0000801337us-gaap:OperatingSegmentsMemberwbs:HSABankMember2021-04-012021-06-30
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_________________________________________________________________________________________________________________________________________-___________________________________________________________________________________________________
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2022March 31, 2023
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number: 001-31486
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
______________________________________________________________________________________ | | | | | | | | |
Delaware | | 06-1187536 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
200 Elm Street, Stamford, Connecticut 06902
(Address and zip code of principal executive offices)
(203) 578-2202
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbols | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | WBS | New York Stock Exchange |
Depositary Shares, each representing 1/1000th interest in a share | WBS-PrF | New York Stock Exchange |
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock | | |
Depositary Shares, each representing 1/40th interest in a share | WBS-PrG | New York Stock Exchange |
of 6.50% Series G Non-Cumulative Perpetual Preferred Stock | | |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
At July 29, 2022, theThe number of shares of common stock, par value $.01 per share, outstanding as of April 28, 2023 was 175,833,610.174,744,977.
INDEX | | | | | | | | |
| | Page No. |
| | |
Key to Acronyms and Terms | |
Forward-Looking Statements | |
| | |
| |
| | |
Item 1. | | |
| | |
Item 2. | | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| |
| |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 2. | | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| | |
Item 5. | | |
| | |
Item 6. | | |
| |
| |
| |
| |
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
KEY TO ACRONYMS AND TERMS | | | | | |
ACL | Allowance for credit losses |
Agency CMBS | Agency commercial mortgage-backed securities |
Agency CMO | Agency collateralized mortgage obligations |
Agency MBS | Agency mortgage-backed securities |
ALCO | Asset/Liability Committee |
(AOCL) AOCI | Accumulated other comprehensive (loss) income |
ASC | Accounting Standards Codification |
ASU or the Update | Accounting Standards Update |
Basel III | Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision |
Bend | Bend Financial, Inc. |
BHC Act | Bank Holding Company Act of 1956, as amended |
CECL | Current expected credit losses |
CET1 capital | Common Equity Tier 1 Capital, defined by Basel III capital rules |
CFPB | Consumer Financial Protection Bureau |
CLO | Collateralized loan obligations |
CMBS | Non-agency commercial mortgage-backed securities |
COVID-19 | Coronavirus |
CRA | Community Reinvestment Act of 1977 |
DTA | Deferred tax asset |
EAD | Exposure at default |
FASB | Financial Accounting Standards Board |
FDIC | Federal Deposit Insurance Corporation |
FHLB | Federal Home Loan Bank |
FICO | Fair Isaac Corporation |
FRB | Federal Reserve Bank |
FTE | Fully tax-equivalent |
FTP | Funds Transfer Pricing, a matched maturity funding concept |
GAAP | U.S. Generally Accepted Accounting Principles |
Holding Company | Webster Financial Corporation |
HSA | Health savings account |
HSA Bank | HSA Bank, a division of Webster Bank, National Association |
| |
interLINK | Interlink Insured Sweep LLC |
IRA | Inflation Reduction Act |
ITGC | Information technology general controls |
LGD | Loss given default |
LIBOR | London Interbank Offered Rate |
LIHTC | Low incomeLow-income housing tax credit |
Moody'sMBS | Moody's Investor ServicesNon-agency mortgage-backed securities |
NAV | Net asset value |
OCC | Office of the Comptroller of the Currency |
OPEB | Other post-employment medical and life insurance benefits |
OREO | Other real estate owned |
PCD | Purchased credit deterioratedcredit-deteriorated |
PD | Probability of default |
PPNR | Pre-tax, pre-provision net revenue |
PPP | Small Business Administration Paycheck Protection Program |
ROU | Right-of-use |
S&P | Standard and Poor's Rating Services |
SALT | State and local tax |
SEC | United States Securities and Exchange Commission |
SERP | Supplemental executive defined benefit retirement plan |
SOFR | Secured overnight financing rate |
Sterling | Sterling Bancorp, collectively with its consolidated subsidiaries |
TDR | Troubled debt restructuring, defined in ASC 310-40 "Receivables - Troubled Debt Restructurings by Creditors" |
Webster Bank or the Bank | Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation |
Webster or the Company | Webster Financial Corporation, collectively with its consolidated subsidiaries |
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking“forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates,"“believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” “plans,” “estimates,” and similar references to future periods. However, these words are not the exclusive means of identifying such statements.
Examples of forward-looking statements include, but are not limited to:
▪projections of revenues, expenses, income or loss, earnings or loss per share, allowance for credit losses (ACL), expense savings, and other financial items;
▪statements of plans, objectives, and expectations of Webster Financial Corporation (Webster)the Company or its management or Board of Directors;
▪statements of future economic performance; and
▪statements of assumptions underlying such statements.
Forward-looking statements are based on Webster’sthe Company’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Webster’sThe Company’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:
▪our ability to successfully integrate the operations of Webster and Sterling Bancorp (Sterling) and realize the anticipated benefits of the merger, including our ability to successfully complete our core conversion in the anticipated timeframe and the consolidation of our corporate real estate;timeframe;
▪our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties;
▪volatility in our stock price due to investor sentiment, including following bank failures during the first fiscal quarter of 2023, and the acquisition of such failed banks (or their assets), by stronger banks within the U.S. banking system;
▪local, regional, national, and international economic conditions, and the impact they may have on us or our customers;
▪volatility and disruption in national and international financial markets, including as a result of geopolitical conflict, such as the war between Russia and Ukraine;
▪the continued effects from the COVID-19 pandemic, or the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic, or other unusual and infrequently occurring events,from future pandemics, and any governmental or societal responses thereto;
▪unforeseen events, such as natural disasters;
▪changes in laws and regulations, or existing laws and regulations that we become subject to, including those concerning banking, taxes, dividends, securities, insurance, and healthcare, with which we and our subsidiaries must comply;
▪adverse conditions in the securities markets that could lead to impairment in the value of our investment securities and goodwill;portfolio;
▪inflation, monetary fluctuations, the possibility of a recession, and changes in interest rates, including the impact of such changes on economic conditions, customer behavior, funding costs, and our loans and leases and securities portfolios;
▪the replacement of, and transition from, the London Interbank Offered Rate (LIBOR)LIBOR to the Secured Overnight Financing Rate (SOFR)SOFR as the primary interest rate benchmark;
▪the timely development and acceptance of new products and services, and the perceived value of those products and services by customers;
▪changes in deposit flows, consumer spending, borrowings, and savings habits;
▪our ability to implement new technologies and maintain secure and reliable technology systems;
▪the effects of any cyber threats, attacks or events, or fraudulent activity;activity, including those that involve our third-party vendors and service providers;
▪performance by our counterparties and third-party vendors;
▪our ability to increase market share and control expenses;
▪changes in the competitive environment among banks, financial holding companies, and other traditional and non-traditional financial servicesservice providers;
▪our ability to maintain adequate sources of funding and liquidity;
▪changes in the level of non-performing assets and charge-offs;
▪changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
▪the effect of changes in accounting policies and practices applicable to us, including impacts of recently adopted accounting guidance;
▪our inability to remediate the material weaknesses in our internal control related to ineffective ITGCs;
▪legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; and
▪our ability to appropriately address any environmental, social, governmental, and sustainability concerns that may arise from our business activities.
Any forward-looking statement in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause Webster'sthe Company's actual results to differ may emerge from time to time, and it is not possible for usthe Company to predict all of them. WebsterThe Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.
PART I – FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
ThisThe following discussion and analysis provides information that management believes is necessary to understand Webster's financial condition, changes inthe Company's financial condition, results of operations, and cash flows for the three and six months ended June 30, 2022,March 31, 2023, as compared to 2021. The following2022. This information should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2021, included in Webster Financial Corporation's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2022, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, includedcontained in Part I - Item 1. Financial Statements.Statements of this report, and the Consolidated Financial Statements, and accompanying Notes thereto, contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 10, 2023. The Company's financial condition, results of operations, and cash flows for the three and six months ended June 30, 2022,March 31, 2023, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.
Executive SummaryOverview
Nature of Operations
Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the Bank Holding CompanyBHC Act, of 1956, as amended (BHC Act), incorporated under the laws of Delaware in 1986, and headquartered in Stamford, Connecticut. Webster Bank, National Association (Webster Bank) is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, andalong with its HSA Bank division, (HSA Bank), deliveris a leading commercial bank in the Northeast that delivers a wide range of banking, investment,digital and traditional financial servicessolutions to businesses, individuals, families, and businesses. Websterpartners across its three differentiated lines of business: Commercial Banking, HSA Bank, serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout the northeastern U.S.Consumer Banking. While its core footprint spans from New York to Rhode Island and Massachusetts, with certain businesses operatingoperate in extended geographies. Webster Bank also offers equipment financing, warehouse lending, commercial real estate lending, asset-based lending, and treasury management solutions. HSA Bank is a leading provider of health savings accounts (HSAs), and delivers health reimbursement arrangements and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
Business Developments
On January 31, 2022, Webster completed its previously announced merger with Sterling in an all-stock transaction valued at $5.2 billion. The merger expanded Webster's geographic footprint and combined two complementary organizations to create one of the largest commercial banksproviders of employee benefit solutions in the northeastern U.S. At June 30, 2022,United States.
Recent Industry Developments
During the combined company had $67.6 billion in assets, $45.6 billion in loansfirst quarter and leases, and $53.1 billion in deposits, and operated 202 financial centers throughout southern New England and metro and suburban New York. In addition, on February 18, 2022, Webster acquired 100% of the equity interests of Bend Financial, Inc. (Bend), a cloud-based platform solution provider for HSAs, in exchange for cash. The Bend acquisition accelerates Webster’s efforts underway to deliver enhanced user experiences at HSA Bank. Financial results for historical reporting periods reflect only the results of Webster's operations prior to the corresponding merger or acquisition.
The successful integration of Webster’s and Sterling’s operations depends on the Company’s ability to successfully consolidate business operations, management teams, corporate cultures, operating systems, and controls procedures, and eliminate costs and redundancies. Noteworthy accomplishments as of June 30, 2022, include the rebranding of branches and digital assets, the coordination of credit policies and procedures, the selection of certain key operating systems and the completed consolidation of mortgage servicing, payroll, and treasury platforms, the finalization of governance and executive management structures, the establishment of a corporate responsibility office to oversee community engagement, philanthropy, and sustainability, and the launch of culture-shaping offsite workshops, which have been attended by the Company’s senior leaders and managers, with a planned rollout to the entirety of employees in the second half of 2022. Key operating systems and process integration activities are ongoing, and Webster remains well-positioned to successfully execute its core conversion targeted for mid-2023.
In addition, duringinto the second quarter of 2022, Webster developed2023, the banking industry experienced significant volatility with multiple high-profile bank failures and launchedindustry-wide concerns related to liquidity, deposit outflows, unrealized losses on securities, and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company's total deposits at March 31, 2023, were $55.3 billion, representing a corporate real estate consolidation strategy,net $1.2 billion increase compared to its total deposits at December 31, 2022. Additionally, the Holding Company's and the Bank's regulatory capital ratios at
March 31, 2023, remained in which the Company has arranged to close 14 locations, primarily throughout New York and Connecticut, in order to reduce its corporate facility square footage by approximately 45% by the endexcess of the year. During the three months ended June 30, 2022, Webster recognized $23.1 million in right-of-use (ROU) asset impairment charges and a combined $7.7 million in related exist costs and accelerated depreciation on property and equipment, related to this corporate real estate consolidation strategy.
Furthermore, in connection with the Sterling merger, Webster re-evaluated its strategic priorities as a combined organization, which resulted in modifications to the Company's strategic initiatives that were announced in December 2020. As a result, the Company released $4.1 million from its previously recorded severance accrual during the first half of 2022, with a corresponding adjustment to earnings.
"well-capitalized" minimum. Additional information regarding Webster's mergersregulatory capital ratios can be found within Note 10: Regulatory Capital and acquisitionsRestrictions in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
interLINK Acquisition
On January 11, 2023, Webster acquired interLINK, a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and related integration initiativesbroker/dealers and clearing firms. The acquisition expanded the Company's core deposit funding sources and scalable liquidity and added another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities. At March 31, 2023, interLINK provided the Company with an additional $2.9 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 Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
Sterling Integration Update
On January 31, 2022, Webster completed its merger with Sterling. Significant progress on integration and conversion efforts were made throughout the year ended December 31, 2022, and the Company remains on track with key project milestones as of the first quarter of 2023, with a continued focus on business-as-usual operations. The significant accomplishments achieved as of the end of the first quarter of 2023 included: (i) additional systems integrations and data validation exercises; (ii) the completion of user acceptance testing; (iii) the finalization of financial center staffing and training plans; and (iv) the consolidation of bank routing numbers. The Company is prepared to complete several mock conversions in the second quarter of 2023 as it progresses towards core conversion targeted for mid-2023.
LIBOR Transition Update
The Company has a LIBOR transition plan in place that is commensurate with identified LIBOR transition risks and exposures, and is aligned with regulatory guidance and ARRC best practices. Management continued to execute according to its LIBOR transition plan during the first quarter of 2023, addressing emerging issues and risks as they arise, while closely monitoring legislative and regulatory guidance associated with the LIBOR transition.
As of the date of this Quarterly Report on Form 10-Q, the Company's main focus continues to be on the remediation of legacy LIBOR contracts, the integration of legacy Webster and legacy Sterling systems and processes, monitoring and responding to market developments, and addressing regulatory and accounting requirements. The Company will execute its actual transition of remaining LIBOR contracts to SOFR at the first rate reset date after June 30, 2023.
Results of Operations
The following table summarizes selected financial highlights and key performance indicators: | | | At or for the three months ended June 30, | | At or for the six months ended June 30, | | At or for the three months ended March 31, |
(In thousands, except per share and ratio data) | (In thousands, except per share and ratio data) | 2022 | | 2021 | | 2022 | | 2021 | (In thousands, except per share and ratio data) | 2023 | | 2022 |
Income and performance ratios: | Income and performance ratios: | | | | | | | | Income and performance ratios: | | | |
Net income | $ | 182,311 | | | $ | 94,035 | | | $ | 165,564 | | | $ | 202,113 | | |
Net income available to common shareholders | 178,148 | | | 92,066 | | | 157,970 | | | 198,175 | | |
Earnings per diluted common share | 1.00 | | | 1.01 | | | 0.97 | | | 2.19 | | |
Net income (loss) | | Net income (loss) | $ | 221,004 | | | $ | (16,747) | |
Net income (loss) available to common stockholders | | Net income (loss) available to common stockholders | 216,841 | | | (20,178) | |
Earnings (loss) per diluted common share | | Earnings (loss) per diluted common share | 1.24 | | | (0.14) | |
Return on average assets (annualized) | Return on average assets (annualized) | 1.10 | % | | 1.12 | % | | 0.55 | % | | 1.21 | % | Return on average assets (annualized) | 1.22 | % | | (0.12) | % |
Return on average tangible common shareholders' equity (annualized) (non-GAAP) | 14.50 | | | 14.26 | | | 7.11 | | | 15.51 | | |
Return on average common shareholders' equity (annualized) | 9.09 | | | 11.63 | | | 4.42 | | | 12.63 | | |
Non-interest income / total revenue | 19.90 | | | 24.77 | | | 20.34 | | | 25.16 | | |
Return on average tangible common stockholders' equity (annualized) (non-GAAP) | | Return on average tangible common stockholders' equity (annualized) (non-GAAP) | 17.66 | | | (1.36) | |
Return on average common stockholders' equity (annualized) | | Return on average common stockholders' equity (annualized) | 10.94 | | | (1.25) | |
Non-interest income as a percentage of total revenue | | Non-interest income as a percentage of total revenue | 10.62 | | | 20.88 | |
Asset quality: | Asset quality: | | Asset quality: | |
Allowance for credit losses on loans and leases | $ | 571,499 | | | $ | 307,945 | | | $ | 571,499 | | | $ | 307,945 | | |
ACL on loans and leases | | ACL on loans and leases | $ | 613,914 | | | $ | 569,371 | |
Non-performing assets (1) | Non-performing assets (1) | 250,242 | | | 123,497 | | | 250,242 | | | 123,497 | | Non-performing assets (1) | 186,551 | | | 251,206 | |
Allowance for credit losses on loans and leases / total loans and leases | 1.25 | % | | 1.43 | % | | 1.25 | % | | 1.43 | % | |
Net charge-offs (recoveries) / average loans and leases (annualized) | 0.09 | | | (0.02) | | | 0.09 | | | 0.04 | | |
ACL on loans and leases / total loans and leases | | ACL on loans and leases / total loans and leases | 1.21 | % | | 1.31 | % |
Net charge-offs / average loans and leases (annualized) | | Net charge-offs / average loans and leases (annualized) | 0.20 | | | 0.10 | |
Non-performing loans and leases / total loans and leases (1) | Non-performing loans and leases / total loans and leases (1) | 0.54 | | | 0.56 | | | 0.54 | | | 0.56 | | Non-performing loans and leases / total loans and leases (1) | 0.36 | | | 0.57 | |
Non-performing assets / total loans and leases plus OREO (1) | Non-performing assets / total loans and leases plus OREO (1) | 0.55 | | | 0.57 | | | 0.55 | | | 0.57 | | Non-performing assets / total loans and leases plus OREO (1) | 0.37 | | | 0.58 | |
Allowance for credit losses on loans and leases / non-performing loans and leases (1) | 230.88 | | | 255.05 | | | 230.88 | | | 255.05 | | |
ACL on loans and leases / non-performing loans and leases (1) | | ACL on loans and leases / non-performing loans and leases (1) | 331.81 | | | 229.48 | |
Other ratios: | Other ratios: | | Other ratios: | |
Tangible equity (non-GAAP) | 8.12 | % | | 8.35 | % | | 8.12 | % | | 8.35 | % | |
| Tangible common equity (non-GAAP) | Tangible common equity (non-GAAP) | 7.68 | | | 7.91 | | | 7.68 | | | 7.91 | | Tangible common equity (non-GAAP) | 7.15 | % | | 8.26 | % |
Tier 1 risk-based capital | Tier 1 risk-based capital | 11.65 | | | 12.30 | | | 11.65 | | | 12.30 | | Tier 1 risk-based capital | 10.93 | | | 12.05 | |
Total risk-based capital | Total risk-based capital | 13.91 | | | 13.70 | | | 13.91 | | | 13.70 | | Total risk-based capital | 12.99 | | | 14.41 | |
CET1 risk-based capital | CET1 risk-based capital | 11.09 | | | 11.66 | | | 11.09 | | | 11.66 | | CET1 risk-based capital | 10.42 | | | 11.46 | |
Shareholders' equity / total assets | 11.83 | | | 9.86 | | | 11.83 | | | 9.86 | | |
Stockholders' equity / total assets | | Stockholders' equity / total assets | 11.08 | | | 12.55 | |
Net interest margin | Net interest margin | 3.28 | | | 2.82 | | | 3.24 | | | 2.87 | | Net interest margin | 3.66 | | | 3.21 | |
Efficiency ratio (non-GAAP) | Efficiency ratio (non-GAAP) | 45.25 | | | 56.64 | | | 46.82 | | | 57.56 | | Efficiency ratio (non-GAAP) | 41.64 | | | 48.73 | |
Equity and share related: | Equity and share related: | | Equity and share related: | |
Common equity | Common equity | $ | 7,713,809 | | | $ | 3,184,668 | | | $ | 7,713,809 | | | $ | 3,184,668 | | Common equity | $ | 8,010,315 | | | $ | 7,893,156 | |
Book value per common share | Book value per common share | 43.82 | | | 35.15 | | | 43.82 | | | 35.15 | | Book value per common share | 45.85 | | | 44.32 | |
Tangible book value per common share (non-GAAP) | Tangible book value per common share (non-GAAP) | 28.31 | | | 28.99 | | | 28.31 | | | 28.99 | | Tangible book value per common share (non-GAAP) | 29.47 | | | 28.94 | |
Common stock closing price | Common stock closing price | 42.15 | | | 53.34 | | | 42.15 | | | 53.34 | | Common stock closing price | 39.42 | | | 56.12 | |
Dividends and equivalents declared per common share | Dividends and equivalents declared per common share | 0.40 | | | 0.40 | | | 0.80 | | | 0.80 | | Dividends and equivalents declared per common share | 0.40 | | | 0.40 | |
Common shares outstanding | 176,041 | | | 90,594 | | | 176,041 | | | 90,594 | | |
Common shares issued and outstanding | | Common shares issued and outstanding | 174,712 | | | 178,102 | |
Weighted-average common shares outstanding - basic | Weighted-average common shares outstanding - basic | 175,845 | | | 90,027 | | | 161,698 | | | 89,918 | | Weighted-average common shares outstanding - basic | 172,766 | | | 147,394 | |
Weighted-average common shares outstanding - diluted | Weighted-average common shares outstanding - diluted | 175,895 | | | 90,221 | | | 161,785 | | | 90,164 | | Weighted-average common shares outstanding - diluted | 172,883 | | | 147,394 | |
(1)Non-performing asset balancesassets and the related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (costs)(fees)/feescosts on loans and leases.
Non-GAAP Financial Measures
The non-GAAP financial measures identified in the preceding table provide both management and investors with information useful in understanding Webster'sthe Company's financial position, results of operations, the strength of its capital position, and overall business performance. These measures are used by management for internal planning and forecasting purposes, as well as by securities analysts, investors, and other interested parties to assess peer company operating performance. Management believes that this presentation, together with the accompanying reconciliations, provides investors with a more complete understanding of the factors and trends affecting Webster'sthe Company's business and allows investors to view its performance in a similar manner.
Tangible book value per common share represents shareholders’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 Webster'sthe Company's capital position. The annualized return
on average tangible common shareholders'stockholders' equity is calculated using net income available to common shareholders,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 Webster'sthe 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 Websterthe Company is managing its recurring operating expenses.
These non-GAAP financial measures should not be considered a substitute for GAAP basis financial measures. Because
non-GAAP financial measures are not standardized, it may not be possible to compare these with other companies that present financial measures having the same or similar names.
The following tables reconcile non-GAAP financial measures to the most comparable financial measures defined by GAAP: | | | At June 30, | | At March 31, |
(Dollars and shares in thousands, except per share data) | (Dollars and shares in thousands, except per share data) | 2022 | | 2021 | (Dollars and shares in thousands, except per share data) | 2023 | | 2022 |
Tangible book value per common share: | Tangible book value per common share: | | | | Tangible book value per common share: | | | |
Shareholders' equity | $ | 7,997,788 | | | $ | 3,329,705 | | |
Stockholders' equity | | Stockholders' equity | $ | 8,294,294 | | | $ | 8,177,135 | |
Less: Preferred stock | Less: Preferred stock | 283,979 | | | 145,037 | | Less: Preferred stock | 283,979 | | | 283,979 | |
Goodwill and other intangible assets | 2,729,551 | | | 558,485 | | |
Tangible common shareholders' equity | $ | 4,984,258 | | | $ | 2,626,183 | | |
Common stockholders' equity | | Common stockholders' equity | $ | 8,010,315 | | | $ | 7,893,156 | |
Less: Goodwill and other intangible assets | | Less: Goodwill and other intangible assets | 2,861,310 | | | 2,738,353 | |
Tangible common stockholders' equity | | Tangible common stockholders' equity | $ | 5,149,005 | | | $ | 5,154,803 | |
Common shares outstanding | Common shares outstanding | 176,041 | | | 90,594 | | Common shares outstanding | 174,712 | | | 178,102 | |
Tangible book value per common share | Tangible book value per common share | $ | 28.31 | | | $ | 28.99 | | Tangible book value per common share | $ | 29.47 | | | $ | 28.94 | |
Book value per common share (GAAP) | | Book value per common share (GAAP) | $ | 45.85 | | | $ | 44.32 | |
| Tangible common equity ratio: | Tangible common equity ratio: | | Tangible common equity ratio: | |
Tangible common shareholders' equity | $ | 4,984,258 | | | $ | 2,626,183 | | |
Tangible common stockholders' equity | | Tangible common stockholders' equity | $ | 5,149,005 | | | $ | 5,154,803 | |
Total assets | Total assets | 67,595,021 | | | 33,753,752 | | Total assets | $ | 74,844,395 | | | $ | 65,131,484 | |
Less: Goodwill and other intangible assets | Less: Goodwill and other intangible assets | 2,729,551 | | | 558,485 | | Less: Goodwill and other intangible assets | 2,861,310 | | | 2,738,353 | |
Tangible assets | Tangible assets | $ | 64,865,470 | | | $ | 33,195,267 | | Tangible assets | $ | 71,983,085 | | | $ | 62,393,131 | |
Tangible common equity ratio | Tangible common equity ratio | 7.68 | % | | 7.91 | % | Tangible common equity ratio | 7.15 | % | | 8.26 | % |
Total common stockholders' equity to total assets (GAAP) | | Total common stockholders' equity to total assets (GAAP) | 10.70 | % | | 12.12 | % |
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
(Dollars in thousands) | (Dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (Dollars in thousands) | 2023 | | 2022 |
Return on average tangible common shareholders' equity: | | | | | | | | |
Return on average tangible common stockholders' equity: | | Return on average tangible common stockholders' equity: | | | |
Net income | Net income | $ | 182,311 | | | $ | 94,035 | | | $ | 165,564 | | | $ | 202,113 | | Net income | $ | 221,004 | | | $ | (16,747) | |
Less: Preferred stock dividends | Less: Preferred stock dividends | 4,163 | | | 1,969 | | | 7,594 | | | 3,938 | | Less: Preferred stock dividends | 4,163 | | | 3,431 | |
Add: Intangible assets amortization, tax-effected | Add: Intangible assets amortization, tax-effected | 6,954 | | | 894 | | | 11,999 | | | 1,794 | | Add: Intangible assets amortization, tax-effected | 7,503 | | | 5,046 | |
Income adjusted for preferred stock dividends and intangible assets amortization | $ | 185,102 | | | $ | 92,960 | | | $ | 169,969 | | | $ | 199,969 | | |
Income adjusted for preferred stock dividends and intangible assets amortization (annualized) | $ | 740,408 | | | $ | 371,840 | | | $ | 339,938 | | | $ | 399,938 | | |
Average shareholders' equity | $ | 8,125,518 | | | $ | 3,311,406 | | | $ | 7,412,465 | | | $ | 3,282,962 | | |
Income (loss) adjusted for preferred stock dividends and intangible assets amortization | | Income (loss) adjusted for preferred stock dividends and intangible assets amortization | $ | 224,344 | | | $ | (15,132) | |
Income (loss) adjusted for preferred stock dividends and intangible assets amortization (annualized) | | Income (loss) adjusted for preferred stock dividends and intangible assets amortization (annualized) | $ | 897,376 | | | $ | (60,528) | |
Average stockholders' equity | | Average stockholders' equity | $ | 8,215,676 | | | $ | 6,691,490 | |
Less: Average preferred stock | Less: Average preferred stock | 283,979 | | | 145,037 | | | 260,183 | | | 145,037 | | Less: Average preferred stock | 283,979 | | | 236,121 | |
Average goodwill and other intangible assets | Average goodwill and other intangible assets | 2,733,827 | | | 559,032 | | | 2,372,554 | | | 559,599 | | Average goodwill and other intangible assets | 2,849,673 | | | 2,007,266 | |
Average tangible common shareholders' equity | $ | 5,107,712 | | | $ | 2,607,337 | | | $ | 4,779,728 | | | $ | 2,578,326 | | |
Return on average tangible common shareholders' equity | 14.50 | % | | 14.26 | % | | 7.11 | % | | 15.51 | % | |
Average tangible common stockholders' equity | | Average tangible common stockholders' equity | $ | 5,082,024 | | | $ | 4,448,103 | |
Return on average tangible common stockholders' equity | | Return on average tangible common stockholders' equity | 17.66 | % | | (1.36) | % |
Return on average common stockholders' equity (annualized) (GAAP) | | Return on average common stockholders' equity (annualized) (GAAP) | 10.94 | % | | (1.25) | % |
| Efficiency ratio: | Efficiency ratio: | | Efficiency ratio: | |
Non-interest expense | Non-interest expense | $ | 358,227 | | | $ | 187,028 | | | $ | 718,012 | | | $ | 375,010 | | Non-interest expense | $ | 332,467 | | | $ | 359,785 | |
Less: Foreclosed property activity | (358) | | | (137) | | | (433) | | | (46) | | |
Less: Foreclosed property activities | | Less: Foreclosed property activities | (262) | | | (75) | |
Intangible assets amortization | Intangible assets amortization | 8,802 | | | 1,132 | | | 15,189 | | | 2,271 | | Intangible assets amortization | 9,497 | | | 6,387 | |
Operating lease depreciation | Operating lease depreciation | 2,425 | | | — | | | 4,057 | | | — | | Operating lease depreciation | 1,884 | | | 1,632 | |
Merger-related expenses | Merger-related expenses | 66,640 | | | 17,047 | | | 175,135 | | | 17,047 | | Merger-related expenses | 29,373 | | | 108,495 | |
Other expense (1) | (152) | | | 1,138 | | | (4,292) | | | 10,579 | | |
Strategic initiatives charges | | Strategic initiatives charges | — | | | (4,140) | |
Non-interest expense | Non-interest expense | $ | 280,870 | | | $ | 167,848 | | | $ | 528,356 | | | $ | 345,159 | | Non-interest expense | $ | 291,975 | | | $ | 247,486 | |
Net interest income | Net interest income | $ | 486,660 | | | $ | 220,852 | | | $ | 880,908 | | | $ | 444,616 | | Net interest income | $ | 595,283 | | | $ | 394,248 | |
Add: Tax-equivalent adjustment | 11,732 | | | 2,487 | | | 19,890 | | | 4,982 | | |
Add: FTE adjustment | | Add: FTE adjustment | 15,911 | | | 8,158 | |
Non-interest income | Non-interest income | 120,933 | | | 72,702 | | | 224,968 | | | 149,459 | | Non-interest income | 70,766 | | | 104,035 | |
Other income (2) | 3,805 | | | 309 | | | 6,887 | | | 586 | | |
Other income (1) | | Other income (1) | 4,311 | | | 3,082 | |
Less: Operating lease depreciation | | Less: Operating lease depreciation | 1,884 | | | 1,632 | |
(Loss) on sale of investment securities | | (Loss) on sale of investment securities | (16,747) | | | — | |
| Less: Operating lease depreciation | 2,425 | | | — | | | 4,057 | | | — | | |
Income | Income | $ | 620,705 | | | $ | 296,350 | | | $ | 1,128,596 | | | $ | 599,643 | | Income | $ | 701,134 | | | $ | 507,891 | |
Efficiency ratio | Efficiency ratio | 45.25 | % | | 56.64 | % | | 46.82 | % | | 57.56 | % | Efficiency ratio | 41.64 | % | | 48.73 | % |
Non-interest expense as a percentage of total revenue (GAAP) | | Non-interest expense as a percentage of total revenue (GAAP) | 49.92 | % | | 72.20 | % |
(1)Other expense (non-GAAP) includes the net charges associated with the strategic initiatives announced in December 2020.
(2)Other income (non-GAAP) includes the taxable equivalent of net income generated from low income housing tax-credit (LIHTC)LIHTC investments.
Net Interest Income
Net interest income is Webster'sthe Company's primary source of revenue, representing 80.1%89.4% and 79.7%79.1% of total revenuerevenues for the three and six months ended June 30,March 31, 2023, and 2022, respectively, and 75.2% and 74.8% of total revenue for the three and six months ended June 30, 2021, respectively. Net interest income is the difference between interest income on interest-earning assets such as(i.e., loans and leases and investment securities,securities) and interest expense on interest-bearing liabilities such as
(i.e., deposits and borrowings,borrowings), which are used to fund interest-earning assets and other activities. Net interest margin is calculated as the ratio of tax-equivalentFTE net interest income to average interest-earning assets. Tax-equivalent
Net interest income, net interest margin, yields, and ratios on a 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.
Comparison to Prior Year Quarter
Net interest income increased $265.8$201.1 million, or 120.4%51.0%, from $220.9$394.2 million for the three months ended June 30, 2021,March 31, 2022, to $486.7$595.3 million for the three months ended June 30, 2022.March 31, 2023. On a fully tax-equivalentFTE basis, net interest income increased $275.1$208.8 million. Net interest margin increased 4645 basis points from 2.82%3.21% for the three months ended June 30, 2021,March 31, 2022, to 3.28%3.66% for the three months ended June 30, 2022. The increase isMarch 31, 2023. These increases are both primarily attributeddriven by the full quarter impact of the Sterling merger on
balances in 2023 as compared to the merger with Sterling,two-thirds impact for the quarter in 2022, and includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities.the higher interest rate environment.
Average total interest-earning assets increased $28.5$15.8 billion, or 90.0%31.3%, from $31.6$50.3 billion for the three months ended June 30, 2021,March 31, 2022, to $60.1$66.1 billion for the three months ended June 30, 2022,March 31, 2023, primarily due to increases of $22.7$14.2 billion, $1.2 billion, $0.3 billion, and $6.4$0.1 billion, in average loans and leases, and average total investment securities, respectively, which were partially offset by a $0.8 billion decrease inaverage FHLB and FRB stock, and average interest-bearing deposits held at the Federal Reserve Bank (FRB).FRB, respectively. The average yield on interest-earning assets increased 51175 basis points from 2.95%3.33% for the three months ended June 30, 2021,March 31, 2022, to 3.46%5.08% for the three months ended June 30, 2022. The increaseMarch 31, 2023, primarily due to the higher interest rate environment, partially offset by a decrease in purchase accounting accretion on interest-earning assets and the increase in average yieldthat were both impacted by the Sterling merger.acquired from Sterling.
Average loans and leases increased $22.7$14.2 billion, or 106.0%39.5%, from $21.4$35.9 billion for the three months ended June 30, 2021,March 31, 2022, to $44.1$50.1 billion for the three months ended June 30, 2022, which wasMarch 31, 2023, primarily due to the full quarter impact of the Sterling merger with Sterling,on balances in 2023 as well as loan growth acrosscompared to the commercial non-mortgage and commercial real estate categories. This growth was partially offset by lower Paycheck Protection Program (PPP) loan balances. At June 30,two-thirds impact for the quarter in 2022, and 2021, theorganic loan growth. At March 31, 2023, and lease portfolio2022, average loans and leases comprised 73.5%75.8% and 67.8%71.4% of average total average interest-earning assets, respectively. The average yield on loans and leases increased 46190 basis points from 3.46%3.90% for the three months ended June 30, 2021,March 31, 2022, to 3.92%5.80% for the three months ended June 30, 2022,March 31, 2023, primarily due to the higher interest rate environment, partially offset by a higher yielddecrease in purchase accounting accretion on the acquired Sterling loans and leases net purchase accounting accretion, and higher market rates.that were acquired from Sterling.
Average total investment securities increased $6.4$1.2 billion, or 71.7%9.0%, from $8.8$13.4 billion for the three months ended June 30, 2021,March 31, 2022, to $15.2$14.6 billion for the three months ended June 30, 2022,March 31, 2023, primarily due to the full quarter impact of the Sterling merger with Sterling.on balances in 2023 as compared to the two-thirds impact for the quarter in 2022. At June 30,March 31, 2023, and 2022, and 2021, the average total investment securities portfolio comprised 25.3%22.1% and 28.0%26.7% of average total interest-earning assets, respectively. The average yield on total investment securities increased 77 basis points from 2.02% for the three months ended March 31, 2022, to 2.79% for the three months ended March 31, 2023, primarily due to the reinvestment of securities that had matured or were sold in the current period at higher yields.
Average FHLB and FRB stock increased $0.3 billion, or 176.1%, from $0.2 billion for the three months ended March 31, 2022, to $0.5 billion for the three months ended March 31, 2023, primarily due to the additional FHLB stock investment required as a result of the increase in FHLB advances. At March 31, 2023, and 2022, average FHLB and FRB stock comprised 0.7% and 0.3% of total average interest-earning assets, respectively. The average yield on investment securitiesaverage FHLB and FRB stock increased 9234 basis points from 2.13%2.00% for the three months ended June 30, 2021,March 31, 2022, to 2.22%4.34% for the three months ended June 30, 2022. The increase wasMarch 31, 2023, primarily due to the risinghigher interest rate environment and a higher yield on the acquired Sterling investment securities portfolio net of purchase premium amortization.environment.
Average interest-bearing deposits held at the FRB decreasedincreased $0.1 billion, or 12.5%, from $0.8 billion or 61.5%, from $1.3for three months ended March 31, 2022, to $0.9 billion for the three months ended June 30, 2021, to $0.5 billion for the three months ended June 30, 2022,March 31, 2023, primarily due to excess customer liquidity in the prior period as a result of government stimulusstrategic decision to maintain additional liquidity. At March 31, 2023, and reduced spending. At June 30, 2022, and 2021,average interest-bearing deposits held at the FRB comprised 0.81%1.4% and 4.02%1.6% of total average interest-earning assets, respectively. The average yield on interest-bearing deposits held at the FRB increased 68440 basis points from 0.11%0.23% for the three months ended June 30, 2021,March 31, 2022, to 0.79%4.63% for the three months ended June 30, 2022, primarily due to higher market rates.
Average interest-bearing liabilities increased $26.8 billion, or 89.5%, from $29.9 billion for the three months ended June 30, 2021, to $56.7 billion for the three months ended June 30, 2022, primarily due to increases of $24.7 billion, $0.5 billion, $1.1 billion, and $0.5 billion, in average total deposits, average federal funds purchased, average Federal Home Loan Bank (FHLB) advances, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 5 basis points from 0.14% for the three months ended June 30, 2021, to 0.19% for the three months ended June 30, 2022,March 31, 2023, primarily due to the subordinated debt assumed from Sterling in the merger and the purchase of federal funds in the current period, which were partially offset by customer preferences to hold more liquid, lower cost deposit products.higher interest rate environment.
Average total depositsinterest-bearing liabilities increased $24.7$15.1 billion, or 86.0%31.9%, from $28.7$47.4 billion for the three months ended June 30, 2021,March 31, 2022, to $53.4$62.5 billion for the three months ended June 30,March 31, 2023, primarily due to increases of $8.9 billion, $5.7 billion, $0.7 billion, and $0.2 billion in average total deposits, average FHLB advances, average federal funds purchased, and average long-term debt, partially offset by a $0.4 billion decrease in average securities sold under agreements to repurchase. The average rate on interest-bearing liabilities increased 139 basis points from 0.13% for the three months ended March 31, 2022, to 1.52% for the three months ended March 31, 2023, primarily due to the higher interest rate environment.
Average total deposits increased $8.9 billion, or 19.4%, from $45.9 billion for the three months ended March 31, 2022, to $54.8 billion for the three months ended March 31, 2023, reflecting increases of $6.6$1.4 billion and $18.1$7.5 billion in
non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the full quarter impact of the Sterling merger with Sterling,on balances in 2023 as well ascompared to the strong liquidity position of both commercial and consumer customers, and HSA growth. At June 30,two-thirds impact for the quarter in 2022, and 2021,the acquisition of interLINK, partially offset by the effect of customers rebalancing their deposit concentrations due to the current banking environment. At March 31, 2023, and 2022, average total deposits comprised 94.2%87.7% and 96.0%96.9% of total average interest-bearing liabilities, respectively. The average rate on deposits increased 2104 basis points from 0.07% for the three months ended June 30, 2021,March 31, 2022, to 0.09%1.11% for the three months ended June 30, 2022,March 31, 2023, primarily due to the risinghigher interest rate environment which was partially offset by the run-off ofand growth in higher costing deposit products. Higher cost time deposits. Time deposits as a percentage of average total
interest-bearing deposits decreasedincreased from 9.6%7.3% for the three months ended June 30, 2021,March 31, 2022, to 6.7%9.5% for the three months ended June 30, 2022,March 31, 2023, primarily due to a shift in customer preferences to hold more liquid,from lower costrate checking and savings products into higher rate certificates of deposit products.
Average FHLB advances increased $5.7 billion, from $10.9 million for the three months ended March 31, 2022, to $5.7 billion for the three months ended March 31, 2023, primarily due to short-term funding needs and the strategic decision to maintain additional liquidity. At March 31, 2023, and 2022, average FHLB advances comprised 9.1% and less than one percent of average total interest-bearing liabilities, respectively. The average rate on FHLB advances to repurchase increased 277 basis points from 2.03% for the three months ended March 31, 2022, to 4.80% for the three months ended March 31, 2023, primarily due to the higher interest rate environment.
Average federal funds purchased were $0.5$0.7 billion for the three months ended June 30, 2022,March 31, 2023, and had an average rate of 0.93%4.62%. There were no average federal funds purchased for the three months ended June 30, 2021.March 31, 2022. At June 30, 2022,March 31, 2023, average federal funds purchased comprised 0.94%1.1% of average total average interest-bearing liabilities.
Average FHLB advanceslong-term debt increased $1.1$0.2 billion, or 735.1%19.6%, from $0.1$0.9 billion for the three months ended June 30, 2021March 31, 2022, to $1.2$1.1 billion for the three months ended June 30, 2022,March 31, 2023, primarily due to short-term funding needs.the full quarter impact of the Sterling merger on balances in 2023 as compared to the two-thirds impact for the quarter in 2022. At June 30,March 31, 2023, and 2022, average long-term debt comprised 1.7% and 1.9% of average total interest-bearing liabilities, respectively. The average rate on long-term debt increased 31 basis points from 3.34% for the three months ended March 31, 2022, to 3.65% for the three months ended March 31, 2023, primarily due to the full quarter rate impact in 2023 of the subordinated debt assumed from Sterling as compared to the two-thirds impact for the quarter in 2022.
Average securities sold under agreements to repurchase decreased $0.4 billion, or 57.7% from $0.6 billion for the three months ended March 31, 2022, to $0.2 billion for the three months ended March 31, 2023, primarily due to the Company's extinguishment of its two long-term structured repurchase agreements during the third quarter of 2022, and 2021, FHLB advancesthe timing of maturities. At March 31, 2023, and 2022, average securities sold under agreements to repurchase comprised 2.04%0.4% and 0.46%1.2% of total average interest-bearing liabilities, respectively. The average rate on FHLB advancessecurities sold under agreements to repurchase decreased 4455 basis points from 1.52%0.66% for the three months ended June 30, 2021,March 31, 2022, to 1.08%0.11% for the three months ended June 30, 2022, primarily due to market rates on new borrowings.
Average long-term debt increased $0.5 billion, or 90.4%, from $0.6 billion for the three months ended June 30, 2021, to $1.1 billion for the three months ended June 30, 2022,March 31, 2023, primarily due to the merger with Sterling. At both June 30, 2022 and 2021,Company's extinguishment of its two long-term debt comprised 1.9%structured repurchase agreements during the third quarter of total average interest-bearing liabilities. The average rate on long-term debt increased 16 basis points from 3.22% for the three months ended June 30, 2021, to 3.38% for the three months ended June 30, 2022, primarily due to the subordinated debt assumed from Sterling in the merger.
Comparison to Prior Year to Date
Net interest income increased $436.3 million, or 98.1%, from $444.6 million for the six months ended June 30, 2021, to $880.9 million for the six months ended June 30, 2022. On a fully tax-equivalent basis, net interest income increased $451.2 million. Net interest margin increased 37 basis points from 2.87% for the six months ended June 30, 2021, to 3.24% for the six months ended June 30, 2022. The increase is primarily attributed to the merger with Sterling, and includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities.
Average interest-earning assets increased $23.8 billion, or 76.0%, from $31.4 billion for the six months ended June 30, 2021, to $55.2 billion for the six months ended June 30, 2022, primarily due to increases of $18.6 billion and $5.4 billion in average loans and leases and average total investment securities, respectively. The average yield on interest-earning assets increased 39 basis points from 3.01% for the six months ended June 30, 2021, to 3.40% for the six months ended June 30, 2022. The increase in interest-earning assets and the increase in average yield were both impacted by the Sterling merger.
Average loans and leases increased $18.6 billion, or 86.7%, from $21.4 billion for the six months ended June 30, 2021, to $40.0 billion for the six months ended June 30, 2022, which was primarily due to the merger with Sterling, as well as loan growth across the commercial non-mortgage and commercial real estate categories. This growth was partially offset by lower PPP loan balances. At June 30, 2022, and 2021, the loan and lease portfolio comprised 72.5% and 68.4% of total average interest-earning assets, respectively. The average yield on loans and leases increased 40 basis points from 3.51% for the six months ended June 30, 2021, to 3.91% for the six months ended June 30, 2022, primarily due towere contracted at a higher yield on the acquired Sterling loans and leases, net purchase accounting accretion, and higher market rates.
Average total investment securities increased $5.4 billion, or 61.3%, from $8.9 billion for the six months ended June 30, 2021, to $14.3 billion for the six months ended June 30, 2022, primarily due to the merger with Sterling, as well as the deployment of excess liquidity. At June 30, 2022, and 2021, the investment securities portfolio comprised 25.9% and 28.2% of total average interest-earning assets, respectively. The average yield on investment securities decreased 1 basis points from 2.13% for the six months ended June 30, 2021, to 2.12% for the six months ended June 30, 2022. This was primarily due to the reinvestment of maturing securities at lower yields.
Average interest-bearing liabilities increased $22.3 billion, or 75.3%, from $29.7 billion for the six months ended June 30, 2021, to $52.0 billion for the six months ended June 30, 2022, primarily due to increases of $21.2 billion, $0.3 billion, $0.5 billion, and $0.4 billion in average total deposits, average federal funds purchased, average FHLB advances, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 1 basis point from 0.15% for the six months ended June 30, 2021, to 0.16% for the six months ended June 30, 2022, primarily due to higher market interest rates and the mix of funding sources.
cost.
Average total deposits increased $21.2 billion, or 74.3%, from $28.5 billion for the six months ended June 30, 2021, to $49.7 billion for the six months ended June 30, 2022, reflecting increases of $5.7 billion and $15.4 billion in non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger with Sterling, as well as the strong liquidity position of retail and commercial customers, and HSA growth. At June 30, 2022, and 2021, deposits comprised 95.4% and 95.9% of total average interest-bearing liabilities, respectively. The average rate on deposits remained flat at 0.08% for the six months ended June 30, 2022, and 2021. Time deposits as a percentage of total interest-bearing deposits decreased from 10.3% for the six months ended June 30, 2021, to 7.0% for the six months ended June 30, 2022, primarily due to customer preferences to hold more liquid, lower cost deposit products.
Average federal funds purchased increased $0.3 billion, or 731.0%, from $32.3 million for the six months ended June 30, 2021, to $0.3 billion for the six months ended June 30, 2022, primarily due to short-term funding needs. At June 30, 2022, and 2021, federal funds purchased comprised 0.52% and 0.11% of total average interest-bearing liabilities, respectively. The average rate on federal funds purchased increased 85 basis points from 0.08% for the six months ended June 30, 2021, to 0.93% for the six months ended June 30, 2022, primarily due to market interest rates.
Average FHLB advances increased $0.5 billion, or 327.92%, from $0.1 billion for the six months ended June 30, 2021, to $0.6 billion for the six months ended June 30, 2022, primarily due short-term funding needs. At June 30, 2022, and 2021, FHLB advances comprised 1.1% and 0.5% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances decreased 43 basis points from 1.52% for the six months ended June 30, 2021, to 1.09% for the six months ended June 30, 2022, primarily due to the maturity of borrowings with higher yields.
Average long-term debt increased $0.4 billion, or 74.3%, from $0.6 billion for the six months ended June 30, 2021, to $1.0 billion for the six months ended June 30, 2022, primarily due to the merger with Sterling. At both June 30, 2022, and 2021, long-term debt comprised 1.9% of total average interest-bearing liabilities. The average rate on long-term debt increased 14 basis points from 3.22% for the six months ended June 30, 2021, to 3.36% for the six months ended June 30, 2022, primarily due to the subordinated debt assumed from Sterling in the merger.
The following tables presenttable summarizes daily average balances, interest, and average yield/rate by major category, and net interest margin on a fully tax-equivalentFTE basis:
| | | Three months ended June 30, | | Three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance | Interest Income/Expense | Average Yield/Rate | | Average Balance | Interest Income/Expense | Average Yield/Rate | (Dollars in thousands) | Average Balance | Interest Income/Expense | Average Yield/Rate | | Average Balance | Interest Income/Expense | Average Yield/Rate |
| Assets | Assets | | | | Assets | |
Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
Loans and leases (1) | Loans and leases (1) | $ | 44,120,698 | | $ | 436,462 | | 3.92 | % | | $ | 21,413,439 | | $ | 186,681 | | 3.46 | % | Loans and leases (1) | $ | 50,095,192 | | $ | 725,543 | | 5.80 | % | | $ | 35,912,829 | | $ | 349,417 | | 3.90 | % |
Investment securities: (2) | Investment securities: (2) | | Investment securities: (2) | |
Taxable | Taxable | 12,573,908 | | 73,294 | | 2.27 | | | 8,106,310 | | 41,299 | | 2.06 | | Taxable | 12,093,477 | | 92,290 | | 2.91 | | | 11,461,292 | | 57,467 | | 2.02 | |
Non-taxable | Non-taxable | 2,591,606 | | 12,664 | | 1.95 | | | 728,549 | | 5,283 | | 2.90 | | Non-taxable | 2,539,768 | | 13,684 | | 2.16 | | | 1,960,251 | | 9,802 | | 2.00 | |
Total investment securities | Total investment securities | 15,165,514 | | 85,958 | | 2.22 | | | 8,834,859 | | 46,582 | | 2.13 | | Total investment securities | 14,633,245 | | 105,974 | | 2.79 | | | 13,421,543 | | 67,269 | | 2.02 | |
FHLB and FRB stock | FHLB and FRB stock | 262,695 | | 2,072 | | 3.16 | | | 77,292 | | 382 | | 1.98 | | FHLB and FRB stock | 459,375 | | 4,910 | | 4.34 | | | 166,357 | | 821 | | 2.00 | |
Interest-bearing deposits (3) | Interest-bearing deposits (3) | 488,870 | | 980 | | 0.79 | | | 1,270,121 | | 347 | | 0.11 | | Interest-bearing deposits (3) | 898,884 | | 10,396 | | 4.63 | | | 799,265 | | 453 | | 0.23 | |
| Loans held for sale | Loans held for sale | 18,172 | | 7 | | 0.15 | | | 8,898 | | 53 | | 2.37 | | Loans held for sale | 4,630 | | 16 | | 1.39 | | | 17,918 | | 26 | | 0.58 | |
Total interest-earning assets | Total interest-earning assets | 60,055,949 | | $ | 525,479 | | 3.46 | % | | 31,604,609 | | $ | 234,045 | | 2.95 | % | Total interest-earning assets | 66,091,326 | | $ | 846,839 | | 5.08 | % | | 50,317,912 | | $ | 417,986 | | 3.33 | % |
| Non-interest-earning assets | Non-interest-earning assets | 6,016,193 | | | | 1,901,412 | | | Non-interest-earning assets | 6,225,199 | | | | 4,490,665 | | |
Total assets | Total assets | $ | 66,072,142 | | | $ | 33,506,021 | | | Total assets | $ | 72,316,525 | | | $ | 54,808,577 | | |
| Liabilities and Shareholders' Equity | | |
Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | | | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Demand deposits | Demand deposits | $ | 13,395,942 | | $ | — | | — | % | | $ | 6,774,206 | | $ | — | | — | % | Demand deposits | $ | 12,629,928 | | $ | — | | — | % | | $ | 11,263,282 | | $ | — | | — | % |
Health savings accounts | Health savings accounts | 7,812,313 | | 1,125 | | 0.06 | | | 7,446,735 | | 1,650 | | 0.09 | | Health savings accounts | 8,292,450 | | 3,027 | | 0.15 | | | 7,759,465 | | 1,087 | | 0.06 | |
Interest-bearing checking, money market and savings | 29,486,846 | | 10,165 | | 0.14 | | | 12,365,074 | | 1,603 | | 0.05 | | |
Interest-bearing checking, money market, and savings | | Interest-bearing checking, money market, and savings | 29,853,370 | | 123,048 | | 1.67 | | | 24,316,436 | | 5,019 | | 0.08 | |
Time deposits | Time deposits | 2,684,914 | | 1,169 | | 0.17 | | | 2,114,889 | | 1,841 | | 0.35 | | Time deposits | 4,024,472 | | 24,129 | | 2.43 | | | 2,544,286 | | 1,293 | | 0.21 | |
Total deposits | Total deposits | 53,380,015 | | 12,459 | | 0.09 | | | 28,700,904 | | 5,094 | | 0.07 | | Total deposits | 54,800,220 | | 150,204 | | 1.11 | | | 45,883,469 | | 7,399 | | 0.07 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 529,786 | | 1,423 | | 1.06 | | | 500,638 | | 860 | | 0.68 | | Securities sold under agreements to repurchase | 243,848 | | 67 | | 0.11 | | | 577,039 | | 956 | | 0.66 | |
Federal funds purchased | Federal funds purchased | 534,518 | | 1,254 | | 0.93 | | | — | | — | | — | | Federal funds purchased | 671,175 | | 7,760 | | 4.62 | | | — | | — | | — | |
| Other borrowings | | Other borrowings | — | | — | | — | | | — | | 1 | | — | |
FHLB advances | FHLB advances | 1,156,449 | | 3,164 | | 1.08 | | | 138,483 | | 534 | | 1.52 | | FHLB advances | 5,673,826 | | 68,126 | | 4.80 | | | 10,936 | | 56 | | 2.03 | |
Long-term debt (2) | Long-term debt (2) | 1,077,395 | | 8,787 | | 3.38 | | | 565,874 | | 4,218 | | 3.22 | | Long-term debt (2) | 1,072,252 | | 9,488 | | 3.65 | | | 896,310 | | 7,168 | | 3.34 | |
Total borrowings | 3,298,148 | | 14,628 | | 1.79 | | | 1,204,995 | | 5,612 | | 1.93 | | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 56,678,163 | | $ | 27,087 | | 0.19 | % | | 29,905,899 | | $ | 10,706 | | 0.14 | % | Total interest-bearing liabilities | 62,461,321 | | $ | 235,645 | | 1.52 | % | | 47,367,754 | | $ | 15,580 | | 0.13 | % |
Non-interest-bearing liabilities | Non-interest-bearing liabilities | 1,268,461 | | | | 288,716 | | | Non-interest-bearing liabilities | 1,639,528 | | | | 749,333 | | |
Total liabilities | Total liabilities | 57,946,624 | | | 30,194,615 | | | Total liabilities | 64,100,849 | | | 48,117,087 | | |
| Preferred stock | Preferred stock | 283,979 | | | 145,037 | | | Preferred stock | 283,979 | | | 236,121 | | |
Common shareholders' equity | 7,841,539 | | | 3,166,369 | | | |
Total shareholders' equity | 8,125,518 | | | 3,311,406 | | | |
Total liabilities and shareholders' equity | $ | 66,072,142 | | | $ | 33,506,021 | | | |
Tax-equivalent net interest income | | $ | 498,392 | | | | $ | 223,339 | | | |
Less: Tax-equivalent adjustments | | (11,732) | | | (2,487) | | | |
Common stockholders' equity | | Common stockholders' equity | 7,931,697 | | | 6,455,369 | | |
Total stockholders' equity | | Total stockholders' equity | 8,215,676 | | | 6,691,490 | | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 72,316,525 | | | $ | 54,808,577 | | |
Net interest income (FTE) | | Net interest income (FTE) | | $ | 611,194 | | | | $ | 402,406 | | |
Less: FTE adjustment | | Less: FTE adjustment | | (15,911) | | | (8,158) | | |
Net interest income | Net interest income | | $ | 486,660 | | | $ | 220,852 | | | Net interest income | | $ | 595,283 | | | $ | 394,248 | | |
Net interest margin (4) | | | 3.28 | % | | | 2.82 | % | |
Net interest margin (FTE) | | Net interest margin (FTE) | | | 3.66 | % | | | 3.21 | % |
|
(1)Non-accrual loans have been included in the computation of average balances.
(2)For the purposes of our average yield/rate and margin computations, unsettled trades on investment securities and unrealized gain (loss) balances on available-for-sale securities available-for-sale and de-designated senior fixed-rate notesnote hedges are excluded.
(3)Interest-bearing deposits are included as a component of cashCash and cash equivalents on the Condensed Consolidated Statements of Cash Flows included in Part I - Item 1. Financial Statements.
(4)Tax-equivalent net interest margin approximates net interest margin for all periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2022 | | 2021 |
(Dollars in thousands) | Average Balance | Interest Income/Expense | Average Yield/Rate | | Average Balance | Interest Income/Expense | Average Yield/Rate |
| | | | | | | |
Assets | | | | | | | |
Interest-earning assets: | | | | | | | |
Loans and leases (1) | $ | 40,039,437 | | $ | 785,879 | | 3.91 | % | | $ | 21,447,192 | | $ | 377,969 | | 3.51 | % |
Investment securities: (2) | | | | | | | |
Taxable | 12,020,675 | | 130,761 | | 2.15 | | | 8,129,404 | | 82,243 | | 2.06 | |
Non-taxable | 2,277,672 | | 22,466 | | 1.97 | | | 732,910 | | 10,616 | | 2.90 | |
Total investment securities | 14,298,347 | | 153,227 | | 2.12 | | | 8,862,314 | | 92,859 | | 2.13 | |
FHLB and FRB stock | 214,792 | | 2,893 | | 2.72 | | | 77,461 | | 619 | | 1.61 | |
Interest-bearing deposits (3) | 643,210 | | 1,433 | | 0.44 | | | 976,873 | | 523 | | 0.11 | |
| | | | | | | |
Loans held for sale | 18,046 | | 33 | | 0.36 | | | 11,610 | | 144 | | 2.48 | |
Total interest-earning assets | 55,213,832 | | $ | 943,465 | | 3.40 | % | | 31,375,450 | | $ | 472,114 | | 3.01 | % |
Non-interest-earning assets | 5,257,642 | | | | | 1,941,640 | | | |
Total assets | $ | 60,471,474 | | | | | $ | 33,317,090 | | | |
| | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | |
Interest-bearing liabilities: | | | | | | | |
Demand deposits | $ | 12,335,504 | | $ | — | | — | % | | $ | 6,606,464 | | $ | — | | — | % |
Health savings accounts | 7,786,035 | | 2,212 | | 0.06 | | | 7,448,943 | | 3,257 | | 0.09 | |
Interest-bearing checking, money market and savings | 26,915,923 | | 15,184 | | 0.11 | | | 12,181,295 | | 3,323 | | 0.06 | |
Time deposits | 2,614,989 | | 2,462 | | 0.19 | | | 2,242,250 | | 4,953 | | 0.45 | |
Total deposits | 49,652,451 | | 19,858 | | 0.08 | | | 28,478,952 | | 11,533 | | 0.08 | |
| | | | | | | |
Securities sold under agreements to repurchase | 553,282 | | 2,379 | | 0.86 | | | 479,285 | | 1,482 | | 0.61 | |
Federal funds purchased | 268,735 | | 1,254 | | 0.93 | | | 32,337 | | 13 | | 0.08 | |
Other borrowings | — | | 1 | | — | | | — | | — | | — | |
FHLB advances | 586,857 | | 3,220 | | 1.09 | | | 137,143 | | 1,047 | | 1.52 | |
Long-term debt (2) | 987,353 | | 15,955 | | 3.36 | | | 566,462 | | 8,441 | | 3.22 | |
Total borrowings | 2,396,227 | | 22,809 | | 1.93 | | | 1,215,227 | | 10,983 | | 1.87 | |
Total interest-bearing liabilities | 52,048,678 | | $ | 42,667 | | 0.16 | % | | 29,694,179 | | $ | 22,516 | | 0.15 | % |
Non-interest-bearing liabilities | 1,010,331 | | | | | 339,949 | | | |
Total liabilities | 53,059,009 | | | | | 30,034,128 | | | |
| | | | | | | |
Preferred stock | 260,183 | | | | | 145,037 | | | |
Common shareholders' equity | 7,152,282 | | | | | 3,137,925 | | | |
Total shareholders' equity | 7,412,465 | | | | | 3,282,962 | | | |
Total liabilities and shareholders' equity | $ | 60,471,474 | | | | | $ | 33,317,090 | | | |
Tax-equivalent net interest income | | $ | 900,798 | | | | | $ | 449,598 | | |
Less: Tax-equivalent adjustments | | (19,890) | | | | | (4,982) | | |
Net interest income | | $ | 880,908 | | | | | $ | 444,616 | | |
Net interest margin (4) | | | 3.24 | % | | | | 2.87 | % |
|
(1)Non-accrual loans have been included in the computation of average balances.
(2)For the purposes of our average yield/rate and margin computations, unsettled trades on investment securities and unrealized gain (loss) balances on securities available-for-sale and de-designated senior fixed-rate notes hedges are excluded.
(3)Interest-bearing deposits are a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows included in Part I - Item 1. Financial Statements.
(4)Tax-equivalent net interest margin approximates net interest margin for all periods presented.
The following table summarizes the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalentFTE basis:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | 2022 vs. 2021 Increase (decrease) due to | | 2022 vs. 2021 Increase (decrease) due to | | 2023 vs. 2022 Increase (decrease) due to | |
(In thousands) | (In thousands) | Rate (1) | Volume | Total | | Rate (1) | Volume | Total | (In thousands) | Rate (1) | Volume | Total | |
Interest on interest-earning assets: | | | | |
Change in interest on interest-earning assets: | | Change in interest on interest-earning assets: | | |
Loans and leases | Loans and leases | $ | 97,892 | | $ | 151,889 | | $ | 249,781 | | | $ | 158,127 | | $ | 249,784 | | $ | 407,911 | | Loans and leases | $ | 232,942 | | $ | 143,184 | | $ | 376,126 | | |
Investment securities | Investment securities | 9,481 | | 29,895 | | 39,376 | | | 8,976 | | 51,392 | | 60,368 | | Investment securities | 32,571 | | 6,134 | | 38,705 | | |
| FHLB and FRB stock | FHLB and FRB stock | 774 | | 915 | | 1,689 | | | 1,177 | | 1,097 | | 2,274 | | FHLB and FRB stock | 2,642 | | 1,447 | | 4,089 | | |
Interest bearing-deposits | 847 | | (214) | | 633 | | | 1,089 | | (179) | | 910 | | |
Interest-bearing deposits | | Interest-bearing deposits | 9,887 | | 56 | | 9,943 | | |
Loans held for sale | Loans held for sale | 10 | | (56) | | (46) | | | 5 | | (116) | | (111) | | Loans held for sale | 1 | | (11) | | (10) | | |
Total interest income | Total interest income | $ | 109,004 | | $ | 182,429 | | $ | 291,433 | | | $ | 169,374 | | $ | 301,978 | | $ | 471,352 | | Total interest income | $ | 278,043 | | $ | 150,810 | | $ | 428,853 | | |
Interest on interest-bearing liabilities: | | | | |
Change in interest on interest-bearing liabilities: | | Change in interest on interest-bearing liabilities: | | |
| Health savings accounts | Health savings accounts | $ | (606) | | $ | 81 | | $ | (525) | | | $ | (1,193) | | $ | 147 | | $ | (1,046) | | Health savings accounts | $ | 1,865 | | $ | 75 | | $ | 1,940 | | |
Interest-bearing checking, money market, and savings | Interest-bearing checking, money market, and savings | 8,464 | | 99 | | 8,563 | | | 11,471 | | 391 | | 11,862 | | Interest-bearing checking, money market, and savings | 116,121 | | 1,908 | | 118,029 | | |
Time deposits | Time deposits | (232) | | (441) | | (673) | | | (1,254) | | (1,237) | | (2,491) | | Time deposits | 22,374 | | 462 | | 22,836 | | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 514 | | 50 | | 564 | | | 669 | | 229 | | 898 | | Securities sold under agreements to repurchase | (337) | | (552) | | (889) | | |
Federal funds purchased | Federal funds purchased | 1,254 | | — | | 1,254 | | | 1,147 | | 95 | | 1,242 | | Federal funds purchased | 7,760 | | — | | 7,760 | | |
Other borrowings | Other borrowings | — | | — | | — | | | 1 | | — | | 1 | | Other borrowings | (1) | | — | | (1) | | |
FHLB advances | FHLB advances | (1,289) | | 3,920 | | 2,631 | | | (1,260) | | 3,433 | | 2,173 | | FHLB advances | 39,304 | | 28,766 | | 68,070 | | |
Long-term debt | Long-term debt | 445 | | 4,121 | | 4,566 | | | 728 | | 6,785 | | 7,513 | | Long-term debt | 850 | | 1,470 | | 2,320 | | |
Total interest expense | Total interest expense | $ | 8,550 | | $ | 7,830 | | $ | 16,380 | | | $ | 10,309 | | $ | 9,843 | | $ | 20,152 | | Total interest expense | $ | 187,936 | | $ | 32,129 | | $ | 220,065 | | |
Net change in net interest income | Net change in net interest income | $ | 100,454 | | $ | 174,599 | | $ | 275,053 | | | $ | 159,065 | | $ | 292,135 | | $ | 451,200 | | Net change in net interest income | $ | 90,107 | | $ | 118,681 | | $ | 208,788 | | |
(1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
Provision for Credit Losses
Comparison to Prior Year Quarter
The provision for credit losses increased $33.7totaled $46.7 million or 156.9%, from a benefit of $21.5and $188.8 million for the three months ended June 30, 2021, to an expense of $12.2 millionMarch 31, 2023, and 2022, respectively. The balance for the three months ended June 30, 2022. The increase is primarily attributed to the release of reserves in the prior period as a result of improvements in the forecasted economic outlook and favorable credit trends at June 30, 2021, as the COVID-19 pandemic receded. During the three months ended June 30,March 31, 2022, and 2021, total net charge-offs (recoveries) were $9.6 million and $(1.2) million, respectively. The $10.8 million increase is primarily attributed to an increase in net charge-offs in the commercial non-mortgage, commercial real estate, and home equity categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.
Comparison to Prior Year to Date
The provision for credit losses increased $248.4 million, or 525.6%, from a benefit of $47.3 million for the six months ended June 30, 2021, to an expense of $201.1 million for the six months ended June 30, 2022. The increase is primarily attributed toincluded the establishment of the initial ACL of $175.1 million for non-purchased credit deteriorated (PCD)non-PCD loans and leases that were acquired from Sterling as well asin the merger. Excluding this charge, the provision for credit losses increased $33.0 million, primarily due to the impact of the current macroeconomic environment on credit performance and organic loan growth.
During the sixthree months ended June 30,March 31, 2023, and 2022, and 2021, total net charge-offs were $18.5$24.5 million and $4.2$8.9 million, respectively. The $14.3net increase of $15.6 million increase is primarily attributeddue to an increase in net charge-offs in the asset-based lending and commercial non-mortgage category,real estate categories, partially offset by a decrease in net charge-offs in the commercial real estate and other consumer categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.non-mortgage category.
Additional information regarding the Company's provision for credit losses and ACL can be found under the sections captioned "Loans and Leases" through "Allowance for Credit Losses"Losses on Loans and Leases" contained elsewhere in Part I - this
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Non-Interest Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
(Dollars in thousands) | 2022 | | 2021 | | | | | 2022 | | 2021 | | | |
Deposit service fees | $ | 51,385 | | | $ | 41,439 | | | | | | $ | 99,212 | | | $ | 81,908 | | | | |
Loan and lease related fees | 27,907 | | | 7,862 | | | | | | 50,586 | | | 16,175 | | | | |
Wealth and investment services | 11,244 | | | 10,087 | | | | | | 21,841 | | | 19,490 | | | | |
Mortgage banking activities | 102 | | | 1,319 | | | | | | 530 | | | 3,961 | | | | |
Increase in cash surrender value of life insurance policies | 8,244 | | | 3,603 | | | | | | 14,976 | | | 7,136 | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other income | 22,051 | | | 8,392 | | | | | | 37,823 | | | 20,789 | | | | |
Total non-interest income | $ | 120,933 | | | $ | 72,702 | | | | | | $ | 224,968 | | | $ | 149,459 | | | | |
Comparison to Prior Year Quarter | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
(In thousands) | 2023 | | 2022 | | | |
Deposit service fees | $ | 45,436 | | | $ | 47,827 | | | | |
Loan and lease related fees | 23,005 | | | 22,679 | | | | |
Wealth and investment services | 6,587 | | | 10,597 | | | | |
Mortgage banking activities | 59 | | | 428 | | | | |
Increase in cash surrender value of life insurance policies | 6,728 | | | 6,732 | | | | |
(Loss) on sale of investment securities | (16,747) | | | — | | | | |
| | | | | | |
Other income | 5,698 | | | 15,772 | | | | |
Total non-interest income | $ | 70,766 | | | $ | 104,035 | | | | |
Total non-interest income increased $48.2decreased $33.2 million, or 66.3%32.0%, from $72.7$104.0 million for the three months ended June 30, 2021March 31, 2022, to $120.9$70.8 million for the three months ended June 30, 2022,March 31, 2023, primarily due to increasesa loss on sale of investment securities and decreases in deposit service fees, loan and lease related fees,other income, wealth and investment services, and deposit service fees.
During the cash surrender valuethree months ended March 31, 2023, the Company sold $415.9 million of life insurance policies,U.S. Treasury notes and otherCorporate debt securities classified as available-for-sale for proceeds of $395.4 million, which resulted in $20.5 million of gross realized losses. The $16.7 million loss on sale of investment securities included in non-interest income represents the majorityportion of whichthe total charge that was not attributed to a decline in credit quality. There were primarily driven byno sales of available-for-sale securities during the merger with Sterling, partially offset by a decrease in mortgage banking activities.three months ended March 31, 2022.
Deposit service fees increased $10.0Other income decreased $10.1 million, or 24.0%63.9%, from $41.4$15.8 million for the three months ended June 30, 2021March 31, 2022, to $51.4$5.7 million for the three months ended June 30, 2022,March 31, 2023, primarily due to the merger with Sterling, as well as higher interchangelower income generated from increased debit card spending in the HSAcustomer interest rate derivative activities and Consumer Banking segments.direct investments.
LoanWealth and lease related fees increased $20.0investment services decreased $4.0 million, or 255.0%37.8%, from $7.9$10.6 million for the three months ended June 30, 2021March 31, 2022, to $27.9$6.6 million for the three months ended June 30, 2022,March 31, 2023, primarily due to the merger with Sterling, which included $3.1 million of operating lease income, as well as an increase in prepayment penalties, syndication fees, and other loan related fees.
Wealth andlower net investment services increased $1.1income, which is a direct result of the outsourcing of the consumer investment services platform effective as of the fourth quarter of 2022.
Deposit service fees decreased $2.4 million, or 11.5%5.0%, from $10.1$47.8 million for the three months ended June 30, 2021March 31, 2022, to $11.2$45.4 million for the three months ended June 30, 2022,March 31, 2023, primarily due to the merger with Sterling.lower customer account service and cash management/analysis fees, partially offset by higher interchange income.
Mortgage banking activities
Non-Interest Expense | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
(In thousands) | 2023 | | 2022 | | | |
Compensation and benefits | $ | 173,200 | | | $ | 184,002 | | | | |
Occupancy | 20,171 | | | 18,615 | | | | |
Technology and equipment | 44,366 | | | 55,401 | | | | |
Intangible assets amortization | 9,497 | | | 6,387 | | | | |
Marketing | 3,476 | | | 3,509 | | | | |
Professional and outside services | 32,434 | | | 54,091 | | | | |
Deposit insurance | 12,323 | | | 5,222 | | | | |
Other expense | 37,000 | | | 32,558 | | | | |
Total non-interest expense | $ | 332,467 | | | $ | 359,785 | | | | |
Total non-interest expense decreased $1.2$27.3 million, or 92.3%7.6%, from $1.3$359.8 million for the three months ended June 30, 2021March 31, 2022, to $0.1$332.5 million for the three months ended June 30, 2022,March 31, 2023, primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale.decreases in professional and outside services, technology and equipment, and compensation and benefits, partially offset by increases in other expense, deposit insurance, and intangible assets amortization.
The cash surrender value of life insurance policies increased $4.6Professional and outside services decreased $21.7 million, or 128.8%40.0%, from $3.6$54.1 million for the three months ended June 30, 2021March 31, 2022, to $8.2$32.4 million for the three months ended June 30, 2022, primarily due to the additional bank-owned life insurance policies acquired in the merger with Sterling.
Other income increased $13.7 million, or 162.8%, from $8.4 million for the three months ended June 30, 2021 to $22.1 million for the three months ended June 30, 2022, primarily due to higher income from client interest rate derivative activities.
Comparison to Prior Year to Date
Total non-interest income increased $75.5 million, or 50.5%, from $149.5 million for the six months ended June 30, 2021 to $225.0 million for the six months ended June 30, 2022, due to increases in deposit service fees, loan and lease related fees, wealth and investment services, the cash surrender value of life insurance policies, and other income, the majority of which were primarily driven by the merger with Sterling, partially offset by a decrease in mortgage banking activities.
Deposit service fees increased $17.3 million, or 21.1%, from $81.9 million for the six months ended June 30, 2021 to $99.2 million for the six months ended June 30, 2022, primarily due to the merger with Sterling, as well as higher interchange income from increased debit card spending in the HSA and Consumer Banking segments.
Loan and lease related fees increased $34.4 million, or 212.7%, from $16.2 million for the six months ended June 30, 2021 to $50.6 million for the six months ended June 30, 2022, primarily due to the merger with Sterling, which included $5.3 million of operating lease income, as well as an increase in prepayment penalties, syndication fees, and other loan related fees.
Wealth and investment services increased $2.3 million, or 12.1%, from $19.5 million for the six months ended June 30, 2021 to $21.8 million for the six months ended June 30, 2022, primarily due to the merger with Sterling.
Mortgage banking activities decreased $3.5 million, or 86.6%, from $4.0 million for the six months ended June 30, 2021 to $0.5 million for the six months ended June 30, 2022, primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale.
The cash surrender value of life insurance policies increased $7.9 million, or 109.9%, from $7.1 million for the six months ended June 30, 2021 to $15.0 million for the six months ended June 30, 2022, primarily due to the additional bank-owned life insurance policies acquired in the merger with Sterling.
Other income increased $17.0 million, or 81.9%, from $20.8 million for the six months ended June 30, 2021 to $37.8 million for the six months ended June 30, 2022, primarily due to an increase in income due to the impact of the merger with Sterling, higher income from client interest rate derivative activities, and gains on sale of loans not originated for sale.
Non-Interest Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
(Dollars in thousands) | 2022 | | 2021 | | | | | 2022 | | 2021 | | | |
Compensation and benefits | $ | 187,656 | | | $ | 97,754 | | | | | | $ | 371,658 | | | $ | 205,354 | | | | |
Occupancy | 51,593 | | | 14,010 | | | | | | 70,208 | | | 29,660 | | | | |
Technology and equipment | 41,498 | | | 27,124 | | | | | | 96,899 | | | 55,640 | | | | |
Intangible assets amortization | 8,802 | | | 1,132 | | | | | | 15,189 | | | 2,271 | | | | |
Marketing | 3,441 | | | 3,227 | | | | | | 6,950 | | | 5,731 | | | | |
Professional and outside services | 15,332 | | | 21,025 | | | | | | 69,423 | | | 30,801 | | | | |
Deposit insurance | 6,748 | | | 3,749 | | | | | | 11,970 | | | 7,705 | | | | |
Other expense | 43,157 | | | 19,007 | | | | | | 75,715 | | | 37,848 | | | | |
Total non-interest expense | $ | 358,227 | | | $ | 187,028 | | | | | | $ | 718,012 | | | $ | 375,010 | | | | |
Comparison to Prior Year Quarter
Total non-interest expense increased $171.2 million, or 91.5%, from $187.0 million for the three months ended June 30, 2021 to $358.2 million for the three months ended June 30, 2022, primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, deposit insurance, and other expense, all of which were primarily driven by the merger with Sterling, partially offset by a decrease in professional and outside services.
Compensation and benefits increased $89.9 million, or 92.0%, from $97.8 million for the three months ended June 30, 2021 to $187.7 million for the three months ended June 30, 2022,March 31, 2023, primarily due to a $23.7 million increase in merger-related expenses, particularly as it relates to severance, retention, and executive synergy stock awards, and higher salaries and incentives related to the increase in employees as a result of the merger.
Occupancy increased $37.6 million, or 268.3%, from $14.0 million for the three months ended June 30, 2021 to $51.6 million for the three months ended June 30, 2022, primarily due to the Company's consolidation plan to reduce its corporate facility square footage, which resulted in a $23.1 million ROU asset impairment charge in the second quarter of 2022, and a combined $7.7 million in related exit costs and accelerated depreciation on property and equipment, as well as additional operating lease costs and depreciation related to the acquired Sterling banking centers and corporate offices.
Technology and equipment increased $14.4 million, or 53.0%, from $27.1 million for the three months ended June 30, 2021 to $41.5 million for the three months ended June 30, 2022, primarily due to an increase in technology and equipment service contracts due to the impact of the merger with Sterling.
Intangible assets amortization increased $7.7 million, or 677.6%, from $1.1 million for the three months ended June 30, 2021 to $8.8 million for the three months ended June 30, 2022, due to the additional amortization expense related to the core deposit and customer relationship intangible assets acquired in connection with the Sterling merger and Bend acquisition.
Professional and outside services decreased $5.7 million, or 27.1%, from $21.0 million for the three months ended June 30, 2021 to $15.3 million for the three months ended June 30, 2022, primarily due to a $12.5$24.4 million decrease in merger-related expenses, particularly as it relates to advisory legal, and consultinglegal fees, partially offset by an increase in other professional service costs due to the impact of the merger with Sterling.fees.
Deposit insurance increased $3.0Technology and equipment decreased $11.0 million, or 80.0%19.9%, from $3.7$55.4 million for the three months ended June 30, 2021March 31, 2022, to $6.7$44.4 million for the three months ended June 30, 2022,March 31, 2023, primarily due to an increasea $20.8 million decrease in merger-related expenses, particularly as it relates to contract termination costs. Included in the Company's deposit insurance assessment basebalance for the three months ended
March 31, 2023, is a reduction of $4.8 million to a previously recorded technology-related contract termination charge resulting from a change in the merger with Sterling.expected use of certain services post core conversion.
Other expense increased $24.2Compensation and benefits decreased $10.8 million, or 127.1%5.9%, from $19.0$184.0 million for the three months ended June 30, 2021March 31, 2022, to $43.2$173.2 million for the three months ended June 30, 2022,March 31, 2023, primarily due to an increasea $30.5 million decrease in merger-related expenses, particularly as it relates to severance and retention, and the outsourcing of the consumer investment services platform effective as of the fourth quarter of 2022, partially offset by the full quarter impact in 2023 of salaries and incentives from the Sterling merger compared to a two-thirds impact for the quarter in 2022.
Other expense increased $4.4 million, or 13.6%, from $32.6 million for the three months ended March 31, 2022, to $37.0 million for the three months ended March 31, 2023, primarily due to the full quarter impact in 2023 of other expenses from the Sterling merger with Sterling, which included $2.4compared to the two-thirds impact for the quarter in 2022, partially offset by a $3.9 million of operating lease depreciation, and a $6.6 million increasedecrease in merger-related expenses, particularly as it relates to disposals ofon property and equipment and litigation costs.equipment. Included in the balance reported for the three months ended March 31, 2023, is a reduction of $1.7 million to a previously recorded contract termination charge resulting from a decrease in volume usage.
Comparison to Prior Year to Date
Total non-interest expenseDeposit insurance increased $343.0$7.1 million, or 91.5%136.0%, from $375.0$5.2 million for the sixthree months ended June 30, 2021March 31, 2022, to $718.0$12.3 million for the sixthree months ended June 30, 2022, primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, professional and outside services, deposit insurance, and other expense, all of which were primarily driven by the merger with Sterling.
Compensation and benefits increased $166.3 million, or 81.0%, from $205.4 million for the six months ended June 30, 2021 to $371.7 million for the six months ended June 30, 2022, primarily due to a $65.2 million increase in merger-related expenses, particularly as it relates to severance, retention, and executive synergy stock awards, and higher salaries and incentives related to the increase in employees as a result of the merger, partially offset by a decrease in strategic initiatives charges.
Occupancy increased $40.5 million, or 136.7%, from $29.7 million for the six months ended June 30, 2021 to $70.2 million for the six months ended June 30, 2022,March 31, 2023, primarily due to the Company's consolidation plan to reduce its corporate facility square footage,increased initial base deposit insurance assessment rate schedules adopted by the FDIC, which resulted in a $23.1 million ROU asset impairment charge intook effect as of the secondfirst quarter of 2022,2023 for all insured depository institutions, and a combined $7.7 million in related exit costs and accelerated depreciation on property and equipment, as well as additional operating lease costs and depreciation related to the acquired Sterling banking centers and corporate offices. These increases were partially offset by a decrease in strategic initiatives charges.
Technology and equipment increased $41.3 million, or 74.2%, from $55.6 million for the six months ended June 30, 2021 to $96.9 million for the six months ended June 30, 2022, primarily due to a $19.9 million increase in merger-related expenses, which included $17.7 million in contract termination costs, and an increase in technology and equipment service contracts due to the impact of the merger with Sterling.asset growth.
Intangible assets amortization increased $12.9$3.1 million, or 568.8%48.7%, from $2.3$6.4 million for the sixthree months ended June 30, 2021March 31, 2022, to $15.2$9.5 million for the sixthree months ended June 30, 2022,March 31, 2023, due to the additional amortization expense related to the broker dealer relationship and non-competition agreement intangible assets recorded in connection with the interLINK acquisition, and the full quarter impact in 2023 of accelerated amortization on core depositdeposits and customer relationship intangible assets acquiredrecorded in connection with the Sterling merger and Bend acquisition.
Professional and outside services increased $38.6 million, or 125.4%, from $30.8 million for the six months ended June 30, 2021 to $69.4 million for the six months ended June 30, 2022, primarily due to a $32.0 million increase in merger-related expenses, particularly as it relates to advisory, legal, and consulting fees, and an increase in professional service costs due to the impact of the merger with Sterling, partially offset by a decrease in strategic initiative charges.Deposit insurance increased $4.3 million, or 55.4%, from $7.7 million for the six months ended June 30, 2021 to $12.0 million for the six months ended June 30, 2022, primarily due to an increase in the Company's deposit insurance assessment base resulting from the merger with Sterling.
Other expense increased $37.9 million, or 100.1%, from $37.8 million for the six months ended June 30, 2021 to $75.7 million for the six months ended June 30, 2022, primarily due to an increase in expenses due to the impact of the merger with Sterling, which included $4.1 million of operating lease depreciation, and a $9.6 million increase in merger-related expenses, particularly as it relates to disposals of property and equipment, litigation costs, and transfer taxes.
Income Taxes
Comparison to Prior Year Quarter
WebsterThe Company recognized income tax expense of $54.8$65.8 million and $34.0an income tax benefit of $33.6 million for the three months ended June 30,March 31, 2023, and 2022, and 2021, respectively, reflecting effective tax rates of 23.1% and 26.6%, respectively.
The increase in income tax expense is due to a higher level of pre-tax income recognized during the three months ended June 30, 2022, resulting from the impact of the Company's merger with Sterling. The decrease in thean effective tax rate primarily reflects a reduction in merger-related expenses recognized during the three months ended June 30, 2022, that were estimated to be nondeductibleof 23.0% for income tax purposes, as compared to the three months ended June 30, 2021, which also reflected a lower level of pre-tax income. The decrease in the effective tax rate also reflects increased tax-exempt income and tax credits, partially offset by the effects of a higher level of pre-tax income and rate of state and local tax (SALT) in 2022 as compared to 2021, resulting from the merger with Sterling.
Comparison to Prior Year to Date
Webster recognized income tax expense of $21.2 million and $64.2 million for the six months ended June 30, 2022, and 2021, respectively, reflecting effective tax rates of 11.4% and 24.1%, respectively.
The decrease in both income tax expense and the effective tax rate primarily reflects the Company's $50.3 million pre-tax loss recognized during the three months ended March 31, 2022, which was driven by the one-time charges incurred as a result2023, and an effective tax benefit rate of the merger with Sterling. These decreases also reflect the $13.7 million deferred SALT benefit recognized during66.7% for the three months ended March 31, 2022.
The income tax benefit of $33.6 million for the first quarter of 2022 reflected the recognition of the pre-tax net loss and the tax benefits associated with the merger with Sterling, making comparisons to the current period not meaningful. The $65.8 million of which $9.9 million related to a change in management's estimate aboutincome tax expense and the realizability23.0% effective tax rate for the first quarter of its SALT deferred tax assets (DTAs) due to2023 reflects the application of an estimated increase in future taxable income. These effects were partially offset byannual effective tax rate of 22.3% for 2023 and the effectrecognition of $28.4 million of merger-related expenses recognizeddiscrete items during the six months ended June 30, 2022 that were estimated to be nondeductible for income tax purposes, as compared to $16.1 million recognized during the six months ended June 30, 2021.
At June 30, 2022, and December 31, 2021, Webster recorded a valuation allowance on its DTAs of $29.2 million and $37.4 million, respectively. The $29.2 million at June 30, 2022, reflects a reduction of $9.9 million for the change in estimate discussed above, and includes a $1.7 million valuation allowance related to the Bend acquisition. At June 30, 2022, and December 31, 2021, Webster's gross DTAs included $68.7 million and $64.4 million, respectively, applicable to SALT net operating loss carryforwards that are available to offset future taxable income. The $68.7 million at June 30, 2022, includes $5.6 million related to the Sterling merger and $1.1 million related to the Bend acquisition. Webster's total gross DTAs at June 30, 2022, also included $5.6 million and $0.5 million, respectively, of federal net operating loss and credit carryforwards related to the Sterling merger and Bend acquisition, which are subject to annual limitations on utilization.
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 June 30, 2022. However, it is possible that some or all of Webster'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 to vary significantly from the Company's forecasts and, in turn, impact its future results of operations.period.
Additional information regarding Webster'sthe Company's income taxes, including its DTAs, can be found within Note 10:9: Income Taxes in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Segment Reporting
Webster'sThe Company's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Segments are evaluated using pre-tax, pre-provision net revenue (PPNR).PPNR. Certain Treasury activities, including the operations of interLINK, along with the amounts required to reconcile profitability metrics to those 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 16: Segment Reporting in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
Effective January 1, 2022, Webster realigned its investment services operations from Commercial Banking to Consumer Banking to better serve its customers and deliver operational efficiencies. Under this realignment, $125.4 million of deposits and $4.3 billion of assets under administration (off-balance sheet) were reassigned from Commercial Banking to Consumer Banking. There was no goodwill reallocation nor goodwill impairment as a result of the reorganization. In addition, the non-interest expense allocation methodology was modified to exclude certain overhead and merger-related costs that are not directly related to segment performance. Prior period results of operations have been recast accordingly to reflect the realignment.
The following is a description of Webster’sthe Company’s three reportable segments and their primary services:
Commercial Banking serves corporate customersbusinesses with more than $2 million of revenuesrevenue through its Commercial Real Estate Business Banking, Capitaland Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Mortgage Warehouse Lending,Verticals and Support, Private Banking, and Treasury Management components.business units.
HSA Bank offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter 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 savings, in accordance with applicable laws. HSAs 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 its loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income.
Consumer Banking serves individual customers and small businesses with less than $2 million of revenues by offering consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and investment services. Consumer Banking operates a distribution network consisting of 202201 banking centers and 359351 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and the New York Metro and Suburban markets.
Commercial Banking
Operating Results: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net interest income | $ | 333,421 | | | $ | 140,589 | | | $ | 620,490 | | | $ | 282,075 | |
Non-interest income | 49,430 | | | 18,378 | | | 88,173 | | | 36,754 | |
Non-interest expense | 102,720 | | | 46,275 | | | 191,960 | | | 92,559 | |
Pre-tax, pre-provision net revenue | $ | 280,131 | | | $ | 112,692 | | | $ | 516,703 | | | $ | 226,270 | |
Comparison to Prior Year Quarter | | | | | | | | | | | |
| Three months ended March 31, |
(In thousands) | 2023 | | 2022 |
Net interest income | $ | 384,314 | | | $ | 287,069 | |
Non-interest income | 35,397 | | | 38,743 | |
Non-interest expense | 108,509 | | | 89,240 | |
Pre-tax, pre-provision net revenue | $ | 311,202 | | | $ | 236,572 | |
Commercial Banking's PPNR increased $167.4$74.6 million, or 148.6%31.5%, for the three months ended June 30, 2022,March 31, 2023, as compared to the three months ended June 30, 2021,March 31, 2022, due to increasesan increase in both net interest income and non-interest income, partially offset by a decrease in non-interest income and an increase in non-interest expense, all of which were primarily driven by the merger with Sterling.expense. The $192.8$97.2 million increase in net interest income is primarily attributeddue to incrementalthe full quarter impact of the Sterling merger on balances in 2023 as compared to the two-thirds impact for the quarter in 2022, organic loan and deposit balances acquired from Sterling, loan and deposit growth, and the higher interest rates.rate environment. The $31.1$3.3 million increasedecrease in non-interest income is primarily attributed to incremental fee income due to the merger, increased client hedging activity,lower prepayment penalties, cash management fees, and loan and lease relatedcustomer interest rate derivative activities, partially offset by higher syndication fees. The $56.4$19.3 million increase in non-interest expense is primarily attributed to incremental expenses incurred relateddue to the acquiredfull quarter impact of expenses from the Sterling commercial business, and costs to support growth within the loan and deposit portfolios.
Comparison to Prior Year to Date
Commercial Banking's PPNR increased $290.4 million, or 128.4%, for the six months ended June 30, 2022merger in 2023 as compared to the six months ended June 30, 2021, due to increasestwo-thirds impact for the quarter in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $338.4 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired from Sterling, and loan and deposit growth. The $51.4 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, increased client hedging activity, and loan and lease related fees. The $99.4 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquired Sterling commercial business, and costs to support growth within the loan and deposit portfolios.2022.
Selected Balance Sheet and Off-Balance Sheet Information: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Loans and leases | Loans and leases | $ | 36,635,027 | | | $ | 15,209,515 | | Loans and leases | $ | 41,286,860 | | | $ | 40,115,067 | |
Deposits | Deposits | 20,501,166 | | | 9,519,362 | | Deposits | 18,297,574 | | | 19,563,227 | |
| Assets under administration / management (off-balance sheet) | Assets under administration / management (off-balance sheet) | 2,266,476 | | | 2,869,385 | | Assets under administration / management (off-balance sheet) | 2,670,273 | | | 2,258,635 | |
Loans and leases increased $21.4$1.2 billion, or 140.9%2.9%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to the merger with Sterling andorganic growth withinin the sponsor and specialty line of business. Total portfolio originations for the six months ended June 30, 2022 and 2021 were $6.2 billion and $2.6 billion, respectively. The $3.6 billion increase was primarily attributed to the merger with Sterling, along with increased commercial non-mortgage and commercial real estate categories, partially offset by net principal paydowns in the warehouse lending, equipment finance, and asset-based lending categories. Total portfolio originations for the three months ended March 31, 2023, and 2022, were $3.0 billion and $2.0 billion, respectively. The $1.0 billion increase was primarily due to the timing of the Sterling merger in 2022, and an increase in commercial non-mortgage originations.
Deposits increased $11.0decreased $1.3 billion, or 115.4%6.5%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily resulting from customers rebalancing their deposit concentrations due to the merger with Sterling.current banking environment.
Commercial Banking held $0.6$0.8 billion and $0.8$0.6 billion in assets under administration and $1.7$1.9 billion and $2.1$1.7 billion in assets under management at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The combined decreaseincrease of $602.9 million,$0.4 billion, or 21.0%18.2%, was primarily due to lowercustomers shifting their deposits into investment accounts to purchase U.S. Treasury securities with government-backing, and higher valuations in the equity markets during the sixthree months ended June 30, 2022.March 31, 2023.
HSA Bank
Operating Results: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net interest income | $ | 49,558 | | | $ | 42,193 | | | $ | 94,135 | | | $ | 84,302 | |
Non-interest income | 26,552 | | | 26,554 | | | 53,510 | | | 53,559 | |
Non-interest expense | 37,540 | | | 32,423 | | | 73,949 | | | 68,428 | |
Pre-tax net revenue | $ | 38,570 | | | $ | 36,324 | | | $ | 73,696 | | | $ | 69,433 | |
Comparison to Prior Year Quarter | | | | | | | | | | | |
| Three months ended March 31, |
(In thousands) | 2023 | | 2022 |
Net interest income | $ | 71,730 | | | $ | 44,577 | |
Non-interest income | 24,067 | | | 26,958 | |
Non-interest expense | 43,700 | | | 36,409 | |
Pre-tax net revenue | $ | 52,097 | | | $ | 35,126 | |
HSA Bank's pre-tax net revenue increased $2.2$17.0 million, or 6.2%48.3%, for the three months ended June 30, 2022,March 31, 2023, as compared to the three months ended June 30, 2021,March 31, 2022, primarily due to an increase in net interest income, which was partially offset by a decrease in non-interest income and an increase in non-interest expense. Non-interest income remained flat on a comparative basis. The $7.4$27.2 million increase in net interest income is primarily attributeddue to an increase in the net deposit interest rate spread on deposits and overallorganic deposit growth. The $5.1$2.9 million decrease in non-interest income is primarily due to lower customer account service fees. The $7.3 million increase in non-interest expense is primarily attributed to incremental expenses from Bend's acquired business, as well as an increase in temporary help, consulting, and travel expenses.
Comparison to Prior Year to Date
HSA Bank's pre-tax net revenue increased $4.3 million, or 6.1%, for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to an increase in net interest income, which was partially offset by an increase in non-interest expense. Non-interest income remained flat on a comparative basis. The $9.8 million increase in net interest income is primarily attributedcompensation costs, higher service contract expenses related to an increase inadditional account holders, and the net interest rate spread on deposits and overall deposit growth. The $5.5 million increase in non-interest expense is primarily attributed to incrementalfull quarter of expenses expenses from Bend's acquired business, as well as an increasethe Bend acquisition in temporary help, consulting, and travel expenses.2023 compared to the one-half impact for the quarter in 2022.
Selected Balance Sheet and Off-Balance Sheet Information: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Deposits | Deposits | $ | 7,777,853 | | | $ | 7,397,997 | | Deposits | $ | 8,272,534 | | | $ | 7,944,919 | |
| Assets under administration, through linked investment accounts (off-balance sheet) | Assets under administration, through linked investment accounts (off-balance sheet) | 3,277,359 | | | 3,718,610 | | Assets under administration, through linked investment accounts (off-balance sheet) | 3,775,869 | | | 3,393,832 | |
|
Deposits increased $379.9 million,$0.3 billion, or 5.1%4.1%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to an increase in the number of account holders and organic deposit growth, which was partially offset by a decrease in third party administrator deposits.growth. HSA Bank deposits accounted for approximately 15.0% and 14.7% and 24.8% of Webster'sthe Company's total consolidated deposits at June 30, 2022March 31, 2023, and December 31, 2021, respectively, with the lower mix driven by the inflow of deposits as a result of the merger with Sterling.2022, respectively.
Assets under administration, through linked investment accounts, decreased $441.3 million,increased $0.4 billion, or 11.9%11.3%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to loweradditional account holders and higher valuations in the equity markets during the sixthree months ended June 30, 2022, which was partially offset by additional account holders and balances from the acquisition of Bend.March 31, 2023.
Consumer Banking
Operating Results: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net interest income | $ | 179,067 | | | $ | 93,075 | | | $ | 315,647 | | | $ | 182,440 | |
Non-interest income | 30,784 | | | 24,098 | | | 58,676 | | | 46,970 | |
Non-interest expense | 107,312 | | | 74,149 | | | 203,059 | | | 149,460 | |
Pre-tax, pre-provision net revenue | $ | 102,539 | | | $ | 43,024 | | | $ | 171,264 | | | $ | 79,950 | |
Comparison to Prior Year Quarter | | | | | | | | | | | |
| Three months ended March 31, |
(In thousands) | 2023 | | 2022 |
Net interest income | $ | 210,583 | | | $ | 136,677 | |
Non-interest income | 25,959 | | | 27,901 | |
Non-interest expense | 106,879 | | | 95,510 | |
Pre-tax, pre-provision net revenue | $ | 129,663 | | | $ | 69,068 | |
Consumer Banking's PPNR increased $59.5$60.6 million, or 138.3%87.7%, for the three months ended June 30, 2022March 31, 2023, as compared to the three months ended June 30, 2021,March 31, 2022, due to increasesan increase in both net interest income and non-interest income, partially offset by a decrease in non-interest income and an increase in non-interest expense, all of which were primarily driven by the merger with Sterling.expense. The $86.0$73.9 million increase in net interest income is primarily attributeddue to incremental loanthe full quarter impact of the Sterling merger on balances in 2023 as compared to the two-thirds impact for the quarter in 2022, and deposit balances acquired from Sterling, loan and deposit growth, andthe higher interest rates.rate environment. The $6.7$1.9 million increasedecrease in non-interest income is primarily attributed to incremental fee income due to lower net investment services income driven by the merger, and increased deposit servicing and loan and lease related fees, which wereoutsourcing of the consumer investment services platform in the fourth quarter of 2022, partially offset by lower mortgage banking activities and investmenthigher deposit service fees.fee income. The $33.2$11.4 million increase in non-interest expense is primarily attributed to incremental expenses incurred relateddue to the acquiredfull quarter impact of expenses from the Sterling consumer business, which was partially offset by the benefits of costs savings initiatives implemented over the course of 2021.
Comparison to Prior Year to Date
Consumer Banking's PPNR increased $91.3 million, or 114.2%, for the six months ended June 30, 2022merger in 2023 as compared to the six months ended June 30, 2021, due to increasestwo-thirds impact for the quarter in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $133.2 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired from Sterling, loan and deposit growth, and lower interest paid on deposits. The $11.7 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, and increased deposit servicing and loan and lease related fees, which were2022, partially offset by lower mortgage banking activitiescompensation and investment service fees. The $53.6 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquired Sterling consumer business, which was partially offset by the benefits of costs savings initiatives implemented over the course of 2021.expenses.
Selected Balance Sheet and Off-Balance Sheet Information: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Loans | Loans | $ | 8,964,922 | | | $ | 7,062,182 | | Loans | $ | 9,617,093 | | | $ | 9,624,465 | |
Deposits | Deposits | 23,841,133 | | | 12,926,302 | | Deposits | 23,698,094 | | | 23,609,941 | |
Assets under administration (off-balance sheet) | Assets under administration (off-balance sheet) | 7,535,824 | | | 4,332,901 | | Assets under administration (off-balance sheet) | 7,750,020 | | | 7,872,397 | |
Loans increased $1.9 billion,decreased $7.4 million, or 26.9%0.1%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to the merger with Sterling and growthnet principal paydowns in residential mortgage and home equity loans, partially offset by the forgiveness of PPP loans,balances and the continued run-off of consumer Lending Club loans.loans, partially offset by growth in residential mortgages. Total portfolio originations forduring the sixthree months ended June 30,March 31, 2023, and 2022, and 2021 were $1.4$0.3 billion and $1.7$0.6 billion, respectively. The $0.3 billion decrease was primarily attributeddue to increasedthe increase in market rates, which resulted in lower residential mortgage loan originations, as well as the cessation of PPP loan originations effective May 31, 2021.originations.
Deposits increased $10.9$0.1 billion, or 84.4%0.4%, at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, as customer preferences shifted from lower rate checking and savings products into higher rate certificates of deposit products.
Assets under administration decreased $0.1 billion, or 1.6% at March 31, 2023, as compared to at December 31, 2022, primarily due to the merger with Sterling. Customer preferences for maintaining liquidity resulted in higher balances in small business and consumer transaction accounts, particularly across savings accounts and money markets, as account holders with maturing certificates of deposit migrated to more liquid deposit products.
Consumer Banking held $7.5 billion and $4.3 billion in assets under administration at June 30, 2022, and December 31, 2021, respectively. The $3.2 billion increase was primarily due to the merger with Sterling,customer investment outflows, partially offset by lowerhigher valuations in the equity markets during the sixthree months ended June 30, 2022.March 31, 2023.
Financial Condition
Total assets increased $32.7$3.5 billion, or 93.6%5.0%, from $34.9$71.3 billion at December 31, 20212022, to $67.6$74.8 billion at June 30, 2022.March 31, 2023. The change in total assets was primarily attributed to the following:following, which experienced changes greater than $100 million dollars:
•Interest-bearing deposits increased $1.7 billion, primarily due to the strategic decision to maintain additional liquidity;
•Total investment securities, net increased $4.8$0.4 billion, with increases of $4.4reflecting a $0.5 billion and $349.9 millionincrease in the held-to-maturity portfolio, partially offset by a $0.1 billion decrease in the available-for-sale and held-to-maturity portfolios, respectively,portfolio. The overall increase in investment securities was primarily due to $4.4purchases exceeding paydown activities and a favorable market value adjustment on
available-for-sale securities, partially offset by the sale of $415.9 million in Corporate debt and U.S. Treasury notes;
•FHLB and FRB stock increased $138.8 million, primarily due to the additional FHLB stock investment required as a result of the increase in FHLB advances during the first quarter of 2023;
•Loans held for sale increased $0.2 billion, of investment securities acquired from Sterlingprimarily due to the Company's current balance sheet composition strategy, which resulted in the merger, allincreased transfer of which were classified as available-for-sale based on Webster's intent at closing, and purchases of held-to-maturitycommercial loans from held for investment securities exceeding paydowns, calls/maturities, and net premium amortization;to held for sale in the current period;
•Loans and leases increased $23.4$1.2 billion, with increases of $21.5 billion and $1.9 billion in the commercial and consumer portfolios, respectively, primarily due to $20.5$3.3 billion of gross loans and leases acquired from Sterling in the merger, which included a $317.6 million purchase discount. Webster also originated $7.6 billion of loans and leasesoriginations during the sixthree months ended June 30, 2022,March 31, 2023, particularly across the commercial non-mortgage and commercial real estate categories. These increases werecategories, partially offset by the forgiveness of PPP loans, net principal paydowns in home equity loans, and the run-off of consumer Lending Club loans. In addition, Webster recorded $88.0 million and $175.1 million of initial ACL for the PCD and non-PCD loans and leases acquired from Sterling, respectively, which primarily contributed to the $270.3 million increase in the ACL on loans and leases;commercial portfolio loan sales.
•Goodwill and other net intangible assets increased a combined $2.2 billion.$147.9 million. Goodwill increased $2.0 billion,$117.4 million, which reflects the $1.9 billion and $36.0$143.2 million recognized in connection with the interLINK acquisition, partially offset by the impact of the Sterling merger and Bend acquisition, respectively.measurement period adjustments recorded during the first quarter of 2023. The $197.9$30.5 million increase in other net intangible assets is primarily due to the $119.1$36.0 million core depositbroker dealer relationship and $94.0$4.0 million customer relationship intangible assets acquired from Sterling and Bend, respectively,non-competition agreement recognized in connection with the interLINK acquisition, partially offset by year to dateyear-to-date amortization charges; and
•Accrued interest receivable and other assets increased $892.9 million, primarily due to $959.5 million of balances acquired from Sterling in the merger. Notable increases include $114.6 million in accrued interest receivable, $60.1 million in alternative investments, $565.9 million in LIHTC investments, and a combined $43.4 million in accounts receivable and prepaid expenses. These increases were partially offset by a decrease of $96.8 million in treasury derivative assets.charges.
Total liabilities increased $28.1$3.3 billion, or 89.3%5.3%, from $31.5$63.2 billion at December 31, 20212022, to $59.6$66.5 billion at June 30, 2022.March 31, 2023. The change in total liabilities was primarily attributed to the following:
•Total deposits increased $23.2$1.2 billion, with increases of $6.5reflecting a $2.2 billion and $16.7 billionincrease in non-interest bearing deposits and interest-bearing deposits, respectively,partially offset by a $1.0 billion decrease in non-interest-bearing deposits. The overall increase in deposits is primarily due to $23.3the $2.9 billion of sweep money market deposits assumed from Sterlingadded as a result of the interLINK acquisition, partially offset by the impact of customers rebalancing their deposit concentrations in the merger;current banking environment.
•Securities sold under agreements to repurchase and other borrowings increased $1.1decreased $0.8 billion, primarily due to the purchase$0.9 billion of $1.2 billion in federal funds purchased at December 31, 2022, as compared to none at March 31, 2023. The additional liquidity generated from the interLINK deposit sweep program allowed for the paydown of higher rate federal funds purchased during the three months ended June 30, 2022, partially offset by a decreasefirst quarter of $168.5 million in securities sold under agreements to repurchase;2023;
•Long-term debtFHLB advances increased $513.6 million,$3.1 billion, primarily due to $499.0 million aggregate par value of subordinated notes assumed from Sterling inshort-term funding needs and the merger, adjusted for a $17.9 million purchase premium, which is being amortized over the remaining lives of the subordinated notes;strategic decision to maintain additional liquidity; and
•Accrued expenses and other liabilities increased $807.5 million,decreased $0.2 billion, primarily due to $595.3decreases of $111.6 million of balances assumed from Sterling in the merger, and the timing of payments for merger-related expenses, particularly as it relates to compensation and benefits and professional services. Notable increases include $196.5
$83.1 million in treasury derivative liabilities $108.4 million in operating lease liabilities, and $299.8 million in unfunded commitments for LIHTC investments.accrued annual employee bonuses, respectively.
Total shareholders'stockholders' equity increased $4.6$0.2 billion, or 132.6%3.0%, from $3.4$8.1 billion at December 31, 20212022, to $8.0$8.3 billion at June 30, 2022.
March 31, 2023. The change in total shareholders'stockholders' equity was attributed to the following:
•Common shares issuedThe adoption of ASU No. 2022-02, which resulted in the merger with Sterling totaling approximately $5.0 billion, of which $43.9a $4.2 million pertainedcumulative-effect adjustment to replacement share-based compensation awards;
•The conversion of Sterling Series A preferred stock into Webster Series G preferred stock at a fair value of $138.9 million;retained earnings;
•Net income recognized of $165.6$221.0 million;
•Dividends paid to common and preferred shareholdersstockholders of $107.6$69.7 million and $7.6$4.2 million, respectively;
•Other comprehensive loss,income, net of tax, of $458.8$96.9 million, primarily due to favorable market value decreases in the Company's adjustments on
available-for-sale securities portfolio and cash flow hedges;hedges driven by decreases in long-term interest rates;
•Employee share-basedstock-based compensation plan activity of $30.5$11.6 million, inclusive of restricted stock amortization and forfeitures, and stock options exercised of $0.5$1.7 million; and
•Repurchases of common stock of $222.1 million under the Company's common stock repurchase program and $21.1$15.1 million related to employee share-basedstock-based compensation plans.
Investment Securities
Through its Corporate Treasury function, Websterthe 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. Webster's debtThe Company's investment securities are classified into two major categories: available-for-sale and
held-to-maturity.
Asset/Liability Committee (ALCO)The ALCO manages the Company's debt securities in accordance with regulatory guidelines and corporate policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. In addition, the Office of the Comptroller of the Currency (OCC)OCC may further establish individual limits on certain types of investments if the concentration in such investment presents a safety and soundness concern. At June 30, 2022March 31, 2023, and December 31, 2021, Webster2022, the Company had investment securities with a total net carrying value of $15.2$14.9 billion and $10.4$14.5 billion, respectively, with an average risk weighting for regulatory purposes of 19.2%17.4% and 12.5%19.0%, respectively. Although the Bank held the entirety of Webster'sthe Company's investment portfolio at both June 30, 2022March 31, 2023, and December 31, 2021,2022, the Holding Company may also directly hold investments.
The following table summarizes the balances and percentage composition of Webster'sthe Company's investment securities: | | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(In thousands) | (In thousands) | Amount | % | | Amount | % | (In thousands) | Amount | % | | Amount | % |
Available-for-sale: | Available-for-sale: | | | | Available-for-sale: | | | |
U.S. Treasury notes | U.S. Treasury notes | $ | 726,484 | 8.4 | % | | $ | 396,966 | 9.4 | % | U.S. Treasury notes | $ | 386,772 | 4.9 | % | | $ | 717,040 | 9.1 | % |
Government agency debentures | Government agency debentures | 291,203 | 3.4 | | | — | — | | Government agency debentures | 262,342 | 3.4 | | | 258,374 | 3.3 | |
Municipal bonds and notes | Municipal bonds and notes | 1,830,630 | 21.2 | | | — | — | | Municipal bonds and notes | 1,645,228 | 21.1 | | | 1,633,202 | 20.7 | |
Agency CMO | Agency CMO | 71,247 | 0.8 | | | 90,384 | 2.2 | | Agency CMO | 57,462 | 0.7 | | | 59,965 | 0.8 | |
Agency MBS | Agency MBS | 2,421,333 | 28.0 | | | 1,593,403 | 37.6 | | Agency MBS | 2,230,850 | 28.6 | | | 2,158,024 | 27.3 | |
Agency CMBS | Agency CMBS | 1,561,505 | 18.1 | | | 1,232,541 | 29.1 | | Agency CMBS | 1,635,252 | 21.0 | | | 1,406,486 | 17.8 | |
CMBS | CMBS | 929,103 | 10.8 | | | 886,263 | 20.9 | | CMBS | 902,058 | 11.6 | | | 896,640 | 11.4 | |
CLO | CLO | 10,147 | 0.1 | | | 21,847 | 0.5 | | CLO | — | — | | | 2,107 | — | |
Corporate debt | Corporate debt | 736,520 | 8.5 | | | 13,450 | 0.3 | | Corporate debt | 625,523 | 8.0 | | | 704,412 | 8.9 | |
Private label MBS | Private label MBS | 48,303 | 0.6 | | | — | — | | Private label MBS | 44,262 | 0.6 | | | 44,249 | 0.6 | |
Other | Other | 11,883 | 0.1 | | | — | — | | Other | 9,228 | 0.1 | | | 12,198 | 0.1 | |
Total available-for-sale | $ | 8,638,358 | 100.0 | % | | $ | 4,234,854 | 100.0 | % | |
Total available-for-sale securities | | Total available-for-sale securities | $ | 7,798,977 | 100.0 | % | | $ | 7,892,697 | 100.0 | % |
| Held-to-maturity: | Held-to-maturity: | | Held-to-maturity: | |
Agency CMO | Agency CMO | $ | 32,469 | 0.5 | % | | $ | 42,405 | 0.7 | % | Agency CMO | $ | 27,101 | 0.4 | % | | $ | 28,358 | 0.4 | % |
Agency MBS | Agency MBS | 2,795,607 | 42.7 | | | 2,901,593 | 46.8 | | Agency MBS | 2,613,113 | 37.0 | | | 2,626,114 | 40.0 | |
Agency CMBS | Agency CMBS | 2,677,183 | 40.9 | | | 2,378,475 | 38.4 | | Agency CMBS | 3,364,186 | 47.6 | | | 2,831,949 | 43.1 | |
Municipal bonds and notes (1) | Municipal bonds and notes (1) | 879,433 | 13.4 | | | 705,918 | 11.4 | | Municipal bonds and notes (1) | 927,501 | 13.1 | | | 928,845 | 14.2 | |
CMBS | CMBS | 163,516 | 2.5 | | | 169,948 | 2.7 | | CMBS | 131,604 | 1.9 | | | 149,613 | 2.3 | |
Total held-to-maturity | $ | 6,548,208 | 100.0 | % | | $ | 6,198,339 | 100.0 | % | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 7,063,505 | 100.0 | % | | $ | 6,564,879 | 100.0 | % |
Total investment securities | Total investment securities | $ | 15,186,566 | | | $ | 10,433,193 | | Total investment securities | $ | 14,862,482 | | | $ | 14,457,576 | |
(1)The balances at both June 30, 2022March 31, 2023, and December 31, 2021,2022, exclude the ACL recorded on held-to-maturity debt securities of $0.3 million and $0.2 million.million, respectively.
Available-for-sale debt securities increased $4.4decreased $0.1 billion, or 104.0%1.2%, from $4.2$7.9 billion at December 31, 20212022, to $8.6$7.8 billion at June 30, 2022,March 31, 2023, primarily due to the merger with Sterling, as the Company acquired $4.4sale of $0.4 billion ofin U.S. Treasury notes and Corporate debt securities, at fair value on January 31, 2022, allwhich resulted in $20.5 million of gross realized losses, $3.8 million of which were classified as available-for-sale based on Webster's intent at closing. The debt securities acquired from Sterling resultedwas attributed to a decline in a $221.6 million net purchase premium over par value accountedcredit quality and has been included in the Provision for as a yield adjustment using the effective interest method. Webster also purchased an additional $1.2 billion of available-for sale debt securities during the six months ended June 30, 2022.credit losses. This purchase activitydecrease was partially offset by net unrealized losses, paydowns, and net premium amortization,purchases exceeding paydown activities, particularly across the Agency MBS, Agency CMBS, and CMBS categories.
categories, and a favorable market value adjustment. The tax-equivalentaverage FTE yield in the available-for-sale portfolio was 2.20%2.76% for the three months ended June 30, 2022 and 2.10% for the six months ended June 30, 2022,March 31, 2023, as compared to 1.82%1.98% for the three months ended June 30, 2021 and 1.83% for the six months ended June 30, 2021.March 31, 2022. The 3878 basis point and 27 basis point increases, respectively, are attributedincrease is primarily due to lower premium amortization and higher market rates on securities purchased duringin the six months ended June 30, 2022.current period.
At March 31, 2023, and December 31, 2022, gross unrealized losses on available-for-sale securities were $770.3 million and $864.5 million, respectively. The $94.2 million decrease is primarily due to a decline in long-term market rates. Available-for-sale debt securities are evaluated for credit losses on a quarterly basis. At June 30, 2022 and December 31, 2021, gross unrealized losses on available-for-sale debt securities were $609.9 million and $34.3 million, respectively. The $575.6 million increase in unrealized losses is primarily due to the increased portfolio size from the merger with Sterling, and higher market rates. Because these unrealized losses were attributable to factors other than credit deterioration, noNo ACL was recorded duringon available-for-sale securities as of either period as each of the period.securities in the Company's portfolio are investment grade, 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. At June 30, 2022, Webster did not intendMarch 31, 2023, based on current market conditions and the Company's current targeted balance sheet composition strategy, the Company has the intent to sell these investmenthold its available-for-sale securities in unrealized loss positions through the anticipated recovery period, and it is more likely than notmore-likely-than-not that the Company will not be requiredhave to sell these available-for-sale securities prior tobefore the anticipated recovery of theirthe entire amortized cost basis.
Held-to-maturity investment securities increased $349.9 million,$0.5 billion, or 5.6%7.6%, from $6.2$6.6 billion at December 31, 20212022, to $6.5$7.1 billion at June 30, 2022,
March 31, 2023, primarily due to purchases exceeding paydowns, calls, and net premium amortization,paydown activities, particularly across the Agency CMBSMBS and Agency MBSCMBS categories. The tax-equivalentaverage FTE yield in the held-to-maturity portfolio was 2.25%2.82% for the three months ended June 30, 2022, and 2.15% for the six months ended June 30, 2022,March 31, 2023, as compared to 2.31%2.06% for the three months ended June 30, 2021, and 2.30% for the six months ended June 30, 2021.March 31, 2022. The 6 and 1576 basis point decreases, respectively, are attributedincrease is primarily due to higher premium amortization and lowermarket rates on securities purchased overin the past year.current period.
At March 31, 2023, and December 31, 2022, gross unrealized losses on held-to-maturity securities were $751.0 million and $806.2 million, respectively. The $55.2 million decrease is primarily due to a decline in long-term market rates. Held-to-maturity debt securities are evaluated for credit losses on a quarterly basis under current expected credit losses (CECL).the CECL methodology. At June 30, 2022March 31, 2023, and December 31, 2021, gross unrealized losses on held-to-maturity debt securities were $545.3 million and $55.7 million, respectively. The increase in unrealized losses is primarily due to higher market rates. The2022, the ACL on held-to-maturity debt securities was $0.3 million and $0.2 million, at both June 30, 2022 and December 31, 2021.respectively.
The following table summarizes the amortized costbook value of investment securities by the earlier of either contractual maturity or call date, as applicable, along with the respective weighted-average yields:
| | | At June 30, 2022 | | At March 31, 2023 |
| | 1 Year or Less | 1 - 5 Years | 5 - 10 Years | After 10 Years | Total | | 1 Year or Less | 1 - 5 Years | 5 - 10 Years | After 10 Years | Total |
(Dollars in thousands) | (Dollars 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) | (Dollars 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: | Available-for-sale: | | Available-for-sale: | |
U.S. Treasury notes | U.S. Treasury notes | $ | — | | — | % | $ | 726,484 | | 1.05 | % | $ | — | | — | % | $ | — | | — | % | $ | 726,484 | | 1.05 | % | U.S. Treasury notes | $ | — | | — | % | $ | 386,772 | | 1.28 | % | $ | — | | — | % | $ | — | | — | % | $ | 386,772 | | 1.28 | % |
Government agency debentures | Government agency debentures | 10,000 | | 0.47 | | 76,695 | | 2.42 | | — | | — | | 204,508 | | 3.22 | | 291,203 | | 2.91 | | Government agency debentures | — | | — | | 74,620 | | 2.42 | | — | | — | | 187,722 | | 3.22 | | 262,342 | | 2.99 | |
Municipal bonds and notes | Municipal bonds and notes | 18,217 | | 1.20 | | 273,330 | | 1.30 | | 633,465 | | 1.48 | | 905,618 | | 1.58 | | 1,830,630 | | 1.50 | | Municipal bonds and notes | 34,763 | | 1.18 | | 103,056 | | 1.69 | | 708,492 | | 1.52 | | 798,917 | | 1.58 | | 1,645,228 | | 1.55 | |
Agency CMO | Agency CMO | — | | — | | 748 | | 4.07 | | 4,172 | | 2.70 | | 66,327 | | 2.51 | | 71,247 | | 2.54 | | Agency CMO | — | | — | | 483 | | 2.68 | | 5,544 | | 3.01 | | 51,435 | | 2.85 | | 57,462 | | 2.86 | |
Agency MBS | Agency MBS | 60 | | (2.52) | | 7,771 | | 1.22 | | 166,113 | | 1.45 | | 2,247,389 | | 2.10 | | 2,421,333 | | 2.05 | | Agency MBS | 8 | | (5.27) | | 16,304 | | 1.31 | | 151,944 | | 1.71 | | 2,062,594 | | 2.48 | | 2,230,850 | | 2.42 | |
Agency CMBS | Agency CMBS | 3,479 | | 1.38 | | 56,229 | | 1.20 | | 81,427 | | 1.42 | | 1,420,370 | | 2.08 | | 1,561,505 | | 2.01 | | Agency CMBS | 1,599 | | 0.42 | | 86,325 | | 0.90 | | 44,459 | | 1.40 | | 1,502,869 | | 2.73 | | 1,635,252 | | 2.59 | |
CMBS | CMBS | — | | — | | 67,210 | | 2.37 | | 49,244 | | 3.40 | | 812,649 | | 2.90 | | 929,103 | | 2.89 | | CMBS | — | | — | | 68,771 | | 6.16 | | 49,165 | | 6.08 | | 784,122 | | 6.19 | | 902,058 | | 6.19 | |
CLO | — | | — | | 10,147 | | 2.61 | | — | | — | | — | | — | | 10,147 | | 2.61 | | |
| Corporate debt | Corporate debt | — | | — | | 209,514 | | 2.18 | | 466,528 | | 3.14 | | 60,478 | | 2.75 | | 736,520 | | 2.84 | | Corporate debt | 4,973 | | 1.54 | | 162,524 | | 2.56 | | 400,466 | | 3.17 | | 57,560 | | 3.33 | | 625,523 | | 3.02 | |
Private label MBS | Private label MBS | — | | — | | — | | — | | — | | — | | 48,303 | | 4.01 | | 48,303 | | 4.01 | | Private label MBS | — | | — | | — | | — | | — | | — | | 44,262 | | 4.01 | | 44,262 | | 4.01 | |
Other | Other | 2,690 | | 5.20 | | 4,932 | | 3.80 | | 4,261 | | 2.72 | | — | | — | | 11,883 | | 3.73 | | Other | 250 | | 3.77 | | 4,810 | | 3.80 | | 4,168 | | 2.71 | | — | | — | | 9,228 | | 3.31 | |
Total available-for-sale | $ | 34,446 | | 1.31 | % | $ | 1,433,060 | | 1.43 | % | $ | 1,405,210 | | 2.10 | % | $ | 5,765,642 | | 2.19 | % | $ | 8,638,358 | | 2.05 | % | |
Total available-for-sale securities | | Total available-for-sale securities | $ | 41,593 | | 1.21 | % | $ | 903,665 | | 2.00 | % | $ | 1,364,238 | | 2.19 | % | $ | 5,489,481 | | 3.00 | % | $ | 7,798,977 | | 2.73 | % |
Held-to-maturity: | Held-to-maturity: | | Held-to-maturity: | |
Agency CMO | Agency CMO | $ | — | | — | % | $ | — | | — | % | $ | — | | — | % | $ | 32,469 | | 2.17 | % | $ | 32,469 | | 2.17 | % | Agency CMO | $ | — | | — | % | $ | — | | — | % | $ | — | | — | % | $ | 27,101 | | 2.91 | % | $ | 27,101 | | 2.91 | % |
Agency MBS | Agency MBS | — | | — | | 2,518 | | 2.43 | | 24,380 | | 2.17 | | 2,768,709 | | 2.19 | | 2,795,607 | | 2.19 | | Agency MBS | 2 | | 3.55 | | 1,494 | | 2.41 | | 24,550 | | 2.51 | | 2,587,067 | | 2.47 | | 2,613,113 | | 2.47 | |
Agency CMBS | Agency CMBS | — | | — | | — | | — | | 146,199 | | 2.69 | | 2,530,984 | | 2.02 | | 2,677,183 | | 2.06 | | Agency CMBS | — | | — | | — | | — | | 126,854 | | 2.68 | | 3,237,332 | | 3.07 | | 3,364,186 | | 3.05 | |
Municipal bonds and notes | Municipal bonds and notes | 4,404 | | 3.33 | | 50,304 | | 3.27 | | 154,607 | | 2.76 | | 670,118 | | 3.11 | | 879,433 | | 3.05 | | Municipal bonds and notes | 6,091 | | 3.27 | | 51,399 | | 3.28 | | 186,949 | | 2.72 | | 683,062 | | 3.19 | | 927,501 | | 3.10 | |
CMBS | CMBS | — | | — | | — | | — | | — | | — | | 163,516 | | 2.70 | | 163,516 | | 2.70 | | CMBS | — | | — | | — | | — | | — | | — | | 131,604 | | 2.70 | | 131,604 | | 2.70 | |
Total held-to-maturity | $ | 4,404 | | 3.33 | % | $ | 52,822 | | 3.23 | % | $ | 325,186 | | 2.68 | % | $ | 6,165,796 | | 2.24 | % | $ | 6,548,208 | | 2.27 | % | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 6,093 | | 3.27 | % | $ | 52,893 | | 3.26 | % | $ | 338,353 | | 2.69 | % | $ | 6,666,166 | | 2.84 | % | $ | 7,063,505 | | 2.84 | % |
Total investment securities | Total investment securities | $ | 38,850 | | 1.54 | % | $ | 1,485,882 | | 1.49 | % | $ | 1,730,396 | | 2.21 | % | $ | 11,931,438 | | 2.21 | % | $ | 15,186,566 | | 2.14 | % | Total investment securities | $ | 47,686 | | 1.47 | % | $ | 956,558 | | 2.07 | % | $ | 1,702,591 | | 2.29 | % | $ | 12,155,647 | | 2.91 | % | $ | 14,862,482 | | 2.78 | % |
(1)Weighted-average yields wereexclude FTE adjustments, and are calculated using amortized cost on a fully-tax equivalent basis, assuming a 21% tax rate.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 available-for-sale and held-to-maturity investment securities' portfolios can be found within Note 3: Investment Securities in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
Loans and Leases
The following table summarizes the amortized cost and percentage composition of Webster'sthe Company's loans and leases: | | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(Dollars in thousands) | (Dollars in thousands) | Amount | % | | Amount | % | (Dollars in thousands) | Amount | % | | Amount | % |
Commercial non-mortgage | Commercial non-mortgage | $ | 13,935,450 | 30.5 | % | | $ | 6,882,480 | 30.9 | % | Commercial non-mortgage | $ | 16,939,373 | 33.3 | % | | $ | 16,392,795 | 32.9 | % |
Asset-based | Asset-based | 1,892,278 | 4.1 | | | 1,067,248 | 4.8 | | Asset-based | 1,760,527 | 3.5 | | | 1,821,642 | 3.7 | |
Commercial real estate | Commercial real estate | 12,365,451 | 27.1 | | | 5,463,321 | 24.5 | | Commercial real estate | 13,499,139 | 26.5 | | | 12,997,163 | 26.1 | |
Multi-family | Multi-family | 5,776,219 | 12.7 | | | 1,139,859 | 5.1 | | Multi-family | 7,014,599 | 13.8 | | | 6,621,982 | 13.3 | |
Equipment financing | Equipment financing | 1,778,326 | 3.9 | | | 627,058 | 2.8 | | Equipment financing | 1,601,109 | 3.1 | | | 1,628,393 | 3.3 | |
Warehouse lending | Warehouse lending | 914,541 | 2.0 | | | — | — | | Warehouse lending | 474,328 | 0.9 | | | 641,976 | 1.3 | |
Residential | Residential | 7,223,728 | 15.8 | | | 5,412,905 | 24.3 | | Residential | 8,001,563 | 15.7 | | | 7,963,420 | 16.0 | |
Home equity | Home equity | 1,681,610 | 3.7 | | | 1,593,559 | 7.2 | | Home equity | 1,580,569 | 3.1 | | | 1,633,107 | 3.3 | |
Other consumer | Other consumer | 79,140 | 0.2 | | | 85,299 | 0.4 | | Other consumer | 55,316 | 0.1 | | | 63,948 | 0.1 | |
Total loans and leases (1) | Total loans and leases (1) | $ | 45,646,743 | 100.0 | % | | $ | 22,271,729 | 100.0 | % | Total loans and leases (1) | $ | 50,926,523 | 100.0 | % | | $ | 49,764,426 | 100.0 | % |
(1)The amortized cost balances at June 30, 2022March 31, 2023, and December 31, 2021,2022, exclude the ACL recorded on loans and leases of $571.5$613.9 million and $301.2$594.7 million, respectively.
The following table summarizes loans and leases by contractual maturity, along with the indication of whether interest rates are fixed or variable:
| | | | | | | | | | | | | | | | | |
| At June 30, 2022 |
(In thousands) | 1 Year or Less | 1 - 5 Years | 5 - 15 Years | After 15 Years | Total |
Fixed rate: | | | | | |
Commercial non-mortgage | $ | 152,969 | | $ | 436,262 | | $ | 1,762,157 | | $ | 1,344,225 | | $ | 3,695,613 | |
Asset-based | — | | 57,202 | | — | | — | | 57,202 | |
Commercial real estate | 472,671 | | 1,596,791 | | 1,130,201 | | 112,450 | | 3,312,113 | |
Multi-family | 273,788 | | 1,572,561 | | 1,502,736 | | 33,188 | | 3,382,273 | |
Equipment financing | 142,014 | | 1,342,009 | | 272,267 | | — | | 1,756,290 | |
| | | | | |
Residential | 994 | | 64,131 | | 448,064 | | 4,618,559 | | 5,131,748 | |
Home equity | 5,108 | | 25,463 | | 185,858 | | 182,622 | | 399,051 | |
Other consumer | 7,289 | | 25,267 | | 426 | | 189 | | 33,171 | |
Total fixed rate loans and leases | $ | 1,054,833 | | $ | 5,119,686 | | $ | 5,301,709 | | $ | 6,291,233 | | $ | 17,767,461 | |
Variable rate: | | | | | |
Commercial non-mortgage | $ | 2,080,076 | | $ | 7,428,532 | | $ | 660,182 | | $ | 71,047 | | $ | 10,239,837 | |
Asset-based | 466,034 | | 1,363,522 | | 5,520 | | — | | 1,835,076 | |
Commercial real estate | 1,589,819 | | 4,643,612 | | 2,139,192 | | 680,715 | | 9,053,338 | |
Multi-family | 449,475 | | 880,541 | | 1,028,089 | | 35,841 | | 2,393,946 | |
Equipment financing | 1,807 | | 20,229 | | — | | — | | 22,036 | |
Warehouse lending | 725,796 | | 188,745 | | — | | — | | 914,541 | |
Residential | 726 | | 11,341 | | 2,079,913 | | — | | 2,091,980 | |
Home equity | 5,058 | | 6,940 | | 177,057 | | 1,093,504 | | 1,282,559 | |
Other consumer | 10,436 | | 27,983 | | 1,402 | | 6,148 | | 45,969 | |
Total variable rate loans and leases | $ | 5,329,227 | | $ | 14,571,445 | | $ | 6,091,355 | | $ | 1,887,255 | | $ | 27,879,282 | |
Total loans and leases (1) | $ | 6,384,060 | | $ | 19,691,131 | | $ | 11,393,064 | | $ | 8,178,488 | | $ | 45,646,743 | |
| | | | | | | | | | | | | | | | | |
| At March 31, 2023 |
(In thousands) | 1 Year or Less | 1 - 5 Years | 5 - 15 Years | After 15 Years | Total |
Fixed rate: | | | | | |
Commercial non-mortgage | $ | 222,804 | | $ | 598,021 | | $ | 2,131,003 | | $ | 1,549,094 | | $ | 4,500,922 | |
Asset-based | 24,048 | | 31,264 | | — | | — | | 55,312 | |
Commercial real estate | 599,026 | | 1,821,401 | | 1,184,930 | | 141,016 | | 3,746,373 | |
Multi-family | 353,747 | | 2,112,410 | | 1,751,446 | | 42,595 | | 4,260,198 | |
Equipment financing | 150,270 | | 1,153,565 | | 295,814 | | — | | 1,599,649 | |
| | | | | |
Residential | 405 | | 58,084 | | 414,759 | | 4,992,444 | | 5,465,692 | |
Home equity | 4,379 | | 23,829 | | 175,658 | | 195,046 | | 398,912 | |
Other consumer | 10,858 | | 11,924 | | 387 | | 153 | | 23,322 | |
Total fixed rate loans and leases | $ | 1,365,537 | | $ | 5,810,498 | | $ | 5,953,997 | | $ | 6,920,348 | | $ | 20,050,380 | |
Variable rate: | | | | | |
Commercial non-mortgage | $ | 3,455,439 | | $ | 8,239,753 | | $ | 675,115 | | $ | 68,144 | | $ | 12,438,451 | |
Asset-based | 451,406 | | 1,248,442 | | 5,367 | | — | | 1,705,215 | |
Commercial real estate | 1,789,853 | | 5,026,956 | | 2,228,039 | | 707,918 | | 9,752,766 | |
Multi-family | 426,953 | | 1,009,039 | | 1,288,677 | | 29,732 | | 2,754,401 | |
Equipment financing | 1,460 | | — | | — | | — | | 1,460 | |
Warehouse lending | 474,328 | | — | | — | | — | | 474,328 | |
Residential | 722 | | 10,905 | | 319,947 | | 2,204,297 | | 2,535,871 | |
Home equity | 2,253 | | 7,215 | | 150,431 | | 1,021,758 | | 1,181,657 | |
Other consumer | 6,574 | | 16,873 | | 2,554 | | 5,993 | | 31,994 | |
Total variable rate loans and leases | $ | 6,608,988 | | $ | 15,559,183 | | $ | 4,670,130 | | $ | 4,037,842 | | $ | 30,876,143 | |
Total loans and leases (1) | $ | 7,974,525 | | $ | 21,369,681 | | $ | 10,624,127 | | $ | 10,958,190 | | $ | 50,926,523 | |
(1)Amounts due exclude total accrued interest receivable of $140.2$246.1 million.
Credit Policies and Procedures
WebsterThe Bank has credit policies and procedures in place designed to support its lending activities within an acceptable level of risk, which are reviewed and approved by management and the Board of Directors on a regular basis. To assist with this process, management 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.
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. Assessment of the borrower's management is a critical element of the underwriting process and credit decision. Once it has been determined that the borrower’s management possesses sound ethics and a solid business acumen, current and projected cash flows are examined to determine the ability of the borrower to repay obligations, as contracted. Commercial non-mortgage, asset-based, and equipment finance loans are primarily made based on the identified cash flows of the borrower, and secondarily on the underlying collateral provided by the borrower. Warehouse 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 may not be as expected, and the collateral securing these loans, as applicable, may fluctuate in value. Most commercial non-mortgage, asset-based, and equipment finance loans are secured by the assets being financed and may incorporate personal guarantees of the 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 warehouse lending loans. These loans are primarily viewed as cash flow loans, and secondarily as loans secured by real estate. Repayment of commercial 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 validatedetermine market value. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. Management periodically utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.
Consumer loans are subject to policies and procedures developed to manage the specific risk characteristics of the portfolio. These policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized loan structures, are spread across many different borrowers, minimizing the level of credit risk. Trend and outlook reports are reviewed by management on a regular basis, and policies and procedures are modified or developed, as needed. Underwriting factors for residential mortgage and home equity loans include the borrower’s Fair Isaac Corporation (FICO)FICO score, the loan amount relative to property value, and the borrower’s debt-to-income level. WebsterThe Bank originates both qualified mortgage and non-qualified mortgage loans, as defined by applicable Consumer Financial Protection Bureau (CFPB)CFPB rules.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases increased $270.3$19.2 million, or 89.7%3.2%, from $301.2$594.7 million at December 31, 2021,2022, to $571.5$613.9 million at June 30, 2022, primarilyMarch 31, 2023, due to the initial ACL of $88.0 million and $175.1 million recorded for PCD and non-PCD loans and leases, respectively, that were acquired from Sterling. The establishmentimpact of the initial ACL for PCD loanscurrent macroeconomic environment on credit performance and leases is net of $48.3 million in charge-offs, which were recognized upon completion of the merger in accordance with GAAP.organic loan growth.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories:
| | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(Dollars in thousands) | (Dollars in thousands) | Amount | % (1) | | Amount | % (1) | (Dollars in thousands) | Amount | % (1) | | Amount | % (1) |
Commercial non-mortgage | Commercial non-mortgage | $ | 174,975 | 30.6 | % | | $ | 111,351 | 37.0 | % | Commercial non-mortgage | $ | 196,019 | 31.9 | % | | $ | 197,950 | 33.3 | % |
Asset-based | Asset-based | 21,536 | 3.8 | | | 6,481 | 2.2 | | Asset-based | 21,546 | 3.5 | | | 16,094 | 2.7 | |
Commercial real estate | Commercial real estate | 223,485 | 39.1 | | | 114,493 | 38.0 | | Commercial real estate | 230,020 | 37.5 | | | 214,771 | 36.1 | |
Multi-family | Multi-family | 64,473 | 11.3 | | | 19,414 | 6.4 | | Multi-family | 83,264 | 13.6 | | | 80,652 | 13.6 | |
Equipment financing | Equipment financing | 26,452 | 4.6 | | | 6,138 | 2.0 | | Equipment financing | 23,474 | 3.8 | | | 23,081 | 3.9 | |
Warehouse lending | Warehouse lending | 824 | 0.1 | | | — | — | | Warehouse lending | 427 | 0.1 | | | 577 | 0.1 | |
Residential | Residential | 23,472 | 4.1 | | | 15,628 | 5.2 | | Residential | 25,869 | 4.2 | | | 26,907 | 4.5 | |
Home equity | Home equity | 33,512 | 5.9 | | | 23,523 | 7.8 | | Home equity | 31,126 | 5.1 | | | 32,296 | 5.4 | |
Other consumer | Other consumer | 2,770 | 0.5 | | | 4,159 | 1.4 | | Other consumer | 2,169 | 0.3 | | | 2,413 | 0.4 | |
Total ACL on loans and leases | Total ACL on loans and leases | $ | 571,499 | 100.0 | % | | $ | 301,187 | 100.0 | % | Total ACL on loans and leases | $ | 613,914 | 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
Webster'sThe Company's ACL on loans and leases is considered to be a critical accounting policy. The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases 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 expected losses within the loan and lease portfolios.
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, credit quality, risk ratings, and/or collateral types within its commercial and consumer portfolios, and expected losses are determined using a Probability of Default (PD), Loss Given Default (LGD),PD, LGD, and Exposure at Default (EAD),EAD, loss rate, or discounted cash flow framework.
For portfolios using the PD/LGD/EAD framework, 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. Management'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 method, 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 above, we applymanagement applies an expected historical loss trend based on third-party loss estimates, correlateand correlates them to observed economic metrics and reasonable and supportable forecasts of economic conditions. Under the discounted cash flow method, expected credit losses are determined by comparing the amortized cost of the asset at the balance sheet date to the present value of estimated future principal and interest payments expected to be collected over the remaining life of the asset. OurThe Company's loss model generates cash flow projections at the loan level based on reasonable and supportable projections, from which we estimatemanagement estimates payment collections adjusted for curtailments,accelerated payments, recovery time, PD, and LGD.
Webster'sThe 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 use input reversion and revert to the mean of macroeconomic variables in reasonable and supportable forecasts.
WebsterThe 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 variables is used as an input 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 ourmanagement's judgement of the company,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, troubled debt restructures (TDRs), potential TDRs, loans with a charge-off, and collateral dependent loans where the borrower is experiencing financial difficulty, 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 Webster'sthe Company's ACL methodology can be found within Note 1: Summary of Significant Accounting Policies in the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Asset Quality Ratios
WebsterThe 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: | (Dollars in thousands) | (Dollars in thousands) | At June 30, 2022 | | At December 31, 2021 | (Dollars in thousands) | At March 31, 2023 | | At December 31, 2022 |
Non-performing loans and leases (1) | Non-performing loans and leases (1) | $ | 247,530 | | | $ | 109,778 | | Non-performing loans and leases (1) | $ | 185,020 | | | $ | 203,791 | |
Total loans and leases | Total loans and leases | 45,646,743 | | | 22,271,729 | | Total loans and leases | 50,926,523 | | | 49,764,426 | |
Non-performing loans and leases as a percentage of loans and leases | Non-performing loans and leases as a percentage of loans and leases | 0.54 | % | | 0.49 | % | Non-performing loans and leases as a percentage of loans and leases | 0.36 | % | | 0.41 | % |
| Non-performing assets (1) | Non-performing assets (1) | $ | 250,242 | | | $ | 112,590 | | Non-performing assets (1) | $ | 186,551 | | | $ | 206,136 | |
Total loans and leases | Total loans and leases | $ | 45,646,743 | | | $ | 22,271,729 | | Total loans and leases | $ | 50,926,523 | | | $ | 49,764,426 | |
Add: OREO | Add: OREO | 2,712 | | | 2,812 | | Add: OREO | 1,531 | | | 2,345 | |
Total loans and leases plus OREO | Total loans and leases plus OREO | $ | 45,649,455 | | | $ | 22,274,541 | | Total loans and leases plus OREO | $ | 50,928,054 | | | $ | 49,766,771 | |
Non-performing assets as a percentage of loans and leases plus OREO | Non-performing assets as a percentage of loans and leases plus OREO | 0.55 | % | | 0.51 | % | Non-performing assets as a percentage of loans and leases plus OREO | 0.37 | % | | 0.41 | % |
| Non-performing assets (1) | Non-performing assets (1) | $ | 250,242 | | | $ | 112,590 | | Non-performing assets (1) | $ | 186,551 | | | $ | 206,136 | |
Total assets | Total assets | 67,595,021 | | | 34,915,599 | | Total assets | 74,844,395 | | | 71,277,521 | |
Non-performing assets as a percentage of total assets | Non-performing assets as a percentage of total assets | 0.37 | % | | 0.32 | % | Non-performing assets as a percentage of total assets | 0.25 | % | | 0.29 | % |
| ACL on loans and leases | ACL on loans and leases | $ | 571,499 | | | $ | 301,187 | | ACL on loans and leases | $ | 613,914 | | | $ | 594,741 | |
Non-performing loans and leases (1) | Non-performing loans and leases (1) | 247,530 | | | 109,778 | | Non-performing loans and leases (1) | 185,020 | | | 203,791 | |
ACL on loans and leases as a percentage of non-performing loans and leases | ACL on loans and leases as a percentage of non-performing loans and leases | 230.88 | % | | 274.36 | % | ACL on loans and leases as a percentage of non-performing loans and leases | 331.81 | % | | 291.84 | % |
| ACL on loans and leases | ACL on loans and leases | $ | 571,499 | | | $ | 301,187 | | ACL on loans and leases | $ | 613,914 | | | $ | 594,741 | |
Total loans and leases | Total loans and leases | 45,646,743 | | | 22,271,729 | | Total loans and leases | 50,926,523 | | | 49,764,426 | |
ACL on loans and leases as a percentage of loans and leases | ACL on loans and leases as a percentage of loans and leases | 1.25 | % | | 1.35 | % | ACL on loans and leases as a percentage of loans and leases | 1.21 | % | | 1.20 | % |
| ACL on loans and leases | ACL on loans and leases | $ | 571,499 | | $ | 301,187 | ACL on loans and leases | $ | 613,914 | | $ | 594,741 |
Net charge-offs | Net charge-offs | 37,058 | | 3,829 | Net charge-offs | 98,084 | | 67,288 |
Ratio of ACL on loans and leases to net charge-offs (2) | Ratio of ACL on loans and leases to net charge-offs (2) | 15.42x | | 78.66x | Ratio of ACL on loans and leases to net charge-offs (2) | 6.26x | | 8.84x |
(1)Non-performing assets balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (costs)(fees)/feescosts on loans and leases.
(2)Calculated for the June 30, 2022March 31, 2023, period based on annualized year-to-date net charge-offs.
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category:
| | | | | | | At or for the three months ended June 30, | | At or for the three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(Dollars in thousands) | (Dollars in thousands) | Net Charge-offs (Recoveries) | Average Balance | % (1) | | Net Charge-offs (Recoveries) | Average Balance | % (1) | (Dollars in thousands) | Net Charge-offs (Recoveries) | Average Balance | % (1) | | Net Charge-offs (Recoveries) | Average Balance | % (1) |
Commercial non-mortgage | Commercial non-mortgage | $ | 8,972 | $ | 13,446,217 | 0.27 | % | | $ | (393) | $ | 6,929,981 | (0.02) | % | Commercial non-mortgage | $ | 2,723 | $ | 16,635,874 | 0.07 | % | | $ | 8,663 | $ | 10,863,354 | 0.32 | % |
Asset-based | Asset-based | 3 | 1,851,956 | — | | | (2) | 937,580 | — | | Asset-based | 13,189 | 1,790,992 | 2.95 | | | (50) | 1,540,301 | (0.01) | |
Commercial real estate | Commercial real estate | 1,678 | 11,984,529 | 0.06 | | | 153 | 5,272,771 | 0.01 | | Commercial real estate | 8,551 | 13,260,223 | 0.26 | | | 1,048 | 9,738,181 | 0.04 | |
Multi-family | Multi-family | 193 | 5,771,622 | 0.01 | | | — | 1,093,059 | — | | Multi-family | 1,033 | 6,710,103 | 0.06 | | | 10 | 3,994,744 | — | |
Equipment financing | Equipment financing | 146 | 1,850,959 | 0.03 | | | — | 615,417 | — | | Equipment financing | (660) | 1,625,463 | (0.16) | | | 213 | 1,339,775 | 0.06 | |
Warehouse lending | Warehouse lending | — | 553,331 | — | | | — | — | | Warehouse lending | — | 409,580 | — | | | — | 365,325 | — | |
Residential | Residential | (508) | 6,905,509 | (0.03) | | | 323 | 4,738,859 | 0.03 | | Residential | (461) | 7,995,327 | (0.02) | | | (44) | 6,322,495 | — | |
Home equity | Home equity | (1,100) | 1,672,845 | (0.26) | | | (2,204) | 1,701,529 | (0.52) | | Home equity | (421) | 1,608,428 | (0.10) | | | (1,267) | 1,658,938 | (0.31) | |
Other consumer | Other consumer | 216 | 83,730 | 1.03 | | | 955 | 124,243 | 3.07 | | Other consumer | 567 | 59,202 | 3.83 | | | 356 | 89,716 | 1.59 | |
Total | Total | $ | 9,600 | $ | 44,120,698 | 0.09 | % | | $ | (1,168) | $ | 21,413,439 | (0.02) | % | Total | $ | 24,521 | $ | 50,095,192 | 0.20 | % | | $ | 8,929 | $ | 35,912,829 | 0.10 | % |
| | At or for the six months ended June 30, | |
| 2022 | | 2021 | |
(Dollars in thousands) | Net Charge-offs (Recoveries) | Average Balance | % (1) | | Net Charge-offs (Recoveries) | Average Balance | % (1) | |
Commercial non-mortgage | $ | 17,635 | $ | 12,161,920 | 0.29 | % | | $ | 477 | $ | 6,988,670 | 0.01 | % | |
Asset-based | (47) | 1,696,990 | (0.01) | | | (1,426) | 916,951 | (0.31) | | |
Commercial real estate | 2,726 | 10,083,808 | 0.05 | | | 5,307 | 5,252,713 | 0.20 | | |
Multi-family | 203 | 5,671,844 | 0.01 | | | — | 1,082,256 | — | | |
Equipment financing | 359 | 1,596,779 | 0.04 | | | 85 | 608,922 | 0.03 | | |
Warehouse lending | — | 459,847 | — | | | — | — | | |
Residential | (552) | 6,615,613 | (0.02) | | | (455) | 4,729,831 | (0.02) | | |
Home equity | (2,367) | 1,665,929 | (0.28) | | | (2,234) | 1,733,582 | (0.26) | | |
Other consumer | 572 | 86,707 | 1.32 | | | 2,399 | 134,267 | 3.57 | | |
Total | $ | 18,529 | $ | 40,039,437 | 0.09 | % | | $ | 4,153 | $ | 21,447,192 | 0.04 | % | |
(1)Percentage represents annualized year-to-date net charge-offs (recoveries) to average loans and leases within the comparable category.
Comparison to Prior Quarter to Date
Net charge-offs (recoveries) as a percentage of average loans and leases were 0.09% and (0.02)% for the three months ended June 30, 2022 and 2021, respectively. The 0.11% increase is primarily attributed to an increase in net charge-offs in the commercial non-mortgage, commercial real estate, and home equity categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.
Comparison to Prior Year to Date
Net charge-offs as a percentage of average loans and leases were 0.09% and 0.04%0.20% for the sixthree months ended June 30, 2022March 31, 2023, and 2021, respectively.0.10% for the three months ended March 31, 2022. The 0.05% increaseincreased level of net charge-offs is primarily attributeddue to an increase ina full quarter impact of the Sterling merger on net charge-offs in 2023 as compared to the commercial non-mortgage category, partially offset by a decreasetwo-thirds impact for the quarter in net charge-offs in2022, and the commercial real estate and other consumer categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.Company's current balance sheet composition strategy.
Liquidity and Capital Resources
WebsterThe Company manages its cash flow requirements through proactive liquidity measures at both the Holding Company and Webster Bank inthe Bank. In order to maintain stable, cost-effective funding, and to promote overall balance sheet strength. Thestrength, the liquidity position of the Company is continuously monitored, and adjustments are made to balance sources and uses of funds, as needed.appropriate. At June 30, 2022,March 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity position, capital resources, or operating activities. Further, managementAlthough regulatory agencies have not issued formal guidance mandating more stringent liquidity and capital requirements, the Company is not awareanticipating a greater focus on the liquidity and capital adequacy of any regulatory recommendations regarding liquidity,financial institutions in response to the recent high-profile bank failures that occurred during the first quarter of 2023, and has taken appropriate measures to mitigate the risk that such requirements, if implemented, wouldmay have a material adverse effect on the Company.
its business, financial positions, and results of operations.Cash inflows are provided through a variety of sources, including as operating activities such as principal and interest payments on loans and investments, financing activities, such as unpledged securities that can be sold or utilized to secure funding, and new deposits. WebsterThe Company is committed to maintaining a strong base of core deposits, which consists of demand, interest-bearing checking, savings, health savings, and money market accounts, in order to support growth in its loan portfolios. Management actively monitors the interest rate environment and lease portfolio.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 the Holding Company is dividends from Websterthe 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 preferred and common shareholders,stockholders, repurchases of its common stock, and purchases of investment securities, as applicable.
There are certain restrictions on Websterthe Bank's payment of dividends to the Holding Company, which are describedcan be found within
Note 10: Regulatory Capital and Restrictions in the Notes to Condensed Consolidated Financial Statements contained in
Part I - Item 1. Financial Statements of this report, and in the section captioned "Supervision and Regulation" in Part I - Item 1. Business of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022. During the sixthree months ended June 30, 2022, WebsterMarch 31, 2023, the Bank paid $125.0$150.0 million in dividends to the Holding Company. At June 30, 2022,March 31, 2023, there were $551.9$561.9 million of retained earnings available for the payment of dividends by Websterthe Bank to the Holding Company. On July 18, 2022, WebsterApril 26, 2023, the Bank was approved to pay the Holding Company $250.0$100.0 million in dividends during the thirdsecond quarter of 2022.2023.
The quarterly cash dividend to common shareholdersstockholders remained at $0.40 per common share during the three months ended June 30, 2022.March 31, 2023. On July 18, 2022,April 26, 2023, it was announced that Webster Financial Corporation’sthe Company’s Board of Directors had declared a quarterly cash dividend of $0.40 per share on itsWebster common stock. For itsthe Series F Preferred Stock and Series G Preferred Stock, Webster declared quarterly cash dividends of $328.125 per share and $16.25 per share were declared, respectively. WebsterThe Company continues to monitor economic forecasts, anticipated earnings, and its capital position in the determination of its dividend payments.
WebsterThe Company maintains a common stock repurchase program, which was approved by the Board of Directors, that authorizes management to purchase shares of itsWebster common stock in open market or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions. On April 27, 2022, the Board of Directors increased Webster's authority to repurchase shares of its common stock under the repurchase program by $600.0 million in shares. During the three months ended June 30, 2022,March 31, 2023, the Company repurchased 2,054,616did not repurchase any shares of Webster common stock under the program at a weighted-average price of $48.63 per share totaling $99.9 million. The remaining purchase authority at June 30, 2022 was $501.3 million.program. In addition, the Company will periodically acquire common shares outside of the repurchase program related to employee stock compensation plan activity. During the three months ended June 30, 2022, a total of 41,708March 31, 2023, the Company repurchased 284,725 shares were repurchased at a weighted averageweighted-average price of $50.85$52.90 per share, totaling $2.1$15.1 million for this purpose.
Webster Bank Liquidity. WebsterThe Bank's primary source of funding is core deposits. Including time deposits, Websterthe Bank had a loan to total deposit ratio of 86.0% and 74.6%92.1% at June 30, 2022both March 31, 2023, and December 31, 2021, respectively. The 11.4% point increase is attributed to loan growth exceeding deposit growth, both within the legacy and acquired Sterling portfolios.2022.
WebsterThe Bank is required by OCC regulations to maintain a sufficient level of liquidity 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 June 30, 2022, WebsterMarch 31, 2023, the Bank exceeded all regulatory liquidity requirements. WebsterThe Company has designed a detailed contingency plan in 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.
Capital Requirements. Webster Financial CorporationThe Holding Company and Websterthe 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 financial statements.Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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 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 the Basel III Capital Rules to ensure capital adequacy require the Companyfinancial institutions to maintain minimum ratios of Common Equity Tier 1 Capital, defined by the Basel III capital rules (CET1 capital), Tier 1 capital, Total capital to risk-weighted assets, and Tier 1 capital to average tangible assets (as defined in the regulations). At June 30, 2022,March 31, 2023, both Webster Financial Corporationthe Holding Company and Websterthe Bank were classified as well-capitalized. Management believes that no events or changes have occurred subsequent to quarter-end that would change this designation.
In accordance with regulatory capital rules, Websterthe 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 begin to phase out the aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption duringin the initial two years. For 2022, 2023, and 2024, Websterthe Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, respectively, with full absorption occurring in 2025. At June 30, 2022,March 31, 2023, the regulatory capital benefit allowed from the delayed CECL adoption resulted in a 9, 9,6, 6, and 64 basis point increase to Webster Financial Corporation'sthe Holding Company's and Websterthe Bank's CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), respectively, and a 21 basis point decrease to Total capital to total risk-weighted assets (Total risk-based capital). Both Webster Financial Corporation'sthe Holding Company's and Websterthe 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 Webster Financial Corporationthe Holding Company and Websterthe Bank can be found within Note 10: Regulatory Capital and Restrictions in the Notes to Condensed Consolidated Financial Statements contained in Part I -Item 1. Financial Statements.
Sources and Uses of Funds
Sources of Funds.Funds. TheDeposits are the primary source of cash flows for Websterthe Bank’s use in its lending activities and general operational needs is deposits. Operating activities, such as loanneeds. Loan and securities repayments, proceeds from loans and securities held for sale, and maturities also provide cash flows. While scheduled loan and securities repayments are a relatively stable source of funds, prepayments and other deposit inflows are influenced by economic conditions and prevailing interest rates, the timing of which is 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. WebsterThe 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 Federal Deposit Insurance Corporation (FDIC)FDIC regulations. Both WebsterThe Bank’s RetailConsumer 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 $2.9 billion of money market deposits at March 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 $53.1$55.3 billion and $29.8$54.1 billion at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The $23.3$1.2 billion increase was primarily attributeddue to the interLINK deposits, assumedpartially offset by customers rebalancing their deposit concentrations as a result of the current banking environment. Customer preferences also shifted from Sterlinglower rate checking and savings products into higher rate certificates of deposit products, which are currently more attractive in the merger. Customer preferences for maintaining liquidity resulted in higher balances across savings and money market accounts, as customers with maturing time deposits opted to migrate to more liquid products. The aggregate amount of time deposits accounts that exceeded the FDIC limit of $250,000 represented 0.6% and 0.9% of total deposits at June 30, 2022 and December 31, 2021, respectively.
interest rate environment.The following table summarizes daily average balances of deposits by type and the weighted-average rates paid thereon: | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2022 | | 2021 |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate |
Non-interest-bearing: | | | | | |
Demand | $ | 13,395,942 | | — | % | | $ | 6,774,206 | | — | % |
Interest-bearing: | | | | | |
Checking | 9,401,810 | | 0.12 | | | 3,797,321 | | 0.04 | |
Health savings accounts | 7,812,313 | | 0.06 | | | 7,446,735 | | 0.09 | |
Money market | 11,424,317 | | 0.22 | | | 3,176,981 | | 0.11 | |
Savings | 8,660,719 | | 0.05 | | | 5,390,772 | | 0.02 | |
Time deposits | 2,684,914 | | 0.17 | | | 2,114,889 | | 0.35 | |
Total interest-bearing | 39,984,073 | | 0.12 | | | 21,926,698 | | 0.09 | |
Total average deposits | $ | 53,380,015 | | 0.09 | % | | $ | 28,700,904 | | 0.07 | % |
| | | | | |
| Six months ended June 30, |
| 2022 | | 2021 |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate |
Non-interest-bearing: | | | | | |
Demand | $ | 12,335,504 | | — | % | | $ | 6,606,464 | | — | % |
Interest-bearing: | | | | | |
Checking | 8,555,157 | | 0.09 | | | 3,736,380 | | 0.05 | |
Health savings accounts | 7,786,035 | | 0.06 | | | 7,448,943 | | 0.09 | |
Money market | 10,265,149 | | 0.19 | | | 3,204,560 | | 0.12 | |
Savings | 8,095,617 | | 0.04 | | | 5,240,355 | | 0.02 | |
Time deposits | 2,614,989 | | 0.19 | | | 2,242,250 | | 0.45 | |
Total interest-bearing | 37,316,947 | | 0.11 | | | 21,872,488 | | 0.11 | |
Total average deposits | $ | 49,652,451 | | 0.08 | % | | $ | 28,478,952 | | 0.08 | % |
| | | | | | | | | | | | | | | | | |
| |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate |
Non-interest-bearing: | | | | | |
Demand | $ | 12,629,928 | | — | % | | $ | 11,263,282 | | — | % |
Interest-bearing: | | | | | |
Checking | 8,822,549 | | 1.44 | | | 7,699,097 | | 0.06 | |
Health savings accounts | 8,292,450 | | 0.15 | | | 7,759,465 | | 0.06 | |
Money market | 12,884,558 | | 2.57 | | | 9,093,101 | | 0.15 | |
Savings | 8,146,263 | | 0.49 | | | 7,524,238 | | 0.03 | |
Time deposits | 4,024,472 | | 2.43 | | | 2,544,286 | | 0.21 | |
Total interest-bearing | 42,170,292 | | 1.42 | | | 34,620,187 | | 0.09 | |
Total average deposits | $ | 54,800,220 | | 1.11 | % | | $ | 45,883,469 | | 0.07 | % |
The following table summarizes total uninsured deposits: | | | | | | | | | | | |
(In thousands) | At June 30, 2022 | | At December 31, 2021 |
Uninsured deposits (1) | $ | 21,720,887 | | $ | 10,936,416 |
(1)AUninsured deposits represent the portion of Webster’s totaldeposit 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 are estimatedand not subject to any federal or state deposit insurance regimes. The Company calculates its uninsured deposit balances based on the same methodologies and assumptions used for regulatory reporting requirements.requirements, which includes an estimated portion, and affiliate deposits. At March 31, 2023, and December 31, 2022, total uninsured deposits as per regulatory reporting requirements and reported on Schedule RC-O of the Bank's Call Report were $20.8 billion and $22.5 billion, respectively.
The following table summarizes uninsured deposits information at March 31, 2023, after certain exclusions:
| | | | | | | |
| | | |
(In thousands) | At March 31, 2023 | | |
Uninsured deposits, per regulatory reporting requirements | $ | 20,827,690 | | |
Less: Affiliate deposits | (1,671,727) | | |
Collateralized deposits | (5,269,060) | | |
Uninsured deposits, after exclusions | $ | 13,886,903 | | |
| | | |
Immediately available liquidity (1) | $ | 13,380,214 | | |
Uninsured deposits coverage | 96.4% | | |
(1)Reflects $6.5 billion and $2.9 billion of additional borrowing capacity from the FHLB and FRB, respectively, and $4.0 billion in unencumbered liquid assets.
Uninsured deposits, after adjusting for affiliate deposits and collateralized deposits, represented 25.1% of total deposits at March 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 Quarterly Report on Form 10-Q, the Company's uninsured deposits as a percentage of total deposits, adjusted for affiliate deposits and and collateralized deposits, is consistent with the percentage reported at March 31, 2023. In addition, the Company's immediately available liquidity has, and continues, to increase.
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) | June 30, 2022 |
Portion of U.S. time deposits in excess of insurance limit | $ | 128,388 |
Time deposits otherwise uninsured with a maturity of: (1) | |
3 months or less | $ | 143,701 |
Over 3 months through 6 months | 21,315 |
Over 6 months through 12 months | 20,289 |
Over 12 months | 7,656 |
(1)Includes $64.6 million of Eurodollar deposits, all of which are due within 3 months or less. | | | | | |
(In thousands) | March 31, 2023 |
Portion of U.S. time deposits in excess of insurance limit | $ | 984,289 |
Time deposits otherwise uninsured with a maturity of: | |
3 months or less | $ | 647,647 |
Over 3 months through 6 months | 86,226 |
Over 6 months through 12 months | 242,277 |
Over 12 months | 8,139 |
Additional information regarding period-end deposit balances and rates can be found within Note 7: Deposits in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
Borrowings.Webster 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 $5.3$9.9 billion and $1.2$7.7 billion at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and represented 7.9%13.3% and 3.6%10.8% of total assets, respectively. The $4.1$2.2 billion increase is primarily attributeddue to increases of $2.5a $3.1 billion $1.2 billion, and $0.5 billionincrease in FHLB advances, federal funds purchased, and long-term debt, respectively, partially offset by a $0.2$0.9 billion decrease in securities sold under agreements to repurchase.federal funds purchased.
WebsterThe Bank had additional borrowing capacity from the FHLB of $3.2$6.5 billion and $5.1$4.3 billion at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The Bank also had additional borrowing capacity from the FRB of $1.1$2.9 billion and $1.5$1.2 billion at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. Unpledged investment securities of $7.8$1.1 billion at June 30, 2022March 31, 2023, could have been used for collateral on borrowings or to increase borrowing capacity by $6.6either $0.8 billion with the FHLB or $7.5$1.1 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 $0.5 billion and $0.7$0.3 billion at June 30, 2022both March 31, 2023, and December 31, 2021, respectively. The $0.2 billion decrease is primarily attributed to the utilization of borrowings for short-term funding needs.2022.
The Bank may also purchase term and overnight federal funds to meet its short-term liquidity needs. Federal funds purchased totaled $1.2 billion at June 30, 2022. There were no federal funds purchased at March 31, 2023, whereas federal funds purchased totaled $0.9 billion at December 31, 2021.2022. The additional liquidity generated from the interLINK deposit sweep program allowed for the paydown during the first quarter of 2023 of higher rate federal funds purchased.
FHLB advances are not only utilized as a source of funding, but also for interest rate risk management purposes. FHLB advances totaled $2.5$8.6 billion and $11.0 million$5.5 billion at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The $2.5$3.1 billion increase is primarily attributeddue to short-term funding needs.needs and the strategic decision to maintain additional liquidity.
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 totaled $1.1 billion and $0.6 billion at June 30, 2022both March 31, 2023, and December 31, 2021, respectively. The $0.5 billion increase is primarily attributed to the subordinated notes assumed from Sterling in the merger.2022.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon: | | | | | | | Three months ended June 30, | | Three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | (Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate |
FHLB advances | $ | 1,156,449 | | 1.08 | % | | $ | 138,483 | | 1.52 | % | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 529,786 | | 1.06 | | | 500,638 | | 0.68 | | Securities sold under agreements to repurchase | $ | 243,848 | | 0.11 | % | | $ | 577,039 | | 0.66 | % |
Federal funds purchased | Federal funds purchased | 534,518 | | 0.93 | | | — | | — | | Federal funds purchased | 671,175 | | 4.62 | | | — | | — | |
FHLB advances | | FHLB advances | 5,673,826 | | 4.80 | | | 10,936 | | 2.03 | |
Long-term debt | Long-term debt | 1,077,395 | | 3.38 | | | 565,874 | | 3.22 | | Long-term debt | 1,072,252 | | 3.65 | | | 896,310 | | 3.34 | |
| Total average borrowings | Total average borrowings | $ | 3,298,148 | | 1.79 | % | | $ | 1,204,995 | | 1.93 | % | Total average borrowings | $ | 7,661,101 | | 4.48 | % | | $ | 1,484,285 | | 2.26 | % |
| | Six months ended June 30, | |
| 2022 | | 2021 | |
(Dollars in thousands) | Average Balance | Average Rate | | Average Balance | Average Rate | |
FHLB advances | $ | 586,857 | | 1.09 | % | | $ | 137,143 | | 1.52 | % | |
Securities sold under agreements to repurchase | 553,282 | | 0.86 | | | 479,285 | | 0.61 | | |
Federal funds purchased | 268,735 | | 0.93 | | | 32,337 | | 0.08 | | |
Long-term debt | 987,353 | | 3.36 | | | 566,462 | | 3.22 | | |
| Total average borrowings | $ | 2,396,227 | | 1.93 | % | | $ | 1,215,227 | | 1.87 | % | |
Additional information regarding period-end borrowings balances and rates can be found within Note 8: Borrowings in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.
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, each of which is subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based 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 as there is no market for it, and it can only be redeemed by the FHLB. WebsterThe Bank held FHLB capital stock of $105.9$359.9 million and $11.3$221.4 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The most recent FHLB quarterly cash dividend was paid on AugustMay 2, 20222023, in an amount equal to an annual yield of 3.72%7.55%.
WebsterThe Bank is also required to hold FRB 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. Similar to FHLB stock, the FRB capital stock investment is restricted as there is no market for it, and it can only be redeemed by the FRB. WebsterThe Bank held FRB capital stock of $223.5$224.8 million and $60.5$224.5 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. The most recent FRB
semi-annual cash dividend was paid on June 30,December 31, 2022, in an amount equal to an annual yield of 3.03%3.63%.
Webster Bank changed its location for the purposes of Federal Reserve Regulation D from the Federal Reserve District of Boston to the Federal Reserve District of New York effective June 1, 2022.
Uses of Funds. WebsterThe Company enters into various contractual obligations in the normal course of business that require future cash payments and that could impact the Company'sits short-term and long-term liquidity and capital resource needs. The following table summarizes significant fixed and determinable contractual obligations at June 30, 2022.March 31, 2023. The actual timing and amounts of future cash payments may differ from the amounts presented. Based on Webster'sthe 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) | | | Payments Due by Period (1) |
(In thousands) | (In thousands) | Less than one year | 1-3 years | 3-5 years | After 5 years | Total | (In thousands) | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
Senior notes | Senior notes | $ | — | | $ | 150,000 | | $ | — | | $ | 336,134 | | $ | 486,134 | | Senior notes | $ | — | | $ | 150,000 | | $ | — | | $ | — | | $ | — | | $ | 300,000 | | $ | 450,000 | |
Subordinated notes | Subordinated notes | — | | — | | — | | 499,000 | | 499,000 | | Subordinated notes | — | | — | | — | | — | | — | | 499,000 | | 499,000 | |
Junior subordinated debt | Junior subordinated debt | — | | — | | — | | 77,320 | | 77,320 | | Junior subordinated debt | — | | — | | — | | — | | — | | 77,320 | | 77,320 | |
FHLB advances | FHLB advances | 2,500,080 | | 194 | | — | | 10,536 | | 2,510,810 | | FHLB advances | 8,550,183 | | — | | — | | — | | 248 | | 10,030 | | 8,560,461 | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 306,382 | | 200,000 | | — | | — | | 506,382 | | Securities sold under agreements to repurchase | 306,154 | | — | | — | | — | | — | | — | | 306,154 | |
Federal funds purchased | 1,237,400 | | — | | — | | — | | 1,237,400 | | |
Deposits with stated maturity dates | 1,597,832 | | 737,703 | | 194,147 | | 24,420 | | 2,554,102 | | |
| Time deposits | | Time deposits | 3,168,801 | | 1,132,496 | | 132,543 | | 53,306 | | 36,616 | | 6,017 | | 4,529,779 | |
Operating lease liabilities | Operating lease liabilities | 36,315 | | 70,792 | | 55,519 | | 90,581 | | 253,207 | | Operating lease liabilities | 25,520 | | 35,817 | | 32,625 | | 29,568 | | 24,584 | | 81,932 | | 230,046 | |
| Contingent consideration | | Contingent consideration | 4,798 | | 11,241 | | — | | — | | — | | — | | 16,039 | |
Royalty liabilities | | Royalty liabilities | 1,035 | | 8,572 | | 1,417 | | — | | — | | — | | 11,024 | |
Purchase obligations (2) | | Purchase obligations (2) | 120,718 | | 25,329 | | 13,087 | | 5,895 | | 2,229 | | 1,287 | | 168,545 | |
Total contractual obligations | Total contractual obligations | $ | 5,678,009 | | $ | 1,158,689 | | $ | 249,666 | | $ | 1,037,991 | | $ | 8,124,355 | | Total contractual obligations | $ | 12,177,209 | | $ | 1,363,455 | | $ | 179,672 | | $ | 88,769 | | $ | 63,677 | | $ | 975,586 | | $ | 14,848,368 | |
(1)Interest payments on borrowings have been excluded.
(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 normal course of business, Websterthe Company offers financial instruments with 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 funded, the total commitment amount of $10.8$12.1 billion at June 30, 2022March 31, 2023, does not necessarily reflect future cash payments.
WebsterThe Company also enters into commitments to invest in venture capital and private equity funds, as well as low income housing tax creditLIHTC investments to assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for these alternative investments was $360.4$437.0 million at June 30, 2022.March 31, 2023. However, the timing of capital calls cannot be reasonably estimated, and depending on the nature of the contract, the entirety of the capital committed by Websterthe Company may not be called.
Pension obligations are funded by the Company, as needed, to provide for participant benefit payments as it relates to Webster'sthe 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 trends in the regulatory environment. WebsterThe Company does not currently anticipate that it will make a contributionbe required to contribute to the defined benefit pension plan in 2022. Webster's2023. The Company's non-qualified supplemental executive retirement plans and other post employmentpost-employment benefit plans including those acquired from Sterling in the merger, are unfunded.
At June 30, 2022, Webster's condensed consolidated balance sheetMarch 31, 2023, the Company's Condensed Consolidated Balance Sheet reflects a liability for uncertain tax positions of $10.7$9.9 million and $2.8$2.1 million of accrued interest and penalties. The ultimate timing and amount of any related future cash settlements cannot be predicted with reasonable certainty.
Additional information regarding credit-related financial instruments and alternative investments defined benefit pension and other postretirement benefit plans, and income taxes can be found within
Note 18: Commitments and Contingencies and Note 11: Variable Interest Entities, Note 15: Retirement Benefit Plans, and the under the section captioned "Income Taxes", respectively, in the Notes to the Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements of this report. Additional information regarding defined benefit pension and other postretirement benefit plans and income taxes can be found within
Note 19: Retirement Benefit Plans and Note 9: Income Taxes, respectively, in the Notes to the Consolidated Financial Statements contained in Part III - Item. 2 Management's DiscussionItem 8. Financial Statements and AnalysisSupplementary Data of Financial Condition and Results of Operations, respectively.the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Asset/Liability Management and Market Risk
An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest rate risksrisk when determining management'sthe Company's strategy and action. To facilitate this process, interest rate sensitivity is monitored on an ongoing basis by the ALCO. TheCompany's ALCO, whose primary goal of ALCO is to manage interest rate risk and to maximize net income and net economic value over time in changing interest rate environments. The ALCO meets at least monthlyfrequently to make decisions on the Company's investment securities 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;
•interest rate contracts; and
•the pricing and structure of loans and deposits.
Management measures interest rate risk using simulation analysis and asset/liability modeling software to calculate Webster'sthe Company's earnings at risk and equity at risk. Essentially, interestInterest rates are generally assumed to change up or down in a parallel fashion, and the net interest income results in each scenario are compared to a flat rate basedbase scenario. The flat rate base scenario holds the end of period yield curve constant over a twelve month forecastedtwelve-month forecast horizon. At June 30, 2022March 31, 2023, and December 31, 2021,2022, the flat rate base scenario assumed a federal funds rate of 1.75%5.00% and 0.25%4.50%, respectively. The federal funds rate target range was 1.50-1.75%4.75-5.00% at June 30, 2022March 31, 2023, and 0-0.25%4.25-4.50% at December 31, 2021.2022. Since interest rates rose sharply in 2022, and have beguncontinued to rise during the first quarter of 2023, management has incorporated the up and down 100300 basis point rate scenarioscenarios back into its assessment of interest rate risk. As interest rates continue to rise, scenarios that include upward shifts of greater magnitude will also be incorporated.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of up and down 100, 200, and 200300 basis points might have on Webster'sthe Company's net interest income over a twelve monthtwelve-month period starting at June 30, 2022March 31, 2023, and December 31, 2021,2022, as compared to actual net interest income and assuming no changes in interest rates:
| | | | | | | | | | | | | | |
| -200bp | -100bp | +100bp | +200bp |
June 30, 2022 | n/a | (4.5)% | 4.1% | 8.4% |
December 31, 2021 | n/a | n/a | 4.9% | 10.7% |
| | | | | | | | | | | | | | | | | | | | |
| -300bp | -200bp | -100bp | +100bp | +200bp | +300bp |
March 31, 2023 | (9.3)% | (5.9)% | (2.8)% | 2.5% | 5.3% | 8.7% |
December 31, 2022 | n/a | (6.9)% | (3.3)% | 3.2% | 6.5% | n/a |
Asset sensitivity in terms of net interest income decreased at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to changesincreased interest paid on deposits, the impact of additional customer cash flow hedges entered into during the quarter, and liquidity actions taken in the overall composition and size of the balance sheet on a combined basis post-merger and the relative size and duration of the securities portfolio.response to bank failures. Loans at floors have decreased $3.3 billion from $4.5were $0.4 billion at both December 31, 2021 to $1.2 billion at June 30, 2022.2022, and
March 31, 2023. While loans with floors, which are considered "in“in the money"money”, have the impact of reducing overall asset sensitivity, as interest rates startcontinue to rise, these loans will move through their floors and begin to reprice accordingly.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates of up and down 50 and 100 basis points might have on Webster'sthe Company's net interest income for the subsequent twelve monthtwelve-month period starting at June 30, 2022March 31, 2023, and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short End of the Yield Curve | | Long End of the Yield Curve |
| -100bp | -50bp | +50bp | +100bp | | -100bp | -50bp | +50bp | +100bp |
June 30, 2022 | (7.1)% | (3.5)% | 2.8% | 5.6% | | (1.6)% | (0.8)% | 0.8% | 1.6% |
December 31, 2021 | n/a | n/a | 3.2% | 7.3% | | (3.1)% | (1.4)% | 1.3% | 2.6% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short End of the Yield Curve | | Long End of the Yield Curve |
| -100bp | -50bp | +50bp | +100bp | | -100bp | -50bp | +50bp | +100bp |
March 31, 2023 | (3.3)% | (1.5)% | 1.1% | 2.3% | | (2.3)% | (1.1)% | 1.1% | 2.3% |
December 31, 2022 | (4.2)% | (2.0)% | 1.7% | 3.3% | | (2.4)% | (1.2)% | 1.3% | 2.6% |
These 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 less than eighteen months and the long end of the yield curve is defined as terms greater than eighteen months. The results reflect the annualized impact of immediate interest rate changes.
Sensitivity to both the short end and the long end of the yield curve for net interest income decreased at June 30, 2022March 31, 2023, as compared to December 31, 2021,2022, primarily due to changes in the overall composition and size of the balance sheet on a combined basis post-merger, as well as the relative size and duration of the securities portfolio and slower forecasted prepayment speeds as a result of increases in the long end of the yield curve, which in turn, extends the duration for mortgage-backed securities and residential mortgage loans.composition.
The following table summarizes the estimated economic value of financial assets, financial liabilities, and off-balance sheet financial instruments and the corresponding estimated change in economic value if interest rates were to instantaneously increase or decrease by 100 basis points at June 30, 2022March 31, 2023, and December 31, 2021:2022:
| (Dollars in thousands) | (Dollars in thousands) | Book Value | Estimated Economic Value | Estimated Economic Value Change | (Dollars in thousands) | Book Value | Estimated Economic Value | Estimated Economic Value Change |
| (Dollars in thousands) | Book Value | Estimated Economic Value | Estimated Economic Value Change | |
-100 bp | +100 bp | -100 bp | +100 bp |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | |
Assets | Assets | $ | 67,595,021 | | $ | 64,100,699 | | $ | 1,437,441 | | $ | (1,310,966) | | Assets | $ | 74,844,395 | | $ | 71,005,024 | | $ | 1,304,906 | | $ | (1,300,939) | |
Liabilities | Liabilities | 59,597,233 | | 53,030,727 | | 2,938,171 | | (1,604,178) | | Liabilities | 66,550,101 | | 60,711,526 | | 2,020,093 | | (1,745,742) | |
Net | Net | $ | 7,997,788 | | $ | 11,069,972 | | $ | (1,500,730) | | $ | 293,212 | | Net | $ | 8,294,294 | | $ | 10,293,498 | | $ | (715,187) | | $ | 444,803 | |
Net change as % base net economic value | Net change as % base net economic value | | (13.6) | % | 2.6 | % | Net change as % base net economic value | | (6.9) | % | 4.3 | % |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Assets | Assets | $ | 34,915,599 | | $ | 34,515,422 | | n/a | $ | (801,524) | | Assets | $ | 71,277,521 | | $ | 67,920,989 | | $1,161,794 | $ | (1,247,083) | |
Liabilities | Liabilities | 31,477,274 | | 30,015,357 | | n/a | (988,401) | | Liabilities | 63,221,335 | | 55,951,495 | | 1,959,399 | (1,716,697) | |
Net | Net | $ | 3,438,325 | | $ | 4,500,065 | | n/a | $ | 186,877 | | Net | $ | 8,056,186 | | $ | 11,969,494 | | $(797,605) | $ | 469,614 | |
Net change as % base net economic value | Net change as % base net economic value | | n/a | 4.2 | % | Net change as % base net economic value | | (6.7)% | 3.9 | % |
Changes in economic value can best be described through duration, which is a measure of the price sensitivity of financial instruments due to changes in interest rates. For fixed-rate financial instruments, it can be thought of as the weighted-average expected time to receive future cash flows, whereas for floating-rate financial instruments, it can be thought of as the
weighted-average expected time until the next rate reset. Overall, the longer the duration, the greater the price sensitivity due 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 Webster.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.
Duration gap represents the difference between the duration of financial assets and financial liabilities. A duration gap at or near zero would imply that the balance sheet is matched, and therefore, would exhibit no change in estimated economic value for changes in interest rates. At June 30, 2022March 31, 2023, and December 31, 2021, Webster's2022, the Company's duration gap was negative 1.71.2 years and negative 1.81.4 years, respectively. A negative duration gap implies that the duration of financial liabilities is longer than the duration of financial assets, and therefore, liabilities have more price sensitivity than assets and will reset their interest rates at a slower pace. Consequently, Webster'sthe Company's net estimated economic value would generally be expected to increase when interest rates rise, 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 occur 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. At June 30, 2022,March 31, 2023, long-term rates have risenfell by 15138 basis points as compared to December 31, 2021. This higher starting point extends financial asset duration by decreasing residential mortgage loans and mortgage-backed securities prepayment speeds.2022.
These earnings and net economic valuesvalue 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. Management believes that the Company's interest rate risk position at June 30, 2022March 31, 2023, represents a reasonable level of risk given the current interest rate outlook. Management continues to monitor interest rates and other relevant factors given recent market volatility and is prepared to take additional action, as necessary.
Additional information regarding Webster'sthe Company's asset/liability management process can be found under the section captioned "Asset/Liability Management and Market Risk" contained in Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the year ended
December 31, 2021.2022.
Critical Accounting Estimates
The preparation of Webster'sthe Company's Condensed Consolidated Financial Statements, and accompanying notes thereto, is based on the application of accounting policies, the most significant of which can be found within Note 1: Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements,accordance with GAAP and in Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Critical accounting policies are defined as those that are most importantpractices generally applicable to the portrayal of the Company's financial condition and results of operations, and that requireservices industry, requires management to make difficult, subjective,estimates and complex judgments about mattersassumptions 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 inherently uncertain, and whichdeemed to be relevant, actual results could potentially result in materially different amounts using different assumptions or under different conditions.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 Webster'sthe Company's financial condition or results of operations. Webster'sManagement has identified that the Company's most critical accounting policies and accounting estimates are those related to the ACL on loans and leases and business combinations.combinations accounting policies. These critical accounting policies including itsand 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 Webster'sthe 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, loss rate, or discounted cash flow framework, and include consideration of past events, current conditions, macroeconomic variables (such as(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 Websterthe Company to make significant estimates of current credit risks and trends 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 economic conditions affecting borrowers and macroeconomic variables that Websterthe Company is more susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans, identification of additional problemsproblem 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 overall reserve because a wide variety of 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.
Executive 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 under the section captioned "Allowance for Credit Losses on Loans and Leases" contained elsewhere in this Item 2. 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
Part II - Item 8. Financial Statements and Supplementary Data included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
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 the acquisition date. The determination of fair value often involves the use of internal 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 Sterling 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 Notes to Condensed Consolidated Financial Statements contained in Part III - Item 1.8. Financial Statements.Statements and Supplementary Data included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 1. FINANCIAL STATEMENTS
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS | | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
(In thousands, except share data) | (In thousands, except share data) | (Unaudited) | | | (In thousands, except share data) | (Unaudited) | | |
Assets: | Assets: | | Assets: | |
Cash and due from banks | Cash and due from banks | $ | 294,482 | | | $ | 137,385 | | Cash and due from banks | $ | 201,683 | | | $ | 264,118 | |
Interest-bearing deposits | Interest-bearing deposits | 607,323 | | | 324,185 | | Interest-bearing deposits | 2,232,388 | | | 575,825 | |
Investment securities available-for-sale, at fair value | Investment securities available-for-sale, at fair value | 8,638,358 | | | 4,234,854 | | Investment securities available-for-sale, at fair value | 7,798,977 | | | 7,892,697 | |
| Investment securities held-to-maturity, net of allowance for credit losses of $210 and $214 | 6,547,998 | | | 6,198,125 | | |
Investment securities held-to-maturity, net of allowance for credit losses of $282 and $182 | | Investment securities held-to-maturity, net of allowance for credit losses of $282 and $182 | 7,063,223 | | | 6,564,697 | |
Federal Home Loan Bank and Federal Reserve Bank stock | Federal Home Loan Bank and Federal Reserve Bank stock | 329,424 | | | 71,836 | | Federal Home Loan Bank and Federal Reserve Bank stock | 584,724 | | | 445,900 | |
Loans held for sale (valued under fair value option) | 388 | | | 4,694 | | |
Loans held for sale ($811 and $1,991 valued under fair value option) | | Loans held for sale ($811 and $1,991 valued under fair value option) | 210,724 | | | 1,991 | |
Loans and leases | Loans and leases | 45,646,743 | | | 22,271,729 | | Loans and leases | 50,926,523 | | | 49,764,426 | |
Allowance for credit losses on loans and leases | Allowance for credit losses on loans and leases | (571,499) | | | (301,187) | | Allowance for credit losses on loans and leases | (613,914) | | | (594,741) | |
Loans and leases, net | Loans and leases, net | 45,075,244 | | | 21,970,542 | | Loans and leases, net | 50,312,609 | | | 49,169,685 | |
Deferred tax assets, net | Deferred tax assets, net | 269,790 | | | 109,405 | | Deferred tax assets, net | 315,525 | | | 371,634 | |
Premises and equipment, net | Premises and equipment, net | 449,578 | | | 204,557 | | Premises and equipment, net | 431,432 | | | 430,184 | |
Goodwill | Goodwill | 2,513,771 | | | 538,373 | | Goodwill | 2,631,465 | | | 2,514,104 | |
Other intangible assets, net | Other intangible assets, net | 215,780 | | | 17,869 | | Other intangible assets, net | 229,845 | | | 199,342 | |
Cash surrender value of life insurance policies | Cash surrender value of life insurance policies | 1,228,484 | | | 572,305 | | Cash surrender value of life insurance policies | 1,233,994 | | | 1,229,169 | |
Accrued interest receivable and other assets | Accrued interest receivable and other assets | 1,424,401 | | | 531,469 | | Accrued interest receivable and other assets | 1,597,806 | | | 1,618,175 | |
Total assets | Total assets | $ | 67,595,021 | | | $ | 34,915,599 | | Total assets | $ | 74,844,395 | | | $ | 71,277,521 | |
Liabilities and shareholders' equity: | | | | |
Liabilities and stockholders' equity: | | Liabilities and stockholders' equity: | | | |
Deposits: | Deposits: | | Deposits: | |
Non-interest-bearing | Non-interest-bearing | $ | 13,576,152 | | | $ | 7,060,488 | | Non-interest-bearing | $ | 12,007,387 | | | $ | 12,974,975 | |
Interest-bearing | Interest-bearing | 39,501,005 | | | 22,786,541 | | Interest-bearing | 43,290,092 | | | 41,079,365 | |
Total deposits | Total deposits | 53,077,157 | | | 29,847,029 | | Total deposits | 55,297,479 | | | 54,054,340 | |
Securities sold under agreements to repurchase and other borrowings | Securities sold under agreements to repurchase and other borrowings | 1,743,782 | | | 674,896 | | Securities sold under agreements to repurchase and other borrowings | 306,154 | | | 1,151,830 | |
Federal Home Loan Bank advances | Federal Home Loan Bank advances | 2,510,810 | | | 10,997 | | Federal Home Loan Bank advances | 8,560,461 | | | 5,460,552 | |
Long-term debt(1) | Long-term debt(1) | 1,076,559 | | | 562,931 | | Long-term debt(1) | 1,071,413 | | | 1,073,128 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 1,188,925 | | | 381,421 | | Accrued expenses and other liabilities | 1,314,594 | | | 1,481,485 | |
Total liabilities | Total liabilities | 59,597,233 | | | 31,477,274 | | Total liabilities | 66,550,101 | | | 63,221,335 | |
Shareholders’ equity: | | | | |
Preferred stock, $0.01 par value; Authorized - 3,000,000 shares: | | |
Series F issued and outstanding (6,000 shares) | 145,037 | | | 145,037 | | |
Series G issued and outstanding (135,000 shares) | 138,942 | | | — | | |
Common stock, $0.01 par value; Authorized - 400,000,000 shares: | | |
Issued (182,778,045 and 93,686,311 shares) | 1,828 | | | 937 | | |
Stockholders’ equity: | | Stockholders’ equity: | | | |
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 | 145,037 | | | 145,037 | |
Series G issued and outstanding—135,000 shares | | Series G issued and outstanding—135,000 shares | 138,942 | | | 138,942 | |
Common stock, $0.01 par value: Authorized—400,000,000 shares; | | Common stock, $0.01 par value: Authorized—400,000,000 shares; | |
Issued—182,778,045 shares | | Issued—182,778,045 shares | 1,828 | | | 1,828 | |
Paid-in capital | Paid-in capital | 6,148,853 | | | 1,108,594 | | Paid-in capital | 6,137,743 | | | 6,173,240 | |
Retained earnings | Retained earnings | 2,383,638 | | | 2,333,288 | | Retained earnings | 2,856,745 | | | 2,713,861 | |
Treasury stock, at cost (6,737,091 and 3,102,690 shares) | (339,178) | | | (126,951) | | |
Treasury stock, at cost—8,065,663 and 8,770,472 shares | | Treasury stock, at cost—8,065,663 and 8,770,472 shares | (397,981) | | | (431,762) | |
Accumulated other comprehensive (loss), net of tax | Accumulated other comprehensive (loss), net of tax | (481,332) | | | (22,580) | | Accumulated other comprehensive (loss), net of tax | (588,020) | | | (684,960) | |
Total shareholders' equity | 7,997,788 | | | 3,438,325 | | |
Total liabilities and shareholders' equity | $ | 67,595,021 | | | $ | 34,915,599 | | |
Total stockholders' equity | | Total stockholders' equity | 8,294,294 | | | 8,056,186 | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 74,844,395 | | | $ | 71,277,521 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | Three months ended |
| | Three months ended June 30, | | Six months ended June 30, | | | March 31, |
(In thousands, except per share data) | (In thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 | (In thousands, except per share data) | | 2023 | | 2022 |
Interest Income: | Interest Income: | | | | | | | | Interest Income: | | | | |
Interest and fees on loans and leases | Interest and fees on loans and leases | $ | 431,538 | | | $ | 185,919 | | | $ | 777,814 | | | $ | 376,455 | | Interest and fees on loans and leases | | $ | 716,356 | | | $ | 346,276 | |
Taxable interest and dividends on investments | Taxable interest and dividends on investments | 69,538 | | | 40,303 | | | 123,262 | | | 79,917 | | Taxable interest and dividends on investments | | 100,872 | | | 53,724 | |
Non-taxable interest on investment securities | Non-taxable interest on investment securities | 12,664 | | | 5,283 | | | 22,466 | | | 10,616 | | Non-taxable interest on investment securities | | 13,684 | | | 9,802 | |
Loans held for sale | Loans held for sale | 7 | | | 53 | | | 33 | | | 144 | | Loans held for sale | | 16 | | | 26 | |
Total interest income | Total interest income | 513,747 | | | 231,558 | | | 923,575 | | | 467,132 | | Total interest income | | 830,928 | | | 409,828 | |
Interest Expense: | Interest Expense: | | | | | | | | Interest Expense: | | | | |
Deposits | Deposits | 12,459 | | | 5,094 | | | 19,858 | | | 11,533 | | Deposits | | 150,204 | | | 7,399 | |
Securities sold under agreements to repurchase and other borrowings | Securities sold under agreements to repurchase and other borrowings | 2,677 | | | 860 | | | 3,634 | | | 1,495 | | Securities sold under agreements to repurchase and other borrowings | | 7,827 | | | 957 | |
Federal Home Loan Bank advances | Federal Home Loan Bank advances | 3,164 | | | 534 | | | 3,220 | | | 1,047 | | Federal Home Loan Bank advances | | 68,126 | | | 56 | |
Long-term debt | Long-term debt | 8,787 | | | 4,218 | | | 15,955 | | | 8,441 | | Long-term debt | | 9,488 | | | 7,168 | |
Total interest expense | Total interest expense | 27,087 | | | 10,706 | | | 42,667 | | | 22,516 | | Total interest expense | | 235,645 | | | 15,580 | |
Net interest income | Net interest income | 486,660 | | | 220,852 | | | 880,908 | | | 444,616 | | Net interest income | | 595,283 | | | 394,248 | |
Provision (benefit) for credit losses | 12,243 | | | (21,500) | | | 201,088 | | | (47,250) | | |
Net interest income after provision (benefit) for credit losses | 474,417 | | | 242,352 | | | 679,820 | | | 491,866 | | |
Provision for credit losses | | Provision for credit losses | | 46,749 | | | 188,845 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | | 548,534 | | | 205,403 | |
Non-interest Income: | Non-interest Income: | | | | | | | | Non-interest Income: | | | | |
Deposit service fees | Deposit service fees | 51,385 | | | 41,439 | | | 99,212 | | | 81,908 | | Deposit service fees | | 45,436 | | | 47,827 | |
Loan and lease related fees | Loan and lease related fees | 27,907 | | | 7,862 | | | 50,586 | | | 16,175 | | Loan and lease related fees | | 23,005 | | | 22,679 | |
Wealth and investment services | Wealth and investment services | 11,244 | | | 10,087 | | | 21,841 | | | 19,490 | | Wealth and investment services | | 6,587 | | | 10,597 | |
Mortgage banking activities | Mortgage banking activities | 102 | | | 1,319 | | | 530 | | | 3,961 | | Mortgage banking activities | | 59 | | | 428 | |
Increase in cash surrender value of life insurance policies | Increase in cash surrender value of life insurance policies | 8,244 | | | 3,603 | | | 14,976 | | | 7,136 | | Increase in cash surrender value of life insurance policies | | 6,728 | | | 6,732 | |
| (Loss) on sale of investment securities | | (Loss) on sale of investment securities | | (16,747) | | | — | |
| Other income | Other income | 22,051 | | | 8,392 | | | 37,823 | | | 20,789 | | Other income | | 5,698 | | | 15,772 | |
Total non-interest income | Total non-interest income | 120,933 | | | 72,702 | | | 224,968 | | | 149,459 | | Total non-interest income | | 70,766 | | | 104,035 | |
Non-interest Expense: | Non-interest Expense: | | | | | | | | Non-interest Expense: | | | | |
Compensation and benefits | Compensation and benefits | 187,656 | | | 97,754 | | | 371,658 | | | 205,354 | | Compensation and benefits | | 173,200 | | | 184,002 | |
Occupancy | Occupancy | 51,593 | | | 14,010 | | | 70,208 | | | 29,660 | | Occupancy | | 20,171 | | | 18,615 | |
Technology and equipment | Technology and equipment | 41,498 | | | 27,124 | | | 96,899 | | | 55,640 | | Technology and equipment | | 44,366 | | | 55,401 | |
Intangible assets amortization | Intangible assets amortization | 8,802 | | | 1,132 | | | 15,189 | | | 2,271 | | Intangible assets amortization | | 9,497 | | | 6,387 | |
Marketing | Marketing | 3,441 | | | 3,227 | | | 6,950 | | | 5,731 | | Marketing | | 3,476 | | | 3,509 | |
Professional and outside services | Professional and outside services | 15,332 | | | 21,025 | | | 69,423 | | | 30,801 | | Professional and outside services | | 32,434 | | | 54,091 | |
Deposit insurance | Deposit insurance | 6,748 | | | 3,749 | | | 11,970 | | | 7,705 | | Deposit insurance | | 12,323 | | | 5,222 | |
Other expense | Other expense | 43,157 | | | 19,007 | | | 75,715 | | | 37,848 | | Other expense | | 37,000 | | | 32,558 | |
Total non-interest expense | Total non-interest expense | 358,227 | | | 187,028 | | | 718,012 | | | 375,010 | | Total non-interest expense | | 332,467 | | | 359,785 | |
Income before income taxes | 237,123 | | | 128,026 | | | 186,776 | | | 266,315 | | |
Income tax expense | 54,812 | | | 33,991 | | | 21,212 | | | 64,202 | | |
Net income | 182,311 | | | 94,035 | | | 165,564 | | | 202,113 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | 286,833 | | | (50,347) | |
Income tax expense (benefit) | | Income tax expense (benefit) | | 65,829 | | | (33,600) | |
Net income (loss) | | Net income (loss) | | 221,004 | | | (16,747) | |
Preferred stock dividends | Preferred stock dividends | 4,163 | | | 1,969 | | | 7,594 | | | 3,938 | | Preferred stock dividends | | 4,163 | | | 3,431 | |
Net income available to common shareholders | $ | 178,148 | | | $ | 92,066 | | | $ | 157,970 | | | $ | 198,175 | | |
Net income (loss) available to common stockholders | | Net income (loss) available to common stockholders | | $ | 216,841 | | | $ | (20,178) | |
| Earnings per common share: | | |
Earnings (loss) per common share: | | Earnings (loss) per common share: | | |
Basic | Basic | $ | 1.00 | | | $ | 1.02 | | | $ | 0.97 | | | $ | 2.19 | | Basic | | $ | 1.24 | | | $ | (0.14) | |
Diluted | Diluted | 1.00 | | | 1.01 | | | 0.97 | | | 2.19 | | Diluted | | 1.24 | | | (0.14) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | Three months ended |
| | Three months ended June 30, | | Six months ended June 30, | | | March 31, |
(In thousands) | (In thousands) | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
Net income | $ | 182,311 | | | $ | 94,035 | | | $ | 165,564 | | | $ | 202,113 | | |
Other comprehensive (loss) income, net of tax: | | |
Net income (loss) | | Net income (loss) | | $ | 221,004 | | | $ | (16,747) | |
Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | | |
Investment securities available-for-sale | Investment securities available-for-sale | (205,273) | | | (1,473) | | | (450,152) | | | (31,826) | | Investment securities available-for-sale | | 71,618 | | | (244,879) | |
Derivative instruments | Derivative instruments | (308) | | | (1,652) | | | (8,152) | | | (6,024) | | Derivative instruments | | 21,374 | | | (7,844) | |
Defined benefit pension and other postretirement benefit plans | Defined benefit pension and other postretirement benefit plans | (28) | | | 741 | | | (448) | | | 1,484 | | Defined benefit pension and other postretirement benefit plans | | 3,948 | | | (420) | |
Other comprehensive (loss), net of tax | (205,609) | | | (2,384) | | | (458,752) | | | (36,366) | | |
Comprehensive (loss) income | $ | (23,298) | | | $ | 91,651 | | | $ | (293,188) | | | $ | 165,747 | | |
Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | | 96,940 | | | (253,143) | |
Comprehensive income (loss) | | Comprehensive income (loss) | | $ | 317,944 | | | $ | (269,890) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| At or for the three months ended March 31, 2023 |
(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 Stockholders' Equity |
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 | — | | — | | — | | 221,004 | | — | | — | | 221,004 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | 96,940 | | 96,940 | |
Common stock dividends and equivalents—$0.40 per share | — | | — | | — | | (69,712) | | — | | — | | (69,712) | |
Series F preferred stock dividends—$328.125 per share | — | | — | | — | | (1,969) | | — | | — | | (1,969) | |
Series G preferred stock dividends—$16.25 per share | — | | — | | — | | (2,194) | | — | | — | | (2,194) | |
Stock-based compensation | — | | — | | (33,471) | | — | | 45,117 | | — | | 11,646 | |
Exercise of stock options | — | | — | | (2,026) | | — | | 3,749 | | — | | 1,723 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (15,085) | | — | | (15,085) | |
| | | | | | | |
Balance at March 31, 2023 | $ | 283,979 | | $ | 1,828 | | $ | 6,137,743 | | $ | 2,856,745 | | $ | (397,981) | | $ | (588,020) | | $ | 8,294,294 | |
| | | | | | | |
| At or for the three months ended March 31, 2022 |
(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 Stockholders' Equity |
Balance at December 31, 2021 | $ | 145,037 | | $ | 937 | | $ | 1,108,594 | | $ | 2,333,288 | | $ | (126,951) | | $ | (22,580) | | $ | 3,438,325 | |
| | | | | | | |
Net (loss) | — | | — | | — | | (16,747) | | — | | — | | (16,747) | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (253,143) | | (253,143) | |
Common stock dividends and equivalents—$0.40 per share | — | | — | | — | | (36,234) | | — | | — | | (36,234) | |
Series F preferred stock dividends—$328.125 per share | — | | — | | — | | (1,969) | | — | | — | | (1,969) | |
Series G preferred stock dividends—$16.25 per share | — | | — | | — | | (1,463) | | — | | — | | (1,463) | |
Issued in business contribution | 138,942 | | 891 | | 5,040,291 | | — | | — | | — | | 5,180,124 | |
Stock-based compensation | — | | — | | (19,098) | | — | | 28,101 | | — | | 9,003 | |
Exercise of stock options | — | | — | | (347) | | — | | 758 | | — | | 411 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (18,967) | | — | | (18,967) | |
Common stock repurchase program | — | | — | | — | | — | | (122,205) | | — | | (122,205) | |
Balance at March 31, 2022 | $ | 283,979 | | $ | 1,828 | | $ | 6,129,440 | | $ | 2,276,875 | | $ | (239,264) | | $ | (275,723) | | $ | 8,177,135 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| At or for the three months ended June 30, 2022 |
(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 March 31, 2022 | $ | 283,979 | | $ | 1,828 | | $ | 6,129,440 | | $ | 2,276,875 | | $ | (239,264) | | $ | (275,723) | | $ | 8,177,135 | |
| | | | | | | |
Net income | — | | — | | — | | 182,311 | | — | | — | | 182,311 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (205,609) | | (205,609) | |
Common stock dividends and equivalents $0.40 per share | — | | — | | — | | (71,386) | | — | | — | | (71,386) | |
Series F preferred stock dividends $328.125 per share | — | | — | | — | | (1,969) | | — | | — | | (1,969) | |
Series G preferred stock dividends $16.25 per share | — | | — | | — | | (2,193) | | — | | — | | (2,193) | |
Stock-based compensation | — | | — | | 19,517 | | | 1,949 | | — | | 21,466 | |
Exercise of stock options | — | | — | | (104) | | | 190 | | — | | 86 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (2,128) | | — | | (2,128) | |
Common stock repurchase program | — | | — | | — | | — | | (99,925) | | — | | (99,925) | |
Balance at June 30, 2022 | $ | 283,979 | | $ | 1,828 | | $ | 6,148,853 | | $ | 2,383,638 | | $ | (339,178) | | $ | (481,332) | | $ | 7,997,788 | |
| | | | | | | |
| At or for the three months ended June 30, 2021 |
(In thousands, except per share data) | Preferred Stock | Common Stock | Paid-In Capital | Retained Earnings | Treasury Stock, at cost | Accumulated Other Comprehensive Income, Net of Tax | Total Shareholders' Equity |
Balance at March 31, 2021 | $ | 145,037 | | $ | 937 | | $ | 1,105,137 | | $ | 2,147,436 | | $ | (133,893) | | $ | 8,274 | | $ | 3,272,928 | |
| | | | | | | |
Net income | — | | — | | — | | 94,035 | | — | | — | | 94,035 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (2,384) | | (2,384) | |
Common stock dividends and equivalents $0.40 per share | — | | — | | — | | (36,342) | | — | | — | | (36,342) | |
Series F preferred stock dividends $328.125 per share | — | | — | | — | | (1,969) | | — | | — | | (1,969) | |
Stock-based compensation | — | | — | | (3,960) | | — | | 7,428 | | — | | 3,468 | |
Exercise of stock options | — | | — | | (51) | | — | | 123 | | — | | 72 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (103) | | — | | (103) | |
| | | | | | | |
Balance at June 30, 2021 | $ | 145,037 | | $ | 937 | | $ | 1,101,126 | | $ | 2,203,160 | | $ | (126,445) | | $ | 5,890 | | $ | 3,329,705 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At or for the six months ended June 30, 2022 |
(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, 2021 | $ | 145,037 | | $ | 937 | | $ | 1,108,594 | | $ | 2,333,288 | | $ | (126,951) | | $ | (22,580) | | $ | 3,438,325 | |
| | | | | | | |
Net income | — | | — | | — | | 165,564 | | — | | — | | 165,564 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (458,752) | | (458,752) | |
Common stock dividends and equivalents $0.80 per share | — | | — | | — | | (107,620) | | — | | — | | (107,620) | |
Series F preferred stock dividends $656.25 per share | — | | — | | — | | (3,938) | | — | | — | | (3,938) | |
Series G preferred stock dividends $32.50 per share | — | | — | | — | | (3,656) | | — | | — | | (3,656) | |
Issued in business combination | 138,942 | | 891 | | 5,040,291 | | — | | — | | — | | 5,180,124 | |
Stock-based compensation | — | | — | | 419 | | — | | 30,050 | | — | | 30,469 | |
Exercise of stock options | — | | — | | (451) | | — | | 948 | | — | | 497 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (21,095) | | — | | (21,095) | |
Common stock repurchase program | — | | — | | — | | — | | (222,130) | | — | | (222,130) | |
Balance at June 30, 2022 | $ | 283,979 | | $ | 1,828 | | $ | 6,148,853 | | $ | 2,383,638 | | $ | (339,178) | | $ | (481,332) | | $ | 7,997,788 | |
| | | | | | | |
| At or for the six months ended June 30, 2021 |
(In thousands, except per share data) | Preferred Stock | Common Stock | Paid-In Capital | Retained Earnings | Treasury Stock, at cost | Accumulated Other Comprehensive Income, Net of Tax | Total Shareholders' Equity |
Balance at December 31, 2020 | $ | 145,037 | | $ | 937 | | $ | 1,109,532 | | $ | 2,077,522 | | $ | (140,659) | | $ | 42,256 | | $ | 3,234,625 | |
| | | | | | | |
Net income | — | | — | | — | | 202,113 | | — | | — | | 202,113 | |
Other comprehensive (loss), net of tax | — | | — | | — | | — | | — | | (36,366) | | (36,366) | |
Common stock dividends and equivalents $0.80 per share | — | | — | | — | | (72,537) | | — | | — | | (72,537) | |
Series F preferred stock dividends $656.25 per share | — | | — | | — | | (3,938) | | — | | — | | (3,938) | |
Stock-based compensation | — | | — | | (3,311) | | — | | 9,744 | | — | | 6,433 | |
Exercise of stock options | — | | — | | (5,095) | | — | | 8,481 | | — | | 3,386 | |
Common shares acquired from stock compensation plan activity | — | | — | | — | | — | | (4,011) | | — | | (4,011) | |
| | | | | | | |
Balance at June 30, 2021 | $ | 145,037 | | $ | 937 | | $ | 1,101,126 | | $ | 2,203,160 | | $ | (126,445) | | $ | 5,890 | | $ | 3,329,705 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Six months ended June 30, | | Three months ended March 31, |
(In thousands) | (In thousands) | 2022 | | 2021 | (In thousands) | 2023 | | 2022 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net income | $ | 165,564 | | | $ | 202,113 | | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | |
Provision (benefit) for credit losses | 201,088 | | | (47,250) | | |
Deferred income tax (benefit) expense | (44,293) | | | 16,012 | | |
Net income (loss) | | Net income (loss) | $ | 221,004 | | | $ | (16,747) | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Provision for credit losses | | Provision for credit losses | 46,749 | | | 188,845 | |
Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 13,911 | | | (28,543) | |
Stock-based compensation expense | Stock-based compensation expense | 30,469 | | | 6,433 | | Stock-based compensation expense | 11,646 | | | 9,003 | |
| Depreciation and amortization of property and equipment and intangible assets | Depreciation and amortization of property and equipment and intangible assets | 40,673 | | | 18,683 | | Depreciation and amortization of property and equipment and intangible assets | 20,745 | | | 16,784 | |
(Accretion) and amortization of net (premiums) discounts on earnings assets and borrowings | (25,429) | | | 66,312 | | |
(Accretion) and amortization of interest-earning assets and borrowings | | (Accretion) and amortization of interest-earning assets and borrowings | (4,388) | | | (19,854) | |
Amortization of low-income housing tax credit investments | Amortization of low-income housing tax credit investments | 26,449 | | | 1,992 | | Amortization of low-income housing tax credit investments | 21,478 | | | 10,377 | |
Amortization of mortgage servicing assets | Amortization of mortgage servicing assets | 1,769 | | | 2,932 | | Amortization of mortgage servicing assets | 341 | | | 570 | |
Reduction of right-of-use lease assets | Reduction of right-of-use lease assets | 39,865 | | | 1,336 | | Reduction of right-of-use lease assets | 7,525 | | | 7,928 | |
Net (gain) on sale, net of write-downs, of foreclosed properties and repossessed assets | Net (gain) on sale, net of write-downs, of foreclosed properties and repossessed assets | (418) | | | (141) | | Net (gain) on sale, net of write-downs, of foreclosed properties and repossessed assets | (323) | | | (103) | |
Net loss on sale, net of write-downs, of property and equipment | 4,740 | | | 191 | | |
| Loss on disposal of property and equipment | | Loss on disposal of property and equipment | 5 | | | 1,662 | |
Loss on sale of investment securities | | Loss on sale of investment securities | 16,747 | | | — | |
Originations of loans held for sale | Originations of loans held for sale | (28,098) | | | (135,930) | | Originations of loans held for sale | (2,590) | | | (23,056) | |
Proceeds from sale of loans held for sale | Proceeds from sale of loans held for sale | 32,833 | | | 147,735 | | Proceeds from sale of loans held for sale | 3,832 | | | 26,753 | |
Net (gain) on mortgage banking activities | Net (gain) on mortgage banking activities | (503) | | | (3,460) | | Net (gain) on mortgage banking activities | (77) | | | (397) | |
Net (gain) on sale of loans not originated for sale | Net (gain) on sale of loans not originated for sale | (3,173) | | | (718) | | Net (gain) on sale of loans not originated for sale | (95) | | | (1,816) | |
(Increase) in cash surrender value of life insurance policies | (Increase) in cash surrender value of life insurance policies | (14,976) | | | (7,136) | | (Increase) in cash surrender value of life insurance policies | (6,728) | | | (6,732) | |
(Gain) from life insurance policies | (Gain) from life insurance policies | (1,447) | | | (805) | | (Gain) from life insurance policies | (528) | | | (38) | |
Net decrease in derivative contract assets and liabilities | 336,819 | | | 106,759 | | |
Net (increase) decrease in derivative contract assets and liabilities | | Net (increase) decrease in derivative contract assets and liabilities | (48,570) | | | 215,423 | |
| Net (increase) in accrued interest receivable and other assets | Net (increase) in accrued interest receivable and other assets | (57,705) | | | (95,884) | | Net (increase) in accrued interest receivable and other assets | (8,150) | | | (69,651) | |
Net (decrease) increase in accrued expenses and other liabilities | (65,422) | | | 34,057 | | |
Net (decrease) in accrued expenses and other liabilities | | Net (decrease) in accrued expenses and other liabilities | (78,240) | | | (95,151) | |
Net cash provided by operating activities | Net cash provided by operating activities | 638,805 | | | 313,231 | | Net cash provided by operating activities | 214,294 | | | 215,257 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Purchases of available-for-sale securities | Purchases of available-for-sale securities | (1,099,810) | | | (504,286) | | Purchases of available-for-sale securities | (357,784) | | | (714,208) | |
Proceeds from principal payments, maturities, and calls of available-for-sale securities | Proceeds from principal payments, maturities, and calls of available-for-sale securities | 475,922 | | | 510,484 | | Proceeds from principal payments, maturities, and calls of available-for-sale securities | 119,033 | | | 283,474 | |
| Proceeds from sale of available-for-sale securities | | Proceeds from sale of available-for-sale securities | 395,358 | | | — | |
Purchases of held-to-maturity securities | Purchases of held-to-maturity securities | (847,534) | | | (775,673) | | Purchases of held-to-maturity securities | (599,387) | | | (456,139) | |
Proceeds from principal payments, maturities, and calls of held-to-maturity securities | Proceeds from principal payments, maturities, and calls of held-to-maturity securities | 476,710 | | | 694,951 | | Proceeds from principal payments, maturities, and calls of held-to-maturity securities | 99,992 | | | 280,080 | |
Net (increase) decrease in Federal Home Loan Bank and Federal Reserve Bank stock | Net (increase) decrease in Federal Home Loan Bank and Federal Reserve Bank stock | (107,086) | | | 720 | | Net (increase) decrease in Federal Home Loan Bank and Federal Reserve Bank stock | (138,824) | | | 16,215 | |
Alternative investments (capital calls), net of distributions | Alternative investments (capital calls), net of distributions | (7,184) | | | (5,568) | | Alternative investments (capital calls), net of distributions | (3,184) | | | (5,661) | |
Net (increase) decrease in loans | (2,815,067) | | | 84,886 | | |
Net (increase) in loans | | Net (increase) in loans | (1,478,986) | | | (674,472) | |
Proceeds from sale of loans not originated for sale | Proceeds from sale of loans not originated for sale | 118,505 | | | 49,122 | | Proceeds from sale of loans not originated for sale | 106,779 | | | 51,127 | |
Proceeds from sale of foreclosed properties and repossessed assets | Proceeds from sale of foreclosed properties and repossessed assets | 1,290 | | | 523 | | Proceeds from sale of foreclosed properties and repossessed assets | 1,745 | | | 231 | |
Proceeds from sale of property and equipment | — | | | 2,413 | | |
| Additions to property and equipment | Additions to property and equipment | (9,895) | | | (7,407) | | Additions to property and equipment | (10,293) | | | (4,644) | |
Proceeds from life insurance policies | Proceeds from life insurance policies | 11,576 | | | 2,683 | | Proceeds from life insurance policies | — | | | 7,793 | |
Net cash paid for acquisition of interLINK | | Net cash paid for acquisition of interLINK | (157,646) | | | — | |
Net cash paid for acquisition of Bend | Net cash paid for acquisition of Bend | (54,407) | | | — | | Net cash paid for acquisition of Bend | — | | | (54,407) | |
Net cash received in merger with Sterling | Net cash received in merger with Sterling | 513,960 | | | — | | Net cash received in merger with Sterling | — | | | 513,960 | |
Net cash (used for) provided by investing activities | (3,343,020) | | | 52,848 | | |
Net cash (used for) investing activities | | Net cash (used for) investing activities | (2,023,197) | | | (756,651) | |
| See accompanying Notes to Condensed Consolidated Financial Statements. | |
| | WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued | WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued | WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued |
| | | Six months ended June 30, | | Three months ended March 31, |
(In thousands) | (In thousands) | 2022 | | 2021 | (In thousands) | 2023 | | 2022 |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Net (decrease) increase in deposits | (41,467) | | | 1,510,573 | | |
Net increase in deposits | | Net increase in deposits | 1,236,463 | | | 1,235,442 | |
Proceeds from Federal Home Loan Bank advances | Proceeds from Federal Home Loan Bank advances | 5,150,000 | | | 180,470 | | Proceeds from Federal Home Loan Bank advances | 15,450,000 | | | — | |
Repayments of Federal Home Loan Bank advances | Repayments of Federal Home Loan Bank advances | (2,650,187) | | | (175,190) | | Repayments of Federal Home Loan Bank advances | (12,350,091) | | | (94) | |
Net increase (decrease) in securities sold under agreements to repurchase and other borrowings | 1,041,702 | | | (488,231) | | |
| Net increase in securities sold under agreements to repurchase and other borrowings | | Net increase in securities sold under agreements to repurchase and other borrowings | (845,676) | | | (183,347) | |
| Dividends paid to common shareholders | (107,469) | | | (72,349) | | |
Dividends paid to preferred shareholders | (5,401) | | | (3,938) | | |
Dividends paid to common stockholders | | Dividends paid to common stockholders | (70,140) | | | (36,234) | |
Dividends paid to preferred stockholders | | Dividends paid to preferred stockholders | (4,163) | | | (1,969) | |
Exercise of stock options | Exercise of stock options | 497 | | | 3,386 | | Exercise of stock options | 1,723 | | | 411 | |
| Common stock repurchase program | Common stock repurchase program | (222,130) | | | — | | Common stock repurchase program | — | | | (122,205) | |
Common shares acquired related to stock compensation plan activity | Common shares acquired related to stock compensation plan activity | (21,095) | | | (4,011) | | Common shares acquired related to stock compensation plan activity | (15,085) | | | (18,967) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 3,144,450 | | | 950,710 | | Net cash provided by financing activities | 3,403,031 | | | 873,037 | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 440,235 | | | 1,316,789 | | Net increase in cash and cash equivalents | 1,594,128 | | | 331,643 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 461,570 | | | 263,104 | | Cash and cash equivalents at beginning of period | 839,943 | | | 461,570 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 901,805 | | | $ | 1,579,893 | | Cash and cash equivalents at end of period | $ | 2,434,071 | | | $ | 793,213 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
Interest paid | Interest paid | $ | 49,544 | | | $ | 23,133 | | Interest paid | $ | 221,182 | | | $ | 15,457 | |
Income taxes paid | Income taxes paid | 66,064 | | | 80,873 | | Income taxes paid | 6,334 | | | 7,112 | |
Non-cash investing and financing activities: | Non-cash investing and financing activities: | | | | Non-cash investing and financing activities: | | | |
Transfer of loans and leases to foreclosed properties and repossessed assets | Transfer of loans and leases to foreclosed properties and repossessed assets | $ | 575 | | | $ | 829 | | Transfer of loans and leases to foreclosed properties and repossessed assets | $ | 607 | | | $ | 213 | |
Transfer of loans from portfolio to loans-held-for-sale | 91,815 | | | 48,395 | | |
Merger with Sterling: | | |
Transfer of loans and leases to loans held-for-sale | | Transfer of loans and leases to loans held-for-sale | 316,596 | | | 42,431 | |
| Merger with Sterling: (1) | | Merger with Sterling: (1) | |
Tangible assets acquired | Tangible assets acquired | 27,434,111 | | | — | | Tangible assets acquired | 17,607 | | | 26,919,975 | |
Goodwill and other intangible assets | Goodwill and other intangible assets | 2,149,532 | | | — | | Goodwill and other intangible assets | (25,561) | | | 2,149,532 | |
Liabilities assumed | Liabilities assumed | 24,403,343 | | | — | | Liabilities assumed | (7,954) | | | 24,403,343 | |
Common stock issued | Common stock issued | 5,041,182 | | | — | | Common stock issued | — | | | 5,041,182 | |
Preferred stock exchanged | Preferred stock exchanged | 138,942 | | | — | | Preferred stock exchanged | — | | | 138,942 | |
Acquisition of Bend: | | |
Acquisition of Bend: (1) | | Acquisition of Bend: (1) | |
Tangible assets acquired | Tangible assets acquired | 16,597 | | | — | | Tangible assets acquired | 294 | | | 15,731 | |
Goodwill and other intangible assets | Goodwill and other intangible assets | 38,966 | | | — | | Goodwill and other intangible assets | (294) | | | 38,966 | |
Liabilities assumed | Liabilities assumed | 290 | | | — | | Liabilities assumed | — | | | 290 | |
Acquisition of interLINK: | | Acquisition of interLINK: | |
Tangible assets acquired | | Tangible assets acquired | 6,417 | | | — | |
Goodwill and other intangible assets | | Goodwill and other intangible assets | 183,216 | | | — | |
Liabilities assumed | | Liabilities assumed | 15,948 | | | — | |
Contingent consideration | | Contingent consideration | 16,039 | | | — | |
|
(1)The 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. Additional information regarding these amounts can be found within Note 2: Mergers and Acquisitions and Note 6: Goodwill and Other Intangible Assets.
See accompanying Notes to Condensed 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 BHC Act, incorporated under the laws of Delaware in 1986, and headquartered in Stamford, Connecticut. Webster Bank, is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, andalong with its HSA Bank division, deliveris a leading commercial bank in the Northeast that delivers a wide range of banking, investment,digital and traditional financial servicessolutions to businesses, individuals, families, and businesses. Websterpartners across its three differentiated lines of business: Commercial Banking, HSA Bank, serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout the northeastern U.S.Consumer Banking. While its core footprint spans from New York to Rhode Island and Massachusetts, with certain businesses operatingoperate in extended geographies. Webster Bank also offers equipment financing, warehouse lending, commercial real estate lending, asset-based lending, and treasury management solutions. HSA Bank is a leading providerone of HSAs, and delivers health reimbursement arrangements and flexible spending and commuterthe largest providers of employee benefit account administration services to employers and individualssolutions in all 50 states.the United States.
Basis of Presentation
The unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements of Websterthe Company have been prepared in accordance with GAAP for interim financial information and Article 10 of Regulation S-X. Certain information and footnote disclosures required by GAAP for complete financial statements have been omitted or condensed. Therefore, the condensed consolidated financial statements should be read in conjunction with Webster'sthe Company's Annual Report on Form 10-K for the year ended
December 31, 2021.2022. The results of operations for the three and six months ended June 30, 2022March 31, 2023, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.
In the opinion of management, all necessary adjustments have been reflected to present fairly the financial position, results of operations, and cash flows for the reporting periods presented. Intercompany transactions and balances have been eliminated in consolidation. Assets under administration or assets under management that Websterthe Company holds or manages in a fiduciary or agency capacity for customers are not included in the consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a significant impact on the Company's consolidated financial statements.Condensed Consolidated Financial Statements.
Use of Estimates
The preparation of the consolidated financial statementsCondensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statementsCondensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. 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. Business combinations are includedAccounting Standards Adopted 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 Webster's mergers and acquisitions can be found within Note 2: Mergers and Acquisitions.
Purchased Credit-Deteriorated Loans and Leases
Purchased credit-deteriorated (PCD) loans and leases are defined as those that have experienced a more-than-insignificant deterioration in credit quality since origination. Webster considers a variety of factors to evaluate and identify whether acquired loans are PCD, including but not limited to, nonaccrual status, delinquency, TDR classification, 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 Webster has contractual rights to the cash flows at the acquisition date. Webster recognizes an additional allowance for credit loss 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 Webster’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.
Relevant Accounting Standards Issued But Not Yet AdoptedCurrent Period
ASU No. 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the Financial Accounting Standards Board (FASB)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, ASU No. 2022-02the 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 $1.7 million decrease to Deferred Tax Assets, net, with a corresponding $4.2 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 accounted for and presented in accordance with the applicable GAAP.
Refer to Note 4: Loans and Leases for additional information regarding modifications granted to borrowers experiencing financial difficulty.
ASU No. 2022-022022-01—Derivatives and Hedging (Topic 815): 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 allow 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 and disclosure of hedge basis adjustments; and (iv) specify how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed 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. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements. The entity did not reclassify any debt securities from the held-to-maturity category to the available-for-sale category as permitted upon adoption.
ASU No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In 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 a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related 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. 2023-02—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)
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 a tax-credit-program-by-tax-credit-program basis rather than electing to applying the proportional amortization method at the reporting entity level or to individual investments.
A reporting entity that applies the proportional amortization method to qualifying tax equity investments must account for the receipt of the investment tax credits using the flow-through method under Topic 740, Income Taxes, even if the entity applies the deferral method for other investment tax credit received. The amendments also remove certain guidance for Qualified Affordable Housing Project Investments, require the application of the delayed equity contribution guidance to all tax equity investments, and require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method in accordance with Subtopic 323-740.
The Update is effective for fiscal years beginning after December 15, 2022,2023, and interim periods within those fiscal years, with early adoption permitted. The amendments shouldgenerally must be applied prospectively, however, an entity has the option to applyon either a modified retrospective transition method related to the recognition and measurement of TDRs, which would result inor retrospective basis with a cumulative-effect adjustment to retained earnings reflecting the difference between the previous method used to account for the tax equity investment and the application of the proportional amortization method since the investment was entered into. The Company is in the periodearly assessment stages of adoption. Webster is currently evaluating the amendments and the impact of adoption on the Company's consolidated financial statementsits Consolidated Financial Statements and disclosures.
ASU No. 2023-01—Leases (Topic 842): Common Control Arrangements
In March 2023, the FASB issued ASU No. 2023-01—Leases (Topic 842): Common Control Arrangements, which requires that leasehold improvements associated with leases between entities under common control be: (i) amortized by the lessee over the useful live of the leasehold 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 lease; 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, the lessee no longer controls the use of the underlying asset. Additionally, those leasehold improvements are subject to the impairment guidance in 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 adoption date with any remaining unamortized balance of existing leasehold improvements amortized over their remaining useful life to the common control group determined at that date; or retrospectively to the beginning of the period in which the entity first applied Topic 842, with any leasehold improvements that otherwise would not have been amortized or impaired recognized through a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the earliest period presented in accordance with Topic 842. The Company is in the early assessment stages of evaluating the amendments and the impact of adoption on its Consolidated Financial Statements.
ASU No. 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
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 requirerequires 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).
ASU No. 2022-03The 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. WebsterThe adoption of this guidance is in the early assessment stages of evaluating thenot expected to have a material impact of adoption on the Company's consolidated financial statements and disclosures.Consolidated Financial Statements as the Company does not currently consider contractual restrictions on the sale of an equity security in measuring fair value.
Note 2: Mergers and Acquisitions
interLINK Acquisition
On January 11, 2023, Webster 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 provides the Company with access to a unique source of core deposit funding and scalable liquidity and adds 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 14: Fair Value Measurements.
The transaction has been 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. Fair value estimates of the acquired assets and assumed liabilities are subject to adjustment during the one-year measurement period following the closing of the acquisition. The $143.2 million of preliminary goodwill recognized is deductible for tax purposes.
Bend Financial, Inc. Acquisition
On February 18, 2022, Webster 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 transaction was accounted for as a business combination, and resulted in the addition of $19.6 million in net assets measured at fair value, 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.
Merger with Sterling Bancorp
On January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an agreement and plan of merger dated as of April 18, 2021 (the merger agreement), in which Sterling merged with and into Webster, with Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling, merged with and into Webster Bank, with Webster 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.Sterling. The merger expanded Webster's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeast U.S.
Each share of Sterling common stock issued and outstanding immediately prior to the merger, other than certain shares held by Webster and Sterling, was converted into the right to receive a fixed 0.4630 share of Webster common stock. In connection with the completion of the merger and in accordance with the merger agreement, the number of authorized shares of Webster common stock was increased from 200.0 million shares to 400.0 million shares as of January 31, 2022. Cash was also paid to Sterling common shareholders 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 1 share of newly created Webster 6.50% Series G Non-Cumulative Perpetual Preferred Stock, having substantially the same terms. On January 31, 2022, Webster 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 (equivalent to $25 per depositary share) (the Series G Preferred Stock). The Series G Preferred Stock ranks on parity with Webster 5.25% Series F Non-Cumulative Preferred Perpetual Stock, par value $0.01 per share, with a liquidation preference of $25,000 per share (equivalent to $25 per depositary share), and senior to Webster common stock, with respect to the payment of dividends and distributions upon the liquidation, dissolution, or winding-up of Webster.
Series G Preferred Stock dividends are payable quarterly on the fifteenth day of each January, April, July, and October, if and when declared by the Board of Directors. Webster may redeem the Series G Preferred Stock at its option, in whole or in part, subject to the approval of Federal Reserve Board, on October 15, 2022, or any dividend payment date occurring thereafter, or in whole but not in part, upon the occurrence of a regulatory capital treatment event, at a redemption price equal to the liquidation preference plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
Further, 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.
The following table summarizes the determination of the purchase price consideration:
| | | | | |
(In thousands, except share and price 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 Webster and included in the consideration transferred pertain to services performed prior to the merger effective date. The fair value attributed to services performed after the merger effective date will be recognized over the required service vesting period for each award and recorded as compensation and benefits expense on the consolidated statements of income. Webster recognized an incremental $11.0 million and $13.8 million of stock compensation expense related to the replacement equity awards during the three and six months ended June 30, 2022, respectively.
The mergertransaction was accounted for as a business combination. Accordingly, the purchase price has beenwas allocated to the assets acquired and liabilities assumed based on their fair values as of the 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 highly subjective in nature and are subject to change. Fair value estimates of the assets acquired and liabilities assumed may be adjusted for awere subject to adjustment during the one-year measurement period up to one year (the measurement period) fromfollowing the closing date of the merger if new information iswas 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 made during the first quarter of 2023 totaled a net $25.6 million, which pertained to other assets and other liabilities and their related deferred tax impact. The Company's valuations of the assets acquired and liabilities assumed in the merger with Sterling were considered final as of March 31, 2023.
Webster considers its valuations of loans and leases, tax receivables and payables, and certain other assets and other liabilities to be preliminary, as management continues to identify and assess information regarding the nature of these assets acquired and liabilities assumed, including extended information gathering, management review procedures, and any new information that may arise as a result of integration activities. Accordingly, the amounts recorded for current and DTAs and liabilities are also considered preliminary, as Webster continues to evaluate the nature and extent of permanent and temporary differences between the book and tax bases of the assets acquired and liabilities assumed. While the Company believes that the information available as of January 31, 2022, provides a reasonable basis for estimating fair value, it is possible that additional information may become available during the measurement period that would result in changes to the fair values presented. Any measurement period adjustments identified would be recognized in the corresponding reporting period.
The following table summarizes the preliminary allocation of the purchase price to the fair value of the identifiable assets acquired and liabilities assumed from Sterling atas of January 31, 2022:
| | | | | | | | | | | | | |
(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 | | | | | (52,130) | |
Premises and equipment (1) | | | | | 264,421 | |
Other intangible assets | | | | | 210,100 | |
Bank-owned life insurance policies | | | | | 645,510 | |
Accrued interest receivable and other assets | | | | | 959,501 | |
Total assets acquired | | | | | $ | 27,644,211 | |
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) | | | | | 595,275 | |
Total liabilities assumed | | | | | $ | 24,403,343 | |
Net assets acquired | | | | | 3,240,868 | |
Goodwill | | | | | $ | 1,939,432 | |
(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 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 | | | | | 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 | | | | | 589,689 | |
Total liabilities assumed | | | | | $ | 24,397,757 | |
Net assets acquired | | | | | 3,266,096 | |
Goodwill | | | | | $ | 1,914,204 | |
In connection with the merger Websterwith 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 and customer relationship intangible assets, can be found within Note 16: Segment Reporting and Note 6: Goodwill and Other Intangible Assets, respectively.
The following isReporting. For a description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed:
Cashassumed, refer to Note 2: Mergers and due from banks and interest-bearing deposits. The carrying amountAcquisitions 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 are based on observable inputs, including quoted market prices for similar instruments. Investment securities held-to-maturity were reclassified to 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 basedAnnual Report 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 usedForm 10-K 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 are 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 established through an adjustment to the unpaid principal balance and non-credit discount at acquisition. Subsequent to the merger effective date, Webster 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 | |
year ended December 31, 2022.
Supplemental Pro Forma Financial Information (Unaudited)Merger-Related Expenses and Exit Activities
The following table summarizes supplemental pro forma financial information giving effect tototal merger-related expenses, which were primarily incurred in connection with the merger as if it had been completed on January 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net interest income | $ | 465,392 | | | $ | 440,538 | | | $ | 898,741 | | | $ | 904,528 | |
Non-interest income | 120,933 | | | 110,659 | | | 235,769 | | | 226,967 | |
Net income | 213,438 | | | 164,073 | | | 396,605 | | | 186,071 | |
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Webster 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. Costs 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 (6) | | 2022 | | 2021 (6) |
Compensation and benefits (1) | $ | 24,117 | | | $ | 466 | | | $ | 65,702 | | | $ | 466 | |
Occupancy (2) | 30,999 | | | — | | | 31,355 | | | — | |
Technology and equipment (3) | 812 | | | — | | | 19,897 | | | — | |
Professional and outside services (4) | 3,824 | | | 16,287 | | | 48,281 | | | 16,287 | |
Marketing | 84 | | | — | | | 135 | | | — | |
Other expense (5) | 6,804 | | | 294 | | | 9,765 | | | 294 | |
Total merger-related expenses | $ | 66,640 | | | $ | 17,047 | | | $ | 175,135 | | | $ | 17,047 | |
Sterling: | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(In thousands) | | | | | 2023 | | 2022 |
Compensation and benefits (1) | | | | | $ | 11,112 | | | $ | 41,585 | |
Occupancy | | | | | 735 | | | 356 | |
Technology and equipment (2) | | | | | (1,709) | | | 19,085 | |
Professional and outside services (3) | | | | | 20,009 | | | 44,457 | |
Marketing | | | | | 135 | | | — | |
Other expense (4) | | | | | (909) | | | 3,012 | |
Total merger-related expenses | | | | | $ | 29,373 | | | $ | 108,495 | |
(1)Comprised primarily of severance and employee retention costs, and executive synergy stock awards.
(2)Comprised primarily of $23.1 million in ROU asset impairment charges and a combined $7.7 million in related exit costs and accelerated depreciation on property and equipment related to Webster’s corporate real estate consolidation strategy, which was developed and launched in the second quarter of 2022. Under the consolidation plan, Webster has arranged to close 14 locations in order to reduce the Company's corporate real estate facility square footage by approximately 45% by the end of the year. ROU asset impairment charges were calculated as the difference between the estimated fair value of the assets determined using a discounted cash flow technique, relative to their book value.
(3)Comprised primarily of technology contract termination fees.costs. Includes a reduction of $4.8 million to a previously recorded technology-related contract termination charge during the three months ended March 31, 2023, due to a change in the expected use of certain services post core conversion.
(4)(3)Comprised primarily of advisory, legal, accounting, and other professional fees.
(5)(4)Comprised primarily of contract termination costs, disposals on property and equipment, transfer tax, and other miscellaneous expenses.
(6)Webster did not incur any merger-related expenses during the three-months ended March 31, 2021. Therefore, amounts recognized as merger-related expenses for the three and six months ended June 30, 2021 are equal.
Webster's operating results for the three and six months ended June 30, 2022 includes the operating results Includes a reduction of acquired assets and assumed liabilities of Sterling subsequent$1.7 million to the merger on January 31, 2022. Due to the various conversions of Sterling systemsa previously recorded contract termination charge during the three and six months ended June 30, 2022,
March 31, 2023, due to a decrease in volume usage.
The following tables summarize the change in accrued expenses and other liabilities as wellit relates to severance and contract termination costs, which were primarily incurred in connection with the merger with Sterling: | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2023 |
(In thousands) | | Severance | | Contract Termination | | Total |
Balance, beginning of period | | $ | 7,583 | | | $ | 30,362 | | | $ | 37,945 | |
Additions charged to expense | | 6,196 | | | — | | | 6,196 | |
Cash payments | | (6,993) | | | — | | | (6,993) | |
Other | | (825) | | | (6,587) | | | (7,412) | |
Balance, end of period | | $ | 5,961 | | | $ | 23,775 | | | $ | 29,736 | |
| | | | | | |
| | Three months ended March 31, 2022 |
(In thousands) | | Severance | | Contract Termination | | Total |
Balance, beginning of period | | $ | 10,835 | | | $ | — | | | $ | 10,835 | |
Additions charged to expense | | 26,971 | | | 17,704 | | | 44,675 | |
Cash payments | | (1,766) | | | — | | | (1,766) | |
Other (1) | | (3,884) | | | — | | | (3,884) | |
Balance, end of period | | $ | 32,156 | | | $ | 17,704 | | | $ | 49,860 | |
(1)Reflects the release of $3.9 million from the Company's severance accrual, 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 condensed consolidated statements of income for the reporting period is impracticable.
Bend Financial, Inc. Acquisition
On February 18, 2022, Webster 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 accelerates Webster’s efforts underway to deliver enhanced user experiences at HSA Bank. The transaction was accounted forre-evaluated its strategic priorities as a business combination, andcombined organization in connection with the Sterling merger, which resulted in modifications to the addition of $19.3 millionCompany's strategic initiatives that were previously announced in net assets, which primarily comprises $15.9 million of internal use software and a $3.0 million customer relationship intangible asset.
December 2020.
Note 3: Investment Securities
Available-for-Sale
The following table summarizestables summarize the amortized cost and fair value of available-for-sale debt securities by major type: | | | | At March 31, 2023 |
(In thousands) | | (In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | |
U.S. Treasury notes | | U.S. Treasury notes | $ | 407,224 | | $ | — | | $ | (20,452) | | $ | 386,772 | | |
Government agency debentures | | Government agency debentures | 302,067 | | — | | (39,725) | | 262,342 | | |
Municipal bonds and notes | | Municipal bonds and notes | 1,707,779 | | 7 | | (62,558) | | 1,645,228 | | |
Agency CMO | | Agency CMO | 61,728 | | — | | (4,266) | | 57,462 | | |
Agency MBS | | Agency MBS | 2,496,654 | | 368 | | (266,172) | | 2,230,850 | | |
Agency CMBS | | Agency CMBS | 1,889,561 | | 3,542 | | (257,851) | | 1,635,252 | | |
CMBS | | CMBS | 927,591 | | — | | (25,533) | | 902,058 | | |
| Corporate debt | | Corporate debt | 714,359 | | — | | (88,836) | | 625,523 | | |
Private label MBS | | Private label MBS | 48,325 | | — | | (4,063) | | 44,262 | | |
Other | | Other | 10,061 | | — | | (833) | | 9,228 | | |
Total available-for-sale securities | | Total available-for-sale securities | $ | 8,565,349 | | $ | 3,917 | | $ | (770,289) | | $ | 7,798,977 | | |
| | | At June 30, 2022 | | At December 31, 2022 |
(In thousands) | (In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value (1) | | (In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | |
U.S. Treasury notes | U.S. Treasury notes | $ | 754,860 | | $ | — | | $ | (28,376) | | $ | 726,484 | | | U.S. Treasury notes | $ | 755,968 | | $ | — | | $ | (38,928) | | $ | 717,040 | |
Government agency debentures | Government agency debentures | 311,972 | | 5 | | (20,774) | | 291,203 | | | Government agency debentures | 302,018 | | — | | (43,644) | | 258,374 | |
Municipal bonds and notes | Municipal bonds and notes | 1,924,630 | | 9 | | (94,009) | | 1,830,630 | | | Municipal bonds and notes | 1,719,110 | | 5 | | (85,913) | | 1,633,202 | |
Agency CMO | Agency CMO | 73,730 | | 20 | | (2,503) | | 71,247 | | | Agency CMO | 64,984 | | — | | (5,019) | | 59,965 | |
Agency MBS | Agency MBS | 2,622,211 | | 125 | | (201,003) | | 2,421,333 | | | Agency MBS | 2,461,337 | | 26 | | (303,339) | | 2,158,024 | |
Agency CMBS | Agency CMBS | 1,732,222 | | — | | (170,717) | | 1,561,505 | | | Agency CMBS | 1,664,600 | | — | | (258,114) | | 1,406,486 | |
CMBS | CMBS | 956,078 | | — | | (26,975) | | 929,103 | | | CMBS | 929,588 | | — | | (32,948) | | 896,640 | |
CLO | CLO | 10,185 | | — | | (38) | | 10,147 | | | CLO | 2,108 | | — | | (1) | | 2,107 | |
Corporate debt | Corporate debt | 799,866 | | — | | (63,346) | | 736,520 | | | Corporate debt | 795,999 | | — | | (91,587) | | 704,412 | |
Private label MBS | Private label MBS | 49,875 | | — | | (1,572) | | 48,303 | | | Private label MBS | 48,895 | | — | | (4,646) | | 44,249 | |
Other | Other | 12,515 | | — | | (632) | | 11,883 | | | Other | 12,548 | | — | | (350) | | 12,198 | |
Available-for-sale debt securities | $ | 9,248,144 | | $ | 159 | | $ | (609,945) | | $ | 8,638,358 | | | |
| | At December 31, 2021 | |
(In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value (1) | | |
U.S. Treasury notes | $ | 398,664 | | $ | — | | $ | (1,698) | | $ | 396,966 | | |
Agency CMO | 88,109 | | 2,326 | | (51) | | 90,384 | | |
Agency MBS | 1,568,293 | | 36,130 | | (11,020) | | 1,593,403 | | |
Agency CMBS | 1,248,548 | | 2,537 | | (18,544) | | 1,232,541 | | |
CMBS | 887,640 | | 506 | | (1,883) | | 886,263 | | |
CLO | 21,860 | | — | | (13) | | 21,847 | | |
Corporate debt | 14,583 | | — | | (1,133) | | 13,450 | | |
Available-for-sale debt securities | $ | 4,227,697 | | $ | 41,499 | | $ | (34,342) | | $ | 4,234,854 | | | |
Total available-for-sale securities | | Total available-for-sale securities | $ | 8,757,155 | | $ | 31 | | $ | (864,489) | | $ | 7,892,697 | | |
(1)Fair value represents net carrying value. No ACL has been recorded on available-for-sale debt securities at June 30, 2022 and December 31, 2021, as the securities held are high credit quality and investment grade.
The increase of $4.4 billion in available-for-sale debt securities from December 31, 2021 to June 30, 2022, is primarily attributed to $4.4 billion of investment securities acquired from Sterling in the merger, all of which were classified as available-for-sale based on Webster's intent at closing. Accrued interest receivable on available-for-sale securities of $38.9$41.4 million and $7.5$36.9 million at June 30, 2022March 31, 2023, and
December 31, 2021,2022, respectively, is excluded from amortized cost and is reported within accruedincluded in Accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.
Unrealized Losses
The following table summarizestables summarize the gross unrealized losses and fair value of available-for-sale debt securities by length of time each major security type has been in a continuous unrealized loss position:
| | | At June 30, 2022 | | At March 31, 2023 |
| | Less Than 12 Months | | 12 Months or More | | Total | | Less Than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | # of Holdings | Fair Value | Unrealized Losses | (Dollars in thousands) | Fair Value | Unrealized Losses | | Fair Value | Unrealized Losses | | Number of Holdings | Fair Value | Unrealized Losses |
U.S. Treasury notes | U.S. Treasury notes | $ | 726,484 | | $ | (28,376) | | | $ | — | | $ | — | | | 23 | $ | 726,484 | | $ | (28,376) | | U.S. Treasury notes | $ | — | | $ | — | | | $ | 386,772 | | $ | (20,452) | | | 14 | $ | 386,772 | | $ | (20,452) | |
Government agency debentures | Government agency debentures | 276,348 | | (20,774) | | | — | | — | | | 19 | 276,348 | | (20,774) | | Government agency debentures | 71,134 | | (3,714) | | | 191,208 | | (36,011) | | | 19 | 262,342 | | (39,725) | |
Municipal bonds and notes | Municipal bonds and notes | 1,818,328 | | (94,009) | | | — | | — | | | 483 | 1,818,328 | | (94,009) | | Municipal bonds and notes | 15,479 | | (239) | | | 1,598,253 | | (62,319) | | | 430 | 1,613,732 | | (62,558) | |
Agency CMO | Agency CMO | 64,760 | | (2,496) | | | 1,187 | | (7) | | | 33 | 65,947 | | (2,503) | | Agency CMO | 7,915 | | (228) | | | 49,547 | | (4,038) | | | 38 | 57,462 | | (4,266) | |
Agency MBS | Agency MBS | 2,254,680 | | (173,815) | | | 157,559 | | (27,188) | | | 451 | 2,412,239 | | (201,003) | | Agency MBS | 86,133 | | (3,319) | | | 2,045,564 | | (262,853) | | | 459 | 2,131,697 | | (266,172) | |
Agency CMBS | Agency CMBS | 1,232,473 | | (125,931) | | | 329,032 | | (44,786) | | | 133 | 1,561,505 | | (170,717) | | Agency CMBS | 64,576 | | (933) | | | 1,397,565 | | (256,918) | | | 133 | 1,462,141 | | (257,851) | |
CMBS | CMBS | 741,574 | | (21,775) | | | 187,529 | | (5,200) | | | 53 | 929,103 | | (26,975) | | CMBS | 155,493 | | (2,056) | | | 746,565 | | (23,477) | | | 51 | 902,058 | | (25,533) | |
CLO | — | | — | | | 10,147 | | (38) | | | 1 | 10,147 | | (38) | | |
| Corporate debt | Corporate debt | 728,159 | | (61,396) | | | 8,360 | | (1,950) | | | 106 | 736,519 | | (63,346) | | Corporate debt | 13,041 | | (1,158) | | | 612,482 | | (87,678) | | | 92 | 625,523 | | (88,836) | |
Private label MBS | Private label MBS | 48,303 | | (1,572) | | | — | | — | | | 3 | 48,303 | | (1,572) | | Private label MBS | 44,262 | | (4,063) | | | — | | — | | | 3 | 44,262 | | (4,063) | |
Other | Other | 11,883 | | (632) | | | — | | — | | | 4 | 11,883 | | (632) | | Other | 4,810 | | (190) | | | 4,168 | | (643) | | | 2 | 8,978 | | (833) | |
Available-for-sale debt securities in unrealized loss position | $ | 7,902,992 | | $ | (530,776) | | | $ | 693,814 | | $ | (79,169) | | | 1,309 | $ | 8,596,806 | | $ | (609,945) | | |
Total | | Total | $ | 462,843 | | $ | (15,900) | | | $ | 7,032,124 | | $ | (754,389) | | | 1,241 | $ | 7,494,967 | | $ | (770,289) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 |
| 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 |
U.S. Treasury notes | $ | 396,966 | | $ | (1,698) | | | $ | — | | $ | — | | | 8 | $ | 396,966 | | $ | (1,698) | |
Agency CMO | 7,895 | | (51) | | | — | | — | | | 2 | 7,895 | | (51) | |
Agency MBS | 506,602 | | (7,354) | | | 110,687 | | (3,666) | | | 70 | 617,289 | | (11,020) | |
Agency CMBS | 632,213 | | (6,163) | | | 335,480 | | (12,381) | | | 28 | 967,693 | | (18,544) | |
CMBS | 724,762 | | (1,744) | | | 81,253 | | (139) | | | 50 | 806,015 | | (1,883) | |
CLO | — | | — | | | 21,848 | | (13) | | | 1 | 21,848 | | (13) | |
Corporate debt | 4,203 | | (76) | | | 9,247 | | (1,057) | | | 3 | 13,450 | | (1,133) | |
Available-for-sale debt securities in unrealized loss position | $ | 2,272,641 | | $ | (17,086) | | | $ | 558,515 | | $ | (17,256) | | | 162 | $ | 2,831,156 | | $ | (34,342) | |
Webster | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
| Less Than Twelve Months | | Twelve Months or Longer | | 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 $94.2 million decrease in gross unrealized losses from December 31, 2022, to March 31, 2023, is primarily due to a decline in long-term market rates. The Company assesses each available-for-sale debt security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis resultedis a result from a credit loss or other factors. The increase in unrealized losses fromAt both March 31, 2023, and December 31, 2021 to June 30, 2022, is primarily due to increased portfolio size from the merger with Sterling, and higher market rates. Market prices will approach parno ACL was recorded on available-for-sale securities as each of the securities approach maturity.in the Company's portfolio are investment grade, 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.
At June 30, 2022, Webster hadMarch 31, 2023, based on current market conditions and the Company's current targeted balance sheet composition strategy, the Company has the intent to hold its available-for-sale debt securities with unrealized lossesloss positions through the anticipated recovery period, and it wasis more-likely-than-not that the Company wouldwill not have to sell these available-for-sale securities before the recovery of theirthe entire amortized cost basis. The issuers of these available-for-sale securities have not, to the Company’s knowledge, established any cause for default on these securities. As a result,default. Market prices are expected to approach par as the Company expects to recover the securities' entire amortized cost basis. Accordingly, no available-for-sale debt securities were in non-accrual status and there was no ACL recorded at both June 30, 2022 and December 31, 2021.approach maturity.
Contractual Maturities
The following table summarizes the amortized cost and fair value of available-for-sale debt securities by contractual maturity: | | | | | | | | | | | |
| At June 30, 2022 |
(In thousands) | Amortized Cost | | Fair Value |
Due in one year or less | $ | 34,632 | | | $ | 34,446 | |
Due after one year through five years | 1,489,470 | | | 1,433,060 | |
Due after five through ten years | 1,489,030 | | | 1,405,210 | |
Due after ten years | 6,235,012 | | | 5,765,642 | |
Total available-for-sale debt securities | $ | 9,248,144 | | | $ | 8,638,358 | |
| | | | | | | | | | | |
| At March 31, 2023 |
(In thousands) | Amortized Cost | | Fair Value |
Maturing within 1 year | $ | 41,886 | | | $ | 41,593 | |
After 1 year through 5 years | 953,221 | | | 903,665 | |
After 5 through 10 years | 1,469,500 | | | 1,364,238 | |
After 10 years | 6,100,742 | | | 5,489,481 | |
Total available-for-sale securities | $ | 8,565,349 | | | $ | 7,798,977 | |
Available-for-sale debt 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 repay their obligations with or without prepayment penalties.
Sales of Available-for Sale Debt Securities
During the three months ended March 31, 2023, the Company sold U.S. Treasury notes and Corporate debt securities classified as available-for-sale for proceeds of $395.4 million, which resulted in gross realized losses of $20.5 million. Because $3.8 million of the total loss recognized was attributed to a decline in credit quality, that portion of the charge has been included in the Provision for credit losses on the accompanying Condensed Consolidated Statements of Income. There were no sales of available-for-sale debt securities during the three and six months ended June 30, 2022, nor during the six and months ended June 30, 2021.March 31, 2022.
The following table summarizes available-for-sale debt securities pledged for deposits, borrowings, and other purposes:
| | | | | | | | | | | |
(In thousands) | At June 30, 2022 | | At December 31, 2021 |
Available-for-sale debt securities pledged for deposits, at fair value | $ | 3,523,591 | | $ | 855,323 |
Available-for-sale debt securities pledged for borrowings and other, at fair value | 783,370 | | 924,841 |
Total available-for-sale debt securities pledged | $ | 4,306,961 | | $ | 1,780,164 |
| | | | | | | | | | | |
(In thousands) | At March 31, 2023 | | At December 31, 2022 |
Pledged for deposits | $ | 2,868,000 | | $ | 2,573,072 |
Pledged for borrowings and other | 3,848,039 | | 1,195,101 |
Total available-for-sale securities pledged | $ | 6,716,039 | | $ | 3,768,173 |
At June 30, 2022, WebsterMarch 31, 2023, the Company had callable available-for-sale debt securities with an aggregate carrying value of $3.2$2.8 billion.
Held-to-Maturity
The following table summarizestables summarize the amortized cost, fair value, and ACL on held-to-maturity debt securities by major type:
| | | At June 30, 2022 | | At March 31, 2023 |
(In thousands) | (In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value | (In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value |
Agency CMO | Agency CMO | $ | 32,469 | | $ | 27 | | $ | (1,095) | | $ | 31,401 | | | $ | — | | $ | 32,469 | | Agency CMO | $ | 27,101 | | $ | — | | $ | (1,727) | | $ | 25,374 | | | $ | — | | $ | 27,101 | |
Agency MBS | Agency MBS | 2,795,607 | | 2,801 | | (235,217) | | 2,563,191 | | | — | | 2,795,607 | | Agency MBS | 2,613,113 | | 1,458 | | (300,457) | | 2,314,114 | | | — | | 2,613,113 | |
Agency CMBS | Agency CMBS | 2,677,183 | | 434 | | (264,433) | | 2,413,184 | | | — | | 2,677,183 | | Agency CMBS | 3,364,186 | | 3,790 | | (410,763) | | 2,957,213 | | | — | | 3,364,186 | |
Municipal bonds and notes | Municipal bonds and notes | 879,433 | | 2,698 | | (36,734) | | 845,397 | | | 210 | | 879,223 | | Municipal bonds and notes | 927,501 | | 2,957 | | (29,188) | | 901,270 | | | 282 | | 927,219 | |
CMBS | CMBS | 163,516 | | 1 | | (7,841) | | 155,676 | | | — | | 163,516 | | CMBS | 131,604 | | — | | (8,893) | | 122,711 | | | — | | 131,604 | |
Held-to-maturity debt securities | $ | 6,548,208 | | $ | 5,961 | | $ | (545,320) | | $ | 6,008,849 | | | $ | 210 | | $ | 6,547,998 | | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 7,063,505 | | $ | 8,205 | | $ | (751,028) | | $ | 6,320,682 | | | $ | 282 | | $ | 7,063,223 | |
| | | At December 31, 2021 | | At December 31, 2022 |
(In thousands) | (In thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value | (In thousands) | Amortized Cost (1) | Unrealized Gains | Unrealized Losses | Fair Value | | Allowance | Net Carrying Value |
Agency CMO | Agency CMO | $ | 42,405 | | $ | 655 | | $ | (25) | | $ | 43,035 | | | $ | — | | $ | 42,405 | | Agency CMO | $ | 28,358 | | $ | — | | $ | (2,060) | | $ | 26,298 | | | $ | — | | $ | 28,358 | |
Agency MBS | Agency MBS | 2,901,593 | | 71,444 | | (11,788) | | 2,961,249 | | | — | | 2,901,593 | | Agency MBS | 2,626,114 | | 827 | | (339,592) | | 2,287,349 | | | — | | 2,626,114 | |
Agency CMBS | Agency CMBS | 2,378,475 | | 11,202 | | (43,844) | | 2,345,833 | | | — | | 2,378,475 | | Agency CMBS | 2,831,949 | | 845 | | (407,648) | | 2,425,146 | | | — | | 2,831,949 | |
Municipal bonds and notes | Municipal bonds and notes | 705,918 | | 51,572 | | — | | 757,490 | | | 214 | | 705,704 | | Municipal bonds and notes | 928,845 | | 1,098 | | (47,183) | | 882,760 | | | 182 | | 928,663 | |
CMBS | CMBS | 169,948 | | 3,381 | | — | | 173,329 | | | — | | 169,948 | | CMBS | 149,613 | | — | | (9,713) | | 139,900 | | | — | | 149,613 | |
Held-to-maturity debt securities | $ | 6,198,339 | | $ | 138,254 | | $ | (55,657) | | $ | 6,280,936 | | | $ | 214 | | $ | 6,198,125 | | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 6,564,879 | | $ | 2,770 | | $ | (806,196) | | $ | 5,761,453 | | | $ | 182 | | $ | 6,564,697 | |
(1)Accrued interest receivable on held-to-maturity securities of $22.0$20.2 million and $21.2$24.2 million at June 30, 2022March 31, 2023, and
December 31, 2021,2022, respectively, is excluded from amortized cost and is reportedincluded in accruedAccrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.
An ACL on held-to-maturity debt securities is recorded for certain municipalMunicipal 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 debt securities with gross unrealized losses and no ACL are considered to be of high credit quality, and therefore, zero credit loss is recorded as of June 30, 2022. The current period unrealized loss position of certain Agency CMBS is primarily attributed to the changing interest rate environment.has been recorded.
The following table summarizes the activity in the ACL on held-to-maturity debt securities: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Balance, beginning of period | $ | 204 | | $ | 308 | | $ | 214 | | $ | 299 |
| | | | | | | |
(Benefit) provision for credit losses | 6 | | 74 | | (4) | | 83 |
Balance, end of period | $ | 210 | | $ | 382 | | $ | 210 | | $ | 382 |
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(In thousands) | | | | | 2023 | | 2022 |
Balance, beginning of period | | | | | $ | 182 | | $ | 214 |
| | | | | | | |
Provision (benefit) for credit losses | | | | | 100 | | (10) |
Balance, end of period | | | | | $ | 282 | | $ | 204 |
Contractual Maturities
The following table summarizes the amortized cost and fair value of held-to-maturity debt securities by contractual maturity: | | | | | | | | | | | |
| At June 30, 2022 |
(In thousands) | Amortized Cost | | Fair Value |
Due in one year or less | $ | 4,404 | | | $ | 4,426 | |
Due after one year through five years | 52,822 | | | 54,317 | |
Due after five years through ten years | 325,186 | | | 316,818 | |
Due after ten years | 6,165,796 | | | 5,633,288 | |
Total held-to-maturity debt securities | $ | 6,548,208 | | | $ | 6,008,849 | |
| | | | | | | | | | | |
| At March 31, 2023 |
(In thousands) | Amortized Cost | | Fair Value |
Maturing within 1 year | $ | 6,093 | | | $ | 6,115 | |
After 1 year through 5 years | 52,893 | | | 53,722 | |
After 5 through 10 years | 338,353 | | | 324,864 | |
After 10 years | 6,666,166 | | | 5,935,981 | |
Total held-to-maturity securities | $ | 7,063,505 | | | $ | 6,320,682 | |
Held-to-maturity debt 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 repayprepay their obligations with or without prepayment penalties.
Credit Quality Information
The Company monitors the credit quality of held-to-maturity debt securities through credit ratings provided by Standard & Poor's Rating Services, (S&P), Moody's Investor Services, (Moody's), Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about the credit quality of a debt security, and are updated at each quarter end. Investment grade debt 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, debt 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 debt securities. There were no speculative grade held-to-maturity debt securities at June 30, 2022 andMarch 31, 2023, or December 31, 2021.2022. Held-to-maturity debt securities that are not rated are collateralized with U.S. Treasury obligations.
The following table summarizestables summarize the amortized cost basis of held-to-maturity debt securities based on their lowest publicly available credit rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Investment Grade | | |
(In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | | | | Not Rated |
Agency CMO | $ | — | | $ | 27,101 | | $ | — | | $ | — | | $ | — | | $ | — | | | | | $ | — | |
Agency MBS | — | | 2,613,113 | | — | | — | | — | | — | | | | | — | |
Agency CMBS | — | | 3,364,186 | | — | | — | | — | | — | | | | | — | |
Municipal bonds and notes | 350,578 | | 163,138 | | 254,843 | | 116,343 | | 38,134 | | 4,165 | | | | | 300 | |
CMBS | 131,604 | | — | | — | | — | | — | | — | | | | | — | |
Total held-to-maturity securities | $ | 482,182 | | $ | 6,167,538 | | $ | 254,843 | | $ | 116,343 | | $ | 38,134 | | $ | 4,165 | | | | | $ | 300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Investment Grade | | |
(In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | A3 | Baa2 | | Not Rated |
Agency CMO | $ | — | | $ | 32,469 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | |
Agency MBS | — | | 2,795,607 | | — | | — | | — | | — | | — | | — | | | — | |
Agency CMBS | — | | 2,677,183 | | — | | — | | — | | — | | — | | — | | | — | |
Municipal bonds and notes | 202,273 | | 132,273 | | 202,666 | | 199,903 | | 101,058 | | 27,691 | | — | | — | | | 13,569 | |
CMBS | 163,516 | | — | | — | | — | | — | | — | | — | | — | | | — | |
Held-to-maturity debt securities | $ | 365,789 | | $ | 5,637,532 | | $ | 202,666 | | $ | 199,903 | | $ | 101,058 | | $ | 27,691 | | $ | — | | $ | — | | | $ | 13,569 | |
| | | December 31, 2021 | | December 31, 2022 |
| | Investment Grade | | | Investment Grade | |
(In thousands) | (In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | A3 | Baa2 | | Not Rated | (In thousands) | Aaa | Aa1 | Aa2 | Aa3 | A1 | A2 | | | Not Rated |
Agency CMO | Agency CMO | $ | — | | $ | 42,405 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | ��� | | Agency CMO | $ | — | | $ | 28,358 | | $ | — | | $ | — | | $ | — | | $ | — | | | | $ | — | |
Agency MBS | Agency MBS | — | | 2,901,593 | | — | | — | | — | | — | | — | | — | | | — | | Agency MBS | — | | 2,626,114 | | — | | — | | — | | — | | | | — | |
Agency CMBS | Agency CMBS | — | | 2,378,475 | | — | | — | | — | | — | | — | | — | | | — | | Agency CMBS | — | | 2,831,949 | | — | | — | | — | | — | | | | — | |
Municipal bonds and notes | Municipal bonds and notes | 207,426 | | 119,804 | | 227,106 | | 104,232 | | 35,878 | | 8,260 | | — | | 95 | | | 3,117 | | Municipal bonds and notes | 336,035 | | 163,312 | | 255,235 | | 116,870 | | 38,177 | | 4,165 | | | | 15,051 | |
CMBS | CMBS | 169,948 | | — | | — | | — | | — | | — | | — | | — | | | — | | CMBS | 149,613 | | — | | — | | — | | — | | — | | | | — | |
Held-to-maturity debt securities | $ | 377,374 | | $ | 5,442,277 | | $ | 227,106 | | $ | 104,232 | | $ | 35,878 | | $ | 8,260 | | $ | — | | $ | 95 | | | $ | 3,117 | | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 485,648 | | $ | 5,649,733 | | $ | 255,235 | | $ | 116,870 | | $ | 38,177 | | $ | 4,165 | | | | $ | 15,051 | |
At June 30, 2022March 31, 2023, and December 31, 2021,2022, there were no held-to-maturity debt securities past due under the terms of their agreements ornor in non-accrual status.
Other Information
The following table summarizes held-to-maturity debt securities pledged for deposits, borrowings, and other purposes:
| | | | | | | | | | | |
(In thousands) | At June 30, 2022 | | At December 31, 2021 |
Held-to-maturity debt securities pledged for deposits, at amortized cost | $ | 1,646,707 | | $ | 1,834,117 |
Held-to-maturity debt securities pledged for borrowing and other, at amortized cost | 753,593 | | 1,243,139 |
Total held-to-maturity debt securities pledged | $ | 2,400,300 | | $ | 3,077,256 |
| | | | | | | | | | | |
(In thousands) | At March 31, 2023 | | At December 31, 2022 |
Pledged for deposits | $ | 1,573,285 | | $ | 1,596,777 |
Pledged for borrowings and other | 5,057,769 | | 260,735 |
Total held-to-maturity securities pledged | $ | 6,631,054 | | $ | 1,857,512 |
At June 30, 2022, WebsterMarch 31, 2023, the Company had callable held-to-maturity debt securities with an aggregate carrying value of $0.9 billion.
Note 4: Loans and Leases
The following table summarizes loans and leases by portfolio segment and class: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Commercial non-mortgage | Commercial non-mortgage | $ | 13,935,450 | | | $ | 6,882,480 | | Commercial non-mortgage | $ | 16,939,373 | | | $ | 16,392,795 | |
Asset-based | Asset-based | 1,892,278 | | | 1,067,248 | | Asset-based | 1,760,527 | | | 1,821,642 | |
Commercial real estate | Commercial real estate | 12,365,451 | | | 5,463,321 | | Commercial real estate | 13,499,139 | | | 12,997,163 | |
Multi-family | Multi-family | 5,776,219 | | | 1,139,859 | | Multi-family | 7,014,599 | | | 6,621,982 | |
Equipment financing | Equipment financing | 1,778,326 | | | 627,058 | | Equipment financing | 1,601,109 | | | 1,628,393 | |
Warehouse lending | Warehouse lending | 914,541 | | | — | | Warehouse lending | 474,328 | | | 641,976 | |
Commercial portfolio | Commercial portfolio | 36,662,265 | | | 15,179,966 | | Commercial portfolio | 41,289,075 | | | 40,103,951 | |
Residential | Residential | 7,223,728 | | | 5,412,905 | | Residential | 8,001,563 | | | 7,963,420 | |
Home equity | Home equity | 1,681,610 | | | 1,593,559 | | Home equity | 1,580,569 | | | 1,633,107 | |
Other consumer | Other consumer | 79,140 | | | 85,299 | | Other consumer | 55,316 | | | 63,948 | |
Consumer portfolio | Consumer portfolio | 8,984,478 | | | 7,091,763 | | Consumer portfolio | 9,637,448 | | | 9,660,475 | |
Loans and leases | Loans and leases | $ | 45,646,743 | | | $ | 22,271,729 | | Loans and leases | $ | 50,926,523 | | | $ | 49,764,426 | |
The increase of $23.4 billion in loans and leases from December 31, 2021 to June 30, 2022 is primarily attributed to the $20.5 billion of gross loans and leases acquired from Sterling in the merger, which included a $317.6 million purchase discount. The carrying amount of loans and leases at June 30, 2022March 31, 2023, and December 31, 20212022, includes net unamortized
(discounts)/premiums and net unamortized deferred (costs)(fees)/feescosts totaling $(103.7)$(58.6) million and $12.3$(68.7) million, respectively. Accrued interest receivable of $140.2$246.1 million and $50.7$226.3 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively, is excluded from the carrying amount of loans and leases and is reported within accruedincluded in Accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets. At June 30, 2022, WebsterMarch 31, 2023, the Company had pledged $8.3$15.0 billion of eligible loans as collateral to support borrowing capacity at the FHLB.
Non-Accrual and Past Due Loans and Leases
The following table summarizestables summarize the aging of accrual and non-accrual loans and leases by class: | | | At June 30, 2022 | | At March 31, 2023 |
(In thousands) | (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 | (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 | Commercial non-mortgage | $ | 4,494 | | $ | 720 | | $ | 8 | | $ | 91,672 | | $ | 96,894 | | $ | 13,838,556 | | $ | 13,935,450 | | Commercial non-mortgage | $ | 6,916 | | $ | 162 | | $ | 215 | | $ | 69,129 | | $ | 76,422 | | $ | 16,862,951 | | $ | 16,939,373 | |
Asset-based | Asset-based | — | | — | | — | | 25,840 | | 25,840 | | 1,866,438 | | 1,892,278 | | Asset-based | — | | — | | — | | 9,428 | | 9,428 | | 1,751,099 | | 1,760,527 | |
Commercial real estate | Commercial real estate | 546 | | 11,021 | | — | | 44,461 | | 56,028 | | 12,309,423 | | 12,365,451 | | Commercial real estate | 15,171 | | — | | 175 | | 33,966 | | 49,312 | | 13,449,827 | | 13,499,139 | |
Multi-family | Multi-family | 231 | | 12,380 | | — | | 354 | | 12,965 | | 5,763,254 | | 5,776,219 | | Multi-family | 1,929 | | — | | — | | — | | 1,929 | | 7,012,670 | | 7,014,599 | |
Equipment financing | Equipment financing | 137 | | 633 | | — | | 14,995 | | 15,765 | | 1,762,561 | | 1,778,326 | | Equipment financing | 2,472 | | 105 | | — | | 13,018 | | 15,595 | | 1,585,514 | | 1,601,109 | |
Warehouse lending | Warehouse lending | — | | — | | — | | — | | — | | 914,541 | | 914,541 | | Warehouse lending | — | | — | | — | | — | | — | | 474,328 | | 474,328 | |
Commercial portfolio | Commercial portfolio | 5,408 | | 24,754 | | 8 | | 177,322 | | 207,492 | | 36,454,773 | | 36,662,265 | | Commercial portfolio | 26,488 | | 267 | | 390 | | 125,541 | | 152,686 | | 41,136,389 | | 41,289,075 | |
Residential | Residential | 6,998 | | 3,606 | | — | | 26,490 | | 37,094 | | 7,186,634 | | 7,223,728 | | Residential | 7,112 | | 3,347 | | — | | 25,291 | | 35,750 | | 7,965,813 | | 8,001,563 | |
Home equity | Home equity | 3,972 | | 1,266 | | — | | 32,061 | | 37,299 | | 1,644,311 | | 1,681,610 | | Home equity | 3,977 | | 1,649 | | — | | 28,873 | | 34,499 | | 1,546,070 | | 1,580,569 | |
Other consumer | Other consumer | 3,876 | | 156 | | — | | 125 | | 4,157 | | 74,983 | | 79,140 | | Other consumer | 415 | | 104 | | 213 | | 106 | | 838 | | 54,478 | | 55,316 | |
Consumer portfolio | Consumer portfolio | 14,846 | | 5,028 | | — | | 58,676 | | 78,550 | | 8,905,928 | | 8,984,478 | | Consumer portfolio | 11,504 | | 5,100 | | 213 | | 54,270 | | 71,087 | | 9,566,361 | | 9,637,448 | |
Total | Total | $ | 20,254 | | $ | 29,782 | | $ | 8 | | $ | 235,998 | | $ | 286,042 | | $ | 45,360,701 | | $ | 45,646,743 | | Total | $ | 37,992 | | $ | 5,367 | | $ | 603 | | $ | 179,811 | | $ | 223,773 | | $ | 50,702,750 | | $ | 50,926,523 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 |
(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 | $ | 3,729 | | $ | 4,524 | | $ | 1,977 | | $ | 59,607 | | $ | 69,837 | | $ | 6,812,643 | | $ | 6,882,480 | |
Asset-based | — | | — | | — | | 2,086 | | 2,086 | | 1,065,162 | | 1,067,248 | |
Commercial real estate | 508 | | 417 | | 519 | | 5,046 | | 6,490 | | 5,456,831 | | 5,463,321 | |
Multi-family | — | | — | | — | | — | | — | | 1,139,859 | | 1,139,859 | |
Equipment financing | 1,034 | | — | | — | | 3,728 | | 4,762 | | 622,296 | | 627,058 | |
Commercial portfolio | 5,271 | | 4,941 | | 2,496 | | 70,467 | | 83,175 | | 15,096,791 | | 15,179,966 | |
Residential | 3,212 | | 368 | | — | | 15,747 | | 19,327 | | 5,393,578 | | 5,412,905 | |
Home equity | 3,467 | | 1,600 | | — | | 23,489 | | 28,556 | | 1,565,003 | | 1,593,559 | |
Other consumer | 379 | | 181 | | — | | 224 | | 784 | | 84,515 | | 85,299 | |
Consumer portfolio | 7,058 | | 2,149 | | — | | 39,460 | | 48,667 | | 7,043,096 | | 7,091,763 | |
Total | $ | 12,329 | | $ | 7,090 | | $ | 2,496 | | $ | 109,927 | | $ | 131,842 | | $ | 22,139,887 | | $ | 22,271,729 | |
The following table provides additional information on non-accrual loans and leases: | | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(In thousands) | (In thousands) | Non-accrual | Non-accrual with No Allowance | | Non-accrual | Non-accrual with No Allowance | (In thousands) | Non-accrual | Non-accrual with No Allowance | | Non-accrual | Non-accrual with No Allowance |
Commercial non-mortgage | Commercial non-mortgage | $ | 91,672 | | $ | 22,438 | | | $ | 59,607 | | $ | 4,802 | | Commercial non-mortgage | $ | 69,129 | | $ | 12,382 | | | $ | 71,884 | | $ | 12,598 | |
Asset-based | Asset-based | 25,840 | | 1,933 | | | 2,086 | | 2,086 | | Asset-based | 9,428 | | 1,330 | | | 20,024 | | 1,491 | |
Commercial real estate | Commercial real estate | 44,461 | | 4,133 | | | 5,046 | | 4,310 | | Commercial real estate | 33,966 | | 1,502 | | | 39,057 | | 90 | |
Multi-family | Multi-family | 354 | | 285 | | | — | | — | | Multi-family | — | | — | | | 636 | | — | |
Equipment financing | Equipment financing | 14,995 | | 2,304 | | | 3,728 | | — | | Equipment financing | 13,018 | | 1,895 | | | 12,344 | | 2,240 | |
| Commercial portfolio | Commercial portfolio | 177,322 | | 31,093 | | | 70,467 | | 11,198 | | Commercial portfolio | 125,541 | | 17,109 | | | 143,945 | | 16,419 | |
Residential | Residential | 26,490 | | 11,660 | | | 15,747 | | 10,584 | | Residential | 25,291 | | 10,674 | | | 25,424 | | 10,442 | |
Home equity | Home equity | 32,061 | | 17,137 | | | 23,489 | | 18,920 | | Home equity | 28,873 | | 15,114 | | | 27,924 | | 15,193 | |
Other consumer | Other consumer | 125 | | 2 | | | 224 | | 2 | | Other consumer | 106 | | 4 | | | 148 | | 5 | |
Consumer portfolio | Consumer portfolio | 58,676 | | 28,799 | | | 39,460 | | 29,506 | | Consumer portfolio | 54,270 | | 25,792 | | | 53,496 | | 25,640 | |
Total | Total | $ | 235,998 | | $ | 59,892 | | | $ | 109,927 | | $ | 40,704 | | Total | $ | 179,811 | | $ | 42,901 | | | $ | 197,441 | | $ | 42,059 | |
Interest on non-accrual loans and leases that would have been recognized as additional interest income had the loans and leases been current in accordance with their original terms totaled $5.2$6.1 million and $2.9$4.4 million for the three months ended June 30,
March 31, 2023, and 2022, and 2021, respectively, and $8.6 million and $6.1 million for the six months ended June 30, 2022 and 2021, respectively.
Allowance for Credit Losses on Loans and Leases
The following table summarizes the change in the ACL on loans and leases by portfolio segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| At or for the three months ended June 30, |
| 2022 | | 2021 |
(In thousands) | Commercial Portfolio | Consumer Portfolio | Total | | Commercial Portfolio | Consumer Portfolio | Total |
ACL on loans and leases: | | | | | | | |
Balance, beginning of period | $ | 510,696 | | $ | 58,675 | | $ | 569,371 | | | $ | 283,906 | | $ | 44,445 | | $ | 328,351 | |
| | | | | | | |
| | | | | | | |
Provision (benefit) | 12,041 | | (313) | | 11,728 | | | (21,077) | | (497) | | (21,574) | |
Charge-offs | (18,757) | | (896) | | (19,653) | | | (594) | | (2,808) | | (3,402) | |
Recoveries | 7,765 | | 2,288 | | 10,053 | | | 836 | | 3,734 | | 4,570 | |
Balance, end of period | $ | 511,745 | | $ | 59,754 | | $ | 571,499 | | | $ | 263,071 | | $ | 44,874 | | $ | 307,945 | |
| | | At or for the six months ended June 30, | | At or for the three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(In thousands) | (In thousands) | Commercial Portfolio | Consumer Portfolio | Total | | Commercial Portfolio | Consumer Portfolio | Total | (In thousands) | Commercial Portfolio | Consumer Portfolio | Total | | Commercial Portfolio | Consumer Portfolio | Total |
ACL on loans and leases: | ACL on loans and leases: | | | | ACL on loans and leases: | | | |
Balance, beginning of period | Balance, beginning of period | $ | 257,877 | | $ | 43,310 | | $ | 301,187 | | | $ | 312,244 | | $ | 47,187 | | $ | 359,431 | | Balance, beginning of period | $ | 533,125 | | $ | 61,616 | | $ | 594,741 | | | $ | 257,877 | | $ | 43,310 | | $ | 301,187 | |
| Adoption of ASU No. 2022-02 | | Adoption of ASU No. 2022-02 | 7,704 | | (1,831) | | 5,873 | | | — | | — | | — | |
Initial allowance for PCD loans and leases (1) | Initial allowance for PCD loans and leases (1) | 78,376 | | 9,669 | | 88,045 | | | — | | — | | — | | Initial allowance for PCD loans and leases (1) | — | | — | | — | | | 78,376 | | 9,669 | | 88,045 | |
Provision (benefit) | Provision (benefit) | 196,368 | | 4,428 | | 200,796 | | | (44,730) | | (2,603) | | (47,333) | | Provision (benefit) | 38,757 | | (936) | | 37,821 | | | 184,327 | | 4,741 | | 189,068 | |
Charge-offs | Charge-offs | (30,005) | | (2,016) | | (32,021) | | | (6,915) | | (5,782) | | (12,697) | | Charge-offs | (26,410) | | (1,098) | | (27,508) | | | (11,248) | | (1,120) | | (12,368) | |
Recoveries | Recoveries | 9,129 | | 4,363 | | 13,492 | | | 2,472 | | 6,072 | | 8,544 | | Recoveries | 1,574 | | 1,413 | | 2,987 | | | 1,364 | | 2,075 | | 3,439 | |
Balance, end of period | Balance, end of period | $ | 511,745 | | $ | 59,754 | | $ | 571,499 | | | $ | 263,071 | | $ | 44,874 | | $ | 307,945 | | Balance, end of period | $ | 554,750 | | $ | 59,164 | | $ | 613,914 | | | $ | 510,696 | | $ | 58,675 | | $ | 569,371 | |
Individually evaluated for impairment | 38,847 | | 4,450 | | 43,297 | | | 11,537 | | 4,560 | | 16,097 | | |
Collectively evaluated for impairment | $ | 472,898 | | $ | 55,304 | | $ | 528,202 | | | $ | 251,534 | | $ | 40,314 | | $ | 291,848 | | |
Individually evaluated for credit losses | | Individually evaluated for credit losses | 27,459 | | 8,590 | | 36,049 | | | 32,736 | | 12,057 | | 44,793 | |
Collectively evaluated for credit losses | | Collectively evaluated for credit losses | $ | 527,291 | | $ | 50,574 | | $ | 577,865 | | | $ | 477,960 | | $ | 46,618 | | $ | 524,578 | |
(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.
Credit Quality Indicators
To measure credit risk for the commercial portfolio, the Company employs a dual grade credit risk grading system for estimating the PD and 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. A (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 are 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 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.
The following tables summarize the amortized cost basis of commercial loans and leases by Composite Credit Risk Profile grade and origination year:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2022 |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial non-mortgage: | | | | | | | | |
Pass | $ | 2,783,533 | | $ | 2,377,368 | | $ | 1,255,766 | | $ | 1,047,819 | | $ | 771,853 | | $ | 951,184 | | $ | 4,324,838 | | $ | 13,512,361 | |
Special mention | 14,564 | | 48,990 | | 12,726 | | 22,577 | | 981 | | 15,070 | | 28,107 | | 143,015 | |
Substandard | 19,113 | | 4,127 | | 88,531 | | 38,579 | | 59,418 | | 23,359 | | 43,228 | | 276,355 | |
Doubtful | — | | — | | — | | — | | — | | — | | 3,719 | | 3,719 | |
Commercial non-mortgage | 2,817,210 | | 2,430,485 | | 1,357,023 | | 1,108,975 | | 832,252 | | 989,613 | | 4,399,892 | | 13,935,450 | |
Asset-based: | | | | | | | | |
Pass | — | | — | | 4,239 | | 10,292 | | 1,135 | | 32,105 | | 1,711,416 | | 1,759,187 | |
Special mention | — | | — | | — | | — | | — | | — | | 16,905 | | 16,905 | |
Substandard | — | | 1,335 | | 10,296 | | — | | — | | — | | 104,555 | | 116,186 | |
Asset-based | — | | 1,335 | | 14,535 | | 10,292 | | 1,135 | | 32,105 | | 1,832,876 | | 1,892,278 | |
Commercial real estate: | | | | | | | | |
Pass | 1,505,254 | | 2,323,635 | | 1,839,428 | | 1,950,358 | | 1,234,799 | | 2,957,244 | | 73,024 | | 11,883,742 | |
Special mention | 63,057 | | — | | 33,736 | | 46,305 | | 73,722 | | 67,057 | | — | | 283,877 | |
Substandard | — | | 1,502 | | 11,956 | | 29,264 | | 40,396 | | 114,714 | | — | | 197,832 | |
| | | | | | | | |
Commercial real estate | 1,568,311 | | 2,325,137 | | 1,885,120 | | 2,025,927 | | 1,348,917 | | 3,139,015 | | 73,024 | | 12,365,451 | |
Multi-family: | | | | | | | | |
Pass | 783,584 | | 1,147,014 | | 519,451 | | 693,701 | | 533,588 | | 1,925,280 | | 48,650 | | 5,651,268 | |
Special mention | — | | — | | — | | 96 | | 40,703 | | 27,263 | | 9,690 | | 77,752 | |
Substandard | — | | — | | 391 | | 13,299 | | 6,872 | | 25,448 | | 1,189 | | 47,199 | |
| | | | | | | | |
| | | | | | | | |
Multi-family | 783,584 | | 1,147,014 | | 519,842 | | 707,096 | | 581,163 | | 1,977,991 | | 59,529 | | 5,776,219 | |
Equipment financing: | | | | | | | | |
Pass | 176,328 | | 419,545 | | 418,902 | | 407,760 | | 144,014 | | 148,275 | | — | | 1,714,824 | |
Special mention | — | | 211 | | 810 | | 3,889 | | 10,329 | | 4,571 | | — | | 19,810 | |
Substandard | 564 | | 6,199 | | 17,626 | | 6,492 | | 4,626 | | 8,185 | | — | | 43,692 | |
Equipment financing | 176,892 | | 425,955 | | 437,338 | | 418,141 | | 158,969 | | 161,031 | | — | | 1,778,326 | |
Warehouse lending: | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 914,541 | | 914,541 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Warehouse lending | — | | — | | — | | — | | — | | — | | 914,541 | | 914,541 | |
Commercial portfolio | $ | 5,345,997 | | $ | 6,329,926 | | $ | 4,213,858 | | $ | 4,270,431 | | $ | 2,922,436 | | $ | 6,299,755 | | $ | 7,279,862 | | $ | 36,662,265 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial non-mortgage: | | | | | | | | |
Pass | $ | 2,270,320 | | $ | 1,179,620 | | $ | 757,343 | | $ | 581,633 | | $ | 292,637 | | $ | 275,789 | | $ | 1,182,562 | | $ | 6,539,904 | |
Special mention | 14,216 | | 22,892 | | 37,877 | | 15,575 | | 9,721 | | 15,399 | | 27,808 | | 143,488 | |
Substandard | 3,660 | | 46,887 | | 30,437 | | 69,963 | | 5,255 | | 19,483 | | 23,403 | | 199,088 | |
| | | | | | | | |
Commercial non-mortgage | 2,288,196 | | 1,249,399 | | 825,657 | | 667,171 | | 307,613 | | 310,671 | | 1,233,773 | | 6,882,480 | |
Asset-based: | | | | | | | | |
Pass | 7,609 | | 19,141 | | 12,810 | | 13,456 | | 6,113 | | 25,850 | | 920,496 | | 1,005,475 | |
Special mention | — | | — | | — | | 675 | | — | | — | | 59,012 | | 59,687 | |
Substandard | — | | — | | 2,086 | | — | | — | | — | | — | | 2,086 | |
Asset-based | 7,609 | | 19,141 | | 14,896 | | 14,131 | | 6,113 | | 25,850 | | 979,508 | | 1,067,248 | |
Commercial real estate: | | | | | | | | |
Pass | 1,152,431 | | 733,220 | | 1,146,149 | | 594,180 | | 384,664 | | 1,136,384 | | 55,044 | | 5,202,072 | |
Special mention | 95 | | 3,084 | | — | | 84,475 | | 51,536 | | 79,096 | | — | | 218,286 | |
Substandard | — | | 82 | | 227 | | 373 | | 13,874 | | 28,407 | | — | | 42,963 | |
Commercial real estate | 1,152,526 | | 736,386 | | 1,146,376 | | 679,028 | | 450,074 | | 1,243,887 | | 55,044 | | 5,463,321 | |
Multi-family: | | | | | | | | |
Pass | 222,875 | | 135,924 | | 185,087 | | 322,688 | | 17,054 | | 203,558 | | 566 | | 1,087,752 | |
Special mention | — | | — | | — | | 35,201 | | — | | — | | — | | 35,201 | |
Substandard | — | | 400 | | — | | 6,933 | | — | | 9,573 | | — | | 16,906 | |
Multi-family | 222,875 | | 136,324 | | 185,087 | | 364,822 | | 17,054 | | 213,131 | | 566 | | 1,139,859 | |
Equipment financing: | | | | | | | | |
Pass | 231,762 | | 188,031 | | 93,547 | | 41,276 | | 14,864 | | 32,588 | | — | | 602,068 | |
Special mention | — | | 108 | | 2,229 | | 3,341 | | — | | 600 | | — | | 6,278 | |
Substandard | — | | 8,388 | | 4,756 | | 2,612 | | 332 | | 2,624 | | — | | 18,712 | |
Equipment financing | 231,762 | | 196,527 | | 100,532 | | 47,229 | | 15,196 | | 35,812 | | — | | 627,058 | |
Commercial portfolio | $ | 3,902,968 | | $ | 2,337,777 | | $ | 2,272,548 | | $ | 1,772,381 | | $ | 796,050 | | $ | 1,829,351 | | $ | 2,268,891 | | $ | 15,179,966 | |
To measure credit risk for the consumer portfolio, the most relevant credit characteristic is the FICO score, which is a widely used credit scoring system that ranges from 300 to 850. A lower FICO score is indicative of higher credit risk and a higher FICO score is indicative of lower credit risk. FICO scores are updated on at least on a quarterly basis.
The following tables summarize the amortized cost basis of commercial loans and leases by Composite Credit Risk Profile grade and origination year: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2023 |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial non-mortgage: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ | 867,446 | | $ | 5,084,158 | | $ | 1,781,158 | | $ | 864,566 | | $ | 708,271 | | $ | 1,156,948 | | $ | 5,992,440 | | $ | 16,454,987 | |
Special mention | 25,083 | | 62,638 | | 24,644 | | 12,727 | | 15,640 | | 8,631 | | 30,522 | | 179,885 | |
Substandard | 22,393 | | 59,838 | | 15,155 | | 46,558 | | 35,660 | | 56,930 | | 67,967 | | 304,501 | |
| | | | | | | | |
Total commercial non-mortgage | 914,922 | | 5,206,634 | | 1,820,957 | | 923,851 | | 759,571 | | 1,222,509 | | 6,090,929 | | 16,939,373 | |
Current period gross write-offs | 324 | | 103 | | 101 | | 395 | | 169 | | 2,105 | | — | | 3,197 | |
Asset-based: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 2,000 | | 21,486 | | — | | 8,868 | | 10,585 | | 51,172 | | 1,514,179 | | 1,608,290 | |
Special mention | — | | — | | — | | — | | — | | 495 | | 66,053 | | 66,548 | |
Substandard | — | | — | | — | | — | | 1,330 | | — | | 84,359 | | 85,689 | |
Total asset-based | 2,000 | | 21,486 | | — | | 8,868 | | 11,915 | | 51,667 | | 1,664,591 | | 1,760,527 | |
Current period gross write-offs | — | | — | | — | | — | | 13,189 | | — | | — | | 13,189 | |
Commercial real estate: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 921,252 | | 3,438,768 | | 1,999,831 | | 1,481,136 | | 1,547,577 | | 3,591,701 | | 139,886 | | 13,120,151 | |
Special mention | 4,225 | | 22,788 | | 43,548 | | 42,519 | | 51,379 | | 74,390 | | 4,499 | | 243,348 | |
Substandard | — | | 515 | | 2,453 | | 212 | | 31,137 | | 101,323 | | — | | 135,640 | |
| | | | | | | | |
Total commercial real estate | 925,477 | | 3,462,071 | | 2,045,832 | | 1,523,867 | | 1,630,093 | | 3,767,414 | | 144,385 | | 13,499,139 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 8,950 | | — | | 8,950 | |
Multi-family: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 508,429 | | 1,930,324 | | 1,051,536 | | 449,185 | | 666,060 | | 2,189,520 | | 93,523 | | 6,888,577 | |
Special mention | — | | 37,686 | | — | | 13,243 | | 370 | | 40,800 | | 8,402 | | 100,501 | |
Substandard | — | | — | | — | | 377 | | — | | 25,144 | | — | | 25,521 | |
| | | | | | | | |
| | | | | | | | |
Total multi-family | 508,429 | | 1,968,010 | | 1,051,536 | | 462,805 | | 666,430 | | 2,255,464 | | 101,925 | | 7,014,599 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 1,033 | | — | | 1,033 | |
Equipment financing: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | 132,662 | | 367,476 | | 316,521 | | 295,379 | | 277,878 | | 145,561 | | — | | 1,535,477 | |
Special mention | — | | — | | 170 | | — | | 11,583 | | 6,540 | | — | | 18,293 | |
Substandard | — | | 3,183 | | 14,918 | | 12,013 | | 4,527 | | 12,698 | | — | | 47,339 | |
Total equipment financing | 132,662 | | 370,659 | | 331,609 | | 307,392 | | 293,988 | | 164,799 | | — | | 1,601,109 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 41 | | — | | 41 | |
Warehouse lending: | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 474,328 | | 474,328 | |
Total warehouse lending | — | | — | | — | | — | | — | | — | | 474,328 | | 474,328 | |
Current period gross write-offs | — | | — | | — | | — | | — | | — | | — | | — | |
Total commercial portfolio | $ | 2,483,490 | | $ | 11,028,860 | | $ | 5,249,934 | | $ | 3,226,783 | | $ | 3,361,997 | | $ | 7,461,853 | | $ | 8,476,158 | | $ | 41,289,075 | |
Current period gross write-offs | $ | 324 | | $ | 103 | | $ | 101 | | $ | 395 | | $ | 13,358 | | $ | 12,129 | | $ | — | | $ | 26,410 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 June 30, 2022 |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Residential: | | | | | | | | |
800+ | $ | 164,672 | | $ | 837,754 | | $ | 443,548 | | $ | 162,252 | | $ | 31,583 | | $ | 956,038 | | $ | — | | $ | 2,595,847 | |
740-799 | 543,948 | | 1,115,053 | | 362,292 | | 131,927 | | 43,086 | | 871,037 | | — | | 3,067,343 | |
670-739 | 180,392 | | 360,598 | | 111,903 | | 60,984 | | 18,295 | | 454,271 | | — | | 1,186,443 | |
580-669 | 14,711 | | 36,678 | | 18,426 | | 7,379 | | 5,496 | | 166,899 | | — | | 249,589 | |
579 and below | 12,051 | | 1,609 | | 2,463 | | 45,707 | | 722 | | 61,954 | | — | | 124,506 | |
Residential | 915,774 | | 2,351,692 | | 938,632 | | 408,249 | | 99,182 | | 2,510,199 | | — | | 7,223,728 | |
Home equity: | | | | | | | | |
800+ | 16,548 | | 36,338 | | 28,476 | | 9,258 | | 13,236 | | 56,108 | | 477,736 | | 637,700 | |
740-799 | 15,217 | | 38,181 | | 19,301 | | 7,482 | | 10,935 | | 41,745 | | 442,455 | | 575,316 | |
670-739 | 9,187 | | 18,704 | | 7,887 | | 5,063 | | 7,230 | | 34,952 | | 249,804 | | 332,827 | |
580-669 | 1,903 | | 1,922 | | 1,481 | | 1,083 | | 1,435 | | 14,767 | | 81,025 | | 103,616 | |
579 and below | 109 | | 394 | | 670 | | 552 | | 614 | | 5,385 | | 24,427 | | 32,151 | |
Home equity | 42,964 | | 95,539 | | 57,815 | | 23,438 | | 33,450 | | 152,957 | | 1,275,447 | | 1,681,610 | |
Other consumer: | | | | | | | | |
800+ | 167 | | 2,083 | | 979 | | 1,503 | | 563 | | 137 | | 18,546 | | 23,978 | |
740-799 | 471 | | 1,122 | | 3,217 | | 4,476 | | 1,731 | | 536 | | 16,891 | | 28,444 | |
670-739 | 503 | | 790 | | 4,391 | | 6,957 | | 2,226 | | 289 | | 4,468 | | 19,624 | |
580-669 | 93 | | 287 | | 640 | | 1,665 | | 365 | | 244 | | 1,992 | | 5,286 | |
579 and below | 64 | | 79 | | 48 | | 149 | | 100 | | 39 | | 1,329 | | 1,808 | |
Other consumer | 1,298 | | 4,361 | | 9,275 | | 14,750 | | 4,985 | | 1,245 | | 43,226 | | 79,140 | |
Consumer portfolio | $ | 960,036 | | $ | 2,451,592 | | $ | 1,005,722 | | $ | 446,437 | | $ | 137,617 | | $ | 2,664,401 | | $ | 1,318,673 | | $ | 8,984,478 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
Residential: | | | | | | | | |
800+ | $ | 590,238 | | $ | 428,118 | | $ | 161,664 | | $ | 35,502 | | $ | 105,198 | | $ | 735,517 | | $ | — | | $ | 2,056,237 | |
740-799 | 1,083,608 | | 421,380 | | 154,960 | | 32,172 | | 95,662 | | 456,722 | | — | | 2,244,504 | |
670-739 | 374,460 | | 135,146 | | 73,499 | | 25,099 | | 34,550 | | 227,863 | | — | | 870,617 | |
580-669 | 38,644 | | 13,782 | | 9,348 | | 3,056 | | 9,000 | | 71,811 | | — | | 145,641 | |
579 and below | 9,478 | | 1,051 | | 49,252 | | 390 | | 2,519 | | 33,216 | | — | | 95,906 | |
Residential | 2,096,428 | | 999,477 | | 448,723 | | 96,219 | | 246,929 | | 1,525,129 | | — | | 5,412,905 | |
Home equity: | | | | | | | | |
800+ | 35,678 | | 30,157 | | 9,591 | | 16,347 | | 11,068 | | 58,189 | | 463,334 | | 624,364 | |
740-799 | 42,430 | | 22,030 | | 9,413 | | 13,317 | | 7,711 | | 33,777 | | 409,518 | | 538,196 | |
670-739 | 17,493 | | 9,162 | | 5,889 | | 8,220 | | 5,802 | | 31,160 | | 233,744 | | 311,470 | |
580-669 | 1,773 | | 1,397 | | 1,298 | | 1,066 | | 1,329 | | 15,042 | | 66,361 | | 88,266 | |
579 and below | 380 | | 446 | | 725 | | 1,060 | | 434 | | 5,666 | | 22,552 | | 31,263 | |
Home equity | 97,754 | | 63,192 | | 26,916 | | 40,010 | | 26,344 | | 143,834 | | 1,195,509 | | 1,593,559 | |
Other consumer: | | | | | | | | |
800+ | 463 | | 1,343 | | 2,398 | | 916 | | 231 | | 118 | | 10,160 | | 15,629 | |
740-799 | 2,588 | | 5,408 | | 8,303 | | 2,985 | | 379 | | 77 | | 9,528 | | 29,268 | |
670-739 | 1,061 | | 7,034 | | 13,602 | | 3,859 | | 607 | | 412 | | 5,644 | | 32,219 | |
580-669 | 256 | | 1,083 | | 2,550 | | 735 | | 216 | | 211 | | 1,267 | | 6,318 | |
579 and below | 147 | | 87 | | 215 | | 159 | | 40 | | 21 | | 1,196 | | 1,865 | |
Other consumer | 4,515 | | 14,955 | | 27,068 | | 8,654 | | 1,473 | | 839 | | 27,795 | | 85,299 | |
Consumer portfolio | $ | 2,198,697 | | $ | 1,077,624 | | $ | 502,707 | | $ | 144,883 | | $ | 274,746 | | $ | 1,669,802 | | $ | 1,223,304 | | $ | 7,091,763 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2023 |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total |
Residential: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | $ | 15,014 | | $ | 681,916 | | $ | 1,043,662 | | $ | 468,357 | | $ | 150,282 | | $ | 993,219 | | $ | — | | $ | 3,352,450 | |
740-799 | 69,297 | | 866,867 | | 863,689 | | 308,974 | | 111,803 | | 716,299 | | — | | 2,936,929 | |
670-739 | 18,719 | | 346,423 | | 326,999 | | 91,487 | | 62,585 | | 393,008 | | — | | 1,239,221 | |
580-669 | 63 | | 46,328 | | 52,355 | | 14,004 | | 10,532 | | 125,882 | | — | | 249,164 | |
579 and below | — | | 53,275 | | 3,563 | | 3,963 | | 99,840 | | 63,158 | | — | | 223,799 | |
Total residential | 103,093 | | 1,994,809 | | 2,290,268 | | 886,785 | | 435,042 | | 2,291,566 | | — | | 8,001,563 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 211 | | — | | 211 | |
Home equity: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | 6,211 | | 26,483 | | 35,954 | | 25,557 | | 8,524 | | 63,613 | | 434,492 | | 600,834 | |
740-799 | 4,088 | | 29,016 | | 31,860 | | 18,237 | | 6,556 | | 38,748 | | 375,534 | | 504,039 | |
670-739 | 4,421 | | 15,017 | | 17,246 | | 6,262 | | 4,153 | | 34,796 | | 257,878 | | 339,773 | |
580-669 | 408 | | 2,984 | | 2,504 | | 1,483 | | 903 | | 13,456 | | 74,873 | | 96,611 | |
579 and below | 202 | | 419 | | 766 | | 643 | | 529 | | 6,120 | | 30,633 | | 39,312 | |
Total home equity | 15,330 | | 73,919 | | 88,330 | | 52,182 | | 20,665 | | 156,733 | | 1,173,410 | | 1,580,569 | |
Current period gross write-offs | — | | — | | — | | — | | — | | 108 | | — | | 108 | |
Other consumer: | | | | | | | | |
Risk rating: | | | | | | | | |
800+ | 140 | | 443 | | 207 | | 479 | | 843 | | 266 | | 17,207 | | 19,585 | |
740-799 | 266 | | 782 | | 2,589 | | 1,332 | | 1,933 | | 570 | | 7,675 | | 15,147 | |
670-739 | 154 | | 838 | | 409 | | 1,815 | | 3,117 | | 975 | | 8,836 | | 16,144 | |
580-669 | 58 | | 304 | | 216 | | 297 | | 694 | | 159 | | 1,294 | | 3,022 | |
579 and below | 22 | | 120 | | 43 | | 41 | | 127 | | 55 | | 1,010 | | 1,418 | |
Total other consumer | 640 | | 2,487 | | 3,464 | | 3,964 | | 6,714 | | 2,025 | | 36,022 | | 55,316 | |
Current period gross write-offs | 435 | | — | | 3 | | 114 | | 126 | | 101 | | — | | 779 | |
Total consumer portfolio | $ | 119,063 | | $ | 2,071,215 | | $ | 2,382,062 | | $ | 942,931 | | $ | 462,421 | | $ | 2,450,324 | | $ | 1,209,432 | | $ | 9,637,448 | |
Current period gross write-offs | $ | 435 | | $ | — | | $ | 3 | | $ | 114 | | $ | 126 | | $ | 420 | | $ | — | | $ | 1,098 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is substantially expected to be provided through the operation or sale of collateral. At June 30, 2022March 31, 2023, and December 31, 2021,2022, the carrying amount of collateral dependent commercial loans and leases totaled $52.2$28.1 million and $16.6$43.8 million, respectively, and the carrying amount of collateral dependent consumer loans totaled $17.4$40.4 million and $34.9$45.2 million, respectively. Commercial non-mortgage, asset-based, 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, warehouse lending, residential, home equity, and other consumer loans are secured by real estate. 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.sell. At June 30, 2022March 31, 2023, and December 31, 2021,2022, the collateral value associated with collateral dependent loans and leases totaled $115.3$79.1 million and $86.0$108.0 million, respectively.
Modifications for Borrowers Experiencing Financial Difficulty
On January 1, 2023, the Company adopted ASU 2022-02, which eliminates the accounting guidance for TDRs and enhances 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 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
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 which allow borrowers to delay a scheduled loan payment to a later date. Deferred loan payments do not affect the original contractual terms of the loan. Modifications that result in only an insignificant payment delay are not disclosed. The Company considers that a three month or less payment delay generally would be considered 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 modifications in its disclosures to the extent that the modification is considered
other-than-insignificant.
•Consumer: The Company evaluates 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 of loans modified to borrowers experiencing financial difficulty, disaggregated by class and type of concession granted during the three months ended March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Interest Rate Reduction | | Term Extension | | Combination - Term Extension and Interest Rate Reduction | | Total | | % of Total Class (2) |
Commercial non-mortgage | $ | 7 | | $ | 29,884 | | $ | — | | $ | 29,891 | | 0.2 | % |
| | | | | | | | | |
Commercial real estate | — | | 17,116 | | — | | 17,116 | | 0.1 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Home equity | — | | 57 | | 64 | | 121 | | — | |
| | | | | | | | | |
Total (1) | $ | 7 | | $ | 47,057 | | $ | 64 | | $ | 47,128 | | 0.1 | % |
(1)The total amortized cost excludes accrued interest receivable of $0.2 million.
(2)Represents the amortized cost of loans modified during the reporting period as a percentage of the period-end loan balance by class.
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023: | | | | | |
| Financial Effect |
Interest Rate Reduction: | |
Commercial non-mortgage | Reduced weighted average interest rate by 4.5% |
| |
Term Extension: | |
Commercial non-mortgage | Extended term by a weighted average 0.6 years |
Commercial real estate | Extended term by a weighted average 1.0 year |
Home equity | Extended term by a weighted average 8.8 years |
| |
Combination: | |
Home equity | Extended term by a weighted average 5.1 years and reduced weighted average interest rate by 1.5% |
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 during the three months ended March 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 | $ | 3,562 | | $ | — | | $ | — | | $ | — | | $ | 26,329 | | $ | 29,891 |
| | | | | | | | | | | |
Commercial real estate | 17,116 | | — | | — | | — | | — | | 17,116 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Home equity | 23 | | — | | — | | — | | 98 | | 121 |
| | | | | | | | | | | |
Total | $ | 20,701 | | $ | — | | $ | — | | $ | — | | $ | 26,427 | | $ | 47,128 |
There were no loans made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, and that subsequently defaulted. 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 related to TDRs: | | | | | | | | | | | |
(In thousands) | At June 30, 2022 | | At December 31, 2021 |
Accrual status | $ | 100,080 | | | $ | 110,625 | |
Non-accrual status | 58,093 | | | 52,719 | |
Total TDRs | $ | 158,173 | | | $ | 163,344 | |
| | | |
Additional funds committed to borrowers in TDR status | $ | 906 | | | $ | 5,975 | |
Specific reserves for TDRs included in the ACL on loans and leases: | | | |
Commercial portfolio | $ | 7,138 | | | $ | 9,017 | |
Consumer portfolio | 3,908 | | | 3,745 | |
The respective portions of commercial and consumer TDRs deemed to be uncollectible and charged off were $1.0 million and $0.1 million during the three months ended June 30, 2022, and $0.3 million and zero during the three months ended June 30, 2021. The respective portions of commercial and consumer TDRs deemed to be uncollectible and charged off were $10.0 million and $0.1 million during the six months ended June 30, 2022, and $1.9 million and $0.3 million during the six months ended June 30, 2021.
| | | | | | | |
(In thousands) | | | At December 31, 2022 |
Accrual status | | | $ | 110,868 | |
Non-accrual status | | | 83,954 | |
Total TDRs | | | $ | 194,822 | |
| | | |
Additional funds committed to borrowers in TDR status | | | $ | 1,724 | |
Specific reserves for TDRs included in the ACL on loans and leases: | | | |
Commercial portfolio | | | $ | 14,578 | |
Consumer portfolio | | | 3,559 | |
The following table summarizes loans and leases modified as TDRs by class and modification type:type during the three months ended March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
(Dollars in thousands) | Number of Contracts | Recorded Investment (1) | | Number of Contracts | Recorded Investment (1) | | Number of Contracts | Recorded Investment (1) | | Number of Contracts | Recorded Investment (1) |
Commercial non-mortgage | | | | | | | | | | | |
Extended maturity | — | $ | — | | 1 | $ | 50 | | 2 | $ | 97 | | 7 | $ | 557 |
| | | | | | | | | | | |
Maturity/rate combined | 3 | 351 | | 5 | 173 | | 5 | 443 | | 6 | 210 |
Other (2) | 1 | 22,964 | | 1 | 1 | | 1 | 22,964 | | 3 | 114 |
Commercial real estate | | | | | | | | | | | |
Extended maturity | — | — | | — | — | | — | — | | 1 | 183 |
| | | | | | | | | | | |
| | | | | | | | | | | |
Equipment financing | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other (2) | 1 | 1,157 | | — | — | | 1 | 1,157 | | — | — |
Residential | | | | | | | | | | | |
Extended maturity | 1 | 893 | | — | — | | 1 | 893 | | 1 | 99 |
Maturity/rate combined | — | — | | 2 | 401 | | — | — | | 2 | 401 |
Other (2) | 2 | 308 | | — | — | | 6 | 2,762 | | 2 | 233 |
Home equity | | | | | | | | | | | |
Extended maturity | — | — | | — | — | | — | — | | 1 | 28 |
Adjusted interest rate | 1 | 74 | | — | — | | 1 | 74 | | — | — |
Maturity/rate combined | 7 | 680 | | 1 | 14 | | 11 | 724 | | 6 | 1,025 |
Other (2) | 9 | 399 | | 7 | 535 | | 24 | 1,333 | | 14 | 968 |
Total TDRs | 25 | $ | 26,826 | | 17 | $ | 1,174 | | 52 | $ | 30,447 | | 43 | $ | 3,818 |
| | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | |
(Dollars in thousands) | | | | | | | | | | Number of Contracts | Recorded Investment (1) |
Commercial non-mortgage | | | | | | | | | | | |
Term extension | | | | | | | | | | 2 | $ | 98 |
| | | | | | | | | | | |
Combination - Term extension and interest rate reduction | | | | | | | | | | 2 | 92 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Residential | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other (2) | | | | | | | | | | 5 | 2,985 |
Home equity | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Combination - Term extension and interest rate reduction | | | | | | | | | | 4 | 44 |
Other (2) | | | | | | | | | | 17 | 1,242 |
Total TDRs | | | | | | | | | | 30 | $ | 4,461 |
(1)Post-modification balances approximateapproximated pre-modification balances. The aggregate amount of charge-offs due to restructurings was not significant.
(2)Other includesincluded covenant modifications, forbearance, discharges under Chapter 7 bankruptcy, or other concessions.
ForDuring the three and six months ended June 30,March 31, 2022, the portion of TDRs deemed to uncollectible and 2021, therecharged-off totaled $9.1 million for the commercial portfolio and $0.1 million for the consumer portfolio. There were no significant loans and leases modified as TDRs within the previous 12twelve months and for which there was a payment default.
default during the three months ended March 31, 2022.
Note 5: Transfers and Servicing of Financial Assets
WebsterThe Company originates and sells residential mortgage loans in the normal course of business, primarily to
government-sponsored entities through established programs and securitizations. Residential mortgage origination fees, adjustments for changes in fair value, and any gain or loss recognized on residential mortgage loans sold are included in mortgageMortgage banking activities on the accompanying Condensed Consolidated Statements of Income.
The following table summarizes information related to mortgage banking activities: | | | Three months ended June 30, | | Six months ended June 30, | | | Three months ended March 31, |
(In thousands) | (In thousands) | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
Net gain on sale | Net gain on sale | $ | 106 | | | $ | 1,351 | | | $ | 503 | | | $ | 3,460 | | Net gain on sale | | $ | 77 | | | $ | 397 | |
Origination fees | Origination fees | 37 | | | 377 | | | 172 | | | 918 | | Origination fees | | 11 | | | 135 | |
Fair value adjustment | Fair value adjustment | (41) | | | (409) | | | (145) | | | (417) | | Fair value adjustment | | (29) | | | (104) | |
Mortgage banking activities | Mortgage banking activities | $ | 102 | | | $ | 1,319 | | | $ | 530 | | | $ | 3,961 | | Mortgage banking activities | | $ | 59 | | | $ | 428 | |
| Proceeds from sale | Proceeds from sale | $ | 6,080 | | | $ | 68,427 | | | $ | 32,833 | | | $ | 147,735 | | Proceeds from sale | | $ | 3,832 | | | $ | 26,753 | |
Loans sold with servicing rights retained | Loans sold with servicing rights retained | 4,954 | | | 66,087 | | | 30,317 | | | 141,778 | | Loans sold with servicing rights retained | | 1,229 | | | 25,363 | |
Under certain circumstances, Websterthe Company may decide to sell loans that were not originated or otherwise acquired with the intent to sell. During the three months ended June 30,March 31, 2023, and 2022, and 2021, Websterthe Company sold commercial loans not originated for sale for proceeds of $67.4$106.7 million and $32.3$51.1 million, respectively, which resulted in net gains on sale of $1.4$0.1 million and $0.5 million, respectively. During the six months ended June 30, 2022 and 2021, Webster sold commercial loans not originated for sale for proceeds of $118.5 million and $49.1 million, respectively, which resulted in net gains on sale of $3.2 million and $0.7
$1.8 million, respectively.
In addition, Websterthe Company may retain servicing rights on its residential mortgage loans sold in the normal course of business. At June 30, 2022March 31, 2023, and December 31, 2021,2022, the aggregate principal balance of residential mortgage loans serviced for others totaled $2.1$1.9 billion and $2.0 billion, respectively. Mortgage servicing assetsrights are held at the lower of cost, net of accumulated amortization, or fair market value, and are included in accruedAccrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets. WebsterThe Company assesses mortgage servicing assetsrights for impairment each quarter and establishes or adjusts the valuation allowance to the extent that amortized cost exceeds the estimated fair market value.
The following table presents the change in the carrying amount for mortgage servicing assets:rights: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Beginning balance | $ | 9,735 | | | $ | 12,327 | | | $ | 9,237 | | | $ | 13,422 | |
Additions (1) | 56 | | | 616 | | | 1,124 | | | 1,202 | |
Amortization | (1,199) | | | (1,442) | | | (1,769) | | | (2,932) | |
Adjustment to valuation allowance | — | | | — | | | — | | | (191) | |
Ending balance | $ | 8,592 | | | $ | 11,501 | | | $ | 8,592 | | | $ | 11,501 | |
(1)In connection with the Sterling merger, Webster acquired $0.9 million of mortgage servicing assets on January 31, 2022. | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(In thousands) | | | | | 2023 | | 2022 |
Balance, beginning of period | | | | | $ | 9,515 | | | $ | 9,237 | |
Acquired from Sterling | | | | | — | | | 859 | |
Additions | | | | | 15 | | | 209 | |
Amortization | | | | | (341) | | | (570) | |
| | | | | | | |
Balance, end of period | | | | | $ | 9,189 | | | $ | 9,735 | |
Loan servicing fees, net of mortgage servicing rights amortization, were $0.5$1.3 million and $0.2$1.1 million for the three months ended June 30,March 31, 2023, and 2022, and 2021, respectively, and $1.6 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively, and are included in loanLoan and lease related fees on the accompanying Condensed Consolidated Statements of Income. Information regarding the fair value of loans held for sale and mortgage servicing assetsrights can be found within Note 14: Fair Value Measurements.
Note 6: Goodwill and Other Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill:
| (In thousands) | (In thousands) | | At June 30, 2022 | | At December 31, 2021 | (In thousands) | | At March 31, 2023 | | At December 31, 2022 |
Balance, beginning of period | Balance, beginning of period | | $ | 538,373 | | | $ | 538,373 | | Balance, beginning of period | | $ | 2,514,104 | | | $ | 538,373 | |
Sterling merger | | 1,939,432 | | | — | | |
Bend acquisition | | 35,966 | | | — | | |
interLINK acquisition | | interLINK acquisition | | 143,216 | | | — | |
Sterling merger (1) | | Sterling merger (1) | | (25,561) | | | 1,939,765 | |
Bend acquisition (1) | | Bend acquisition (1) | | (294) | | | 35,966 | |
Balance, end of period | Balance, end of period | | $ | 2,513,771 | | | $ | 538,373 | | Balance, end of period | | $ | 2,631,465 | | | $ | 2,514,104 | |
(1)Reflects 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. The allocation of the purchase price and goodwill calculations for both the Sterling merger and Bend acquisition are final as of March 31, 2023.
Information regarding goodwill by reportable segment can be found within Note 16: Segment Reporting.
Other Intangible Assets
The following table summarizes other intangible assets: | | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(In thousands) | (In thousands) | Gross Carrying Amount (1) | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | (In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Core deposits | Core deposits | $ | 145,725 | | $ | 27,185 | | $ | 118,540 | | | $ | 26,625 | | $ | 18,516 | | $ | 8,109 | | Core deposits | $ | 146,037 | | $ | 41,237 | | $ | 104,800 | | | $ | 146,037 | | $ | 36,710 | | $ | 109,327 | |
Customer relationships(1) | Customer relationships(1) | 115,000 | | 17,760 | | 97,240 | | | 21,000 | | 11,240 | | 9,760 | | Customer relationships(1) | 151,000 | | 29,755 | | 121,245 | | | 115,000 | | 24,985 | | 90,015 | |
Non-competition agreement (1) | | Non-competition agreement (1) | 4,000 | | 200 | | 3,800 | | | — | | — | | — | |
Total other intangible assets | Total other intangible assets | $ | 260,725 | | $ | 44,945 | | $ | 215,780 | | | $ | 47,625 | | $ | 29,756 | | $ | 17,869 | | Total other intangible assets | $ | 301,037 | | $ | 71,192 | | $ | 229,845 | | | $ | 261,037 | | $ | 61,695 | | $ | 199,342 | |
(1)In connection withThe increase in the Sterling mergergross carrying amount is attributed to the acquisition of interLINK, in which the Company identified and Bend acquisition, Webster recorded a $119.1$36.0 million core deposit intangible and $94.0 million of customer relationship intangibles, all ofasset for broker dealer relationships, which areis being amortized on an accelerated basis over a periodan 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.
The remaining estimated aggregate future amortization expense for other intangible assets as of June 30, 2022 is as follows: | (In thousands) | (In thousands) | Amortization Expense | (In thousands) | At March 31, 2023 |
Remainder of 2022 | $ | 16,741 | | |
2023 | 30,315 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 26,710 | |
2024 | 2024 | 24,442 | | 2024 | 29,618 | |
2025 | 2025 | 21,455 | | 2025 | 25,956 | |
2026 | 2026 | 21,455 | | 2026 | 25,565 | |
2027 | | 2027 | 25,565 | |
Thereafter | Thereafter | 101,372 | | Thereafter | 96,431 | |
Note 7: Deposits
The following table summarizes deposits by type: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Non-interest-bearing: | Non-interest-bearing: | | | | Non-interest-bearing: | | | |
Demand | Demand | $ | 13,576,152 | | | $ | 7,060,488 | | Demand | $ | 12,007,387 | | | $ | 12,974,975 | |
Interest-bearing: | Interest-bearing: | | Interest-bearing: | |
Health savings accounts | Health savings accounts | 7,777,786 | | | 7,397,582 | | Health savings accounts | 8,272,507 | | | 7,944,892 | |
Checking | Checking | 9,547,749 | | | 4,182,497 | | Checking | 8,560,750 | | | 9,237,529 | |
Money market | Money market | 10,884,656 | | | 3,718,953 | | Money market | 14,203,858 | | | 11,062,652 | |
Savings | Savings | 8,736,712 | | | 5,689,739 | | Savings | 7,723,198 | | | 8,673,343 | |
Time deposits | Time deposits | 2,554,102 | | | 1,797,770 | | Time deposits | 4,529,779 | | | 4,160,949 | |
Total interest-bearing | Total interest-bearing | $ | 39,501,005 | | | $ | 22,786,541 | | Total interest-bearing | $ | 43,290,092 | | | $ | 41,079,365 | |
Total deposits | Total deposits | $ | 53,077,157 | | | $ | 29,847,029 | | Total deposits | $ | 55,297,479 | | | $ | 54,054,340 | |
| Time deposits, money market, and interest-bearing checking obtained through brokers(1) | Time deposits, money market, and interest-bearing checking obtained through brokers(1) | $ | 126,444 | | | $ | 120,392 | | Time deposits, money market, and interest-bearing checking obtained through brokers(1) | $ | 1,268,506 | | | $ | 1,964,873 | |
Aggregate amount of time deposit accounts that exceeded the FDIC limit | Aggregate amount of time deposit accounts that exceeded the FDIC limit | 322,888 | | | 256,522 | | Aggregate amount of time deposit accounts that exceeded the FDIC limit | 1,457,289 | | | 1,894,950 | |
Demand deposit overdrafts reclassified as loan balances | Demand deposit overdrafts reclassified as loan balances | 8,376 | | | 1,577 | | Demand deposit overdrafts reclassified as loan balances | 6,832 | | | 8,721 | |
(1)Excludes $2.9 billion of money market sweep deposits received through interLINK at March 31, 2023.
The following table summarizes the scheduled maturities of time deposits: | (In thousands) | (In thousands) | At June 30, 2022 | (In thousands) | At March 31, 2023 |
Remainder of 2022 | $ | 1,597,832 | | |
2023 | 600,936 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 3,168,801 | |
2024 | 2024 | 136,767 | | 2024 | 1,132,496 | |
2025 | 2025 | 133,719 | | 2025 | 132,543 | |
2026 | 2026 | 60,428 | | 2026 | 53,306 | |
2027 | | 2027 | 36,616 | |
Thereafter | Thereafter | 24,420 | | Thereafter | 6,017 | |
Total time deposits | Total time deposits | $ | 2,554,102 | | Total time deposits | $ | 4,529,779 | |
Note 8: Borrowings
The following table summarizes securities sold under agreements to repurchase:repurchase and other borrowings: | | | | | | | | | | | | | | | | | |
| At June 30, 2022 | | At December 31, 2021 |
(Dollars in thousands) | Total Outstanding | Rate | | Total Outstanding | Rate |
Securities sold under agreements to repurchase (1): | | | | | |
Original maturity of one year or less | $ | 306,382 | | 0.11 | % | | $ | 474,896 | | 0.11 | % |
Original maturity of greater than one year, non-callable | 200,000 | | 2.98 | | | 200,000 | | 1.32 | |
Total securities sold under agreements to repurchase (1) | 506,382 | | 1.24 | | | 674,896 | | 0.47 | |
Federal funds purchased | 1,237,400 | | 1.64 | | | — | | — | |
| | | | | |
Securities sold under agreements to repurchase and other borrowings | $ | 1,743,782 | | 1.52 | | | $ | 674,896 | | 0.47 | |
| | | | | | | | | | | | | | | | | |
| At March 31, 2023 | | At December 31, 2022 |
(Dollars in thousands) | Total Outstanding | Rate | | Total Outstanding | Rate |
| | | | | |
| | | | | |
| | | | | |
Securities sold under agreements to repurchase (1) | $ | 306,154 | | 0.11 | % | | $ | 282,005 | | 0.11 | % |
Federal funds purchased | — | | — | | | 869,825 | | 4.44 | |
| | | | | |
Securities sold under agreements to repurchase and other borrowings | $ | 306,154 | | 0.11 | % | | $ | 1,151,830 | | 3.38 | % |
(1)WebsterThe Company has the right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase are presented as gross 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 bonds.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. WebsterThe Company may also purchase unsecured term and overnight federal funds to satisfy its short-term liquidity needs.
The following table summarizes information for FHLB advances: | | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(Dollars in thousands) | (Dollars in thousands) | Total Outstanding | Weighted- Average Contractual Coupon Rate | | Total Outstanding | Weighted- Average Contractual Coupon Rate | (Dollars in thousands) | Total Outstanding | Weighted- Average Contractual Coupon Rate | | Total Outstanding | Weighted- Average Contractual Coupon Rate |
Maturing within 1 year | Maturing within 1 year | $ | 2,500,080 | | 1.60 | % | | $ | 90 | | — | % | Maturing within 1 year | $ | 8,550,183 | | 5.18 | % | | $ | 5,450,187 | | 4.40 | % |
After 1 but within 2 years | After 1 but within 2 years | 194 | | 2.96 | | | 202 | | 2.95 | | After 1 but within 2 years | — | | — | | | — | | — | |
After 2 but within 3 years | After 2 but within 3 years | — | | — | | | — | | — | | After 2 but within 3 years | — | | — | | | — | | — | |
After 3 but within 4 years | After 3 but within 4 years | — | | — | | | — | | — | | After 3 but within 4 years | — | | — | | | — | | — | |
After 4 but within 5 years | After 4 but within 5 years | — | | — | | | — | | — | | After 4 but within 5 years | 486 | | 1.35 | | | 252 | | — | |
After 5 years | After 5 years | 10,536 | | 2.03 | | | 10,705 | | 2.03 | | After 5 years | 9,792 | | 2.07 | | | 10,113 | | 2.09 | |
Total FHLB advances | Total FHLB advances | $ | 2,510,810 | | 1.60 | | | $ | 10,997 | | 2.03 | | Total FHLB advances | $ | 8,560,461 | | 5.18 | % | | $ | 5,460,552 | | 4.39 | % |
| Aggregate carrying value of assets pledged as collateral | Aggregate carrying value of assets pledged as collateral | $ | 8,280,906 | | | $ | 7,556,034 | | | Aggregate carrying value of assets pledged as collateral | $ | 19,778,232 | | | $ | 13,692,379 | | |
Remaining borrowing capacity at FHLB | Remaining borrowing capacity at FHLB | 3,219,016 | | | 5,087,294 | | | Remaining borrowing capacity at FHLB | 6,509,929 | | | 4,291,326 | | |
WebsterThe Bank may borrow up to the amount of eligible mortgages and securities that have been pledged as collateral to secure FHLB advances, which primarily includeincludes certain residential and commercial real estate loans, and home equity lines of credit. Webstercredit, CMBS, Agency MBS, Agency CMO, U.S. Treasury notes, and MBS. The Bank was in compliance with its FHLB collateral requirements at both June 30, 2022March 31, 2023, and December 31, 2021.2022.
The following table summarizes long-term debt: | (Dollars in thousands) | (Dollars in thousands) | At June 30, 2022 | | At December 31, 2021 | (Dollars in thousands) | At March 31, 2023 | | At December 31, 2022 |
4.375% | 4.375% | Senior fixed-rate notes due February 15, 2024 | $ | 150,000 | | | $ | 150,000 | | 4.375% | Senior fixed-rate notes due February 15, 2024 | $ | 150,000 | | | $ | 150,000 | |
4.100% | 4.100% | Senior fixed-rate notes due March 25, 2029 (1) | 336,134 | | | 338,811 | | 4.100% | Senior fixed-rate notes due March 25, 2029 (1) | 332,119 | | | 333,458 | |
4.000% | 4.000% | Subordinated fixed-to-floating rate notes due December 30, 2029 | 274,000 | | | — | | 4.000% | Subordinated fixed-to-floating rate notes due December 30, 2029 | 274,000 | | | 274,000 | |
3.875% | 3.875% | Subordinated fixed-to-floating rate notes due November 1, 2030 | 225,000 | | | — | | 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 (2) | Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2) | 77,320 | | | 77,320 | | Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2) | 77,320 | | | 77,320 | |
Total senior and subordinated debt | Total senior and subordinated debt | 1,062,454 | | | 566,131 | | Total senior and subordinated debt | 1,058,439 | | | 1,059,778 | |
Discount on senior fixed-rate notes | Discount on senior fixed-rate notes | (865) | | | (974) | | Discount on senior fixed-rate notes | (701) | | | (756) | |
Debt issuance cost on senior fixed-rate notes | Debt issuance cost on senior fixed-rate notes | (2,024) | | | (2,226) | | Debt issuance cost on senior fixed-rate notes | (1,723) | | | (1,824) | |
Premium on subordinated fixed-to-floating rate notes | Premium on subordinated fixed-to-floating rate notes | 16,994 | | | — | | Premium on subordinated fixed-to-floating rate notes | 15,398 | | | 15,930 | |
Long-term debt(1) | Long-term debt(1) | $ | 1,076,559 | | | $ | 562,931 | | Long-term debt(1) | $ | 1,071,413 | | | $ | 1,073,128 | |
(1)WebsterThe classification of debt as long-term is based on the initial terms of greater than one year as of the date of issuance.
(2)The Company de-designated its fair value hedging relationship on these senior notes in 2020. A basis adjustment of $36.1$32.1 million and $38.8$33.5 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively, is included in the carrying value and is being amortized over the remaining life of the senior notes.
(2)(3)The interest rate on the Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%, was 4.98%7.86% and 3.17%7.69% at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively.
Webster 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 Webster 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 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 each March 30, June 30, September 30, and December 30.
In addition, Webster 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 Webster on December 30, 2024, 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 December 30. From 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 each February 1, May 1, August 1, and November 1.
Webster recorded the 2029 and 2030 subordinated notes at their estimated fair value of $281.0 million and $235.9 million, respectively, on the merger effective date. The purchase premiums are being amortized into interest expense over the remaining lives of the subordinated notes.
Note 9: Accumulated Other Comprehensive Income (Loss) Income,, Net of Tax
The following table summarizestables summarize the changes in each component of accumulated other comprehensive income (loss) income,, net of tax:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three months ended June 30, 2022 | | Six months ended June 30, 2022 |
(In thousands) | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total | | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance, beginning of period | $ | (240,343) | | $ | (1,774) | | $ | (33,606) | | $ | (275,723) | | | $ | 4,536 | | $ | 6,070 | | $ | (33,186) | | $ | (22,580) | |
Other comprehensive (loss) before reclassifications | (205,273) | | (1,070) | | (328) | | (206,671) | | | (450,152) | | (9,683) | | (1,047) | | (460,882) | |
Amounts reclassified from accumulated other comprehensive (loss) income | — | | 762 | | 300 | | 1,062 | | | — | | 1,531 | | 599 | | 2,130 | |
Other comprehensive (loss), net of tax | (205,273) | | (308) | | (28) | | (205,609) | | | (450,152) | | (8,152) | | (448) | | (458,752) | |
Balance, end of period | $ | (445,616) | | $ | (2,082) | | $ | (33,634) | | $ | (481,332) | | | $ | (445,616) | | $ | (2,082) | | $ | (33,634) | | $ | (481,332) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 | | Six months ended June 30, 2021 |
(In thousands) | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total | | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance, beginning of period | $ | 37,071 | | $ | 15,546 | | $ | (44,343) | | $ | 8,274 | | | $ | 67,424 | | $ | 19,918 | | $ | (45,086) | | $ | 42,256 | |
Other comprehensive (loss) before reclassifications | (1,473) | | (2,475) | | — | | (3,948) | | | (31,826) | | (7,645) | | — | | (39,471) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | 823 | | 741 | | 1,564 | | | — | | 1,621 | | 1,484 | | 3,105 | |
Other comprehensive (loss) income, net of tax | (1,473) | | (1,652) | | 741 | | (2,384) | | | (31,826) | | (6,024) | | 1,484 | | (36,366) | |
Balance, end of period | $ | 35,598 | | $ | 13,894 | | $ | (43,602) | | $ | 5,890 | | | $ | 35,598 | | $ | 13,894 | | $ | (43,602) | | $ | 5,890 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | Three months ended March 31, 2023 |
(In thousands) | | | | | | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance, beginning of period | | | | | | $ | (631,160) | | $ | (8,874) | | $ | (44,926) | | $ | (684,960) | |
Other comprehensive income before reclassifications | | | | | | 56,635 | | 20,782 | | 3,553 | | 80,970 | |
Amounts reclassified from accumulated other comprehensive (loss) | | | | | | 14,983 | | 592 | | 395 | | 15,970 | |
Other comprehensive income, net of tax | | | | | | 71,618 | | 21,374 | | 3,948 | | 96,940 | |
Balance, end of period | | | | | | $ | (559,542) | | $ | 12,500 | | $ | (40,978) | | $ | (588,020) | |
| | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, 2022 |
(In thousands) | | | | | | Securities Available For Sale | Derivative Instruments | Defined Benefit Pension and Other Postretirement Benefit Plans | Total |
Balance, beginning of period | | | | | | $ | 4,536 | | $ | 6,070 | | $ | (33,186) | | $ | (22,580) | |
Other comprehensive (loss) before reclassifications | | | | | | (244,879) | | (8,613) | | (719) | | (254,211) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | | | | — | | 769 | | 299 | | 1,068 | |
Other comprehensive (loss), net of tax | | | | | | (244,879) | | (7,844) | | (420) | | (253,143) | |
Balance, end of period | | | | | | $ | (240,343) | | $ | (1,774) | | $ | (33,606) | | $ | (275,723) | |
The following table further summarizes the amounts reclassified from accumulated other comprehensive income (loss) income:: | Accumulated Other Comprehensive (Loss) Income Components | Three months ended June 30, | | Six months ended June 30, | Associated Line Item on the Condensed Consolidated Statements of Income | |
2022 | | 2021 | | 2022 | | 2021 | |
Accumulated Other Comprehensive Income (Loss) Components | | Accumulated Other Comprehensive Income (Loss) Components | | Three months ended | Associated Line Item on the Condensed Consolidated Statements of Income |
| | March 31, |
| | 2023 | | 2022 |
(In thousands) | (In thousands) | | | | | | | | (In thousands) | | | | |
Investment securities available-for-sale: | | Investment securities available-for-sale: | | |
Net holding (losses) | | Net holding (losses) | | $ | (20,483) | | | $ | — | | (Loss) on sale of investment securities |
| Tax benefit | | Tax benefit | | 5,500 | | | — | | Income tax expense |
Net of tax | | Net of tax | | $ | (14,983) | | | $ | — | | |
Derivative instruments: | Derivative instruments: | | Derivative instruments: | | | | | |
Hedge terminations | Hedge terminations | $ | (76) | | | $ | (77) | | | $ | (153) | | | $ | (153) | | Interest expense | Hedge terminations | | $ | (76) | | | $ | (77) | | Interest expense |
Premium amortization | Premium amortization | (969) | | | (1,037) | | | (1,947) | | | (2,042) | | Interest income | Premium amortization | | (736) | | | (978) | | Interest income |
Tax benefit | Tax benefit | 283 | | | 291 | | | 569 | | | 574 | | Income tax expense | Tax benefit | | 220 | | | 286 | | Income tax expense |
Net of tax | Net of tax | $ | (762) | | | $ | (823) | | | $ | (1,531) | | | $ | (1,621) | | | Net of tax | | $ | (592) | | | $ | (769) | | |
Defined benefit pension and other postretirement benefit plans: | Defined benefit pension and other postretirement benefit plans: | | | | | | | | | Defined benefit pension and other postretirement benefit plans: | | | | | |
Actuarial loss amortization | $ | (411) | | | $ | (1,007) | | | $ | (822) | | | $ | (2,015) | | Other non-interest expense | |
Actuarial net loss amortization | | Actuarial net loss amortization | | $ | (542) | | | $ | (411) | | Other expense |
Tax benefit | Tax benefit | 111 | | | 266 | | | 223 | | | 531 | | Income tax expense | Tax benefit | | 147 | | | 112 | | Income tax expense |
Net of tax | Net of tax | $ | (300) | | | $ | (741) | | | $ | (599) | | | $ | (1,484) | | | Net of tax | | $ | (395) | | | $ | (299) | | |
Note 10: Regulatory Capital and Restrictions
Capital Requirements
Webster Financial CorporationThe Holding Company and Websterthe 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 financial statements. Under capital adequacy guidelines andand/or the regulatory framework for prompt corrective action (such provisions apply 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 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 the Basel III Capital Rules to ensure capital adequacy require the Company to maintain minimum ratios of CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), as defined in the regulations.
CET1 capital consists of common shareholders’stockholders’ equity less deductions for goodwill and other intangible assets, and certain deferred tax adjustments. Upon adoption of the Basel III Capital Rules, Websterthe Company elected to opt-out of the requirement to include certain components of accumulated other comprehensive incomeAOCI 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 permissible portions of subordinated debt and the ACL.
At June 30, 2022March 31, 2023, and December 31, 2021, Webster Financial Corporation2022, both the Holding Company and Websterthe Bank were both classified as well-capitalized. Management believes that no events or changes have occurred subsequent to quarter-endyear-end that would change this designation.
The following tabletables provides information on the capital ratios for Webster Financial Corporationthe Holding Company and Websterthe Bank: | | | At June 30, 2022 | | At March 31, 2023 |
| | Actual (1) | | Minimum Requirement | | Well Capitalized | | Actual (1) | | Minimum Requirement | | Well Capitalized |
(Dollars in thousands) | (Dollars in thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio | (Dollars in thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
| Webster Financial Corporation | Webster Financial Corporation | | | | | | Webster Financial Corporation | | | | | |
CET1 risk-based capital | CET1 risk-based capital | $ | 5,543,209 | | 11.09 | % | | $ | 2,249,952 | | 4.5 | % | | $ | 3,249,931 | | 6.5 | % | CET1 risk-based capital | $ | 5,796,578 | | 10.42 | % | | $ | 2,503,935 | | 4.5 | % | | $ | 3,616,794 | | 6.5 | % |
Total risk-based capital | Total risk-based capital | 6,955,295 | | 13.91 | | | 3,999,915 | | 8.0 | | | 4,999,893 | | 10.0 | | Total risk-based capital | 7,229,512 | | 12.99 | | | 4,451,439 | | 8.0 | | | 5,564,299 | | 10.0 | |
Tier 1 risk-based capital | Tier 1 risk-based capital | 5,827,188 | | 11.65 | | | 2,999,936 | | 6.0 | | | 3,999,915 | | 8.0 | | Tier 1 risk-based capital | 6,080,557 | | 10.93 | | | 3,338,580 | | 6.0 | | | 4,451,439 | | 8.0 | |
Tier 1 leverage capital | Tier 1 leverage capital | 5,827,188 | | 9.12 | | | 2,555,095 | | 4.0 | | | 3,193,869 | | 5.0 | | Tier 1 leverage capital | 6,080,557 | | 8.65 | | | 2,812,832 | | 4.0 | | | 3,516,040 | | 5.0 | |
Webster Bank | Webster Bank | | Webster Bank | |
CET1 risk-based capital | CET1 risk-based capital | $ | 6,473,249 | | 12.97 | % | | $ | 2,246,277 | | 4.5 | % | | $ | 3,244,623 | | 6.5 | % | CET1 risk-based capital | $ | 6,605,427 | | 11.89 | % | | $ | 2,500,320 | | 4.5 | % | | $ | 3,611,573 | | 6.5 | % |
Total risk-based capital | Total risk-based capital | 7,008,042 | | 14.04 | | | 3,993,382 | | 8.0 | | | 4,991,727 | | 10.0 | | Total risk-based capital | 7,162,664 | | 12.89 | | | 4,445,013 | | 8.0 | | | 5,556,266 | | 10.0 | |
Tier 1 risk-based capital | Tier 1 risk-based capital | 6,473,249 | | 12.97 | | | 2,995,036 | | 6.0 | | | 3,993,382 | | 8.0 | | Tier 1 risk-based capital | 6,605,427 | | 11.89 | | | 3,333,760 | | 6.0 | | | 4,445,013 | | 8.0 | |
Tier 1 leverage capital | Tier 1 leverage capital | 6,473,249 | | 10.15 | | | 2,551,728 | | 4.0 | | | 3,189,660 | | 5.0 | | Tier 1 leverage capital | 6,605,427 | | 9.40 | | | 2,810,676 | | 4.0 | | | 3,513,345 | | 5.0 | |
| | | At December 31, 2021 | | At December 31, 2022 |
| | Actual (1) | | Minimum Requirement | | Well Capitalized | | Actual (1) | | Minimum Requirement | | Well Capitalized |
(Dollars in thousands) | (Dollars in thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio | (Dollars in thousands) | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Webster Financial Corporation | Webster Financial Corporation | | | | | | Webster Financial Corporation | | | | | |
CET1 risk-based capital | CET1 risk-based capital | $ | 2,804,290 | | 11.72 | % | | $ | 1,076,871 | | 4.5 | % | | $ | 1,555,480 | | 6.5 | % | CET1 risk-based capital | $ | 5,822,369 | | 10.71 | % | | $ | 2,446,344 | | 4.5 | % | | $ | 3,533,608 | | 6.5 | % |
Total risk-based capital | Total risk-based capital | 3,265,064 | | 13.64 | | | 1,914,436 | | 8.0 | | | 2,393,046 | | 10.0 | | Total risk-based capital | 7,203,029 | | 13.25 | | | 4,349,056 | | 8.0 | | | 5,436,320 | | 10.0 | |
Tier 1 risk-based capital | Tier 1 risk-based capital | 2,949,327 | | 12.32 | | | 1,435,827 | | 6.0 | | | 1,914,436 | | 8.0 | | Tier 1 risk-based capital | 6,106,348 | | 11.23 | | | 3,261,792 | | 6.0 | | | 4,349,056 | | 8.0 | |
Tier 1 leverage capital | Tier 1 leverage capital | 2,949,327 | | 8.47 | | | 1,393,607 | | 4.0 | | | 1,742,008 | | 5.0 | | Tier 1 leverage capital | 6,106,348 | | 8.95 | | | 2,730,212 | | 4.0 | | | 3,412,765 | | 5.0 | |
Webster Bank | Webster Bank | | Webster Bank | |
CET1 risk-based capital | CET1 risk-based capital | $ | 3,034,883 | | 12.69 | % | | $ | 1,075,920 | | 4.5 | % | | $ | 1,554,107 | | 6.5 | % | CET1 risk-based capital | $ | 6,661,504 | | 12.28 | % | | $ | 2,442,058 | | 4.5 | % | | $ | 3,527,417 | | 6.5 | % |
Total risk-based capital | Total risk-based capital | 3,273,300 | | 13.69 | | | 1,912,747 | | 8.0 | | | 2,390,934 | | 10.0 | | Total risk-based capital | 7,165,935 | | 13.20 | | | 4,341,437 | | 8.0 | | | 5,426,796 | | 10.0 | |
Tier 1 risk-based capital | Tier 1 risk-based capital | 3,034,883 | | 12.69 | | | 1,434,560 | | 6.0 | | | 1,912,747 | | 8.0 | | Tier 1 risk-based capital | 6,661,504 | | 12.28 | | | 3,256,078 | | 6.0 | | | 4,341,437 | | 8.0 | |
Tier 1 leverage capital | Tier 1 leverage capital | 3,034,883 | | 8.72 | | | 1,392,821 | | 4.0 | | | 1,741,026 | | 5.0 | | 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, Websterthe 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. Therefore,During the December 31, 2021three-year transition period, regulatory capital ratios and amounts exclude the impact of the increased ACL on loans and leases, held-to-maturity debt securities, and unfunded loan commitments related to the adoption of CECL on January 1, 2020, adjusted for an approximation of the after-tax provision for credit losses attributable to CECL relative to the incurred loss methodology during the deferral period. During the three year transition period, capital ratios will begin to 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, Websterthe Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, respectively, with full absorption occurring in 2025.
Dividend Restrictions
Webster Financial CorporationThe Holding Company is dependent upon dividends from Websterthe Bank to provide funds for the payment of dividends to shareholdersstockholders and to provide for other cash requirements. Dividends paid by the Bank are subject to various 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 if the amount would exceed the net income for that year combined with the undistributed net income for the preceding two years. WebsterThe Bank paid $125.0the Holding Company $150.0 million in dividends to Webster Financial Corporation forduring the three and six months ended June 30, 2022, and $60.0 million and $120.0 million for the three and six months ended June 30, 2021, respectively,March 31, 2023, for which no express approval from the OCC was required. No dividends were paid by the Bank to the Holding Company during the three months ended March 31, 2022.
Cash Restrictions
WebsterThe Bank is required under Federal Reserve 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 washas not been required to hold cash reserve balances at both June 30, 2022 and December 31, 2021.since that date.
Note 11: Variable Interest Entities
WebsterThe 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 in the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Consolidated
Rabbi Trust.Trusts. The Company established a Rabbi Trust to meet theits obligations due under itsthe 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 Websterin 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, which was also assumed from Sterling.Plan.
Investments held in the Rabbi Trusts consist primarily of mutual funds that invest in equity and fixed income securities. WebsterThe 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 accruedAccrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets. Investment earnings and any changes in fair value are included in other non-interestOther income and depending on the nature of the underlying assets in the Rabbi Trusts, fair value changes are either recognized in other non-interest income or in other comprehensive (loss) income, net of tax, on the accompanying Condensed Consolidated Statements of Income or on the accompanying Condensed Consolidated Statements of Comprehensive Income, respectively. InformationIncome. Additional information regarding the fair value of the Rabbi Trusts' investments can be found within Note 14: Fair Value Measurements.
Non-Consolidated
Low-Income Housing Tax Credit Finance Investments. WebsterThe Company makes non-marketable equity investments in entities that sponsor affordable housing and other community development projects that qualify for the Low Income Housing Tax Credit (LIHTC)LIHTC Program pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is not only to assist the Bank in meeting its responsibilities under the CRA, but also to provide a return, primarily through the realization of tax benefits. While Webster'sthe 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. WebsterThe Company has determined that it is not the primary beneficiary due to its inability to direct the activities that most significantly impact economic performance and the Company does not have the obligation to absorb losses and/or the right to receive benefits. WebsterThe Company applies the proportional amortization method to subsequently measure its investments in qualified affordable housing projects.
The following table summarizes Webster'sthe Company's LIHTC investments and related unfunded commitments:
| | | | | | | | | | | |
(In thousands) | June 30, 2022 | | December 31, 2021 |
Gross investment in LIHTC (1) | $ | 660,963 | | | $ | 68,635 | |
Accumulated amortization | (51,665) | | | (25,216) | |
Net investment in LIHTC | $ | 609,298 | | | $ | 43,419 | |
| | | |
Unfunded commitments for LIHTC investments (1) | $ | 310,881 | | | $ | 11,106 | |
(1)In connection with the Sterling merger, Webster acquired $515.6 million of LIHTC investments and assumed $267.3 million of unfunded commitments for LIHTC investments on January 31, 2022. | | | | | | | | | | | |
(In thousands) | March 31, 2023 | | December 31, 2022 |
Gross investment in LIHTC investments | $ | 798,085 | | | $ | 797,453 | |
Accumulated amortization | (90,902) | | | (69,424) | |
Net investment in LIHTC investments | $ | 707,183 | | | $ | 728,029 | |
| | | |
Unfunded commitments for LIHTC investments | $ | 329,023 | | | $ | 335,959 | |
The aggregate carrying value of Webster'sthe Company's LIHTC investments is included in accruedAccrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets, and represents the Company's maximum exposure to loss. The related unfunded commitments are included in accruedAccrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets. In addition to those acquired from Sterling, thereThere were $76.7 million of netno commitments approved to fund LIHTC investments during the sixthree months ended June 30, 2022, and $10.6 million during the six months ended June 30, 2021.March 31, 2023, or 2022.
Webster Statutory Trust.Webster 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-termLong-term debt on the accompanying Condensed Consolidated Balance Sheets, and the related interest expense is reported as interest expense on long-termincluded in Long-term debt on the accompanying Condensed Consolidated Statements of Income. Additional information regarding these junior subordinated debentures can be found within Note 8: Borrowings.
Other Non-Marketable Investments.Webster The Company invests in alternative investments comprising interests in non-public entities that cannot be redeemed since the investmentunderlying equity is distributed as the underlying equityinvestment 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 Webster'sthe Company's other non-marketable investments was $122.2$165.1 million and $61.5$144.9 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively, which is included in accruedAccrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets, and its maximum exposure to loss, including unfunded commitments, was $171.7$273.0 million and $95.9$243.9 million, respectively. InformationAdditional information regarding the fair value of other non-marketable investments can be found within
Note 14: Fair Value Measurements.
Additional Information regarding Webster's consolidation of variable interest entities can be found within Note 1: Summary of Significant Accounting Policies in the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Reporting on Form 10-K for the year ended December 31, 2021.
Note 12: Earnings Per Common Share
The following table summarizes the calculation of basic and diluted earnings per common share: | | | Three months ended June 30, | | Six months ended June 30, | | | Three months ended March 31, |
(In thousands, except per share data) | (In thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 | (In thousands, except per share data) | | 2023 | | 2022 |
Net income | Net income | $ | 182,311 | | | $ | 94,035 | | | $ | 165,564 | | | $ | 202,113 | | Net income | | $ | 221,004 | | | $ | (16,747) | |
Less: Preferred stock dividends | Less: Preferred stock dividends | 4,163 | | | 1,969 | | | 7,594 | | | 3,938 | | Less: Preferred stock dividends | | 4,163 | | | 3,431 | |
Net income available to common shareholders | 178,148 | | | 92,066 | | | 157,970 | | | 198,175 | | |
Net income available to common stockholders | | Net income available to common stockholders | | 216,841 | | | (20,178) | |
Less: Earnings allocated to participating securities | Less: Earnings allocated to participating securities | 1,718 | | | 511 | | | 1,456 | | | 1,090 | | Less: Earnings allocated to participating securities | | 1,845 | | | — | |
Earnings applicable to common shareholders | $ | 176,430 | | | $ | 91,555 | | | $ | 156,514 | | | $ | 197,085 | | |
Earnings applicable to common stockholders | | Earnings applicable to common stockholders | | $ | 214,996 | | | $ | (20,178) | |
| Weighted-average common shares outstanding - basic | Weighted-average common shares outstanding - basic | 175,845 | | | 90,027 | | | 161,698 | | | 89,918 | | Weighted-average common shares outstanding - basic | | 172,766 | | | 147,394 | |
Effect of dilutive securities | 50 | | | 194 | | | 87 | | | 246 | | |
Add: Effect of dilutive stock options and restricted stock | | Add: Effect of dilutive stock options and restricted stock | | 117 | | | — | |
Weighted-average common shares outstanding - diluted | Weighted-average common shares outstanding - diluted | 175,895 | | | 90,221 | | | 161,785 | | | 90,164 | | Weighted-average common shares outstanding - diluted | | 172,883 | | | 147,394 | |
| Basic earnings per common share | Basic earnings per common share | $ | 1.00 | | | $ | 1.02 | | | $ | 0.97 | | | $ | 2.19 | | Basic earnings per common share | | $ | 1.24 | | | $ | (0.14) | |
Diluted earnings per common share | Diluted earnings per common share | 1.00 | | | 1.01 | | | 0.97 | | | 2.19 | | Diluted earnings per common share | | 1.24 | | | (0.14) | |
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. WebsterThe 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 stock options and performance-based restricted stock awards that were not included in the computation of dilutive earnings per common share because they were anti-dilutive under the treasury stock method were 379,30885,033 and 298,617341,904 for the three and six months ended June 30,March 31, 2023, and 2022, respectively, and 55,027 and 27,666 for the three and six months ended June 30, 2021, respectively.
Note 13: Derivative Financial Instruments
Derivative Positions and Offsetting
Derivatives Designated in Hedge Relationshipsas Hedging Instruments. Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, whilewhereas 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 Company to limit the potential adverse impact of variable interest 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 the counterparty if interest rates rise above the cap rate, and interest rate floors where payment is received from the counterparty when interest rates fall below the floor rate.
Derivatives Not Designated in Hedge Relationships.as Hedging Instruments. The Company also enters into other derivative transactions to manage economic risks, but does not designate the instruments in hedge relationships. Further,In addition, the Company enters into derivative contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions structured with matching terms to ensure minimal impact on earnings.
The following table presentstables present the notional amounts and fair values, including accrued interest, of derivative positions: | | | At June 30, 2022 | | At March 31, 2023 |
| | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
(In thousands) | (In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value | (In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value |
Designated as hedging instruments: | Designated as hedging instruments: | | | | Designated as hedging instruments: | | | |
Interest rate derivatives (1) | Interest rate derivatives (1) | $ | 2,000,000 | | $ | 3,843 | | | $ | 500,000 | | $ | 193 | | Interest rate derivatives (1) | $ | 3,750,000 | | $ | 25,892 | | | $ | 1,750,000 | | $ | 5,493 | |
Not designated as hedging instruments: | Not designated as hedging instruments: | | Not designated as hedging instruments: | |
Interest rate derivatives (1) | Interest rate derivatives (1) | 6,922,130 | | 121,351 | | | 6,390,965 | | 212,078 | | Interest rate derivatives (1) | 7,417,679 | | 219,149 | | | 7,411,878 | | 323,123 | |
Mortgage banking derivatives (2) | Mortgage banking derivatives (2) | 223 | | 2 | | | — | | — | | Mortgage banking derivatives (2) | 1,973 | | 16 | | | — | | — | |
Other (3) | Other (3) | 169,356 | | 820 | | | 482,326 | | 280 | | Other (3) | 169,276 | | 171 | | | 659,603 | | 651 | |
Total not designated as hedging instruments | Total not designated as hedging instruments | 7,091,709 | | 122,173 | | | 6,873,291 | | 212,358 | | Total not designated as hedging instruments | 7,588,928 | | 219,336 | | | 8,071,481 | | 323,774 | |
Gross derivative instruments, before netting | Gross derivative instruments, before netting | $ | 9,091,709 | | 126,016 | | | $ | 7,373,291 | | 212,551 | | Gross derivative instruments, before netting | $ | 11,338,928 | | 245,228 | | | $ | 9,821,481 | | 329,267 | |
Less: Master netting agreements | Less: Master netting agreements | | 11,722 | | | | 11,722 | | Less: Master netting agreements | | 30,506 | | | | 30,506 | |
Cash collateral | Cash collateral | | 89,220 | | | 100 | | Cash collateral | | 181,853 | | | 400 | |
Total derivative instruments, after netting | Total derivative instruments, after netting | | $ | 25,074 | | | $ | 200,729 | | Total derivative instruments, after netting | | $ | 32,869 | | | $ | 298,361 | |
| | | At December 31, 2021 | | At December 31, 2022 |
| | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
(In thousands) | (In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value | (In thousands) | Notional Amounts | Fair Value | | Notional Amounts | Fair Value |
Designated as hedging instruments: | Designated as hedging instruments: | | | | Designated as hedging instruments: | | | |
Interest rate derivatives (1) | Interest rate derivatives (1) | $ | 1,000,000 | | $ | 17,583 | | | $ | — | | $ | — | | Interest rate derivatives (1) | $ | 1,350,000 | | $ | 1,515 | | | $ | 1,750,000 | | $ | 9,632 | |
Not designated as hedging instruments: | Not designated as hedging instruments: | | Not designated as hedging instruments: | |
Interest rate derivatives (1) | Interest rate derivatives (1) | 4,463,048 | | 141,243 | | | 4,372,846 | | 21,570 | | Interest rate derivatives (1) | 7,024,507 | | 221,225 | | | 7,022,844 | | 403,952 | |
Mortgage banking derivatives (2) | Mortgage banking derivatives (2) | 14,212 | | 80 | | | — | | — | | Mortgage banking derivatives (2) | 3,283 | | 32 | | | — | | — | |
Other (3) | Other (3) | 76,755 | | 211 | | | 374,688 | | 214 | | Other (3) | 161,934 | | 134 | | | 606,478 | | 915 | |
Total not designated as hedging instruments | Total not designated as hedging instruments | 4,554,015 | | 141,534 | | | 4,747,534 | | 21,784 | | Total not designated as hedging instruments | 7,189,724 | | 221,391 | | | 7,629,322 | | 404,867 | |
Gross derivative instruments, before netting | Gross derivative instruments, before netting | $ | 5,554,015 | | 159,117 | | | $ | 4,747,534 | | 21,784 | | Gross derivative instruments, before netting | $ | 8,539,724 | | 222,906 | | | $ | 9,379,322 | | 414,499 | |
Less: Master netting agreements | Less: Master netting agreements | | 6,364 | | | | 6,364 | | Less: Master netting agreements | | 16,129 | | | | 16,129 | |
Cash collateral | Cash collateral | | 19,272 | | | 2,119 | | Cash collateral | | 184,095 | | | — | |
Total derivative instruments, after netting | Total derivative instruments, after netting | | $ | 133,481 | | | $ | 13,301 | | Total derivative instruments, after netting | | $ | 22,682 | | | $ | 398,370 | |
(1)Balances related to clearing houses are presented as a single unit of account. In accordance with their rule books, clearing houses legally characterize variation margin payments as settlement of derivatives rather than collateral against derivative positions. NotionalAt March 31, 2023, and December 31, 2022, notional amounts of interest rate swaps cleared through clearing houses include $2.7$2.4 billion and $0.4$2.7 billion for asset derivatives, respectively, and $0.4 billion$1.9 million and $2.6 billionzero for liability derivatives, at June 30, 2022 and December 31, 2021, respectively. The related fair values approximate zero.
(2)Notional amounts related to residential loans exclude approved floating rate commitments of $0.2$3.8 million and $1.0$2.4 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively.
(3)Other derivatives include foreign currency forward contracts related to lending arrangements, and customer hedging activity, a Visa equity swap transaction, and risk participation agreements. Notional amounts of risk participation agreements include $131.7$154.9 million and $66.0$125.6 million for asset derivatives and $463.8$589.7 million and $338.2$559.2 million for liability derivatives at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively, thatwhich have insignificant related fair values.
The following table presentstables present fair value positions transitioned from gross to net upon applying counterparty netting agreements: | | | At June 30, 2022 | | At March 31, 2023 |
(In thousands) | (In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Pledged | Net Amount Presented | | Amounts Not Offset | (In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Pledged | Net Amount Presented | | Amounts Not Offset |
Asset derivatives | Asset derivatives | $ | 107,886 | | $ | 11,722 | | $ | 89,220 | | $ | 6,944 | | | $ | 7,314 | | Asset derivatives | $ | 220,259 | | $ | 30,506 | | $ | 181,853 | | $ | 7,900 | | | $ | 8,270 | |
Liability derivatives | Liability derivatives | 11,855 | | 11,722 | | 100 | | 33 | | | 1,614 | | Liability derivatives | 31,360 | | 30,506 | | 400 | | 454 | | | 5,032 | |
| | | At December 31, 2021 | | At December 31, 2022 |
(In thousands) | (In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Pledged | Net Amount Presented | | Amounts Not Offset | (In thousands) | Gross Amount Recognized | Derivative Offset Amount | Cash Collateral Received/Pledged | Net Amount Presented | | Amounts Not Offset |
Asset derivatives | Asset derivatives | $ | 25,636 | | $ | 6,364 | | $ | 19,272 | | $ | — | | | $ | 51 | | Asset derivatives | $ | 217,246 | | $ | 16,129 | | $ | 184,095 | | $ | 17,022 | | | $ | 17,392 | |
Liability derivatives | Liability derivatives | 8,483 | | 6,364 | | 2,119 | | — | | | 428 | | Liability derivatives | 16,129 | | 16,129 | | — | | — | | | 1,545 | |
Derivative Activity
The following table summarizes the income statement effect of derivatives designated as cash flow hedges:hedging instruments: | | | Recognized In | Three months ended June 30, | | Six months ended June 30, | | Recognized In | | Three months ended March 31, |
(In thousands) | (In thousands) | Net Interest Income | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | Net Interest Income | | 2023 | | 2022 |
Fair value hedges: | | Fair value hedges: | | | | | |
Recognized on derivatives | | Recognized on derivatives | Deposits | | $ | (10,235) | | | $ | — | |
Recognized on hedged items | | Recognized on hedged items | Deposits | | 10,427 | | | — | |
Net recognized on fair value hedges | | Net recognized on fair value hedges | | | $ | (192) | | | $ | — | |
| Cash flow hedges: | | Cash flow hedges: | | | |
Interest rate derivatives | Interest rate derivatives | Long-term debt | $ | 77 | | | $ | 123 | | | $ | 153 | | | $ | 244 | | Interest rate derivatives | Long-term debt | | $ | 76 | | | $ | 76 | |
Interest rate derivatives | Interest rate derivatives | Interest and fees on loans and leases | (1,244) | | | (2,645) | | | (3,803) | | | (5,227) | | Interest rate derivatives | Interest and fees on loans and leases | | (736) | | | 2,559 | |
Net recognized on cash flow hedges | Net recognized on cash flow hedges | $ | (1,167) | | | $ | (2,522) | | | $ | (3,650) | | | $ | (4,983) | | Net recognized on cash flow hedges | | $ | (812) | | | $ | 2,483 | |
The following table summarizes information related to a fair value hedging adjustment:adjustments: | Condensed Consolidated Balance Sheet Line Item in Which Hedged Item is Located | Condensed Consolidated Balance Sheet Line Item in Which Hedged Item is Located | Carrying Amount of Hedged Item | | Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount | Condensed Consolidated Balance Sheet Line Item in Which Hedged Item is Located | Carrying Amount of Hedged Item | | Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount |
(In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 | | At March 31, 2023 | | At December 31, 2022 |
Long-term debt | $ | 336,134 | | | $ | 338,811 | | | $ | 36,134 | | | $ | 38,811 | | |
Deposits | | Deposits | $ | 410,254 | | | $ | — | | | $ | 10,254 | | | $ | — | |
Long-term debt (1) | | Long-term debt (1) | 332,119 | | | 333,458 | | | 32,119 | | | 33,458 | |
(1)The Company de-designated its fair value hedging relationship on its long-term debt in 2020. The basis adjustment included in the carrying amount is being amortized into interest expense over the remaining life of the long-term debt.
The following table summarizes the income statement effect of derivatives not designated as hedging instruments: | | | Recognized In | Three months ended June 30, | | Six months ended June 30, | | Recognized In | | Three months ended March 31, |
(In thousands) | (In thousands) | Non-interest Income | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | Non-interest Income | | 2023 | | 2022 |
Interest rate derivatives | Interest rate derivatives | Other income | $ | 12,814 | | | $ | (239) | | | $ | 19,259 | | | $ | 4,405 | | Interest rate derivatives | Other income | | $ | (3,687) | | | $ | 6,445 | |
Mortgage banking derivatives | Mortgage banking derivatives | Mortgage banking activities | (29) | | | (212) | | | (78) | | | (594) | | Mortgage banking derivatives | Mortgage banking activities | | (16) | | | (49) | |
Other | Other | Other income | 1,027 | | | (303) | | | 1,424 | | | 169 | | Other | Other income | | (735) | | | 397 | |
Total not designated as hedging instruments | Total not designated as hedging instruments | $ | 13,812 | | | $ | (754) | | | $ | 20,605 | | | $ | 3,980 | | Total not designated as hedging instruments | | $ | (4,438) | | | $ | 6,793 | |
PurchasedTime-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 exclude time-value premiums from the assessment of hedge effectiveness. Time-value premiums are amortized on a straight-line basis.hedges. At June 30, 2022,March 31, 2023, the remaining unamortized balance of time-value premiums was $4.3$2.1 million. Over the next twelve months, an estimated $3.1 million decrease to interest expenseincome of $9.5 million will be reclassified from (AOCL) AOCI relating to cash flow hedges,hedge gain/loss, and an estimated $0.3 million increase to interest expense of $0.3 million will be reclassified from (AOCL) AOCI relating to cash flow hedge terminations. At June 30, 2022,March 31, 2023, the remaining unamortized loss on terminated cash flow hedges is $0.5was $0.3 million. The maximum length of time over which forecasted transactions are hedged is 4.64.9 years.
Additional information aboutregarding cash flow hedge activity impacting (AOCL) AOCI and the related amounts reclassified to interest expense is provided innet income can be found within Note 9: Accumulated Other Comprehensive Income (Loss) Income,, Net of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 14: Fair Value Measurements.
Derivative Exposure. At June 30, 2022,March 31, 2023, the Company had $70.3$38.7 million in initial margin collateral posted at clearing houses. In addition, $90.8$187.3 million of cash collateral received is included in cashCash and due from banks on the accompanying Condensed Consolidated Balance Sheets. WebsterThe Company regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions. Current net credit exposure relating to interest rate derivatives with Webster Bankthe Bank's customers was $18.1$24.9 million at June 30, 2022.March 31, 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 $55.7$97.8 million at June 30, 2022. Webster
March 31, 2023. The Company has incorporated a valuation adjustment to reflect nonperformancenon-performance risk in the fair value measurement of its derivatives, which totaled $6.1$5.3 million and $(0.4)$8.4 million at June 30, 2022March 31, 2023, and December 31, 2021,2022, respectively. Various factors impact changes in the valuation adjustment over time, includingsuch as changes in the credit spreads of the contracted parties, to the contracts, as well asand changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
Note 14: 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 Websterthe 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 (such as(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 Investment Securities.When unadjusted quoted prices are available in an active market, Websterthe 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 thereforeaccordingly, are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, Websterthe 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 that appear unusual or unexpected. Government agency debentures, municipalMunicipal bonds and notes, Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, corporateCorporate debt, privatePrivate label MBS, and otherOther available-for-sale securities available-for-sale are classified within Level 2 of the fair value hierarchy.
Derivative InstrumentsInstruments. .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 independent third parties. These derivative instruments are classified within Level 2 of the fair value hierarchy.
Mortgage Banking Derivatives.Derivatives. WebsterThe 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, Websterthe 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 Websterthe 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.Sale. WebsterThe 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 Websterthe 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 June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(In thousands) | (In thousands) | Fair Value | | Unpaid Principal Balance | | Difference | | Fair Value | | Unpaid Principal Balance | | Difference | (In thousands) | Fair Value | | Unpaid Principal Balance | | Difference | | Fair Value | | Unpaid Principal Balance | | Difference |
Originated loans held for sale | Originated loans held for sale | $ | 388 | | | $ | 378 | | | $ | 10 | | | $ | 4,694 | | | $ | 5,034 | | | $ | (340) | | Originated loans held for sale | $ | 811 | | | $ | 684 | | | $ | 127 | | | $ | 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 net asset value (NAV)NAV as reported by the trustee of the funds, which represents quoted prices in active markets. WebsterThe Company has elected to measure the Rabbi Trusts' investments at fair value. Accordingly, the Rabbi Trusts' investments are classified within Level 1 of the fair value hierarchy. At June 30,both
March 31, 2023, and December 31, 2022, the total cost basis of the investments held in the Rabbi Trusts' investmentsTrusts was $8.9$10.0 million.
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 June 30,March 31, 2023, and December 31, 2022, equity investments with a readily determinable fair value had a total carrying amount of $0.7$0.5 million and $0.4 million, respectively, with no remaining unfunded commitment. During the three and six months ended June 30, 2022,March 31, 2023, there were write-downstotal write-ups in fair value of $0.4$0.1 million and $1.2 million, respectively, associated with these alternative investments.
Equity investments that do not have a readily availabledeterminable fair value may qualify for the NAV practical expedient if they meet certain requirements. Webster'sThe 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 June 30,March 31, 2023, and December 31, 2022, these alternative investments had a total carrying amount of $70.4$27.0 million and $89.2 million, respectively, and a remaining unfunded commitment of $18.2 million.$28.5 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 were initially 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 March 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 % | 0.22 | 5.50 % | $ | 4,798 |
(ii) Deposit program growth | $ | 12,500 | 100.0 % | 1.97 | 5.50 % | $ | 11,241 |
Contingent consideration liabilities are included within Accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets. Any fair value adjustments to contingent consideration liabilities are included in Other expense on the accompanying Condensed Consolidated Statements of Income.
The following table summarizestables summarize the fair values of assets and liabilities measured at fair value on a recurring basis: | | | At June 30, 2022 | | At March 31, 2023 |
(In thousands) | (In thousands) | Level 1 | Level 2 | Level 3 | | Total | (In thousands) | Level 1 | Level 2 | Level 3 | | Total |
Financial Assets: | Financial Assets: | | | | Financial Assets: | | | |
Available-for-sale investment securities: | | | | |
Available-for-sale securities: | | Available-for-sale securities: | | | |
U.S. Treasury notes | U.S. Treasury notes | $ | 726,484 | | $ | — | | $ | — | | | $ | 726,484 | | U.S. Treasury notes | $ | 386,772 | | $ | — | | $ | — | | | $ | 386,772 | |
Government agency debentures | Government agency debentures | — | | 291,203 | | — | | | 291,203 | | Government agency debentures | — | | 262,342 | | — | | | 262,342 | |
Municipal bonds and notes | Municipal bonds and notes | — | | 1,830,630 | | — | | | 1,830,630 | | Municipal bonds and notes | — | | 1,645,228 | | — | | | 1,645,228 | |
Agency CMO | Agency CMO | — | | 71,247 | | — | | | 71,247 | | Agency CMO | — | | 57,462 | | — | | | 57,462 | |
Agency MBS | Agency MBS | — | | 2,421,333 | | — | | | 2,421,333 | | Agency MBS | — | | 2,230,850 | | — | | | 2,230,850 | |
Agency CMBS | Agency CMBS | — | | 1,561,505 | | — | | | 1,561,505 | | Agency CMBS | — | | 1,635,252 | | — | | | 1,635,252 | |
CMBS | CMBS | — | | 929,103 | | — | | | 929,103 | | CMBS | — | | 902,058 | | — | | | 902,058 | |
CLO | — | | 10,147 | | — | | | 10,147 | | |
| Corporate debt | Corporate debt | — | | 736,520 | | — | | | 736,520 | | Corporate debt | — | | 625,523 | | — | | | 625,523 | |
Private label MBS | Private label MBS | — | | 48,303 | | — | | | 48,303 | | Private label MBS | — | | 44,262 | | — | | | 44,262 | |
Other | Other | — | | 11,883 | | — | | | 11,883 | | Other | — | | 9,228 | | — | | | 9,228 | |
Total available-for-sale investment securities | 726,484 | | 7,911,874 | | — | | | 8,638,358 | | |
Total available-for-sale securities | | Total available-for-sale securities | 386,772 | | 7,412,205 | | — | | | 7,798,977 | |
Gross derivative instruments, before netting (1) | Gross derivative instruments, before netting (1) | 794 | | 125,222 | | — | | | 126,016 | | Gross derivative instruments, before netting (1) | 82 | | 245,146 | | — | | | 245,228 | |
Originated loans held for sale | Originated loans held for sale | — | | 388 | | — | | | 388 | | Originated loans held for sale | — | | 811 | | — | | | 811 | |
Investments held in Rabbi Trust | 12,621 | | — | | — | | | 12,621 | | |
Investments held in Rabbi Trusts | | Investments held in Rabbi Trusts | 11,992 | | — | | — | | | 11,992 | |
Alternative investments (2) | Alternative investments (2) | 718 | | — | | — | | | 71,074 | | Alternative investments (2) | 476 | | — | | — | | | 27,486 | |
Total financial assets | Total financial assets | $ | 740,617 | | $ | 8,037,484 | | $ | — | | | $ | 8,848,457 | | Total financial assets | $ | 399,322 | | $ | 7,658,162 | | $ | — | | | $ | 8,084,494 | |
Financial Liabilities: | Financial Liabilities: | | | | Financial Liabilities: | | | |
Gross derivative instruments, before netting (1) | Gross derivative instruments, before netting (1) | $ | 99 | | $ | 212,452 | | $ | — | | | $ | 212,551 | | Gross derivative instruments, before netting (1) | $ | 557 | | $ | 328,710 | | $ | — | | | $ | 329,267 | |
Contingent consideration | | Contingent consideration | — | | — | | 16,039 | | | 16,039 | |
Total financial liabilities | | Total financial liabilities | $ | 557 | | $ | 328,710 | | $ | 16,039 | | | $ | 345,306 | |
| | | At December 31, 2021 | | At December 31, 2022 |
(In thousands) | (In thousands) | Level 1 | Level 2 | Level 3 | | Total | (In thousands) | Level 1 | Level 2 | Level 3 | | Total |
Financial Assets: | Financial Assets: | | | | Financial Assets: | | | |
Available-for-sale investment securities: | | | | |
Available-for-sale securities: | | Available-for-sale securities: | | | |
U.S. Treasury notes | U.S. Treasury notes | $ | 396,966 | | $ | — | | $ | — | | | $ | 396,966 | | U.S. Treasury notes | $ | 717,040 | | $ | — | | $ | — | | | $ | 717,040 | |
Government agency debentures | | Government agency debentures | — | | 258,374 | | — | | | 258,374 | |
Municipal bonds and notes | | Municipal bonds and notes | — | | 1,633,202 | | — | | | 1,633,202 | |
Agency CMO | Agency CMO | — | | 90,384 | | — | | | 90,384 | | Agency CMO | — | | 59,965 | | — | | | 59,965 | |
Agency MBS | Agency MBS | — | | 1,593,403 | | — | | | 1,593,403 | | Agency MBS | — | | 2,158,024 | | — | | | 2,158,024 | |
Agency CMBS | Agency CMBS | — | | 1,232,541 | | — | | | 1,232,541 | | Agency CMBS | — | | 1,406,486 | | — | | | 1,406,486 | |
CMBS | CMBS | — | | 886,263 | | — | | | 886,263 | | CMBS | — | | 896,640 | | — | | | 896,640 | |
CLO | CLO | — | | 21,847 | | — | | | 21,847 | | CLO | — | | 2,107 | | — | | | 2,107 | |
Corporate debt | Corporate debt | — | | 13,450 | | — | | | 13,450 | | Corporate debt | — | | 704,412 | | — | | | 704,412 | |
Total available-for-sale investment securities | 396,966 | | 3,837,888 | | — | | | 4,234,854 | | |
Private label MBS | | Private label MBS | — | | 44,249 | | — | | | 44,249 | |
Other | | Other | — | | 12,198 | | — | | | 12,198 | |
Total available-for-sale securities | | Total available-for-sale securities | 717,040 | | 7,175,657 | | — | | | 7,892,697 | |
Gross derivative instruments, before netting (1) | Gross derivative instruments, before netting (1) | 187 | | 158,930 | | — | | | 159,117 | | Gross derivative instruments, before netting (1) | 79 | | 222,827 | | — | | | 222,906 | |
Originated loans held for sale | Originated loans held for sale | — | | 4,694 | | — | | | 4,694 | | Originated loans held for sale | — | | 1,991 | | — | | | 1,991 | |
Investments held in Rabbi Trust | 3,416 | | — | | — | | | 3,416 | | |
Investments held in Rabbi Trusts | | Investments held in Rabbi Trusts | 12,103 | | — | | — | | | 12,103 | |
Alternative investments (2) | Alternative investments (2) | 1,877 | | — | | — | | | 27,732 | | Alternative investments (2) | 430 | | — | | — | | | 89,678 | |
Total financial assets | Total financial assets | $ | 402,446 | | $ | 4,001,512 | | $ | — | | | $ | 4,429,813 | | Total financial assets | $ | 729,652 | | $ | 7,400,475 | | $ | — | | | $ | 8,219,375 | |
Financial Liabilities: | Financial Liabilities: | | | | Financial Liabilities: | | | |
Gross derivative instruments, before netting (1) | Gross derivative instruments, before netting (1) | $ | 141 | | $ | 21,643 | | $ | — | | | $ | 21,784 | | 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 13: 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
WebsterThe Company measures certain assets at fair value on a non-recurring basis. The following is a description of the 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 June 30,March 31, 2023, and December 31, 2022, the carrying amount of these alternative investments was $30.6 million. There$46.1 million and $42.8 million, respectively, of which none and $5.9 million, respectively, were no write-ups dueconsidered to observable price changes or write-downs due to impairment during the three and six months ended June 30, 2022.be measured at fair value.
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.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 commercial 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 June 30,March 31, 2023, and December 31, 2022, the carrying amount ofthere were $209.9 million and zero loans that were transferred to held for sale was zero.on the Condensed Consolidated Balance Sheet.
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. Other real estate owned (OREO)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 June 30,March 31, 2023, and December 31, 2022, the total book value of OREO and repossessed assets was $2.7 million.$1.5 million and $2.3 million, respectively. In addition, the amortized cost of consumer loans secured by residential real estate property that were in process of foreclosure at June 30, 2022March 31, 2023, was $15.2$16.4 million.
Estimated Fair Values of Financial Instruments and Mortgage Servicing Assets
WebsterThe Company is required to disclose the estimated fair values of certain financial instruments and mortgage servicing assets.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 Investment Securities. When quoted market prices are not available, Websterthe 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 prepaymentsprepayment 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 that appear unusual or unexpected. Held-to-maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, and municipalMunicipal 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 premium 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 AssetsRights. Mortgage servicing assetsrights are initially measured at fair value and subsequently measured using the amortization method. Webster assessThe Company assesses mortgage servicing assetsrights 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 assetsrights is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing assetsrights 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 assets:rights:
| | | At June 30, 2022 | | At December 31, 2021 | | At March 31, 2023 | | At December 31, 2022 |
(In thousands) | (In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | (In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Level 1 | Level 1 | | Level 1 | |
Cash and cash equivalents | Cash and cash equivalents | $ | 901,805 | | | $ | 901,805 | | | $ | 461,570 | | | $ | 461,570 | | Cash and cash equivalents | $ | 2,434,071 | | | $ | 2,434,071 | | | $ | 839,943 | | | $ | 839,943 | |
Level 2 | Level 2 | | Level 2 | |
Held-to-maturity investment securities | Held-to-maturity investment securities | 6,547,998 | | | 6,008,849 | | | 6,198,125 | | | 6,280,936 | | Held-to-maturity investment securities | 7,063,223 | | | 6,320,682 | | | 6,564,697 | | | 5,761,453 | |
Level 3 | Level 3 | | Level 3 | |
Loans and leases, net | Loans and leases, net | 45,075,244 | | | 44,259,548 | | | 21,970,542 | | | 21,702,732 | | Loans and leases, net | 50,312,609 | | | 48,825,894 | | | 49,169,685 | | | 47,604,463 | |
Mortgage servicing assets | Mortgage servicing assets | 8,592 | | | 28,125 | | | 9,237 | | | 12,527 | | Mortgage servicing assets | 9,189 | | | 26,959 | | | 9,515 | | | 27,043 | |
Liabilities: | Liabilities: | | Liabilities: | |
Level 2 | Level 2 | | Level 2 | |
Deposit liabilities | Deposit liabilities | $ | 50,523,055 | | | $ | 50,523,055 | | | $ | 28,049,259 | | | $ | 28,049,259 | | Deposit liabilities | $ | 50,767,700 | | | $ | 50,767,700 | | | $ | 49,893,391 | | | $ | 49,893,391 | |
Time deposits | Time deposits | 2,554,102 | | | 2,503,875 | | | 1,797,770 | | | 1,794,829 | | Time deposits | 4,529,779 | | | 4,471,757 | | | 4,160,949 | | | 4,091,979 | |
Securities sold under agreements to repurchase and other borrowings | Securities sold under agreements to repurchase and other borrowings | 1,743,782 | | | 1,716,119 | | | 674,896 | | | 676,581 | | Securities sold under agreements to repurchase and other borrowings | 306,154 | | | 306,113 | | | 1,151,830 | | | 1,151,797 | |
FHLB advances | FHLB advances | 2,510,810 | | | 2,509,642 | | | 10,997 | | | 11,490 | | FHLB advances | 8,560,461 | | | 8,560,329 | | | 5,460,552 | | | 5,459,218 | |
Long-term debt (1) | Long-term debt (1) | 1,076,559 | | | 995,476 | | | 562,931 | | | 515,912 | | Long-term debt (1) | 1,071,413 | | | 1,005,178 | | | 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 15: Retirement Benefit Plans
Defined Benefit Pension and Other Postretirement Benefits
The following table summarizestables summarize the components of net periodic benefit cost (income) cost:: | | | Three months ended June 30, | | Three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(In thousands) | (In thousands) | Pension Plan | SERP | OPEB | | Pension Plan | SERP | OPEB | (In thousands) | Pension | SERP | OPEB | | Pension | SERP | OPEB |
Service cost | Service cost | $ | — | | $ | — | | $ | 9 | | | $ | — | | $ | — | | $ | — | | Service cost | $ | — | | $ | — | | $ | 7 | | | $ | — | | $ | — | | $ | 6 | |
Interest cost | Interest cost | 1,380 | | 17 | | 213 | | | 1,166 | | 6 | | 4 | | Interest cost | 2,211 | | 67 | | 380 | | | 1,377 | | 15 | | 144 | |
Expected return on plan assets | Expected return on plan assets | (3,668) | | — | | — | | | (3,596) | | — | | — | | Expected return on plan assets | (2,699) | | — | | — | | | (3,669) | | — | | — | |
Amortization of actuarial loss (gain) | Amortization of actuarial loss (gain) | 423 | | 6 | | (19) | | | 1,020 | | 9 | | (20) | | Amortization of actuarial loss (gain) | 1,216 | | 1 | | (675) | | | 422 | | 7 | | (18) | |
Net periodic benefit (income) cost | $ | (1,865) | | $ | 23 | | $ | 203 | | | $ | (1,410) | | $ | 15 | | $ | (16) | | |
Net periodic benefit cost (income) | | Net periodic benefit cost (income) | $ | 728 | | $ | 68 | | $ | (288) | | | $ | (1,870) | | $ | 22 | | $ | 132 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Six months ended June 30, |
| 2022 | | 2021 |
(In thousands) | Pension Plan | SERP | Other Benefits | | Pension Plan | SERP | Other Benefits |
Service cost | $ | — | | $ | — | | $ | 15 | | | $ | — | | $ | — | | $ | — | |
Interest cost | 2,757 | | 32 | | 357 | | | 2,332 | | 13 | | 8 | |
Expected return on plan assets | (7,337) | | — | | — | | | (7,191) | | — | | — | |
Amortization of actuarial loss (gain) | 845 | | 13 | | (37) | | | 2,039 | | 17 | | (40) | |
Net periodic benefit (income) cost | $ | (3,735) | | $ | 45 | | $ | 335 | | | $ | (2,820) | | $ | 30 | | $ | (32) | |
The components of net periodic benefit cost (income) cost are included within other non-interestin Other expense on the accompanying Condensed Consolidated Statements of Income. The weighted-average expected long-term rate of return on plan assets for the sixthree months ended June 30, 2022March 31, 2023, was 5.50%, as determined at the beginning of the year. In connection with the Sterling merger, Webster assumed the benefit obligations of Sterling's pension and other postretirement benefit plans, which included the Astoria Excess and Supplemental Benefit Plans, Astoria Directors' Retirement Plan, Greater New York Savings Bank Directors' Retirement Plan, Astoria Bank Retiree Health Care Plan, and the Sterling Other Postretirement Life Insurance and Other Plans, totaling $30.5 million as of January 31, 2022. The underfunded status of these plans is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.
Note 16: Segment Reporting
Webster'sThe Company's operations are organized into 3three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Certain Treasury activities, including the operations of interLINK, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category.
EffectiveIn connection with the acquisition of interLINK on January 1, 2022, Webster realigned its investment services operations from Commercial Banking to Consumer Banking to better serve its customers and deliver operational efficiencies. Under this realignment, $125.411, 2023, the $143.2 million of deposits and $4.3 billion of assets under administration (off-balance sheet) were reassigned frompreliminary goodwill recorded has been allocated entirely to Commercial Banking to Consumer Banking. There was no goodwill reallocation nor goodwill impairment as a result of the reorganization. In addition, the non-interest expense allocation methodology was modified to exclude certain overhead and merger-related costs that are not directly related to segment performance. Prior period results of operations have been recasted accordingly to reflect the realignment.
Asas previously discussed in Note 2: Mergers and Acquisitions Webster acquired Sterling on January 31, 2022, and
Note 6: Goodwill and Other Intangible Assets, the allocation of the purchase price is considered preliminary.for both the Sterling merger and Bend acquisition are final as of March 31, 2023. Accordingly, of the total $1.9 billion in preliminary goodwill recorded in connection with the Sterling merger, $1.7 billion and $0.2 million was preliminarilybillion has been allocated to Commercial Banking and Consumer Banking, respectively. The $36.0$35.7 million of goodwill recorded in connection with the Bend acquisition washas been allocated entirely to HSA Bank.
Segment Reporting Methodology
WebsterThe Company uses an internal profitability reporting system to generate information by reportable segment, which is based on a series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses, 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 results of any one reportable 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 reportable 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 through an internal matched maturity Funds Transfer Pricing (FTP)FTP process. The goal of the FTP allocation is to encourage loan and deposit growth consistent with the Webster’sCompany’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 and leases are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. The allocation 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 leases and deposits originated each day. The FTP process transfers the corporate interest rate risk exposure to the treasuryTreasury function included within the Corporate and Reconciling category where such exposures are centrally managed.
WebsterThe Company allocates a majority of non-interest expense to each reportable segment using an activity and driver-based costing process. Costs, including shared services and back-office support areas, are analyzed, pooled by process, and assigned to the appropriate reportable segment. The combination of direct revenue, direct expenses, funds transfer pricing, and allocations of non-interest expense produces PPNR, which is the basis the segments are reviewed by executive management.
Webster The Company also allocates the provision for credit losses to each reportable segment based on management's estimate of the inherentexpected loss content in each of the specific loan and lease portfolios. The ACL on loans and leases is included in total assets within the Corporate and Reconciling category. Merger-relatedBusiness development expenses, such as merger-related and strategic initiatives chargescosts, are also generally included in the Corporate and Reconciling category.
The following table presents balance sheet information, including the appropriate allocations, for Webster's reportable segments and the Corporate and Reconciling category: | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | | Corporate and Reconciling | Consolidated Total |
Goodwill | $ | 1,865,887 | | $ | 57,779 | | $ | 590,105 | | | | $ | — | | $ | 2,513,771 | |
Total assets | 39,019,968 | | 124,819 | | 9,766,337 | | | | 18,683,897 | | 67,595,021 | |
| | | | | | | |
| At December 31, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | | Corporate and Reconciling | Consolidated Total |
Goodwill | $ | 131,000 | | $ | 21,813 | | $ | 385,560 | | | | $ | — | | $ | 538,373 | |
Total assets | 15,398,159 | | 73,564 | | 7,663,921 | | | | 11,779,955 | | 34,915,599 | |
The following tables present results of operations,balance sheet information, including the appropriate allocations, for Webster’sthe Company's reportable segments and the Corporate and Reconciling category: | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Three months ended June 30, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 333,421 | | $ | 49,558 | | $ | 179,067 | | | $ | (75,386) | | $ | 486,660 | |
Non-interest income | 49,430 | | 26,552 | | 30,784 | | | 14,167 | | 120,933 | |
Non-interest expense | 102,720 | | 37,540 | | 107,312 | | | 110,655 | | 358,227 | |
Pre-tax, pre-provision net revenue | 280,131 | | 38,570 | | 102,539 | | | (171,874) | | 249,366 | |
Provision (benefit) for credit losses | 22,782 | | — | | (11,053) | | | 514 | | 12,243 | |
Income (loss) before income taxes | 257,349 | | 38,570 | | 113,592 | | | (172,388) | | 237,123 | |
Income tax expense (benefit) | 64,337 | | 10,337 | | 29,534 | | | (49,396) | | 54,812 | |
Net income (loss) | $ | 193,012 | | $ | 28,233 | | $ | 84,058 | | | $ | (122,992) | | $ | 182,311 | |
| | | | | | | | | | | | | | | | | | | | | |
| At March 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 | 45,868,138 | | 123,478 | | 10,597,860 | | | | 18,254,919 | | 74,844,395 | |
| | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Three months ended June 30, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 140,589 | | $ | 42,193 | | $ | 93,075 | | | $ | (55,005) | | $ | 220,852 | |
Non-interest income | 18,378 | | 26,554 | | 24,098 | | | 3,672 | | 72,702 | |
Non-interest expense | 46,275 | | 32,423 | | 74,149 | | | 34,181 | | 187,028 | |
Pre-tax, pre-provision net revenue | 112,692 | | 36,324 | | 43,024 | | | (85,514) | | 106,526 | |
(Benefit) provision for credit losses | (23,328) | | — | | 1,754 | | | 74 | | (21,500) | |
Income (loss) before income taxes | 136,020 | | 36,324 | | 41,270 | | | (85,588) | | 128,026 | |
Income tax expense (benefit) | 34,822 | | 9,699 | | 9,823 | | | (20,353) | | 33,991 | |
Net income (loss) | $ | 101,198 | | $ | 26,625 | | $ | 31,447 | | | $ | (65,235) | | $ | 94,035 | |
The following tables present operating results, including the appropriate allocations, for the Company’s reportable segments and the Corporate and Reconciling category: | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Three months ended March 31, 2023 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 384,314 | | $ | 71,730 | | $ | 210,583 | | | $ | (71,344) | | $ | 595,283 | |
Non-interest income | 35,397 | | 24,067 | | 25,959 | | | (14,657) | | 70,766 | |
Non-interest expense | 108,509 | | 43,700 | | 106,879 | | | 73,379 | | 332,467 | |
Pre-tax, pre-provision net revenue | 311,202 | | 52,097 | | 129,663 | | | (159,380) | | 333,582 | |
Provision for credit losses | 36,037 | | — | | 1,784 | | | 8,928 | | 46,749 | |
Income (loss) before income taxes | 275,165 | | 52,097 | | 127,879 | | | (168,308) | | 286,833 | |
Income tax expense (benefit) | 69,066 | | 14,066 | | 33,760 | | | (51,063) | | 65,829 | |
Net income (loss) | $ | 206,099 | | $ | 38,031 | | $ | 94,119 | | | $ | (117,245) | | $ | 221,004 | |
| | | | Six months ended June 30, 2022 | | Three months ended March 31, 2022 |
(In thousands) | (In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total | (In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | Net interest income | $ | 620,490 | | $ | 94,135 | | $ | 315,647 | | | $ | (149,364) | | $ | 880,908 | | Net interest income | $ | 287,069 | | $ | 44,577 | | $ | 136,677 | | | $ | (74,075) | | $ | 394,248 | |
Non-interest income | Non-interest income | 88,173 | | 53,510 | | 58,676 | | | 24,609 | | 224,968 | | Non-interest income | 38,743 | | 26,958 | | 27,901 | | | 10,433 | | 104,035 | |
Non-interest expense | Non-interest expense | 191,960 | | 73,949 | | 203,059 | | | 249,044 | | $ | 718,012 | | Non-interest expense | 89,240 | | 36,409 | | 95,510 | | | 138,626 | | 359,785 | |
Pre-tax, pre-provision net revenue | Pre-tax, pre-provision net revenue | 516,703 | | $ | 73,696 | | 171,264 | | | (373,799) | | 387,864 | | Pre-tax, pre-provision net revenue | 236,572 | | 35,126 | | 69,068 | | | (202,268) | | 138,498 | |
Provision (benefit) for credit losses | Provision (benefit) for credit losses | 204,713 | | — | | (3,917) | | | 292 | | 201,088 | | Provision (benefit) for credit losses | 181,931 | | — | | 7,136 | | | (222) | | 188,845 | |
Income (loss) before income tax expense | 311,990 | | 73,696 | | 175,181 | | | (374,091) | | 186,776 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | 54,641 | | 35,126 | | 61,932 | | | (202,046) | | (50,347) | |
Income tax expense (benefit) | Income tax expense (benefit) | 74,392 | | 19,751 | | 45,498 | | | (118,429) | | 21,212 | | Income tax expense (benefit) | 10,055 | | 9,414 | | 16,053 | | | (69,122) | | (33,600) | |
Net income (loss) | Net income (loss) | $ | 237,598 | | $ | 53,945 | | $ | 129,683 | | | $ | (255,662) | | $ | 165,564 | | Net income (loss) | $ | 44,586 | | $ | 25,712 | | $ | 45,879 | | | $ | (132,924) | | $ | (16,747) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Six months ended June 30, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | | Corporate and Reconciling | Consolidated Total |
Net interest income | $ | 282,075 | | $ | 84,302 | | $ | 182,440 | | | $ | (104,201) | | $ | 444,616 | |
Non-interest income | 36,754 | | 53,559 | | 46,970 | | | 12,176 | | 149,459 | |
Non-interest expense | 92,559 | | 68,428 | | 149,460 | | | 64,563 | | 375,010 | |
Pre-tax, pre-provision net revenue | 226,270 | | 69,433 | | 79,950 | | | (156,588) | | 219,065 | |
(Benefit) provision for credit losses | (42,701) | | — | | (4,632) | | | 83 | | (47,250) | |
Income (loss) before income tax expense | 268,971 | | 69,433 | | 84,582 | | | (156,671) | | 266,315 | |
Income tax expense (benefit) | 68,857 | | 18,539 | | 20,131 | | | (43,325) | | 64,202 | |
Net income (loss) | $ | 200,114 | | $ | 50,894 | | $ | 64,451 | | | $ | (113,346) | | $ | 202,113 | |
Note 17: Revenue from Contracts with Customers
The following table summarizestables 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 16: Segment Reporting.
| | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 7,647 | | $ | 24,949 | | $ | 18,352 | | $ | 437 | | $ | 51,385 | |
Loan and lease related fees (1) | 6,077 | | — | | — | | — | | 6,077 | |
Wealth and investment services | 2,770 | | — | | 8,479 | | (5) | | 11,244 | |
Other income | — | | 1,603 | | 285 | | — | | 1,888 | |
Revenue from contracts with customers | 16,494 | | 26,552 | | 27,116 | | 432 | | 70,594 | |
Other sources of non-interest income | 32,936 | | — | | 3,668 | | 13,735 | | 50,339 | |
Total non-interest income | $ | 49,430 | | $ | 26,552 | | $ | 30,784 | | $ | 14,167 | | $ | 120,933 | |
| | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 4,104 | | $ | 24,478 | | $ | 12,734 | | $ | 123 | | $ | 41,439 | |
Wealth and investment services | 3,043 | | — | | 7,053 | | (9) | | 10,087 | |
Other income | — | | 2,076 | | 579 | | — | | 2,655 | |
Revenue from contracts with customers | 7,147 | | 26,554 | | 20,366 | | 114 | | 54,181 | |
Other sources of non-interest income | 11,231 | | — | | 3,732 | | 3,558 | | 18,521 | |
Total non-interest income | $ | 18,378 | | $ | 26,554 | | $ | 24,098 | | $ | 3,672 | | $ | 72,702 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six months ended June 30, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 14,332 | | $ | 50,083 | | $ | 34,306 | | $ | 491 | | $ | 99,212 | |
Loan and lease related fees (1) | 10,575 | | — | | — | | — | | 10,575 | |
Wealth and investment services | 5,904 | | — | | 15,950 | | (13) | | 21,841 | |
Other income | — | | 3,427 | | 670 | | — | | 4,097 | |
Revenue from contracts with customers | 30,811 | | 53,510 | | 50,926 | | 478 | | 135,725 | |
Other sources of non-interest income | 57,362 | | — | | 7,750 | | 24,131 | | 89,243 | |
Total non-interest income | $ | 88,173 | | $ | 53,510 | | $ | 58,676 | | $ | 24,609 | | $ | 224,968 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six months ended June 30, 2021 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 8,194 | | $ | 49,496 | | $ | 24,048 | | $ | 170 | | $ | 81,908 | |
Wealth and investment services | 5,962 | | — | | 13,546 | | (18) | | 19,490 | |
Other income | — | | 4,063 | | 1,127 | | — | | 5,190 | |
Revenue from contracts with customers | 14,156 | | 53,559 | | 38,721 | | 152 | | 106,588 | |
Other sources of non-interest income | 22,598 | | — | | 8,249 | | 12,024 | | 42,871 | |
Total non-interest income | $ | 36,754 | | $ | 53,559 | | $ | 46,970 | | $ | 12,176 | | $ | 149,459 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Three months ended March 31, 2023 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 5,390 | | $ | 22,092 | | $ | 18,024 | | $ | (70) | | $ | 45,436 | |
Loan and lease related fees (1) | 4,427 | | — | | — | | — | | 4,427 | |
Wealth and investment services (2) | 2,767 | | — | | 3,828 | | (8) | | 6,587 | |
Other income | — | | 1,975 | | 358 | | 932 | | 3,265 | |
Revenue from contracts with customers | 12,584 | | 24,067 | | 22,210 | | 854 | | 59,715 | |
Other sources of non-interest income | 22,813 | | — | | 3,749 | | (15,511) | | 11,051 | |
Total non-interest income | $ | 35,397 | | $ | 24,067 | | $ | 25,959 | | $ | (14,657) | | $ | 70,766 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Three months ended March 31, 2022 |
(In thousands) | Commercial Banking | HSA Bank | Consumer Banking | Corporate and Reconciling | Consolidated Total |
Non-interest Income: | | | | | |
Deposit service fees | $ | 6,685 | | $ | 25,134 | | $ | 15,963 | | $ | 45 | | $ | 47,827 | |
Loan and lease related fees (1) | 4,498 | | — | | — | | — | | 4,498 | |
Wealth and investment services | 3,134 | | — | | 7,471 | | (8) | | 10,597 | |
Other income | — | | 1,824 | | 385 | | — | | 2,209 | |
Revenue from contracts with customers | 14,317 | | 26,958 | | 23,819 | | 37 | | 65,131 | |
Other sources of non-interest income | 24,426 | | — | | 4,082 | | 10,396 | | 38,904 | |
Total non-interest income | $ | 38,743 | | $ | 26,958 | | $ | 27,901 | | $ | 10,433 | | $ | 104,035 | |
(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 revenue streams were new to Webster
(2)Effective as of the firstfourth quarter of 2022, duethe wealth and investment services revenue stream 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 businesses acquired in connection withBank, are now employees of a third-party service provider. As a result, the Sterling merger.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 related compensation and benefits non-interest expense on the accompanying Condensed Consolidated Statements of Income.
Contracts with customers did not generate significant contract assets and liabilities at June 30, 2022 andMarch 31, 2023, or December 31, 2021.2022.
Major Revenue Streams
Deposit service fees consist of fees earned from commercial and consumer customer deposit accounts, such as account maintenance and cash management/analysis fees, insufficient funds, andas well as other transactional service charges.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 resultingthat 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, Websterthe Company may also waive certain fees for its customers.fees. Fee waivers are recognized as a reduction to revenue in the period the waiver is granted to the customer. Due to the insignificance of the amounts waived, Webster does not reduce its transaction price to reflect any variable consideration.
The deposit service fees revenue stream also includes interchange fees earned from debit and credit card transactions. The transaction price for interchange services is based on the transaction value and the interchange rate set by the card network. Performance obligations for interchange fees are satisfied at a point-in-time when the cardholders'cardholder's transaction is authorized and settled. Payment for interchange fees is generally received immediately or in the following month.
Factored receivables non-interest income consists of fees earned from accounts receivable management services. WebsterThe Company 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 gross invoice amount of each 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 Webster.the Company. However, should the commission earned not meet or exceed the minimum required annual amount, the difference between that and the actual amount is recognized at the end of the contract term. Other fees associated with factoring receivables may include wire transfer and technology fees, field examination fees, and Uniform Commercial Code fees, where the performance obligations are satisfied at a 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 business 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 the support services or as payroll remittances are made on behalf of customers to fund their employee payroll, which generally occurs on a weekly basis. The agreed-upon transaction price is based on a fixed-percentage per the terms of the contract, which could be subject to a hold-back reserve to provide for any balances that are assessed to be at risk of collection. When Websterthe 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 monthly or quarterly basis at a transaction price based on a percentage of the period-end market value of the assets under administration. Payment for asset management and trust 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 progress, and the agreed-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 based on a percentage of the contract value. Payment for both investment advisory services and facilitating securities transactions may be received in advance of the service, but generally is received immediately or in the following period, in arrears.
Note 18: Commitments and Contingencies
Credit-Related Financial Instruments
In the normal course of business, Websterthe 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: | (In thousands) | (In thousands) | At June 30, 2022 | | At December 31, 2021 | (In thousands) | At March 31, 2023 | | At December 31, 2022 |
Commitments to extend credit | Commitments to extend credit | $ | 10,388,769 | | | $ | 6,870,095 | | Commitments to extend credit | $ | 11,711,880 | | | $ | 11,237,496 | |
Standby letters of credit | Standby letters of credit | 381,772 | | | 224,061 | | Standby letters of credit | 378,585 | | | 380,655 | |
Commercial letters of credit | Commercial letters of credit | 66,938 | | | 58,175 | | Commercial letters of credit | 52,987 | | | 53,512 | |
Total credit-related financial instruments with off-balance sheet risk | Total credit-related financial instruments with off-balance sheet risk | $ | 10,837,479 | | | $ | 7,152,331 | | Total credit-related financial instruments with off-balance sheet risk | $ | 12,143,452 | | | $ | 11,671,663 | |
WebsterThe Company enters into contractual commitments to extend credit to its customers such as(i.e., revolving credit arrangements, term loan commitments, and short-term borrowing agreements,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 Webster'sthe 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, Websterthe 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 Webster'sthe Company's standby letters of credit expire without being funded. However, if the commitment were funded, the Company has recourse against the customer. Webster'sThe 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, Webster'sthe 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 within accruedunder the CECL methodology and included in Accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets to provide for the unused portion of commitments to lend that are not unconditionally cancellable by Webster. Under the CECL methodology, the calculation of the allowance generally includes the probability of funding to occurCompany. At March 31, 2023, and a corresponding estimate of expected lifetime credit losses on amounts assumed to be funded. Loss calculation factors are consistent with those for funded loans using PD and LGD applied to the underlying borrower's risk and facility grades, a draw down factor applied to utilization rates, relevant forecast information, and management's qualitative factors.
The following table summarizes the activity inDecember 31, 2022, the ACL on unfunded loan commitments:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Balance, beginning of period | $ | 19,640 | | | $ | 12,800 | | | $ | 13,104 | | | $ | 12,755 | |
ACL assumed from Sterling | — | | | — | | | 6,749 | | | — | |
Provision (benefit) for credit losses | 509 | | | (826) | | | 296 | | | (781) | |
Balance, end of period | $ | 20,149 | | | $ | 11,974 | | | $ | 20,149 | | | $ | 11,974 | |
commitments totaled $26.1 million and $27.7 million, respectively.
Litigation Litigation
WebsterThe 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 Websterthe 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. WebsterThe Company will consider settlement of cases when it is in the best interests of the Company and its stakeholders. WebsterThe 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 Websterthe Company or its consolidated financial position.
Note 19: Subsequent Events
The Company has evaluated subsequent events from the date of the Condensed Consolidated Financial Statements, and accompanying Notes thereto, through the date of issuance, and determined that no significant events were identified requiring recognition or disclosure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market risk can be found in Part I within
Note 13: Derivative Financial Instruments in the Notes to the Consolidated Financial Statements contained in Item 1. Financial Statements, and under the section captioned "Asset/Liability Management and Market Risk" contained in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, which are incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management has performed an evaluation,Our management, under the supervision and with the participation of the Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer of(who is our principal financial officer), evaluated the effectiveness of the Company'sour disclosure controls and procedures, as defined in Rulesin Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure1934, as amended (the "Exchange Act"), as of March 31, 2023. The term "disclosure controls and procedures" means controls and other procedures of a company that are designed to ensure that (i) the information required to be disclosed by a company in the reports the Companythat it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC'sSEC’s rules and forms,forms. Disclosure controls and (ii) suchprocedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the Chief Executive Officerits principal executive and Chief Financial Officer,principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, our disclosure controls and procedures were not effective due to the un-remediated material weaknesses in internal control over
financial reporting related to certain general information technology controls specific to logical access, which was previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Prior to the filing of this Quarterly Report on Form 10-Q (this "Form 10-Q"), we completed substantive procedures for the quarter ended June 30,March 31, 2023. Based on these procedures, management believes that our Condensed Consolidated Financial Statements included in this Form 10-Q have been prepared in accordance with GAAP. For additional information, please refer to Part II - Item 9A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Remediation
Management is in process of implementing measures designed to ensure that the control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (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. We believe that these actions will remediate the material weaknesses. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these material weaknesses will be completed prior to the end of 2023.
Changes in Internal Control overOver Financial Reporting
On January 31, 2022, Webster completed its previously announced merger with Sterling. DuringOther than the first quarter of 2022, management commenced an evaluation of the design and operating effectiveness of internal controls over financial reporting related to the Sterling acquired business. The evaluation ofongoing remediation efforts described above, there were no changes to processes, technology systems, and other components ofin our internal control over financial reporting related(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to the Sterling acquired business is ongoing.materially affect, our internal control over financial reporting.
There were no changes to Webster'sLimitations 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 duringwill 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 quarter ended June 30, 2022,risk that materially affected,controls may become inadequate because of changes in conditions, or would be reasonably likelythat the degree of compliance with the policies or procedures may deteriorate. Further, no evaluation of controls can provide absolute assurance that misstatements due to materially affect, Webster's internalerror or fraud will not occur or that all control over financial reporting.issues and instances of fraud, if any, within the Company have been detected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings can be found within Note 18: Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part I - Item 1. Financial Statements, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changesIn addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors previously disclosedcontained in Webster'sPart I - Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022, which could materially affect our business, results of operations, or financial condition. During the three months ended March 31, 2023, the Company made updates to the following risk factor:
Our stock price can be volatile.
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, including those of competitor "failed" banks acquired by other 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.
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 June 30, 2022:
| | | | | | | | | | | | | | | | | |
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 Repurchase Under the Plans or Programs (3) | | | |
April 1, 2022 - April 30, 2022 | 30,736 | $ | 51.23 | — | $ | 601,238,298 | | | |
May 1, 2022 - May 31, 2022 | 365,070 | 47.64 | 354,969 | 584,354,562 | | | |
June 1, 2022 - June 30, 2022 | 1,700,518 | 48.85 | 1,699,647 | 501,313,634 | | | |
Total | 2,096,324 | 48.68 | 2,054,616 | 501,313,634 | | | |
March 31, 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) | | | |
January 1, 2023 - January 31, 2023 | 22,744 | $ | 47.53 | — | $ | 401,340,164 | | | |
February 1, 2023 - February 28, 2023 | 97,937 | 54.58 | — | 401,340,164 | | | |
March 1, 2023 - March 31, 2023 | 164,044 | 52.63 | — | 401,340,164 | | | |
Total | 284,725 | 52.90 | — | 401,340,164 | | | |
(1)OutAll of the total shares purchased during the three months ended June 30, 2022, 41,708 sharesMarch 31, 2023, were acquired at market prices outside of Webster'sthe Company's common stock repurchase program and related to employee share-based compensation plan activity.
(2)The average price paid per share is calculated on a trade date basis and excludes commissions and other transaction costs.
(3)WebsterThe 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 itsWebster common stock in open market 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 Webster'sthe Company's financial performance. On April 27, 2022, the Company announced that its Board of Directors had increased Webster'smanagement's authority to repurchase shares of itsWebster 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
A list of exhibits to this Form 10-Q 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 | | | | | | 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 |
31.1 | | | | X | | | | | | |
31.2 | | | | X | | | | | | |
32.1 | | | | X (1) | | | | | | |
32.2 | | | | X (1) | | | | | | |
101 | | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements Of Income, (iv) Condensed Consolidated Statements Of Comprehensive Income, (v) Condensed Consolidated Statements Of Shareholders' Equity, (vi) Condensed Consolidated Statements Of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail. | | X | | | | | | |
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | | X | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | | | | 8-K | | 3.2 | | 2/1/2022 |
3.3 | | | | | | 8-K | | 3.1 | | 4/28/2023 |
3.4 | | | | | | 8-K | | 3.1 | | 6/11/2008 |
3.5 | | | | | | 8-K | | 3.1 | | 11/24/2008 |
3.6 | | | | | | 8-K | | 3.1 | | 7/31/2009 |
3.7 | | | | | | 8-K | | 3.2 | | 7/31/2009 |
3.8 | | | | | | 8-A12B | | 3.3 | | 12/4/2012 |
3.9 | | | | | | 8-A12B | | 3.3 | | 12/12/2017 |
3.10 | | | | | | 8-A12B | | 3.4 | | 2/1/2022 |
3.11 | | | | | | 8-K | | 3.1 | | 3/17/2020 |
3.12 | | | | | | 8-K | | 3.5 | | 2/1/2022 |
10.1 | | | | | | DEF 14A | | A | | 3/15/2023 |
31.1 | | | | X | | | | | | |
31.2 | | | | X | | | | | | |
32.1 | | | | X (1) | | | | | | |
32.2 | | | | X (1) | | | | | | |
101 | | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements Of Income, (iv) Condensed Consolidated Statements Of Comprehensive Income, (v) Condensed Consolidated Statements Of Stockholders' Equity, (vi) Condensed Consolidated Statements Of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail. | | X | | | | | | |
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | | X | | | | | | |
(1)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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | | WEBSTER FINANCIAL CORPORATION |
| | | | Registrant(Registrant) |
| | | | |
Date: August 5, 2022May 8, 2023 | | | By: | /s/ John R. Ciulla |
| | | | John R. Ciulla |
| | | | President, Chief Executive Officer, and Director |
| | | | (Principal Executive Officer) |
| | | | |
Date: August 5, 2022May 8, 2023 | | | By: | /s/ Glenn I. MacInnes |
| | | | Glenn I. MacInnes |
| | | | Executive Vice President and Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
Date: August 5, 2022May 8, 2023 | | | By: | /s/ Albert J. Wang |
| | | | Albert J. Wang |
| | | | Executive Vice President and Chief Accounting Officer |
| | | | (Principal Accounting Officer) |
| | | | |