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
March 31, 2018
, Webster Financial Corporation's principal asset is all of the outstanding capital stock of Webster Bank, National Association (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 U.S. Generally Accepted Accounting Principles (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, 2017
, included in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2018.
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.
Accounting Standards Adopted During 2018
Effective
January1, 2018
, the following new Accounting Standards Updates (ASUs) were adopted by the Company:
ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.
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. Prior to adoption, the Company amortized the premium as a yield adjustment over the contractual life of such debt securities. The Update accelerates the Company's recognition of premium amortization on certain debt securities held within the portfolio.
The Update is effective for the Company on January 1, 2019 and early adoption is permitted. The Company elected to early adopt the Update during the first quarter of 2018 on a modified retrospective basis. As a result, the Company recorded a
$2.8 million
cumulative-effect adjustment directly to retained earnings as of January 1, 2018.
ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The Update requires the Company to retrospectively report service cost as a part of compensation expense and the other components of net periodic benefit cost separately from service cost in the Company's consolidated financial statements. The Company previously included all components of net periodic benefit cost as a component of compensation and benefits expense. Upon adoption, only service cost remains in compensation and benefits expense, while the interest cost on benefit obligations, expected return on plan assets, amortization of prior service cost, and recognized net loss components of the net periodic benefit cost are included in other expense, in the accompanying Condensed Consolidated Statements of Income.
The Company adopted the Update during the first quarter of 2018 on a retrospective basis. As a result, the Company reclassified, for prior periods, the components of it's net periodic benefit costs other than the service cost component from compensation and benefits to other expense in the accompanying Condensed Consolidated Statements of Income. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.
The Update addresses the following eight specific cash flow issues, with the objective of reducing the existing diversity in practice: 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 adopted the Update during the first quarter of 2018 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10)
The Updates included targeted amendments in connection with the recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practical expedient, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The provisions also emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes.
The Company adopted the Updates during the first quarter of 2018 primarily on a modified retrospective basis. As a result, the Company recorded a benefit of
$1.4 million
for a cumulative-effect adjustment directly to retained earnings, as of January 1, 2018, due to a change in valuation method, from cost less impairment, to net asset value using the practical expedient. Also, the measurement alternative has been elected for equity securities, existing as of January 1, 2018, without readily determinable fair values on a prospective basis.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Also, subsequent ASUs issued to clarify this Topic.
The Update, and subsequent related updates, establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The Updates are intended to increase comparability across industries. The core principle of the revenue model is that a company will recognize revenue when it transfers control of goods or services to customers, at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
The Company adopted the Updates during the first quarter of 2018 on a modified retrospective transition approach. The Company did not identify any material changes to the timing of revenue recognition. The Company is changing how it presents certain recurring revenue streams associated with wealth and investment services as other income, versus a contra expense; however, these changes did not have a significant impact on the Company's consolidated financial statements. The adoption of this guidance did not have a material impact on the Company's financial condition or results of operations, and there was no cumulative effect adjustment to opening retained earnings as no material changes were identified in the timing of revenue recognition, however, additional disclosure has been incorporated in
Note 17:
Revenue from Contracts with Customers
.
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 a 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 Update is effective for the Company on January 1, 2019 and early adoption is permitted. The Company is in the process of assessing all potential impacts of the standard.
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
The Update simplifies quantitative goodwill impairment testing by requiring entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit.
This changes current guidance by eliminating the second step of the goodwill impairment analysis which involves calculating the implied fair value of goodwill determined in the same manner as the amount of goodwill recognized in a business combination upon acquisition. Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
The Update must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. The Company does not expect the new guidance to have a material impact on its financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.
Current GAAP requires an "incurred loss" methodology for recognizing credit losses. This approach delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the "probable" threshold.
The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.
The Change from an "incurred loss" method to an "expected loss" method represents a fundamental shift from existing GAAP, and is likely to result in a material increase to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company has established a project lead and has finalized a cross functional steering committee comprised of members from different disciplines including Credit, Finance and Treasury as well as specific working groups to focus on key components of the development process. In addition, through one of the working groups, the Company has begun to evaluate the effect that this Update will have on its financial statements and related disclosures. An implementation project plan has been created and is made up of targeted work streams focused on credit models, data management, accounting, and governance. These work streams are collectively assessing resources that may be required, use of existing and new models, data availability, and system solutions to facilitate implementation. The Update will be effective for the Company on January 1, 2020. While we are currently unable to reasonably estimate the impact of adopting the Update, we expect the impact of adoption will be significantly influenced by the composition, characteristics, and quality of our loan and securities portfolios as well as the economic conditions as of the adoption date.
ASU No. 2016-02, Leases (Topic 842).
The Update introduces a lessee model that requires substantially all leases to be recorded as assets and liabilities on the balance sheet and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements.
The Company is in the process of reviewing its existing leases, including certain service contracts for embedded leases, to evaluate the impact of the standard on the consolidated financial statements, as well as the impact to regulatory reporting, such as capital and risk-weighted assets. The Company has engaged a third party consultant to assist with the implementation efforts.
The effect of the adoption will depend on the lease portfolio at the time of transition and the transition options ultimately available at the time of adoption. The guidance is effective beginning January 1, 2019 with an option to early adopt. The Company does not plan to early adopt the Update. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
Note 2:
Variable Interest Entities
The Company has an investment interest in the following entities that meet the definition of a variable interest entity (VIE).
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. See
Note 13:
Fair Value Measurements
for additional information.
Non-Consolidated
Securitized Investments.
The Company, through normal investment activities, makes passive investments in securities issued by VIEs for which Webster is not the manager. The investment securities consist of Agency CMO, Agency MBS, Agency CMBS, CLO and single issuer-trust preferred. The Company has not provided financial or other support with respect to these investment securities other than its original investment. For these investment securities, the Company determined it is not the primary beneficiary due to the relative size of its investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss is limited to the amount of its investment in the VIEs. See
Note 3:
Investment Securities
for additional information.
Tax Credit - Finance Investments.
The Company makes equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as Webster is not involved in its management. For these investments, the Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.
At
March 31, 2018
and
December 31, 2017
, the aggregate carrying value of the Company's tax credit-finance investments were
$32.5 million
and
$33.5 million
, respectively.
At March 31, 2018
and
December 31, 2017
, unfunded commitments have been recognized, totaling
$16.2 million
and
$17.3 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 the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The trust is a VIE in which the Company is not the primary beneficiary. 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
March 31, 2018
and
December 31, 2017
, the aggregate carrying value of the Company's other investments in VIEs were
$16.3 million
and
$13.8 million
, respectively, and the total exposure of the Company's other investments in VIEs, including unfunded commitments, were
$25.3 million
and
$22.9 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 description of the Company's accounting policy regarding the consolidation of VIEs, refer to Note 1 to the Consolidated Financial Statements included in its Form 10-K, for the year ended December 31,
2017
.
Note 3:
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 March 31, 2018
|
|
At December 31, 2017
|
(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
|
$
|
449
|
|
$
|
—
|
|
$
|
—
|
|
$
|
449
|
|
|
$
|
1,247
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,247
|
|
Agency CMO
|
290,105
|
|
526
|
|
(6,052
|
)
|
284,579
|
|
|
308,989
|
|
1,158
|
|
(3,814
|
)
|
306,333
|
|
Agency MBS
|
1,304,856
|
|
1,522
|
|
(41,110
|
)
|
1,265,268
|
|
|
1,124,960
|
|
2,151
|
|
(19,270
|
)
|
1,107,841
|
|
Agency CMBS
|
622,400
|
|
—
|
|
(31,098
|
)
|
591,302
|
|
|
608,276
|
|
—
|
|
(20,250
|
)
|
588,026
|
|
CMBS
|
365,006
|
|
2,045
|
|
(157
|
)
|
366,894
|
|
|
358,984
|
|
2,157
|
|
(74
|
)
|
361,067
|
|
CLO
|
201,254
|
|
691
|
|
(108
|
)
|
201,837
|
|
|
209,075
|
|
910
|
|
(134
|
)
|
209,851
|
|
Single issuer-trust preferred
|
7,111
|
|
—
|
|
(70
|
)
|
7,041
|
|
|
7,096
|
|
—
|
|
(46
|
)
|
7,050
|
|
Corporate debt
|
56,350
|
|
496
|
|
(710
|
)
|
56,136
|
|
|
56,504
|
|
797
|
|
(679
|
)
|
56,622
|
|
Available-for-sale
|
$
|
2,847,531
|
|
$
|
5,280
|
|
$
|
(79,305
|
)
|
$
|
2,773,506
|
|
|
$
|
2,675,131
|
|
$
|
7,173
|
|
$
|
(44,267
|
)
|
$
|
2,638,037
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
245,663
|
|
$
|
417
|
|
$
|
(7,139
|
)
|
$
|
238,941
|
|
|
$
|
260,114
|
|
$
|
664
|
|
$
|
(4,824
|
)
|
$
|
255,954
|
|
Agency MBS
|
2,544,104
|
|
12,571
|
|
(80,678
|
)
|
2,475,997
|
|
|
2,569,735
|
|
16,989
|
|
(37,442
|
)
|
2,549,282
|
|
Agency CMBS
|
689,602
|
|
—
|
|
(20,744
|
)
|
668,858
|
|
|
696,566
|
|
—
|
|
(10,011
|
)
|
686,555
|
|
Municipal bonds and notes
|
692,582
|
|
2,400
|
|
(16,091
|
)
|
678,891
|
|
|
711,381
|
|
8,584
|
|
(6,558
|
)
|
713,407
|
|
CMBS
|
236,172
|
|
891
|
|
(2,909
|
)
|
234,154
|
|
|
249,273
|
|
2,175
|
|
(620
|
)
|
250,828
|
|
Private Label MBS
|
198
|
|
|
|
—
|
|
198
|
|
|
323
|
|
1
|
|
—
|
|
324
|
|
Held-to-maturity
|
$
|
4,408,321
|
|
$
|
16,279
|
|
$
|
(127,561
|
)
|
$
|
4,297,039
|
|
|
$
|
4,487,392
|
|
$
|
28,413
|
|
$
|
(59,455
|
)
|
$
|
4,456,350
|
|
Other-Than-Temporary Impairment
The amount in the amortized cost columns in the table above includes other-than-temporary impairment (OTTI) 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.
The following table presents activity for OTTI:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Beginning balance
|
$
|
1,364
|
|
|
$
|
3,243
|
|
Reduction for investment securities sold or called
|
—
|
|
|
(12
|
)
|
Ending balance
|
$
|
1,364
|
|
|
$
|
3,231
|
|
To the extent that changes occur in interest rates, credit movements, or 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.
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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|
|
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|
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At March 31, 2018
|
|
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:
|
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|
|
|
|
|
|
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|
Agency CMO
|
$
|
113,804
|
|
$
|
(1,601
|
)
|
|
$
|
110,998
|
|
$
|
(4,451
|
)
|
|
34
|
$
|
224,802
|
|
$
|
(6,052
|
)
|
Agency MBS
|
597,062
|
|
(13,730
|
)
|
|
577,081
|
|
(27,380
|
)
|
|
159
|
1,174,143
|
|
(41,110
|
)
|
Agency CMBS
|
72,147
|
|
(2,248
|
)
|
|
519,155
|
|
(28,850
|
)
|
|
37
|
591,302
|
|
(31,098
|
)
|
CMBS
|
53,552
|
|
(157
|
)
|
|
—
|
|
—
|
|
|
9
|
53,552
|
|
(157
|
)
|
CLO
|
99,288
|
|
(12
|
)
|
|
15,068
|
|
(96
|
)
|
|
6
|
114,356
|
|
(108
|
)
|
Single issuer-trust preferred
|
7,041
|
|
(70
|
)
|
|
—
|
|
—
|
|
|
1
|
7,041
|
|
(70
|
)
|
Corporate debt
|
11,077
|
|
(406
|
)
|
|
6,248
|
|
(304
|
)
|
|
4
|
17,325
|
|
(710
|
)
|
Available-for-sale in an unrealized loss position
|
$
|
953,971
|
|
$
|
(18,224
|
)
|
|
$
|
1,228,550
|
|
$
|
(61,081
|
)
|
|
250
|
$
|
2,182,521
|
|
$
|
(79,305
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
104,568
|
|
$
|
(2,199
|
)
|
|
$
|
101,482
|
|
$
|
(4,940
|
)
|
|
22
|
$
|
206,050
|
|
$
|
(7,139
|
)
|
Agency MBS
|
1,066,786
|
|
(24,771
|
)
|
|
1,143,544
|
|
(55,907
|
)
|
|
253
|
2,210,330
|
|
(80,678
|
)
|
Agency CMBS
|
542,868
|
|
(15,740
|
)
|
|
125,991
|
|
(5,004
|
)
|
|
56
|
668,859
|
|
(20,744
|
)
|
Municipal bonds and notes
|
233,121
|
|
(4,137
|
)
|
|
218,963
|
|
(11,954
|
)
|
|
200
|
452,084
|
|
(16,091
|
)
|
CMBS
|
148,267
|
|
(2,595
|
)
|
|
13,276
|
|
(314
|
)
|
|
20
|
161,543
|
|
(2,909
|
)
|
Held-to-maturity in an unrealized loss position
|
$
|
2,095,610
|
|
$
|
(49,442
|
)
|
|
$
|
1,603,256
|
|
$
|
(78,119
|
)
|
|
551
|
$
|
3,698,866
|
|
$
|
(127,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
Less Than Twelve Months
|
|
Twelve Months or Longer
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
Unrealized
Losses
|
|
Fair
Value
|
Unrealized
Losses
|
|
# of
Holdings
|
Fair
Value
|
Unrealized
Losses
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
81,001
|
|
$
|
(449
|
)
|
|
$
|
119,104
|
|
$
|
(3,365
|
)
|
|
27
|
$
|
200,105
|
|
$
|
(3,814
|
)
|
Agency MBS
|
416,995
|
|
(2,920
|
)
|
|
606,021
|
|
(16,350
|
)
|
|
135
|
1,023,016
|
|
(19,270
|
)
|
Agency CMBS
|
54,182
|
|
(851
|
)
|
|
533,844
|
|
(19,399
|
)
|
|
36
|
588,026
|
|
(20,250
|
)
|
CMBS
|
23,869
|
|
(74
|
)
|
|
—
|
|
—
|
|
|
6
|
23,869
|
|
(74
|
)
|
CLO
|
56,335
|
|
(134
|
)
|
|
—
|
|
—
|
|
|
3
|
56,335
|
|
(134
|
)
|
Single issuer-trust preferred
|
7,050
|
|
(46
|
)
|
|
—
|
|
—
|
|
|
1
|
7,050
|
|
(46
|
)
|
Corporate debt
|
11,082
|
|
(395
|
)
|
|
6,265
|
|
(284
|
)
|
|
4
|
17,347
|
|
(679
|
)
|
Available-for-sale in an unrealized loss position
|
$
|
650,514
|
|
$
|
(4,869
|
)
|
|
$
|
1,265,234
|
|
$
|
(39,398
|
)
|
|
212
|
$
|
1,915,748
|
|
$
|
(44,267
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
98,090
|
|
$
|
(1,082
|
)
|
|
$
|
106,775
|
|
$
|
(3,742
|
)
|
|
22
|
$
|
204,865
|
|
$
|
(4,824
|
)
|
Agency MBS
|
762,107
|
|
(4,555
|
)
|
|
1,197,839
|
|
(32,887
|
)
|
|
205
|
1,959,946
|
|
(37,442
|
)
|
Agency CMBS
|
576,770
|
|
(7,599
|
)
|
|
109,785
|
|
(2,412
|
)
|
|
56
|
686,555
|
|
(10,011
|
)
|
Municipal bonds and notes
|
6,432
|
|
(38
|
)
|
|
226,861
|
|
(6,520
|
)
|
|
92
|
233,293
|
|
(6,558
|
)
|
CMBS
|
92,670
|
|
(413
|
)
|
|
14,115
|
|
(207
|
)
|
|
13
|
106,785
|
|
(620
|
)
|
Held-to-maturity in an unrealized loss position
|
$
|
1,536,069
|
|
$
|
(13,687
|
)
|
|
$
|
1,655,375
|
|
$
|
(45,768
|
)
|
|
388
|
$
|
3,191,444
|
|
$
|
(59,455
|
)
|
Impairment Analysis
The following impairment analysis 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 since
December 31, 2017
. 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 any of these investment securities, in unrealized loss positions, to be other-than-temporarily impaired at
March 31, 2018
.
Available-for-Sale Securities
Agency CMO.
There were unrealized losses of
$6.1 million
on the Company’s investment in Agency CMO at
March 31, 2018
, compared to
$3.8 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances decreased for this asset class since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency MBS.
There were unrealized losses of
$41.1 million
on the Company’s investment in residential mortgage-backed securities issued by government agencies at
March 31, 2018
, compared to
$19.3 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances increased for this asset class since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS.
There were unrealized losses of
$31.1 million
on the Company's investment in commercial mortgage-backed securities issued by government agencies at
March 31, 2018
, compared to
$20.3 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances increased for this asset class since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
CMBS.
There were unrealized losses of
$157 thousand
on the Company’s investment in CMBS at
March 31, 2018
, compared to
$74 thousand
at
December 31, 2017
. Unrealized losses and balances were essentially unchanged for the portfolio of mainly floating rate CMBS at
March 31, 2018
compared to
December 31, 2017
. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.
CLO.
There were unrealized losses of
$108 thousand
on the Company’s investments in CLO at
March 31, 2018
compared to
$134 thousand
unrealized losses at
December 31, 2017
. Unrealized losses were essentially unchanged while principal balances decreased from
December 31, 2017
. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.
Single issuer-trust preferred.
There were unrealized losses of
$70 thousand
on the Company's investment in single issuer-trust preferred at
March 31, 2018
, compared to
$46 thousand
at
December 31, 2017
. Unrealized losses and balances were essentially unchanged for this asset class. Single issuer-trust preferred is one investment issued by a large capitalization money center financial institution, which continues to service its debt. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Corporate debt.
There were unrealized losses of
$710 thousand
on the Company's corporate debt portfolio at
March 31, 2018
, compared to
$679 thousand
at
December 31, 2017
. Unrealized losses and balances were essentially unchanged since
December 31, 2017
. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Held-to-Maturity Securities
Agency CMO.
There were unrealized losses of
$7.1 million
on the Company’s investment in Agency CMO at
March 31, 2018
, compared to
$4.8 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances decreased since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency MBS.
There were unrealized losses of
$80.7 million
on the Company’s investment in residential mortgage-backed securities issued by government agencies at
March 31, 2018
, compared to
$37.4 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances were essentially unchanged for this asset class since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS.
There were unrealized losses of
$20.7 million
on the Company’s investment in commercial mortgage-backed securities issued by government agencies at
March 31, 2018
, compared to
$10.0 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances decreased since
December 31, 2017
. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Municipal bonds and notes.
There were unrealized losses of
$16.1 million
on the Company’s investment in municipal bonds and notes at
March 31, 2018
, compared to
$6.6 million
at
December 31, 2017
. Unrealized losses increased due to higher market rates while principal balances decreased since
December 31, 2017
. The Company performs periodic credit reviews of the issuers and the securities are currently performing as expected.
CMBS.
There were unrealized losses of
$2.9 million
on the Company’s investment in CMBS at
March 31, 2018
, compared to
$0.6 million
unrealized losses at
December 31, 2017
. Unrealized losses increased due to higher market rates on mainly seasoned fixed rate conduit transactions while principal balances decreased since
December 31, 2017
. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios.
Sales of Available-for Sale Investment Securities
There were
no
sales during the
three months ended March 31, 2018
or the
three months ended March 31, 2017
.
Contractual Maturities
The amortized cost and fair value of debt securities by contractual maturity are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
(In thousands)
|
Amortized
Cost
|
Fair
Value
|
|
Amortized
Cost
|
Fair
Value
|
Due in one year or less
|
$
|
449
|
|
$
|
449
|
|
|
$
|
24,222
|
|
$
|
24,489
|
|
Due after one year through five years
|
54,883
|
|
55,020
|
|
|
3,532
|
|
3,545
|
|
Due after five through ten years
|
343,072
|
|
343,803
|
|
|
42,410
|
|
42,687
|
|
Due after ten years
|
2,449,127
|
|
2,374,234
|
|
|
4,338,157
|
|
4,226,318
|
|
Total debt securities
|
$
|
2,847,531
|
|
$
|
2,773,506
|
|
|
$
|
4,408,321
|
|
$
|
4,297,039
|
|
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
March 31, 2018
, 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
$2.6 billion
at
March 31, 2018
and
$2.4 billion
at
December 31, 2017
were pledged to secure public funds, trust deposits, repurchase agreements, and for other purposes, as required or permitted by law.
Note 4:
Loans and Leases
The following table summarizes loans and leases:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At March 31,
2018
|
|
At December 31, 2017
|
Residential
|
$
|
4,459,862
|
|
|
$
|
4,490,878
|
|
Consumer
|
2,522,380
|
|
|
2,590,225
|
|
Commercial
|
5,759,124
|
|
|
5,368,694
|
|
Commercial Real Estate
|
4,544,831
|
|
|
4,523,828
|
|
Equipment Financing
|
519,378
|
|
|
550,233
|
|
Loans and leases
(1) (2)
|
$
|
17,805,575
|
|
|
$
|
17,523,858
|
|
|
|
(1)
|
Loans and leases include net deferred fees and net premiums/discounts of
$17.9 million
and
$20.6 million
at
March 31, 2018
and
December 31, 2017
, respectively.
|
|
|
(2)
|
At
March 31, 2018
the Company had pledged
$6.6 billion
of eligible residential, consumer, and commercial loans as collateral to support borrowing capacity at the Federal Home Loan Bank (FHLB) Boston and the Federal Reserve Bank (FRB) of Boston.
|
Loans and Leases Aging
The following tables summarize the aging of loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
(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
|
$
|
13,829
|
|
$
|
3,571
|
|
$
|
—
|
|
$
|
44,574
|
|
$
|
61,974
|
|
$
|
4,397,888
|
|
$
|
4,459,862
|
|
Consumer:
|
|
|
|
|
|
|
|
Home equity
|
8,951
|
|
5,627
|
|
—
|
|
35,894
|
|
50,472
|
|
2,239,473
|
|
2,289,945
|
|
Other consumer
|
2,008
|
|
1,061
|
|
—
|
|
1,614
|
|
4,683
|
|
227,752
|
|
232,435
|
|
Commercial:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
1,526
|
|
236
|
|
604
|
|
42,990
|
|
45,356
|
|
4,839,497
|
|
4,884,853
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
1,534
|
|
1,534
|
|
872,737
|
|
874,271
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
508
|
|
603
|
|
245
|
|
3,889
|
|
5,245
|
|
4,343,274
|
|
4,348,519
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
196,312
|
|
196,312
|
|
Equipment financing
|
2,840
|
|
156
|
|
—
|
|
3,668
|
|
6,664
|
|
512,714
|
|
519,378
|
|
Total
|
$
|
29,662
|
|
$
|
11,254
|
|
$
|
849
|
|
$
|
134,163
|
|
$
|
175,928
|
|
$
|
17,629,647
|
|
$
|
17,805,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
(In thousands)
|
30-59 Days
Past Due and
Accruing
|
60-89 Days
Past Due and
Accruing
|
90 or More Days Past Due
and Accruing
|
Non-accrual
|
Total Past Due and Non-accrual
|
Current
|
Total Loans
and Leases
|
Residential
|
$
|
8,643
|
|
$
|
5,146
|
|
$
|
—
|
|
$
|
44,481
|
|
$
|
58,270
|
|
$
|
4,432,608
|
|
$
|
4,490,878
|
|
Consumer:
|
|
|
|
|
|
|
|
Home equity
|
12,668
|
|
5,770
|
|
—
|
|
35,645
|
|
54,083
|
|
2,298,185
|
|
2,352,268
|
|
Other consumer
|
2,556
|
|
1,444
|
|
—
|
|
1,707
|
|
5,707
|
|
232,250
|
|
237,957
|
|
Commercial:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
5,212
|
|
603
|
|
644
|
|
39,214
|
|
45,673
|
|
4,488,242
|
|
4,533,915
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
589
|
|
589
|
|
834,190
|
|
834,779
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
478
|
|
77
|
|
248
|
|
4,484
|
|
5,287
|
|
4,238,987
|
|
4,244,274
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
279,554
|
|
279,554
|
|
Equipment financing
|
1,732
|
|
626
|
|
—
|
|
393
|
|
2,751
|
|
547,482
|
|
550,233
|
|
Total
|
$
|
31,289
|
|
$
|
13,666
|
|
$
|
892
|
|
$
|
126,513
|
|
$
|
172,360
|
|
$
|
17,351,498
|
|
$
|
17,523,858
|
|
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
$2.1 million
and
$3.1 million
for the
three months ended March 31, 2018
and
2017
, 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 allowance for loan and lease losses (ALLL):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 2018
|
(In thousands)
|
Residential
|
Consumer
|
Commercial
|
Commercial
Real Estate
|
Equipment
Financing
|
Total
|
ALLL:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
19,058
|
|
$
|
36,190
|
|
$
|
89,533
|
|
$
|
49,407
|
|
$
|
5,806
|
|
$
|
199,994
|
|
Provision (benefit) charged to expense
|
251
|
|
1,680
|
|
7,420
|
|
2,104
|
|
(455
|
)
|
11,000
|
|
Charge-offs
|
(917
|
)
|
(5,074
|
)
|
(1,497
|
)
|
(77
|
)
|
(45
|
)
|
(7,610
|
)
|
Recoveries
|
385
|
|
1,443
|
|
117
|
|
2
|
|
18
|
|
1,965
|
|
Balance, end of period
|
$
|
18,777
|
|
$
|
34,239
|
|
$
|
95,573
|
|
$
|
51,436
|
|
$
|
5,324
|
|
$
|
205,349
|
|
Individually evaluated for impairment
|
$
|
4,574
|
|
$
|
1,579
|
|
$
|
11,166
|
|
$
|
257
|
|
$
|
21
|
|
$
|
17,597
|
|
Collectively evaluated for impairment
|
$
|
14,203
|
|
$
|
32,660
|
|
$
|
84,407
|
|
$
|
51,179
|
|
$
|
5,303
|
|
$
|
187,752
|
|
|
|
|
|
|
|
|
Loan and lease balances:
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
111,937
|
|
$
|
42,587
|
|
$
|
76,573
|
|
$
|
10,928
|
|
$
|
6,455
|
|
$
|
248,480
|
|
Collectively evaluated for impairment
|
4,347,925
|
|
2,479,793
|
|
5,682,551
|
|
4,533,903
|
|
512,923
|
|
17,557,095
|
|
Loans and leases
|
$
|
4,459,862
|
|
$
|
2,522,380
|
|
$
|
5,759,124
|
|
$
|
4,544,831
|
|
$
|
519,378
|
|
$
|
17,805,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 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
|
(2,467
|
)
|
5,326
|
|
4,250
|
|
3,345
|
|
46
|
|
10,500
|
|
Charge-offs
|
(732
|
)
|
(6,474
|
)
|
(123
|
)
|
(102
|
)
|
(185
|
)
|
(7,616
|
)
|
Recoveries
|
237
|
|
1,323
|
|
322
|
|
7
|
|
14
|
|
1,903
|
|
Balance, end of period
|
$
|
20,264
|
|
$
|
45,408
|
|
$
|
76,354
|
|
$
|
50,727
|
|
$
|
6,354
|
|
$
|
199,107
|
|
Individually evaluated for impairment
|
$
|
6,981
|
|
$
|
2,605
|
|
$
|
11,564
|
|
$
|
256
|
|
$
|
5
|
|
$
|
21,411
|
|
Collectively evaluated for impairment
|
$
|
13,283
|
|
$
|
42,803
|
|
$
|
64,790
|
|
$
|
50,471
|
|
$
|
6,349
|
|
$
|
177,696
|
|
|
|
|
|
|
|
|
Loan and lease balances:
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
120,976
|
|
$
|
47,281
|
|
$
|
86,805
|
|
$
|
23,954
|
|
$
|
6,148
|
|
$
|
285,164
|
|
Collectively evaluated for impairment
|
4,169,709
|
|
2,586,782
|
|
4,932,578
|
|
4,506,553
|
|
613,713
|
|
16,809,335
|
|
Loans and leases
|
$
|
4,290,685
|
|
$
|
2,634,063
|
|
$
|
5,019,383
|
|
$
|
4,530,507
|
|
$
|
619,861
|
|
$
|
17,094,499
|
|
Impaired Loans and Leases
The following tables summarize impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
(In thousands)
|
Unpaid
Principal
Balance
|
Total
Recorded
Investment
|
Recorded
Investment
No Allowance
|
Recorded
Investment
With Allowance
|
Related
Valuation
Allowance
|
Residential
|
$
|
122,063
|
|
$
|
111,937
|
|
$
|
70,143
|
|
$
|
41,794
|
|
$
|
4,574
|
|
Consumer - home equity
|
47,452
|
|
42,587
|
|
32,408
|
|
10,179
|
|
1,579
|
|
Commercial :
|
|
|
|
|
|
Commercial non-mortgage
|
83,660
|
|
75,039
|
|
30,078
|
|
44,961
|
|
11,166
|
|
Asset-based
|
4,282
|
|
1,534
|
|
1,534
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
Commercial real estate
|
11,690
|
|
10,928
|
|
6,305
|
|
4,623
|
|
257
|
|
Commercial construction
|
212
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Equipment financing
|
6,465
|
|
6,455
|
|
5,999
|
|
456
|
|
21
|
|
Total
|
$
|
275,824
|
|
$
|
248,480
|
|
$
|
146,467
|
|
$
|
102,013
|
|
$
|
17,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
(In thousands)
|
Unpaid
Principal
Balance
|
Total
Recorded
Investment
|
Recorded
Investment
No Allowance
|
Recorded
Investment
With Allowance
|
Related
Valuation
Allowance
|
Residential
|
$
|
125,352
|
|
$
|
114,295
|
|
$
|
69,759
|
|
$
|
44,536
|
|
$
|
4,805
|
|
Consumer - home equity
|
50,809
|
|
45,436
|
|
34,418
|
|
11,018
|
|
1,668
|
|
Commercial :
|
|
|
|
|
|
Commercial non-mortgage
|
79,900
|
|
71,882
|
|
27,313
|
|
44,569
|
|
9,786
|
|
Asset-based
|
3,272
|
|
589
|
|
589
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
Commercial real estate
|
11,994
|
|
11,226
|
|
6,387
|
|
4,839
|
|
272
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Equipment financing
|
3,409
|
|
3,325
|
|
2,932
|
|
393
|
|
23
|
|
Total
|
$
|
274,736
|
|
$
|
246,753
|
|
$
|
141,398
|
|
$
|
105,355
|
|
$
|
16,554
|
|
The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
(In thousands)
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Recorded
Investment
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
Residential
|
$
|
113,116
|
|
$
|
981
|
|
$
|
253
|
|
|
$
|
120,200
|
|
$
|
1,070
|
|
$
|
415
|
|
Consumer - home equity
|
44,011
|
|
294
|
|
250
|
|
|
46,500
|
|
322
|
|
313
|
|
Commercial
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
73,461
|
|
539
|
|
—
|
|
|
69,921
|
|
222
|
|
—
|
|
Asset based
|
1,061
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
11,077
|
|
96
|
|
—
|
|
|
23,170
|
|
135
|
|
—
|
|
Commercial construction
|
—
|
|
—
|
|
—
|
|
|
1,184
|
|
12
|
|
—
|
|
Equipment financing
|
4,890
|
|
36
|
|
—
|
|
|
6,284
|
|
71
|
|
—
|
|
Total
|
$
|
247,616
|
|
$
|
1,946
|
|
$
|
503
|
|
|
$
|
267,259
|
|
$
|
1,832
|
|
$
|
728
|
|
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 default (PD) and the loss given default (LGD). The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of 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 March 31,
2018
|
|
At December 31,
2017
|
|
At March 31,
2018
|
|
At December 31,
2017
|
|
At March 31,
2018
|
|
At December 31,
2017
|
(1) - (6) Pass
|
$
|
5,337,985
|
|
|
$
|
5,048,162
|
|
|
$
|
4,384,598
|
|
|
$
|
4,355,916
|
|
|
$
|
493,311
|
|
|
$
|
525,105
|
|
(7) Special Mention
|
210,164
|
|
|
104,594
|
|
|
44,742
|
|
|
62,065
|
|
|
7,119
|
|
|
8,022
|
|
(8) Substandard
|
201,959
|
|
|
206,883
|
|
|
115,491
|
|
|
105,847
|
|
|
18,948
|
|
|
17,106
|
|
(9) Doubtful
|
9,016
|
|
|
9,055
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
5,759,124
|
|
|
$
|
5,368,694
|
|
|
$
|
4,544,831
|
|
|
$
|
4,523,828
|
|
|
$
|
519,378
|
|
|
$
|
550,233
|
|
For residential and consumer loans, the primary credit quality indicator that the Company considers is past due status. Other factors, such as, updated Fair Isaac Corporation (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 may also be evaluated. On an ongoing basis for portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for 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 real estate price 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 troubled debt restructurings (TDRs):
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
At March 31,
2018
|
|
At December 31, 2017
|
Accrual status
|
$
|
141,608
|
|
|
$
|
147,113
|
|
Non-accrual status
|
77,930
|
|
|
74,291
|
|
Total recorded investment of TDRs
|
$
|
219,538
|
|
|
$
|
221,404
|
|
Specific reserves for TDRs included in the balance of ALLL
|
$
|
13,874
|
|
|
$
|
12,384
|
|
Additional funds committed to borrowers in TDR status
|
3,347
|
|
|
2,736
|
|
For the portion of TDRs deemed to be uncollectible, Webster charged off
$0.7 million
, and
$2.0 million
for the
three months ended March 31, 2018
and
2017
, respectively.
The following table provides information on the type of concession for loans and leases modified as TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
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
|
—
|
$
|
—
|
|
|
5
|
$
|
970
|
|
Maturity/Rate Combined
|
—
|
—
|
|
|
3
|
492
|
|
Other
(2)
|
5
|
757
|
|
|
19
|
2,938
|
|
Consumer - home equity
|
|
|
|
|
|
Extended Maturity
|
2
|
193
|
|
|
2
|
39
|
|
Maturity/Rate Combined
|
2
|
113
|
|
|
7
|
1,983
|
|
Other
(2)
|
11
|
778
|
|
|
33
|
2,193
|
|
Commercial non - mortgage
|
|
|
|
|
|
Extended Maturity
|
3
|
85
|
|
|
2
|
35
|
|
Other
(2)
|
2
|
4,684
|
|
|
1
|
4
|
|
Commercial real estate:
|
|
|
|
|
|
Extended Maturity
|
1
|
45
|
|
|
—
|
—
|
|
Total TDRs
|
26
|
$
|
6,655
|
|
|
72
|
$
|
8,654
|
|
|
|
(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.
|
There were
no
significant amounts of loans and leases modified as TDRs within the previous 12 months and for which there was a payment default for the
three months ended March 31, 2018
or
2017
.
The recorded investment of TDRs in commercial, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At March 31, 2018
|
|
At December 31, 2017
|
(1) - (6) Pass
|
$
|
8,591
|
|
|
$
|
8,268
|
|
(7) Special Mention
|
349
|
|
|
355
|
|
(8) Substandard
|
56,074
|
|
|
53,050
|
|
(9) Doubtful
|
—
|
|
|
—
|
|
Total
|
$
|
65,014
|
|
|
$
|
61,673
|
|
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 March 31,
|
(In thousands)
|
2018
|
|
2017
|
Beginning balance
|
$
|
872
|
|
|
$
|
790
|
|
(Benefit) provision charged to expense
|
(203
|
)
|
|
34
|
|
Repurchased loans and settlements charged off
|
(5
|
)
|
|
—
|
|
Ending balance
|
$
|
664
|
|
|
$
|
824
|
|
The following table provides information for mortgage banking activities:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Residential mortgage loans held for sale:
|
|
|
|
Proceeds from sale
|
$
|
44,806
|
|
|
$
|
106,620
|
|
Loans sold with servicing rights retained
|
39,904
|
|
|
99,500
|
|
|
|
|
|
Net gain on sale
|
1,083
|
|
|
251
|
|
Ancillary fees
|
410
|
|
|
768
|
|
Fair value option adjustment
|
(349
|
)
|
|
1,247
|
|
The Company has retained servicing rights on residential mortgage loans totaling
$2.6 billion
at both
March 31, 2018
and
December 31, 2017
.
The following table presents the changes in carrying value for mortgage servicing assets:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Beginning balance
|
$
|
25,139
|
|
|
$
|
24,466
|
|
Additions
|
1,412
|
|
|
2,009
|
|
Amortization
|
(2,148
|
)
|
|
(2,139
|
)
|
Ending balance
|
$
|
24,403
|
|
|
$
|
24,336
|
|
Loan servicing fees, net of mortgage servicing rights amortization, were
$0.3 million
and
$0.2 million
for the
three months ended March 31, 2018
and
2017
, 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 additional fair value information on loans held for sale and mortgage servicing assets.
Additionally, loans not originated for sale were sold approximately at carrying value, for cash proceeds of
$34 thousand
for certain commercial loans and
$7.4 million
for certain residential loans for the
three months ended March 31, 2018
and
2017
, respectively.
Note 6:
Goodwill and Other Intangible Assets
Goodwill and other intangible assets by reportable segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
|
At December 31, 2017
|
(In thousands)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Goodwill:
|
|
|
|
|
|
|
|
Community Banking
|
|
|
$
|
516,560
|
|
|
|
|
$
|
516,560
|
|
HSA Bank
|
|
|
21,813
|
|
|
|
|
21,813
|
|
Total goodwill
|
|
|
$
|
538,373
|
|
|
|
|
$
|
538,373
|
|
|
|
|
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
HSA Bank - Core deposits
|
$
|
22,000
|
|
$
|
(9,167
|
)
|
$
|
12,833
|
|
|
$
|
22,000
|
|
$
|
(8,610
|
)
|
$
|
13,390
|
|
HSA Bank - Customer relationships
|
21,000
|
|
(5,183
|
)
|
15,817
|
|
|
21,000
|
|
(4,779
|
)
|
16,221
|
|
Total other intangible assets
|
$
|
43,000
|
|
$
|
(14,350
|
)
|
$
|
28,650
|
|
|
$
|
43,000
|
|
$
|
(13,389
|
)
|
$
|
29,611
|
|
As of
March 31, 2018
, the remaining estimated aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
(In thousands)
|
|
Remainder of 2018
|
$
|
2,886
|
|
2019
|
3,847
|
|
2020
|
3,847
|
|
2021
|
3,847
|
|
2022
|
3,847
|
|
Thereafter
|
10,376
|
|
Note 7:
Deposits
A summary of deposits by type follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At March 31,
2018
|
|
At December 31,
2017
|
Non-interest-bearing:
|
|
|
|
Demand
|
$
|
4,074,992
|
|
|
$
|
4,191,496
|
|
Interest-bearing:
|
|
|
|
Checking
|
2,624,885
|
|
|
2,736,952
|
|
Health savings accounts
|
5,487,627
|
|
|
5,038,681
|
|
Money market
|
2,344,526
|
|
|
2,209,492
|
|
Savings
|
4,299,759
|
|
|
4,348,700
|
|
Time deposits
|
2,553,253
|
|
|
2,468,408
|
|
Total interest-bearing
|
17,310,050
|
|
|
16,802,233
|
|
Total deposits
|
$
|
21,385,042
|
|
|
$
|
20,993,729
|
|
|
|
|
|
Time deposits and interest-bearing checking, included in above balances, obtained through brokers
|
$
|
864,362
|
|
|
$
|
898,157
|
|
Time deposits, included in above balance, that meet or exceed the Federal Deposit Insurance Corporation (FDIC) limit
|
741,349
|
|
|
561,512
|
|
Deposit overdrafts reclassified as loan balances
|
1,984
|
|
|
2,210
|
|
The scheduled maturities of time deposits are as follows:
|
|
|
|
|
(In thousands)
|
At March 31,
2018
|
Remainder of 2018
|
$
|
1,301,903
|
|
2019
|
822,693
|
|
2020
|
246,205
|
|
2021
|
117,426
|
|
2022
|
49,543
|
|
Thereafter
|
15,483
|
|
Total time deposits
|
$
|
2,553,253
|
|
Note 8:
Borrowings
Total borrowings of
$2.4 billion
at
March 31, 2018
and
$2.5 billion
at
December 31, 2017
are described in detail below.
The following table summarizes securities sold under agreements to repurchase and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31,
2018
|
|
At December 31,
2017
|
(In thousands)
|
Amount
|
Rate
|
|
Amount
|
Rate
|
Securities sold under agreements to repurchase
(1)
:
|
|
|
|
|
|
Original maturity of one year or less
|
$
|
215,299
|
|
0.18
|
%
|
|
$
|
288,269
|
|
0.17
|
%
|
Original maturity of greater than one year, non-callable
|
300,000
|
|
3.10
|
|
|
300,000
|
|
3.10
|
|
Total securities sold under agreements to repurchase
|
515,299
|
|
1.88
|
|
|
588,269
|
|
1.66
|
|
Fed funds purchased
|
416,000
|
|
1.72
|
|
|
55,000
|
|
1.37
|
|
Securities sold under agreements to repurchase and other borrowings
|
$
|
931,299
|
|
1.81
|
|
|
$
|
643,269
|
|
1.64
|
|
|
|
(1)
|
The Company has right of offset with respect to all repurchase agreement assets and liabilities. However, securities sold under agreements to repurchase represents the gross amount for these transactions, as only liabilities are outstanding for the periods presented.
|
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 or municipal customers through Webster’s Treasury Unit.
The following table provides information for FHLB advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31,
2018
|
|
At December 31,
2017
|
(Dollars in thousands)
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
Maturing within 1 year
|
$
|
700,000
|
|
1.81
|
%
|
|
$
|
1,150,000
|
|
1.48
|
%
|
After 1 but within 2 years
|
128,026
|
|
1.82
|
|
|
103,026
|
|
1.81
|
|
After 2 but within 3 years
|
165,000
|
|
1.77
|
|
|
215,000
|
|
1.73
|
|
After 3 but within 4 years
(1)
|
200,000
|
|
2.33
|
|
|
200,000
|
|
2.06
|
|
After 4 but within 5 years
|
165
|
|
—
|
|
|
170
|
|
—
|
|
After 5 years
(1)
|
8,839
|
|
2.65
|
|
|
8,909
|
|
2.65
|
|
FHLB advances and overall rate
(1)
|
$
|
1,202,030
|
|
1.90
|
|
|
$
|
1,677,105
|
|
1.61
|
|
|
|
|
|
|
|
Aggregate carrying value of assets pledged as collateral
|
$
|
6,327,590
|
|
|
|
$
|
6,402,066
|
|
|
Remaining borrowing capacity
|
3,035,521
|
|
|
|
2,600,624
|
|
|
|
|
(1)
|
Weighted-average contractual coupon rates for December 31, 2017 are presented as revised for these classifications to correct an immaterial error in presentation. The percentages included in the Company's Annual Report on Form 10-K as reported were: After 3 but within 4 years -
4.13%
; After 5 years -
1.96%
; and overall rate -
1.85%
.
|
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 March 31,
2018
|
|
At December 31,
2017
|
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
|
(697
|
)
|
|
(727
|
)
|
Debt issuance cost on senior fixed-rate notes
|
(793
|
)
|
|
(826
|
)
|
Long-term debt
|
$
|
225,830
|
|
|
$
|
225,767
|
|
|
|
(1)
|
The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month London Interbank Offered Rate (LIBOR) plus
2.95%
, was
5.13%
at
March 31, 2018
and
4.55%
at
December 31, 2017
.
|
Note 9:
Accumulated Other Comprehensive Loss, Net of Tax
The following tables summarize the changes in accumulated other comprehensive loss, net of tax (AOCL) by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
(In thousands)
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
(27,947
|
)
|
$
|
(15,016
|
)
|
$
|
(48,568
|
)
|
$
|
(91,531
|
)
|
Other comprehensive income (loss) (OCI/OCL) before reclassifications
|
(27,424
|
)
|
1,129
|
|
—
|
|
(26,295
|
)
|
Amounts reclassified from AOCL
|
—
|
|
1,393
|
|
954
|
|
2,347
|
|
Net current-period OCI/OCL
|
(27,424
|
)
|
2,522
|
|
954
|
|
(23,948
|
)
|
Ending balance
|
$
|
(55,371
|
)
|
$
|
(12,494
|
)
|
$
|
(47,614
|
)
|
$
|
(115,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
(In thousands)
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
(15,476
|
)
|
$
|
(17,068
|
)
|
$
|
(44,449
|
)
|
$
|
(76,993
|
)
|
OCI/OCL before reclassifications
|
(2,225
|
)
|
61
|
|
—
|
|
(2,164
|
)
|
Amounts reclassified from AOCL
|
—
|
|
1,098
|
|
1,032
|
|
2,130
|
|
Net current-period OCI/OCL
|
(2,225
|
)
|
1,159
|
|
1,032
|
|
(34
|
)
|
Ending balance
|
$
|
(17,701
|
)
|
$
|
(15,909
|
)
|
$
|
(43,417
|
)
|
$
|
(77,027
|
)
|
The following tables provide information for the items reclassified from AOCL:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Three months ended March 31,
|
Associated Line Item in the Condensed Consolidated Statements of Income
|
AOCL Components
|
2018
|
|
2017
|
|
|
|
|
|
Derivative instruments:
|
|
|
|
|
Cash flow hedges
|
$
|
(1,871
|
)
|
|
$
|
(1,735
|
)
|
Total interest expense
|
Tax benefit
|
478
|
|
|
637
|
|
Income tax expense
|
Net of tax
|
$
|
(1,393
|
)
|
|
$
|
(1,098
|
)
|
|
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
Amortization of net loss
|
$
|
(1,285
|
)
|
|
$
|
(1,638
|
)
|
(1)
|
Tax benefit
|
331
|
|
|
606
|
|
Income tax expense
|
Net of tax
|
$
|
(954
|
)
|
|
$
|
(1,032
|
)
|
|
(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 Office of the Comptroller of the Currency (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 adjustments. 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 March 31, 2018
|
|
Actual
|
|
Minimum Requirement
|
|
Well Capitalized
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,094,607
|
|
10.99
|
%
|
|
$
|
857,874
|
|
4.5
|
%
|
|
$
|
1,239,151
|
|
6.5
|
%
|
Total risk-based capital
|
2,524,608
|
|
13.24
|
|
|
1,525,109
|
|
8.0
|
|
|
1,906,386
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,239,644
|
|
11.75
|
|
|
1,143,832
|
|
6.0
|
|
|
1,525,109
|
|
8.0
|
|
Tier 1 leverage capital
|
2,239,644
|
|
8.54
|
|
|
1,049,009
|
|
4.0
|
|
|
1,311,261
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,062,650
|
|
10.83
|
%
|
|
$
|
857,184
|
|
4.5
|
%
|
|
$
|
1,238,155
|
|
6.5
|
%
|
Total risk-based capital
|
2,270,294
|
|
11.92
|
|
|
1,523,883
|
|
8.0
|
|
|
1,904,853
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,062,650
|
|
10.83
|
|
|
1,142,912
|
|
6.0
|
|
|
1,523,883
|
|
8.0
|
|
Tier 1 leverage capital
|
2,062,650
|
|
7.87
|
|
|
1,048,468
|
|
4.0
|
|
|
1,310,585
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
Actual
|
|
Minimum Requirement
|
|
Well Capitalized
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,093,116
|
|
11.14
|
%
|
|
$
|
845,389
|
|
4.5
|
%
|
|
$
|
1,221,118
|
|
6.5
|
%
|
Total risk-based capital
|
2,517,848
|
|
13.40
|
|
|
1,502,914
|
|
8.0
|
|
|
1,878,643
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,238,172
|
|
11.91
|
|
|
1,127,186
|
|
6.0
|
|
|
1,502,914
|
|
8.0
|
|
Tier 1 leverage capital
|
2,238,172
|
|
8.63
|
|
|
1,036,817
|
|
4.0
|
|
|
1,296,021
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,114,224
|
|
11.26
|
%
|
|
$
|
844,693
|
|
4.5
|
%
|
|
$
|
1,220,113
|
|
6.5
|
%
|
Total risk-based capital
|
2,316,580
|
|
12.34
|
|
|
1,501,677
|
|
8.0
|
|
|
1,877,097
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,114,224
|
|
11.26
|
|
|
1,126,258
|
|
6.0
|
|
|
1,501,677
|
|
8.0
|
|
Tier 1 leverage capital
|
2,114,224
|
|
8.14
|
|
|
1,038,442
|
|
4.0
|
|
|
1,298,052
|
|
5.0
|
|
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
$100 million
during the
three months ended March 31, 2018
compared to
$10 million
during the
three months ended March 31,
2017
.
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
$79.8 million
and
$82.3 million
at
March 31, 2018
and
December 31, 2017
, respectively.
Note 11:
Earnings Per Common Share
Reconciliation of the calculation of basic and diluted earnings per common share follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands, except per share data)
|
2018
|
|
2017
|
Earnings for basic and diluted earnings per common share:
|
|
|
|
Net income
|
$
|
80,225
|
|
|
$
|
59,471
|
|
Less: Preferred stock dividends
|
1,947
|
|
|
2,024
|
|
Net income available to common shareholders
|
78,278
|
|
|
57,447
|
|
Less: Earnings applicable to participating securities
|
195
|
|
|
105
|
|
Earnings applicable to common shareholders
|
$
|
78,083
|
|
|
$
|
57,342
|
|
|
|
|
|
Shares:
|
|
|
|
Weighted-average common shares outstanding - basic
|
91,921
|
|
|
91,886
|
|
Effect of dilutive securities:
|
|
|
|
Stock options and restricted stock
|
327
|
|
|
450
|
|
Warrants
|
6
|
|
|
6
|
|
Weighted-average common shares outstanding - diluted
|
92,254
|
|
|
92,342
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
Basic
|
$
|
0.85
|
|
|
$
|
0.62
|
|
Diluted
|
0.85
|
|
|
0.62
|
|
Potential common shares from non-participating restricted stock, of
$72 thousand
and
$40 thousand
for the
three months ended March 31, 2018
and
2017
, respectively, are excluded from the effect of dilutive securities because, due to performance conditions, they would have been anti-dilutive.
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.
Risk participation agreements (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.
Balance Sheet Impact of Derivative Instruments
The following table presents the notional amounts and fair value of derivative positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
|
At December 31, 2017
|
|
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
(2)
|
$
|
325,000
|
|
$
|
4,289
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
325,000
|
|
$
|
2,770
|
|
|
$
|
—
|
|
$
|
—
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Positions subject to a master netting agreement
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
(2)
|
3,258,511
|
|
10,659
|
|
|
437,308
|
|
848
|
|
|
2,791,760
|
|
5,977
|
|
|
721,048
|
|
1,968
|
|
Mortgage banking derivatives
(3)
|
34,744
|
|
545
|
|
|
31,162
|
|
168
|
|
|
28,497
|
|
421
|
|
|
39,230
|
|
110
|
|
Other
|
17,763
|
|
144
|
|
|
17,788
|
|
61
|
|
|
7,914
|
|
258
|
|
|
30,328
|
|
419
|
|
Positions not subject to a master netting agreement
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
636,754
|
|
9,863
|
|
|
3,059,075
|
|
57,952
|
|
|
1,366,299
|
|
23,009
|
|
|
2,146,518
|
|
25,631
|
|
RPAs
|
93,275
|
|
48
|
|
|
84,999
|
|
69
|
|
|
93,713
|
|
80
|
|
|
116,882
|
|
111
|
|
Other
|
530
|
|
3
|
|
|
861
|
|
17
|
|
|
—
|
|
—
|
|
|
2,073
|
|
184
|
|
Total not designated as hedging instruments
|
4,041,577
|
|
21,262
|
|
|
3,631,193
|
|
59,115
|
|
|
4,288,183
|
|
29,745
|
|
|
3,056,079
|
|
28,423
|
|
Gross derivative instruments, before netting
|
$
|
4,366,577
|
|
25,551
|
|
|
$
|
3,631,193
|
|
59,115
|
|
|
$
|
4,613,183
|
|
32,515
|
|
|
$
|
3,056,079
|
|
28,423
|
|
Less: Legally enforceable master netting agreements
|
|
818
|
|
|
|
818
|
|
|
|
2,245
|
|
|
|
2,245
|
|
Less: Cash collateral posted
|
|
13,994
|
|
|
|
—
|
|
|
|
6,704
|
|
|
|
—
|
|
Total derivative instruments, after netting
|
|
$
|
10,739
|
|
|
|
$
|
58,297
|
|
|
|
$
|
23,566
|
|
|
|
$
|
26,178
|
|
|
|
(1)
|
The Company has elected to report derivative positions subject to a legally enforceable master netting agreement on a net basis, net of cash collateral. Refer to the Offsetting Derivatives section of this footnote for additional information.
|
|
|
(2)
|
In accordance with the Chicago Mercantile Exchange (CME) rulebook, balances related to CME are presented as a single unit of account.
|
|
|
(3)
|
Notional amounts include mandatory forward commitments of
$37.0 million
, while notional amounts do not include approved floating rate commitments of
$15.1 million
, at
March 31, 2018
.
|
|
|
(4)
|
Fair value of assets are included in accrued interest receivable and other assets, while, fair value of liabilities are included in accrued expenses and other liabilities, in the accompanying Condensed Consolidated Balance Sheets.
|
Income Statement Impact of Derivative Instruments
The following table presents the effect on the income statement from derivative positions:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Designated as hedging instruments:
|
|
|
|
Interest rate derivatives
(1)
|
$
|
1,823
|
|
|
$
|
2,039
|
|
Not designated as hedging instruments:
|
|
|
|
Interest rate derivatives
|
$
|
3,791
|
|
|
$
|
1,534
|
|
RPAs
|
10
|
|
|
53
|
|
Mortgage banking derivatives
|
65
|
|
|
(2,041
|
)
|
Other
|
(600
|
)
|
|
(447
|
)
|
Total not designated as hedging instruments
(2)
|
$
|
3,266
|
|
|
$
|
(901
|
)
|
|
|
(1)
|
The impact from interest rate derivatives designated as hedging instruments is included in interest expense on borrowings in the accompanying Condensed Consolidated Statements of Income.
|
|
|
(2)
|
The impact from the total not designated as hedging instruments is included in other non-interest income in the accompanying Condensed Consolidated Statements of Income.
|
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
$0.2 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
March 31, 2018
, the remaining unamortized loss on the termination of cash flow hedges is
$13.3 million
. Over the next twelve months, the Company estimates that
$5.6 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
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 presents the transition from a gross basis to net basis, due to the application of counterparty netting agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
|
At December 31, 2017
|
(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
|
$
|
4,289
|
|
$
|
—
|
|
$
|
4,289
|
|
$
|
—
|
|
|
$
|
2,770
|
|
$
|
91
|
|
$
|
2,679
|
|
$
|
—
|
|
Non-hedge accounting
|
10,523
|
|
818
|
|
9,705
|
|
—
|
|
|
6,222
|
|
2,154
|
|
4,025
|
|
43
|
|
Total assets
|
$
|
14,812
|
|
$
|
818
|
|
$
|
13,994
|
|
$
|
—
|
|
|
$
|
8,992
|
|
$
|
2,245
|
|
$
|
6,704
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instrument losses:
|
|
|
|
|
|
|
|
|
|
Hedge accounting
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Non-hedge accounting
|
909
|
|
818
|
|
—
|
|
91
|
|
|
2,387
|
|
2,245
|
|
—
|
|
142
|
|
Total liabilities
|
$
|
909
|
|
$
|
818
|
|
$
|
—
|
|
$
|
91
|
|
|
$
|
2,387
|
|
$
|
2,245
|
|
$
|
—
|
|
$
|
142
|
|
Counterparty Credit Risk
Use of derivative contracts may expose the bank to counterparty credit risk. The Company has International Swaps Derivative Association (ISDA) master agreements, including a Credit Support Annex, with all derivative counterparties. The ISDA master agreements provide that on each payment date, all amounts otherwise owing the same currency under the same transaction are netted so that only a single amount is owed in that currency. The ISDA provides, if the parties so elect, for such netting of amounts in the same currency among all transactions identified as being subject to such election that have common payment dates and booking offices. Under the Credit Support Annex, daily net exposure in excess of a negotiated threshold is secured by posted cash collateral. The Company has negotiated a zero threshold with the majority of its approved financial institution counterparties. In accordance with Webster policies, institutional counterparties must be analyzed and approved through the Company’s credit approval process.
The Company’s credit exposure on interest rate derivatives with non-dealer counterparties is limited to the net favorable value, including accrued interest, of all such instruments, reduced by the amount of collateral pledged by the counterparties. The Company's credit exposure related to derivatives with dealer counterparties is significantly mitigated with cash collateral equal to, or in excess of, the market value of the instrument updated daily.
In accordance with counterparty credit agreements and derivative clearing rules, the Company had approximately
$50.1 million
in net margin collateral received from financial counterparties at
March 31, 2018
, comprised of
$33.5 million
in initial margin and
$83.6 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
$9.9 million
at
March 31, 2018
. 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
$29.6 million
at
March 31, 2018
. 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 results and establishes processes to challenge their valuations, or methodology, that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, single issuer-trust preferred, and corporate debt, are classified within Level 2 of the fair value hierarchy.
Derivative Instruments.
Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy.
All other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The 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 mitigate 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 Chicago Mercantile Exchange rulebooks legally characterize variation margin payments for over-the-counter derivatives to clear as settlements rather than collateral, which impacts one of Webster's counterparty relationships, resulting in the fair value of the instrument including cash collateral to be represented as a single unit of account.
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.
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 has elected to measure originated loans held for sale under the fair value option of Accounting Standards Codification (
ASC) Topic 825 "Financial Instruments,"
on a loan-by-loan basis. 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, these loans are classified within Level 2 of the fair value hierarchy.
The following table presents the fair value, unpaid principal balance, and accrual status of assets accounted for under the fair value option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
(In thousands)
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Difference
|
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Difference
|
Originated loans held for sale
|
$
|
19,727
|
|
|
$
|
19,663
|
|
|
$
|
64
|
|
|
$
|
20,888
|
|
|
$
|
20,346
|
|
|
$
|
542
|
|
Electing to measure originated loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of the derivatives used as an economic hedge on these assets. Assets accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. For the
three months ended March 31, 2018
net loss from fair value changes was
$0.3 million
and for the
three months ended March 31, 2017
net gains from fair value changes was
$1.2 million
. The Company does not account for liabilities under the fair value option.
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
$2.1 million
at
March 31, 2018
.
Alternative Investments Net Asset Value (NAV).
Alternative investments that are fair valued on a recurring basis are based upon the NAV of the respective fund. Therefore, alternative investments (NAV) are not classified within the fair value hierarchy. At
March 31, 2018
, alternative investments (NAV) had a remaining unfunded commitment of
$0.3 million
. The Company's alternative investments (NAV) consists of investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the underlying equity is liquidated.
Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
U.S. Treasury Bills
|
$
|
449
|
|
$
|
—
|
|
$
|
—
|
|
$
|
449
|
|
Agency CMO
|
—
|
|
284,579
|
|
—
|
|
284,579
|
|
Agency MBS
|
—
|
|
1,265,268
|
|
—
|
|
1,265,268
|
|
Agency CMBS
|
—
|
|
591,302
|
|
—
|
|
591,302
|
|
CMBS
|
—
|
|
366,894
|
|
—
|
|
366,894
|
|
CLO
|
—
|
|
201,837
|
|
—
|
|
201,837
|
|
Single issuer-trust preferred
|
—
|
|
7,041
|
|
—
|
|
7,041
|
|
Corporate debt
|
—
|
|
56,136
|
|
—
|
|
56,136
|
|
Total available-for-sale investment securities
|
449
|
|
2,773,057
|
|
—
|
|
2,773,506
|
|
Gross derivative instruments, before netting
(1)
|
147
|
|
25,404
|
|
—
|
|
25,551
|
|
Originated loans held for sale
|
—
|
|
19,727
|
|
—
|
|
19,727
|
|
Investments held in Rabbi Trust
|
4,694
|
|
—
|
|
—
|
|
4,694
|
|
Alternative investments (NAV)
(2)
|
—
|
|
—
|
|
—
|
|
3,495
|
|
Total financial assets held at fair value
|
$
|
5,290
|
|
$
|
2,818,188
|
|
$
|
—
|
|
$
|
2,826,973
|
|
Financial liabilities held at fair value:
|
|
|
|
|
Gross derivative instruments, before netting
(1)
|
$
|
62
|
|
$
|
59,053
|
|
$
|
—
|
|
$
|
59,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
U.S. Treasury Bills
|
$
|
1,247
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,247
|
|
Agency CMO
|
—
|
|
306,333
|
|
—
|
|
306,333
|
|
Agency MBS
|
—
|
|
1,107,841
|
|
—
|
|
1,107,841
|
|
Agency CMBS
|
—
|
|
588,026
|
|
—
|
|
588,026
|
|
CMBS
|
—
|
|
361,067
|
|
—
|
|
361,067
|
|
CLO
|
—
|
|
209,851
|
|
—
|
|
209,851
|
|
Single issuer-trust preferred
|
—
|
|
7,050
|
|
—
|
|
7,050
|
|
Corporate debt
|
—
|
|
56,622
|
|
—
|
|
56,622
|
|
Total available-for-sale investment securities
|
1,247
|
|
2,636,790
|
|
—
|
|
2,638,037
|
|
Gross derivative instruments, before netting
(1)
|
258
|
|
32,257
|
|
—
|
|
32,515
|
|
Originated loans held for sale
|
—
|
|
20,888
|
|
—
|
|
20,888
|
|
Investments held in Rabbi Trust
|
4,801
|
|
—
|
|
—
|
|
4,801
|
|
Alternative investments (NAV)
(2)
|
—
|
|
—
|
|
—
|
|
3,495
|
|
Total financial assets held at fair value
|
$
|
6,306
|
|
$
|
2,689,935
|
|
$
|
—
|
|
$
|
2,699,736
|
|
Financial liabilities held at fair value:
|
|
|
|
|
Gross derivative instruments, before netting
(1)
|
$
|
587
|
|
$
|
27,836
|
|
$
|
—
|
|
$
|
28,423
|
|
|
|
(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
.
|
|
|
(2)
|
Fair value for this investment is measured using the net asset value practical expedient and therefore is not classified within the fair value hierarchy.
|
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.
Alternative Investments.
Alternative investments are investments in non-public entities that generally cannot be redeemed since the investment is distributed as the underlying equity is liquidated. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Accordingly, these alternative investments are classified within Level 3 of the fair value hierarchy. The carrying amount of these alternative investments was
$7.9 million
at
March 31, 2018
. No reduction for impairments, or increase or decrease due to observable price changes, was identified during the three months ended
March 31, 2018
.
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 other real estate owned (OREO) and repossessed assets was
$5.8 million
at
March 31, 2018
. 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
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Asset
|
Fair Value
|
Valuation Methodology
|
Unobservable Inputs
|
Range of Inputs
|
Collateral dependent impaired loans and leases
|
$
|
13,424
|
|
Real Estate Appraisals
|
Discount for appraisal type
|
0%
|
-
|
15%
|
|
|
|
Discount for costs to sell
|
0%
|
-
|
8%
|
OREO
|
$
|
858
|
|
Real Estate Appraisals
|
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 results and establishes processes to challenge their valuations, or methodology, 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. Fair value of all other borrowings is 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 March 31, 2018
|
|
At December 31, 2017
|
(In thousands)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Held-to-maturity investment securities
|
$
|
4,408,321
|
|
|
$
|
4,297,039
|
|
|
$
|
4,487,392
|
|
|
$
|
4,456,350
|
|
Level 3
|
|
|
|
|
|
|
|
Loans and leases, net
|
17,600,226
|
|
|
17,391,087
|
|
|
17,323,864
|
|
|
17,211,619
|
|
Mortgage servicing assets
|
24,403
|
|
|
51,668
|
|
|
25,139
|
|
|
45,309
|
|
Liabilities:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Deposit liabilities
|
$
|
18,831,789
|
|
|
$
|
18,831,789
|
|
|
$
|
18,525,321
|
|
|
$
|
18,525,321
|
|
Time deposits
|
2,553,253
|
|
|
2,527,441
|
|
|
2,468,408
|
|
|
2,455,245
|
|
Securities sold under agreements to repurchase and other borrowings
|
931,299
|
|
|
930,683
|
|
|
643,269
|
|
|
644,084
|
|
FHLB advances
|
1,202,030
|
|
|
1,204,045
|
|
|
1,677,105
|
|
|
1,678,070
|
|
Long-term debt
(1)
|
225,830
|
|
|
232,586
|
|
|
225,767
|
|
|
234,359
|
|
|
|
(1)
|
Adjustments to the carrying amount of long-term debt for unamortized discount and debt issuance cost on senior fixed-rate notes are not included for determination of fair value, see
Note 8:
Borrowings
.
|
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 March 31,
|
|
2018
|
|
2017
|
(In thousands)
|
Pension Plan
|
SERP
|
Other Benefits
|
|
Pension Plan
|
SERP
|
Other Benefits
|
Service cost
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
12
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost on benefit obligations
|
1,785
|
|
187
|
|
20
|
|
|
1,813
|
|
92
|
|
25
|
|
Expected return on plan assets
|
(3,180
|
)
|
—
|
|
—
|
|
|
(3,073
|
)
|
—
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Recognized net loss
|
1,160
|
|
125
|
|
—
|
|
|
1,417
|
|
213
|
|
8
|
|
Net periodic benefit cost
|
$
|
(235
|
)
|
$
|
312
|
|
$
|
20
|
|
|
$
|
169
|
|
$
|
305
|
|
$
|
33
|
|
The components of net periodic benefit cost, other than the service cost component, are included as a component of other expense reflected in non-interest expense in the accompanying Condensed Consolidated Statements of Income.
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.
Stock compensation expense of
$3.3 million
for both the
three months ended March 31, 2018
and
2017
, related to restricted stock awards, was recognized in the accompanying Condensed Consolidated Statements of Income.
At
March 31, 2018
there was
$21.0 million
of unrecognized stock compensation expense for restricted stock expected to be recognized over a weighted-average period of
2.3 years
.
The following table provides a summary of the stock compensation plans activity for the
three months ended March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards Outstanding
|
|
Stock Options Outstanding
|
|
Time-Based
|
Performance-Based
|
|
|
Number of
Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of
Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of
Shares
|
Weighted-Average
Exercise Price
|
Outstanding, at January1, 2018
|
207,800
|
|
$
|
43.16
|
|
|
78,916
|
|
$
|
45.35
|
|
|
673,039
|
|
$
|
18.75
|
|
Granted
|
113,264
|
|
56.58
|
|
|
75,707
|
|
55.82
|
|
|
—
|
|
—
|
|
Exercised options
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
11,516
|
|
25.15
|
|
Vested restricted stock awards
(1)
|
46,137
|
|
41.46
|
|
|
19,398
|
|
43.01
|
|
|
—
|
|
—
|
|
Forfeited
|
1,144
|
|
35.61
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Outstanding and exercisable, at March 31, 2018
|
273,783
|
|
$
|
48.96
|
|
|
135,225
|
|
$
|
51.54
|
|
|
661,523
|
|
$
|
18.64
|
|
|
|
(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
2018
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
3
year vesting period. The compensation peer group companies are utilized because they represent the financial institutions that best compare with
Webster. The Company records compensation expense over the vesting period, based on a fair value calculated using the Monte-Carlo simulation model, which allows for the incorporation of the performance condition for the
50%
of the performance-based shares tied to total shareholder return versus the compensation peer group, and based on a fair value of the market price on the date of grant for the remaining
50%
of the performance-based shares tied to Webster's return on equity. Compensation expense is subject to adjustment based on management's assessment of Webster's return on equity performance relative to the target number of shares condition.
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
627,635
non-qualified stock options and
33,888
incentive stock options outstanding at
March 31, 2018
.
Note 16:
Segment Reporting
Webster’s operations are organized into
three
reportable segments that represent its primary businesses - Commercial Banking, HSA Bank, and Community Banking. 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 (FTP). 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 the Company's Asset/Liability Committee (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.
Beginning in 2018, income tax expense is estimated for each reportable segment individually. The 2017 income tax expense was estimated for all segments using the consolidated effective tax rate. This change in the estimate of income tax expense reflects an estimate of full profitability for each of the individual business segments based on the nature of their operations.
The following table presents total assets for Webster's reportable segments and the Corporate and Reconciling category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
At March 31, 2018
|
$
|
9,718,543
|
|
$
|
8,828,329
|
|
$
|
77,883
|
|
$
|
8,127,392
|
|
$
|
26,752,147
|
|
At December 31, 2017
|
9,350,028
|
|
8,909,671
|
|
76,308
|
|
8,151,638
|
|
26,487,645
|
|
The following tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
84,651
|
|
$
|
98,928
|
|
$
|
32,924
|
|
$
|
(2,335
|
)
|
$
|
214,168
|
|
Provision for loan and lease losses
|
7,178
|
|
3,822
|
|
—
|
|
—
|
|
11,000
|
|
Net interest income (expense) after provision for loan and lease losses
|
77,473
|
|
95,106
|
|
32,924
|
|
(2,335
|
)
|
203,168
|
|
Non-interest income
|
15,316
|
|
25,195
|
|
22,669
|
|
5,567
|
|
68,747
|
|
Non-interest expense
|
41,245
|
|
96,829
|
|
31,515
|
|
2,026
|
|
171,615
|
|
Income before income tax expense
|
51,544
|
|
23,472
|
|
24,078
|
|
1,206
|
|
100,300
|
|
Income tax expense (benefit)
|
12,680
|
|
4,671
|
|
6,260
|
|
(3,536
|
)
|
20,075
|
|
Net income
|
$
|
38,864
|
|
$
|
18,801
|
|
$
|
17,818
|
|
$
|
4,742
|
|
$
|
80,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income (expense)
|
$
|
78,247
|
|
$
|
93,590
|
|
$
|
24,052
|
|
$
|
(3,225
|
)
|
$
|
192,664
|
|
Provision for loan and lease losses
|
6,797
|
|
3,703
|
|
—
|
|
—
|
|
10,500
|
|
Net interest income (expense) after provision for loan and lease losses
|
71,450
|
|
89,887
|
|
24,052
|
|
(3,225
|
)
|
182,164
|
|
Non-interest income
|
13,424
|
|
25,379
|
|
19,271
|
|
4,968
|
|
63,042
|
|
Non-interest expense
|
38,124
|
|
95,179
|
|
28,239
|
|
2,242
|
|
163,784
|
|
Income (loss) before income tax expense
|
46,750
|
|
20,087
|
|
15,084
|
|
(499
|
)
|
81,422
|
|
Income tax expense (benefit)
|
12,604
|
|
5,416
|
|
4,066
|
|
(135
|
)
|
21,951
|
|
Net income (loss)
|
$
|
34,146
|
|
$
|
14,671
|
|
$
|
11,018
|
|
$
|
(364
|
)
|
$
|
59,471
|
|
Note 17:
Revenue from Contracts with Customers
The Company adopted
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
and subsequent clarifying ASUs effective January 1, 2018. The Updates are applicable to the Company's deposit service fees, wealth and investment services, and an insignificant component of other income included within non-interest income in the accompanying Condensed Consolidated Statements of Income.
The Company's revenue associated with net interest income, and certain non-interest income line items (loan and lease related fees, mortgage banking activities, increase in cash surrender value of life insurance policies, gain on sale of investment securities, net, impairment loss on securities recognized in earnings, and a majority of other income), are not within the scope of Topic 606. As a result, a substantial amount of the Company's revenue was not affected.
Under the updated guidance, for in-scope revenue streams, the Company identifies the performance obligations included in the contracts with customers, determines the transaction price, allocates the transaction price to the performance, as applicable, and recognizes revenue when performance obligations are satisfied. The Company's existing recognition practices are largely consistent with the updated guidance.
The following tables present the disaggregation by operating segment and major revenue stream, with disaggregated revenue reconciled to segment revenue as presented in
Note 16:
Segment Reporting
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Major Revenue Streams
|
|
|
|
|
|
Deposit service fees
|
$
|
3,222
|
|
$
|
15,309
|
|
$
|
21,812
|
|
$
|
108
|
|
$
|
40,451
|
|
Wealth and investment services
|
2,539
|
|
5,339
|
|
—
|
|
(8
|
)
|
7,870
|
|
Other income
|
—
|
|
493
|
|
857
|
|
—
|
|
1,350
|
|
Revenue from contracts with customers
|
5,761
|
|
21,141
|
|
22,669
|
|
100
|
|
49,671
|
|
Non-interest income within the scope of other GAAP topics
|
9,555
|
|
4,054
|
|
—
|
|
5,467
|
|
19,076
|
|
Total non-interest income
|
$
|
15,316
|
|
$
|
25,195
|
|
$
|
22,669
|
|
$
|
5,567
|
|
$
|
68,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
(In thousands)
|
Commercial
Banking
|
Community
Banking
|
HSA
Bank
|
Corporate and
Reconciling
|
Consolidated
Total
|
Major Revenue Streams
|
|
|
|
|
|
Deposit service fees
|
$
|
2,878
|
|
$
|
15,530
|
|
$
|
18,484
|
|
$
|
114
|
|
$
|
37,006
|
|
Wealth and investment services
|
2,372
|
|
4,909
|
|
—
|
|
(8
|
)
|
7,273
|
|
Other income
|
—
|
|
224
|
|
787
|
|
—
|
|
1,011
|
|
Revenue from contracts with customers
|
5,250
|
|
20,663
|
|
19,271
|
|
106
|
|
45,290
|
|
Non-interest income within the scope of other GAAP topics
|
8,174
|
|
4,716
|
|
—
|
|
4,862
|
|
17,752
|
|
Total non-interest income
|
$
|
13,424
|
|
$
|
25,379
|
|
$
|
19,271
|
|
$
|
4,968
|
|
$
|
63,042
|
|
Deposit service fees
Deposit service fees predominately consist of fees earned from deposit accounts and interchange revenue. Fees earned from deposit accounts relate to event-driven services and periodic account maintenance activities. Webster's obligations for event-driven services are satisfied at the time the service is delivered, while the obligations for maintenance services is satisfied monthly. Interchange fees are assessed as the performance obligation is satisfied, which is at the point in time the card transaction is authorized.
Wealth and investment services
Wealth and investment services consists of fees earned from investment and securities-related services, trust and other related services. Obligations for wealth and investment services are generally satisfied over time through a time-based measurement of progress, but certain obligations may be satisfied at points in time for activities that are transactional in nature.
Note 18:
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:
|
|
|
|
|
|
|
|
|
(In thousands)
|
At March 31, 2018
|
|
At December 31, 2017
|
Commitments to extend credit
|
$
|
5,648,126
|
|
|
$
|
5,567,687
|
|
Standby letter of credit
|
167,899
|
|
|
195,902
|
|
Commercial letter of credit
|
44,535
|
|
|
43,200
|
|
Total credit-related financial instruments with off-balance sheet risk
|
$
|
5,860,560
|
|
|
$
|
5,806,789
|
|
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:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Beginning balance
|
$
|
2,362
|
|
|
$
|
2,287
|
|
(Benefit) provision charged to expense
|
(68
|
)
|
|
368
|
|
Ending balance
|
$
|
2,294
|
|
|
$
|
2,655
|
|
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
March 31, 2018
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.
Note 19:
Subsequent Events
The Company has evaluated events from the date of the Condensed Consolidated Financial Statements and accompanying Notes thereto,
March 31, 2018
, through the issuance of this Quarterly Report on Form 10-Q and determined that no significant events were identified requiring recognition or disclosure.