $18.28, and expire on November 21, 2018. Concurrentaccordance with the U.S. Treasury's action, the Board of Directors approved the repurchase of a significant number of warrants in a public auction conducted on behalf of the U.S. Treasury. The board approved plan provides for additional repurchases from time-to-time, as permitted by securities laws and other legal requirements. During 2017, there were 44,275 warrants exercised in cashless exchange transactions leaving 8,752 warrants outstanding and exercisable at December 31, 2017.merger agreement.
Series F Preferred Stock
On December 15, 2017, Webster exercised its right to redeem all of the outstanding shares of 6.40% Series E Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, for the per share cash redemption price of $25,400 which includes the quarterly per share dividend amount that otherwise would have been paid on that date.
On December 12, 2017, Websterthe Company closed on a public offering of 6,000,000 depositorydepositary shares, each representing 1/1000th ownership interest in a share of Webster's 5.25% Series F Non-Cumulative Preferred Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference ofequal to $25,000 per share (equivalent to $25 per depository share) (the "SeriesSeries F Preferred Stock")Stock). Webster will pay dividends as
Dividends on the Series F Preferred Stock are non-cumulative and are not mandatory. If declared by the Board of Directors, or a duly authorized committee ofthereof, the Board. Dividends are payable at a rate of 5.25% per annum,Company will pay dividends quarterly in arrears on the fifteenth day of each March, June, September, and December. Dividends on the Series F Preferred Stock are not cumulative and are not mandatory. If for any reason the Board of Directors orDecember, at a duly authorized committeerate equal to 5.25% of the Board does not declare$25,000 per share liquidation amount per annum. If a dividend on the Series F Preferred Stock for anyis not declared in respect of a dividend period, sucha dividend will not accrue or be payable, and Webster will havethe Company has no obligation to pay dividendsany dividend for suchthat period, regardless as to whether a dividend period, whether or not dividends areis declared for a future period on the Series G Preferred Stock or any future dividend periods.other series of Webster preferred stock. The terms of the Series F Preferred Stock prohibit the Company from declaring or paying any cash dividends on itsWebster common stock, and from repurchasing, redeeming, or otherwise acquiring Webster common stock or any other series of Webster preferred stock to which it ranks on parity with, unless Webster hasdividends have been declared and paid in full dividends on the Series F Preferred Stock for the most recently completedrecent dividend period.
The Series F Preferred Stock is perpetual and has no maturity date, and is not subject to any mandatory redemption, sinking fund, or other similar provisions. Except with respect to certain non-payment events and certain changes to the terms of the Series F Preferred Stock, holders have no voting rights nor preemptive or conversion rights. The Series F Preferred Stock is not convertible or exchangeable for shares of any other class of Webster stock.
Series G Preferred Stock
On January 31, 2022, in connection with the Sterling merger, the Company registered and issued 5,400,000 depositary shares, each representing 1/40th interest in a share of 6.50% Series G Non-Cumulative Preferred Perpetual Stock, par value $0.01 per share, with a liquidation preference equal to $1,000 per share (the Series G Preferred Stock). The Series G Preferred Stock ranks on parity with the Series F Preferred Stock and senior to Webster common stock, with respect to the payment of dividends and distributions upon the liquidation, dissolution, or winding-up of the Company.
Dividends on the Series G Preferred Stock are non-cumulative and are not mandatory. If declared by the Board of Directors, or a duly authorized committee thereof, the Company will pay dividends quarterly in arrears on the fifteenth day of each
January, April, July, and October, at a rate equal to 6.50% of the $1,000 per share liquidation amount per annum. If a dividend on the Series F Preferred Stock is not declared in respect of a dividend period, a dividend will not accrue and the Company has no obligation to pay any dividend for that period, regardless as to whether a dividend is declared for a future period on the Series G Preferred Stock or any other series of Webster preferred stock. The terms of the Series G Preferred Stock prohibit the Company from declaring or paying any cash dividends on Webster common stock, and from repurchasing, redeeming or otherwise acquiring Webster common stock or any other series of Webster preferred stock to which it ranks on parity with, unless dividends have been declared and paid in full on the Series G Preferred Stock for the most recent dividend period.
The Series G Preferred Stock is perpetual and has no maturity date, and is not subject to any mandatory redemption, sinking fund, or other similar provisions. Except with respect to certain non-payment events and certain changes to the terms of the Series G Preferred Stock, holders have no voting rights, nor preemptive or conversion rights. The Series G Preferred Stock is not convertible or exchangeable for shares of any other class of Webster stock.
Preferred Stock Redemptions
The Company may redeem either the Series F Preferred Stock or the Series G Preferred Stock at its option, in whole or in part, subject to the approval of Federal Reserve Board, on December 15, 2022, or any dividend payment date, thereafter, or in whole but not in part, upon the occurrence of a "regulatoryregulatory capital treatment event" as defined in the certificate of designation,event, at a redemption price equal to the liquidation preference plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series F Preferred Stock does not have any voting rights except with respectCompany has no plans to authorizing or increasing the authorized amount of senior stock, certain changes to the terms of theredeem either its Series F Preferred Stock or its Series G Preferred stock, in whole or in part, as of the casedate of certain dividend non-payments.
this Annual Report on Form 10-K.
Note 12:13: Accumulated Other Comprehensive Loss,(Loss) Income, Net of Tax
The following table summarizes the changes in AOCL by component:each component of accumulated other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | |
(In thousands) | Investment Securities Available- For-Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance at December 31, 2020 | $ | 67,424 | | $ | 19,918 | | $ | (45,086) | | $ | 42,256 | |
Other comprehensive (loss) income before reclassifications | (62,888) | | (17,109) | | 8,876 | | (71,121) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | 3,261 | | 3,024 | | 6,285 | |
Other comprehensive (loss) income, net of tax | (62,888) | | (13,848) | | 11,900 | | (64,836) | |
Balance at December 31, 2021 | 4,536 | | 6,070 | | (33,186) | | (22,580) | |
Other comprehensive (loss) before reclassifications | (640,656) | | (17,810) | | (13,350) | | (671,816) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 4,960 | | 2,866 | | 1,610 | | 9,436 | |
Other comprehensive (loss), net of tax | (635,696) | | (14,944) | | (11,740) | | (662,380) | |
Balance at December 31, 2022 | (631,160) | | (8,874) | | (44,926) | | (684,960) | |
Other comprehensive income before reclassifications | 86,391 | | 4,066 | | 11,794 | | 102,251 | |
Amounts reclassified from accumulated other comprehensive (loss) | 27,319 | | 1,939 | | 2,880 | | 32,138 | |
Other comprehensive income, net of tax | 113,710 | | 6,005 | | 14,674 | | 134,389 | |
Balance at December 31, 2023 | $ | (517,450) | | $ | (2,869) | | $ | (30,252) | | $ | (550,571) | |
|
| | | | | | | | | | | | |
(In thousands) | Available For Sale and Transferred Securities | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance at December 31, 2014 | $ | 16,421 |
| $ | (25,530 | ) | $ | (47,152 | ) | $ | (56,261 | ) |
Other comprehensive (loss) income before reclassifications | (22,512 | ) | (3,136 | ) | (5,500 | ) | (31,148 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | (316 | ) | 5,686 |
| 3,933 |
| 9,303 |
|
Net current-period other comprehensive (loss) income, net of tax | (22,828 | ) | 2,550 |
| (1,567 | ) | (21,845 | ) |
Balance at December 31, 2015 | (6,407 | ) | (22,980 | ) | (48,719 | ) | (78,106 | ) |
Other comprehensive (loss) income before reclassifications | (8,901 | ) | 825 |
| (232 | ) | (8,308 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | (168 | ) | 5,087 |
| 4,502 |
| 9,421 |
|
Net current-period other comprehensive (loss) income, net of tax | (9,069 | ) | 5,912 |
| 4,270 |
| 1,113 |
|
Balance at December 31, 2016 | (15,476 | ) | (17,068 | ) | (44,449 | ) | (76,993 | ) |
Adoption of ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from AOCI | (4,881 | ) | (2,513 | ) | (8,254 | ) | (15,648 | ) |
Other comprehensive (loss) income before reclassifications | (7,590 | ) | 181 |
| 98 |
| (7,311 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | — |
| 4,384 |
| 4,037 |
| 8,421 |
|
Net current-period other comprehensive (loss) income, net of tax | (7,590 | ) | 4,565 |
| 4,135 |
| 1,110 |
|
Balance at December 31, 2017 | $ | (27,947 | ) | $ | (15,016 | ) | $ | (48,568 | ) | $ | (91,531 | ) |
The following table provides information forfurther summarizes the itemsamounts reclassified from AOCL:
|
| | | | | | | | | | | | |
| Years ended December 31, | |
Accumulated Other Comprehensive Loss Components | 2017 | | 2016 | | 2015 | Associated Line Item in the Consolidated Statements Of Income |
(In thousands) | | | | | | |
Available-for-sale and transferred securities: | | | | | | |
Unrealized gains on investments | $ | — |
| | $ | 414 |
| | $ | 609 |
| Gain on sale of investment securities, net |
Unrealized losses on investments | — |
| | (149 | ) | | (110 | ) | Impairment loss recognized in earnings |
Total before tax | — |
| | 265 |
| | 499 |
| |
Tax expense | — |
| | (97 | ) | | (183 | ) | Income tax expense |
Net of tax | $ | — |
| | $ | 168 |
| | $ | 316 |
| |
Derivative instruments: | | | | | | |
Cash flow hedges | $ | (7,160 | ) | | $ | (8,020 | ) | | $ | (8,965 | ) | Total interest expense |
Tax benefit | 2,776 |
| | 2,933 |
| | 3,279 |
| Income tax expense |
Net of tax | $ | (4,384 | ) | | $ | (5,087 | ) | | $ | (5,686 | ) | |
Defined benefit pension and other postretirement benefit plans: | | | | | | |
Amortization of net loss | $ | (6,612 | ) | | $ | (7,126 | ) | | $ | (6,161 | ) | (1) |
Prior service costs | — |
| | (14 | ) | | (73 | ) | (1) |
Total before tax | (6,612 | ) | | (7,140 | ) | | (6,234 | ) | |
Tax benefit | 2,575 |
| | 2,638 |
| | 2,301 |
| Income tax expense |
Net of tax | $ | (4,037 | ) | | $ | (4,502 | ) | | $ | (3,933 | ) | |
(1) These accumulated other comprehensive
(loss) income: | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, | |
Accumulated Other Comprehensive (Loss) Income Components | 2023 | | 2022 | | 2021 | Associated Line Item in the Consolidated Statement Of Income |
(In thousands) | | | | | | |
Investment securities available-for-sale: | | | | | | |
Net unrealized holding (losses) | $ | (37,356) | | | $ | (6,751) | | | $ | — | | (Loss) on sale of investment securities (1) |
| | | | | | |
| | | | | | |
Tax benefit | 10,037 | | | 1,791 | | | — | | Income tax expense |
Net of tax | $ | (27,319) | | | $ | (4,960) | | | $ | — | | |
Derivative instruments: | | | | | | |
Hedge terminations | $ | (310) | | | $ | (306) | | | $ | (306) | | Interest expense |
Premium amortization | (2,349) | | | (3,626) | | | (4,109) | | Interest income |
Tax benefit | 720 | | | 1,066 | | | 1,154 | | Income tax expense |
Net of tax | $ | (1,939) | | | $ | (2,866) | | | $ | (3,261) | | |
Defined benefit pension and other postretirement benefit plans: | | | | | | |
Actuarial net loss amortization | $ | (2,083) | | | $ | (2,210) | | | $ | (4,102) | | Other expense |
Other | (1,869) | | | — | | | — | | Other expense |
Tax benefit | 1,072 | | | 600 | | | 1,078 | | Income tax expense |
Net of tax | $ | (2,880) | | | $ | (1,610) | | | $ | (3,024) | | |
(1)Losses recognized on the sale of investment securities are generally included as a component of non-interest income, components areunless any portion or all of the loss is attributed to a decline in credit quality, in which the amount recognized is then included in the computationProvision for credit losses. During the years ended December 31, 2023, and 2022, $3.8 million and zero of net periodic benefit cost (see Note 17 Retirement Benefit Plansthe total loss recognized on the sale of investment securities was included in the Provision for further details).
credit losses, respectively.
The following tables summarize the items and related tax effects for each component of OCI/OCL, net of tax:other comprehensive income (loss) and the related tax effects: | | | | | | | | | | | |
| Year ended December 31, 2023 |
(In thousands) | Amount Before Tax | Tax Benefit (Expense) | Amount Net of Tax |
Investment securities available-for-sale: | | | |
Net unrealized holding gains arising during the year | $ | 118,410 | | $ | (32,019) | | $ | 86,391 | |
Reclassification adjustment for net realized losses included in net income | 37,356 | | (10,037) | | 27,319 | |
Total investment securities available-for-sale | 155,766 | | (42,056) | | 113,710 | |
Derivative instruments: | | | |
Net unrealized gains arising during the year | 5,578 | | (1,512) | | 4,066 | |
Reclassification adjustment for net realized losses included in net income | 2,659 | | (720) | | 1,939 | |
Total derivative instruments | 8,237 | | (2,232) | | 6,005 | |
Defined benefit pension and other postretirement benefit plans: | | | |
Net actuarial gain arising during the year | 16,183 | | (4,389) | | 11,794 | |
Reclassification adjustment for actuarial net loss amortization and other included in net income | 3,952 | | (1,072) | | 2,880 | |
Total defined benefit pension and postretirement benefit plans | 20,135 | | (5,461) | | 14,674 | |
Other comprehensive income, net of tax | $ | 184,138 | | $ | (49,749) | | $ | 134,389 | |
| | | |
| Year ended December 31, 2022 |
(In thousands) | Amount Before Tax | Tax Benefit (Expense) | Amount Net of Tax |
Investment securities available-for-sale: | | | |
Net unrealized holding (losses) arising during the year | $ | (878,366) | | $ | 237,710 | | $ | (640,656) | |
Reclassification adjustment for net realized losses included in net income | 6,751 | | (1,791) | | 4,960 | |
Total investment securities available-for-sale | (871,615) | | 235,919 | | (635,696) | |
Derivative instruments: | | | |
Net unrealized (losses) arising during the year | (24,440) | | 6,630 | | (17,810) | |
Reclassification adjustment for net realized losses included in net income | 3,932 | | (1,066) | | 2,866 | |
Total derivative instruments | (20,508) | | 5,564 | | (14,944) | |
Defined benefit pension and other postretirement benefit plans: | | | |
Net actuarial (loss) arising during the year | (18,319) | | 4,969 | | (13,350) | |
Reclassification adjustment for net actuarial loss amortization included in net income | 2,210 | | (600) | | 1,610 | |
Total defined benefit pension and postretirement benefit plans | (16,109) | | 4,369 | | (11,740) | |
Other comprehensive (loss), net of tax | $ | (908,232) | | $ | 245,852 | | $ | (662,380) | |
| | | |
| Year ended December 31, 2021 |
(In thousands) | Amount Before Tax | Tax Benefit (Expense) | Amount Net of Tax |
Investment securities available-for-sale: | | | |
Net unrealized holding (losses) arising during the year | $ | (85,368) | | $ | 22,480 | | $ | (62,888) | |
| | | |
Total investment securities available-for-sale | (85,368) | | 22,480 | | (62,888) | |
Derivative instruments: | | | |
Net unrealized (losses) arising during the year | (23,216) | | 6,107 | | (17,109) | |
Reclassification adjustment for net realized losses included in net income | 4,415 | | (1,154) | | 3,261 | |
Total derivative instruments | (18,801) | | 4,953 | | (13,848) | |
Defined benefit pension and other postretirement benefit plans: | | | |
Net actuarial gain arising during the year | 12,052 | | (3,176) | | 8,876 | |
Reclassification adjustment for net actuarial loss amortization included in net income | 4,102 | | (1,078) | | 3,024 | |
Total defined benefit pension and postretirement benefit plans | 16,154 | | (4,254) | | 11,900 | |
Other comprehensive (loss), net of tax | $ | (88,015) | | $ | 23,179 | | $ | (64,836) | |
|
| | | | | | | | | |
| Year ended December 31, 2017 |
(In thousands) | Pre-Tax Amount | Tax Benefit (Expense) | Net of Tax Amount |
Available-for-sale and transferred securities: | | | |
Net unrealized loss during the period | $ | (12,423 | ) | $ | 4,833 |
| $ | (7,590 | ) |
Reclassification for net gain included in net income | — |
| — |
| — |
|
Net non-credit other-than-temporary impairment | — |
| — |
| — |
|
Amortization of unrealized loss on securities transferred to held-to-maturity | — |
| — |
| — |
|
Total available-for-sale and transferred securities | (12,423 | ) | 4,833 |
| (7,590 | ) |
Derivative instruments: | | | |
Net unrealized gain during the period | 291 |
| (110 | ) | 181 |
|
Reclassification adjustment for net loss included in net income | 7,160 |
| (2,776 | ) | 4,384 |
|
Total derivative instruments | 7,451 |
| (2,886 | ) | 4,565 |
|
Defined benefit pension and other postretirement benefit plans: | | | |
Current year actuarial loss | 155 |
| (57 | ) | 98 |
|
Reclassification adjustment for amortization of net loss included in net income | 6,612 |
| (2,575 | ) | 4,037 |
|
Reclassification adjustment for prior service cost included in net income | — |
| — |
| — |
|
Total defined benefit pension and postretirement benefit plans | 6,767 |
| (2,632 | ) | 4,135 |
|
Other comprehensive income, net of tax | $ | 1,795 |
| $ | (685 | ) | $ | 1,110 |
|
| Year ended December 31, 2016 |
(In thousands) | Pre-Tax Amount | Tax Benefit (Expense) | Net of Tax Amount |
Available-for-sale and transferred securities: | | | |
Net unrealized loss during the period | $ | (14,113 | ) | $ | 5,212 |
| $ | (8,901 | ) |
Reclassification for net gain included in net income | (414 | ) | 152 |
| (262 | ) |
Net non-credit other-than-temporary impairment | 149 |
| (55 | ) | 94 |
|
Amortization of unrealized loss on securities transferred to held-to-maturity | — |
| — |
| — |
|
Total available-for-sale and transferred securities | (14,378 | ) | 5,309 |
| (9,069 | ) |
Derivative instruments: | | | |
Net unrealized loss during the period | 1,331 |
| (506 | ) | 825 |
|
Reclassification adjustment for net loss included in net income | 8,020 |
| (2,933 | ) | 5,087 |
|
Total derivative instruments | 9,351 |
| (3,439 | ) | 5,912 |
|
Defined benefit pension and other postretirement benefit plans: | | | |
Current year actuarial loss | (368 | ) | 136 |
| (232 | ) |
Reclassification adjustment for amortization of net loss included in net income | 7,126 |
| (2,633 | ) | 4,493 |
|
Reclassification adjustment for prior service cost included in net income | 14 |
| (5 | ) | 9 |
|
Total defined benefit pension and postretirement benefit plans | 6,772 |
| (2,502 | ) | 4,270 |
|
Other comprehensive loss, net of tax | $ | 1,745 |
| $ | (632 | ) | $ | 1,113 |
|
| Year ended December 31, 2015 |
(In thousands) | Pre-Tax Amount | Tax Benefit (Expense) | Net of Tax Amount |
Available-for-sale and transferred securities: | | | |
Net unrealized gain during the period | $ | (35,701 | ) | $ | 13,166 |
| $ | (22,535 | ) |
Reclassification for net gain included in net income | (609 | ) | 223 |
| (386 | ) |
Net non-credit other-than-temporary impairment | 110 |
| (40 | ) | 70 |
|
Amortization of unrealized loss on securities transferred to held-to-maturity | 37 |
| (14 | ) | 23 |
|
Total available-for-sale and transferred securities | (36,163 | ) | 13,335 |
| (22,828 | ) |
Derivative instruments: | | | |
Net unrealized loss during the period | (4,945 | ) | 1,809 |
| (3,136 | ) |
Reclassification adjustment for net loss included in net income | 8,965 |
| (3,279 | ) | 5,686 |
|
Total derivative instruments | 4,020 |
| (1,470 | ) | 2,550 |
|
Defined benefit pension and other postretirement benefit plans: | | | |
Current year actuarial loss | (8,719 | ) | 3,219 |
| (5,500 | ) |
Reclassification adjustment for amortization of net loss included in net income | 6,161 |
| (2,274 | ) | 3,887 |
|
Reclassification adjustment for prior service cost included in net income | 73 |
| (27 | ) | 46 |
|
Total defined benefit pension and postretirement benefit plans | (2,485 | ) | 918 |
| (1,567 | ) |
Other comprehensive loss, net of tax | $ | (34,628 | ) | $ | 12,783 |
| $ | (21,845 | ) |
Note 13:14: Regulatory MattersCapital and Restrictions
Capital Requirements
Webster Financial Corporation isThe Holding Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subjectfederal banking agencies. Failure to regulatorymeet minimum capital requirements administered by the OCC. Regulatory authorities can initiate certain mandatory actions if Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, whichby regulators that could have a direct material effect on the Company'sCompany’s financial statements. Under capital adequacy guidelines andand/or the regulatory framework for prompt corrective action (applies to the Bank only), both Webster Financial Corporationthe Holding Company and Websterthe Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated underpursuant to regulatory accounting practices. These quantitative measures require minimumdirectives. Capital amounts and ratiosclassification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by Basel III to ensure capital adequacy.
Under Basel III, total risk-based capital is comprisedadequacy require the Holding Company and the Bank to maintain minimum ratios of three categories:CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1 Leverage Capital, as defined in the regulations. CET1 capital additional Tier 1 capital, and Tier 2 capital. CET1 capital includesconsists of common shareholders'stockholders’ equity less deductions for goodwill and other intangibles adjusted forintangible assets, and certain deferred tax liabilities. Webster's common shareholders' equity, for purposesadjustments. At the time of CET1 capital, excludes AOCL components as permitted by the opt-out election taken by Webster uponinitial adoption of the Basel III.III Capital Rules, the Company had elected to opt-out of the requirement to include certain components of AOCI in CET1 capital. Tier 1 capital is comprisedconsists of CET1 capital plus perpetual preferred stock, whilestock. Total capital consists of Tier 1 capital and Tier 2 capital, as defined in the regulations. Tier 2 capital includes qualifying subordinated debt and qualifying allowance for credit losses,the permissible portion of the ACL.
At December 31, 2023, and 2022, both the Holding Company and the Bank were classified as well-capitalized. Management believes that together equal total capital.no events or changes have occurred subsequent to year-end that would change this designation.
The following table provides information on the regulatory capital ratios for Webster Financial Corporationthe Holding Company and Websterthe Bank: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Actual (1) | | Minimum Requirement | | Well Capitalized |
(In thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Webster Financial Corporation | | | | | | | | |
CET1 Risk-Based Capital | $ | 6,188,433 | | 11.11 | % | | $ | 2,507,190 | | 4.5 | % | | $ | 3,621,497 | | 6.5 | % |
Tier 1 Risk-Based Capital | 6,472,412 | | 11.62 | | | 3,342,920 | | 6.0 | | | 4,457,227 | | 8.0 | |
Total Risk-Based Capital | 7,643,423 | | 13.72 | | | 4,457,227 | | 8.0 | | | 5,571,534 | | 10.0 | |
Tier 1 Leverage Capital | 6,472,412 | | 9.06 | | | 2,857,890 | | 4.0 | | | 3,572,362 | | 5.0 | |
Webster Bank | | | | | | | | |
CET1 Risk-Based Capital | $ | 6,913,443 | | 12.43 | % | | $ | 2,502,835 | | 4.5 | % | | $ | 3,615,206 | | 6.5 | % |
Tier 1 Risk-Based Capital | 6,913,443 | | 12.43 | | | 3,337,113 | | 6.0 | | | 4,449,484 | | 8.0 | |
Total Risk-Based Capital | 7,494,332 | | 13.47 | | | 4,449,484 | | 8.0 | | | 5,561,855 | | 10.0 | |
Tier 1 Leverage Capital | 6,913,443 | | 9.69 | | | 2,855,212 | | 4.0 | | | 3,569,015 | | 5.0 | |
| | | | | | | | |
| At December 31, 2022 |
| Actual (1) | | Minimum Requirement | | Well Capitalized |
(In thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Webster Financial Corporation | | | | | | | | |
CET1 Risk-Based Capital | $ | 5,822,369 | | 10.71 | % | | $ | 2,446,344 | | 4.5 | % | | $ | 3,533,608 | | 6.5 | % |
Tier 1 Risk-Based Capital | 6,106,348 | | 11.23 | | | 3,261,792 | | 6.0 | | | 4,349,056 | | 8.0 | |
Total Risk-Based Capital | 7,203,029 | | 13.25 | | | 4,349,056 | | 8.0 | | | 5,436,320 | | 10.0 | |
Tier 1 Leverage Capital | 6,106,348 | | 8.95 | | | 2,730,212 | | 4.0 | | | 3,412,765 | | 5.0 | |
Webster Bank | | | | | | | | |
CET1 Risk-Based Capital | $ | 6,661,504 | | 12.28 | % | | $ | 2,442,058 | | 4.5 | % | | $ | 3,527,417 | | 6.5 | % |
Tier 1 Risk-Based Capital | 6,661,504 | | 12.28 | | | 3,256,078 | | 6.0 | | | 4,341,437 | | 8.0 | |
Total Risk-Based Capital | 7,165,935 | | 13.20 | | | 4,341,437 | | 8.0 | | | 5,426,796 | | 10.0 | |
Tier 1 Leverage Capital | 6,661,504 | | 9.77 | | | 2,727,476 | | 4.0 | | | 3,409,345 | | 5.0 | |
(1)In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of the adoption of CECL on its regulatory capital over a two-year deferral period, which ended on January 1, 2022, and a subsequent three-year transition period ending on December 31, 2024. During the three-year transition period, regulatory capital ratios will phase out the aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption in the initial two years. For 2022, 2023, and 2024, the Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, with full absorption occurring in 2025.
|
| | | | | | | | | | | | | | | | | |
| Actual | | Capital Requirements |
| | Minimum | | Well Capitalized |
(Dollars in thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
At December 31, 2017 | | | | | | | | |
Webster Financial Corporation | | | | | | | | |
CET1 risk-based capital | $ | 2,093,116 |
| 11.14 | % | | $ | 845,389 |
| 4.5 | % | | $ | 1,221,118 |
| 6.5 | % |
Total risk-based capital | 2,517,848 |
| 13.40 |
| | 1,502,914 |
| 8.0 |
| | 1,878,643 |
| 10.0 |
|
Tier 1 risk-based capital | 2,238,172 |
| 11.91 |
| | 1,127,186 |
| 6.0 |
| | 1,502,914 |
| 8.0 |
|
Tier 1 leverage capital | 2,238,172 |
| 8.63 |
| | 1,036,817 |
| 4.0 |
| | 1,296,021 |
| 5.0 |
|
Webster Bank | | | | | | | | |
CET1 risk-based capital | $ | 2,114,224 |
| 11.26 | % | | $ | 844,693 |
| 4.5 | % | | $ | 1,220,113 |
| 6.5 | % |
Total risk-based capital | 2,316,580 |
| 12.34 |
| | 1,501,677 |
| 8.0 |
| | 1,877,097 |
| 10.0 |
|
Tier 1 risk-based capital | 2,114,224 |
| 11.26 |
| | 1,126,258 |
| 6.0 |
| | 1,501,677 |
| 8.0 |
|
Tier 1 leverage capital | 2,114,224 |
| 8.14 |
| | 1,038,442 |
| 4.0 |
| | 1,298,052 |
| 5.0 |
|
At December 31, 2016 | | | | | | | | |
Webster Financial Corporation | | | | | | | | |
CET1 risk-based capital | $ | 1,932,171 |
| 10.52 | % | | $ | 826,504 |
| 4.5 | % | | $ | 1,193,840 |
| 6.5 | % |
Total risk-based capital | 2,328,808 |
| 12.68 |
| | 1,469,341 |
| 8.0 |
| | 1,836,677 |
| 10.0 |
|
Tier 1 risk-based capital | 2,054,881 |
| 11.19 |
| | 1,102,006 |
| 6.0 |
| | 1,469,341 |
| 8.0 |
|
Tier 1 leverage capital | 2,054,881 |
| 8.13 |
| | 1,010,857 |
| 4.0 |
| | 1,263,571 |
| 5.0 |
|
Webster Bank | | | | | | | | |
CET1 risk-based capital | $ | 1,945,332 |
| 10.61 | % | | $ | 825,228 |
| 4.5 | % | | $ | 1,191,995 |
| 6.5 | % |
Total risk-based capital | 2,141,939 |
| 11.68 |
| | 1,467,071 |
| 8.0 |
| | 1,833,839 |
| 10.0 |
|
Tier 1 risk-based capital | 1,945,332 |
| 10.61 |
| | 1,100,304 |
| 6.0 |
| | 1,467,071 |
| 8.0 |
|
Tier 1 leverage capital | 1,945,332 |
| 7.70 |
| | 1,010,005 |
| 4.0 |
| | 1,262,507 |
| 5.0 |
|
119
Dividend Restrictions
Webster Financial CorporationThe Holding Company is dependent upon dividends from Websterthe Bank to provide funds for its cash requirements, including paymentsthe payment of dividends to shareholders. Banking regulations may limitstockholders and for other cash requirements. Dividends paid by the amount of dividends that may be paid. ApprovalBank are subject to various federal and state regulatory limitations. Express approval by regulatory authoritiesthe OCC is required if the effect of dividends declared would cause the regulatory capital of Websterthe Bank to fall below specified minimum levels or if dividends declaredthe amount would exceed the net income for that year combined with the undistributed net income for the preceding two years. In addition,
The Bank paid the OCC has discretion to prohibit any otherwise permitted capital distribution on general safety and soundness grounds. Dividends paid by Webster Bank to Webster Financial Corporation totaled $120Holding Company $600.0 million and $145$475.0 million in dividends during the years ended December 31, 20172023, and 2016, respectively.2022, respectively, for which no express approval from the OCC was required.
Cash Restrictions
WebsterThe Bank is required byunder Federal Reserve System regulations to maintain cash reserve balances in the form of vault cash or deposits held at a FRB to ensure that it is able to meet customer demands. The reserve requirement ratio is subject to adjustment as economic conditions warrant. Effective March 26, 2020, the Federal Reserve reset the requirement to zero in order to address liquidity concerns resulting from the COVID-19 pandemic. Pursuant to this action, the Bank has not been required to hold cash reserve balances since that date.
Note 15: Variable Interest Entities
The Company has an investment interest in the following entities that each meet the definition of a variable interest entity. Information regarding the Company's consolidation of variable interest entities can be found within Note 1: Summary of Significant Accounting Policies.
Consolidated
Rabbi Trusts. The Company established a Rabbi Trust to meet its obligations due under the Webster Bank Deferred Compensation Plan for Directors and Officers and to mitigate expense volatility. The funding of the Rabbi Trust and the discontinuation of the Webster Bank Deferred Compensation Plan for Directors and Officers occurred during 2012. In connection with the Sterling merger in 2022, the Company acquired assets held in a separate Rabbi Trust that had been previously established to fund obligations due under the Greater New York Savings Bank Directors' Retirement Plan.
Investments held in the Rabbi Trusts consist primarily of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of these Rabbi Trusts as it has the power to direct the activities of the Rabbi Trusts that most significantly impact its economic performance and it has the obligation to absorb losses and/or the right to receive benefits of the Rabbi Trusts that could potentially be significant.
The Rabbi Trusts' assets are included in Accrued interest receivable and other assets on hand or with Federal Reserve Banks. Pursuantthe accompanying Consolidated Balance Sheets. Investment earnings and any changes in fair value are included in Other income on the accompanying Consolidated Statements of Income. Additional information regarding the Rabbi Trusts' investments can be found within Note 18: Fair Value Measurements.
Non-Consolidated
Low Income Housing Tax Credit Investments. The Company makes non-marketable equity investments in entities that sponsor affordable housing and other community development projects that qualify for the LIHTC Program pursuant to this requirement,Section 42 of the Internal Revenue Code. The purpose of these investments is not only to assist the Bank held $82.3in meeting its responsibilities under the CRA, but also to provide a return, primarily through the realization of tax benefits. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as the Company is not the primary beneficiary. The Company has determined that it is not the primary beneficiary due to its inability to direct the activities that most significantly impact economic performance. The Company applies the proportional amortization method to subsequently measure its investments in qualified affordable housing projects.
The following table summarizes the Company's LIHTC investments and related unfunded commitments:
| | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Gross investment in LIHTC investments | $ | 1,135,192 | | | $ | 797,453 | |
Accumulated amortization | (141,199) | | | (69,424) | |
Net investment in LIHTC investments | $ | 993,993 | | | $ | 728,029 | |
| | | |
Unfunded commitments for LIHTC investments | $ | 549,258 | | | $ | 335,959 | |
The aggregate carrying value of the Company's LIHTC investments is included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets and represents the Company's maximum exposure to loss. The related unfunded commitments are included in Accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets. There were $334.9 million and $58.6$211.8 million of net commitments approved to fund LIHTC investments during the years ended December 31, 2023, and 2022.
Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The Company is not the primary beneficiary of Webster Statutory Trust. Webster Statutory Trust's only assets are junior subordinated debentures that are issued by the Company, which were acquired using the proceeds from the issuance of trust preferred securities and common stock. The junior subordinated debentures are included in Long-term debt on the accompanying Consolidated Balance Sheets, and the related interest expense is included in Long-term debt on the accompanying Consolidated Statements of Income. Additional information regarding these junior subordinated debentures can be found within Note 11: Borrowings.
Other Non-Marketable Investments. The Company invests in alternative investments comprising interests in non-public entities that cannot be redeemed since the investment is distributed as the underlying equity is liquidated. The ultimate timing and amount of these distributions cannot be predicted with reasonable certainty. For each of these alternative investments that is classified as a variable interest entity, the Company has determined that it is not the primary beneficiary due to its inability to direct the activities that most significantly impact economic performance. The aggregate carrying value of the Company's other
non-marketable investments was $190.1 million and $144.9 million at December 31, 20172023, and 2016,2022, respectively, which is included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets, and its maximum exposure to loss, including unfunded commitments, was $307.2 million and $243.9 million, respectively. Additional information regarding other non-marketable investments can be found within Note 18: Fair Value Measurements.
Note 14: Earnings Per Common Share
Reconciliation of the calculation of basic and diluted earnings per common share follows:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands, except per share data) | 2017 |
| 2016 |
| 2015 |
Earnings for basic and diluted earnings per common share: |
|
|
|
|
|
Net income | $ | 255,439 |
|
| $ | 207,127 |
| | $ | 204,729 |
|
Less: Preferred stock dividends | 8,184 |
|
| 8,096 |
| | 8,711 |
|
Net income available to common shareholders | 247,255 |
|
| 199,031 |
| | 196,018 |
|
Less: Earnings applicable to participating securities | 424 |
|
| 608 |
| | 657 |
|
Earnings applicable to common shareholders | $ | 246,831 |
|
| $ | 198,423 |
| | $ | 195,361 |
|
Shares: | | | | | |
Weighted-average common shares outstanding - basic | 91,965 |
| | 91,367 |
| | 90,968 |
|
Effect of dilutive securities: | | | | | |
Stock options and restricted stock | 385 |
| | 461 |
| | 524 |
|
Warrants | 6 |
| | 28 |
| | 41 |
|
Weighted-average common shares outstanding - diluted | 92,356 |
| | 91,856 |
| | 91,533 |
|
Earnings per common share: | | | | | |
Basic | $ | 2.68 |
| | $ | 2.17 |
| | $ | 2.15 |
|
Diluted | 2.67 |
| | 2.16 |
| | 2.13 |
|
Potential common shares excluded from the effect of dilutive securities because they would have been anti-dilutive, are as follows:
|
| | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Stock options (shares with exercise price greater than market price) | — |
| | 41 |
| | 213 |
|
Restricted stock (due to performance conditions on non-participating shares) | 58 |
| | 125 |
| | 92 |
|
Basic weighted-average common shares outstanding includes the effect of conversion of the Series A Preferred Stock which occurred on June 1, 2015. Prior to that, the Series A Preferred Stock was considered to be anti-dilutive. Refer to Note 11: Shareholders' Equity and Note 18: Share-Based Plans for further information relating to potential common shares excluded from the effect of dilutive securities.
Note 15:16: Earnings Per Common Share
The following table summarizes the calculation of basic and diluted earnings per common share: | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Less: Preferred stock dividends | 16,650 | | | 15,919 | | | 7,875 | |
Net income available to common stockholders | 851,190 | | | 628,364 | | | 400,989 | |
Less: Earnings allocated to participating securities | 7,922 | | | 5,672 | | | 2,302 | |
Earnings applicable to common stockholders | $ | 843,268 | | | $ | 622,692 | | | $ | 398,687 | |
| | | | | |
Weighted-average common shares outstanding - basic | 171,775 | | | 167,452 | | | 89,983 | |
Add: Effect of dilutive stock options and restricted stock | 108 | | | 95 | | | 223 | |
Weighted-average common shares outstanding - diluted | 171,883 | | | 167,547 | | | 90,206 | |
| | | | | |
Basic earnings per common share | $ | 4.91 | | | $ | 3.72 | | | $ | 4.43 | |
Diluted earnings per common share | 4.91 | | | 3.72 | | | 4.42 | |
Earnings per common share is calculated under the two-class method in which all earnings (distributed and undistributed) are allocated to common stock and participating securities based on their respective rights to receive dividends. The Company may grant restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights to certain employees and directors under its stock-based compensation programs, which entitle recipients to receive non-forfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities.
Potential common shares from performance-based restricted stock that were not included in the computation of dilutive earnings per common share, because they were anti-dilutive under the treasury stock method, were 204,945, 176,177, and 56,829 for the years ended December 31, 2023, 2022, and 2021, respectively. Additional information regarding stock options and restricted stock awards can be found within Note 20: Share-Based Plans.
Note 17: Derivative Financial Instruments
Risk Management Objective of Using DerivativesDerivative Positions and Offsetting
Webster manages economic risks, including interest rate, liquidity, and credit risk by managing the amount, sources, and duration of its debt fundingDerivatives Designated in conjunction with the use of interest rate derivative financial instruments. Webster enters into interest rate derivatives to mitigate the exposure related to business activities that result in the receipt or payment of, both future known and uncertain, cash amounts that are impacted by interest rates. The primary objective for using interest rate derivatives is to add stability to interest expense by managing exposure to interest rate movements. To accomplish this objective, Webster uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.
Hedge Relationships.Interest rate swaps andallow the Company to change the fixed or variable nature of an interest rate caps designated as cash flow hedges are designed to managewithout the risk associated with a forecasted event or an uncertain variable-rate cash flow. Forward-settle interest rate swaps protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on forecasted debt issuances. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. InterestCertain pay fixed/receive variable interest rate capsswaps are designated as cash flow hedges involveto effectively convert variable-rate debt into fixed-rate debt, whereas certain receive fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into variable-rate debt. Certain purchased options are also designated as cash flow hedges. Purchased options allow the receiptCompany to limit the potential adverse impact of variable amountsinterest rates by establishing a cap rate or floor rate in exchange for an upfront premium. The purchased options designated as cash flow hedges represent interest rate caps where payment is received from athe counterparty if interest rates rise above the strikecap rate, on the contract in exchange for payment of an up-front premium.
Cash flow hedges are used to regulate the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. Derivative instruments designated as cash flow hedges are recorded on the balance sheet at fair value. The effective portion of the change in the fair value of derivatives which are designated as cash flow hedges, and that qualify for hedge accounting, is recorded to AOCL and is reclassified into earnings in the subsequent periods that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of these derivatives, attributable to the difference in the effective date of the hedge and the effective date of the debt issuance, is recognized directly in earnings. During the periods presented, there was no ineffectiveness to be recognized in earnings.
Certain fixed-rate obligations can be exposed to a change in fair value attributable to changes in benchmark interest rates. On occasion, interest rate swaps will be usedfloors where payment is received from the counterparty when interest rates fall below the floor rate.
Derivatives Not Designated in Hedge Relationships. The Company also enters into other derivative transactions to manage this exposure. An interest rate swap which involveseconomic risks, but does not designate the receipt of fixed-rate amounts from a counterpartyinstruments in exchange for Webster making variable-rate payments over the life of the agreement, without the exchange of the underlying notional amount, is designated as a fair value hedge. For a qualifying derivative designated as a fair value hedge the gain or loss on the derivative, as well as the gain or loss on the hedged item, is recognized in interest expense. During the periods presented, Webster did not have interest rate derivative financial instruments designated as fair value hedges and as a result, there was no impact to interest expense.
Additionally, in order to address certain other risk management matters,relationships. In addition, the Company also utilizesenters into derivative instruments that do not qualify for hedge accounting. These derivative instruments, which are recorded on the balance sheet at fair value,contracts to accommodate customer needs. Derivative contracts with changes in fair value recognized each period as other non-interest income in the accompanying Consolidated Statements of Income, are described in the following paragraphs.
Interest rate swap and cap contracts are sold to commercial and other customers who wish to modify loan interest rate sensitivity. These contracts are offset with dealer counterparty transactions structured with matching terms. As a result, there isterms to ensure minimal impact on earnings, except for fee income earned in such transactions.earnings.
RPAsThe following table presents the notional amounts and fair values, including accrued interest, of derivative positions:
| | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Asset Derivatives | | Liability Derivatives |
(In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value |
Designated as hedging instruments: | | | | | |
Interest rate derivatives (1) | $ | 2,750,000 | | $ | 11,140 | | | $ | 2,700,000 | | $ | 13,679 | |
Not designated as hedging instruments: | | | | | |
Interest rate derivatives (1) | 8,284,356 | | 319,122 | | | 8,272,197 | | 321,064 | |
Mortgage banking derivatives (2) | 2,798 | | 37 | | | — | | — | |
Other (3) | 340,553 | | 337 | | | 731,055 | | 1,067 | |
Total not designated as hedging instruments | 8,627,707 | | 319,496 | | | 9,003,252 | | 322,131 | |
Gross derivative instruments, before netting | $ | 11,377,707 | | 330,636 | | | $ | 11,703,252 | | 335,810 | |
Less: Master netting agreements | | 55,949 | | | | 55,949 | |
Cash collateral received/paid | | 232,190 | | | | — | |
Total derivative instruments, after netting | | $ | 42,497 | | | | $ | 279,861 | |
| | | | | |
| At December 31, 2022 |
| Asset Derivatives | | Liability Derivatives |
(In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value |
Designated as hedging instruments: | | | | | |
Interest rate derivatives (1) | $ | 1,350,000 | | $ | 1,515 | | | $ | 1,750,000 | | $ | 9,632 | |
Not designated as hedging instruments: | | | | | |
Interest rate derivatives (1) | 7,024,507 | | 221,225 | | | 7,022,844 | | 403,952 | |
Mortgage banking derivatives (2) | 3,283 | | 32 | | | — | | — | |
Other (3) | 161,934 | | 134 | | | 606,478 | | 915 | |
Total not designated as hedging instruments | 7,189,724 | | 221,391 | | | 7,629,322 | | 404,867 | |
Gross derivative instruments, before netting | $ | 8,539,724 | | 222,906 | | | $ | 9,379,322 | | 414,499 | |
Less: Master netting agreements | | 16,129 | | | | 16,129 | |
Cash collateral received/paid | | 184,095 | | | | — | |
Total derivative instruments, after netting | | $ | 22,682 | | | | $ | 398,370 | |
(1)Balances related to clearing houses are entered intopresented as financial guaranteesa single unit of performance onaccount. In accordance with their rule books, clearing houses legally characterize variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of interest rate swap derivatives.swaps cleared through clearing houses included $0.1 billion and $2.7 billion for asset derivatives at December 31, 2023, and 2022, respectively. The purchased (asset) or sold (liability) guarantee allows the Companyrelated fair values approximate zero. For liability derivatives, there were no interest rate swaps cleared through clearing houses at both December 31, 2023, and 2022.
(2)Notional amounts related to participate-in (fee received) or participate-out (fee paid) the risk associated with certain derivative positions executed with the borrower by a lead bank in a loan syndication.residential loans exclude approved floating rate commitments of $1.0 million and $2.4 million at December 31, 2023, and 2022, respectively.
(3)Other derivatives include foreign currency forward contracts related to lending arrangements, a VISAVisa equity swap transaction, and mortgage bankingrisk participation agreements. Notional amounts of risk participation agreements include $299.2 million and $125.6 million for asset derivatives such as mortgage-backed securitiesand $682.9 million and $559.2 million for liability derivatives at December 31, 2023, and 2022, respectively, which have insignificant related to residential loan commitments and loans held for sale. Mortgage banking derivativesfair values.
The following tables represent the off-setting of derivative financial instruments that are utilized by Webster in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans interest rate lock commitments are generally extended to the borrowers. During the period from commitment date to closing date, Webster is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans causing a reduction in the anticipated gain on sale of the loans and possibly resulting in a loss. In an effort to mitigate such risk, forward delivery sales commitments are established under which Webster agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. Mandatory forward commitments establish the price to be received upon the sale of the related mortgage loan, thereby mitigating certain interest rate risk. There is, however, still certain execution risk specifically related to Webster’s ability to close and deliver to its investors the mortgage loans it has committed to sell.master netting agreements: | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Paid | Net Amount Presented | | |
Asset derivatives | $ | 289,778 | | $ | 55,949 | | $ | 232,190 | | $ | 1,639 | | | |
Liability derivatives | 55,949 | | 55,949 | | — | | — | | | |
| | | | | | |
| At December 31, 2022 |
(In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Paid | Net Amount Presented | | |
Asset derivatives | $ | 217,246 | | $ | 16,129 | | $ | 184,095 | | $ | 17,022 | | | |
Liability derivatives | 16,129 | | 16,129 | | — | | — | | | |
Fair Value of Derivative InstrumentsActivity
The following table presentssummarizes the notional amounts and fair valuesincome statement effect of derivative positions:derivatives designated as hedging instruments:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 | | At December 31, 2016 |
| Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
(In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value | | Notional Amounts | Fair Value | | Notional Amounts | Fair Value |
Designated as hedging instruments: | | | | | | | | | | | |
Positions subject to master netting agreements (1) | | | | | | | | | | | |
Interest rate derivatives | $ | 325,000 |
| $ | 2,770 |
| | $ | — |
| $ | — |
| | $ | 225,000 |
| $ | 3,270 |
| | $ | 100,000 |
| $ | 792 |
|
| | | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | | |
Positions subject to master netting agreements (1) | | | | | | | | | | | |
Interest rate derivatives | 2,791,760 |
| 5,977 |
| | 721,048 |
| 1,968 |
| | 1,943,485 |
| 32,226 |
| | 1,242,937 |
| 24,388 |
|
Mortgage banking derivatives (2) | 28,497 |
| 421 |
| | 39,230 |
| 110 |
| | 103,440 |
| 3,084 |
| | 59,895 |
| 711 |
|
Other | 7,914 |
| 258 |
| | 30,328 |
| 419 |
| | 10,634 |
| 231 |
| | 14,265 |
| 120 |
|
Positions not subject to master netting agreements | | | | | | | | | | | |
Interest rate derivatives | 1,366,299 |
| 23,009 |
| | 2,146,518 |
| 25,631 |
| | 1,734,679 |
| 38,668 |
| | 1,451,762 |
| 19,001 |
|
RPAs | 93,713 |
| 80 |
| | 116,882 |
| 111 |
| | 86,037 |
| 139 |
| | 87,273 |
| 166 |
|
Other | — |
| — |
| | 2,073 |
| 184 |
| | 1,438 |
| 19 |
| | 181 |
| 11 |
|
Total not designated as hedging instruments | 4,288,183 |
| 29,745 |
| | 3,056,079 |
| 28,423 |
| | 3,879,713 |
| 74,367 |
| | 2,856,313 |
| 44,397 |
|
Gross derivative instruments, before netting | $ | 4,613,183 |
| 32,515 |
| | $ | 3,056,079 |
| 28,423 |
| | $ | 4,104,713 |
| 77,637 |
| | $ | 2,956,313 |
| 45,189 |
|
Less: Legally enforceable master netting agreements | | 2,245 |
| | | 2,245 |
| | | 24,252 |
| | | 24,254 |
|
Less: Cash collateral posted | | 6,704 |
| | | — |
| | | 11,475 |
| | | 600 |
|
Total derivative instruments, after netting | | $ | 23,566 |
| | | $ | 26,178 |
| | | $ | 41,910 |
| | | $ | 20,335 |
|
| |
(1) | One of Webster's counterparty relationships was impacted by a Chicago Mercantile Exchange rulebook amendment, resulting in the presentation of that relationship on a settlement basis, as a single unit of account. |
| |
(2) | Notional amounts include mandatory forward commitments of $39.0 million, while notional amounts do not include approved floating rate commitments of $11.3 million, at December 31, 2017. |
Changes in Fair Value | | | | | | | | | | | | | | | | | | | | |
| Recognized In | Years ended December 31, |
(In thousands) | Net Interest Income | 2023 | | 2022 | | 2021 |
Fair value hedges: | | | | | | |
Interest rate derivatives | Deposits interest expense | $ | 3,194 | | | $ | — | | | $ | — | |
Hedged item | Deposits interest expense | (15) | | | — | | | — | |
Net recognized on fair value hedges | | $ | (3,179) | | | $ | — | | | $ | — | |
Cash flow hedges: | | | | | | |
Interest rate derivatives | Long-term debt interest expense | $ | 310 | | | $ | 306 | | | $ | 411 | |
Interest rate derivatives | Interest and fees on loans and leases | (14,628) | | | 1,935 | | | 10,676 | |
Net recognized on cash flow hedges | | $ | (14,938) | | | $ | 1,629 | | | $ | 10,265 | |
Changes in theThe following table summarizes information related to fair value of derivatives not qualifying for hedge accounting treatment are reported as a component of other non-interest income in the accompanying Consolidated Statements of Income as follows:hedging adjustments:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Interest rate derivatives | $ | 2,702 |
| | $ | 8,668 |
| | $ | 4,361 |
|
RPA | 242 |
| | (361 | ) | | (33 | ) |
Mortgage banking derivatives | (2,062 | ) | | 1,553 |
| | 801 |
|
Other | (768 | ) | | (67 | ) | | (63 | ) |
Total impact on other non-interest income | $ | 114 |
| | $ | 9,793 |
| | $ | 5,066 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Balance Sheet Line Item in Which Previously Hedged Item is Located | Notional Amount of Previously Hedged Item | | Carrying Amount of Previously Hedged Item | | Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount (1) |
| At December 31, | | At December 31, | | At December 31, |
(In thousands) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Deposits | $ | 400,000 | | | $ | — | | | $ | 401,320 | | | $ | — | | | $ | 1,320 | | | $ | — | |
Long-term debt | 300,000 | | | 300,000 | | | 328,104 | | | 333,458 | | | 28,104 | | | 33,458 | |
Amounts for the effective portion of changes in the(1)The Company de-designated its fair value hedging relationships on its deposits and long-term debt in 2023 and 2020, respectively. The basis adjustment included in each of derivatives are reclassified to interest expense as interest payments are made on Webster's variable-rate debt. Over the next twelve months, the Company estimates that $0.8 million will be reclassified from AOCL as an increase to interest expense.
Webster records gains and losses related to swap terminations as OCI. These balances are subsequentlycarrying amounts is being amortized into interest expense over the respective termsremaining life of the hedged debt instruments. Atdeposits and long-term debt.
Time-value premiums, which are amortized on a straight-line basis, are excluded from the assessment of hedge effectiveness for purchased options designated as cash flow hedges. The remaining unamortized balance of time-value premiums at December 31, 2017, the remaining unamortized loss on the termination of cash flow hedges is $14.92023, was $0.5 million. Over the next twelve months, the Company estimates that $6.2an estimated $21.9 million decrease to interest income will be reclassified from AOCL as an increase(AOCL) relating to interest expense.
cash flow hedge gain/loss. The maximum length of time over which forecasted transactions are hedged is 3.3 years. Additional information aboutregarding cash flow hedge activity impacting AOCL,(AOCL) and the related amounts reclassified to interest expense is provided innet income can be found within Note 12:13: Accumulated Other Comprehensive Loss,(Loss) Income, Net of Tax. Information about
The following table summarizes the valuation methods used to measure fair value is provided in Note 16: Fair Value Measurements.
income statement effect of derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
| Recognized In | Years ended December 31, |
(In thousands) | Non-interest Income | 2023 | | 2022 | | 2021 |
Interest rate derivatives | Other income | $ | (6,159) | | | $ | 25,092 | | | $ | 10,369 | |
Mortgage banking derivatives | Mortgage banking activities | 5 | | | (48) | | | (776) | |
Other | Other income | (2,476) | | | 3,249 | | | 878 | |
Total not designated as hedging instruments | $ | (8,630) | | | $ | 28,293 | | | $ | 10,471 | |
Offsetting Derivatives
Webster has entered into transactions with counterparties that are subject to a legally enforceable master netting agreement. Derivatives subject to a legally enforceable master netting agreement are reported on a net basis, netDerivative Exposure. At December 31, 2023, the Company had $3.0 million in initial margin posted at clearing houses. In addition, $232.7 million of cash collateral. Net positions are recordedcollateral received is included in other assets for a net gain positionCash and in other liabilities for a net loss position indue from banks on the accompanying Consolidated Balance Sheets. In addition, there was $406 thousand cash collateral posted, that was not offset, at December 31, 2017.
The following table is presented on a gross basis, prior to the application of counterparty netting agreements:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 | | At December 31, 2016 |
(In thousands) | Gross Amount | Relationship Offset | Cash Collateral Offset | Net Amount | | Gross Amount | Relationship Offset | Cash Collateral Offset | Net Amount |
Derivative instrument assets | | | | | | | | | |
Hedged Accounting | $ | 2,770 |
| $ | 91 |
| $ | 2,679 |
| $ | — |
| | $ | 3,270 |
| $ | 2,335 |
| $ | 935 |
| $ | — |
|
Non-Hedged Accounting | 6,222 |
| 2,154 |
| 4,025 |
| 43 |
| | 32,457 |
| 21,917 |
| 10,540 |
| — |
|
Total | $ | 8,992 |
| $ | 2,245 |
| $ | 6,704 |
| $ | 43 |
| | $ | 35,727 |
| $ | 24,252 |
| $ | 11,475 |
| $ | — |
|
| | | | | | | | | |
Derivative instrument liabilities | | | | | | | | | |
Hedged Accounting | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 792 |
| $ | 792 |
| $ | — |
| $ | — |
|
Non-Hedged Accounting | 2,387 |
| 2,245 |
| — |
| 142 |
| | 24,508 |
| 23,462 |
| 600 |
| 446 |
|
Total | $ | 2,387 |
| $ | 2,245 |
| $ | — |
| $ | 142 |
| | $ | 25,300 |
| $ | 24,254 |
| $ | 600 |
| $ | 446 |
|
Counterparty Credit Risk
Use of derivative contracts may expose the bank to counterparty credit risk. The Company has International Swaps Derivative Association (ISDA) master agreements, including a Credit Support Annex, with all derivative counterparties. The ISDA master agreements provide that on each payment date, all amounts otherwise owing the same currency under the same transaction are netted so that only a single amount is owed in that currency. The ISDA provides, if the parties so elect, for such netting of amounts in the same currency among all transactions identified as being subject to such election that have common payment dates and booking offices. Under the Credit Support Annex, daily net exposure in excess of a negotiated threshold is secured by posted cash collateral. The Company has negotiated a zero threshold with the majority of its approved financial institution counterparties. In accordance with Webster policies, institutional counterparties must be analyzed and approved through the Company’s credit approval process.
The Company’s credit exposure on interest rate derivatives with non-dealer counterparties is limited to the net favorable value, including accrued interest, of all such instruments, reduced by the amount of collateral pledged by the counterparties. The Company's credit exposure related to derivatives with dealer counterparties is significantly mitigated with cash collateral equal to, or in excess of, the market value of the instrument updated daily.
In accordance with counterparty credit agreements and derivative clearing rules, the Company had approximately $3.1 million in net margin collateral received from financial counterparties at December 31, 2017, comprised of $32.0 million in initial margin posted and $35.1 million in variation margin collateral received from financial counterparties or the derivative clearing organization. Collateral levels for approved financial institution counterparties are monitored daily and adjusted as necessary. In the event of default, should the collateral not be returned, the exposure would be offset by terminating the transaction.
The Company regularly evaluates the credit risk of its counterparties,derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. The Company'sCredit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions. Current net current credit exposure relating to interest rate derivatives with Webster Bankthe Bank's customers was $23.0$40.8 million at December 31, 2017.2023. In addition, the Company monitors potential future exposure, representing its best estimate of exposure to remaining contractual maturity. The potential future exposure relating to interest rate derivatives with Webster Bankthe Bank's customers totaled $28.2$109.8 million at December 31, 2017.2023. The Company has incorporated a credit exposures are mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions being hedged.
Note 16: Fair Value Measurements
Fair value is the price that would be receivedvaluation adjustment (contra-liability) to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings or any part of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions,non-performance risk characteristics of various financial instruments, and other factors. These factors are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair Value Hierarchy
The three levels within the fair value hierarchy are as follows:
| |
• | Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
| |
• | Level 2: Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit ratings, etc.), or inputs that are derived principally or corroborated by market data, by correlation, or other means.
|
| |
• | Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Investment Securities. When quoted prices are available in an active market, the Company classifies investment securities within Level 1 of the valuation hierarchy. U.S. Treasury Bills are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, single issuer-trust preferred, and corporate debt, are classified within Level 2 of the fair value hierarchy.
Derivative Instruments. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy.
All other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The Chicago Mercantile Exchange have amended their rulebooks to legally characterize variation margin payments for over-the-counter derivatives that clear as settlements rather than collateral, effective January 3, 2017. One of Webster's counterparty relationships was impacted by this change, resulting in the fair value of the instrument including cash collateral as a single unit of account. The resulting fair values are validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy. In determining if any fair value adjustment related to credit risk is required, Webster evaluates the credit riskmeasurement of its counterparties by considering factors such as the likelihood of default by the counterparties, its net exposures, the remaining contractual life, as well as the amount of collateral securing the position. Webster reviews its counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to adjust the exposure. When determining fair value, Webster applies the portfolio exception with respect to measuring counterparty credit risk for all of its derivative transactions subject to a master netting arrangement.
The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.
Mortgage Banking Derivatives. Forward sales of mortgage loans and mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are established, underderivatives, which the Company agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified within Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trust. Investments held in the Rabbi Trust primarily include mutual funds that invest in equity and fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. Webster has elected to measure the investments held in the Rabbi Trust at fair value. The cost basis of the investments held in the Rabbi Trust is $2.2 million as of December 31, 2017.
Alternative Investments. Alternative investments are non-public entities that cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. Alternative investments in which the ownership percentage is greater than 3% are fair valued on a recurring basis based upon the net asset value of the respective fund. Alternative investments in which the ownership percentage is less than 3% are fair valued on a non-recurring basis. These alternative investments are recorded at cost, subject to impairment testing. Both recurring and non-recurring alternative investments are classified within Level 3 of the fair value hierarchy, as they are non-public entities that cannot be redeemed since the Company's investment is distributed as the underlying investments are liquidated. At December 31, 2017, the alternative investments book value was $18.0totaled $6.2 million and there was $9.1 million in remaining unfunded commitments.
Originated Loans Held For Sale. Residential mortgage loans typically are classified as held for sale upon origination based on management's intent to sell such loans. The Company generally records residential mortgage loans held for sale under the fair value option of ASC Topic 825 "Financial Instruments." The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.
Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:
|
| | | | | | | | | | | | |
| At December 31, 2017 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total |
Financial assets held at fair value: | | | | |
U.S. Treasury Bills | $ | 1,247 |
| $ | — |
| $ | — |
| $ | 1,247 |
|
Agency CMO | — |
| 306,333 |
| — |
| 306,333 |
|
Agency MBS | — |
| 1,107,841 |
| — |
| 1,107,841 |
|
Agency CMBS | — |
| 588,026 |
| — |
| 588,026 |
|
CMBS | — |
| 361,067 |
| — |
| 361,067 |
|
CLO | — |
| 209,851 |
| — |
| 209,851 |
|
Single issuer-trust preferred | — |
| 7,050 |
| — |
| 7,050 |
|
Corporate debt | — |
| 56,622 |
| — |
| 56,622 |
|
Total available-for-sale investment securities | 1,247 |
| 2,636,790 |
| — |
| 2,638,037 |
|
Gross derivative instruments, before netting (1) | 258 |
| 32,257 |
| — |
| 32,515 |
|
Investments held in Rabbi Trust | 4,801 |
| — |
| — |
| 4,801 |
|
Alternative investments | — |
| — |
| 7,460 |
| 7,460 |
|
Originated loans held for sale | — |
| 20,888 |
| — |
| 20,888 |
|
Total financial assets held at fair value | $ | 6,306 |
| $ | 2,689,935 |
| $ | 7,460 |
| $ | 2,703,701 |
|
Financial liabilities held at fair value: | | | | |
Gross derivative instruments, before netting (1) | $ | 587 |
| $ | 27,836 |
| $ | — |
| $ | 28,423 |
|
|
| | | | | | | | | | | | |
| At December 31, 2016 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total |
Financial assets held at fair value: | | | | |
U.S. Treasury Bills | $ | 734 |
| $ | — |
| $ | — |
| $ | 734 |
|
Agency CMO | — |
| 419,706 |
| — |
| 419,706 |
|
Agency MBS | — |
| 954,349 |
| — |
| 954,349 |
|
Agency CMBS | — |
| 573,272 |
| — |
| 573,272 |
|
CMBS | — |
| 477,365 |
| — |
| 477,365 |
|
CLO | — |
| 427,390 |
| — |
| 427,390 |
|
Single issuer-trust preferred | — |
| 28,633 |
| — |
| 28,633 |
|
Corporate debt | — |
| 109,642 |
| — |
| 109,642 |
|
Total available-for-sale investment securities | 734 |
| 2,990,357 |
| — |
| 2,991,091 |
|
Gross derivative instruments, before netting (1) | 250 |
| 77,387 |
| — |
| 77,637 |
|
Investments held in Rabbi Trust | 5,119 |
| — |
| — |
| 5,119 |
|
Alternative investments | — |
| — |
| 5,502 |
| 5,502 |
|
Originated loans held for sale | — |
| 60,260 |
| — |
| 60,260 |
|
Total financial assets held at fair value | $ | 6,103 |
| $ | 3,128,004 |
| $ | 5,502 |
| $ | 3,139,609 |
|
Financial liabilities held at fair value: | | | | |
Gross derivative instruments, before netting (1) | $ | 120 |
| $ | 45,069 |
| $ | — |
| $ | 45,189 |
|
| |
(1) | For information relating to the impact of netting derivative assets and derivative liabilities as well as the impact from offsetting cash collateral paid to the same derivative counterparties see Note 15: Derivative Financial Instruments. |
The following table presents the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis:
|
| | | |
(In thousands) | Alternative Investments |
Balance at January 1, 2017 | $ | 5,502 |
|
Unrealized gain included in net income | 613 |
|
Purchases/capital funding | 1,399 |
|
Payments | (54 | ) |
Balance at December 31, 2017 | $ | 7,460 |
|
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Transferred Loans Held For Sale. Certain loans are transferred to loans held for sale once a decision has been made to sell such loans. These loans are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost. This activity is primarily commercial loans with observable inputs and are classified within Level 2. On the occasion should these loans include adjustments for changes in loan characteristics using unobservable inputs, the loans would be classified within Level 3.
Collateral Dependent Impaired Loans and Leases. Impaired loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral using customized discounting criteria. As such, collateral dependent impaired loans and leases are classified as Level 3 of the fair value hierarchy.
Other Real Estate Owned and Repossessed Assets. The total book value of OREO and repossessed assets was $6.1$8.4 million at December 31, 2017. OREO2023, and repossessed assets are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost. The fair value of OREO is based on independent appraisals or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results, and price opinions. Certain assets require assumptions about2022, respectively. Various factors that are not observable in an active marketimpact changes in the determination of fair value,valuation adjustment over time, such as such, OREO and repossessed assets are classified within Level 3changes in the credit spreads of the fair value hierarchy.contracted parties, and changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
The table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis as of December 31, 2017:126
|
| | | | | | | | | |
(Dollars in thousands) | |
Asset | Fair Value | Valuation Methodology | Unobservable Inputs | Range of Inputs |
Collateral dependent impaired loans and leases | $ | 12,556 |
| Real Estate Appraisals | Discount for appraisal type | 0% | - | 15 | % |
| | | Discount for costs to sell | 0% | - | 8 | % |
OREO | $ | 1,077 |
| Real Estate Appraisals | Discount for appraisal type | 0% | - | 20 | % |
| | | Discount for costs to sell | 8% |
Fair Value of Financial Instruments and Servicing Assets
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash, Due from Banks, and Interest-bearing Deposits. The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value, given the short time frame to maturity and, as such, these assets do not present unanticipated credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.
Held-to-Maturity Investment Securities. When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, municipal bonds and notes, and private label MBS securities, are classified within Level 2 of the fair value hierarchy.
Loans and Leases, net. The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow method, using future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases. The associated cash flows are adjusted for credit and other potential losses. Fair value for impaired loans and leases is estimated using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.
Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.
Time Deposits. The fair value of a fixed-maturity certificate of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings. The carrying value is an estimate of fair value for those securities sold under agreements to repurchase and other borrowings that mature within 90 days. The fair values of all other borrowings are estimated using discounted cash flow analysis based on current market rates adjusted, as appropriate, for associated credit risks. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flow and are adjusted, as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.
Mortgage Servicing Assets. Mortgage servicing assets are accounted for at cost, subject to impairment testing. Mortgage servicing assets are considered to be recognized at fair value when they are recorded at below cost. Changes in fair value are included as a component of other non-interest income in the accompanying Consolidated Statements of Income. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors; as such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.
The estimated fair values of selected financial instruments and servicing assets are as follows:
|
| | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial Assets: | | | | | | | |
Level 2 | | | | | | | |
Held-to-maturity investment securities | $ | 4,487,392 |
| | $ | 4,456,350 |
| | $ | 4,160,658 |
| | $ | 4,125,125 |
|
Transferred loans held for sale | — |
| | — |
| | 7,317 |
| | 7,444 |
|
Level 3 | | | | | | | |
Loans and leases, net | 17,323,864 |
| | 17,211,619 |
| | 16,832,268 |
| | 16,678,106 |
|
Mortgage servicing assets | 25,139 |
| | 45,309 |
| | 24,466 |
| | 52,075 |
|
Alternative investments | 10,562 |
| | 12,940 |
| | 11,034 |
| | 13,189 |
|
Financial Liabilities: | | | | | | | |
Level 2 | | | | | | | |
Deposit liabilities, other than time deposits | $ | 18,525,321 |
| | $ | 18,525,321 |
| | $ | 17,279,049 |
| | $ | 17,279,049 |
|
Time deposits | 2,468,408 |
| | 2,455,245 |
| | 2,024,808 |
| | 2,024,395 |
|
Securities sold under agreements to repurchase and other borrowings | 643,269 |
| | 644,084 |
| | 949,526 |
| | 955,660 |
|
FHLB advances (1) | 1,677,105 |
| | 1,678,070 |
| | 2,842,908 |
| | 2,825,101 |
|
Long-term debt (1) | 225,767 |
| | 234,359 |
| | 225,514 |
| | 225,514 |
|
| |
(1) | The following adjustments to the carrying amount are not included for determination of fair value, see Note 10: Borrowings: |
•FHLB advances - unamortized premiums on advances
•Long-term debt - unamortized discount and debt issuance cost on senior fixed-rate notes
Note 18: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of fair value may require the use of estimates when quoted market prices are not available. Fair value estimates made at a specific point in time are based on management’s judgments regarding future expected losses, current economic conditions, the risk characteristics of each financial instrument, and other subjective factors that cannot be determined with precision.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels within the fair value hierarchy are as follows:
•Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.
•Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, rate volatility, prepayment speeds, and credit ratings), or inputs that are derived principally from or corroborated by market data, correlation or other means.
•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. This includes certain pricing models or other similar techniques that require significant management judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Securities.When unadjusted quoted prices are available in an active market, the Company classifies its available-for-sale investment securities within Level 1 of the fair value hierarchy. U.S. Treasury notes have a readily determinable fair value, and therefore, are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. These fair value measurements consider observable data, such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has a process in place to challenge their valuations and methodologies. Government agency debentures, Municipal bonds and notes, Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, Corporate debt, Private label MBS, and Other available-for-sale securities are classified within Level 2 of the fair value hierarchy.
Derivative Instruments. The fair values presented for derivative instruments include any accrued interest. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and accordingly are classified within Level 1 of the fair value hierarchy. Except for mortgage banking derivatives, all other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The resulting fair value is then validated against valuations performed by dealer counterparties. These derivative instruments are classified within Level 2 of the fair value hierarchy.
Mortgage Banking Derivatives. The Company uses forward sales of mortgage loans and mortgage-backed securities to manage the risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During this in-between time period, the Company is subject to the risk that market interest rates may change. If rates rise, investors generally will pay less to purchase mortgage loans, which would result in a reduction in the gain on sale of the loans, or possibly a loss. In an effort to mitigate this risk, forward delivery sales commitments are established in which the Company agrees to either deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market. Accordingly, mortgage banking derivatives are classified within Level 2 of the fair value hierarchy.
Originated Loans Held For Sale. The Company has elected to measure originated loans held for sale at fair value under the fair value option per ASC Topic 825, Financial Instruments. Electing to measure originated loans held for sale at fair value reduces certain timing differences and better reflects the price the Company would expect to receive from the sale of these loans. The fair value of originated loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, originated loans held for sale are classified within Level 2 of the fair value hierarchy.
The following table compares the fair value to the unpaid principal balance of originated loans held for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Fair Value | | Unpaid Principal Balance | | Difference | | Fair Value | | Unpaid Principal Balance | | Difference |
Originated loans held for sale | $ | 2,610 | | | $ | 2,658 | | | $ | (48) | | | $ | 1,991 | | | $ | 1,631 | | | $ | 360 | |
Rabbi Trust Investments. Investments held in each of the Company's Rabbi Trusts consist primarily of mutual funds that invest in equity and fixed income securities. Shares of these mutual funds are valued based on the NAV as reported by the trustee of the funds, which represents quoted prices in active markets. Accordingly, the Rabbi Trusts' investments are classified within Level 1 of the fair value hierarchy. At December 31, 2023, and 2022, the total cost basis of the investments held in the Rabbi Trusts was $9.2 million and $10.0 million, respectively.
Alternative Investments. Equity investments have a readily determinable fair value when unadjusted quoted prices are available in an active market for identical assets. Accordingly, these alternative investments are classified within Level 1 of the fair value hierarchy. At December 31, 2023, and 2022, equity investments with a readily determinable fair value had a total carrying amount of $0.9 million and $0.4 million, respectively, with no remaining unfunded commitment. During the year ended December 31, 2023, there were total write-ups in fair value of $0.5 million associated with these alternative investments.
Equity investments that do not have a readily determinable fair value may qualify for the NAV practical expedient if they meet certain requirements. The Company's alternative investments measured at NAV consist of investments in non-public entities that cannot be redeemed since investments are distributed as the underlying equity is liquidated. Alternative investments measured at NAV are not classified within the fair value hierarchy. At December 31, 2023, and 2022, these alternative investments had a total carrying amount of $35.9 million and $89.2 million, respectively, and a remaining unfunded commitment of $29.8 million and $82.7 million, respectively.
Contingent Consideration. The Company recorded $16.0 million of contingent consideration at fair value related to two earn-out agreements associated with the acquisition of interLINK on January 11, 2023. The terms of the purchase agreement specified that the seller would receive earn-outs based on the ability of the Company to: (i) re-sign the existing broker dealers under contract, and (ii) generate $2.5 billion in new broker dealer deposit programs within three years of the acquisition date. The estimated fair values of the contingent consideration liabilities are measured on a recurring basis and determined using an income approach considering management’s evaluation of the probability of achievement, forecasted achievement date (payment term), and a discount rate equivalent to the counterparty cost of debt. These significant inputs, which are the responsibility of management and calculated with the assistance of a third-party valuation specialist, are not observable, and accordingly, are classified within Level 3 of the fair value hierarchy.
The following table summarizes the unobservable inputs used to derive the estimated fair value of the Company’s contingent consideration liabilities at December 31, 2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
Agreement | Maximum Amount | Probability of Achievement | Payment Term (in years) | Discount Rate | Fair Value |
(i) Re-sign broker dealers | $ | 4,826 | 99.0 % | 1.88 | 6.40 % | $ | 4,232 |
(ii) Deposit program growth | $ | 12,500 | 100.0 % | 1.00 | 6.40 % | $ | 11,568 |
Contingent consideration liabilities are included within Accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets. Any fair value adjustments to contingent consideration liabilities are included in Other expense on the accompanying Consolidated Statements of Income.
The following table summarizes the fair values of assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total |
Financial Assets: | | | | |
Available-for-sale securities: | | | | |
| | | | |
Government agency debentures | $ | — | | $ | 264,633 | | $ | — | | $ | 264,633 | |
Municipal bonds and notes | — | | 1,573,233 | | — | | 1,573,233 | |
Agency CMO | — | | 48,941 | | — | | 48,941 | |
Agency MBS | — | | 3,347,098 | | — | | 3,347,098 | |
Agency CMBS | — | | 2,288,071 | | — | | 2,288,071 | |
CMBS | — | | 763,749 | | — | | 763,749 | |
| | | | |
Corporate debt | — | | 622,155 | | — | | 622,155 | |
Private label MBS | — | | 42,808 | | — | | 42,808 | |
Other | — | | 9,041 | | — | | 9,041 | |
Total available-for-sale securities | — | | 8,959,729 | | — | | 8,959,729 | |
Gross derivative instruments, before netting (1) | 217 | | 330,419 | | — | | 330,636 | |
Originated loans held for sale | — | | 2,610 | | — | | 2,610 | |
Investments held in Rabbi Trusts | 11,900 | | — | | — | | 11,900 | |
Alternative investments | 959 | | — | | — | | 959 | |
Alternative investments measured at NAV (2) | — | | — | | — | | 35,888 | |
Total financial assets | $ | 13,076 | | $ | 9,292,758 | | $ | — | | $ | 9,341,722 | |
Financial Liabilities: | | | | |
Gross derivative instruments, before netting (1) | $ | 970 | | $ | 334,840 | | $ | — | | $ | 335,810 | |
Contingent consideration | — | | — | | 15,800 | | 15,800 | |
Total financial liabilities | $ | 970 | | $ | 334,840 | | $ | 15,800 | | $ | 351,610 | |
| | | | | | | | | | | | | | |
| At December 31, 2022 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total |
Financial Assets: | | | | |
Available-for-sale investment securities: | | | | |
U.S. Treasury notes | $ | 717,040 | | $ | — | | $ | — | | $ | 717,040 | |
Government agency debentures | — | | 258,374 | | — | | 258,374 | |
Municipal bonds and notes | — | | 1,633,202 | | — | | 1,633,202 | |
Agency CMO | — | | 59,965 | | — | | 59,965 | |
Agency MBS | — | | 2,158,024 | | — | | 2,158,024 | |
Agency CMBS | — | | 1,406,486 | | — | | 1,406,486 | |
CMBS | — | | 896,640 | | — | | 896,640 | |
CLO | — | | 2,107 | | — | | 2,107 | |
Corporate debt | — | | 704,412 | | — | | 704,412 | |
Private label MBS | — | | 44,249 | | — | | 44,249 | |
Other | — | | 12,198 | | — | | 12,198 | |
Total available-for-sale securities | 717,040 | | 7,175,657 | | — | | 7,892,697 | |
Gross derivative instruments, before netting (1) | 79 | | 222,827 | | — | | 222,906 | |
Originated loans held for sale | — | | 1,991 | | — | | 1,991 | |
Investments held in Rabbi Trust | 12,103 | | — | | — | | 12,103 | |
Alternative investments | 430 | | — | | — | | 430 | |
Alternative investments measured at NAV (2) | — | | — | | — | | 89,248 | |
Total financial assets | $ | 729,652 | | $ | 7,400,475 | | $ | — | | $ | 8,219,375 | |
Financial Liabilities: | | | | |
Gross derivative instruments, before netting (1) | $ | 843 | | $ | 413,656 | | $ | — | | $ | 414,499 | |
(1)Additional information regarding the impact of netting derivative assets and derivative liabilities, as well as the impact from offsetting cash collateral paid to the same derivative counterparties, can be found within Note 17: Derivative Financial Instruments.
(2)Certain alternative investments are recorded at NAV. Assets measured at NAV are not classified within the fair value hierarchy.
Assets Measured at Fair Value on a Non-Recurring Basis
The Company measures certain assets at fair value on a non-recurring basis. The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.
Alternative Investments. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be measured at cost minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Accordingly, these alternative investments are classified within Level 2 of the fair value hierarchy. At December 31, 2023, and 2022, the carrying amount of these alternative investments was $53.1 million and $42.8 million, respectively, of which $7.9 million and $5.9 million, respectively, were considered to be measured at fair value. During the year ended December 31, 2023, there were $1.8 million of total net write-ups due to observable price changes and $1.0 million of total write-downs due to impairment.
Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value, less estimated costs to sell. At the time of transfer into held for sale classification, any amount by which cost exceeds fair value is accounted for as a valuation allowance. This activity generally pertains to loans with observable inputs, and therefore, are classified within Level 2 of the fair value hierarchy. However, should these loans include adjustments for changes in loan characteristics based on unobservable inputs, the loans would then be classified within Level 3 of the fair value hierarchy. At December 31, 2023, and 2022, there were $3.9 million and zero loans transferred to held for sale on the accompanying Consolidated Balance Sheets, respectively.
Collateral Dependent Loans and Leases. Loans and leases for which repayment is substantially expected to be provided through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value of the collateral, less estimated costs to sell at the reporting date, using customized discounting criteria. Accordingly, collateral dependent loans and leases are classified within Level 3 of the fair value hierarchy.
Other Real Estate Owned and Repossessed Assets. OREO and repossessed assets are held at the lower of cost or fair value and are considered to be measured at fair value when recorded below cost. The fair value of OREO is calculated using independent appraisals or internal valuation methods, less estimated selling costs, and may consider available pricing guides, auction results, and price opinions. Certain repossessed assets may also require assumptions about factors that are not observable in an active market when determining fair value. Accordingly, OREO and repossessed assets are classified within Level 3 of the fair value hierarchy. At December 31, 2023, and 2022, the total carrying value of OREO and repossessed assets was $9.1 million and $2.3 million, respectively. In addition, the amortized cost of consumer loans secured by residential real estate property that are in the process of foreclosure at December 31, 2023, was $8.7 million.
Estimated Fair Values of Financial Instruments and Mortgage Servicing Assets
The Company is required to disclose the estimated fair values of certain financial instruments and mortgage servicing rights. The following is a description of the valuation methodologies used to estimate fair value for those assets and liabilities.
Cash and Cash Equivalents.Given the short time frame to maturity, the carrying amount of cash and cash equivalents, which comprises cash and due from banks and interest-bearing deposits, approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy.
Held-to-Maturity Securities. When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. These fair value measurements consider observable data, such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has a process in place to challenge their valuations and methodologies. Held-to-maturity securities, which include Agency CMO, Agency MBS, Agency CMBS, Municipal bonds and notes, and CMBS, are classified within Level 2 of the fair value hierarchy.
Loans and Leases, net. Except for collateral dependent loans and leases, the fair value of loans and leases held for investment is estimated using a discounted cash flow methodology, based on future prepayments and market interest rates inclusive of an illiquidity discount for comparable loans and leases. The associated cash flows are then adjusted for associated credit risks and other potential losses, as appropriate. Loans and leases are classified within Level 3 of the fair value hierarchy.
Mortgage Servicing Rights. Mortgage servicing rights are initially measured at fair value and subsequently measured using the amortization method. The Company assesses mortgage servicing rights for impairment each quarter and establishes or adjusts the valuation allowance to the extent that amortized cost exceeds the estimated fair market value. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors. Accordingly, the primary risk inherent in valuing mortgage servicing rights is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing rights are classified within Level 3 of the fair value hierarchy.
Deposit Liabilities. The fair value of deposit liabilities, which comprises demand deposits, interest-bearing checking, savings, health savings, and money market accounts, reflects the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.
Time Deposits. The fair value of fixed-maturity certificates of deposit is estimated using rates that are currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings. The fair value of securities sold under agreements to repurchase and other borrowings that mature within 90 days approximates their carrying value. The fair value of securities sold under agreements to repurchase and other borrowings that mature after 90 days is estimated using a discounted cash flow methodology based on current market rates and adjusted for associated credit risks, as appropriate. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow methodology in which discount rates are matched with the time period of the expected cash flows and adjusted for associated credit risks, as appropriate. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.
The following table summarizes the carrying amounts, estimated fair values, and classifications within the fair value hierarchy of selected financial instruments and mortgage servicing rights: | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | |
Level 1 | | | | | | | |
Cash and cash equivalents | $ | 1,715,795 | | | $ | 1,715,795 | | | $ | 839,943 | | | $ | 839,943 | |
Level 2 | | | | | | | |
Held-to-maturity investment securities | 7,074,588 | | | 6,264,623 | | | 6,564,697 | | | 5,761,453 | |
Level 3 | | | | | | | |
Loans and leases, net | 50,090,315 | | | 48,048,106 | | | 49,169,685 | | | 47,604,463 | |
Mortgage servicing rights | 8,523 | | | 24,495 | | | 9,515 | | | 27,043 | |
Liabilities: | | | | | | | |
Level 2 | | | | | | | |
Deposit liabilities | $ | 52,319,825 | | | $ | 52,319,825 | | | $ | 49,893,391 | | | $ | 49,893,391 | |
Time deposits | 8,464,459 | | | 8,426,708 | | | 4,160,949 | | | 4,091,979 | |
Securities sold under agreements to repurchase and other borrowings | 458,387 | | | 458,380 | | | 1,151,830 | | | 1,151,797 | |
FHLB advances | 2,360,018 | | | 2,358,381 | | | 5,460,552 | | | 5,459,218 | |
Long-term debt (1) | 1,048,820 | | | 999,918 | | | 1,073,128 | | | 1,001,779 | |
(1)Any unamortized premiums/discounts, debt issuance costs, or basis adjustments to long-term debt, as applicable, are excluded from the determination of fair value.
Note 19: Retirement Benefit Plans
Defined benefit pensionBenefit Pension and other postretirement benefitsPostretirement Benefit Plans
WebsterThe Bank had offered a qualified noncontributory defined benefit noncontributory pension plan through December 31, 2007 forPension Plan and a non-qualified SERP to eligible employees and key executives who met certain minimumage and service and age requirements. Pension plan benefits are based upon employee earnings during the periodrequirements, both of credited service. A supplemental defined benefit retirement plan (SERP) was also offered to certainwhich were frozen effective December 31, 2007. Only those employees who were athired prior to January 1, 2007, and who became participants of the Executive Vice President level or above through December 31, 2007.plans prior to January 1, 2008, have accrued benefits under the plans. The SERP provides eligible participants with additional pension benefits. Webster Bank also provides other postretirement healthcare benefitsfor OPEB to certain retired employees.
The WebsterIn connection with the merger with Sterling, on January 31, 2022, the Company assumed the benefit obligations of Sterling's non-qualified SERP and OPEB plans, which included the Astoria Bank PensionExcess Benefit and Supplemental Benefit Plans, Astoria Bank Directors' Retirement Plan, Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors, Supplemental Executive Retirement Plan of Provident Bank, Supplemental Executive Retirement Plan of Provident Bank - Other, Sterling Bancorp Supplemental Postretirement Life Insurance Plan, Astoria Bank Postretirement Welfare Benefit Plans, and a Split Dollar Life Insurance Arrangement.
Each of the SERP were frozen as ofplan's measurement dates, including the plans assumed from Sterling in the merger, coincides with the Company's December 31 2007. No additional benefits have been accrued since that time. Employees hired on or after January 1, 2007 receive no qualified or supplemental retirement income under the plans. All other employees accrue no additional qualified or supplemental retirement income after January 1, 2008, and the amount of their qualified and supplemental retirement income will not exceed the amount of benefits determined as of December 31, 2007.
There were $122 thousand and $124 thousand in company contributions to the SERP for the years ended December 31, 2017 and 2016, respectively.
The mortality assumptions used in the pension liability assessment for the year ended December 31, 2017 were the RP-2014 adjusted to 2006 dataset mortality table projected to measurement date with Mercer's mortality improvement scale MMP-2017.
The measurement date is December 31 for the Webster Bank Pension Plan, SERP, and other postretirement healthcare benefits.end.
The following table sets forthsummarizes the changes in the benefit obligation, changes infair value of plan assets, and the funded status of the defined benefit pension and other postretirement benefitsbenefit plans at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | SERP | | OPEB |
(In thousands) | 2023 | 2022 | | 2023 | 2022 | | 2023 | 2022 |
Change in benefit obligation: | | | | | | | | |
Beginning balance | $ | 187,836 | | $ | 250,263 | | | $ | 4,245 | | $ | 1,873 | | | $ | 22,822 | | $ | 1,904 | |
Benefit obligation assumed from Sterling | — | | — | | | — | | 4,517 | | | — | | 26,030 | |
Service cost | — | | — | | | — | | — | | | 27 | | 34 | |
Interest cost | 8,782 | | 5,565 | | | 191 | | 107 | | | 1,042 | | 652 | |
Actuarial (gain) loss | 3,333 | | (57,751) | | | 183 | | (581) | | | (382) | | (4,992) | |
Benefits paid | (9,965) | | (10,241) | | | (480) | | (1,671) | | | (840) | | (806) | |
Ending balance | 189,986 | | 187,836 | | | 4,139 | | 4,245 | | | 22,669 | | 22,822 | |
Change in plan assets: | | | | | | | | |
Beginning balance | 201,382 | | 271,846 | | | — | | — | | | — | | — | |
Actual return on plan assets | 25,750 | | (60,223) | | | — | | — | | | — | | — | |
Employer contributions | — | | — | | | 480 | | 1,671 | | | 840 | | 806 | |
Benefits paid | (9,965) | | (10,241) | | | (480) | | (1,671) | | | (840) | | (806) | |
Ending balance | 217,167 | | 201,382 | | | — | | — | | | — | | — | |
Funded status (1) | $ | 27,181 | | $ | 13,546 | | | $ | (4,139) | | $ | (4,245) | | | $ | (22,669) | | $ | (22,822) | |
|
| | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
(In thousands) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
Change in benefit obligation: | | | | | | | | |
Beginning balance | $ | 211,508 |
| $ | 203,645 |
| | $ | 11,806 |
| $ | 10,518 |
| | $ | 3,852 |
| $ | 3,853 |
|
Service cost | 50 |
| 45 |
| | — |
| — |
| | — |
| — |
|
Interest cost | 7,314 |
| 8,441 |
| | 375 |
| 389 |
| | 92 |
| 125 |
|
Actuarial loss (gain) | 18,396 |
| 6,108 |
| | 1,037 |
| 1,023 |
| | (631 | ) | 59 |
|
Benefits paid and administrative expenses | (7,950 | ) | (6,731 | ) | | (122 | ) | (124 | ) | | (219 | ) | (185 | ) |
Ending balance (1) | 229,318 |
| 211,508 |
| | 13,096 |
| 11,806 |
| | 3,094 |
| 3,852 |
|
Change in plan assets: | | | | | | | | |
Beginning balance | 192,922 |
| 161,369 |
| | — |
| — |
| | — |
| — |
|
Actual return on plan assets | 31,253 |
| 18,284 |
| | — |
| — |
| | — |
| — |
|
Employer contributions | — |
| 20,000 |
| | 122 |
| 124 |
| | 219 |
| 185 |
|
Benefits paid and administrative expenses | (7,950 | ) | (6,731 | ) | | (122 | ) | (124 | ) | | (219 | ) | (185 | ) |
Ending balance | 216,225 |
| 192,922 |
| | — |
| — |
| | — |
| — |
|
Funded status of the plan at year end (2) | $ | (13,093 | ) | $ | (18,586 | ) | | $ | (13,096 | ) | $ | (11,806 | ) | | $ | (3,094 | ) | $ | (3,852 | ) |
(1)The overfunded (underfunded) status of each plan is respectively included in Accrued interest receivable and other assets or Accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets, as applicable.The following table summarizes the weighted-average assumptions used to determine the benefit obligation at December 31: | | | | | | | | | |
| Discount Rate |
| 2023 | 2022 | |
Pension: | | | |
Webster Bank Pension Plan | 4.76 | % | 4.96 | % | |
| | | |
SERP: | | | |
Webster Bank Supplemental Defined Benefit Plan for Executive Officers | 4.68 | % | 4.88 | % | |
Astoria Bank Excess Benefit and Supplemental Benefit Plans | 4.56 | | 4.77 | | |
Astoria Bank Directors' Retirement Plan | 4.50 | | 4.70 | | |
Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors | 4.50 | | 4.70 | | |
Supplemental Executive Retirement Plan of Provident Bank | 4.83 | | 5.04 | | |
Supplemental Executive Retirement Plan of Provident Bank - Other | 4.71 | | 4.90 | | |
| | | |
OPEB: | | | |
Webster Bank Postretirement Medical Benefit Plan | 4.54 | % | 4.72 | % | |
Sterling Bancorp Supplemental Postretirement Life Insurance Plan | 4.51 | | 4.70 | | |
Astoria Bank Postretirement Welfare Benefit Plans | 4.74 | | 4.94 | | |
Split Dollar Life Insurance Arrangement | 4.45 | | 4.63 | | |
132
| |
(1) | The accumulated benefit obligation for the defined benefit pension and other postretirement benefits was $245.5 million and $227.2 million at December 31, 2017 and 2016, respectively. |
| |
(2) | The underfunded status amounts are included in accrued expense and other liabilities in the accompanying Consolidated Balance Sheets. |
The Company expectsfollowing table summarizes the amounts recorded in accumulated other comprehensive (loss) income that $5.1 millionhave not yet been recognized in net actuarial loss will be recognized as a componentperiodic benefit cost (income) at December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | SERP | | OPEB |
(In thousands) | 2023 | 2022 | | 2023 | 2022 | | 2023 | 2022 |
Net actuarial loss (gain) | $ | 41,296 | | $ | 56,717 | | | $ | 312 | | $ | 50 | | | $ | (3,231) | | $ | (5,573) | |
Deferred tax (benefit) expense | (11,201) | | (15,383) | | | (85) | | (14) | | | 876 | | 1,512 | |
Net amount recorded in (AOCL) | $ | 30,095 | | $ | 41,334 | | | $ | 227 | | $ | 36 | | | $ | (2,355) | | $ | (4,061) | |
The following table summarizes the components of net periodic benefit cost in 2018.
The components of AOCL related to the defined benefit pension and other postretirement benefits at December 31, 2017 and 2016 are summarized below:
|
| | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
(In thousands) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
Net actuarial loss (gain) | $ | 59,433 |
| $ | 65,857 |
| | $ | 3,299 |
| $ | 3,009 |
| | $ | (16 | ) | $ | 616 |
|
Prior service cost | — |
| — |
| | — |
| — |
| | — |
| — |
|
Total pre-tax amounts included in AOCL | 59,433 |
| 65,857 |
| | 3,299 |
| 3,009 |
| | (16 | ) | 616 |
|
Deferred tax benefit | 13,407 |
| 23,727 |
| | 744 |
| 1,084 |
| | (3 | ) | 222 |
|
Amounts included in accumulated AOCL, net of tax | $ | 46,026 |
| $ | 42,130 |
| | $ | 2,555 |
| $ | 1,925 |
| | $ | (13 | ) | $ | 394 |
|
Expected future benefit payments for the defined benefit pension and other postretirement benefits are presented below:
|
| | | | | | | | | |
(In thousands) | Pension Plan | SERP | Other Benefits |
2018 | $ | 9,009 |
| $ | 11,371 |
| $ | 354 |
|
2019 | 8,630 |
| 130 |
| 342 |
|
2020 | 9,065 |
| 132 |
| 328 |
|
2021 | 9,792 |
| 132 |
| 311 |
|
2022 | 10,425 |
| 131 |
| 292 |
|
2023-2027 | 55,206 |
| 651 |
| 1,125 |
|
The components of the net periodic benefit cost (benefit) for the defined benefit pension and other postretirement benefits were as follows(income) for the years ended December 31: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
(In thousands) | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
Service cost | $ | 50 |
| $ | 45 |
| $ | 45 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
|
Interest cost on benefit obligations | 7,314 |
| 8,441 |
| 8,008 |
| | 375 |
| 389 |
| 345 |
| | 92 |
| 125 |
| 123 |
|
Expected return on plan assets | (12,296 | ) | (11,461 | ) | (11,873 | ) | | — |
| — |
| — |
| | — |
| — |
| — |
|
Amortization of prior service cost | — |
| — |
| — |
| | — |
| — |
| — |
| | — |
| 14 |
| 73 |
|
Recognized net loss | 5,864 |
| 6,665 |
| 5,724 |
| | 748 |
| 426 |
| 390 |
| | — |
| 35 |
| 47 |
|
Net periodic benefit cost (benefit) | $ | 932 |
| $ | 3,690 |
| $ | 1,904 |
| | $ | 1,123 |
| $ | 815 |
| $ | 735 |
| | $ | 92 |
| $ | 174 |
| $ | 243 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | SERP | | OPEB |
(In thousands) | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 |
Service cost | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | | $ | 27 | | $ | 34 | | $ | — | |
Interest cost | 8,782 | | 5,565 | | 4,663 | | | 191 | | 107 | | 30 | | | 1,042 | | 652 | | 19 | |
Expected return on plan assets | (11,778) | | (14,675) | | (14,385) | | | — | | — | | — | | | — | | — | | — | |
Amortization of actuarial loss (gain) | 4,781 | | 2,224 | | 4,102 | | | 6 | | 26 | | 38 | | | (2,704) | | (40) | | (38) | |
Net periodic benefit cost (income) (1) | $ | 1,785 | | $ | (6,886) | | $ | (5,620) | | | $ | 197 | | $ | 133 | | $ | 68 | | | $ | (1,635) | | $ | 646 | | $ | (19) | |
Changes(1)Net periodic benefit cost (income) is included in funded status related to the defined benefit pension and other postretirement benefits and recognized as a component of OCI inOther expense on the accompanying Consolidated Statements of Comprehensive Income as followsIncome.
The following table summarizes the weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended December 31: | | | | | | | | | | | |
| Discount Rate |
| 2023 | 2022 | 2021 |
Pension: | | | |
Webster Bank Pension Plan | 4.96 | % | 2.65 | % | 2.29 | % |
| | | |
SERP: | | | |
Webster Bank Supplemental Defined Benefit Plan for Executive Officers | 4.88 | % | 2.45 | % | 1.91 | % |
Astoria Bank Excess Benefit and Supplemental Benefit Plans | 4.77 | | 2.58 | | n/a |
Astoria Bank Directors' Retirement Plan | 4.70 | | 2.23 | | n/a |
Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors | 4.70 | | 2.37 | | n/a |
Supplemental Executive Retirement Plan of Provident Bank | 5.04 | | 2.76 | | n/a |
Supplemental Executive Retirement Plan of Provident Bank - Other | 4.90 | | 2.38 | | n/a |
| | | |
OPEB: | | | |
Webster Bank Postretirement Medical Benefit Plan | 4.72 | % | 1.99 | % | 1.40 | % |
Sterling Bancorp Supplemental Postretirement Life Insurance Plan | 4.70 | | 2.35 | | n/a |
Astoria Bank Postretirement Welfare Benefit Plans | 4.94 | | 2.93 | | n/a |
Split Dollar Life Insurance Arrangement | 4.63 | | 2.20 | | n/a |
| | | |
| Expected Long-Term Rate of Return on Plan Assets |
| 2023 | 2022 | 2021 |
Pension: | | | |
Webster Bank Pension Plan | 6.00 | % | 5.50 | % | 5.50 | % |
| | | |
| Assumed Health Care Cost Trend Rate (1) |
| 2023 | 2022 | 2021 |
OPEB: | | | |
Webster Bank Postretirement Medical Benefit Plan | 6.50 | % | 6.25 | % | 6.50 | % |
Astoria Bank Postretirement Welfare Benefit Plans | 6.40 | | 6.60 | | n/a |
(1)The rates to which the healthcare cost trend rates are assumed to decline (ultimate trend rates) along with the year that the ultimate trend rates will be reached for the Webster Bank Postretirement Medical Benefit Plan and the Astoria Bank Postretirement Welfare Benefit Plans are 4.40% in 2032, and 4.50% in 2033, respectively.
The discount rates used to determine the benefit obligation and net periodic benefit cost (income) for the Company's defined benefit pension and postretirement benefit plans were generally selected by reference to a high-quality bond yield curve, using a full yield curve approach, and matched to the timing and amount of each plan's expected benefit payments.
The following table summarizes amounts recognized in other comprehensive (loss) income, including reclassification adjustments, for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | SERP | | OPEB |
(In thousands) | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 |
Net actuarial (gain) loss | $ | (10,639) | | $ | 17,148 | | $ | (12,008) | | | $ | 183 | | $ | (581) | | $ | (77) | | | $ | (382) | | $ | (4,992) | | $ | 33 | |
Amounts reclassified from (AOCL) | (4,781) | | (2,224) | | (4,102) | | | (6) | | (26) | | (38) | | | 2,704 | | 40 | | 38 | |
Total (gain) loss recognized in OCI (OCL) | $ | (15,420) | | $ | 14,924 | | $ | (16,110) | | | $ | 177 | | $ | (607) | | $ | (115) | | | $ | 2,322 | | $ | (4,952) | | $ | 71 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
(In thousands) | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
Net (gain) loss | $ | (561 | ) | $ | (715 | ) | $ | 8,525 |
| | $ | 1,037 |
| $ | 1,023 |
| $ | 372 |
| | $ | (631 | ) | $ | 60 |
| $ | (178 | ) |
Amounts reclassified from AOCL | (5,864 | ) | (6,665 | ) | (5,724 | ) | | (748 | ) | (426 | ) | (390 | ) | | — |
| (35 | ) | (47 | ) |
Amortization of prior service cost | — |
| — |
| — |
| | — |
| — |
| — |
| | — |
| (14 | ) | (73 | ) |
Total (gain) loss recognized in OCI | $ | (6,425 | ) | $ | (7,380 | ) | $ | 2,801 |
| | $ | 289 |
| $ | 597 |
| $ | (18 | ) | | $ | (631 | ) | $ | 11 |
| $ | (298 | ) |
At December 31, 2023, the expected future benefit payments for the Company's defined benefit pension and postretirement benefits plans are as follows: | | | | | | | | | | | |
(In thousands) | Pension | SERP | OPEB |
2024 | $ | 10,634 | | $ | 489 | | $ | 2,926 | |
2025 | 11,038 | | 473 | | 2,789 | |
2026 | 11,429 | | 455 | | 2,552 | |
2027 | 11,864 | | 433 | | 2,339 | |
2028 | 12,246 | | 409 | | 2,083 | |
Thereafter | 64,148 | | 1,646 | | 7,393 | |
Asset Management
The Pension Plan invests primarily in common collective trusts and registered investment companies. However, the Pension Plan's investment policy guidelines also allow for the investment in cash and cash equivalents, fixed income securities, and equity securities. Common collective trusts and registered investment companies are both benchmarked against the Standard & Poor's 500 Index. Incremental benchmarks used to assess the common collective trusts include the S&P 400 Mid Cap Index, Russell 200 Index, MSCI ACWI ex U.S. Index, and the Barclay's Capital U.S. Long Credit Index. The standard deviation should not exceed that of the composite index. The Pension Plan's investment strategy and asset allocations are monitored by the Company's Retirement Plans Committee with the assistance of external investment advisors, and the investment portfolio is rebalanced, as appropriate. The target asset allocation percentages for the year ended December 31, 2023, were 64.5%
fixed-income investments and 35.5% equity investments. The actual asset allocation percentages for the year ended
December 31, 2023, were 64.2% fixed-income investments, 35.2% equity investments, and 0.6% cash and cash equivalents.
The overall investment objective of the Pension Plan is to maintain a diversified portfolio with a targeted expected long-term rate of return on plan assets of approximately 6.00%. The expected long-term rate of return on plans assets is the average rate of return expected to be realized on funds invested, or expected to be invested, to provide for the benefits included in the benefit obligation. The expected long-term rate of return on plans assets is generally established as of the beginning of the year based upon historical and projected returns for each asset category, with subsequent remeasurements occurring in interim periods, as appropriate. Depending on market conditions, the expected long-term rate of return on plan assets may exceed or fall short of the targeted percentage.
Fair Value MeasurementsMeasurement
The following is a description of the valuation methodologies used for the pension planPension Plan's assets measured at fair value, includingvalue:
Common Collective Trusts. Common collective trusts are valued based on the general classificationNAV as reported by the trustee of such instruments pursuant to the valuation hierarchy:
Registered investment companies. Exchange tradedfunds. The funds' underlying investments, which primarily comprise fixed-income debt securities and open-end mutual funds, are valued using quoted at market prices in an exchange and active market, which represent the net asset values of shares held by the plan at year end. Money market fundsmarkets or unobservable inputs for similar assets. Therefore, common collective trusts are shown at cost, which approximates fair value. The exchange traded fund is benchmarked against the Standard & Poor's 500 Index.
Common collective trust funds. The net asset value (NAV),classified as provided by the trustee, is used asLevel 2 within the fair value of the investments. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. Plan transactions (purchases and sales)hierarchy. Transactions may occur daily. Were the Plan to initiatedaily within a trust. If a full redemption of the collective trust were to be initiated, the investment adviseradvisor reserves the right to temporarily delay withdrawalwithdrawals from the trust in order to ensure that the liquidation of securities liquidations will beis carried out in an orderly business manner. The common collective trust funds performance are benchmarked against the Standard and Poor’s 500 Stock Index, the S&P 400 Mid Cap Index, the Russell 2000 Index, the MSCI ACWI ex U.S. Index, and the Barclays Capital U.S. Long Credit Index.
Registered Investment contract with insurance company.Companies. These investmentsRegistered investment companies are valued at fair valuethe daily closing price as reported by discounting the related cash flows based on current yields of similar instruments with comparable durations consideringfunds. Registered investment companies held by the credit-worthiness of the issuer. Holdings of insurance company investment contractsPension Plan are quoted in an active market and are classified as Level 3 investments.
A summary of1 within the fair value hierarchy.
Cash and hierarchy classification of financial assets ofCash Equivalents. Cash and cash equivalents are recorded at cost plus accrued interest, which approximates fair value given the pension plan isshort time frame to maturity, and are classified as follows:Level 1 within the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2017 | | 2016 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total | | Level 1 | Level 2 | Level 3 | Total |
Registered investment companies: | | | | | | | | | |
Exchange traded funds | $ | 37,848 |
| $ | — |
| $ | — |
| $ | 37,848 |
| | $ | 31,526 |
| $ | — |
| $ | — |
| $ | 31,526 |
|
Cash and cash equivalents | 1,115 |
| — |
| — |
| 1,115 |
| | 701 |
| — |
| — |
| 701 |
|
Common collective trust funds: | | | | | | | | | |
Fixed Income funds | — |
| 107,430 |
| — |
| 107,430 |
| | — |
| 96,429 |
| — |
| 96,429 |
|
Equity Funds | — |
| 69,832 |
| — |
| 69,832 |
| | — |
| 63,285 |
| — |
| 63,285 |
|
Insurance company investment contract | — |
| — |
| — |
| — |
| | — |
| — |
| 793 |
| 793 |
|
Total | $ | 38,963 |
| $ | 177,262 |
| $ | — |
| $ | 216,225 |
| | $ | 32,227 |
| $ | 159,714 |
| $ | 793 |
| $ | 192,734 |
|
134
The following table sets forth a summary of changes inby level within the fair value of Level 3hierarchy the Pension Plan's assets of the pension plan:at fair value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
(In thousands) | Level 1 | Level 2 | Level 3 | Total | | Level 1 | Level 2 | Level 3 | Total |
Common collective trusts | $ | — | | $ | 195,004 | | $ | — | | $ | 195,004 | | | $ | — | | $ | 172,941 | | $ | — | | $ | 172,941 | |
Registered investment companies | 20,965 | | — | | — | | 20,965 | | | 26,923 | | — | | — | | 26,923 | |
Cash and cash equivalents | 1,198 | | — | | — | | 1,198 | | | 1,518 | | — | | — | | 1,518 | |
Total pension plan assets | $ | 22,163 | | $ | 195,004 | | $ | — | | $ | 217,167 | | | $ | 28,441 | | $ | 172,941 | | $ | — | | $ | 201,382 | |
|
| | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 |
Beginning balance | $ | 793 |
| | $ | 934 |
|
Employer contributions | 78 |
| | — |
|
Unrealized gains relating to instruments still held at the reporting date | — |
| | (10 | ) |
Benefit payments, administrative expenses | (166 | ) | | (131 | ) |
Asset sales | (705 | ) | | — |
|
Ending balance | $ | — |
| | $ | 793 |
|
Asset ManagementMultiple-Employer Defined Benefit Pension Plan
The following table presents the target allocation and theBank participates in a multi-employer plan that provides pension plan asset allocation for the periods indicated, by asset category:
|
| | | | | | | | |
| Target Allocation | | Percentage of Pension Plan assets |
| 2018 | | 2017 | | 2016 |
Fixed income investments | 55 | % | | 50 | % | | 51 | % |
Equity investments | 45 |
| | 50 |
| | 49 |
|
Total | 100 | % | | 100 | % | | 100 | % |
The Retirement Plan Committee is a fiduciary under ERISA and is charged with the responsibility for directing and monitoring the investment management of the pension plan. To assist the Retirement Plan Committee in this function, it engages the services of investment managers and advisors who possess the necessary expertisebenefits to manage the pension plan assets within the established investment policy guidelines and objectives. The investment policy guidelines and objectives is reviewed at a minimum annually by the Retirement Plan Committee.
The primary objective of the pension plan investment strategy is to provide long-term total return through capital appreciation and dividend and interest income. The Plan invests in registered investment companies and bank collective trusts. The volatility, as measured by standard deviation, of the pension plan assets should not exceed that of the Composite Index. The investment policy guidelines allow the pension plan assets to be invested in certain types of cash equivalents, fixed income securities, equity securities, mutual funds, and collective trusts. Investments in mutual funds and collective trust funds are substantially limited to funds with the securities characteristic of their assigned benchmarks.
The pension plan investment strategy is designed to maintain a diversified portfolio, with a target average long-term rate of 6.50%, however, there is no certainty that the portfolio will perform to expectations. Asset allocations are monitored monthly, and the portfolio is rebalanced as needed.
Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:
|
| | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
| 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
Discount rate | 3.50 | % | 4.01 | % | | 3.30 | % | 3.63 | % | | 3.00 | % | 3.27 | % |
Rate of compensation increase | n/a |
| n/a |
| | n/a |
| n/a |
| | n/a |
| n/a |
|
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | SERP | | Other Benefits |
| 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
Discount rate | 4.01 | % | 4.20 | % | 3.85 | % | | 3.63 | % | 3.75 | % | 3.50 | % | | 3.27 | % | 3.35 | % | 3.15 | % |
Expected long-term return on assets | 6.50 | % | 7.00 | % | 7.00 | % | | n/a |
| n/a |
| n/a |
| | n/a |
| n/a |
| n/a |
|
Rate of compensation increase | n/a |
| n/a |
| n/a |
| | n/a |
| n/a |
| n/a |
| | n/a |
| n/a |
| n/a |
|
Assumed healthcare cost trend | n/a |
| n/a |
| n/a |
| | n/a |
| n/a |
| n/a |
| | 7.50 | % | 8.25 | % | 8.00 | % |
The assumed healthcare cost-trend rate is 7.50% for 2017 and 2018, declining 1.0% each year thereafter until 2024 when the rate will be 4.60%. An increase of 1.0% in the assumed healthcare cost-trend rate for 2017 would have increased the net periodic postretirement benefit cost by $5 thousand and increased the accumulated benefit obligation by $148 thousand. A decrease of 1.0% in the assumed healthcare cost trend rate for 2017 would have decreased the net periodic postretirement benefit cost by $5 thousand and decreased the accumulated postretirement benefit obligation by $134 thousand.
Multiple-employer plan
Webster Bank, for the benefit of former employees of a bank acquired by the Company, isCompany. Participation in the plan was frozen as of September 1, 2004. The plan maintains a sponsor of a multiple-employer pension plan thatsingle trust and does not segregate the assets or liabilities of its employers participating in the plan. Accordingemployers. Minimum required employer contributions are determined by an independent actuary and are calculated using a 15-year shortfall amortization factor. There are no collective bargaining agreements or other obligations requiring contributions to the plan, administrator, as of July 1, 2017, the date of the latest actuarial valuation, Webster Bank’s portion of thisnor has a funding improvement plan was under-funded by $0.8 million.been implemented.
The following table sets forth contributions and funding status of Webster Bank's portion of this plan: |
| | | | | | | | | | | |
(Dollars in thousands) | | | | | | Contributions by Webster Bank for the year ended December 31, | | Funded Status of the Plan at December 31, |
Plan Name | | Employer Identification Number | | Plan Number | | 2017 | 2016 | 2015 | | 2017 | 2016 |
Pentegra Defined Benefit Plan for Financial Institutions | | 13-5645888 | | 333 | | $614 | $690 | $340 | | At least 80 percent | At least 80 percent |
Multi-employer accounting is appliedsummarizes information related to the
Fund. As a multiple-employer pension plan, there are no collective bargained contracts affecting its contribution or benefit provisions. Any shortfall amortization basis is being amortized over seven years, as required byBank's participation in the
Pension Protection Act. All benefit accruals were frozen as of September 1, 2004. multi-employer plan: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | | Contributions Years Ended December 31, | | Funded Status At December 31, |
Plan Name | | Employer Identification Number | | Plan Number | | Surcharge Imposed | | 2023 | 2022 | 2021 | | 2023 | 2022 |
Pentegra Defined Benefit Plan for Financial Institutions | | 13-5645888 | | 333 | | No | | $448 | $448 | $692 | | At least 80 percent | At least 80 percent |
The Company'sBank's contributions to thisthe multi-employer plan for the years ended December 31, 2023, 2022, and 2021, did not exceed more than 5% of total plan contributions infor the plan years ended June 30, 2022, 2021, and 2020. The plan's Form 5500 was not available for the yearsplan year ended December 31, 2017, 2016, and 2015.June 30, 2023, as of the date the Company's Consolidated Financial Statements were issued. As of July 1, 2023, the date of the most recent actuarial valuation, the plan administrator confirmed that the Bank’s portion of the multi-employer plan was $3.1 million underfunded.
WebsterDefined Contribution Postretirement Benefit Plans
The Bank Retirement Savings Plan
Webster Bank provides an employee retirement savings plan governed by sectionalso sponsors defined contribution postretirement benefit plans established under Section 401(k) of the Internal Revenue Code. Code:
Webster Bank matchesRetirement Savings Plan. Employees who have attained age 21 may elect to contribute up to 75% of their eligible compensation on either a pre-tax or post-tax basis. The Bank makes matching contributions equal to 100% of the first 2% and 50% of the next 6% of employees’ pre-taxemployees contributions based on annual compensation.after employees have completed one year of eligible service. If a participantan employee fails to make a pre-tax contribution electionenroll in the plan within 90 days of hishire, the employee will be automatically enrolled on a pre-tax basis with a deferral rate set at 3% of eligible compensation. As of December 31, 2023, individuals who became employees of the Company as a result of the merger with Sterling were not eligible to participate in the plan.
Sterling National Bank 401k and Profit Sharing Plan. Eligible legacy Sterling employees as January 31, 2022, who are now employees of the Company may elect to contribute up to 50% of their eligible compensation on either a pre-tax or her datepost-tax basis. The Bank makes matching contributions equal to 50% of hire, automatic pre-taxemployee contributions will commence 90 days after his or her dateup to 4% of hire ateligible compensation, for a ratemaximum match of 2%, and a profit sharing contribution equal to 3% of compensation.eligible compensation for all eligible legacy Sterling employees, regardless of whether they had contributed to the plan in the current year. The plan also includes an automatic employee deferral increase provision, whereby deferral contributions for participants who had been automatically enrolled in the plan will increase by 1% every January 1 up to 10%.
Compensation and benefitbenefits expense included $12.0total employer contributions under the plans of $20.3 million, $11.1$18.2 million, and $10.9$13.1 million for the years ended December 31, 2017, 2016,2023, 2022, and 2015, respectively, for employer contributions.
2021, respectively.
Note 18: Share-Based Plans
Stock compensation plans
Webster maintains stock compensation plans under which non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights may be granted to employees and directors. The Company believes these share awards better align the interests of its employees with those of its shareholders. Stock compensation cost is recognized over the required service vesting period for the awards, based on the grant-date fair value, net of estimated forfeitures, and is included as a component of compensation and benefits reflected in non-interest expense. The Plans have shareholder approval for up to 13.4 million shares of common stock. At December 31, 2017, there were 2.6 million common shares remaining available for grant, while no stock appreciation rights have been granted.
The following table provides a summary of stock compensation expense and income tax benefits associated with stock compensation recognized in the accompanying Consolidated Statements of Income:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Stock options | $ | — |
| | $ | 43 |
| | $ | 379 |
|
Restricted stock | 12,276 |
| | 11,395 |
| | 10,556 |
|
Total stock compensation expense | $ | 12,276 |
| | $ | 11,438 |
| | $ | 10,935 |
|
| | | | | |
Income tax benefit (1) | $ | 11,849 |
| | $ | 4,132 |
| | $ | 3,903 |
|
| |
(1) | The income tax benefit in 2017 includes $7.1 million of excess tax benefits recognized under ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share Based Payment Accounting, which the Company adopted effective January 1, 2017. |
At December 31, 2017 there was $13.5 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted-average period of 1.9 years.
The following table provides a summary of the activity under the stock compensation plans for the year ended December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Unvested Restricted Stock Awards | | Stock Options Outstanding |
| Time-Based | | Performance-Based | |
| Number of Shares | Weighted-Average Grant Date Fair Value | | Number of Units | Weighted-Average Grant Date Fair Value | | Number of Shares | Weighted-Average Grant Date Fair Value | | Number of Shares | Weighted-Average Exercise Price |
Balance at January 1, 2017 | 253,361 |
| $ | 32.24 |
| | 2,158 |
| $ | 32.89 |
| | 116,184 |
| $ | 33.62 |
| | 1,072,974 |
| $ | 21.24 |
|
Granted | 168,369 |
| 54.76 |
| | 8,129 |
| 56.07 |
| | 89,581 |
| 56.18 |
| | — |
| — |
|
Exercised options | — |
| — |
| | — |
| — |
| | — |
| — |
| | 399,935 |
| 25.42 |
|
Vested restricted stock awards (1) | 194,986 |
| 37.16 |
| | 10,287 |
| 51.21 |
| | 117,695 |
| 42.09 |
| | — |
| — |
|
Forfeited | 18,944 |
| 35.58 |
| | — |
| — |
| | 9,154 |
| 43.10 |
| | — |
| — |
|
Balance at December 31, 2017 | 207,800 |
| $ | 43.16 |
| | — |
| $ | — |
| | 78,916 |
| $ | 45.35 |
| | 673,039 |
| $ | 18.75 |
|
| |
(1) | Vested for purposes of recording compensation expense. |
Time-based restricted stock. Time-based restricted stock awards vest over the applicable service period ranging from 1 to 5 years. The number of time-based awards that may be granted to an eligible individual in a calendar year is limited to 100,000 shares. Compensation expense is recorded over the vesting period based on fair value, which is measured using the Company's common stock closing price at the date of grant.
Performance-based restricted stock. Performance-based restricted stock awards vest after a 3 year performance period. The awards vest with a share quantity dependent on that performance, in a range from zero to 150%. For the performance-based shares granted in 2017, 50% vest based upon Webster's ranking for total shareholder return versus Webster's compensation peer group companies and 50% vest based upon Webster's average of return on equity during the 3 year vesting period. The compensation peer group companies are utilized because they represent the financial institutions that best compare with Webster. The Company records compensation expense over the vesting period, based on a fair value calculated using the Monte-Carlo simulation model, which allows for the incorporation of the performance condition for the 50% of the performance-based shares tied to total shareholder return versus the compensation peer group, and based on a fair value of the market price on the date of grant for the remaining 50% of the performance-based shares tied to Webster's return on equity. Compensation expense is subject to adjustment based on management's assessment of Webster's return on equity performance relative to the target number of shares condition.
The total fair value of restricted stock awards vested during the years ended December 31, 2017, 2016, and 2015 was $12.7 million, $11.6 million, and $11.6 million, respectively.
Stock options. Stock option awards have an exercise price equal to the market price of Webster's stock on the date of grant. Each option grants the holder the right to acquire a share of Webster common stock over a contractual life of up to 10 years. There have been no stock options granted since 2013. All awarded options have vested. There were 639,151 non-qualified stock options and 33,888 incentive stock options outstanding at December 31, 2017.
Aggregate intrinsic value represents the total pretax intrinsic value (the difference between Webster's closing stock price on the last trading day of the year and the weighted-average exercise price, multiplied by the number of shares) that would have been received by the option holders had they all exercised their options at that time. At December 31, 2017, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $25.2 million. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $11.1 million, $6.4 million, and $4.3 million, respectively.
The following table summarizes information for options, all of which are both outstanding and exercisable, at December 31, 2017:
|
| | | | | | |
Range of Exercise Prices | Number of Shares | Weighted-Average Remaining Contractual Life (years) | Weighted-Average Exercise Price |
$ 5.14 - 12.85 | 222,947 |
| 1.2 | $ | 9.43 |
|
$ 22.04 - 25.15 | 450,092 |
| 4.5 | 23.37 |
|
| 673,039 |
| 3.4 | $ | 18.75 |
|
Note 19:20: Share-Based Plans
The Company maintains a stock compensation plan that provides for the grant of stock options, stock appreciation rights, restricted stock, performance-based stock, and stock units to better align the interests of its employees and directors with those of its stockholders. The total number of shares of Webster common stock authorized for issuance under the plan is 21.4 million shares. At December 31, 2023, there were 4.5 million shares available to be granted. Stock compensation expense is recognized over the required service vesting period for each award based on the grant-date fair value and is included in Compensation and benefits on the accompanying Consolidated Statements of Income.
The following table summarizes stock-based compensation plan activity for the year ended December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-Vested Restricted Stock Awards Outstanding | | Stock Options Outstanding |
| Time-Based | | | | | Performance-Based | |
| Number of Shares | Weighted-Average Grant Date Fair Value | | | | | Number of Shares | Weighted-Average Grant Date Fair Value | | Number of Shares | Weighted-Average Exercise Price |
Balance, beginning of period | 1,479,742 | | $ | 50.47 | | | | | | 310,374 | | $ | 57.65 | | | 88,229 | | $ | 23.76 | |
Granted | 937,735 | | 51.35 | | | | | | 286,161 | | 48.86 | | | — | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Vested | (740,748) | | 48.88 | | | | | | (60,988) | | 60.24 | | | — | | — | |
Forfeited | (77,310) | | 51.62 | | | | | | (15,544) | | 55.54 | | | — | | — | |
Exercised | — | | — | | | | | | — | | — | | | (77,257) | | 23.00 | |
Balance, end of period | 1,599,419 | | 52.72 | | | | | | 520,003 | | 52.58 | | | 10,972 | | 29.14 | |
Restricted Stock Awards
Time-based restricted stock awards vest over the applicable service period ranging from one to three years. Under the plan, the number of time-based restricted stock awards that may be granted to an eligible individual per calendar year is limited to 300,000 shares. The fair value of time-based restricted stock awards used to determine compensation expense is measured using the closing price of Webster common stock at the grant date.
Performance-based restricted stock awards generally vest after a three year performance period, with the total share quantity dependent on the Company meeting certain target performance conditions throughout the vesting period, ranging from 0% to 150%. Under the plan, 50% of the share quantity is determined based on total stockholder return as compared to the Company's compensation peer group, while the other 50% is based on the Company's average return on equity. The fair value of performance-based restricted stock awards used to determine compensation expense is calculated using the Monte-Carlo simulation model for total stockholder return awards and the closing price of Webster common stock at the grant date for
average return on equity awards. Compensation expense may be subject to adjustment based on management's assessment of the Company's average return on equity performance relative to the target number of shares condition.
For the years ended December 31, 2023, 2022, and 2021, the Company recognized restricted stock compensation expense totaling $54.5 million, $55.1 million, and $13.7 million, respectively. The corresponding income tax benefit recognized was $13.9 million, $12.0 million, and $5.4 million, respectively. The fair value of restricted stock awards that had vested during the years ended December 31, 2023, 2022, and 2021, was $39.9 million, $51.7 million, and $12.5 million, respectively. At December 31, 2023, there was $40.0 million of unrecognized restricted stock expense related to non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.7 years.
Stock Options
Stock options are granted at an exercise price equal to the market value of Webster common stock on the grant date. Each stock option grants the holder the right to acquire one share of Webster common stock over a contractual life of ten years. The Company has not granted stock options since 2013. At December 31, 2023, there were 10,278 and 694 incentive and
non-qualified stock options outstanding, respectively, which have a weighted-average remaining contractual life of 1.1 years, and all of which have vested and are exercisable.
Total pre-tax intrinsic value, or the difference between the Webster common stock closing price on the last trading day of the year and the weighted-average exercise price multiplied by the number of shares, represents the aggregate intrinsic value that would have been received by the option holders had all of their outstanding options been exercised on December 31, 2023. At December 31, 2023, the total pre-tax intrinsic value was $0.2 million. For the years ended December 31, 2023, 2022, and 2021, the total intrinsic value of the options exercised was $2.2 million, $1.0 million, and $9.0 million, respectively. The amount of cash received from the exercise of stock options during the years ended December 31, 2023, 2022, and 2021, was $1.8 million, $0.7 million, and $7.1 million, respectively.
Note 21: Segment Reporting
Webster’sThe Company’s operations are organized into three reportable segments that represent its primary businesses -businesses: Commercial Banking, HSA Bank, and CommunityConsumer Banking. These three segments reflect how executive management responsibilities are assigned, the primary businesses, the products and services provided,how discrete financial information is evaluated, the type of customer served, and how discrete financial information is currently evaluated. The Corporateproducts and services are provided. Certain Treasury unitactivities, including the operations of the Company,interLINK, along with the amounts required to reconcile profitability metrics to amountsthose reported in accordance with GAAP, are included in the Corporate and Reconciling category.
DescriptionIn connection with the acquisition of interLINK on January 11, 2023, the $143.2 million of goodwill recorded was allocated entirely to Commercial Banking. In addition, as previously discussed in Note 2: Mergers and Acquisitions and Note 8: Goodwill and Other Intangible Assets, the allocation of the purchase price for both the Sterling merger and Bend acquisition was final as of March 31, 2023. As a result, of the total $1.9 billion in goodwill recorded in connection with the Sterling merger, $1.7 billion and $0.2 billion was allocated to Commercial Banking and Consumer Banking, respectively. The $35.7 million of goodwill recorded in connection with the Bend acquisition was allocated entirely to HSA Bank.
Segment Reporting Methodology
Webster’s reportable segment results are intended to reflect each segment as if it were a stand-alone business. WebsterThe Company uses an internal profitability reporting system to generate information by operatingreportable segment, which is based on a series of management estimates for FTP, and allocations regarding funds transfer pricing,for non-interest expense, provision for loan and leasecredit losses, non-interest expense, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the reported results of any operatingreportable segment do not affect the consolidated financial position or results of operations of Websterthe Company as a whole. The full profitability measurement reports, which are prepared for each operatingreportable segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.
WebsterThe Company allocates interest income and interest expense to each business while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category, using athrough an internal matched maturity funding concept called Funds Transfer Pricing.FTP process. The goal of the FTP allocation is to encourage loan and deposit growth consistent with the Company’s overall profitability objectives. The FTP process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. The matched maturity funding conceptallocation considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. Loans are assigned anThe FTP process transfers the corporate interest rate for funds used and deposits are assigned an FTP rate for funds provided. This process is executed byrisk exposure to the Company’s Financial Planning and Analysis division and is overseen by ALCO.
Webster allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. Provision expense for certain elements of risk that are not deemed specifically attributable to a reportable segment, such as the provision for the consumer liquidating portfolio, is shown as part ofTreasury function included within the Corporate and Reconciling category.category where such exposures are centrally managed.
WebsterThe Company allocates a majority of non-interest expense to each reportable segment using a full-absorptionan activity and driver-based costing process. Costs, including corporate overhead,shared services and back-office support areas, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Income taxThe combination of direct revenue, direct expenses, FTP, and allocations of non-interest expense produces PPNR, which is allocatedthe basis the segments are reviewed by executive management. The Company also allocates the provision for credit losses to each reportable segment based on management's estimate of the consolidated effective income tax rate forexpected loss content in each of the period shown.
Segment Reporting Modifications
specific loan and lease portfolios. The 2016 segment results have been adjusted for comparability to the 2017 segment presentation for the following changes.
To further strengthen Webster's ability to deliver the totality of its productsACL on loans and services to the owners and executives of commercial clients and other high net worth individuals, an organizational change was made during the second quarter of 2017. Effective April 1, 2017, the head of Private Banking reports directly to the head of Commercial Banking. The current organizational structure reflects how executive management responsibilities are assigned and reviewed. As a result of this change, the Private Banking and Commercial Banking operating segments are aggregated into one reportable segment, Commercial Banking.
In late 2007 Webster discontinued its indirect residential construction lending and its indirect home equity lending outside of its primary New England market area referred to as National Wholesale Lending. Webster placed these two portfolios into a liquidating loan portfolioleases is included in total assets within the Corporate and Reconciling category. The balance of the home equity liquidating loan portfolio was $65.0 million at December 31, 2016. As the remainder of this portfolio has been performing in the same mannerBusiness development expenses, such as the continuing home equity portfolio, management has decided to combine the liquidating loan portfolio with the continuing home equity loan portfolio. The combined portfolio ismerger-related and strategic initiatives costs, are also generally included in the Community BankingCorporate and Reconciling category.
The following table presents balance sheet information, including the appropriate allocations, for the Company's reportable segment.
segments and the Corporate and Reconciling category: | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Goodwill | $ | 2,029,204 | | $ | 57,485 | | $ | 544,776 | | | $ | — | | $ | 2,631,465 | |
Total assets | 43,381,361 | | 122,421 | | 10,789,339 | | | 20,652,128 | | 74,945,249 | |
| | | | | | |
| At December 31, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Goodwill | $ | 1,904,291 | | $ | 57,779 | | $ | 552,034 | | | $ | — | | $ | 2,514,104 | |
Total assets | 44,380,582 | | 122,729 | | 10,625,334 | | | 16,148,876 | | 71,277,521 | |
The following tables present the operating results, including allthe appropriate allocations, for Webster’sthe Company’s reportable segments and the Corporate and Reconciling category:
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2023 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 1,537,031 | | $ | 302,856 | | $ | 798,483 | | | $ | (301,101) | | $ | 2,337,269 | |
Non-interest income | 132,660 | | 88,113 | | 107,456 | | | (13,892) | | 314,337 | |
Non-interest expense | 439,290 | | 168,160 | | 425,281 | | | 383,624 | | 1,416,355 | |
Pre-tax, pre-provision net revenue | 1,230,401 | | 222,809 | | 480,658 | | | (698,617) | | 1,235,251 | |
Provision for credit losses | 131,237 | | — | | 11,972 | | | 7,538 | | 150,747 | |
Income before income taxes | 1,099,164 | | 222,809 | | 468,686 | | | (706,155) | | 1,084,504 | |
Income tax expense | 246,212 | | 58,822 | | 118,108 | | | (206,478) | | 216,664 | |
Net income | $ | 852,952 | | $ | 163,987 | | $ | 350,578 | | | $ | (499,677) | | $ | 867,840 | |
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 1,346,384 | | $ | 218,149 | | $ | 720,789 | | | $ | (251,036) | | $ | 2,034,286 | |
Non-interest income | 171,437 | | 104,586 | | 119,691 | | | 45,069 | | 440,783 | |
Non-interest expense | 398,100 | | 151,329 | | 426,133 | | | 420,911 | | 1,396,473 | |
Pre-tax, pre-provision net revenue | 1,119,721 | | 171,406 | | 414,347 | | | (626,878) | | 1,078,596 | |
Provision (benefit) for credit losses | 276,550 | | — | | (3,754) | | | 7,823 | | 280,619 | |
Income before income taxes | 843,171 | | 171,406 | | 418,101 | | | (634,701) | | 797,977 | |
Income tax expense | 207,188 | | 45,937 | | 108,657 | | | (208,088) | | 153,694 | |
Net income | $ | 635,983 | | $ | 125,469 | | $ | 309,444 | | | $ | (426,613) | | $ | 644,283 | |
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 585,297 | | $ | 168,595 | | $ | 375,318 | | | $ | (228,121) | | $ | 901,089 | |
Non-interest income | 83,538 | | 102,814 | | 95,887 | | | 41,133 | | 323,372 | |
Non-interest expense | 192,977 | | 134,258 | | 297,217 | | | 120,648 | | 745,100 | |
Pre-tax, pre-provision net revenue | 475,858 | | 137,151 | | 173,988 | | | (307,636) | | 479,361 | |
(Benefit) for credit losses | (51,348) | | — | | (3,068) | | | (84) | | (54,500) | |
Income before income taxes | 527,206 | | 137,151 | | 177,056 | | | (307,552) | | 533,861 | |
Income tax expense | 134,965 | | 36,619 | | 42,139 | | | (88,726) | | 124,997 | |
Net income | $ | 392,241 | | $ | 100,532 | | $ | 134,917 | | | $ | (218,826) | | $ | 408,864 | |
|
| | | | | | | | | | | | | |
| Year ended December 31, 2017 |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Consolidated Total |
Net interest income (loss) | $ | 322,393 |
| $ | 383,700 |
| $ | 104,704 |
| $(14,510) | $ | 796,287 |
|
Provision (benefit) for loan and lease losses | 38,518 |
| 2,382 |
| — |
| — | 40,900 |
|
Net interest income (loss) after provision for loan and lease losses | 283,875 |
| 381,318 |
| 104,704 |
| (14,510) | 755,387 |
|
Non-interest income | 55,194 |
| 107,368 |
| 77,378 |
| 19,538 | 259,478 |
|
Non-interest expense | 154,037 |
| 373,081 |
| 113,143 |
| 20,814 | 661,075 |
|
Income (loss) before income tax expense | 185,032 |
| 115,605 |
| 68,939 |
| (15,786) | 353,790 |
|
Income tax expense (benefit) | 51,438 |
| 32,137 |
| 19,165 |
| (4,389) | 98,351 |
|
Net income (loss) | $ | 133,594 |
| $ | 83,468 |
| $ | 49,774 |
| $(11,397) | $ | 255,439 |
|
|
| | | | | | | | | | | | | | | |
| Year ended December 31, 2016 |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Consolidated Total |
Net interest income (loss) | $ | 287,596 |
| $ | 367,137 |
| $ | 81,451 |
| $ | (17,671 | ) | $ | 718,513 |
|
Provision (benefit) for loan and lease losses | 37,455 |
| 18,895 |
| — |
| — |
| 56,350 |
|
Net interest income (loss) after provision for loan and lease losses | 250,141 |
| 348,242 |
| 81,451 |
| (17,671 | ) | 662,163 |
|
Non-interest income | 57,253 |
| 110,197 |
| 71,710 |
| 25,318 |
| 264,478 |
|
Non-interest expense | 138,379 |
| 369,132 |
| 97,152 |
| 18,528 |
| 623,191 |
|
Income (loss) before income tax expense | 169,015 |
| 89,307 |
| 56,009 |
| (10,881 | ) | 303,450 |
|
Income tax expense (benefit) | 53,649 |
| 28,348 |
| 17,779 |
| (3,453 | ) | 96,323 |
|
Net income (loss) | $ | 115,366 |
| $ | 60,959 |
| $ | 38,230 |
| $ | (7,428 | ) | $ | 207,127 |
|
|
| | | | | | | | | | | | | | | |
| Year ended December 31, 2015 |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Consolidated Total |
Net interest income (loss) | $ | 266,085 |
| $ | 356,881 |
| $ | 73,433 |
| $ | (31,774 | ) | $ | 664,625 |
|
Provision (benefit) for loan and lease losses | 30,546 |
| 18,754 |
| — |
| — |
| 49,300 |
|
Net interest income (loss) after provision for loan and lease losses | 235,539 |
| 338,127 |
| 73,433 |
| (31,774 | ) | 615,325 |
|
Non-interest income | 46,967 |
| 108,647 |
| 62,475 |
| 19,688 |
| 237,777 |
|
Non-interest expense | 129,499 |
| 335,834 |
| 81,449 |
| 8,559 |
| 555,341 |
|
Income (loss) before income tax expense | 153,007 |
| 110,940 |
| 54,459 |
| (20,645 | ) | 297,761 |
|
Income tax expense (benefit) | 47,804 |
| 34,605 |
| 17,016 |
| (6,393 | ) | 93,032 |
|
Net income (loss) | $ | 105,203 |
| $ | 76,335 |
| $ | 37,443 |
| $ | (14,252 | ) | $ | 204,729 |
|
Note 22: Revenue from Contracts with CustomersThe following table presents total assetstables summarize revenues recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. These disaggregated amounts, together with sources of other non-interest income that are subject to other GAAP topics, have been reconciled to non-interest income by reportable segment as presented within Note 21: Segment Reporting.
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2023 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | | |
Deposit service fees | $ | 20,527 | | $ | 81,051 | | $ | 66,999 | | | $ | 741 | | $ | 169,318 | |
Loan and lease related fees (1) | 17,633 | | — | | — | | | — | | 17,633 | |
Wealth and investment services (2) | 11,543 | | — | | 17,478 | | | (22) | | 28,999 | |
Other | — | | 7,062 | | 6,199 | | | 4,193 | | 17,454 | |
Revenue from contracts with customers | 49,703 | | 88,113 | | 90,676 | | | 4,912 | | 233,404 | |
Other sources of non-interest income | 82,957 | | — | | 16,780 | | | (18,804) | | 80,933 | |
Total non-interest income | $ | 132,660 | | $ | 88,113 | | $ | 107,456 | | | $ | (13,892) | | $ | 314,337 | |
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | | |
Deposit service fees | $ | 27,663 | | $ | 97,654 | | $ | 71,353 | | | $ | 1,802 | | $ | 198,472 | |
Loan and lease related fees (1) | 21,498 | | — | | — | | | — | | 21,498 | |
Wealth and investment services | 11,350 | | — | | 28,957 | | | (30) | | 40,277 | |
Other | — | | 6,932 | | 1,493 | | | — | | 8,425 | |
Revenue from contracts with customers | 60,511 | | 104,586 | | 101,803 | | | 1,772 | | 268,672 | |
Other sources of non-interest income | 110,926 | | — | | 17,888 | | | 43,297 | | 172,111 | |
Total non-interest income | $ | 171,437 | | $ | 104,586 | | $ | 119,691 | | | $ | 45,069 | | $ | 440,783 | |
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | | |
Deposit service fees | $ | 16,933 | | $ | 94,844 | | $ | 50,561 | | | $ | 372 | | $ | 162,710 | |
Wealth and investment services | 12,152 | | — | | 27,471 | | | (37) | | 39,586 | |
Other | — | | 7,970 | | 2,140 | | | — | | 10,110 | |
Revenue from contracts with customers | 29,085 | | 102,814 | | 80,172 | | | 335 | | 212,406 | |
Other sources of non-interest income | 54,453 | | — | | 15,715 | | | 40,798 | | 110,966 | |
Total non-interest income | $ | 83,538 | | $ | 102,814 | | $ | 95,887 | | | $ | 41,133 | | $ | 323,372 | |
| | | | | | |
(1)A portion of loan and lease related fees comprises income generated from factored receivables and payroll financing activities that is within the scope of ASC Topic 606. These Commercial Banking revenue streams were new to the Company in 2022 due to the businesses acquired in connection with the Sterling merger.
(2)Effective as of the fourth quarter of 2022, the wealth and investment services revenue stream for Webster's reportable segmentsConsumer Banking was impacted by the restructuring of a process in which the Company offers brokerage, investment advisory, and certain insurance-related services to customers. The staff providing these services, who had previously been employees of the Bank, are now employees of a third-party service provider. As a result, the Company now recognizes income from this program on a net basis, which thereby reduces gross reported wealth and investment services non-interest income and the Corporaterelated compensation and Reconciling category:
|
| | | | | | | | | | | | | | | |
| Total Assets |
(In thousands) | Commercial Banking | Community Banking | HSA Bank | Corporate and Reconciling | Consolidated Total |
At December 31, 2017 | $ | 9,350,028 |
| $ | 8,909,671 |
| $ | 76,308 |
| $ | 8,151,638 |
| $ | 26,487,645 |
|
At December 31, 2016 | 9,069,445 |
| 8,721,046 |
| 83,987 |
| 8,198,051 |
| 26,072,529 |
|
Note 20: Commitments and Contingencies
Lease Commitments
Webster is obligated under various non-cancelable operating leases for properties used as banking centers and other office facilities. The leases contain renewal options and escalation clauses which provide for increased rentalbenefits non-interest expense or for equipment upgrades. Rental expense under the leases was $31.1 million, $30.4 million, and $21.5 million for the years ended December 31, 2017, 2016, and 2015, respectively, and is recorded as a component of occupancy expense inon the accompanying Consolidated Statements of Income.
Rental incomeContracts with customers did not generate significant contract assets and liabilities at December 31, 2023, or 2022.
Major Revenue Streams
Deposit service fees consist of fees earned from sub-leasescommercial and consumer customer deposit accounts, such as account maintenance and cash management/analysis fees, as well as other transactional service charges (i.e., insufficient funds, wire transfers, stop payment fees, etc.). Performance obligations for account maintenance services and cash management/analysis fees are satisfied on a monthly basis at a fixed transaction price, whereas performance obligations for other deposit service charges that result from various customer-initiated transactions are satisfied at a point-in-time when the service is rendered. Payment for deposit service fees is generally received immediately or in the following month through a direct charge to the customers' accounts. Certain commercial customer contracts include credit clauses, whereby the Company will grant credit upon the customer meeting pre-determined conditions, which can be used to offset fees. On occasion, the Company may also waive certain of these properties is nettedfees. Fee waivers are recognized as a component of occupancy expense, while rental income under various non-cancelable operating leasesreduction to revenue in the period the waiver is granted to the customer.
The deposit service fees revenue stream also includes interchange fees earned from debit and credit card transactions. The transaction price for properties ownedinterchange services is recorded asbased on the transaction value and the interchange rate set by the card network. Performance obligations for interchange fees are satisfied at a component of otherpoint-in-time when the cardholders' transaction is authorized and settled. Payment for interchange fees is generally received immediately or in the following month.
Factored receivables non-interest income in the accompanying Consolidated Statementsconsists of Income. Rental income was $0.7 million, $0.8 million, and $0.8 million for the years ended December 31, 2017, 2016, and 2015.
The following table summarizes future minimum rental payments and receipts under lease agreements:
|
| | | | | | | |
| At December 31, 2017 |
(In thousands) | Rental Payments | | Rental Receipts |
2018 | $ | 29,181 |
| | $ | 717 |
|
2019 | 28,035 |
| | 592 |
|
2020 | 26,254 |
| | 488 |
|
2021 | 24,552 |
| | 395 |
|
2022 | 20,885 |
| | 353 |
|
Thereafter | 77,541 |
| | 1,438 |
|
Total future minimum rental payments and receipts | $ | 206,448 |
| | $ | 3,983 |
|
Credit-Related Financial Instruments
fees earned from accounts receivable management services. The Company offers credit-related financial instruments,factors accounts receivable, with and without recourse, for customers whereby the Company purchases their accounts receivable at a discount and assumes the risk, as applicable, and ownership of the assets through direct cash receipt from the end consumer. Factoring services are performed in exchange for a non-refundable fee at a transaction price based on a percentage of the normal coursegross invoice amount of businesseach receivable purchased, subject to a minimum required amount. The performance obligation for factoring services is generally satisfied at a point-in-time when the receivable is assigned to the Company. However, should the commission earned not meet certain financing needsor exceed the minimum required annual amount, the difference between that and the actual amount is recognized at the end of its customers, that involve off-balance sheet risk. These transactionsthe contract term. Other fees associated with factoring receivables may include an unused commitment to extend credit, standby letter of credit, or commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.
The following table summarizeswire transfer and technology fees, field examination fees, and Uniform Commercial Code fees, where the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
|
| | | | | | | |
| At December 31, |
(In thousands) | 2017 | | 2016 |
Commitments to extend credit | $ | 5,567,687 |
| | $ | 5,224,280 |
|
Standby letter of credit | 195,902 |
| | 128,985 |
|
Commercial letter of credit | 43,200 |
| | 46,497 |
|
Total credit-related financial instruments with off-balance sheet risk | $ | 5,806,789 |
| | $ | 5,399,762 |
|
Commitments to Extend Credit. The Company makes commitments under various terms to lend funds to customersperformance obligations are satisfied at a future point in time. These commitments include revolving credit arrangements, term loan commitments,point-in-time when the services are rendered. Payment from the customer for factoring services is generally received immediately or within the following month.
Payroll finance non-interest income consists of fees earned from performing payroll financing and short-term borrowing agreements. Mostbusiness process outsourcing services, including full back-office technology and tax accounting services, along with payroll preparation, making payroll tax payments, invoice billings, and collections for independently-owned temporary staffing companies nationwide. Performance obligations for payroll finance and business processing activities are either satisfied upon completion of these loans have fixed expiration datesthe support services or other termination clauses where a fee may be required. Since commitments routinely expire without being funded, or after required availability of collateral occurs, the total commitment amount does not necessarily represent future liquidity requirements.
Standby Letter of Credit.A standby letter of credit commits the Company to make paymentsas payroll remittances are made on behalf of customers if certain specified future events occur.to fund their employee payroll, which generally occurs on a weekly basis. The Company has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit, which is often part of a larger credit agreement under which security is provided. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of a standby letter of credit represents the maximum amount of potential future payments the Company could be required to make, and is the Company's maximum credit risk.
Commercial Letter of Credit.A commercial letter of credit is issued to facilitate either domestic or foreign trade arrangements for customers. As a general rule, drafts are committed to be drawn when the goods underlying theagreed-upon transaction are in transit. Similar to a standby letter of credit, a commercial letter of credit is often secured by an underlying security agreement including the assets or inventory they relate to.
These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and therefore, management maintains a specific reserve for unfunded credit commitments. This reserve is reported as a component of accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.
The following table provides a summary of activity in the reserve for unfunded credit commitments:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Beginning balance | $ | 2,287 |
| | $ | 2,119 |
| | $ | 5,151 |
|
Provision (benefit) | 75 |
| | 168 |
| | (3,032 | ) |
Ending balance | $ | 2,362 |
| | $ | 2,287 |
| | $ | 2,119 |
|
The change in the provision is attributable to a benefit recorded in 2015. The benefit was the result of a change in a key assumption used in calculating expected incremental utilization of credit. The updated assumptionprice is based on a more detailed analysisfixed-percentage per the terms of customer behavior and performance in the months priorcontract, which could be subject to a charge-off, rather thanhold-back reserve to provide for any balances that are assessed to be at risk of collection. When the Company collects on amounts due from end consumers on behalf of its customers and at the time of financing payroll, the Company retains the agreed-upon transaction price payable for the performance of its services and remits an amount to the customer net of any advances and payroll tax withholdings, as applicable.
Wealth and investment services consist of fees earned from asset management, trust administration, and investment advisory services, and through facilitating securities transactions. Performance obligations for asset management and trust administration services are satisfied on a general overall utilization rate, which should result inmonthly or quarterly basis at a better estimate of potential loss on credit-related financial instruments.
Litigation
Webster is involved in routine legal proceedings occurring in the ordinary course of business and is subject to loss contingencies related to such litigation and claims arising therefrom. Webster evaluates these contingenciestransaction price based on information currently available, including advicea percentage of counselthe period-end market value of the assets under administration. Payment for asset management and assessmenttrust administration services is generally received a few days after period-end through a direct charge to the customers' accounts. Performance obligations for investment advisory services are satisfied over the period in which the services are provided through a time-based measurement of available insurance coverage. Webster establishes accruals for litigation and claims when a loss contingency is considered probableprogress, and the related amountagreed-upon transaction price with the customer varies depending on the nature of the services performed. Performance obligations for facilitating securities transactions are satisfied at a point-in-time when the securities are sold at a transaction price that is reasonably estimable. These accruals are periodically reviewedbased on a percentage of the contract value. Payment for both investment advisory services and facilitating securities transactions may be adjusted as circumstances change. Webster also estimates certain loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. Webster believes it has defenses to all the claims asserted against itreceived in existing litigation matters and intends to defend itself in all matters.
Based upon its current knowledge, after consultation with counsel and after taking into consideration its current litigation accruals, Webster believes that at December 31, 2017 any reasonably possible losses, in addition to amounts accrued, are not material to Webster’s consolidated financial condition. However, in lightadvance of the uncertainties involved in such actions and proceedings, thereservice, but generally is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts currently accrued by Websterreceived immediately or that the Company’s litigation accrual will not need to be adjusted in future periods. Such an outcome could be material to the Company’s operating results in a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s income for that period.
Note 21: Parent Company Information
Financial information for the Parent Company only is presented in the following tables:period, in arrears.
|
| | | | | | | |
Condensed Balance Sheets | | | |
| December 31, |
(In thousands) | 2017 | | 2016 |
Assets: | | | |
Cash and due from banks | $ | 181,085 |
| | $ | 152,947 |
|
Intercompany debt securities | 150,000 |
| | 150,000 |
|
Investment in subsidiaries | 2,585,955 |
| | 2,425,398 |
|
Alternative investments | 2,939 |
| | 4,275 |
|
Other assets | 13,252 |
| | 24,659 |
|
Total assets | $ | 2,933,231 |
| | $ | 2,757,279 |
|
Liabilities and shareholders’ equity: | | | |
Senior notes | $ | 148,447 |
| | $ | 148,194 |
|
Junior subordinated debt | 77,320 |
| | 77,320 |
|
Accrued interest payable | 2,616 |
| | 2,589 |
|
Due to subsidiaries | 575 |
| | 365 |
|
Other liabilities | 2,315 |
| | 1,799 |
|
Total liabilities | 231,273 |
| | 230,267 |
|
Shareholders’ equity | 2,701,958 |
| | 2,527,012 |
|
Total liabilities and shareholders’ equity | $ | 2,933,231 |
| | $ | 2,757,279 |
|
140
|
| | | | | | | | | | | |
Condensed Statements of Income | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Operating Income: | | | | | |
Dividend income from bank subsidiary | $ | 120,000 |
| | $ | 145,000 |
| | $ | 110,000 |
|
Interest on securities and deposits | 4,477 |
| | 1,911 |
| | 546 |
|
Loss on sale of investment securities | — |
| | (2,410 | ) | | — |
|
Alternative investments income | 1,504 |
| | 176 |
| | 2,274 |
|
Other non-interest income | 204 |
| | 7,485 |
| | 152 |
|
Total operating income | 126,185 |
| | 152,162 |
| | 112,972 |
|
Operating Expense: | | | | | |
Interest expense on borrowings | 10,380 |
| | 9,981 |
| | 9,665 |
|
Compensation and benefits | 12,425 |
| | 11,461 |
| | 10,965 |
|
Other non-interest expense | 10,583 |
| | 6,278 |
| | 6,005 |
|
Total operating expense | 33,388 |
| | 27,720 |
| | 26,635 |
|
Income before income tax benefit and equity in undistributed earnings of subsidiaries and associated companies | 92,797 |
| | 124,442 |
| | 86,337 |
|
Income tax benefit | 3,004 |
| | 3,086 |
| | 2,929 |
|
Equity in undistributed earnings of subsidiaries and associated companies | 159,638 |
| | 79,599 |
| | 115,463 |
|
Net income | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
|
| | | | | | | | | | | |
Condensed Statements of Comprehensive Income | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Net income | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
Other comprehensive income (loss), net of tax: | | | | | |
Net unrealized gains (losses) on available for sale securities | — |
| | 584 |
| | (2,109 | ) |
Net unrealized gains (losses) on derivative instruments | 1,216 |
| | 1,223 |
| | 1,223 |
|
Other comprehensive loss of subsidiaries and associated companies | (106 | ) | | (694 | ) | | (20,959 | ) |
Other comprehensive income (loss), net of tax | 1,110 |
| | 1,113 |
| | (21,845 | ) |
Comprehensive income | $ | 256,549 |
| | $ | 208,240 |
| | $ | 182,884 |
|
|
| | | | | | | | | | | |
Condensed Statements of Cash Flows | | | | | |
| Years ended December 31, |
(In thousands) | 2017 | | 2016 | | 2015 |
Operating activities: | | | | | |
Net income | $ | 255,439 |
| | $ | 207,127 |
| | $ | 204,729 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in undistributed earnings of subsidiaries and associated companies | (159,638 | ) | | (79,599 | ) | | (115,463 | ) |
Stock-based compensation | 12,276 |
| | 11,438 |
| | 10,935 |
|
Gain on redemption of other assets | — |
| | (7,331 | ) | | — |
|
Other, net | 7,880 |
| | (3,736 | ) | | 9,066 |
|
Net cash provided by operating activities | 115,957 |
| | 127,899 |
| | 109,267 |
|
Investing activities: | | | | | |
Proceeds from sale of available for sale securities | — |
| | 1,089 |
| | — |
|
Purchases of intercompany debt securities | — |
| | (150,000 | ) | | — |
|
Proceeds from the sale of other assets | 7,581 |
| | — |
| | — |
|
Net cash provided by (used for) investing activities | 7,581 |
| | (148,911 | ) | | — |
|
Financing activities: | | | | | |
Preferred stock issued | 145,056 |
| | — |
| | — |
|
Preferred stock redeemed | (122,710 | ) | | — |
| | — |
|
Cash dividends paid to common shareholders | (94,630 | ) | | (89,522 | ) | | (80,964 | ) |
Cash dividends paid to preferred shareholders | (8,096 | ) | | (8,096 | ) | | (8,711 | ) |
Exercise of stock options | 8,259 |
| | 11,762 |
| | 3,060 |
|
Excess tax benefits from stock-based compensation | — |
| | 3,204 |
| | 2,338 |
|
Common stock repurchased/shares acquired related to employee share-based plans | (23,279 | ) | | (22,870 | ) | | (17,815 | ) |
Common stock warrants repurchased | — |
| | (163 | ) | | (23 | ) |
Net cash used for financing activities | (95,400 | ) | | (105,685 | ) | | (102,115 | ) |
Increase (decrease) in cash and due from banks | 28,138 |
| | (126,697 | ) | | 7,152 |
|
Cash and due from banks at beginning of year | 152,947 |
| | 279,644 |
| | 272,492 |
|
Cash and due from banks at end of year | $ | 181,085 |
| | $ | 152,947 |
| | $ | 279,644 |
|
Note 22: Selected Quarterly Consolidated Financial Information (Unaudited)
|
| | | | | | | | | | | | | | | |
| 2017 |
(In thousands, except per share data) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Interest income | $ | 219,680 |
| | $ | 226,789 |
| | $ | 231,021 |
| | $ | 236,115 |
|
Interest expense | 27,016 |
| | 29,002 |
| | 30,117 |
| | 31,183 |
|
Net interest income | 192,664 |
| | 197,787 |
| | 200,904 |
| | 204,932 |
|
Provision for loan and lease losses | 10,500 |
| | 7,250 |
| | 10,150 |
| | 13,000 |
|
Non-interest income | 63,042 |
| | 64,551 |
| | 65,846 |
| | 66,039 |
|
Non-interest expense | 163,784 |
| | 164,419 |
| | 161,823 |
| | 171,049 |
|
Income before income tax expense | 81,422 |
| | 90,669 |
| | 94,777 |
| | 86,922 |
|
Income tax expense | 21,951 |
| | 29,090 |
| | 30,281 |
| | 17,029 |
|
Net income | $ | 59,471 |
| | $ | 61,579 |
| | $ | 64,496 |
| | $ | 69,893 |
|
| | | | | | | |
Earnings applicable to common shareholders | $ | 57,342 |
| | $ | 59,485 |
| | $ | 62,426 |
| | $ | 67,710 |
|
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.62 |
| | $ | 0.65 |
| | $ | 0.68 |
| | $ | 0.74 |
|
Diluted | 0.62 |
| | 0.64 |
| | 0.67 |
| | 0.73 |
|
|
| | | | | | | | | | | | | | | |
| 2016 |
(In thousands, except per share data) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Interest income | $ | 202,335 |
| | $ | 202,431 |
| | $ | 205,715 |
| | $ | 211,432 |
|
Interest expense | 26,183 |
| | 25,526 |
| | 25,518 |
| | 26,173 |
|
Net interest income | 176,152 |
| | 176,905 |
| | 180,197 |
| | 185,259 |
|
Provision for loan and lease losses | 15,600 |
| | 14,000 |
| | 14,250 |
| | 12,500 |
|
Non-interest income | 62,374 |
| | 65,075 |
| | 66,412 |
| | 70,617 |
|
Non-interest expense | 152,445 |
| | 152,778 |
| | 156,097 |
| | 161,871 |
|
Income before income tax expense | 70,481 |
| | 75,202 |
| | 76,262 |
| | 81,505 |
|
Income tax expense | 23,434 |
| | 24,599 |
| | 24,445 |
| | 23,845 |
|
Net income | $ | 47,047 |
| | $ | 50,603 |
| | $ | 51,817 |
| | $ | 57,660 |
|
| | | | | | | |
Earnings applicable to common shareholders | $ | 44,921 |
| | $ | 48,398 |
| | $ | 49,634 |
| | $ | 55,501 |
|
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.49 |
| | $ | 0.53 |
| | $ | 0.54 |
| | $ | 0.61 |
|
Diluted | 0.49 |
| | 0.53 |
| | 0.54 |
| | 0.60 |
|
Note 23: Subsequent EventsCommitments and Contingencies
Credit-Related Financial Instruments
In the normal course of business, the Company offers financial instruments with off-balance sheet risk to meet the financing needs of its customers. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of credit, which involve, to varying degrees, elements of credit risk.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk: | | | | | | | | | | | |
| At December 31, |
(In thousands) | 2023 | | 2022 |
Commitments to extend credit | $ | 12,026,597 | | | $ | 11,237,496 | |
Standby letters of credit | 482,462 | | | 380,655 | |
Commercial letters of credit | 54,382 | | | 53,512 | |
Total credit-related financial instruments with off-balance sheet risk | $ | 12,563,441 | | | $ | 11,671,663 | |
The Company enters into contractual commitments to extend credit to its customers (i.e., revolving credit arrangements, term loan commitments, and short-term borrowing agreements), generally with fixed expiration dates or other termination clauses and that require payment of a fee. Substantially all of the Company's commitments to extend credit are contingent upon its customers maintaining specific credit standards at the time of loan funding, and are often secured by real estate collateral. Since the majority of the Company's commitments typically expire without being funded, the total contractual amount does not necessarily represent the Company's future payment requirements.
Standby letters of credit are written conditional commitments issued by the Company to guarantee its customers' performance to a third party. In the event the customer does not perform in accordance with the terms of its agreement with a third-party, the Company would be required to fund the commitment. The contractual amount of each standby letter of credit represents the maximum amount of potential future payments the Company could be required to make. Historically, the majority of the Company's standby letters of credit expire without being funded. However, if the commitment were funded, the Company has recourse against the customer. The Company's standby letter of credit agreements are often secured by cash or other collateral.
Commercial letters of credit are issued to finance either domestic or foreign customer trade arrangements. As a general rule, drafts are committed to be drawn when the goods underlying the transaction are in transit. Similar to standby letters of credit, the Company's commercial letter of credit agreements are often secured by the underlying goods subject to trade.
Allowance for Credit Losses on Unfunded Loan Commitments
An ACL is recorded under the CECL methodology and included in Accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets to provide for the unused portion of commitments to lend that are not unconditionally cancellable by the Company. At December 31, 2023, and 2022, the ACL on unfunded loan commitments totaled $24.7 million and $27.7 million, respectively.Litigation The Company is subject to certain legal proceedings and unasserted claims and assessments in the ordinary course of business. Legal contingencies are evaluated based on information currently available, including advice of counsel and assessment of available insurance coverage. The Company establishes an accrual for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Once established, each accrual is adjusted to reflect any subsequent developments. Legal contingencies are subject to inherent uncertainties, and unfavorable rulings may occur that could cause the Company to either adjust its litigation accrual or incur actual losses that exceed the current estimate, which ultimately could have a material adverse effect, either individually or in the aggregate, on its business, financial condition, or operating results. The Company will consider settlement of cases when it is in the best interests of the Company and its stakeholders. The Company intends to defend itself in all claims asserted against it, and management currently believes that the outcome of these contingencies will not be material, either individually or in the aggregate, to the Company or its consolidated financial position.
Federal Deposit Insurance Corporation Special Assessment
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses incurred by protecting uninsured depositors of Silicon Valley Bank and Signature Bank upon their failure in March 2023. The final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits balance reported as of December 31, 2022. The special assessment is to be collected for an anticipated total of eight quarterly assessment periods beginning with the first quarter of 2024, which has evaluated events from thea payment date of June 28, 2024. Based on the Consolidated Financial Statementsfinal rule, the Company estimates that its special assessment charge is approximately $47.2 million. However, the FDIC retains the right to cease collection early, extend the special assessment collection period, and accompanying Notes thereto, December 31, 2017, throughimpose a final shortfall special assessment if actual losses exceed the issuance of this Annual Report on Form 10-K and determined that no significant events were identified requiring recognition or disclosure.
amounts collected.
Note 24: Parent Company Financial Information
The following tables summarize condensed financial information for the Parent Company only:
| | | | | | | | | | | |
CONDENSED BALANCE SHEETS | | | |
| December 31, |
(In thousands) | 2023 | | 2022 |
Assets: | | | |
Cash and due from banks | $ | 406,754 | | | $ | 305,331 | |
| | | |
Intercompany debt securities | 150,000 | | | 150,000 | |
Investment in subsidiaries | 9,131,026 | | | 8,631,202 | |
| | | |
Alternative investments | 59,015 | | | 46,349 | |
Other assets | 13,314 | | | 13,358 | |
Total assets | $ | 9,760,109 | | | $ | 9,146,240 | |
Liabilities and stockholders’ equity: | | | |
Senior notes | $ | 458,698 | | | $ | 480,878 | |
Subordinated notes | 512,802 | | | 514,930 | |
Junior subordinated debt | 77,320 | | | 77,320 | |
Accrued interest payable | 12,693 | | | 7,457 | |
Due to subsidiaries | 477 | | | 3,858 | |
Other liabilities | 8,123 | | | 5,611 | |
Total liabilities | 1,070,113 | | | 1,090,054 | |
Stockholders’ equity | 8,689,996 | | | 8,056,186 | |
Total liabilities and stockholders’ equity | $ | 9,760,109 | | | $ | 9,146,240 | |
| | | | | | | | | | | | | | | | | |
CONDENSED STATEMENTS OF INCOME | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Income: | | | | | |
Dividend income from bank subsidiary | $ | 600,000 | | | $ | 475,000 | | | $ | 200,000 | |
Interest income on securities and interest-bearing deposits | 11,259 | | | 5,955 | | | 3,444 | |
| | | | | |
Alternative investments income | 1,272 | | | 6,416 | | | 13,033 | |
Other non-interest income | 908 | | | 112 | | | 75 | |
Total income | 613,439 | | | 487,483 | | | 216,552 | |
Expense: | | | | | |
Interest expense on borrowings | 37,933 | | | 34,284 | | | 16,876 | |
Merger-related expenses | 2,111 | | | 40,314 | | | 16,266 | |
Other non-interest expense | 31,600 | | | 22,592 | | | 15,921 | |
Total expense | 71,644 | | | 97,190 | | | 49,063 | |
Income before income taxes and equity in undistributed earnings of subsidiaries | 541,795 | | | 390,293 | | | 167,489 | |
Income tax benefit | 15,106 | | | 20,799 | | | 3,121 | |
Equity in undistributed earnings of subsidiaries | 310,939 | | | 233,191 | | | 238,254 | |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
| | | | | | | | | | | | | | | | | |
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Other comprehensive income (loss), net of tax: | | | | | |
| | | | | |
Derivative instruments | 229 | | | 226 | | | 226 | |
Other comprehensive income (loss) of subsidiaries | 134,160 | | | (662,606) | | | (65,062) | |
Other comprehensive income (loss), net of tax | 134,389 | | | (662,380) | | | (64,836) | |
Comprehensive income (loss) | $ | 1,002,229 | | | $ | (18,097) | | | $ | 344,028 | |
| | | | | | | | | | | | | | | | | |
CONDENSED STATEMENTS OF CASH FLOWS | | | | | |
| Years ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Operating activities: | | | | | |
Net income | $ | 867,840 | | | $ | 644,283 | | | $ | 408,864 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in undistributed earnings of subsidiaries | (310,939) | | | (233,191) | | | (238,254) | |
| | | | | |
| | | | | |
Common stock contribution to charitable foundation | — | | | 10,500 | | | — | |
| | | | | |
Other, net | (8,312) | | | (2,853) | | | 3,562 | |
Net cash provided by operating activities | 548,589 | | | 418,739 | | | 174,172 | |
Investing activities: | | | | | |
Alternative investments (capital call), net of distributions | (13,070) | | | (16,292) | | | (6,304) | |
Net cash received in business combination | — | | | 193,238 | | | — | |
| | | | | |
Net cash (used in) provided by investing activities | (13,070) | | | 176,946 | | | (6,304) | |
Financing activities: | | | | | |
| | | | | |
Repayment of long-term debt | (16,752) | | | — | | | — | |
| | | | | |
| | | | | |
Dividends paid to common stockholders | (278,155) | | | (247,767) | | | (145,223) | |
Dividends paid to preferred stockholders | (16,650) | | | (13,725) | | | (7,875) | |
Exercise of stock options | 1,723 | | | 703 | | | 3,492 | |
| | | | | |
Common stock repurchase program | (107,984) | | | (322,103) | | | — | |
Common shares acquired related to stock compensation plan activity | (16,278) | | | (23,655) | | | (4,384) | |
| | | | | |
Net cash (used in) financing activities | (434,096) | | | (606,547) | | | (153,990) | |
| | | | | |
Net increase (decrease) in cash and cash equivalents | 101,423 | | | (10,862) | | | 13,878 | |
Cash and cash equivalents, beginning of period | 305,331 | | | 316,193 | | | 302,315 | |
Cash and cash equivalents, at end of period | $ | 406,754 | | | $ | 305,331 | | | $ | 316,193 | |
Note 25: Subsequent Events
On January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology platform, for $350 million in cash, subject to customary adjustments. The Company believes that the acquisition will provide a fast-growing source of low-cost and long-duration deposits, new sources of non-interest income, and enhance its employee benefit and healthcare financial services expertise.
The transaction will be accounted for as a business combination, and the assets acquired and liabilities assumed from Ametros will be recorded at fair value as of the acquisition date. Given the proximity between the transaction close date and the Company's Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been completed. Management expects to complete the purchase price allocation later on in the first quarter of 2024.
On February 12, 2024, the Bank closed on the sale of its mortgage servicing portfolio, as previously discussed in Note 5: Transfers and Servicing of Financial Assets. The Company received cash proceeds of $18.6 million and recognized a gain on sale of $11.9 million in non-interest income.
On February 15, 2024, the Company repaid the $132.6 million principal balance due on its 4.375% senior fixed-rate notes.
In the first quarter of 2024, through the date of issuance of this Annual Report on Form 10-K, the Company sold Municipal bonds and notes classified as available-for-sale for proceeds of $281.3 million, resulting in net realized losses of $11.3 million.
The Company has evaluated subsequent events from the date of the Consolidated Financial Statements, and accompanying Notes thereto, through the date of issuance, and determined that, other than the above, there were no other significant events identified requiring recognition or disclosure.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
UnderOur management, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer the Company has(who is our principal financial officer), evaluated the effectiveness of the design and operation of Webster’sour disclosure controls and procedures, (asas defined in Rule 13a-15(e) and 15d-15(e) underof the Securities Exchange Act of 1934, as amended)amended (the "Exchange Act"), as of December 31, 2023. The term "disclosure controls and procedures" means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the end ofreports that it files or submits under the period coveredExchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by this report. a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based uponon that evaluation, management, including theour Chief Executive Officer and Chief Financial Officer concluded that Webster’sas of December 31, 2023, our disclosure controls and procedures were effective as of the end of the period covered by this report.effective.
Internal Control over Financial Reporting
Webster’s management has issued a report on its assessment of the effectiveness of Webster’s internal control over financial reporting as of December 31, 2017.
Webster’s independent registered public accounting firm has issued a report on the effectiveness of Webster’s internal control over financial reporting as of December 31, 2017. The report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
During the year ended December 31, 2016, management identified a material weakness resulting from the aggregation of control deficiencies in management’s review of the allowance for loan loss model including certain process level controls preventing unapproved changes in modeling assumptions as well as the precision of management’s review over the valuation of allowance for loan and lease losses balance. This material weakness did not result in any misstatement of the Company’s consolidated financial statements for any period presented.
To remediate the material weakness described above, we designed and implemented controls ensuring the review of all modeling assumptions as well as enhanced the design of management’s review over the valuation of allowance for loan and lease losses balance. During the fourth quarter of fiscal 2017, we successfully completed the testing necessary to conclude that the controls were appropriately designed and operating effectively and have concluded that the material weakness has been remediated.
Except for the changes referenced in the prior paragraph, there were no changes made in Webster’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The reports of Webster’s management and of Webster’s independent registered public accounting firm follow.
Management’sManagement's Report on Internal Control overOver Financial Reporting
TheOur management of Webster Financial Corporation and its Subsidiaries ("Webster" or the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule13a-15(f)Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)Act). Our internalInternal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officera company’s principal executive and Chief Financial Officerprincipal financial officers, or persons performing similar functions, and effected by a company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.GAAP. It includes those policies and procedures that:
A material weakness is defined1.pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company;
2.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of a deficiency,company are being made only in accordance with authorizations of management and directors of the company; and
3.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a combination of deficiencies, in internal control over financial reporting, suchcompany's assets that there is a reasonable possibility thatcould have a material misstatementeffect on the financial statements.
Our management conducted an assessment, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer under the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management assessedoversight of our Board of Directors, of the effectiveness of the Company'sour internal control over financial reporting as of December 31, 20172023, based on criteria established in Internal Control-IntegratedControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment,evaluation, our management concluded that the Company'sour internal control over financial reporting was effective at December 31, 2023.
Remediation
As disclosed in Part II - Item 9A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, management identified material weaknesses in internal control over financial reporting related to certain general information technology controls specific to logical access during the fourth quarter of 2022.
Throughout the year ended December 31, 2023, our management executed upon its previously disclosed remediation plan, which included: (i) designing and implementing controls related to deprovisioning, privileged access, and user access reviews, (ii) developing an enhanced risk assessment process to evaluate logical access, and (iii) improving the existing training program associated with control design and implementation.
Our management completed testing of the implemented controls during the quarter ended December 31, 2023, and found them to be operating effectively. As a result, management has concluded that the material weaknesses in internal control over financial reporting have been remediated as of December 31, 2017.2023.
Changes in Internal Control Over Financial Reporting
Other than the remediation of the material weaknesses described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Because of its inherent limitations, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Attestation Report of Independent Registered Public Accounting Firm
The Company's independent registered public accounting firm, that audited the consolidated financial statements of the Corporation included in this Annual Report on Form 10-K,KPMG LLP, has issued an attestation reportunqualified opinion on the effectiveness of the Corporation'sCompany's internal control over financial reporting as of December 31, 2017. The report,2023, which expresses an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2017, is includedappears below under the heading Report"Report of Independent Registered Public Accounting Firm.
"
Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors
Webster Financial Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Webster Financial Corporation and subsidiaries’subsidiaries' (the "Company")Company) internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control ‑– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control ‑– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB), the consolidated balance sheets of the Company as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, shareholders'stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2018February 27, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal controlscontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
Hartford, Connecticut
March 1, 2018
February 27, 2024
ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408 of Regulation S-K.
Jack Kopnisky, our former Executive Chairman, who retired on January 31, 2024, entered into a 10b5-1 trading arrangement with a brokerage firm, intended to satisfy the affirmative defense of Rule 10b5-1(c), on May 2, 2023 for trades over a period of time from August 1, 2023 until July 31, 2024, or when 120,000 shares of Webster common stock are sold.
Following the end of our most recent fiscal quarter, John Ciulla, our Chairman and Chief Executive Officer, entered into a 10b5-1 trading arrangement with a brokerage firm, intended to satisfy the affirmative defense of Rule 10b5-1(c), on February 13, 2024 for trades over a period of time from May 20, 2024 until May 20, 2025, or such earlier time as when 32,000 shares of Webster common stock are sold.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicableapplicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Registrant
|
| | |
Name | Age at December 31, 2017 | Positions Held |
John R. Ciulla | 52 | President, Chief Executive Officer and Director |
Glenn I. MacInnes | 56 | Executive Vice President and Chief Financial Officer |
Daniel H. Bley | 49 | Executive Vice President and Chief Risk Officer |
Colin D. Eccles | 59 | Executive Vice President and Chief Information Officer |
Bernard M. Garrigues | 59 | Executive Vice President and Chief Human Resources Officer |
Nitin J. Mhatre | 47 | Executive Vice President, Community Banking |
Dawn C. Morris | 50 | Executive Vice President and Chief Marketing Officer |
Christopher J. Motl | 47 | Executive Vice President, Commercial Banking |
Brian R. Runkle | 49 | Executive Vice President, Bank Operations |
Charles L. Wilkins | 56 | Executive Vice President, HSA Bank |
Harriet Munrett Wolfe | 64 | Executive Vice President, General Counsel and Secretary |
Albert J. Wang | 42 | Chief Accounting Officer |
Webster’s executive officers are each appointed to serve for a one-year period. Information concerning their principal occupation during at least the last five years is set forth below.
John R. Ciulla is President and Chief Executive Officer and a director of Webster Financial Corporation and Webster Bank. He was appointed as Chief Executive Officer and a director of Webster Financial Corporation in January 2018. Mr. Ciulla joined Webster in 2004 and has served in a variety of management positions at theThe Company including Chief Credit Risk Officer and Senior Vice President, Commercial Banking, where he was responsible for several business units. He was promoted from Executive Vice President and Head of Middle Market Banking to lead Commercial Banking in January 2014 and to President in October 2015. Prior to joining Webster, Mr. Ciulla was Managing Director of The Bank of New York, where he worked from 1997 to 2004. He serves on the board of the Connecticut Business and Industry Association and is the immediate past chairman. Mr. Ciulla is also a member of the board of the Business Council of Fairfield County.
Glenn I. MacInnes is Executive Vice President and Chief Financial Officer of Webster Financial Corporation and Webster Bank. He joined Webster in May 2011. Prior to joining Webster, Mr. MacInnes was Chief Financial Officer at New Alliance Bancshares for two years and was employed for 11 years at Citigroup in a series of senior positions, including deputy CFO for Citibank North America and CFO of Citibank (West) FSB. Mr. MacInnes serves on the Board of Wellmore Behavioral Health, Inc.
Daniel H. Bley is Executive Vice President and Chief Risk Officer of Webster Financial Corporation and Webster Bank since August 2010. Prior to joining Webster, Mr. Bley worked at ABN AMRO and Royal Bank of Scotland from 1990 to 2010, having served as Managing Director of Financial Institutions Credit Risk and Group Senior Vice President, Head of Financial Institutions and Trading Credit Risk Management. Mr. Bley currently serves on the Board of Directors of Junior Achievement of Western Connecticut.
Colin D. Eccles is Executive Vice President and Chief Information Officer of Webster Financial Corporation and Webster Bank. He joined Webster in January 2013. Prior to joining Webster, Mr. Eccles served as CIO for Umpqua Holdings in Portland, OR. Before that, he worked for Washington Mutual Bank from 2002 to 2009 and was the CIO for the Retail Bank. He worked for Hogan Systems in Dallas, TX from 1994 to 2002.
Bernard M. Garrigues is Executive Vice President and Chief Human Resources Officer of Webster Financial Corporation and Webster Bank. Mr. Garrigues joined Webster in April 2014. Prior to joining Webster, Mr. Garrigues was with TIMEX Group in Middlebury, CT, where he was the Chief Human Resources Officer having comprehensive global HR responsibility for several thousand employees in 22 countries. Previously, he worked 21 years for General Electric where he served as global head of HR with a number of GE businesses, including GE Commercial Finance, GE Capital Real Estate, GE Capital IT Solutions and Healthcare in both the United States and Europe. Mr. Garrigues is Six Sigma Green Belt certified, a published author, and a seasoned guest lecturer.
Nitin J. Mhatre is Executive Vice President, Head of Community Banking of Webster Financial Corporation and Webster Bank. He joined Webster in October 2008 as Executive Vice President, Consumer Lending of Webster Bank and was appointed Executive Vice President, Consumer Finance in January 2009. He was promoted to his current position in August 2013. Prior to joining Webster, Mr. Mhatre worked at Citigroup across multiple geographies including St. Louis, MO, Stamford, CT, Guam, USA, and India, in various capacities. In his most recent position, he was Managing Director for the Home Equity Retail business for CitiMortgage based in Stamford, CT. Mr. Mhatre is a board member of Consumer Bankers Association headquartered in Washington, D.C., and also serves on the board of Junior Achievement of Southwest New England.
Dawn C. Morris is Executive Vice President, Chief Marketing Officer of Webster Financial Corporation and Webster Bank. She joined Webster in March 2014. Prior to joining Webster, Ms. Morris was with Citizens Bank in Dedham, MA, where she served in a variety of roles, including head of customer segment management, product and segment marketing, and business banking product management. Earlier in her career, Ms. Morris worked in a number of business line and marketing roles at RBC Bank in North Carolina. Ms. Morris serves as co-chair with Governor Dannel Malloy on the Governor’s Prevention Partnership, and serves on the boards of The Hartford Stage, Marketing EDGE, and the Girl Scouts of Connecticut.
Christopher J. Motl is Executive Vice President, Head of Commercial Banking of Webster Financial Corporation and Webster Bank. He joined Webster in 2004 and was responsible for establishing and growing the Sponsor and Specialty Banking Group and was most recently Executive Vice President and Director of Middle Market Banking. Prior to joining Webster, Mr. Motl worked at CoBank, where he was Vice President and Relationship Manager. Mr. Motl is on the board of Special Olympics of Connecticut and the Travelers Championship.
Brian R. Runkle is Executive Vice President of Bank Operations of Webster Financial Corporation and Webster Bank. Mr. Runkle joined Webster in 2016. Prior to joining Webster, Mr. Runkle served in several leadership roles at General Electric across the country, including Managing Director, Risk for GE Capital. He is Six Sigma Master Black Belt certified. Mr. Runkle was a volunteer team leader and campaign member for United Way in Connecticut.
Charles L. Wilkins is Executive Vice President of Webster Bank and Head of HSA Bank. He joined Webster in January 2014. Prior to joining Webster, he was president of his own consulting practice, specializing in healthcare and financial services, from 2012 to 2013. Prior to this, Mr. Wilkins was General Manager and Chief Executive Officer of OptumHealth Financial Services, a division of UnitedHealth Group in Minnesota from 2007 to 2012. He is on the Executive Committee for the American Heart Association's Greater Milwaukee Heart and Stroke Walk/5K Run and an active volunteer with the American Diabetes Foundation.
Harriet Munrett Wolfe is Executive Vice President, General Counsel and Corporate Secretary of Webster Financial Corporation and Webster Bank. She joined Webster in March 1997 as Senior Vice President and Counsel, was appointed Secretary in June 1997, and General Counsel in September 1999. In January 2003, she was appointed Executive Vice President. Prior to this, Ms. Wolfe was in private practice. Ms. Wolfe serves as a board member of the University of Connecticut Foundation, Inc., and as a member of the Foundation's Executive Committee, Audit Committee, and Chair of the Real Estate Committee.
Albert J. Wang is Chief Accounting Officer of Webster Financial Corporation and Webster Bank. He joined Webster in September 2017, and he oversees corporate accounting functions including corporate tax, regulatory reporting, and accounting policy. Prior to joining Webster, Mr. Wang served as Executive Vice President and Chief Accounting Officer of Banc of California. Earlier in his career, he held positions of increasing responsibility at Santander Bank, N.A., most recently as Senior Vice President and Chief Accounting Officer, and at PricewaterhouseCoopers LLP. Mr. Wang is a Certified Public Accountant.
Corporate Governance
Webster has adopted a Code of Business Conduct and Ethics Policy that applies to all directors, officers, and employees, including theits principal executive officers,officer, principal financial officer, and principal accounting officer. The Company has also adopted corporate governance guidelinesa Corporate Governance Policy and chartersa charter for each of the Board of Directors' standing committees, which includes an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Executive,Committee. The Company's Code of Conduct and Risk Committees of the Board of Directors. The corporate governance guidelinesEthics Policy, Corporate Governance Policy, and the charters offor the Audit, Compensation, and Nominating and Corporate Governance Committees can be found onwithin the Company'sinvestor relations section of its internet website (www.websterbank.com)
(http://investors.websterbank.com).
A printed copy of any of these documents maycan be obtained, without charge, directly from the Company at the following address:
Webster Financial Corporation
145 Bank200 Elm Street
Waterbury,Stamford, Connecticut 0670206902
Attn: Investor Relations
Telephone: (203) 578-2202
AdditionalInformation regarding directors and executive officers, and additional information required under this item mayregarding corporate governance, will be foundset forth in the Proxy Statement, including under the sections captioned "Information as"Election of Directors," "Board Meetings, Committees of the Board and Related Matters," "Executive Officers," and "Delinquent Section 16(a) Reports" (if required to Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in thebe included), which are incorporated herein by reference. The Proxy Statement which willis required to be filed with the Securities and Exchange CommissionSEC no later than 120 days after the close of the fiscal year ended December 31, 2017, and is incorporated herein by reference.2023.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation of executive officers and directors is omitted from this report and maywill be foundset forth in the Proxy Statement, including under the sections captioned "Compensation Discussion and Analysis" and "Compensation of Directors," "Executive Officers," "Compensation of Named Executive Officers," and the information included therein is"Compensation Discussion and Analysis," which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Stock-Based Compensation Plans
Information regarding stock-based compensation plans assecurity ownership of December 31, 2017, is presented in the table below:
|
| | | | | | | | | |
Plan Category | Number of Shares to be Issued Upon Exercise of Outstanding Awards | | Weighted- Average Exercise Price of Outstanding Awards | | Number of Shares Available for Future Grants |
Plans approved by shareholders | 673,039 |
| | $ | 18.75 |
| | 2,626,866 |
|
Plans not approved by shareholders | — |
| | — |
| | — |
|
Total | 673,039 |
| | $ | 18.75 |
| | 2,626,866 |
|
Further information required by this Item is omitted herewithcertain beneficial owners and maymanagement and related stockholder matters can be found under the sections captioned "Stock Owned by Management" and "Principal Holders of Voting Securities of Webster" in the Proxy Statement and such information included therein is incorporated herein by reference. Additional information is presented inwithin Note 18:20: Share-Based Plans in the Notes to Consolidated Financial Statements contained elsewhere in Part II - Item 8. Financial Statements and Supplementary Data of this report.report, and will be set forth in the Proxy Statement, including under the section captioned "Security Ownership of Certain Beneficial Owners and Management," which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director independence is omitted from this report and maywill be foundset forth in the Proxy Statement, including under the sections captioned "Certain Relationships," "Compensation Committee Interlocks and Insider Participation"Participation," "Transactions with Related Persons," "Policies and "Corporate Governance" inProcedures Regarding Transactions with Related Persons," "Director Independence," and "Current Board Composition, Diversity and Refreshment," and "Committees of the Proxy Statement and the information included therein isBoard," which are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountingaccountant fees and services is omitted from this report and maywill be foundset forth in the Proxy Statement, including under the section captioned "Auditor Fee Information" in the Proxy Statement and the information included thereinRatification," which is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
The Company’s Consolidated Financial Statements, and the accompanying Notes thereto, and the Report of Independent Registered Public Accounting Firm thereon, are included in Part II - Item 8. Financial Statements and Supplementary Data.
Financial Statement Schedules
All financial statement schedules for the Company have been included in the Consolidated Financial Statements, and the accompanying Notes thereto, or are either inapplicable or not required, and therefore, have been omitted.
Exhibits
A list of exhibits to this Form 10-K is set forth below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Exhibit Included | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
2 | | | | | | 8-K | | 2.1 | | 4/23/2021 |
3 | | Certificate of Incorporation and Bylaws | | | | | | | | |
3.1 | | | | | | 10-Q | | 3.1 | | 8/9/2016 |
3.2.1 | | | | | | 8-K | | 3.1 | | 4/28/2023 |
3.2.2 | | | | | | 8-K | | 3.2 | | 2/1/2022 |
3.3 | | | | | | 8-K | | 3.1 | | 6/11/2008 |
3.4 | | | | | | 8-K | | 3.1 | | 11/24/2008 |
3.5 | | | | | | 8-K | | 3.1 | | 7/31/2009 |
3.6 | | | | | | 8-K | | 3.2 | | 7/31/2009 |
3.7 | | | | | | 8-A12B | | 3.3 | | 12/4/2012 |
3.8 | | | | | | 8-A12B | | 3.3 | | 12/12/2017 |
3.9 | | | | | | 8-A12B | | 3.4 | | 2/1/2022 |
3.10 | | | | | | 8-K | | 3.1 | | 3/17/2020 |
3.11 | | | | | | 8-K | | 3.5 | | 2/1/2022 |
4 | | Instruments Defining the Rights of Security Holders | | | | | | | | |
4.1 | | | | | | 10-K | | 4.1 | | 2/25/2022 |
4.2 | | | | | | 10-K | | 4.1 | | 3/10/2006 |
4.3 | | | | | | 10-K | | 10.41 | | 3/27/1997 |
4.4 | | | | | | 8-K | | 4.1 | | 12/12/2017 |
4.5.1 | | | | | | 8-K | | 4.1 | | 2/1/2022 |
4.5.2 | | | | | | 8-K | | 4.2 | | 2/1/2022 |
4.5.3 | | | | | | 8-K | | 4.3 | | 2/1/2022 |
4.6 | | | | | | 8-K | | 4.4 | | 2/1/2022 |
4.7 | | | | | | 8-K | | 4.1 | | 2/11/2014 |
4.8 | | | | | | 8-K | | 4.2 | | 2/11/2014 |
4.9 | | | | | | 8-A12B | | 4.3 | | 12/12/2017 |
4.10 | | | | | | 8-K | | 4.1 | | 3/25/2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Exhibit Included | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
4.11 | | | | | | 8-K | | 4.2 | | 3/25/2019 |
4.12 | | | | | | 10-Q | | 4 | | 5/6/2021 |
10 | | Material Contracts (1) | | | | | | | | |
10.1 | | | | X | | | | | | |
10.2 | | | | | | 8-K | | 10.2 | | 12/21/2007 |
10.3 | | | | | | 8-K | | 10.3 | | 12/21/2007 |
10.4 | | | | | | 10-K | | 10.4 | | 3/10/2023 |
10.5 | | | | | | 10-K | | 10.5 | | 3/10/2023 |
10.6 | | | | | | 8-K | | 10.1 | | 10/26/2007 |
10.7 | | | | | | 8-K | | 10.1 | | 12/21/2007 |
10.8 | | | | | | 10-Q | | 10.1 | | 5/7/2019 |
10.9 | | | | | | 10-K | | 10.26 | | 2/25/2022 |
10.10 | | | | X | | | | | | |
10.11 | | | | | | 10-K | | 10.20 | | 3/1/2017 |
10.12 | | | | | | 8-K | | 10.2 | | 2/1/2022 |
10.13 | | | | | | 10-Q | | 10.1 | | 5/5/2017 |
10.14 | | | | | | 10-K | | 10.13 | | 2/28/2013 |
10.15 | | | | | | 10-K | | 10.13 | | 2/28/2014 |
10.16 | | | | | | 10-Q | | 10.5 | | 5/5/2017 |
10.17 | | | | | | 10-K | | 10.18 | | 3/1/2018 |
10.18 | | | | | | 10-Q | | 10.2 | | 5/5/2017 |
10.19 | | | | | | 8-K | | 10.1 | | 2/1/2022 |
10.20 | | | | X | | | | | | |
10.21 | | | | X | | | | | | |
10.22 | | | | | | 10-Q | | 10.4 | | 5/5/2017 |
10.23 | | | | | | 8-K | | 10.3 | | 2/1/2022 |
10.24 | | | | | | 8-K | | 10.4 | | 2/1/2022 |
10.25 | | | | X | | | | | | |
10.26 | | | | X | | | | | | |
10.27 | | | | X | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Exhibit Included | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
(a)10.28 | | | | X | | | | | | |
10.29 | | | | X | | | | | | |
10.30 | | | | X | | | | | | |
10.31 | | | | X | | | | | | |
10.32 | | | | X | | | | | | |
10.33 | | | | X | | | | | | |
10.34 | | | | X | | | | | | |
10.35 | | | | X | | | | | | |
10.36 | | | | X | | | | | | |
10.37 | | | | X | | | | | | |
10.38 | | | | X | | | | | | |
10.39 | | | | X | | | | | | |
10.40 | | | | X | | | | | | |
10.41 | | | | X | | | | | | |
10.42 | | | | X | | | | | | |
21 | | | | X | | | | | | |
23 | | | | X | | | | | | |
31.1 | | | | X | | | | | | |
31.2 | | | | X | | | | | | |
32.1 | | | | X (2) | | | | | | |
32.2 | | | | X (2) | | | | | | |
| | | | | | | | | | |
97 | | | | X | | | | | | |
| | | | | | | | | | |
101 | | The following documents are filed as part offinancial information from the Annual Report on Form 10-K: |
| (1) | Consolidated Financial Statements of Registrant and its subsidiaries are included within Item 8 of Part II of this report. |
| (2) | Consolidated Financial Statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or Notes thereto included within Item 8 of Part II of this report. |
| (3) | The exhibits to thisCompany's Annual Report on Form 10-K are set forth onfor the Exhibit Index immediately preceding such exhibitsyear ended December 31, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Income, (iv) Consolidated Statements of Comprehensive Income, (v) Consolidated Statements of Stockholders' Equity, (vi) Consolidated Statements of Cash Flows, and is incorporated herein by reference.(vii) Notes to Consolidated Financial Statements, tagged in summary and in detail | | X | | | | | | |
(b)104 | | Exhibits to this Form 10-K are attached or incorporated herein by referenceCover Page Interactive Data File (formatted as stated above. |
(c)iXBRL and contained in Exhibit 101) | | Not applicableX | | | | | | |
(1)Material contracts are management contracts, or compensatory plans or arrangements, in which directors or executive officers are eligible to participate. (2)Exhibit is furnished herewith and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
ITEM 16. FORM 10-K SUMMARY
Not applicable
applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 1, 2018.
| | | | | | | | |
| | |
| | WEBSTER FINANCIAL CORPORATION |
| | |
| By | By | /s/ John R. Ciulla |
| | | John R. Ciulla |
| | | President and Chief Executive Officer, Chairman, and Director |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2018.
February 27, 2024. | | | | | | | | |
Signature: | | Title: |
| | |
Signature: | | Title: |
| |
/s/ John R. Ciulla | | President and Chief Executive Officer, Chairman, and Director |
John R. Ciulla | | (Principal Executive Officer) |
| |
/s/ Glenn I. MacInnes | | Executive Vice President and Chief Financial Officer |
Glenn I. MacInnes | | (Principal Financial Officer) |
| |
/s/ Albert J. Wang | | SeniorExecutive Vice President and Chief Accounting Officer |
Albert J. Wang | | (Principal Accounting Officer) |
| | |
/s/ Richard O'Toole | | Lead Director |
/s/ James C. SmithRichard O'Toole | | | Chairman of the Board of Directors
| James C. Smith | |
| | |
/s/ John J. Crawford | | Lead Director |
John J. Crawford | | |
| | |
/s/ William L. Atwell | | Director |
William L. Atwell | | |
| | |
/s/ John P. Cahill | | Director |
John P. Cahill | | |
| | |
/s/ E. Carol Hayles | | Director |
E. Carol Hayles | | |
| | |
/s/ Joel S. BeckerLinda H. Ianieri | | Director |
Joel S. BeckerLinda H. Ianieri | | |
| | |
/s/ Mona Aboelnaga Kanaan | | Director |
Mona Aboelnaga Kanaan | | |
| | |
/s/ James J. Landy | | Director |
James J. Landy | | |
| | |
/s/ Elizabeth E. FlynnMaureen B. Mitchell | | Director |
Elizabeth E. FlynnMaureen B. Mitchell | | |
| | | | | | | | |
| | |
/s/ Laurence C. Morse | | Director |
Laurence C. Morse | | |
| |
/s/ Karen R. Osar | | Director |
Karen R. Osar | | |
| |
/s/ Mark Pettie | | Director |
Mark Pettie | | |
| |
/s/ Charles W. Shivery | | Director |
Charles W. Shivery | | |
| |
/s/ Lauren C. States | | Director |
Lauren C. States | | |
| |
/s/ William E. Whiston | | Director |
William E. Whiston | | |
154
WEBSTER FINANCIAL CORPORATION
EXHIBIT INDEX
|
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
3 | | Certificate of Incorporation and Bylaws. | | | | | | | | |
3.1 | | | | | | 10-Q | | 3.1 | | 8/9/2016 |
3.2 | | | | | | 8-K | | 3.1 | | 6/11/2008 |
3.3 | | | | | | 8-K | | 3.1 | | 11/24/2008 |
3.4 | | | | | | 8-K | | 3.1 | | 7/31/2009 |
3.5 | | | | | | 8-K | | 3.2 | | 7/31/2009 |
3.6 | | | | | | 8-A12B | | 3.3 | | 12/4/2012 |
3.7 | | | | | | 8-A12B | | 3.3 | | 12/12/2017 |
3.8 | | | | | | 8-K | | 3.1 | | 6/12/2014 |
4 | | Instruments Defining the Rights of Security Holders. | | | | | | | | |
4.1 | | | | | | 10-K | | 4.1 | | 3/10/2006 |
4.2 | | | | | | 10-K | | 10.41 | | 3/27/1997 |
4.3 | | | | | | 8-K | | 4.2 | | 11/24/2008 |
4.4 | | | | | | 8-K | | 4.1 | | 12/12/2017 |
4.5 | | | | | | 8-K | | 4.1 | | 2/11/2014 |
4.6 | | | | | | 8-K | | 4.2 | | 2/11/2014 |
4.7 | | | | | | 8-A12B | | 4.3 | | 12/12/2017 |
10 | | Material Contracts | | | | | | | | |
10.1 | | | | | | 10-Q | | 10.1 | | 5/2/2012 |
10.2 | | | | | | 8-K | | 10.2 | | 12/21/2007 |
10.3 | | | | | | 8-K | | 10.1 | | 12/21/2007 |
10.4 | | | | | | DEF 14A | | A | | 3/7/2008 |
10.5 | | | | | | DEF 14A | | A | | 3/23/2000 |
10.6 | | | | X | | | | | | |
10.7 | | | | | | 8-K | | 10.1 | | 12/27/2012 |
|
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
10.8 | | | | | | 10-K | | 10.20 | | 3/1/2017 |
10.9 | | | | | | 10-Q | | 10.1 | | 5/5/2017 |
10.10 | | | | | | 10-K | | 10.13 | | 2/28/2013 |
10.11 | | | | | | 10-K | | 10.22 | | 2/28/2013 |
10.12 | | | | | | 10-K | | 10.13 | | 2/28/2014 |
10.13 | | | | | | 10-Q | | 10.5 | | 5/5/2017 |
10.14 | | | | | | 10-Q | | 10.3 | | 5/7/2014 |
10.15 | | | | | | 10-Q | | 10.4 | | 5/7/2014 |
10.16 | | | | | | 10-Q | | 10.1 | | 8/6/2014 |
10.17 | | | | | | 10-Q | | 10.2 | | 8/6/2014 |
10.18 | | | | X | | | | | | |
10.19 | | | | | | 10-Q | | 10.2 | | 5/5/2017 |
10.20 | | | | | | 10-Q | | 10.3 | | 5/5/2017 |
10.21 | | | | | | 10-Q | | 10.4 | | 5/5/2017 |
10.22 | | | | | | 8-K | | 10.1 | | 9/19/2017 |
10.23 | | | | X | | | | | | |
10.24 | | | | X | | | | | | |
| | | | | | | | | | |
21 | | | | X | | | | | | |
23 | | | | X | | | | | | |
31.1 | | | | X | | | | | | |
31.2 | | | | X | | | | | | |
32.1 + | | | | X | | | | | | |
32.2 + | | | | X | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Incorporated by Reference |
| | | Form | | Exhibit | | Filing Date |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
| | X | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | X | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | X | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document | | X | | | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | X | | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | X | | | | | | |
Note: Exhibit numbers 10.1 – 10.26 are management contracts or compensatory plans or arrangements in which directors or executive officers are eligible to participate.
+ This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.