Note 1:
Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation is a bank holding company and financial holding company under the Bank Holding Company Act, incorporated under the laws of Delaware in 1986 and headquartered in Waterbury, Connecticut. At
September 30, 2017
, Webster Financial Corporation's principal asset is all of the outstanding capital stock of Webster Bank.
Webster delivers financial services to individuals, families, and businesses primarily within its regional footprint from New York to Massachusetts. Webster provides business and consumer banking, mortgage lending, financial planning, trust, and investment services through banking offices, ATMs, mobile banking, and its internet website (
www.websterbank.com
or
www.wbst.com
). Webster also offers equipment financing, commercial real estate lending, and asset-based lending primarily across the Northeast. On a nationwide basis, through its HSA Bank division, Webster Bank offers and administers health savings accounts, flexible spending accounts, health reimbursement accounts, and commuter benefits.
Basis of Presentation
The accounting and reporting policies of the Company that materially affect its financial statements conform with GAAP. The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company's Consolidated Financial Statements, and Notes thereto, for the year ended
December 31, 2016
, included in the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2017.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as income and expense during the period. Actual results could differ from those estimates. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the full year or any future period.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on non-interest income, non-interest expense, net cash provided by operating activities, and net cash used for investing activities.
Significant Accounting Policy Updates
Centrally Cleared Derivatives
Effective during the first quarter of 2016, the Company offset the variation margin pertaining to derivatives reported on a net basis, subject to a legally enforceable master netting arrangement, with the same counterparty against the net derivative position on the Company's balance sheets. The Chicago Mercantile Exchange has amended their rulebooks to legally characterize variation margin payments for over-the-counter derivatives that clear, as settlements rather than collateral, effective January 3, 2017.
The Company has updated its significant accounting policies to classify variation margin deemed to be legal settlements as a single unit of account with the derivative, for accounting and presentation purposes. The policy update does not result in a change in the presentation of the Company's balance sheets as the Company previously offset the variation margin pertaining to derivatives reporting on a net basis, subject to a legally enforceable master netting arrangement, with the same counterparty against the net derivative position.
Accounting Standards Adopted during 2017
Effective January 1, 2017, the following new accounting guidance was adopted by the Company:
ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share Based Payment Accounting
The Update impacted the accounting for employee share-based payment transactions, including the income tax consequences, and classification on the statement of cash flows. The Update requires the Company to recognize the income tax effects of awards in the income statement on a prospective basis when the awards vest or are settled, compared to within additional paid-in capital. As a result, applicable excess tax benefits and tax deficiencies are recorded as an income tax benefit or expense, respectively. The Company elected to present the classification on the statement of cash flows on a prospective basis to better align this presentation with the income tax effects.
The impact of the Update will vary from period to period based on the Company's stock price and the quantity of shares that vest or are settled within a given period.
The Update also requires the Company to elect the accounting for forfeitures of share-based payments by either (i) recognizing forfeitures of awards as they occur or (ii) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The Company elected to account for forfeitures of share-based payments by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, which is in accordance with the Company's previous accounting practices.
The adoption of this accounting standard did not have a material impact on the Company's financial statements.
ASU No. 2016-06, Derivatives and Hedging (Topic 815) - Contingent Put and Call Options in Debt Instruments.
The Update clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The Update requires the assessment of embedded call (put) options solely in accordance with the four-step decision sequence. The Update clarified that companies are not required to assess whether the event triggering the ability to exercise the call/put option was also clearly and closely related.
The adoption of this accounting standard did not have a material impact on the Company's financial statements, as the Company has not performed the additional step of assessing whether the event triggering the ability to exercise the call (put) option was clearly and closely related, which was deemed not required by the Update.
Accounting Standards Issued but not yet Adopted
The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:
ASU No. 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.
The purpose of the Update is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The update requires a modified retrospective transition method in which the Company will recognize a cumulative effect of the change on the opening balance for each affected component of equity in the financial statements as of the date of adoption.
The Company is in the process of assessing all potential impacts of the standard.
The Update is effective for the first quarter of 2019, early adoption is permitted. The Company is evaluating the potential to early adopt the Update.
ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.
The Update is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities. Specifically, the Update shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. The Update is being issued in response to concerns from stakeholders that, current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised.
The Update, upon adoption, is expected to accelerate the Company’s recognition of premium amortization on debt securities held within the portfolio. The amendments in the Update will be applied on a modified retrospective basis through a cumulative-effect adjustment directly through retained earnings upon adoption.
Management is in the process of evaluating the full impact of adopting the Update including, but not limited to the following:
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•
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Modifying system amortization requirements;
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|
•
|
Evaluation of premiums associated with debt securities to determine the appropriate cumulative-effect adjustment; and
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|
•
|
Establishing new accounting policies pertaining to premium amortization on purchased callable debt securities.
|
The Update is effective for the first quarter of 2019, early adoption is permitted. The Company is evaluating the potential to early adopt the Update.
ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The Update requires the Company to disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the Update requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines.
The new guidance will be applied on a retrospective basis. The Company intends to adopt the Update for the first quarter of 2018. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
The Update eliminates Step 2 from the goodwill impairment analysis. Step 2, requires the Company to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Under current guidance, Step 2 testing would be performed only if Step 1 testing indicated the fair value of the reporting unit is below the reporting unit’s carrying amount.
Once effective the Update will require the Company to record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, eliminating the Step 2 requirements. The Company intends to adopt the Update for the first quarter of 2020. Adoption is not anticipated to have a material impact on the Company's financial statements.
ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.
The Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Update addresses the following eight issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.
The Company intends to adopt the Update for the first quarter of 2018. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.
Current GAAP requires an "incurred loss" methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the "probable" threshold.
The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.
The Change from an "incurred loss" method to an "expected loss" method represents a fundamental shift from existing GAAP, and is likely to result in a material increase to the Company's accounting for credit losses on financial instruments. The Company has established a project lead and identified a working group comprised of members from different disciplines including Credit, Finance and Information Technology. The Company is in the early stages of evaluation of the effect that this ASU will have on its financial statements and related disclosures, but has begun to develop a roadmap which includes a consideration of external resources that may be required, use of existing and new models, data availability and system solutions to facilitate implementation. The ASU will be effective for the Company as of the first quarter 2020. While we are currently unable to reasonably estimate the impact of adopting the Update, we expect the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the economic conditions as of the adoption date.
ASU No. 2016-02, Leases (Topic 842).
The Update introduces a lessee model that brings most leases on the balance sheet. The Update also aligns certain of the underlying principles of the new lessor model with those in ASC 606 "Revenue from Contracts with Customers", the FASB’s new revenue recognition standard (e.g., evaluating how collectability should be considered and determining when profit can be recognized).
Furthermore, the Update addresses other concerns including the elimination of the required use of bright-line tests for determining lease classification. Lessors are required to provide additional transparency into the exposure to the changes in value of their residual assets and how they manage that exposure.
The Company intends to adopt the Update for the first quarter of 2019 using the modified retrospective method. The Company is in the early assessment stage and will continue to review the existing lease portfolio to evaluate the impact of the new accounting guidance on the financial statements.
ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities.
Equity investments not accounted for under the equity method or those that do not result in consolidation of the investee are to be measured at fair value with changes in the fair value recognized through net income. Entities are to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when an election to measure the liability at fair value in accordance with the fair value option for financial instruments has been made. Also, the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated.
The Company intends to adopt the Update for the first quarter of 2018. Adoption is not anticipated to have a material impact on the Company's financial statements.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Also, subsequent ASUs issued to clarify this Topic.
The Update requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Update excludes the Company's revenue associated with net interest income, and certain non-interest income lines items (loan and lease related fees, mortgage banking activities, increase in cash surrender value of life insurance policies, gain on sale of investment securities, net, impairment loss on securities recognized in earnings, and a majority of other income). As a result a substantial amount of the Company's revenue will not be affected.
The Company's deposit service fees, wealth and investment services, and certain other non-interest income items are within the scope of the Update. The Company's evaluation of the impacted revenue streams and associated customer contracts is near completion. While the assessment is not complete, the timing of the Company's revenue recognition is not expected to materially change.
The disclosure objective of the Update is to provide users of the financial statement with sufficient information to understand the nature, amount, timing and uncertainty of revenue, certain costs, and cash flows arising from contracts with customers. The Company expects to provide expanded qualitative disclosure pertaining to significant judgments, accounting policy elections and the nature, timing, and uncertainty of revenue arising from contracts with customers. Further the Company expects to provide expanded quantitative disclosure pertaining to the disaggregation of revenue arising from contracts with customers. The Company continues to assess the impact of the changes in disclosure required by guidance.
The Company intends to adopt the Update for the first quarter of 2018 utilizing the modified retrospective application with a cumulative effect adjustment to opening retained earnings, if necessary. The Company's evaluations are not final and are subject to change.
Note 2:
Investment Securities
A summary of the amortized cost and fair value of investment securities is presented below:
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|
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At September 30, 2017
|
|
At December 31, 2016
|
(In thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills
|
$
|
3,596
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,596
|
|
|
$
|
734
|
|
$
|
—
|
|
$
|
—
|
|
$
|
734
|
|
Agency CMO
|
332,341
|
|
2,573
|
|
(3,116
|
)
|
331,798
|
|
|
419,865
|
|
3,344
|
|
(3,503
|
)
|
419,706
|
|
Agency MBS
|
923,819
|
|
3,214
|
|
(14,056
|
)
|
912,977
|
|
|
969,460
|
|
4,398
|
|
(19,509
|
)
|
954,349
|
|
Agency CMBS
|
599,165
|
|
—
|
|
(14,205
|
)
|
584,960
|
|
|
587,776
|
|
63
|
|
(14,567
|
)
|
573,272
|
|
CMBS
|
402,015
|
|
1,539
|
|
(121
|
)
|
403,433
|
|
|
473,974
|
|
4,093
|
|
(702
|
)
|
477,365
|
|
CLO
|
273,172
|
|
1,572
|
|
(161
|
)
|
274,583
|
|
|
425,083
|
|
2,826
|
|
(519
|
)
|
427,390
|
|
Trust preferred
|
30,463
|
|
676
|
|
(202
|
)
|
30,937
|
|
|
30,381
|
|
—
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|
(1,748
|
)
|
28,633
|
|
Corporate debt
|
48,334
|
|
674
|
|
(130
|
)
|
48,878
|
|
|
108,490
|
|
1,502
|
|
(350
|
)
|
109,642
|
|
Available-for-sale
|
$
|
2,612,905
|
|
$
|
10,248
|
|
$
|
(31,991
|
)
|
$
|
2,591,162
|
|
|
$
|
3,015,763
|
|
$
|
16,226
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|
$
|
(40,898
|
)
|
$
|
2,991,091
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
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Agency CMO
|
$
|
276,367
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|
$
|
1,138
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|
$
|
(3,030
|
)
|
$
|
274,475
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|
|
$
|
339,455
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|
$
|
1,977
|
|
$
|
(3,824
|
)
|
$
|
337,608
|
|
Agency MBS
|
2,549,500
|
|
24,275
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|
(30,012
|
)
|
2,543,763
|
|
|
2,317,449
|
|
26,388
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|
(41,768
|
)
|
2,302,069
|
|
Agency CMBS
|
708,229
|
|
280
|
|
(3,549
|
)
|
704,960
|
|
|
547,726
|
|
694
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|
(1,348
|
)
|
547,072
|
|
Municipal bonds and notes
|
705,411
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|
5,213
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|
(13,150
|
)
|
697,474
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|
655,813
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|
4,389
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|
(25,749
|
)
|
634,453
|
|
CMBS
|
257,361
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|
3,394
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|
(197
|
)
|
260,558
|
|
|
298,538
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4,107
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|
(411
|
)
|
302,234
|
|
Private Label MBS
|
443
|
|
2
|
|
—
|
|
445
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|
|
1,677
|
|
12
|
|
—
|
|
1,689
|
|
Held-to-maturity
|
$
|
4,497,311
|
|
$
|
34,302
|
|
$
|
(49,938
|
)
|
$
|
4,481,675
|
|
|
$
|
4,160,658
|
|
$
|
37,567
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|
$
|
(73,100
|
)
|
$
|
4,125,125
|
|
Other-Than-Temporary Impairment
The balance of OTTI, included in the amortized cost columns above, is related to certain CLO positions that were previously considered Covered Funds as defined by Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. The Company has taken measures to bring its CLO positions into conformance with the Volcker Rule.
During the
nine months ended September 30, 2017
, OTTI of
$126 thousand
, related to
principal held back in conjunction with the exercise of a clean-up call option for a Private Label MBS security, was recognized. To the extent that changes occur in interest rates, credit movements, and other factors that impact fair value and expected recovery of amortized cost of its investment securities, the Company may, in future periods, be required to recognize OTTI in earnings.
The following table presents the changes in OTTI:
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|
|
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Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
3,231
|
|
|
$
|
3,437
|
|
|
$
|
3,243
|
|
|
$
|
3,288
|
|
Reduction for investment securities sold or called
|
(1,028
|
)
|
|
(30
|
)
|
|
(1,166
|
)
|
|
(30
|
)
|
Additions for OTTI not previously recognized in earnings
|
—
|
|
|
—
|
|
|
126
|
|
|
149
|
|
Ending balance
|
$
|
2,203
|
|
|
$
|
3,407
|
|
|
$
|
2,203
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|
|
$
|
3,407
|
|
Fair Value and Unrealized Losses
The following tables provide information on fair value and unrealized losses for the individual investment securities with an unrealized loss, aggregated by classification and length of time that the individual investment securities have been in a continuous unrealized loss position:
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At September 30, 2017
|
|
Less Than Twelve Months
|
|
Twelve Months or Longer
|
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Total
|
(Dollars in thousands)
|
Fair
Value
|
Unrealized
Losses
|
|
Fair
Value
|
Unrealized
Losses
|
|
# of
Holdings
|
Fair
Value
|
Unrealized
Losses
|
Available-for-sale:
|
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|
|
|
|
|
|
|
Agency CMO
|
$
|
75,042
|
|
$
|
(1,002
|
)
|
|
$
|
70,167
|
|
$
|
(2,114
|
)
|
|
16
|
$
|
145,209
|
|
$
|
(3,116
|
)
|
Agency MBS
|
464,031
|
|
(5,169
|
)
|
|
303,770
|
|
(8,887
|
)
|
|
104
|
767,801
|
|
(14,056
|
)
|
Agency CMBS
|
306,025
|
|
(6,240
|
)
|
|
278,935
|
|
(7,965
|
)
|
|
34
|
584,960
|
|
(14,205
|
)
|
CMBS
|
39,775
|
|
(121
|
)
|
|
—
|
|
—
|
|
|
5
|
39,775
|
|
(121
|
)
|
CLO
|
82,989
|
|
(161
|
)
|
|
—
|
|
—
|
|
|
5
|
82,989
|
|
(161
|
)
|
Trust preferred
|
12,570
|
|
(97
|
)
|
|
4,574
|
|
(105
|
)
|
|
3
|
17,144
|
|
(202
|
)
|
Corporate debt
|
5,797
|
|
(87
|
)
|
|
1,825
|
|
(43
|
)
|
|
2
|
7,622
|
|
(130
|
)
|
Available-for-sale in an unrealized loss position
|
$
|
986,229
|
|
$
|
(12,877
|
)
|
|
$
|
659,271
|
|
$
|
(19,114
|
)
|
|
169
|
$
|
1,645,500
|
|
$
|
(31,991
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
82,839
|
|
$
|
(880
|
)
|
|
$
|
83,103
|
|
$
|
(2,150
|
)
|
|
19
|
$
|
165,942
|
|
$
|
(3,030
|
)
|
Agency MBS
|
870,376
|
|
(7,948
|
)
|
|
775,331
|
|
(22,064
|
)
|
|
157
|
1,645,707
|
|
(30,012
|
)
|
Agency CMBS
|
570,781
|
|
(3,504
|
)
|
|
4,730
|
|
(45
|
)
|
|
45
|
575,511
|
|
(3,549
|
)
|
Municipal bonds and notes
|
123,965
|
|
(1,745
|
)
|
|
226,545
|
|
(11,405
|
)
|
|
140
|
350,510
|
|
(13,150
|
)
|
CMBS
|
40,150
|
|
(197
|
)
|
|
250
|
|
—
|
|
|
5
|
40,400
|
|
(197
|
)
|
Held-to-maturity in an unrealized loss position
|
$
|
1,688,111
|
|
$
|
(14,274
|
)
|
|
$
|
1,089,959
|
|
$
|
(35,664
|
)
|
|
366
|
$
|
2,778,070
|
|
$
|
(49,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Less Than Twelve Months
|
|
Twelve Months or Longer
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
Unrealized
Losses
|
|
Fair
Value
|
Unrealized
Losses
|
|
# of
Holdings
|
Fair
Value
|
Unrealized
Losses
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
107,853
|
|
$
|
(2,168
|
)
|
|
$
|
67,351
|
|
$
|
(1,335
|
)
|
|
15
|
$
|
175,204
|
|
$
|
(3,503
|
)
|
Agency MBS
|
512,075
|
|
(10,503
|
)
|
|
252,779
|
|
(9,006
|
)
|
|
97
|
764,854
|
|
(19,509
|
)
|
Agency CMBS
|
554,246
|
|
(14,567
|
)
|
|
—
|
|
—
|
|
|
32
|
554,246
|
|
(14,567
|
)
|
CMBS
|
12,427
|
|
(24
|
)
|
|
63,930
|
|
(678
|
)
|
|
12
|
76,357
|
|
(702
|
)
|
CLO
|
49,946
|
|
(54
|
)
|
|
50,237
|
|
(465
|
)
|
|
5
|
100,183
|
|
(519
|
)
|
Trust preferred
|
—
|
|
—
|
|
|
28,633
|
|
(1,748
|
)
|
|
5
|
28,633
|
|
(1,748
|
)
|
Corporate debt
|
—
|
|
—
|
|
|
7,384
|
|
(350
|
)
|
|
2
|
7,384
|
|
(350
|
)
|
Available-for-sale in an unrealized loss position
|
$
|
1,236,547
|
|
$
|
(27,316
|
)
|
|
$
|
470,314
|
|
$
|
(13,582
|
)
|
|
168
|
$
|
1,706,861
|
|
$
|
(40,898
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
163,439
|
|
$
|
(3,339
|
)
|
|
$
|
17,254
|
|
$
|
(485
|
)
|
|
16
|
$
|
180,693
|
|
$
|
(3,824
|
)
|
Agency MBS
|
1,394,623
|
|
(32,942
|
)
|
|
273,779
|
|
(8,826
|
)
|
|
150
|
1,668,402
|
|
(41,768
|
)
|
Agency CMBS
|
347,725
|
|
(1,348
|
)
|
|
—
|
|
—
|
|
|
25
|
347,725
|
|
(1,348
|
)
|
Municipal bonds and notes
|
384,795
|
|
(25,745
|
)
|
|
1,192
|
|
(4
|
)
|
|
196
|
385,987
|
|
(25,749
|
)
|
CMBS
|
60,768
|
|
(411
|
)
|
|
—
|
|
—
|
|
|
8
|
60,768
|
|
(411
|
)
|
Held-to-maturity in an unrealized loss position
|
$
|
2,351,350
|
|
$
|
(63,785
|
)
|
|
$
|
292,225
|
|
$
|
(9,315
|
)
|
|
395
|
$
|
2,643,575
|
|
$
|
(73,100
|
)
|
Impairment Analysis
The following impairment analysis by investment security type, summarizes the basis for evaluating if investment securities within the Company’s available-for-sale and held-to-maturity portfolios have been impacted by OTTI. Unless otherwise noted for an investment security type, management does not intend to sell these investment securities and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these investment securities before the recovery of their amortized cost. As such, based on the following impairment analysis, the Company does not consider these investment securities, in unrealized loss positions, to be other-than-temporarily impaired at
September 30, 2017
.
Available-for-Sale
Agency CMO.
There were unrealized losses of
$3.1 million
on the Company’s investment in Agency CMO at
September 30, 2017
, compared to
$3.5 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances for this asset class at
September 30, 2017
compared to
December 31, 2016
. Market prices remained essentially unchanged. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. The contractual cash flows for these investments are performing as expected, and there has been no change in the underlying credit quality.
Agency MBS.
There were unrealized losses of
$14.1 million
on the Company’s investment in Agency MBS at
September 30, 2017
, compared to
$19.5 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances for this asset class at
September 30, 2017
compared to
December 31, 2016
. Market prices remained essentially unchanged. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. The contractual cash flows for these investments are performing as expected, and there has been no change in the underlying credit quality.
Agency CMBS.
There were unrealized losses of
$14.2 million
on the Company's investment in Agency CMBS at
September 30, 2017
, compared to
$14.6 million
at
December 31, 2016
. Unrealized losses decreased while principal balances remained essentially unchanged. Market prices were slightly higher at
September 30, 2017
compared to
December 31, 2016
. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. The contractual cash flows for these investments are performing as expected, and there has been no change in the underlying credit quality.
CMBS.
There were unrealized losses of
$0.1 million
on the Company’s investment in CMBS at
September 30, 2017
, compared to
$0.7 million
at
December 31, 2016
. The portfolio of mainly floating rate CMBS experienced lower principal balances and lower market spreads which resulted in higher security prices and smaller unrealized losses at
September 30, 2017
compared to
December 31, 2016
. Internal and external metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for these investments are performing as expected.
CLO.
There were unrealized losses of
$0.2 million
on the Company's investment in CLO at
September 30, 2017
, compared to
$0.5 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances and lower market spreads for the CLO portfolio at
September 30, 2017
compared to
December 31, 2016
. Internal and external metrics are considered when evaluating potential OTTI. Contractual cash flows for these investments are performing as expected.
Trust preferred.
There were unrealized losses of
$0.2 million
on the Company's investment in trust preferred at
September 30, 2017
, compared to
$1.7 million
at
December 31, 2016
. Unrealized losses
decreased
due to lower market spreads for this asset class, which resulted in higher security prices compared to
December 31, 2016
. The trust preferred portfolio consists of three floating rate investments issued by two different large capitalization money center financial institutions, which continue to service the debt. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Corporate debt.
There were
$0.1 million
unrealized losses on the Company's corporate debt at
September 30, 2017
, compared to
$0.4 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances for this asset class at
September 30, 2017
compared to
December 31, 2016
. Market prices remained essentially unchanged. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Held-to-Maturity
Agency CMO.
There were unrealized losses of
$3.0 million
on the Company’s investment in Agency CMO at
September 30, 2017
compared to
$3.8 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances for this asset class at
September 30, 2017
compared to
December 31, 2016
. Market prices remained essentially unchanged. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. The contractual cash flows for these investments are performing as expected, and there has been no change in the underlying credit quality.
Agency MBS.
There were unrealized losses of
$30.0 million
on the Company’s investment in Agency MBS at
September 30, 2017
, compared to
$41.8 million
at
December 31, 2016
. Unrealized losses decreased due to lower principal balances for this asset class at
September 30, 2017
compared to
December 31, 2016
. Market prices remained essentially unchanged. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. There has been no change in the underlying credit quality, and the contractual cash flows are performing as expected.
Agency CMBS.
There were unrealized losses of
$3.5 million
on the Company's investment in Agency CMBS at
September 30, 2017
, compared to
$1.3 million
at
December 31, 2016
. Unrealized losses increased due to lower prices on recently purchased ACMBS as principal balances increased at
September 30, 2017
compared to
December 31, 2016
. These investments are issued by a government agency or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. There has been no change in the underlying credit quality, and the contractual cash flows are performing as expected.
Municipal bonds and notes.
There were unrealized losses of
$13.2 million
on the Company’s investment in municipal bonds and notes at
September 30, 2017
, compared to
$25.7 million
at
December 31, 2016
. Unrealized losses decreased due to lower market rates which resulted in higher prices at
September 30, 2017
. The Company performs periodic credit reviews of the issuers and these investments are currently performing as expected.
CMBS.
There were unrealized losses of
$0.2 million
on the Company’s investment in CMBS at
September 30, 2017
, compared to
$0.4 million
at
December 31, 2016
. Unrealized losses were approximately the same, for the portfolio comprised mainly of seasoned fixed rate conduit transactions, at
September 30, 2017
compared to
December 31, 2016
. Internal and external metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. The contractual cash flows for these investments are performing as expected.
Sales of Available-for Sale Investment Securities
There were
no
sales during the
three and nine months ended September 30, 2017
, or the
three months ended September 30, 2016
. For the nine months ended September 30, 2016, there were sales resulting in proceeds of
$259.3 million
, with the related gross realized gains and gross realized losses of
$2.9 million
and
$2.5 million
, respectively.
Contractual Maturities
The amortized cost and fair value of debt securities by contractual maturity are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
(In thousands)
|
Amortized
Cost
|
Fair
Value
|
|
Amortized
Cost
|
Fair
Value
|
Due in one year or less
|
$
|
18,668
|
|
$
|
18,714
|
|
|
$
|
40,146
|
|
$
|
40,753
|
|
Due after one year through five years
|
40,246
|
|
40,748
|
|
|
13,410
|
|
13,684
|
|
Due after five through ten years
|
381,547
|
|
383,721
|
|
|
38,323
|
|
39,102
|
|
Due after ten years
|
2,172,444
|
|
2,147,979
|
|
|
4,405,432
|
|
4,388,136
|
|
Total debt securities
|
$
|
2,612,905
|
|
$
|
2,591,162
|
|
|
$
|
4,497,311
|
|
$
|
4,481,675
|
|
For the maturity schedule above, mortgage-backed securities and CLO, which are not due at a single maturity date, have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to prepay obligations with or without prepayment penalties.
At
September 30, 2017
, the Company had a carrying value of
$1.2 billion
in callable investment securities in its CMBS, CLO, and municipal bond portfolios. The Company considers prepayment risk in the evaluation of its interest rate risk profile. These maturities may not reflect actual durations, which may be impacted by prepayments.
Investment securities with a carrying value totaling
$2.8 billion
at
September 30, 2017
and
$2.5 billion
at
December 31, 2016
were pledged to secure public funds, trust deposits, repurchase agreements, and for other purposes, as required or permitted by law.
Note 3:
Variable Interest Entities
The Company has an investment interest in several entities that meet the definition of a VIE. The following discussion provides information about the Company's VIEs.
Consolidated
Rabbi Trust.
The Company established a Rabbi Trust to meet the obligations due under its Deferred Compensation Plan for Directors and Officers and to mitigate the expense volatility of the aforementioned plan. The funding of the Rabbi Trust and the discontinuation of the Deferred Compensation Plan for Directors and Officers occurred during 2012.
Investments held in the Rabbi Trust primarily consist of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that significantly affect the VIE's economic performance and it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE.
The Company consolidates the invested assets of the trust along with the total deferred compensation obligations and includes them in accrued interest receivable and other assets and accrued expenses and other liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheets. Earnings in the Rabbi Trust, including appreciation or depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation and benefits, in the accompanying Condensed Consolidated Statements of Income.
Non-Consolidated
Securitized Investments.
The Company, through normal investment activities, makes passive investments in securities issued by VIEs for which Webster is not the manager. The investment securities consist of Agency CMO, Agency MBS, Agency CMBS, CLO and trust preferred. The Company has not provided financial or other support with respect to these investment securities other than its original investment. For these investment securities, the Company determined it is not the primary beneficiary due to the relative size of its investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss is limited to the amount of its investment in the VIEs. Refer to
Note 2:
Investment Securities
for additional information.
Tax Credit - Finance Investments.
The Company makes equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as Webster is not involved in its management. For these investments, the Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.
At
September 30, 2017
and
December 31, 2016
, the aggregate carrying value of the Company's tax credit-finance investments were
$35.7 million
and
$22.8 million
, respectively.
At September 30, 2017
and
December 31, 2016
, unfunded commitments have been recognized, totaling
$24.3 million
and
$14.0 million
, respectively, and are included in accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets.
Webster Statutory Trust.
The Company owns all of the outstanding common stock of Webster Statutory Trust, which is a financial vehicle that has issued, and may issue in the future, trust preferred securities. The trust is a VIE in which the Company is not the primary beneficiary and therefore, is not consolidated. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt in the accompanying Condensed Consolidated Balance Sheets, and the related interest expense is reported as interest expense on long-term debt in the accompanying Condensed Consolidated Statements of Income.
Other Investments.
The Company invests in various alternative investments in which it holds a variable interest. Alternative investments are non-public entities which cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. For these investments, the Company has determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.
At
September 30, 2017
and
December 31, 2016
, the aggregate carrying value of the Company's other investments in VIEs were
$13.0 million
and
$12.3 million
, respectively, and the total exposure of the Company's other investments in VIEs, including unfunded commitments, were
$22.4 million
and
$19.9 million
, respectively.
The Company's equity interests in Tax Credit-Finance Investments, Webster Statutory Trust, and Other Investments are included in accrued interest receivable and other assets in the accompanying Condensed Consolidated Balance Sheets. For a further description of the Company's accounting policies regarding the consolidation of a VIE, refer to Note 1 to the Consolidated Financial Statements for the year ended December 31,
2016
included in its
2016
Form 10-K.
Note 4:
Loans and Leases
The following table summarizes loans and leases:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At September 30,
2017
|
|
At December 31, 2016
|
Residential
|
$
|
4,499,441
|
|
|
$
|
4,254,682
|
|
Consumer
|
2,566,983
|
|
|
2,684,500
|
|
Commercial
|
5,348,303
|
|
|
4,940,931
|
|
Commercial Real Estate
|
4,464,917
|
|
|
4,510,846
|
|
Equipment Financing
|
566,777
|
|
|
635,629
|
|
Loans and leases
(1) (2)
|
$
|
17,446,421
|
|
|
$
|
17,026,588
|
|
|
|
(1)
|
Loans and leases include net deferred fees and net premiums/discounts of
$20.8 million
and
$17.3 million
at
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
(2)
|
At
September 30, 2017
, the Company had pledged
$6.7 billion
of eligible residential, consumer and commercial loans as collateral to support borrowing capacity at the FHLB Boston and the FRB of Boston.
|
Loans and Leases Aging
The following tables summarize the aging of loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
(In thousands)
|
30-59 Days
Past Due and
Accruing
|
60-89 Days
Past Due and
Accruing
|
90 or More Days Past Due
and Accruing
|
Non-accrual
|
Total Past Due and Non-accrual
|
Current
|
Total Loans
and Leases
|
Residential
|
$
|
8,069
|
|
$
|
3,654
|
|
$
|
—
|
|
$
|
45,676
|
|
$
|
57,399
|
|
$
|
4,442,042
|
|
$
|
4,499,441
|
|
Consumer:
|
|
|
|
|
|
|
|
Home equity
|
7,613
|
|
4,685
|
|
—
|
|
37,105
|
|
49,403
|
|
2,269,468
|
|
2,318,871
|
|
Other consumer
|
2,224
|
|
1,454
|
|
—
|
|
1,859
|
|
5,537
|
|
242,575
|
|
248,112
|
|
Commercial:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
1,948
|
|
364
|
|
934
|
|
58,915
|
|
62,161
|
|
4,402,543
|
|
4,464,704
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
8,558
|
|
8,558
|
|
875,041
|
|
883,599
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
1,347
|
|
444
|
|
—
|
|
10,603
|
|
12,394
|
|
4,161,572
|
|
4,173,966
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
477
|
|
477
|
|
290,474
|
|
290,951
|
|
Equipment financing
|
818
|
|
49
|
|
—
|
|
570
|
|
1,437
|
|
565,340
|
|
566,777
|
|
Total
|
$
|
22,019
|
|
$
|
10,650
|
|
$
|
934
|
|
$
|
163,763
|
|
$
|
197,366
|
|
$
|
17,249,055
|
|
$
|
17,446,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
(In thousands)
|
30-59 Days
Past Due and
Accruing
|
60-89 Days
Past Due and
Accruing
|
90 or More Days Past Due
and Accruing
|
Non-accrual
|
Total Past Due and Non-accrual
|
Current
|
Total Loans
and Leases
|
Residential
|
$
|
8,631
|
|
$
|
2,609
|
|
$
|
—
|
|
$
|
47,279
|
|
$
|
58,519
|
|
$
|
4,196,163
|
|
$
|
4,254,682
|
|
Consumer:
|
|
|
|
|
|
|
|
Home equity
|
8,831
|
|
5,782
|
|
—
|
|
35,926
|
|
50,539
|
|
2,359,354
|
|
2,409,893
|
|
Other consumer
|
2,233
|
|
1,485
|
|
—
|
|
1,663
|
|
5,381
|
|
269,226
|
|
274,607
|
|
Commercial:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
1,382
|
|
577
|
|
749
|
|
38,190
|
|
40,898
|
|
4,094,727
|
|
4,135,625
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
805,306
|
|
805,306
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
6,357
|
|
1,816
|
|
—
|
|
9,871
|
|
18,044
|
|
4,117,742
|
|
4,135,786
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
662
|
|
662
|
|
374,398
|
|
375,060
|
|
Equipment financing
|
903
|
|
693
|
|
—
|
|
225
|
|
1,821
|
|
633,808
|
|
635,629
|
|
Total
|
$
|
28,337
|
|
$
|
12,962
|
|
$
|
749
|
|
$
|
133,816
|
|
$
|
175,864
|
|
$
|
16,850,724
|
|
$
|
17,026,588
|
|
Interest on non-accrual loans and leases that would have been recorded as additional interest income had the loans and leases been current in accordance with the original terms totaled
$2.8 million
and
$3.7 million
for the
three months ended September 30, 2017
and
2016
, respectively, and
$6.4 million
and
$8.4 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
Allowance for Loan and Lease Losses
The following tables summarize the activity in, as well as the loan and lease balances that were evaluated for, the ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended September 30, 2017
|
|
Residential
|
Consumer
|
Commercial
|
Commercial
Real Estate
|
Equipment
Financing
|
Total
|
ALLL:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
18,427
|
|
$
|
42,488
|
|
$
|
79,964
|
|
$
|
52,402
|
|
$
|
6,297
|
|
$
|
199,578
|
|
(Benefit) provision charged to expense
|
(348
|
)
|
(41
|
)
|
12,166
|
|
(2,129
|
)
|
502
|
|
10,150
|
|
Charge-offs
|
(585
|
)
|
(6,197
|
)
|
(3,002
|
)
|
(749
|
)
|
(121
|
)
|
(10,654
|
)
|
Recoveries
|
280
|
|
1,894
|
|
466
|
|
10
|
|
79
|
|
2,729
|
|
Balance, end of period
|
$
|
17,774
|
|
$
|
38,144
|
|
$
|
89,594
|
|
$
|
49,534
|
|
$
|
6,757
|
|
$
|
201,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended September 30, 2016
|
(In thousands)
|
Residential
|
Consumer
|
Commercial
|
Commercial
Real Estate
|
Equipment
Financing
|
Total
|
ALLL:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
24,413
|
|
$
|
42,956
|
|
$
|
73,822
|
|
$
|
33,622
|
|
$
|
5,615
|
|
$
|
180,428
|
|
Provision charged to expense
|
1,076
|
|
4,985
|
|
4,351
|
|
2,953
|
|
885
|
|
14,250
|
|
Charge-offs
|
(1,304
|
)
|
(5,259
|
)
|
(2,561
|
)
|
—
|
|
(300
|
)
|
(9,424
|
)
|
Recoveries
|
554
|
|
1,313
|
|
370
|
|
194
|
|
240
|
|
2,671
|
|
Balance, end of period
|
$
|
24,739
|
|
$
|
43,995
|
|
$
|
75,982
|
|
$
|
36,769
|
|
$
|
6,440
|
|
$
|
187,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the nine months ended September 30, 2017
|
(In thousands)
|
Residential
|
Consumer
|
Commercial
|
Commercial
Real Estate
|
Equipment
Financing
|
Total
|
ALLL:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
23,226
|
|
$
|
45,233
|
|
$
|
71,905
|
|
$
|
47,477
|
|
$
|
6,479
|
|
$
|
194,320
|
|
(Benefit) provision charged to expense
|
(4,436
|
)
|
6,847
|
|
21,905
|
|
2,987
|
|
597
|
|
27,900
|
|
Charge-offs
|
(1,940
|
)
|
(18,273
|
)
|
(5,321
|
)
|
(951
|
)
|
(425
|
)
|
(26,910
|
)
|
Recoveries
|
924
|
|
4,337
|
|
1,105
|
|
21
|
|
106
|
|
6,493
|
|
Balance, end of period
|
$
|
17,774
|
|
$
|
38,144
|
|
$
|
89,594
|
|
$
|
49,534
|
|
$
|
6,757
|
|
$
|
201,803
|
|
Individually evaluated for impairment
|
$
|
4,925
|
|
$
|
1,689
|
|
$
|
10,844
|
|
$
|
290
|
|
$
|
38
|
|
$
|
17,786
|
|
Collectively evaluated for impairment
|
$
|
12,849
|
|
$
|
36,455
|
|
$
|
78,750
|
|
$
|
49,244
|
|
$
|
6,719
|
|
$
|
184,017
|
|
|
|
|
|
|
|
|
Loan and lease balances:
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
116,706
|
|
$
|
46,224
|
|
$
|
85,385
|
|
$
|
18,199
|
|
$
|
3,642
|
|
$
|
270,156
|
|
Collectively evaluated for impairment
|
4,382,735
|
|
2,520,759
|
|
5,262,918
|
|
4,446,718
|
|
563,135
|
|
17,176,265
|
|
Loans and leases
|
$
|
4,499,441
|
|
$
|
2,566,983
|
|
$
|
5,348,303
|
|
$
|
4,464,917
|
|
$
|
566,777
|
|
$
|
17,446,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the nine months ended September 30, 2016
|
(In thousands)
|
Residential
|
Consumer
|
Commercial
|
Commercial
Real Estate
|
Equipment
Financing
|
Total
|
ALLL:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
25,876
|
|
$
|
42,052
|
|
$
|
66,686
|
|
$
|
34,889
|
|
$
|
5,487
|
|
$
|
174,990
|
|
Provision charged to expense
|
991
|
|
12,458
|
|
25,447
|
|
3,921
|
|
1,033
|
|
43,850
|
|
Charge-offs
|
(3,536
|
)
|
(14,236
|
)
|
(17,294
|
)
|
(2,521
|
)
|
(521
|
)
|
(38,108
|
)
|
Recoveries
|
1,408
|
|
3,721
|
|
1,143
|
|
480
|
|
441
|
|
7,193
|
|
Balance, end of period
|
$
|
24,739
|
|
$
|
43,995
|
|
$
|
75,982
|
|
$
|
36,769
|
|
$
|
6,440
|
|
$
|
187,925
|
|
Individually evaluated for impairment
|
$
|
9,443
|
|
$
|
3,005
|
|
$
|
6,579
|
|
$
|
467
|
|
$
|
9
|
|
$
|
19,503
|
|
Collectively evaluated for impairment
|
$
|
15,296
|
|
$
|
40,990
|
|
$
|
69,403
|
|
$
|
36,302
|
|
$
|
6,431
|
|
$
|
168,422
|
|
|
|
|
|
|
|
|
Loan and lease balances:
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
122,020
|
|
$
|
46,208
|
|
$
|
58,197
|
|
$
|
24,423
|
|
$
|
6,863
|
|
$
|
257,711
|
|
Collectively evaluated for impairment
|
4,112,027
|
|
2,661,135
|
|
4,721,605
|
|
4,256,090
|
|
614,833
|
|
16,365,690
|
|
Loans and leases
|
$
|
4,234,047
|
|
$
|
2,707,343
|
|
$
|
4,779,802
|
|
$
|
4,280,513
|
|
$
|
621,696
|
|
$
|
16,623,401
|
|
Impaired Loans and Leases
The following tables summarize impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
(In thousands)
|
Unpaid
Principal
Balance
|
Total
Recorded
Investment
|
Recorded
Investment
No Allowance
|
Recorded
Investment
With Allowance
|
Related
Valuation
Allowance
|
Residential
|
$
|
127,986
|
|
$
|
116,706
|
|
$
|
27,961
|
|
$
|
88,745
|
|
$
|
4,925
|
|
Consumer - home equity
|
51,496
|
|
46,225
|
|
21,833
|
|
24,392
|
|
1,689
|
|
Commercial :
|
|
|
|
|
|
Commercial non-mortgage
|
88,221
|
|
76,827
|
|
28,124
|
|
48,703
|
|
10,844
|
|
Asset-based
|
8,558
|
|
8,558
|
|
8,558
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
Commercial real estate
|
19,026
|
|
17,725
|
|
12,894
|
|
4,831
|
|
271
|
|
Commercial construction
|
580
|
|
474
|
|
—
|
|
474
|
|
19
|
|
Equipment financing
|
3,721
|
|
3,642
|
|
3,004
|
|
638
|
|
38
|
|
Total
|
$
|
299,588
|
|
$
|
270,157
|
|
$
|
102,374
|
|
$
|
167,783
|
|
$
|
17,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
(In thousands)
|
Unpaid
Principal
Balance
|
Total
Recorded
Investment
|
Recorded
Investment
No Allowance
|
Recorded
Investment
With Allowance
|
Related
Valuation
Allowance
|
Residential
|
$
|
131,468
|
|
$
|
119,424
|
|
$
|
21,068
|
|
$
|
98,356
|
|
$
|
8,090
|
|
Consumer - home equity
|
52,432
|
|
45,719
|
|
22,746
|
|
22,973
|
|
2,903
|
|
Commercial :
|
|
|
|
|
|
Commercial non-mortgage
|
57,732
|
|
53,037
|
|
26,006
|
|
27,031
|
|
7,422
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
Commercial real estate
|
24,146
|
|
23,568
|
|
19,591
|
|
3,977
|
|
169
|
|
Commercial construction
|
1,188
|
|
1,187
|
|
1,187
|
|
—
|
|
—
|
|
Equipment financing
|
6,398
|
|
6,420
|
|
6,197
|
|
223
|
|
9
|
|
Total
|
$
|
273,364
|
|
$
|
249,355
|
|
$
|
96,795
|
|
$
|
152,560
|
|
$
|
18,593
|
|
The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(In thousands)
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
Residential
|
$
|
118,841
|
|
$
|
1,027
|
|
$
|
285
|
|
|
$
|
124,993
|
|
$
|
1,070
|
|
$
|
304
|
|
|
$
|
118,065
|
|
$
|
3,133
|
|
$
|
986
|
|
|
$
|
128,234
|
|
$
|
3,309
|
|
$
|
918
|
|
Consumer - home equity
|
46,753
|
|
341
|
|
246
|
|
|
46,892
|
|
336
|
|
238
|
|
|
45,972
|
|
998
|
|
808
|
|
|
47,317
|
|
1,029
|
|
754
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
81,816
|
|
249
|
|
—
|
|
|
58,874
|
|
352
|
|
—
|
|
|
64,932
|
|
704
|
|
—
|
|
|
57,389
|
|
1,299
|
|
—
|
|
Asset based
|
4,279
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
4,279
|
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
20,249
|
|
96
|
|
—
|
|
|
23,930
|
|
77
|
|
—
|
|
|
20,647
|
|
329
|
|
—
|
|
|
26,689
|
|
374
|
|
—
|
|
Commercial construction
|
828
|
|
—
|
|
—
|
|
|
4,386
|
|
12
|
|
—
|
|
|
831
|
|
12
|
|
—
|
|
|
5,171
|
|
81
|
|
—
|
|
Equipment financing
|
4,895
|
|
30
|
|
—
|
|
|
3,642
|
|
107
|
|
—
|
|
|
5,031
|
|
168
|
|
—
|
|
|
3,642
|
|
109
|
|
—
|
|
Total
|
$
|
277,661
|
|
$
|
1,743
|
|
$
|
531
|
|
|
$
|
262,717
|
|
$
|
1,954
|
|
$
|
542
|
|
|
$
|
259,757
|
|
$
|
5,344
|
|
$
|
1,794
|
|
|
$
|
268,442
|
|
$
|
6,201
|
|
$
|
1,672
|
|
Credit Quality Indicators.
To measure credit risk for the commercial, commercial real estate, and equipment financing portfolios, the Company employs a dual grade credit risk grading system for estimating the probability of borrower default and the loss given default. 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 default. Grades (1) - (6) are considered pass ratings, and (7) - (10) are considered criticized, as defined by the regulatory agencies. Risk ratings, 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 on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring.
A (7) "Special Mention" credit has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the asset. An (8) "Substandard" asset has a well defined weakness that jeopardizes the full repayment of the debt. An asset rated (9) "Doubtful" has all of the same weaknesses as a substandard credit with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, improbable. Assets classified as (10) "Loss" in accordance with regulatory guidelines are considered uncollectible and charged off.
The following table summarizes commercial, commercial real estate and equipment financing loans and leases segregated by risk rating exposure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial Real Estate
|
|
Equipment Financing
|
(In thousands)
|
At September 30,
2017
|
|
At December 31,
2016
|
|
At September 30,
2017
|
|
At December 31,
2016
|
|
At September 30,
2017
|
|
At December 31,
2016
|
(1) - (6) Pass
|
$
|
5,037,439
|
|
|
$
|
4,655,007
|
|
|
$
|
4,266,658
|
|
|
$
|
4,357,458
|
|
|
$
|
548,298
|
|
|
$
|
618,084
|
|
(7) Special Mention
|
108,828
|
|
|
56,240
|
|
|
85,926
|
|
|
69,023
|
|
|
3,557
|
|
|
1,324
|
|
(8) Substandard
|
192,161
|
|
|
226,603
|
|
|
112,333
|
|
|
84,365
|
|
|
14,922
|
|
|
16,221
|
|
(9) Doubtful
|
9,875
|
|
|
3,081
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
5,348,303
|
|
|
$
|
4,940,931
|
|
|
$
|
4,464,917
|
|
|
$
|
4,510,846
|
|
|
$
|
566,777
|
|
|
$
|
635,629
|
|
For residential and consumer loans, the Company considers factors such as past due status, updated FICO scores, employment status, collateral, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans as credit quality indicators. On an ongoing basis for portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for both home equity and residential first mortgage lending products. The estimate is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.
Troubled Debt Restructurings
The following table summarizes information for TDRs:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
At September 30,
2017
|
|
At December 31, 2016
|
Accrual status
|
$
|
135,774
|
|
|
$
|
147,809
|
|
Non-accrual status
|
82,576
|
|
|
75,719
|
|
Total recorded investment of TDRs
|
$
|
218,350
|
|
|
$
|
223,528
|
|
Specific reserves for TDRs included in the balance of ALLL
|
$
|
11,837
|
|
|
$
|
14,583
|
|
Additional funds committed to borrowers in TDR status
|
3,944
|
|
|
459
|
|
For the portion of TDRs deemed to be uncollectible, Webster charged off
$0.4 million
and
$3.0 million
for the
three months ended September 30, 2017
and
2016
, respectively, and
$3.0 million
, and
$17.9 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
The following table provides information on the type of concession for loans and leases modified as TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment
(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment
(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment
(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment
(1)
|
(Dollars in thousands)
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
—
|
|
$
|
—
|
|
|
4
|
|
$
|
967
|
|
|
9
|
$
|
1,390
|
|
|
11
|
$
|
1,969
|
|
Adjusted Interest Rate
|
—
|
|
—
|
|
|
1
|
|
292
|
|
|
2
|
335
|
|
|
2
|
528
|
|
Maturity/Rate Combined
|
4
|
|
570
|
|
|
3
|
|
290
|
|
|
9
|
1,416
|
|
|
10
|
1,185
|
|
Other
(2)
|
6
|
|
1,357
|
|
|
3
|
|
299
|
|
|
32
|
5,471
|
|
|
18
|
3,190
|
|
Consumer - home equity
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
2
|
|
158
|
|
|
2
|
|
89
|
|
|
8
|
822
|
|
|
9
|
381
|
|
Adjusted Interest Rate
|
1
|
|
247
|
|
|
—
|
|
—
|
|
|
1
|
247
|
|
|
—
|
—
|
|
Maturity/Rate Combined
|
2
|
|
399
|
|
|
3
|
|
264
|
|
|
13
|
3,212
|
|
|
11
|
923
|
|
Other
(2)
|
12
|
|
839
|
|
|
8
|
|
270
|
|
|
55
|
3,733
|
|
|
37
|
1,447
|
|
Commercial non - mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
—
|
|
—
|
|
|
2
|
|
213
|
|
|
8
|
813
|
|
|
11
|
14,862
|
|
Maturity/Rate Combined
|
8
|
|
299
|
|
|
—
|
|
—
|
|
|
13
|
9,153
|
|
|
2
|
648
|
|
Other
(2)
|
—
|
|
—
|
|
|
4
|
|
1,265
|
|
|
1
|
4
|
|
|
11
|
1,639
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
—
|
|
—
|
|
|
1
|
|
109
|
|
|
—
|
—
|
|
|
1
|
109
|
|
Maturity/Rate Combined
|
—
|
|
—
|
|
|
1
|
|
291
|
|
|
—
|
—
|
|
|
2
|
335
|
|
Other
(2)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
—
|
|
|
1
|
509
|
|
Equipment Financing
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
—
|
|
—
|
|
|
6
|
|
6,638
|
|
|
—
|
—
|
|
|
7
|
6,642
|
|
Total TDRs
|
35
|
|
$
|
3,869
|
|
|
38
|
|
$
|
10,987
|
|
|
151
|
$
|
26,596
|
|
|
133
|
$
|
34,367
|
|
|
|
(1)
|
Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings was not significant.
|
|
|
(2)
|
Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
|
Loans and leases modified as TDRs within the previous 12 months and for which there was a payment default, consisted of
one
residential loan with a recorded investment of
$248 thousand
for both the three and nine months ended September 30, 2017. There were
no
such loans and leases for both the three and nine months ended September 30, 2016.
The recorded investment of TDRs in commercial, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At September 30, 2017
|
|
At December 31, 2016
|
(1) - (6) Pass
|
$
|
8,902
|
|
|
$
|
10,210
|
|
(7) Special Mention
|
360
|
|
|
7
|
|
(8) Substandard
|
46,157
|
|
|
45,509
|
|
(9) Doubtful
|
—
|
|
|
2,738
|
|
Total
|
$
|
55,419
|
|
|
$
|
58,464
|
|
Note 5:
Transfers of Financial Assets
The Company sells financial assets in the normal course of business, primarily residential mortgage loans sold to government-sponsored enterprises through established programs and securitizations. The gain or loss on residential mortgage loans sold and the related origination fee income, and the fair value adjustment to loans held-for-sale are included as mortgage banking activities in the accompanying Condensed Consolidated Statements of Income.
The Company may be required to repurchase a loan in the event of certain breaches of the representations and warranties, or in the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases provides for estimated losses pertaining to the potential repurchase of loans associated with the Company’s mortgage banking activities. The reserve reflects management’s evaluation of the identity of the counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintages held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s expectation of losses from repurchase requests for which the Company has not yet been notified, as the performance of loans sold and the quality of the servicing provided by the acquirer also may impact the reserve. The provision recorded at the time of the loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale, is recorded in other non-interest expense in the accompanying Condensed Consolidated Statements of Income.
The following table provides a summary of activity in the reserve for loan repurchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
843
|
|
|
$
|
992
|
|
|
$
|
790
|
|
|
$
|
1,192
|
|
Provision (benefit) charged to expense
|
25
|
|
|
37
|
|
|
78
|
|
|
(64
|
)
|
Repurchased loans and settlements charged off
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
(99
|
)
|
Ending balance
|
$
|
850
|
|
|
$
|
1,029
|
|
|
$
|
850
|
|
|
$
|
1,029
|
|
The following table provides information for mortgage banking activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Residential mortgage loans held for sale:
|
|
|
|
|
|
|
|
Proceeds from sale
|
$
|
88,691
|
|
|
$
|
128,268
|
|
|
$
|
262,029
|
|
|
$
|
298,840
|
|
Loans sold with servicing rights retained
|
79,690
|
|
|
115,822
|
|
|
239,357
|
|
|
273,827
|
|
|
|
|
|
|
|
|
|
Net gain on sale
|
1,979
|
|
|
3,324
|
|
|
4,356
|
|
|
6,749
|
|
Ancillary fees
|
682
|
|
|
1,046
|
|
|
2,091
|
|
|
2,485
|
|
Fair value option adjustment
|
(240
|
)
|
|
(48
|
)
|
|
1,591
|
|
|
2,101
|
|
The Company has retained servicing rights on residential mortgage loans totaling
$2.6 billion
at both
September 30, 2017
and
December 31, 2016
.
The following table presents the changes in carrying value for mortgage servicing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
24,708
|
|
|
$
|
21,946
|
|
|
$
|
24,466
|
|
|
$
|
20,698
|
|
Additions
|
2,576
|
|
|
3,338
|
|
|
7,063
|
|
|
8,198
|
|
Amortization
|
(2,144
|
)
|
|
(1,900
|
)
|
|
(6,389
|
)
|
|
(5,512
|
)
|
Ending balance
|
$
|
25,140
|
|
|
$
|
23,384
|
|
|
$
|
25,140
|
|
|
$
|
23,384
|
|
Loan servicing fees, net of mortgage servicing rights amortization, were
$0.2 million
and
$0.3 million
for the
three months ended September 30, 2017
and
2016
, respectively, and
$0.6 million
and
$0.9 million
for the
nine months ended September 30, 2017
and
2016
, respectively, and are included as a component of loan related fees in the accompanying Condensed Consolidated Statements of Income.
See
Note 13:
Fair Value Measurements
for a further discussion on the fair value of loans held for sale and mortgage servicing assets. Additionally, loans not originated for sale were sold approximately at carrying value, for cash proceeds of
$7.4 million
for certain residential loans and
$20.8 million
for certain commercial loans for the
nine months ended September 30, 2017
and
2016
, respectively.
Note 6:
Goodwill and Other Intangible Assets
Goodwill and other intangible assets by reportable segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
At December 31, 2016
|
(In thousands)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Other intangible assets:
|
|
|
|
|
|
|
|
HSA Bank CDI
|
$
|
22,000
|
|
$
|
(8,036
|
)
|
$
|
13,964
|
|
|
$
|
22,000
|
|
$
|
(6,162
|
)
|
$
|
15,838
|
|
HSA Bank Customer relationships
|
21,000
|
|
(4,375
|
)
|
16,625
|
|
|
21,000
|
|
(3,164
|
)
|
17,836
|
|
Total other intangible assets
|
$
|
43,000
|
|
$
|
(12,411
|
)
|
$
|
30,589
|
|
|
$
|
43,000
|
|
$
|
(9,326
|
)
|
$
|
33,674
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
Community Banking
|
|
|
$
|
516,560
|
|
|
|
|
$
|
516,560
|
|
HSA Bank
|
|
|
21,813
|
|
|
|
|
21,813
|
|
Total goodwill
|
|
|
$
|
538,373
|
|
|
|
|
$
|
538,373
|
|
There was no change in the carrying amounts for goodwill since December 31,
2016
.
As of
September 30, 2017
, the remaining estimated aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
(In thousands)
|
|
Remainder of 2017
|
$
|
978
|
|
2018
|
3,847
|
|
2019
|
3,847
|
|
2020
|
3,847
|
|
2021
|
3,847
|
|
Thereafter
|
14,223
|
|
Note 7:
Deposits
A summary of deposits by type follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At September 30,
2017
|
|
At December 31,
2016
|
Non-interest-bearing:
|
|
|
|
Demand
|
$
|
4,138,206
|
|
|
$
|
4,021,061
|
|
Interest-bearing:
|
|
|
|
Checking
|
2,581,266
|
|
|
2,528,274
|
|
Health savings accounts
|
4,891,024
|
|
|
4,362,503
|
|
Money market
|
2,598,187
|
|
|
2,047,121
|
|
Savings
|
4,428,061
|
|
|
4,320,090
|
|
Time deposits
|
2,218,491
|
|
|
2,024,808
|
|
Total interest-bearing
|
16,717,029
|
|
|
15,282,796
|
|
Total deposits
|
$
|
20,855,235
|
|
|
$
|
19,303,857
|
|
|
|
|
|
Time deposits and interest-bearing checking, included in above balances, obtained through brokers
|
$
|
913,042
|
|
|
$
|
848,618
|
|
Time deposits, included in above balance, that meet or exceed the FDIC limit
|
613,012
|
|
|
490,721
|
|
Deposit overdrafts reclassified as loan balances
|
2,494
|
|
|
1,885
|
|
The scheduled maturities of time deposits are as follows:
|
|
|
|
|
(In thousands)
|
At September 30,
2017
|
Remainder of 2017
|
$
|
285,203
|
|
2018
|
952,745
|
|
2019
|
607,952
|
|
2020
|
225,159
|
|
2021
|
107,921
|
|
Thereafter
|
39,511
|
|
Total time deposits
|
$
|
2,218,491
|
|
Note 8:
Borrowings
Total borrowings of
$2.6 billion
at
September 30, 2017
and
$4.0 billion
at
December 31, 2016
are described in detail below.
The following table summarizes securities sold under agreements to repurchase and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At December 31,
2016
|
(In thousands)
|
Amount
|
Rate
|
|
Amount
|
Rate
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
Original maturity of one year or less
|
$
|
335,902
|
|
0.18
|
%
|
|
$
|
340,526
|
|
0.16
|
%
|
Original maturity of greater than one year, non-callable
|
400,000
|
|
3.04
|
|
|
400,000
|
|
3.09
|
|
Total securities sold under agreements to repurchase
|
735,902
|
|
1.73
|
|
|
740,526
|
|
1.82
|
|
Fed funds purchased
|
167,000
|
|
1.12
|
|
|
209,000
|
|
0.46
|
|
Securities sold under agreements to repurchase and other borrowings
|
$
|
902,902
|
|
1.62
|
%
|
|
$
|
949,526
|
|
1.53
|
%
|
Repurchase agreements are used as a source of borrowed funds and are collateralized by U.S. Government agency mortgage-backed securities. Repurchase agreement counterparties are limited to primary dealers in government securities and commercial/municipal customers through Webster’s Treasury Unit. Dealer counterparties have the right to pledge, transfer, or hypothecate purchased securities during the term of the transaction. The Company has right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase represents the gross amount for these transactions, as only liabilities are outstanding for the periods presented.
The following table provides information for FHLB advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At December 31,
2016
|
(Dollars in thousands)
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
Maturing within 1 year
|
$
|
880,500
|
|
1.28
|
%
|
|
$
|
2,130,500
|
|
0.71
|
%
|
After 1 but within 2 years
|
133,731
|
|
1.34
|
|
|
200,000
|
|
1.36
|
|
After 2 but within 3 years
|
259,295
|
|
1.79
|
|
|
128,026
|
|
1.73
|
|
After 3 but within 4 years
|
75,000
|
|
1.51
|
|
|
175,000
|
|
1.77
|
|
After 4 but within 5 years
|
150,061
|
|
2.23
|
|
|
200,000
|
|
1.81
|
|
After 5 years
|
9,091
|
|
2.61
|
|
|
9,370
|
|
2.59
|
|
|
1,507,678
|
|
1.49
|
%
|
|
2,842,896
|
|
0.95
|
%
|
Premiums on advances
|
3
|
|
|
|
12
|
|
|
Federal Home Loan Bank advances
|
$
|
1,507,681
|
|
|
|
$
|
2,842,908
|
|
|
|
|
|
|
|
|
Aggregate carrying value of assets pledged as collateral
|
$
|
6,388,102
|
|
|
|
$
|
5,967,318
|
|
|
Remaining borrowing capacity
|
2,668,964
|
|
|
|
1,192,758
|
|
|
Webster Bank is in compliance with FHLB collateral requirements for the periods presented. Eligible collateral, primarily certain residential and commercial real estate loans, has been pledged to secure FHLB advances.
The following table summarizes long-term debt:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
At September 30,
2017
|
|
At December 31,
2016
|
4.375%
|
Senior fixed-rate notes due February 15, 2024
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033
(1)
|
77,320
|
|
|
77,320
|
|
Total notes and subordinated debt
|
227,320
|
|
|
227,320
|
|
Discount on senior fixed-rate notes
|
(756
|
)
|
|
(845
|
)
|
Debt issuance cost on senior fixed-rate notes
|
(860
|
)
|
|
(961
|
)
|
Long-term debt
|
$
|
225,704
|
|
|
$
|
225,514
|
|
|
|
(1)
|
The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus
2.95%
, was
4.27%
at
September 30, 2017
and
3.94%
at
December 31, 2016
.
|
Note 9:
Accumulated Other Comprehensive Loss, Net of Tax
The following tables summarize the changes in AOCL by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
Nine months ended September 30, 2017
|
(In thousands)
|
Securities Available For Sale and Transferred
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
|
Securities Available For Sale and Transferred
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
(14,501
|
)
|
$
|
(15,258
|
)
|
$
|
(42,323
|
)
|
$
|
(72,082
|
)
|
|
$
|
(15,476
|
)
|
$
|
(17,068
|
)
|
$
|
(44,449
|
)
|
$
|
(76,993
|
)
|
OCI/OCL before reclassifications
|
872
|
|
(34
|
)
|
—
|
|
838
|
|
|
1,847
|
|
(445
|
)
|
—
|
|
1,402
|
|
Amounts reclassified from AOCL
|
—
|
|
1,145
|
|
1,001
|
|
2,146
|
|
|
—
|
|
3,366
|
|
3,127
|
|
6,493
|
|
Net current-period OCI/OCL
|
872
|
|
1,111
|
|
1,001
|
|
2,984
|
|
|
1,847
|
|
2,921
|
|
3,127
|
|
7,895
|
|
Ending balance
|
$
|
(13,629
|
)
|
$
|
(14,147
|
)
|
$
|
(41,322
|
)
|
$
|
(69,098
|
)
|
|
$
|
(13,629
|
)
|
$
|
(14,147
|
)
|
$
|
(41,322
|
)
|
$
|
(69,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2016
|
(In thousands)
|
Securities Available For Sale and Transferred
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
|
Securities Available For Sale and Transferred
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
12,363
|
|
$
|
(23,406
|
)
|
$
|
(46,468
|
)
|
$
|
(57,511
|
)
|
|
$
|
(6,407
|
)
|
$
|
(22,980
|
)
|
$
|
(48,719
|
)
|
$
|
(78,106
|
)
|
OCI/OCL before reclassifications
|
1,218
|
|
794
|
|
—
|
|
2,012
|
|
|
20,156
|
|
(2,416
|
)
|
—
|
|
17,740
|
|
Amounts reclassified from AOCL
|
—
|
|
1,221
|
|
1,125
|
|
2,346
|
|
|
(168
|
)
|
4,005
|
|
3,376
|
|
7,213
|
|
Net current-period OCI/OCL
|
1,218
|
|
2,015
|
|
1,125
|
|
4,358
|
|
|
19,988
|
|
1,589
|
|
3,376
|
|
24,953
|
|
Ending balance
|
$
|
13,581
|
|
$
|
(21,391
|
)
|
$
|
(45,343
|
)
|
$
|
(53,153
|
)
|
|
$
|
13,581
|
|
$
|
(21,391
|
)
|
$
|
(45,343
|
)
|
$
|
(53,153
|
)
|
The following tables provide information for the items reclassified from AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
Associated Line Item in the Condensed Consolidated Statements of Income
|
AOCL Components
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale and transferred:
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investment securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
414
|
|
Gain on sale of investment securities, net
|
Unrealized gains (losses) on investment securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(149
|
)
|
Impairment loss recognized in earnings
|
Total before tax
|
—
|
|
|
—
|
|
|
—
|
|
|
265
|
|
|
Tax benefit (expense)
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
Income tax expense
|
Net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$
|
(1,810
|
)
|
|
$
|
(1,925
|
)
|
|
$
|
(5,316
|
)
|
|
$
|
(6,314
|
)
|
Total interest expense
|
Tax benefit
|
665
|
|
|
704
|
|
|
1,950
|
|
|
2,309
|
|
Income tax expense
|
Net of tax
|
$
|
(1,145
|
)
|
|
$
|
(1,221
|
)
|
|
$
|
(3,366
|
)
|
|
$
|
(4,005
|
)
|
|
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
$
|
(1,587
|
)
|
|
$
|
(1,780
|
)
|
|
$
|
(4,959
|
)
|
|
$
|
(5,343
|
)
|
(1)
|
Prior service costs
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(11
|
)
|
(1)
|
Total before tax
|
(1,587
|
)
|
|
(1,784
|
)
|
|
(4,959
|
)
|
|
(5,354
|
)
|
|
Tax benefit
|
586
|
|
|
659
|
|
|
1,832
|
|
|
1,978
|
|
Income tax expense
|
Net of tax
|
$
|
(1,001
|
)
|
|
$
|
(1,125
|
)
|
|
$
|
(3,127
|
)
|
|
$
|
(3,376
|
)
|
|
(1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 14 - Retirement Benefit Plans for further details).
Note 10:
Regulatory Matters
Capital Requirements
Webster Financial Corporation is subject to regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subject to regulatory capital requirements administered by the OCC. Regulatory authorities can initiate certain mandatory actions if Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, which could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures require minimum amounts and ratios to ensure capital adequacy.
Basel III total risk-based capital is comprised of three categories: CET1 capital, additional Tier 1 capital, and Tier 2 capital. CET1 capital includes common shareholders' equity, less deductions for goodwill, other intangibles, and certain deferred tax liabilities. Common shareholders' equity, for purposes of CET1 capital, excludes AOCL components as permitted by the opt-out election taken by Webster upon adoption of Basel III. Tier 1 capital is comprised of CET1 capital plus perpetual preferred stock, while Tier 2 capital includes qualifying subordinated debt and qualifying allowance for credit losses, that together equal total capital.
The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
Actual
|
|
Minimum Requirement
|
|
Well Capitalized
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,031,955
|
|
10.99
|
%
|
|
$
|
832,149
|
|
4.5
|
%
|
|
$
|
1,201,993
|
|
6.5
|
%
|
Total risk-based capital
|
2,436,332
|
|
13.17
|
|
|
1,479,376
|
|
8.0
|
|
|
1,849,220
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,154,665
|
|
11.65
|
|
|
1,109,532
|
|
6.0
|
|
|
1,479,376
|
|
8.0
|
|
Tier 1 leverage capital
|
2,154,665
|
|
8.36
|
|
|
1,030,973
|
|
4.0
|
|
|
1,288,717
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,061,764
|
|
11.16
|
%
|
|
$
|
831,319
|
|
4.5
|
%
|
|
$
|
1,200,794
|
|
6.5
|
%
|
Total risk-based capital
|
2,266,110
|
|
12.27
|
|
|
1,477,900
|
|
8.0
|
|
|
1,847,376
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,061,764
|
|
11.16
|
|
|
1,108,425
|
|
6.0
|
|
|
1,477,900
|
|
8.0
|
|
Tier 1 leverage capital
|
2,061,764
|
|
8.00
|
|
|
1,030,260
|
|
4.0
|
|
|
1,287,825
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Actual
|
|
Minimum Requirement
|
|
Well Capitalized
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
1,932,171
|
|
10.52
|
%
|
|
$
|
826,504
|
|
4.5
|
%
|
|
$
|
1,193,840
|
|
6.5
|
%
|
Total risk-based capital
|
2,328,808
|
|
12.68
|
|
|
1,469,341
|
|
8.0
|
|
|
1,836,677
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,054,881
|
|
11.19
|
|
|
1,102,006
|
|
6.0
|
|
|
1,469,341
|
|
8.0
|
|
Tier 1 leverage capital
|
2,054,881
|
|
8.13
|
|
|
1,010,857
|
|
4.0
|
|
|
1,263,571
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
1,945,332
|
|
10.61
|
%
|
|
$
|
825,228
|
|
4.5
|
%
|
|
$
|
1,191,995
|
|
6.5
|
%
|
Total risk-based capital
|
2,141,939
|
|
11.68
|
|
|
1,467,071
|
|
8.0
|
|
|
1,833,839
|
|
10.0
|
|
Tier 1 risk-based capital
|
1,945,332
|
|
10.61
|
|
|
1,100,304
|
|
6.0
|
|
|
1,467,071
|
|
8.0
|
|
Tier 1 leverage capital
|
1,945,332
|
|
7.70
|
|
|
1,010,005
|
|
4.0
|
|
|
1,262,507
|
|
5.0
|
|
Dividend Restrictions
Webster Financial Corporation is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including payments of dividends to shareholders. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Webster Bank to fall below specified minimum levels, or if dividends declared exceed the net income for that year combined with the undistributed net income for the preceding two years. In addition, the OCC has discretion to prohibit any otherwise permitted capital distribution on general safety and soundness grounds. Dividends paid by Webster Bank to Webster Financial Corporation totaled
$80 million
during the
nine months ended September 30, 2017
compared to
$115 million
during the
nine months ended September 30,
2016
.
Cash Restrictions
Webster Bank is required by Federal Reserve System regulations to hold cash reserve balances on hand or with the Federal Reserve Bank. Pursuant to this requirement, Webster Bank held
$76.7 million
and
$58.6 million
at
September 30, 2017
and
December 31, 2016
, respectively.
Note 11:
Earnings Per Common Share
Reconciliation of the calculation of basic and diluted earnings per common share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Earnings for basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
Net income
|
$
|
64,496
|
|
|
$
|
51,817
|
|
|
$
|
185,546
|
|
|
$
|
149,467
|
|
Less: Preferred stock dividends
|
2,024
|
|
|
2,024
|
|
|
6,072
|
|
|
6,072
|
|
Net income available to common shareholders
|
62,472
|
|
|
49,793
|
|
|
179,474
|
|
|
143,395
|
|
Less: Earnings applicable to participating securities
|
46
|
|
|
159
|
|
|
212
|
|
|
468
|
|
Earnings applicable to common shareholders
|
$
|
62,426
|
|
|
$
|
49,634
|
|
|
$
|
179,262
|
|
|
$
|
142,927
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
92,125
|
|
|
91,365
|
|
|
92,003
|
|
|
91,298
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
372
|
|
|
465
|
|
|
403
|
|
|
452
|
|
Warrants
|
6
|
|
|
27
|
|
|
6
|
|
|
26
|
|
Weighted-average common shares outstanding - diluted
|
92,503
|
|
|
91,857
|
|
|
92,412
|
|
|
91,776
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.68
|
|
|
$
|
0.54
|
|
|
$
|
1.95
|
|
|
$
|
1.57
|
|
Diluted
|
0.67
|
|
|
0.54
|
|
|
1.94
|
|
|
1.56
|
|
Potential common shares excluded from the effect of dilutive securities because they would have been anti-dilutive, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock options (shares with exercise price greater than market price)
|
—
|
|
|
172
|
|
|
—
|
|
|
172
|
|
Restricted stock (due to performance conditions on non-participating shares)
|
80
|
|
|
—
|
|
|
61
|
|
|
161
|
|
Note 12:
Derivative Financial Instruments
Risk Management Objective of Using Derivatives
Webster manages economic risks, such as interest rate, liquidity, and credit risks by managing the amount, sources, and duration of its debt funding in conjunction with the use of interest rate derivative financial instruments. Webster enters into interest rate derivatives to mitigate the exposure related to business activities that result in the future receipt or payment of, both known and uncertain, cash amounts that are impacted by interest rates. The primary objective for using interest rate derivatives is to add stability to interest expense by managing exposure to interest rate movements. To accomplish this objective, Webster uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.
Interest rate swaps and interest rate caps designated as cash flow hedges are designed to manage the risk associated with a forecasted event or an uncertain variable-rate cash flow. Forward-settle interest rate swaps protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on forecasted debt issuances. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for payment of an up-front premium.
Cash flow hedges are used to regulate the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. Derivative instruments designated as cash flow hedges are recorded on the balance sheet at fair value. The effective portion of the change in fair value of the derivatives which are designated as cash flow hedges, and that qualify for hedge accounting, is recorded to AOCL and is reclassified into earnings in the subsequent periods that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of these derivatives, attributable to the difference in the effective date of the hedge and the effective date of the debt issuance, is recognized directly in earnings. During the periods presented, there was no ineffectiveness to be recognized in earnings.
Certain fixed-rate obligations can be exposed to a change in fair value attributable to changes in benchmark interest rates. On occasion, interest rate swaps will be used to manage this exposure. An interest rate swap which involves the receipt of fixed-rate amounts from a counterparty in exchange for Webster making variable-rate payments over the life of the agreement, without the exchange of the underlying notional amount, is designated as a fair value hedge. For a qualifying derivative designated as a fair value hedge, the gain or loss on the derivative, as well as the gain or loss on the hedged item, is recognized in interest expense. During the periods presented, Webster did not have any interest rate derivative financial instruments designated as fair value hedges and as a result, there was no impact to interest expense.
Additionally, in order to address certain other risk management matters, the Company also utilizes derivative instruments that do not qualify for hedge accounting. These derivative instruments, which are recorded on the balance sheet at fair value, with changes in fair value recognized each period as other non-interest income in the accompanying Condensed Consolidated Statements of Income, are described in the following paragraphs.
Interest rate swap and cap contracts are sold to commercial and other customers who wish to modify loan interest rate sensitivity. These contracts are offset with dealer counterparty transactions structured with matching terms. As a result, there is minimal impact on earnings, except for fee income earned in such transactions.
RPAs are entered into as financial guarantees of performance on interest rate swap derivatives. The purchased (asset) or sold (liability) guarantee allows the Company to participate-in (fee received) or participate-out (fee paid) the risk associated with certain derivative positions executed with the borrower by the lead bank in a loan syndication.
Other derivatives include foreign currency forward contracts related to lending arrangements, a VISA equity swap transaction, and mortgage banking derivatives such as mortgage-backed securities related to residential loan commitments and loans held for sale. Mortgage banking derivatives are utilized by Webster in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans interest rate lock commitments are generally extended to the borrowers. During the period from commitment date to closing date, Webster is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans causing a reduction in the anticipated gain on sale of the loans, or possibly resulting in a loss. In an effort to mitigate such risk, forward delivery sales commitments are established under which Webster agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. Mandatory forward commitments establish the price to be received upon the sale of the related mortgage loan, thereby mitigating certain interest rate risk. There is, however, still certain execution risk specifically related to Webster’s ability to close and deliver to its investors the mortgage loans it has committed to sell.
Fair Value of Derivative Instruments
The following table presents the notional amounts and fair values of derivative positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
At December 31, 2016
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(In thousands)
|
Notional
Amounts
|
Fair
Value
|
|
Notional
Amounts
|
Fair
Value
|
|
Notional
Amounts
|
Fair
Value
|
|
Notional
Amounts
|
Fair
Value
|
Designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Positions subject to a master netting agreement
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
225,000
|
|
$
|
1,972
|
|
|
$
|
100,000
|
|
$
|
195
|
|
|
$
|
225,000
|
|
$
|
3,270
|
|
|
$
|
100,000
|
|
$
|
792
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Positions subject to a master netting agreement
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
2,270,444
|
|
4,225
|
|
|
1,125,953
|
|
3,224
|
|
|
1,943,485
|
|
32,226
|
|
|
1,242,937
|
|
24,388
|
|
Other
|
8,595
|
|
260
|
|
|
22,161
|
|
419
|
|
|
10,634
|
|
231
|
|
|
14,265
|
|
120
|
|
Positions not subject to a master netting agreement
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
1,738,527
|
|
35,065
|
|
|
1,652,004
|
|
15,764
|
|
|
1,734,679
|
|
38,668
|
|
|
1,451,762
|
|
19,001
|
|
RPAs
|
94,103
|
|
112
|
|
|
99,538
|
|
136
|
|
|
86,037
|
|
139
|
|
|
87,273
|
|
166
|
|
Mortgage banking derivatives
(2)
|
42,290
|
|
614
|
|
|
60,698
|
|
128
|
|
|
103,440
|
|
3,084
|
|
|
59,895
|
|
711
|
|
Other
|
262
|
|
2
|
|
|
1,777
|
|
157
|
|
|
1,438
|
|
19
|
|
|
181
|
|
11
|
|
Total not designated as hedging instruments
|
4,154,221
|
|
40,278
|
|
|
2,962,131
|
|
19,828
|
|
|
3,879,713
|
|
74,367
|
|
|
2,856,313
|
|
44,397
|
|
Gross derivative instruments, before netting
|
$
|
4,379,221
|
|
42,250
|
|
|
$
|
3,062,131
|
|
20,023
|
|
|
$
|
4,104,713
|
|
77,637
|
|
|
$
|
2,956,313
|
|
45,189
|
|
Less: Legally enforceable master netting agreements
|
|
2,915
|
|
|
|
2,916
|
|
|
|
24,252
|
|
|
|
24,254
|
|
Less: Cash collateral posted
|
|
2,540
|
|
|
|
766
|
|
|
|
11,475
|
|
|
|
600
|
|
Total derivative instruments, after netting
|
|
$
|
36,795
|
|
|
|
$
|
16,341
|
|
|
|
$
|
41,910
|
|
|
|
$
|
20,335
|
|
|
|
(1)
|
One of Webster's counterparty relationships was impacted by a Chicago Mercantile Exchange rulebook amendment, resulting in the presentation of that relationship on a settlement basis, as a single unit of account at
September 30, 2017
, versus a netting basis at December 31, 2016.
|
|
|
(2)
|
Notional amounts include mandatory forward commitments of
$60.5 million
, while notional amounts do not include approved floating rate commitments of
$21.9 million
, at
September 30, 2017
.
|
Changes in Fair Value
Changes in the fair value of derivatives not qualifying for hedge accounting treatment were recognized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate derivatives
|
$
|
1,501
|
|
|
$
|
608
|
|
|
$
|
1,780
|
|
|
$
|
6,515
|
|
RPAs
|
51
|
|
|
110
|
|
|
157
|
|
|
(143
|
)
|
Mortgage banking derivatives
|
(219
|
)
|
|
720
|
|
|
(1,886
|
)
|
|
357
|
|
Other
|
(7
|
)
|
|
(285
|
)
|
|
(634
|
)
|
|
(582
|
)
|
Total impact on other non-interest income
|
$
|
1,326
|
|
|
$
|
1,153
|
|
|
$
|
(583
|
)
|
|
$
|
6,147
|
|
Amounts for the effective portion of changes in the fair value of derivatives qualifying for hedge accounting treatment are reclassified to interest expense as interest payments are made on Webster's variable-rate debt. Over the next twelve months, the Company estimates that
$1.2 million
will be reclassified from AOCL as an increase to interest expense.
Webster records gains and losses related to hedge terminations to AOCL. These balances are subsequently amortized into interest expense over the respective terms of the hedged debt instruments. At
September 30, 2017
, the remaining unamortized loss on the termination of cash flow hedges is
$16.5 million
. Over the next twelve months, the Company estimates that
$6.4 million
will be reclassified from AOCL as an increase to interest expense.
Additional information about cash flow hedge activity impacting AOCL, and the related amounts reclassified to interest expense is provided in
Note 9:
Accumulated Other Comprehensive Loss, Net of Tax
. Information about the valuation methods used to measure the fair value of derivatives is provided in
Note 13:
Fair Value Measurements
.
Offsetting Derivatives
Webster has entered into transactions with counterparties that are subject to a legally enforceable master netting agreement. Derivatives subject to a legally enforceable master netting agreement are reported on a net basis, net of cash collateral. Net gain positions are recorded as assets and are included in accrued interest receivable and other assets, while, net loss positions are recorded as liabilities and are included in accrued expenses and other liabilities, in the accompanying Condensed Consolidated Balance Sheets.
The following table is presented on a gross basis, prior to the application of counterparty netting agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
At December 31, 2016
|
(In thousands)
|
Gross
Amount
|
Relationship Offset
|
Cash Collateral Offset
|
Net
Amount
|
|
Gross
Amount
|
Relationship Offset
|
Cash Collateral Offset
|
Net
Amount
|
Derivative instrument gains:
|
|
|
|
|
|
|
|
|
|
Hedge accounting
|
$
|
1,972
|
|
$
|
292
|
|
$
|
1,051
|
|
$
|
629
|
|
|
$
|
3,270
|
|
$
|
2,335
|
|
$
|
935
|
|
$
|
—
|
|
Non-hedge accounting
|
4,452
|
|
2,623
|
|
1,489
|
|
340
|
|
|
32,457
|
|
21,917
|
|
10,540
|
|
—
|
|
Total assets
|
$
|
6,424
|
|
$
|
2,915
|
|
$
|
2,540
|
|
$
|
969
|
|
|
$
|
35,727
|
|
$
|
24,252
|
|
$
|
11,475
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instrument losses:
|
|
|
|
|
|
|
|
|
|
Hedge accounting
|
$
|
195
|
|
$
|
195
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
792
|
|
$
|
792
|
|
$
|
—
|
|
$
|
—
|
|
Non-hedge accounting
|
3,643
|
|
2,721
|
|
766
|
|
156
|
|
|
24,508
|
|
23,462
|
|
600
|
|
446
|
|
Total liabilities
|
$
|
3,838
|
|
$
|
2,916
|
|
$
|
766
|
|
$
|
156
|
|
|
$
|
25,300
|
|
$
|
24,254
|
|
$
|
600
|
|
$
|
446
|
|
Counterparty Credit Risk
Use of derivative contracts may expose the bank to counterparty credit risk. The Company has ISDA master agreements, including a Credit Support Annex, with all derivative counterparties. The ISDA master agreements provide that on each payment date, all amounts otherwise owing the same currency under the same transaction are netted so that only a single amount is owed in that currency. The ISDA provides, if the parties so elect, for such netting of amounts in the same currency among all transactions identified as being subject to such election that have common payment dates and booking offices. Under the Credit Support Annex, daily net exposure in excess of a negotiated threshold is secured by posted cash collateral. The Company has negotiated a zero threshold with the majority of its approved financial institution counterparties. In accordance with Webster policies, institutional counterparties must be analyzed and approved through the Company’s credit approval process.
The Company’s credit exposure on interest rate derivatives with non-dealer counterparties is limited to the net favorable value, including accrued interest, of all such instruments, reduced by the amount of collateral pledged by the counterparties. The Company's credit exposure related to derivatives with dealer counterparties is significantly mitigated with cash collateral equal to, or in excess of, the market value of the instrument updated daily.
In accordance with counterparty credit agreements and derivative clearing rules, the Company had approximately
$20.7 million
in net margin collateral posted with financial counterparties at
September 30, 2017
, comprised of
$30.5 million
in initial margin and
$9.8 million
in variation margin collateral received from financial counterparties or the derivative clearing organization. Collateral levels for approved financial institution counterparties are monitored daily and adjusted as necessary. In the event of default, should the collateral not be returned, the exposure would be offset by terminating the transaction.
The Company regularly evaluates the credit risk of its counterparties, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. The Company's net current credit exposure relating to interest rate derivatives with Webster Bank customers was
$35.1 million
at
September 30, 2017
. 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 Bank customers totaled
$27.7 million
at
September 30, 2017
. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions being hedged.
Note 13:
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings or any part of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These factors are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair Value Hierarchy
The three levels within the fair value hierarchy are as follows:
|
|
•
|
Level 1:
Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
|
|
•
|
Level 2:
Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit ratings, etc.), or inputs that are derived principally or corroborated by market data, by correlation, or other means.
|
|
|
•
|
Level 3:
Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Investment Securities.
When quoted prices are available in an active market, the Company classifies investment securities within Level 1 of the valuation hierarchy. U.S. Treasury Bills are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, trust preferred, and corporate debt, are classified within Level 2 of the fair value hierarchy.
Derivative Instruments.
Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy. Derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The Chicago Mercantile Exchange have amended their rulebooks to legally characterize variation margin payments for over-the-counter derivatives that clear as settlements rather than collateral, effective January 3, 2017. One of Webster's counterparty relationships was impacted by this change, resulting in the fair value of the instrument including cash collateral as a single unit of account.
The resulting fair values are validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy. In determining if any fair value adjustment related to credit risk is required, Webster evaluates the credit risk of its counterparties by considering factors such as the likelihood of default by the counterparties, its net exposures, the remaining contractual life, as well as the amount of collateral securing the position. Webster reviews its counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to adjust the exposure. When determining fair value, Webster applies the portfolio exception with respect to measuring counterparty credit risk for all of its derivative transactions subject to a master netting arrangement. The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.
Mortgage Banking Derivatives.
Forward sales of mortgage loans and mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are established, under which the Company agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified within Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trust.
Investments held in the Rabbi Trust primarily include mutual funds that invest in equity and fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. Webster has elected to measure the investments held in the Rabbi Trust at fair value. The cost basis of the investments held in the Rabbi Trust is
$2.9 million
at
September 30, 2017
.
Alternative Investments.
Alternative investments are non-public entities that cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. Alternative investments in which the ownership percentage is greater than 3% are fair valued on a recurring basis based upon the net asset value of the respective fund. Alternative investments in which the ownership percentage is less than 3% are fair valued on a non-recurring basis. These alternative investments are recorded at cost, subject to impairment testing. Both recurring and non-recurring alternative investments are classified within Level 3 of the fair value hierarchy, as they are non-public entities that cannot be redeemed since the Company's investment is distributed as the underlying investments are liquidated. At
September 30, 2017
, the alternative investments book value was
$17.3 million
and there was
$9.4 million
in remaining unfunded commitments.
Originated Loans Held For Sale.
Residential mortgage loans typically are classified as held for sale upon origination based on management's intent to sell such loans. The Company generally records residential mortgage loans held for sale under the fair value option of
ASC 825 "Financial Instruments"
. The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.
Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
U.S. Treasury Bills
|
$
|
3,596
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,596
|
|
Agency CMO
|
—
|
|
331,798
|
|
—
|
|
331,798
|
|
Agency MBS
|
—
|
|
912,977
|
|
—
|
|
912,977
|
|
Agency CMBS
|
—
|
|
584,960
|
|
—
|
|
584,960
|
|
CMBS
|
—
|
|
403,433
|
|
—
|
|
403,433
|
|
CLO
|
—
|
|
274,583
|
|
—
|
|
274,583
|
|
Trust preferred
|
—
|
|
30,937
|
|
—
|
|
30,937
|
|
Corporate debt
|
—
|
|
48,878
|
|
—
|
|
48,878
|
|
Total available-for-sale investment securities
|
3,596
|
|
2,587,566
|
|
—
|
|
2,591,162
|
|
Gross derivative instruments, before netting
(1)
|
262
|
|
41,988
|
|
—
|
|
42,250
|
|
Investments held in Rabbi Trust
|
5,278
|
|
—
|
|
—
|
|
5,278
|
|
Alternative investments
|
—
|
|
—
|
|
6,986
|
|
6,986
|
|
Originated loans held for sale
|
—
|
|
32,855
|
|
—
|
|
32,855
|
|
Total financial assets held at fair value
|
$
|
9,136
|
|
$
|
2,662,409
|
|
$
|
6,986
|
|
$
|
2,678,531
|
|
Financial liabilities held at fair value:
|
|
|
|
|
Gross derivative instruments, before netting
(1)
|
$
|
562
|
|
$
|
19,461
|
|
$
|
—
|
|
$
|
20,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
U.S. Treasury Bills
|
$
|
734
|
|
$
|
—
|
|
$
|
—
|
|
$
|
734
|
|
Agency CMO
|
—
|
|
419,706
|
|
—
|
|
419,706
|
|
Agency MBS
|
—
|
|
954,349
|
|
—
|
|
954,349
|
|
Agency CMBS
|
—
|
|
573,272
|
|
—
|
|
573,272
|
|
CMBS
|
—
|
|
477,365
|
|
—
|
|
477,365
|
|
CLO
|
—
|
|
427,390
|
|
—
|
|
427,390
|
|
Trust preferred
|
—
|
|
28,633
|
|
—
|
|
28,633
|
|
Corporate debt
|
—
|
|
109,642
|
|
—
|
|
109,642
|
|
Total available-for-sale investment securities
|
734
|
|
2,990,357
|
|
—
|
|
2,991,091
|
|
Gross derivative instruments, before netting
(1)
|
250
|
|
77,387
|
|
—
|
|
77,637
|
|
Investments held in Rabbi Trust
|
5,119
|
|
—
|
|
—
|
|
5,119
|
|
Alternative investments
|
—
|
|
—
|
|
5,502
|
|
5,502
|
|
Originated loans held for sale
|
—
|
|
60,260
|
|
—
|
|
60,260
|
|
Total financial assets held at fair value
|
$
|
6,103
|
|
$
|
3,128,004
|
|
$
|
5,502
|
|
$
|
3,139,609
|
|
Financial liabilities held at fair value:
|
|
|
|
|
Gross derivative instruments, before netting
(1)
|
$
|
120
|
|
$
|
45,069
|
|
$
|
—
|
|
$
|
45,189
|
|
|
|
(1)
|
For information relating to the impact of netting derivative assets and derivative liabilities as well as the impact from offsetting cash collateral paid to the same derivative counterparties see
Note 12:
Derivative Financial Instruments
.
|
The following table presents the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
(In thousands)
|
Alternative Investments
|
Balance at January 1, 2017
|
$
|
5,502
|
|
Unrealized gain included in net income
|
639
|
|
Purchases/capital funding
|
899
|
|
Payments
|
(54
|
)
|
Balance at September 30, 2017
|
$
|
6,986
|
|
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Transferred Loans Held For Sale.
Certain loans are transferred to loans held for sale once a decision has been made to sell such loans. These loans are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost. This activity is primarily commercial loans with observable inputs and is classified within Level 2. On the occasion should these loans include adjustments for changes in loan characteristics using unobservable inputs, the loans would be classified within Level 3.
Collateral Dependent Impaired Loans and Leases.
Impaired loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral using customized discounting criteria. As such, collateral dependent impaired loans and leases are classified as Level 3 of the fair value hierarchy.
Other Real Estate Owned and Repossessed Assets.
The total book value of OREO and repossessed assets was
$5.3 million
at
September 30, 2017
. OREO and repossessed assets are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost. The fair value of OREO is based on independent appraisals or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results, and price opinions. Certain assets require assumptions about factors that are not observable in an active market in the determination of fair value; as such, OREO and repossessed assets are classified within Level 3 of the fair value hierarchy.
The table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Asset
|
Fair Value
|
Valuation Methodology
|
Unobservable Inputs
|
Range of Inputs
|
Collateral dependent impaired loans and leases
|
$
|
15,955
|
|
Real Estate Appraisals
|
Discount for appraisal type
|
0%
|
-
|
20%
|
|
|
|
Discount for costs to sell
|
0%
|
-
|
15%
|
OREO
|
$
|
2,587
|
|
Real Estate Appraisals
|
Discount for appraisal type
|
0%
|
-
|
20%
|
|
|
|
Discount for costs to sell
|
8%
|
Fair Value of Financial Instruments and Servicing Assets
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash, Due from Banks, and Interest-bearing Deposits.
The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value, given the short time frame to maturity and, as such, these assets do not present unanticipated credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.
Held-to-Maturity Investment Securities.
When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, municipal bonds and notes, and private label MBS securities, are classified within Level 2 of the fair value hierarchy.
Loans and Leases, net.
The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow method, using future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases. The associated cash flows are adjusted for credit and other potential losses. Fair value for impaired loans and leases is estimated using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.
Deposit Liabilities.
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.
Time Deposits.
The fair value of a fixed-maturity certificate of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings.
The carrying value is an estimate of fair value for those securities sold under agreements to repurchase and other borrowings that mature within 90 days. The fair values of all other borrowings are estimated using discounted cash flow analysis based on current market rates adjusted, as appropriate, for associated credit risks. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt.
The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flow and are adjusted, as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.
Mortgage Servicing Assets.
Mortgage servicing assets are accounted for at cost, subject to impairment testing. Mortgage servicing assets are considered to be recognized at fair value when they are recorded at below cost. Changes in fair value are included as a component of other non-interest income in the accompanying Condensed Consolidated Statements of Income. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors; as such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.
The estimated fair values of selected financial instruments and servicing assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
At December 31, 2016
|
(In thousands)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Held-to-maturity investment securities
|
$
|
4,497,311
|
|
|
$
|
4,481,675
|
|
|
$
|
4,160,658
|
|
|
$
|
4,125,125
|
|
Transferred loans held for sale
|
—
|
|
|
—
|
|
|
7,317
|
|
|
7,444
|
|
Level 3
|
|
|
|
|
|
|
|
Loans and leases, net
|
17,244,618
|
|
|
17,155,002
|
|
|
16,832,268
|
|
|
16,678,106
|
|
Mortgage servicing assets
|
25,140
|
|
|
44,992
|
|
|
24,466
|
|
|
52,075
|
|
Alternative investments
|
10,296
|
|
|
12,539
|
|
|
11,034
|
|
|
13,189
|
|
Liabilities:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Deposit liabilities
|
$
|
18,636,744
|
|
|
$
|
18,636,744
|
|
|
$
|
17,279,049
|
|
|
$
|
17,279,049
|
|
Time deposits
|
2,218,491
|
|
|
2,213,155
|
|
|
2,024,808
|
|
|
2,024,395
|
|
Securities sold under agreements to repurchase and other borrowings
|
902,902
|
|
|
905,249
|
|
|
949,526
|
|
|
955,660
|
|
FHLB advances
(1)
|
1,507,681
|
|
|
1,512,203
|
|
|
2,842,908
|
|
|
2,825,101
|
|
Long-term debt
(1)
|
225,704
|
|
|
235,686
|
|
|
225,514
|
|
|
225,514
|
|
|
|
(1)
|
The following adjustments to the carrying amount are not included for determination of fair value, see
Note 8:
Borrowings
:
|
•
FHLB advances - unamortized premiums on advances
•
Long-term debt - unamortized discount and debt issuance cost on senior fixed-rate notes
Note 14:
Retirement Benefit Plans
Defined benefit pension and other postretirement benefits
The following table summarizes the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
2017
|
|
2016
|
(In thousands)
|
Pension Plan
|
SERP
|
Other Benefits
|
|
Pension Plan
|
SERP
|
Other Benefits
|
Service cost
|
$
|
12
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
11
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost on benefit obligations
|
1,829
|
|
96
|
|
19
|
|
|
2,110
|
|
98
|
|
32
|
|
Expected return on plan assets
|
(3,074
|
)
|
—
|
|
—
|
|
|
(3,067
|
)
|
—
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
4
|
|
Recognized net loss
|
1,466
|
|
136
|
|
(15
|
)
|
|
1,666
|
|
106
|
|
8
|
|
Net periodic benefit cost
|
$
|
233
|
|
$
|
232
|
|
$
|
4
|
|
|
$
|
720
|
|
$
|
204
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
(In thousands)
|
Pension Plan
|
SERP
|
Other Benefits
|
|
Pension Plan
|
SERP
|
Other Benefits
|
Service cost
|
$
|
37
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
34
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost on benefit obligations
|
5,486
|
|
281
|
|
69
|
|
|
6,331
|
|
292
|
|
94
|
|
Expected return on plan assets
|
(9,222
|
)
|
—
|
|
—
|
|
|
(8,596
|
)
|
—
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
11
|
|
Recognized net loss
|
4,398
|
|
561
|
|
—
|
|
|
4,998
|
|
319
|
|
26
|
|
Net periodic benefit cost
|
$
|
699
|
|
$
|
842
|
|
$
|
69
|
|
|
$
|
2,767
|
|
$
|
611
|
|
$
|
131
|
|
Note 15:
Share-Based Plans
Stock compensation plans
Webster maintains stock compensation plans under which non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights may be granted to employees and directors. The Company believes these share awards better align the interests of its employees with those of its shareholders. Stock compensation cost is recognized over the required service vesting period for the awards, based on the grant-date fair value, net of estimated forfeitures, and is included as a component of compensation and benefits reflected in non-interest expense.
The following table provides a summary of stock compensation expense recognized in the accompanying Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43
|
|
Restricted stock
|
3,007
|
|
|
2,944
|
|
|
9,050
|
|
|
8,515
|
|
Total stock compensation expense
|
$
|
3,007
|
|
|
$
|
2,944
|
|
|
$
|
9,050
|
|
|
$
|
8,558
|
|
At
September 30, 2017
there was
$16.7 million
of unrecognized stock compensation expense for restricted stock expected to be recognized over a weighted-average period of
2.0 years
.
The following table provides a summary of the stock compensation plans activity for the
nine months ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards Outstanding
|
|
Stock Options Outstanding
|
|
Time-Based
|
|
Performance-Based
|
|
|
Number of
Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of
Units
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of
Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of
Shares
|
Weighted-Average
Exercise Price
|
Outstanding, at January 1, 2017
|
253,361
|
|
$
|
32.24
|
|
|
2,158
|
|
$
|
32.89
|
|
|
116,184
|
|
$
|
33.62
|
|
|
1,072,974
|
|
$
|
21.24
|
|
Granted
|
164,953
|
|
54.79
|
|
|
8,129
|
|
56.07
|
|
|
89,581
|
|
56.18
|
|
|
—
|
|
—
|
|
Exercised options
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
279,344
|
|
25.80
|
|
Vested restricted stock awards
(1)
|
155,390
|
|
36.36
|
|
|
6,900
|
|
48.82
|
|
|
87,982
|
|
40.74
|
|
|
—
|
|
—
|
|
Forfeited
|
14,586
|
|
36.44
|
|
|
—
|
|
—
|
|
|
6,276
|
|
42.72
|
|
|
—
|
|
—
|
|
Outstanding and exercisable, at September 30, 2017
|
248,338
|
|
$
|
43.96
|
|
|
3,387
|
|
$
|
56.07
|
|
|
111,507
|
|
$
|
45.61
|
|
|
793,630
|
|
$
|
19.63
|
|
|
|
(1)
|
Vested for purposes of recording compensation expense.
|
Time-based restricted stock.
Time-based restricted stock awards vest over the applicable service period ranging from
1
to
5
years. The number of time-based awards that may be granted to an eligible individual in a calendar year is limited to
100,000
shares. Compensation expense is recorded over the vesting period based on a fair value, which is measured using the Company's common stock closing price at the date of grant.
Performance-based restricted stock.
Performance-based restricted stock awards vest after a
3
year performance period. The awards vest with a share quantity dependent on that performance, in a range from
0
to
150%
. The performance criteria for
50%
of the shares granted in
2017
is based upon Webster's ranking for total shareholder return versus Webster's compensation peer group companies and the remaining
50%
is based upon Webster's average of return on equity during the three year vesting period. The compensation peer group companies are utilized because they represent the financial institutions that best compare with Webster. The Company records compensation expense over the vesting period, based on a fair value calculated using the Monte-Carlo simulation model, which allows for the incorporation of the performance condition for the
50%
of the performance-based shares tied to total shareholder return versus the compensation peer group, and based on a fair value of the market price on the date of grant for the remaining
50%
of the performance-based shares tied to Webster's return on equity. Compensation expense is subject to adjustment based on management's assessment of Webster's return on equity performance relative to the target number of shares condition.
Stock options.
Stock option awards have an exercise price equal to the market price of Webster Financial Corporation's stock on the date of grant. Each option grants the holder the right to acquire a share of Webster Financial Corporation common stock over a contractual life of up to
10
years. All awarded options have vested. There were
735,785
non-qualified stock options and
57,845
incentive stock options outstanding at
September 30, 2017
.
Note 16:
Segment Reporting
Webster’s operations are organized into
three
reportable segments that represent its primary businesses - Commercial Banking, Community Banking and HSA Bank. These
three
segments reflect how executive management responsibilities are assigned, the primary businesses, the products and services provided, the type of customer served, and how discrete financial information is currently evaluated. The Corporate Treasury unit of the Company, along with the amounts required to reconcile profitability metrics to amounts reported in accordance with GAAP, are included in the Corporate and Reconciling category.
Description of Segment Reporting Methodology
Webster’s reportable segment results are intended to reflect each segment as if it were a stand-alone business. Webster uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates and allocations regarding funds transfer pricing, provision for loan and lease losses, non-interest expense, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the reported results of any operating segment do not affect the consolidated financial position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each operating segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.
Webster allocates interest income and interest expense to each business, while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category, using a matched maturity funding concept called Funds Transfer Pricing. The allocation process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. This process is executed by the Company’s Financial Planning and Analysis division and is overseen by ALCO.
Webster allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. Provision expense for certain elements of risk that are not deemed specifically attributable to a reportable segment, such as the provision for the consumer liquidating portfolio, is shown as part of the Corporate and Reconciling category.
Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Income tax expense is allocated to each reportable segment based on the consolidated effective income tax rate for the period shown.
Segment Reporting Modifications
The
2016
segment results have been adjusted for comparability to the
2017
segment presentation for the following changes.
|
|
•
|
To further strengthen Webster's ability to deliver the totality of its products and services to the owners and executives of commercial clients and other high net worth individuals, an organizational change was made during the second quarter of 2017. Effective April 1, 2017, the head of Private Banking reports directly to the head of Commercial Banking. The current organizational structure reflects how executive management responsibilities are assigned and reviewed. As a result of this change, the Private Banking and Commercial Banking operating segments are aggregated into one reportable segment, Commercial Banking.
|
|
|
•
|
In late 2007 Webster discontinued its indirect residential construction lending and its indirect home equity lending outside of its primary New England market area referred to as National Wholesale Lending. Webster placed these two portfolios into a liquidating loan portfolio included within the Corporate and Reconciling category. The balance of the home equity liquidating loan portfolio was
$65.0 million
at
December 31, 2016
. As the remainder of this portfolio has been performing in the same manner as the continuing home equity portfolio, management has decided to combine the liquidating loan portfolio with the continuing home equity loan portfolio. The combined portfolio is included in the Community Banking reportable segment.
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The following table presents total assets for Webster's reportable segments and the Corporate and Reconciling category:
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Total Assets
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
At September 30, 2017
|
$
|
9,428,676
|
|
$
|
8,881,322
|
|
$
|
76,090
|
|
$
|
7,964,094
|
|
$
|
26,350,182
|
|
At December 31, 2016
|
9,069,445
|
|
8,721,046
|
|
83,987
|
|
8,198,051
|
|
26,072,529
|
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The following tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:
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|
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Three months ended September 30, 2017
|
(In thousands)
|
Commercial
Banking
|
Community Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
81,925
|
|
$
|
96,859
|
|
$
|
26,713
|
|
$
|
(4,593
|
)
|
$
|
200,904
|
|
Provision (benefit) for loan and lease losses
|
12,073
|
|
(1,923
|
)
|
—
|
|
—
|
|
10,150
|
|
Net interest income (expense) after provision for loan and lease losses
|
69,852
|
|
98,782
|
|
26,713
|
|
(4,593
|
)
|
190,754
|
|
Non-interest income
|
13,207
|
|
27,079
|
|
19,371
|
|
6,189
|
|
65,846
|
|
Non-interest expense
|
38,339
|
|
92,478
|
|
27,222
|
|
3,784
|
|
161,823
|
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Income (loss) before income tax expense
|
44,720
|
|
33,383
|
|
18,862
|
|
(2,188
|
)
|
94,777
|
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Income tax expense (benefit)
|
14,363
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|
10,605
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|
6,006
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(693
|
)
|
30,281
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Net income (loss)
|
$
|
30,357
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|
$
|
22,778
|
|
$
|
12,856
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|
$
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(1,495
|
)
|
$
|
64,496
|
|
|
|
|
|
|
|
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Three months ended September 30, 2016
|
(In thousands)
|
Commercial
Banking
|
Community Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
74,265
|
|
$
|
91,995
|
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$
|
20,560
|
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$
|
(6,623
|
)
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$
|
180,197
|
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Provision for loan and lease losses
|
7,876
|
|
6,374
|
|
—
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|
—
|
|
14,250
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Net interest income (expense) after provision for loan and lease losses
|
66,389
|
|
85,621
|
|
20,560
|
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(6,623
|
)
|
165,947
|
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Non-interest income
|
15,916
|
|
29,130
|
|
16,900
|
|
4,466
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|
66,412
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Non-interest expense
|
35,793
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|
92,508
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|
23,021
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|
4,775
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|
156,097
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Income (loss) before income tax expense
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46,512
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|
22,243
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|
14,439
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(6,932
|
)
|
76,262
|
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Income tax expense (benefit)
|
14,957
|
|
7,122
|
|
4,624
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(2,258
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)
|
24,445
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Net income (loss)
|
$
|
31,555
|
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$
|
15,121
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$
|
9,815
|
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$
|
(4,674
|
)
|
$
|
51,817
|
|
|
|
|
|
|
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Nine months ended September 30, 2017
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(In thousands)
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Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
239,118
|
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$
|
286,351
|
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$
|
76,339
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$
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(10,453
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)
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$
|
591,355
|
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Provision for loan and lease losses
|
29,562
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(1,662
|
)
|
—
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—
|
|
27,900
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Net interest income (expense) after provision for loan and lease losses
|
209,556
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|
288,013
|
|
76,339
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(10,453
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)
|
563,455
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Non-interest income
|
39,163
|
|
80,516
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|
58,392
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|
15,368
|
|
193,439
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Non-interest expense
|
113,767
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|
281,979
|
|
84,211
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|
10,069
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|
490,026
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Income (loss) before income tax expense
|
134,952
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|
86,550
|
|
50,520
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(5,154
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)
|
266,868
|
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Income tax expense (benefit)
|
41,125
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|
26,374
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|
15,395
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(1,572
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)
|
81,322
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Net income (loss)
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$
|
93,827
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$
|
60,176
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$
|
35,125
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$
|
(3,582
|
)
|
$
|
185,546
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Nine months ended September 30, 2016
|
(In thousands)
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Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
211,422
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$
|
274,186
|
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$
|
60,484
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$
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(12,838
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)
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$
|
533,254
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Provision for loan and lease losses
|
29,765
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|
14,085
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—
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—
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|
43,850
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Net interest income (expense) after provision for loan and lease losses
|
181,657
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|
260,101
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60,484
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(12,838
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)
|
489,404
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Non-interest income
|
41,819
|
|
83,248
|
|
54,969
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|
13,825
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|
193,861
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Non-interest expense
|
103,336
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|
276,045
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|
71,966
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|
9,973
|
|
461,320
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Income (loss) before income tax expense
|
120,140
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|
67,304
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|
43,487
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(8,986
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)
|
221,945
|
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Income tax expense (benefit)
|
39,233
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|
21,979
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|
14,201
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(2,935
|
)
|
72,478
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Net income (loss)
|
$
|
80,907
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$
|
45,325
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$
|
29,286
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$
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(6,051
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)
|
$
|
149,467
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Note 17:
Commitments and Contingencies
Credit-Related Financial Instruments
The Company offers credit-related financial instruments in the normal course of business to meet certain financing needs of its customers, that involve off-balance sheet risk. These transactions may include an unused commitment to extend credit, standby letter of credit, or commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
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(In thousands)
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At September 30, 2017
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At December 31, 2016
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Commitments to extend credit
|
$
|
5,043,151
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$
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5,224,280
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Standby letter of credit
|
159,485
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128,985
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Commercial letter of credit
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42,007
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46,497
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Total credit-related financial instruments with off-balance sheet risk
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$
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5,244,643
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$
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5,399,762
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Commitments to Extend Credit
.
The Company makes commitments under various terms to lend funds to customers at a future point in time. These commitments include revolving credit arrangements, term loan commitments, and short-term borrowing agreements. Most of these loans have fixed expiration dates or other termination clauses where a fee may be required. Since commitments routinely expire without being funded, or after required availability of collateral occurs, the total commitment amount does not necessarily represent future liquidity requirements.
Standby Letter of Credit
.
A standby letter of credit commits the Company to make payments on behalf of customers if certain specified future events occur. The Company has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit, which is often part of a larger credit agreement under which security is provided. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of a standby letter of credit represents the maximum amount of potential future payments the Company could be required to make, and is the Company's maximum credit risk.
Commercial Letter of Credit
.
A commercial letter of credit is issued to facilitate either domestic or foreign trade arrangements for customers. As a general rule, drafts are committed to be drawn when the goods underlying the transaction are in transit. Similar to a standby letter of credit, a commercial letter of credit is often secured by an underlying security agreement including the assets or inventory to which they relate.
These commitments subject the Company to potential exposure in excess of the amounts recorded in the financial statements, and therefore, management maintains a specific reserve for unfunded credit commitments. This reserve is reported as a component of accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets.
The following table provides a summary of activity in the reserve for unfunded credit commitments:
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Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
2,544
|
|
|
$
|
2,319
|
|
|
$
|
2,287
|
|
|
$
|
2,119
|
|
Provision charged to expense
|
—
|
|
|
172
|
|
|
257
|
|
|
372
|
|
Ending balance
|
$
|
2,544
|
|
|
$
|
2,491
|
|
|
$
|
2,544
|
|
|
$
|
2,491
|
|
Litigation
Webster is involved in routine legal proceedings occurring in the ordinary course of business and is subject to loss contingencies related to such litigation and claims arising therefrom. Webster evaluates these contingencies based on information currently available, including advice of counsel and assessment of available insurance coverage. Webster establishes an accrual for litigation and claims when a loss contingency is considered probable and the related amount is reasonably estimable. This accrual is periodically reviewed and may be adjusted as circumstances change. Webster also estimates certain loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. Webster believes it has defenses to all the claims asserted against it in existing litigation matters and intends to defend itself in all matters.
Based upon its current knowledge, after consultation with counsel and after taking into consideration its current litigation accrual, Webster believes that at
September 30, 2017
any reasonably possible losses, in addition to amounts accrued, are not material to Webster’s consolidated financial condition. However, in light of the uncertainties involved in such actions and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts currently accrued by Webster or that the Company’s litigation accrual will not need to be adjusted in future periods. Such an outcome could be material to the Company’s operating results in a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s income for that period.