Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation (the Holding Company) 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. Webster Bank, National Association (Webster Bank) is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank and its HSA Bank division deliver a wide range of banking, investment, and financial services to individuals, families, and businesses.
Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout southern New England and Westchester County, New York. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions primarily in the eastern U.S. HSA Bank is a leading provider of HSAs, while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
Basis of Presentation
The accounting and reporting policies of the Company that materially affect its financial statements conform with U.S. 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 related Notes, for the year ended December 31, 2019, included in our Form 10-K filed with the SEC. There have been no changes to the Company's significant accounting policies from those described within that Form 10-K, except as described within the Recently Adopted Accounting Standards Updates section of this note.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as income and expense during the reporting period. Economic and market assumptions are key factors in developing estimates. Declining economic activity and volatile market conditions related to the COVID-19 pandemic have impacted and may continue to impact accounting estimates. Actual results could differ significantly from assumptions previously used resulting in material changes for impacted accounting estimates in future periods. 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.
Loan Modifications Under the CARES Act and Interagency Statement
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Section 4013, and the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.
On March 27, 2020, the CARES Act, which provides relief from certain requirements under GAAP, was signed into law. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40 in certain situations.
In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. The interagency statement was originally issued on March 22, 2020, but was revised to address the relationship between their original TDR guidance and the guidance in Section 4013 of the CARES Act.
To qualify for TDR accounting and disclosure relief under the CARES Act, the applicable loan must not have been more than 30 days past due as of December 31, 2019, and the modification must be executed during the period beginning on March 1, 2020, and ending on the earlier of December 31, 2020, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of COVID-19. The CARES Act applies to modifications made as a result of COVID-19 including: forbearance agreements, interest rate modifications, repayment plans, and other arrangements to defer or delay payment of principal or interest.
The interagency statement does not require the modification to be completed within a certain time period if it is related to COVID-19 and the loan was not more than 30 days past due as of the date of the Company’s implementation of its modification programs. Moreover, the interagency statement applies to short-term modifications including payment deferrals, fee waivers, extensions of repayment terms, or other insignificant payment delays as a result of COVID-19.
The Company continues to apply section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualify under either the CARES Act or the interagency statement, TDR accounting and reporting is suspended through the period of the modification; however, the Company will continue to apply its existing non-accrual policies including consideration of the loan's past due status which is determined on the basis of the contractual terms of the loan. Once a loan has been contractually modified, the past due status is generally based on the updated terms including payment deferrals.
Recently Adopted Accounting Standards Updates
Effective January 1, 2020, the following new accounting guidance was adopted by the Company:
ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
The Update provides optional expedients and exceptions available to contracts, hedging relationships, and other transactions affected by reference rate reform. In addition to expedients for contract modifications, the Update allows for a one-time transfer or sale of held-to-maturity securities that reference an eligible rate. The Company will consider this one-time securities transfer along with other expedients available under the Update as the Company proceeds with reference rate reform activities. For additional information on reference rate reform refer to the risk factors previously disclosed in Webster's Annual Report on Form 10-K for the year ended December 31, 2019.
The Update became effective during the first quarter 2020, and applies to contract modifications and amendments made as of the beginning of the reporting period including the Update issuance date, March 12, 2020, and applies through December 31, 2022. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.
The Update amends guidance on credit losses, hedge accounting, and recognition and measurement of financial instruments. The changes provide clarifications and codification improvements in relation to recently issued accounting updates. The amendments to the guidance on credit losses are considered in the paragraphs below related to our adoption of ASU 2016-13, and has been adopted concurrently with those Updates.
The Company adopted the Update during the first quarter 2020 on a prospective basis. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
The Update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance also requires an entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement and to present in the same income statement line item as the fees associated with the hosting arrangement.
The Company adopted the Update during the first quarter 2020 on a prospective basis to all implementation costs incurred after the date of adoption. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.
The Update modifies the disclosure requirements for fair value measurements. The updated guidance no longer requires entities to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, it requires public companies to disclose changes in unrealized gains and losses for the period included in other comprehensive income (OCI) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.
The Company adopted the Update during the first quarter 2020 on a prospective basis. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
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 fair value of a reporting unit, up to but not exceeding the amount of goodwill allocated to the reporting unit.
The Update 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 still have the option to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
The Company adopted the Update during the first quarter 2020 on a prospective basis. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments and subsequent ASUs issued to clarify this Topic.
The Updates replace the existing incurred loss approach for recognizing credit losses with a new credit loss methodology known as the current expected credit loss (CECL) model. The CECL methodology requires earlier recognition of credit losses using a lifetime credit loss measurement approach for financial assets carried at amortized cost. The Updates also revised the accounting for credit losses on available-for-sale debt securities, which is outside the scope of the CECL methodology.
The CECL accounting model applies to all assets measured at amortized cost including loans, net investments in leases, off balance sheet credit exposures, and held-to-maturity debt securities. CECL requires recognition of credit losses at purchase or origination using a lifetime credit loss measurement approach. The allowance for credit losses is based on the composition, characteristics, and credit quality of the loan and securities portfolios as of the reporting date and includes consideration of current economic conditions and reasonable and supportable forecasts at that date. The CECL methodology also requires consideration of a broader range of reasonable and supportable information to determine the allowance for credit losses including economic forecasts.
Allowance for credit losses on loans and leases. Under CECL the Company determines its allowance for credit losses on loans and leases collectively, using pools of assets with similar risk characteristics. Loans that no longer match the risk profile of the pool are individually assessed for credit losses. Collective assessments are performed based on two portfolio segments, commercial loans and leases, and consumer loans. Expected losses within the commercial and consumer portfolios are collectively assessed using PD/LGD models based on the portfolio or class of financing receivable.
The Company’s lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected prepayments and recoveries. Outside of the model, non-economic qualitative factors are applied to further refine the expected loss calculation for each portfolio. A two year reasonable and supportable forecast period is currently used for all loan and lease portfolios. The expected loss models revert to historical loss rates on a linear basis over a one year period.
When the risk characteristics of a loan no longer match the characteristics of the collective pool, the loan is removed from the pool and individually assessed for credit losses. Generally, all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans are individually assessed.
The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. A loan is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral. The fair value is reduced for estimated costs to sell if the value of the collateral is expected to be realized through sale.
The Company has elected to present accrued interest receivable separately from the amortized cost basis on the balance sheet and is not estimating an allowance for credit loss on accrued interest. This election applies to loans and leases as well as debt securities. The Company's non-accrual policies have not changed as a result of adopting the Updates.
Allowance for credit losses on investment securities held-to-maturity. Held-to-maturity debt securities follow the CECL accounting model. Expected losses are calculated on a pooled basis using statistical models which include forecasted scenarios of future economic conditions. The forecasts revert to long-run loss rates implicitly through the economic scenario, generally over three years. If the risk of an held-to-maturity debt security no longer matches the collective assessment pool, it is removed and individually assessed for credit deterioration. A zero credit loss assumption is maintained for U.S. Treasuries and agency-backed securities in both the held-to-maturity and available-for-sale portfolios. The zero loss assumption is re-considered on a quarterly basis to ensure it is still appropriate.
Securities are placed on non-accrual status when collection of principal and interest in accordance with contractual terms is doubtful, generally when principal or interest payments become 90 days delinquent unless the security is well secured and in process of collection, or sooner if management concludes circumstances indicate that the borrower may be unable to meet contractual principal or interest payments.
Allowance for credit losses on unfunded loan commitments. Accounting for unfunded loan commitments also follows the CECL model, with an allowance recorded on commitments that are not unconditionally cancellable by the Company. The calculation of the allowance includes the probability of funding to occur and a corresponding estimate of expected lifetime credit losses on amounts assumed to be funded. The allowance for credit losses on unfunded loan commitments is included in accrued expenses and other liabilities on the consolidated balance sheet and the related credit expense is recorded in other non-interest expense in the consolidated statements of income.
Accounting for available-for-sale debt securities. The Updates revised the accounting for available-for-sale debt securities by eliminating the other-than-temporary impairment model, and requiring credit losses be presented as an allowance rather than a direct write-down of available-for-sale debt securities under certain circumstances. Available-for-sale debt securities continue to be recorded at fair value with changes in fair value reflected in OCI. When the fair value of an available-for-sale debt security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to earnings with a corresponding allowance for credit losses, limited to the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. Available-for-sale debt securities follow the same non-accrual policy as held-to-maturity debt securities. When the Company intends to sell an impaired available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in earnings with no corresponding allowance for credit losses.
Impact of Adoption. The Company adopted the Updates during the first quarter 2020, using the modified retrospective method. Upon adoption, the Company recorded an increase in its allowance for credit losses as a cumulative effect adjustment. This adjustment, net of tax, reduced the Company's beginning total shareholders' equity at January 1, 2020. Upon adoption, the Company's allowance for credit losses reflected all credit losses expected over the lifetime of the Company's financial assets held at amortized cost. The total increase in allowance and corresponding decrease in equity did not have a material impact to the Company's regulatory capital amounts and ratios. Periods prior to January 1, 2020, are reported in accordance with previously applicable GAAP.
The impact of the January 1, 2020, adoption entry is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
January 1, 2020
|
(In thousands)
|
Pre-ASC 326 Adoption
|
Impact of Adoption
|
Reported Under ASC 326
|
Assets:
|
|
|
|
Allowance for credit losses on investment securities held-to-maturity
|
$
|
—
|
|
$
|
(397)
|
|
$
|
(397)
|
|
Allowance for credit losses on loans and leases
|
(209,096)
|
|
(57,568)
|
|
(266,664)
|
|
Deferred tax assets, net
|
61,975
|
|
15,891
|
|
77,866
|
|
|
|
|
|
Liabilities and shareholders' equity:
|
|
|
|
Accrued expenses and other liabilities
|
153,161
|
|
9,139
|
|
162,300
|
|
Retained earnings
|
2,061,352
|
|
(51,213)
|
|
2,010,139
|
|
For additional information on accounting for credit losses refer to Note 3: Investment Securities and Note 4: Loans and Leases.
Accounting Standards Issued But Not Yet Adopted
The following new accounting guidance, applicable to the Company, has been issued by the Financial Accounting Standards Board (FASB) but is pending adoption:
ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.
The Update provides simplification to the accounting for income taxes related to a variety of topics and makes minor codification improvements. Changes include a requirement that the effects of an enacted change in tax law be reflected in the computation of the annual effective tax rate in the first interim period that includes the enactment date of the new legislation.
The Update will be effective for the Company on January 1, 2021. The Company does not expect this Update to have a material impact on its consolidated financial statements.
ASU No. 2018-14, Compensation-Retirement Benefits - Defined Benefit Plan - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.
The Update modifies disclosure requirements for employers that sponsor defined benefit pension and other postretirement plans.
The Update will be effective for the Company on January 1, 2021. The Company does not expect this Update to have a material impact on its consolidated 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.
Invested assets 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, on the consolidated balance sheet. 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 consolidated income statement. Refer to Note 14: Fair Value Measurements for additional information.
Non-Consolidated
Tax Credit - Finance Investments. The Company makes non-marketable 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 June 30, 2020 and December 31, 2019, the aggregate carrying value of the Company's tax credit-finance investments was $39.9 million and $42.5 million, respectively, which represents the Company's maximum exposure to loss. At June 30, 2020 and December 31, 2019, unfunded commitments have been recognized, totaling $14.4 million and $15.1 million, respectively, and are included in accrued expenses and other liabilities on the consolidated balance sheet.
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 on the consolidated balance sheet, and the related interest expense is reported as interest expense on long-term debt in the consolidated income statement.
Other Non-Marketable Investments. The Company invests in various alternative investments in which it holds a variable interest. These 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 June 30, 2020 and December 31, 2019, the aggregate carrying value of the Company's other non-marketable investments in VIEs was $24.7 million and $21.8 million, respectively, and the total exposure of the Company's other non-marketable investments in VIEs, including unfunded commitments, was $70.1 million and $64.2 million, respectively. Refer to Note 14: Fair Value Measurements for additional information.
The Company's equity interests in Other Non-Marketable Investments, as well as Tax Credit-Finance Investments and Webster Statutory Trust, are included in accrued interest receivable and other assets in the consolidated balance sheet. 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, 2019.
Note 3: Investment Securities
Held-to-Maturity Securities
A summary of the amortized cost, fair value, and allowance for credit losses on investment securities held-to-maturity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
|
(In thousands)
|
Amortized
Cost (1)
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
|
Allowance (2)
|
Net Carrying Value
|
Agency CMO
|
$
|
138,529
|
|
$
|
3,469
|
|
$
|
(223)
|
|
$
|
141,775
|
|
|
$
|
—
|
|
$
|
138,529
|
|
Agency MBS
|
2,766,764
|
|
148,003
|
|
(73)
|
|
2,914,694
|
|
|
—
|
|
2,766,764
|
|
Agency CMBS
|
1,585,929
|
|
60,543
|
|
—
|
|
1,646,472
|
|
|
—
|
|
1,585,929
|
|
Municipal bonds and notes
|
752,537
|
|
49,298
|
|
—
|
|
801,835
|
|
|
309
|
|
752,228
|
|
CMBS
|
233,367
|
|
7,416
|
|
—
|
|
240,783
|
|
|
—
|
|
233,367
|
|
Held-to-maturity securities
|
$
|
5,477,126
|
|
$
|
268,729
|
|
$
|
(296)
|
|
$
|
5,745,559
|
|
|
$
|
309
|
|
$
|
5,476,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
(In thousands)
|
Amortized
Cost (1)
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
|
Allowance (2)
|
Net Carrying Value
|
Agency CMO
|
$
|
167,443
|
|
$
|
1,123
|
|
$
|
(1,200)
|
|
$
|
167,366
|
|
|
$
|
—
|
|
$
|
167,443
|
|
Agency MBS
|
2,957,900
|
|
60,602
|
|
(8,733)
|
|
3,009,769
|
|
|
—
|
|
2,957,900
|
|
Agency CMBS
|
1,172,491
|
|
6,444
|
|
(5,615)
|
|
1,173,320
|
|
|
—
|
|
1,172,491
|
|
Municipal bonds and notes
|
740,431
|
|
32,709
|
|
(21)
|
|
773,119
|
|
|
—
|
|
740,431
|
|
CMBS
|
255,653
|
|
2,278
|
|
(852)
|
|
257,079
|
|
|
—
|
|
255,653
|
|
Held-to-maturity securities
|
$
|
5,293,918
|
|
$
|
103,156
|
|
$
|
(16,421)
|
|
$
|
5,380,653
|
|
|
$
|
—
|
|
$
|
5,293,918
|
|
(1)Amortized cost excludes accrued interest receivable of $21.8 million at both June 30, 2020 and December 31, 2019, which is included in accrued interest and other assets in the consolidated balance sheet.
(2)The Company adopted the new accounting standard for credit losses on January 1, 2020. For periods subsequent to adoption Allowance is calculated under the CECL methodology and the resulting provision includes expected credit losses on held-to-maturity securities. The prior period did not have an allowance under applicable GAAP for that period.
Agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federally-related entity and are either explicitly or implicitly guaranteed and therefore, assumed to be zero loss. Securities with unrealized losses and no allowance are considered to be of high credit quality, and therefore, no credit loss as of June 30, 2020. The current unrealized loss position of certain agency securities and non-agency CMBS with no credit loss allowance can be attributed to the changing interest rate environment. An allowance for credit losses on investment securities held-to-maturity of $397 thousand was recorded for certain Municipal bonds and notes to account for expected lifetime credit loss upon adoption of the new accounting standard for credit losses. Expected lifetime credit loss on investment securities held-to-maturity is primarily attributed to securities not rated.
The following table summarizes the activity in the allowance for credit losses on investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2020
|
|
June 30, 2020
|
|
|
(In thousands)
|
Municipal bonds and notes
|
|
Municipal bonds and notes
|
|
|
Balance beginning of period
|
$
|
312
|
|
|
$
|
—
|
|
|
|
Adoption of ASU No. 2016-13 (CECL)
|
—
|
|
|
397
|
|
|
|
Recovery of credit losses
|
(3)
|
|
|
(88)
|
|
|
|
Balance end of period
|
$
|
309
|
|
|
$
|
309
|
|
|
|
Credit Quality Information
The Company monitors the credit quality of held-to-maturity debt securities through credit ratings by Standard & Poor's Rating Services (S&P), Moody's Investor Services (Moody's), Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about the credit quality of a security. Investment grade securities are rated BBB- or higher by S&P, or Baa3 or higher by Moody's, and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. Securities shown below that are not rated are backed by U.S. Treasury obligations, and credit quality indicators are updated at each quarter end.
The following table summarizes credit ratings for amortized cost of held-to-maturity debt securities according to their lowest public credit rating as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Aaa
|
Aa1
|
Aa2
|
Aa3
|
A1
|
A2
|
A3
|
Baa2
|
|
Not Rated
|
Agency CMOs
|
$
|
—
|
|
$
|
138,529
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
Agency MBS
|
—
|
|
2,766,764
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Agency CMBS
|
—
|
|
1,585,929
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Municipal bonds and notes
|
210,126
|
|
165,467
|
|
201,773
|
|
117,544
|
|
42,227
|
|
8,667
|
|
2,066
|
|
285
|
|
|
4,382
|
|
CMBS
|
233,367
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Total held-to-maturity
|
$
|
443,493
|
|
$
|
4,656,689
|
|
$
|
201,773
|
|
$
|
117,544
|
|
$
|
42,227
|
|
$
|
8,667
|
|
$
|
2,066
|
|
$
|
285
|
|
|
$
|
4,382
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020, none of the held-to-maturity investment securities were in non-accrual status.
Contractual Maturities
The amortized cost and fair value of held-to-maturity debt securities by contractual maturity are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
(In thousands)
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
$
|
1,085
|
|
|
$
|
1,089
|
|
Due after one year through five years
|
5,833
|
|
|
6,130
|
|
Due after five through ten years
|
264,751
|
|
|
277,660
|
|
Due after ten years
|
5,205,457
|
|
|
5,460,680
|
|
Total held-to-maturity debt securities
|
$
|
5,477,126
|
|
|
$
|
5,745,559
|
|
For the maturity schedule above, investment securities 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 repay obligations with or without prepayment penalties.
Available-for-Sale Securities
A summary of the amortized cost and fair value of available-for-sale securities is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
(In thousands)
|
Amortized
Cost(1)
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value(2)
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
182,484
|
|
$
|
7,339
|
|
$
|
(220)
|
|
$
|
189,603
|
|
|
|
Agency MBS
|
1,512,525
|
|
75,054
|
|
(343)
|
|
1,587,236
|
|
|
|
Agency CMBS
|
827,782
|
|
27,131
|
|
—
|
|
854,913
|
|
|
|
CMBS
|
472,418
|
|
433
|
|
(16,597)
|
|
456,254
|
|
|
|
CLO
|
86,705
|
|
6
|
|
(2,228)
|
|
84,483
|
|
|
|
Corporate debt
|
14,544
|
|
—
|
|
(3,409)
|
|
11,135
|
|
|
|
Available-for-sale securities
|
$
|
3,096,458
|
|
$
|
109,963
|
|
$
|
(22,797)
|
|
$
|
3,183,624
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
(In thousands)
|
Amortized
Cost(1)
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value(2)
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
184,500
|
|
$
|
2,218
|
|
$
|
(917)
|
|
$
|
185,801
|
|
|
|
Agency MBS
|
1,580,743
|
|
35,456
|
|
(4,035)
|
|
1,612,164
|
|
|
|
Agency CMBS
|
587,974
|
|
513
|
|
(6,935)
|
|
581,552
|
|
|
|
CMBS
|
432,085
|
|
38
|
|
(252)
|
|
431,871
|
|
|
|
CLO
|
92,628
|
|
45
|
|
(468)
|
|
92,205
|
|
|
|
Corporate debt
|
23,485
|
|
—
|
|
(1,245)
|
|
22,240
|
|
|
|
Available-for-sale securities
|
$
|
2,901,415
|
|
$
|
38,270
|
|
$
|
(13,852)
|
|
$
|
2,925,833
|
|
|
|
(1)Amortized cost excludes accrued interest receivable of $7.7 million and $8.1 million at June 30, 2020 and December 31, 2019, respectively, which is included in accrued interest and other assets in the consolidated balance sheet.
(2)Fair value represents net carrying value as there is no allowance for credit losses recorded on investment securities available-for-sale, as the securities are high credit quality, investment grade.
Fair Value and Unrealized Losses
The following tables provide information on fair value and unrealized losses for the individual available-for-sale securities with an unrealized loss, for which an allowance for credit losses on investment securities available-for-sale has not been recorded, aggregated by classification and length of time that the individual investment securities have been in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
13,657
|
|
$
|
(118)
|
|
|
$
|
9,339
|
|
$
|
(102)
|
|
|
3
|
$
|
22,996
|
|
$
|
(220)
|
|
Agency MBS
|
28,377
|
|
(149)
|
|
|
13,154
|
|
(194)
|
|
|
27
|
41,531
|
|
(343)
|
|
Agency CMBS
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
—
|
|
—
|
|
CMBS
|
424,793
|
|
(16,204)
|
|
|
7,107
|
|
(393)
|
|
|
40
|
431,900
|
|
(16,597)
|
|
CLO
|
64,791
|
|
(1,509)
|
|
|
17,982
|
|
(719)
|
|
|
4
|
82,773
|
|
(2,228)
|
|
Corporate debt
|
3,480
|
|
(779)
|
|
|
7,655
|
|
(2,630)
|
|
|
3
|
11,135
|
|
(3,409)
|
|
Available-for-sale in unrealized loss position
|
$
|
535,098
|
|
$
|
(18,759)
|
|
|
$
|
55,237
|
|
$
|
(4,038)
|
|
|
77
|
$
|
590,335
|
|
$
|
(22,797)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
36,447
|
|
$
|
(352)
|
|
|
$
|
32,288
|
|
$
|
(565)
|
|
|
9
|
$
|
68,735
|
|
$
|
(917)
|
|
Agency MBS
|
41,408
|
|
(193)
|
|
|
299,674
|
|
(3,842)
|
|
|
79
|
341,082
|
|
(4,035)
|
|
Agency CMBS
|
174,406
|
|
(1,137)
|
|
|
357,717
|
|
(5,798)
|
|
|
34
|
532,123
|
|
(6,935)
|
|
CMBS
|
355,260
|
|
(232)
|
|
|
7,480
|
|
(20)
|
|
|
29
|
362,740
|
|
(252)
|
|
CLO
|
—
|
|
—
|
|
|
43,232
|
|
(468)
|
|
|
2
|
43,232
|
|
(468)
|
|
Corporate debt
|
—
|
|
—
|
|
|
22,240
|
|
(1,245)
|
|
|
4
|
22,240
|
|
(1,245)
|
|
Available-for-sale in unrealized loss position
|
$
|
607,521
|
|
$
|
(1,914)
|
|
|
$
|
762,631
|
|
$
|
(11,938)
|
|
|
157
|
$
|
1,370,152
|
|
$
|
(13,852)
|
|
Unrealized losses on available-for-sale debt securities presented in the previous table have not been recognized in the consolidated statements of income because the securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is attributable to factors other than credit losses. Fair value is expected to recover as the securities approach maturity. As of June 30, 2020, none of the available-for-sale investment securities were in non-accrual status.
Contractual Maturities
The amortized cost and fair value of available-for-sale debt securities by contractual maturity are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
(In thousands)
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
1,705
|
|
|
1,710
|
|
Due after five through ten years
|
264,913
|
|
|
255,748
|
|
Due after ten years
|
2,829,840
|
|
|
2,926,166
|
|
Total available-for-sale debt securities
|
$
|
3,096,458
|
|
|
$
|
3,183,624
|
|
For the maturity schedule above, investment securities 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 repay obligations with or without prepayment penalties.
Sales of Available-for Sale Investment Securities
For the six months ended June 30, 2020, proceeds from sales of available-for-sale securities were $9.0 million, which resulted in realized gains of $8.0 thousand. There were no sales during the three months ended June 30, 2020, or the three and six months ended June 30, 2019.
Other Information
At June 30, 2020, the Company had a carrying value of $1.3 billion in callable debt securities in its CMBS, CLO, and municipal bond portfolios. The Company considers this prepayment risk in the evaluation of its interest rate risk profile.
Investment securities with a carrying value totaling $3.6 billion at June 30, 2020 and $2.7 billion at December 31, 2019 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 June 30,
2020
|
|
At December 31, 2019
|
Commercial non-mortgage
|
$
|
7,014,407
|
|
|
$
|
5,296,611
|
|
Asset-based
|
940,524
|
|
|
1,046,886
|
|
Commercial real estate
|
6,207,314
|
|
|
5,949,339
|
|
Equipment financing
|
591,838
|
|
|
537,341
|
|
Total commercial portfolio
|
14,754,083
|
|
|
12,830,177
|
|
Residential
|
4,921,573
|
|
|
4,972,685
|
|
Home equity
|
1,924,013
|
|
|
2,014,544
|
|
Other consumer
|
202,848
|
|
|
219,580
|
|
Total consumer portfolio
|
7,048,434
|
|
|
7,206,809
|
|
Loans and leases (1) (2) (3)
|
$
|
21,802,517
|
|
|
$
|
20,036,986
|
|
(1)Loan balances include net deferred fees/costs and net premiums/discounts of $(16.5) million and $17.6 million at June 30, 2020 and December 31, 2019, respectively.
(2)At June 30, 2020 the Company had pledged $8.0 billion of eligible loans as collateral to support borrowing capacity at the Federal Home Loan Bank (FHLB) of Boston and the Federal Reserve Bank (FRB) of Boston.
(3)Loan balances exclude accrued interest receivable of $55.5 million and $59.0 million at June 30, 2020 and December 31, 2019, respectively, which is included in accrued interest and other assets in the consolidated balance sheet.
Equipment financing includes net investment in leases of $226.8 million, with total undiscounted cash flows, primarily due within the next five years, amounting to $246.0 million, at June 30, 2020. This lessor activity resulted in interest income of $1.8 million and $1.5 million for the three months ended June 30, 2020 and 2019, respectively, and $3.4 million and $2.9 million for the six months ended June 30, 2020 and 2019, respectively.
Loans and Leases Aging
The following tables summarize the aging of loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
|
(In thousands)
|
30-59 Days
Past Due and
Accruing
|
60-89 Days
Past Due and
Accruing
|
90 or More Days Past Due
and Accruing
|
Non-accrual
|
Total Past Due and Non-accrual
|
Current
|
Total Loans
and Leases
|
Commercial non-mortgage
|
$
|
6,931
|
|
$
|
579
|
|
$
|
—
|
|
$
|
67,542
|
|
$
|
75,052
|
|
$
|
6,939,355
|
|
$
|
7,014,407
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
138
|
|
138
|
|
940,386
|
|
940,524
|
|
Commercial real estate
|
1,206
|
|
1,165
|
|
198
|
|
15,902
|
|
18,471
|
|
6,188,843
|
|
6,207,314
|
|
Equipment financing
|
5,590
|
|
855
|
|
—
|
|
7,793
|
|
14,238
|
|
577,600
|
|
591,838
|
|
Residential
|
7,445
|
|
8,064
|
|
—
|
|
46,579
|
|
62,088
|
|
4,859,485
|
|
4,921,573
|
|
Home equity
|
4,603
|
|
1,764
|
|
—
|
|
34,022
|
|
40,389
|
|
1,883,624
|
|
1,924,013
|
|
Other consumer
|
845
|
|
670
|
|
—
|
|
1,217
|
|
2,732
|
|
200,116
|
|
202,848
|
|
Total
|
$
|
26,620
|
|
$
|
13,097
|
|
$
|
198
|
|
$
|
173,193
|
|
$
|
213,108
|
|
$
|
21,589,409
|
|
$
|
21,802,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
(In thousands)
|
30-59 Days
Past Due and
Accruing
|
60-89 Days
Past Due and
Accruing
|
90 or More Days Past Due
and Accruing
|
Non-accrual
|
Total Past Due and Non-accrual
|
Current
|
Total Loans
and Leases
|
Commercial non-mortgage
|
$
|
2,094
|
|
$
|
617
|
|
$
|
—
|
|
$
|
59,369
|
|
$
|
62,080
|
|
$
|
5,234,531
|
|
$
|
5,296,611
|
|
Asset-based
|
—
|
|
—
|
|
—
|
|
139
|
|
139
|
|
1,046,747
|
|
1,046,886
|
|
Commercial real estate
|
1,256
|
|
454
|
|
—
|
|
11,563
|
|
13,273
|
|
5,936,066
|
|
5,949,339
|
|
Equipment financing
|
5,493
|
|
292
|
|
—
|
|
5,433
|
|
11,218
|
|
526,123
|
|
537,341
|
|
Residential
|
7,166
|
|
6,441
|
|
—
|
|
43,193
|
|
56,800
|
|
4,915,885
|
|
4,972,685
|
|
Home equity
|
8,267
|
|
5,551
|
|
—
|
|
30,170
|
|
43,988
|
|
1,970,556
|
|
2,014,544
|
|
Other consumer
|
4,269
|
|
807
|
|
—
|
|
1,192
|
|
6,268
|
|
213,312
|
|
219,580
|
|
Total
|
$
|
28,545
|
|
$
|
14,162
|
|
$
|
—
|
|
$
|
151,059
|
|
$
|
193,766
|
|
$
|
19,843,220
|
|
$
|
20,036,986
|
|
The following table provides additional detail related to loans and leases on non-accrual status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
At December 31, 2019
|
|
(In thousands)
|
Nonaccrual
|
Nonaccrual With No Allowance
|
|
Nonaccrual
|
Nonaccrual With No Allowance
|
Commercial non-mortgage
|
$
|
67,542
|
|
$
|
29,385
|
|
|
$
|
59,369
|
|
$
|
13,584
|
|
Asset-based
|
138
|
|
—
|
|
|
139
|
|
—
|
|
Commercial real estate
|
15,902
|
|
3,817
|
|
|
11,563
|
|
4,717
|
|
Equipment financing
|
7,793
|
|
3,881
|
|
|
5,433
|
|
2,159
|
|
Total commercial portfolio
|
91,375
|
|
37,083
|
|
|
76,504
|
|
20,460
|
|
Residential
|
46,579
|
|
34,913
|
|
|
43,193
|
|
19,271
|
|
Home equity
|
34,022
|
|
27,230
|
|
|
30,170
|
|
15,195
|
|
Other consumer
|
1,217
|
|
66
|
|
|
1,192
|
|
—
|
|
Total consumer portfolio
|
81,818
|
|
62,209
|
|
|
74,555
|
|
34,466
|
|
Total
|
$
|
173,193
|
|
$
|
99,292
|
|
|
$
|
151,059
|
|
$
|
54,926
|
|
Interest on non-accrual residential and home equity loans that would have been recorded as additional interest income had the loans been current in accordance with the original terms totaled $3.8 million and $3.4 million for the three months ended June 30, 2020 and 2019, respectively, and $6.8 million and $6.1 million for the six months ended June 30, 2020 and 2019, respectively.
Refer to Note 1 to the Consolidated Financial Statements included in the Company's Form 10-K, for the year ended December 31, 2019, for details of non-accrual policies.
Allowance for Credit Losses on Loans and Leases
The following tables summarize the activity in, as well as the loan and lease balances that were evaluated for, ACL on loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended June 30, 2020
|
|
|
|
At or for the three months ended June 30, 2019
|
|
|
(In thousands)
|
Commercial Portfolio
|
Consumer Portfolio
|
Total
|
|
Commercial Portfolio
|
Consumer Portfolio
|
Total
|
ACL on loans and leases:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
261,926
|
|
$
|
73,005
|
|
$
|
334,931
|
|
|
$
|
164,057
|
|
$
|
47,332
|
|
$
|
211,389
|
|
Adoption of ASU No. 2016-13 (CECL)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Provision charged to expense
|
44,605
|
|
(4,602)
|
|
40,003
|
|
|
7,920
|
|
3,980
|
|
11,900
|
|
Charge-offs
|
(15,294)
|
|
(2,780)
|
|
(18,074)
|
|
|
(8,130)
|
|
(6,252)
|
|
(14,382)
|
|
Recoveries
|
283
|
|
1,379
|
|
1,662
|
|
|
497
|
|
2,267
|
|
2,764
|
|
Balance, end of period
|
291,520
|
|
67,002
|
|
358,522
|
|
|
164,344
|
|
$
|
47,327
|
|
211,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the six months ended June 30, 2020
|
|
|
|
At or for the six months ended June 30, 2019
|
|
|
(In thousands)
|
Commercial Portfolio
|
Consumer Portfolio
|
Total
|
|
Commercial Portfolio
|
Consumer Portfolio
|
Total
|
ACL on loans and leases:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
161,669
|
|
$
|
47,427
|
|
$
|
209,096
|
|
|
$
|
164,073
|
|
$
|
48,280
|
|
$
|
212,353
|
|
Adoption of ASU No. 2016-13 (CECL)
|
34,024
|
|
23,544
|
|
57,568
|
|
|
—
|
|
—
|
|
—
|
|
Provision charged to expense
|
115,848
|
|
240
|
|
116,088
|
|
|
15,910
|
|
4,590
|
|
20,500
|
|
Charge-offs
|
(20,868)
|
|
(7,367)
|
|
(28,235)
|
|
|
(16,940)
|
|
(10,476)
|
|
(27,416)
|
|
Recoveries
|
847
|
|
3,158
|
|
4,005
|
|
|
1,301
|
|
4,933
|
|
6,234
|
|
Balance, end of period
|
$
|
291,520
|
|
$
|
67,002
|
|
$
|
358,522
|
|
|
$
|
164,344
|
|
$
|
47,327
|
|
$
|
211,671
|
|
Individually evaluated for impairment
|
$
|
15,271
|
|
$
|
4,484
|
|
$
|
19,755
|
|
|
$
|
9,520
|
|
$
|
5,261
|
|
$
|
14,781
|
|
Collectively evaluated for impairment
|
$
|
276,249
|
|
$
|
62,518
|
|
$
|
338,767
|
|
|
$
|
154,824
|
|
$
|
42,066
|
|
$
|
196,890
|
|
|
|
|
|
|
|
|
|
Loan and lease balances:
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
165,010
|
|
$
|
158,146
|
|
$
|
323,156
|
|
|
$
|
115,747
|
|
$
|
137,500
|
|
$
|
253,247
|
|
Collectively evaluated for impairment
|
14,589,073
|
|
6,890,288
|
|
21,479,361
|
|
|
12,134,141
|
|
6,882,495
|
|
19,016,636
|
|
Loans and leases
|
$
|
14,754,083
|
|
$
|
7,048,434
|
|
$
|
21,802,517
|
|
|
$
|
12,249,888
|
|
$
|
7,019,995
|
|
$
|
19,269,883
|
|
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 PD and the LGD. The Company's credit risk grading system has not changed with the adoption of CECL. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of loss. Grades (1)-(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 borrowers’ 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. A (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.
For residential and consumer loans, the most relevant credit characteristic is FICO score. FICO scores are a widely used credit score and range from 300 to 850. A lower FICO score is indicative of higher credit risk. FICO scores are updated at least quarterly.
The following table summarizes commercial, commercial real estate, and equipment financing loans and leases segregated by origination year and risk rating exposure under the Composite Credit Risk Profile grades as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Total
|
Commercial non-mortgage
|
|
|
|
|
|
|
|
|
Pass
|
$
|
2,091,770
|
|
$
|
1,315,532
|
|
$
|
1,075,646
|
|
$
|
579,143
|
|
$
|
290,622
|
|
$
|
301,222
|
|
$
|
1,044,939
|
|
$
|
6,698,874
|
|
Special mention
|
—
|
|
14,107
|
|
7,308
|
|
1,967
|
|
—
|
|
2,287
|
|
4,075
|
|
29,744
|
|
Substandard
|
1,358
|
|
29,551
|
|
39,811
|
|
78,633
|
|
30,377
|
|
45,159
|
|
57,353
|
|
282,242
|
|
Doubtful
|
—
|
|
3,378
|
|
—
|
|
169
|
|
—
|
|
—
|
|
—
|
|
3,547
|
|
Total commercial non-mortgage
|
2,093,128
|
|
1,362,568
|
|
1,122,765
|
|
659,912
|
|
320,999
|
|
348,668
|
|
1,106,367
|
|
7,014,407
|
|
Asset-based
|
|
|
|
|
|
|
|
|
Pass
|
274
|
|
22,033
|
|
23,192
|
|
13,746
|
|
11,460
|
|
24,119
|
|
788,588
|
|
883,412
|
|
Special mention
|
—
|
|
2,000
|
|
825
|
|
—
|
|
—
|
|
1,069
|
|
24,310
|
|
28,204
|
|
Substandard
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
28,908
|
|
28,908
|
|
Total asset-based
|
274
|
|
24,033
|
|
24,017
|
|
13,746
|
|
11,460
|
|
25,188
|
|
841,806
|
|
940,524
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Pass
|
482,416
|
|
1,475,625
|
|
1,329,814
|
|
668,039
|
|
632,735
|
|
1,444,747
|
|
31,845
|
|
6,065,221
|
|
Special mention
|
—
|
|
754
|
|
33,222
|
|
17,137
|
|
26,514
|
|
2,847
|
|
—
|
|
80,474
|
|
Substandard
|
426
|
|
—
|
|
1,053
|
|
15,336
|
|
2,359
|
|
42,445
|
|
—
|
|
61,619
|
|
Total commercial real estate
|
482,842
|
|
1,476,379
|
|
1,364,089
|
|
700,512
|
|
661,608
|
|
1,490,039
|
|
31,845
|
|
6,207,314
|
|
Equipment financing
|
|
|
|
|
|
|
|
|
Pass
|
177,753
|
|
169,602
|
|
90,000
|
|
38,268
|
|
60,434
|
|
31,716
|
|
—
|
|
567,773
|
|
Special mention
|
920
|
|
555
|
|
1,094
|
|
—
|
|
772
|
|
41
|
|
—
|
|
3,382
|
|
Substandard
|
279
|
|
1,424
|
|
5,886
|
|
2,672
|
|
4,795
|
|
5,627
|
|
—
|
|
20,683
|
|
Total equipment financing
|
178,952
|
|
171,581
|
|
96,980
|
|
40,940
|
|
66,001
|
|
37,384
|
|
—
|
|
591,838
|
|
Total commercial portfolio
|
$
|
2,755,196
|
|
$
|
3,034,561
|
|
$
|
2,607,851
|
|
$
|
1,415,110
|
|
$
|
1,060,068
|
|
$
|
1,901,279
|
|
$
|
1,980,018
|
|
$
|
14,754,083
|
|
The following table summarizes residential and consumer loans segregated by origination year and risk rating exposure under FICO score groupings as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Total
|
Residential
|
|
|
|
|
|
|
|
|
800+
|
$
|
131,201
|
|
$
|
346,512
|
|
$
|
85,148
|
|
$
|
270,790
|
|
$
|
359,629
|
|
$
|
1,032,865
|
|
$
|
—
|
|
$
|
2,226,145
|
|
740-799
|
255,226
|
|
391,122
|
|
84,278
|
|
152,587
|
|
193,526
|
|
554,884
|
|
—
|
|
1,631,623
|
|
670-739
|
94,849
|
|
166,948
|
|
54,617
|
|
91,176
|
|
81,916
|
|
289,242
|
|
—
|
|
778,748
|
|
580-669
|
6,538
|
|
19,604
|
|
9,155
|
|
11,973
|
|
20,381
|
|
111,678
|
|
—
|
|
179,329
|
|
579 and below
|
—
|
|
23,675
|
|
411
|
|
4,697
|
|
3,328
|
|
73,617
|
|
—
|
|
105,728
|
|
Total residential
|
487,814
|
|
947,861
|
|
233,609
|
|
531,223
|
|
658,780
|
|
2,062,286
|
|
—
|
|
4,921,573
|
|
Home equity
|
|
|
|
|
|
|
|
|
800+
|
13,198
|
|
18,228
|
|
31,456
|
|
19,685
|
|
20,041
|
|
69,363
|
|
579,333
|
|
751,304
|
|
740-799
|
16,594
|
|
16,778
|
|
23,242
|
|
12,679
|
|
14,740
|
|
55,107
|
|
435,724
|
|
574,864
|
|
670-739
|
7,495
|
|
12,065
|
|
13,307
|
|
11,618
|
|
9,624
|
|
49,345
|
|
307,414
|
|
410,868
|
|
580-669
|
568
|
|
3,124
|
|
3,189
|
|
2,217
|
|
1,682
|
|
22,513
|
|
101,626
|
|
134,919
|
|
579 and below
|
101
|
|
377
|
|
903
|
|
1,316
|
|
868
|
|
9,764
|
|
38,729
|
|
52,058
|
|
Total home equity
|
37,956
|
|
50,572
|
|
72,097
|
|
47,515
|
|
46,955
|
|
206,092
|
|
1,462,826
|
|
1,924,013
|
|
Other consumer
|
|
|
|
|
|
|
|
|
800+
|
1,483
|
|
3,886
|
|
2,275
|
|
690
|
|
168
|
|
193
|
|
7,299
|
|
15,994
|
|
740-799
|
10,882
|
|
20,328
|
|
11,995
|
|
1,993
|
|
708
|
|
431
|
|
3,970
|
|
50,307
|
|
670-739
|
23,238
|
|
56,607
|
|
24,674
|
|
5,737
|
|
2,475
|
|
1,198
|
|
5,708
|
|
119,637
|
|
580-669
|
2,603
|
|
4,859
|
|
2,254
|
|
821
|
|
363
|
|
318
|
|
1,791
|
|
13,009
|
|
579 and below
|
1,043
|
|
624
|
|
315
|
|
91
|
|
58
|
|
227
|
|
1,543
|
|
3,901
|
|
Total other consumer
|
39,249
|
|
86,304
|
|
41,513
|
|
9,332
|
|
3,772
|
|
2,367
|
|
20,311
|
|
202,848
|
|
Total consumer portfolio
|
565,019
|
|
1,084,737
|
|
347,219
|
|
588,070
|
|
709,507
|
|
2,270,745
|
|
1,483,137
|
|
7,048,434
|
|
|
|
|
|
|
|
|
|
|
Total commercial portfolio
|
2,755,196
|
|
3,034,561
|
|
2,607,851
|
|
1,415,110
|
|
1,060,068
|
|
1,901,279
|
|
1,980,018
|
|
14,754,083
|
|
Total loans and leases
|
$
|
3,320,215
|
|
$
|
4,119,298
|
|
$
|
2,955,070
|
|
$
|
2,003,180
|
|
$
|
1,769,575
|
|
$
|
4,172,024
|
|
$
|
3,463,155
|
|
$
|
21,802,517
|
|
Individually Assessed Loans and Leases
The following tables summarize individually assessed loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
(In thousands)
|
Unpaid
Principal
Balance
|
Amortized Cost
|
Amortized Cost No Allowance
|
Amortized Cost With Allowance
|
Related
Valuation
Allowance
|
|
|
|
|
|
|
Commercial non-mortgage
|
$
|
174,593
|
|
$
|
129,552
|
|
$
|
64,967
|
|
$
|
64,585
|
|
$
|
12,080
|
|
Asset-based
|
464
|
|
138
|
|
—
|
|
138
|
|
3
|
|
|
|
|
|
|
|
Commercial real estate
|
33,694
|
|
27,526
|
|
13,838
|
|
13,688
|
|
3,061
|
|
Equipment financing
|
7,233
|
|
7,794
|
|
3,881
|
|
3,913
|
|
127
|
|
Residential
|
120,304
|
|
106,772
|
|
68,597
|
|
38,175
|
|
3,304
|
|
Home equity
|
114,326
|
|
50,157
|
|
38,277
|
|
11,880
|
|
1,022
|
|
Other consumer
|
2,870
|
|
1,217
|
|
66
|
|
1,151
|
|
158
|
|
Total
|
$
|
453,484
|
|
$
|
323,156
|
|
$
|
189,626
|
|
$
|
133,530
|
|
$
|
19,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
(In thousands)
|
Unpaid
Principal
Balance
|
Amortized Cost
|
Amortized Cost No Allowance
|
Amortized Cost With Allowance
|
Related
Valuation
Allowance
|
|
|
|
|
|
|
Commercial non-mortgage
|
$
|
140,096
|
|
$
|
102,254
|
|
$
|
29,739
|
|
$
|
72,515
|
|
$
|
7,862
|
|
Asset-based
|
465
|
|
139
|
|
—
|
|
139
|
|
5
|
|
|
|
|
|
|
|
Commercial real estate
|
29,292
|
|
23,297
|
|
14,818
|
|
8,479
|
|
1,143
|
|
Equipment financing
|
5,591
|
|
5,433
|
|
2,159
|
|
3,274
|
|
418
|
|
Residential
|
98,790
|
|
90,096
|
|
56,231
|
|
33,865
|
|
3,618
|
|
Home equity
|
38,503
|
|
35,191
|
|
27,672
|
|
7,519
|
|
1,203
|
|
Other consumer (1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
312,737
|
|
$
|
256,410
|
|
$
|
130,619
|
|
$
|
125,791
|
|
$
|
14,249
|
|
(1)Partially charged-off other consumer loans were included in collectively evaluated for impairment at December 31, 2019.
The following table summarizes average amortized cost and interest income recognized for individually assessed loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(In thousands)
|
Average
Amortized Cost
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Amortized Cost
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Amortized Cost
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
Average
Amortized Cost
|
Accrued
Interest
Income
|
Cash Basis Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
$
|
136,483
|
|
$
|
875
|
|
$
|
—
|
|
|
$
|
106,753
|
|
$
|
844
|
|
$
|
—
|
|
|
$
|
115,903
|
|
$
|
1,928
|
|
$
|
—
|
|
|
$
|
98,511
|
|
$
|
1,764
|
|
$
|
—
|
|
Asset-based
|
138
|
|
—
|
|
—
|
|
|
201
|
|
—
|
|
—
|
|
|
139
|
|
—
|
|
—
|
|
|
204
|
|
—
|
|
—
|
|
Commercial real estate
|
26,017
|
|
169
|
|
—
|
|
|
13,070
|
|
61
|
|
—
|
|
|
25,411
|
|
315
|
|
—
|
|
|
12,354
|
|
134
|
|
—
|
|
Equipment financing
|
8,373
|
|
—
|
|
—
|
|
|
4,451
|
|
—
|
|
—
|
|
|
6,613
|
|
—
|
|
—
|
|
|
5,132
|
|
—
|
|
—
|
|
Residential
|
121,488
|
|
781
|
|
230
|
|
|
101,245
|
|
912
|
|
282
|
|
|
113,806
|
|
1,611
|
|
860
|
|
|
101,850
|
|
1,820
|
|
546
|
|
Home equity
|
50,573
|
|
309
|
|
413
|
|
|
38,092
|
|
287
|
|
241
|
|
|
43,863
|
|
700
|
|
1,243
|
|
|
38,238
|
|
556
|
|
521
|
|
Other consumer
|
1,121
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
609
|
|
17
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
344,193
|
|
$
|
2,134
|
|
$
|
643
|
|
|
$
|
263,812
|
|
$
|
2,104
|
|
$
|
523
|
|
|
$
|
306,344
|
|
$
|
4,571
|
|
$
|
2,103
|
|
|
$
|
256,289
|
|
$
|
4,274
|
|
$
|
1,067
|
|
Collateral Dependent Loans and Leases. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and it is expected to be repaid substantially through the sale or operation of the collateral. A collateral dependent loan is individually assessed based on the fair value of the collateral, less costs to sell, as of the reporting date. Commercial non-mortgage, asset based, and equipment financing are collateralized by equipment, inventory, receivables, or other non-real estate assets. Commercial real estate, residential, and home equity are collateralized by real estate. Collateral value on collateral dependent loans and leases was $143.6 million at June 30, 2020 and $109.8 million at December 31, 2019.
The following table summarizes whether, or not, individually assessed loans and leases are collateral dependent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
(In thousands)
|
Collateral Dependent
|
Not Considered Collateral Dependent
|
Total
|
|
Collateral Dependent
|
Not Considered Collateral Dependent
|
Total
|
Commercial non-mortgage
|
$
|
16,028
|
|
$
|
113,524
|
|
$
|
129,552
|
|
|
$
|
10,682
|
|
$
|
91,572
|
|
$
|
102,254
|
|
Asset-based
|
—
|
|
138
|
|
138
|
|
|
—
|
|
139
|
|
139
|
|
Commercial real estate
|
19,146
|
|
8,380
|
|
27,526
|
|
|
14,097
|
|
9,200
|
|
23,297
|
|
Equipment financing
|
—
|
|
7,794
|
|
7,794
|
|
|
—
|
|
5,433
|
|
5,433
|
|
Residential
|
37,708
|
|
69,064
|
|
106,772
|
|
|
17,635
|
|
72,461
|
|
90,096
|
|
Home equity
|
30,493
|
|
19,664
|
|
50,157
|
|
|
17,136
|
|
18,055
|
|
35,191
|
|
Other consumer
|
—
|
|
1,217
|
|
1,217
|
|
|
—
|
|
—
|
|
—
|
|
Total amortized cost of CDA
|
$
|
103,375
|
|
$
|
219,781
|
|
$
|
323,156
|
|
|
$
|
59,550
|
|
$
|
196,860
|
|
$
|
256,410
|
|
Troubled Debt Restructurings
The following table summarizes information for TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2020
|
|
At December 31, 2019
|
Accrual status
|
$
|
147,950
|
|
|
$
|
136,449
|
|
Non-accrual status
|
113,496
|
|
|
100,989
|
|
Total TDRs
|
$
|
261,446
|
|
|
$
|
237,438
|
|
|
|
|
|
Specific reserves for TDRs included in the balance of ACL on loans and leases
|
$
|
15,027
|
|
|
$
|
12,956
|
|
Additional funds committed to borrowers in TDR status
|
15,547
|
|
|
4,856
|
|
The portion of TDRs deemed to be uncollectible, $1.9 million and $4.2 million for the three months ended June 30, 2020 and 2019, respectively, and $3.1 million and $5.6 million for the six months ended June 30, 2020 and 2019, respectively, were charged off.
The following table provides information on the type of concession for loans and leases modified as TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment(1)
|
|
Number of
Loans and
Leases
|
Post-
Modification
Recorded
Investment(1)
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
4
|
$
|
403
|
|
|
4
|
|
$
|
69
|
|
|
6
|
$
|
507
|
|
|
6
|
$
|
193
|
|
Adjusted Interest Rate
|
—
|
—
|
|
|
1
|
|
100
|
|
|
—
|
—
|
|
|
1
|
100
|
|
Maturity/Rate Combined
|
—
|
—
|
|
|
2
|
|
46
|
|
|
5
|
274
|
|
|
3
|
71
|
|
Other (2)
|
13
|
12,985
|
|
|
4
|
|
12,029
|
|
|
23
|
40,122
|
|
|
19
|
34,056
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
1
|
72
|
|
|
—
|
|
—
|
|
|
1
|
72
|
|
|
—
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity/Rate Combined
|
—
|
—
|
|
|
—
|
|
—
|
|
|
1
|
278
|
|
|
—
|
—
|
|
Other (2)
|
—
|
—
|
|
|
—
|
|
—
|
|
|
—
|
—
|
|
|
2
|
2,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
1
|
87
|
|
|
3
|
|
421
|
|
|
2
|
351
|
|
|
4
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity/Rate Combined
|
2
|
255
|
|
|
8
|
|
1,397
|
|
|
5
|
698
|
|
|
13
|
1,848
|
|
Other (2)
|
17
|
3,062
|
|
|
2
|
|
281
|
|
|
20
|
3,675
|
|
|
4
|
542
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Extended Maturity
|
2
|
157
|
|
|
2
|
|
225
|
|
|
2
|
157
|
|
|
4
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity/Rate Combined
|
—
|
—
|
|
|
2
|
|
110
|
|
|
1
|
13
|
|
|
2
|
110
|
|
Other (2)
|
63
|
4,399
|
|
|
6
|
|
466
|
|
|
74
|
5,512
|
|
|
19
|
1,220
|
|
Total TDRs
|
103
|
$
|
21,420
|
|
|
34
|
|
$
|
15,144
|
|
|
140
|
$
|
51,659
|
|
|
77
|
$
|
42,086
|
|
(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 and six months ended June 30, 2020 and 2019.
TDRs in commercial, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30, 2020
|
|
At December 31, 2019
|
(1) - (6) Pass
|
$
|
3,362
|
|
|
$
|
3,952
|
|
(7) Special Mention
|
—
|
|
|
63
|
|
(8) Substandard
|
131,498
|
|
|
104,277
|
|
(9) Doubtful
|
3,547
|
|
|
3,860
|
|
Total
|
$
|
138,407
|
|
|
$
|
112,152
|
|
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. Residential mortgage origination fees, adjustments for changes in fair value, and gain or loss on loans sold are included as mortgage banking activities in the consolidated statement 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 loan repurchase requests received by the Company for which management evaluates 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 loan repurchase requests for which the Company has not yet been notified. 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 consolidated income statement.
The following table provides a summary of activity in the reserve for loan repurchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
633
|
|
|
$
|
676
|
|
|
$
|
508
|
|
|
$
|
674
|
|
Provision charged to expense
|
27
|
|
|
1,813
|
|
|
49
|
|
|
1,820
|
|
(Charge-offs/settlements, net) recoveries, net
|
(5)
|
|
|
(1,805)
|
|
|
98
|
|
|
(1,810)
|
|
Ending balance
|
$
|
655
|
|
|
$
|
684
|
|
|
$
|
655
|
|
|
$
|
684
|
|
The following table provides information for mortgage banking activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Residential mortgage loans held for sale:
|
|
|
|
|
|
|
|
Proceeds from sale
|
$
|
94,574
|
|
|
$
|
42,851
|
|
|
$
|
170,168
|
|
|
$
|
63,464
|
|
Loans sold with servicing rights retained
|
89,687
|
|
|
39,465
|
|
|
161,778
|
|
|
56,813
|
|
|
|
|
|
|
|
|
|
Net gain on sale
|
2,824
|
|
|
700
|
|
|
5,343
|
|
|
858
|
|
Ancillary fees
|
824
|
|
|
320
|
|
|
1,225
|
|
|
581
|
|
Fair value option adjustment
|
557
|
|
|
(88)
|
|
|
530
|
|
|
257
|
|
Additionally, loans not originated for sale were sold approximately at carrying value for cash proceeds of $3.6 million, resulting in a gain of approximately $256 thousand, for certain commercial loans for the six months ended June 30, 2020, and $4.0 million for certain residential loans and $16.1 million, resulting in a gain of approximately $615 thousand, for certain commercial loans for the six months ended June 30, 2019.
The Company services residential mortgage loans for other entities totaling $2.4 billion at both June 30, 2020 and December 31, 2019.
The following table presents the changes in carrying value for mortgage servicing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
16,391
|
|
|
$
|
19,785
|
|
|
$
|
17,484
|
|
|
$
|
21,215
|
|
Additions
|
779
|
|
|
791
|
|
|
1,968
|
|
|
1,253
|
|
Amortization
|
(1,669)
|
|
|
(1,864)
|
|
|
(3,376)
|
|
|
(3,756)
|
|
Valuation allowance
|
(575)
|
|
|
—
|
|
|
(1,150)
|
|
|
—
|
|
Ending balance
|
$
|
14,926
|
|
|
$
|
18,712
|
|
|
$
|
14,926
|
|
|
$
|
18,712
|
|
Loan servicing fees, net of mortgage servicing rights amortization, were $0.3 million and $0.4 million for the three months ended June 30, 2020, and $0.8 million and $0.9 million for the six months ended June 30, 2020 and 2019, respectively, and are included as a component of loan related fees in the consolidated statement of income.
Refer to Note 14: Fair Value Measurements for additional information on loans held for sale and mortgage servicing assets.
Note 6: Leasing
The Company enters into leases, as lessee, primarily for office space, banking centers, and certain other operational assets. These leases are generally classified as operating leases, however, an insignificant amount are classified as finance leases. The Company's operating leases generally have lease terms for periods of 5 to 20 years with various renewal options. The Company does not have any material sub-lease agreements.
The following table summarizes lessee information related to the Company’s operating ROU assets and lease liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
(In thousands)
|
Operating Leases
|
|
Consolidated Balance Sheet Line Item Location
|
ROU lease assets
|
$
|
151,805
|
|
|
Premises and equipment, net
|
Lease liabilities
|
170,731
|
|
|
Operating lease liabilities
|
The components of operating lease cost and other related information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended June 30,
|
|
At or for the six months ended June 30,
|
|
(In thousands)
|
2020
|
2019
|
2020
|
2019
|
Lease Cost:
|
|
|
|
|
Operating lease costs
|
$
|
7,407
|
|
$
|
7,487
|
|
$
|
14,831
|
|
$
|
14,872
|
|
Variable lease costs
|
1,493
|
|
1,068
|
|
2,920
|
|
2,321
|
|
Sublease income
|
(142)
|
|
(155)
|
|
(287)
|
|
(295)
|
|
Total operating lease cost
|
$
|
8,758
|
|
$
|
8,400
|
|
$
|
17,464
|
|
$
|
16,898
|
|
Other Information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
7,778
|
|
$
|
7,738
|
|
$
|
15,536
|
|
$
|
15,411
|
|
ROU lease assets obtained in exchange for new operating lease liabilities
|
30
|
|
6,296
|
|
8,696
|
|
12,934
|
|
The undiscounted scheduled maturities reconciled to total operating lease liabilities are as follows:
|
|
|
|
|
|
|
(In thousands)
|
At June 30, 2020
|
|
Remainder of 2020
|
$
|
13,089
|
|
|
2021
|
30,955
|
|
|
2022
|
27,803
|
|
|
2023
|
24,880
|
|
|
2024
|
21,432
|
|
|
Thereafter
|
79,784
|
|
|
Total operating lease liability payments
|
197,943
|
|
|
Less: Present value adjustment
|
27,212
|
|
|
Lease liabilities
|
$
|
170,731
|
|
|
|
|
|
Weighted-average remaining lease term - operating leases, in years
|
8.24
|
|
Weighted-average discount rate - operating leases
|
3.26
|
%
|
|
See Note 4: Loans and Leases for information relating to leases included within the equipment financing portfolio in which the Company is lessor.
Note 7: Goodwill and Other Intangible Assets
There has been no change during 2020 in the carrying amounts for goodwill. For additional information on goodwill refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Other intangible assets by reportable segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
At December 31, 2019
|
|
|
(In thousands)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
HSA Bank - Core deposits
|
$
|
22,000
|
|
$
|
14,189
|
|
$
|
7,811
|
|
|
$
|
22,000
|
|
$
|
13,073
|
|
$
|
8,927
|
|
HSA Bank - Customer relationships
|
21,000
|
|
8,817
|
|
12,183
|
|
|
21,000
|
|
8,010
|
|
12,990
|
|
Total other intangible assets
|
$
|
43,000
|
|
$
|
23,006
|
|
$
|
19,994
|
|
|
$
|
43,000
|
|
$
|
21,083
|
|
$
|
21,917
|
|
At June 30, 2020, the remaining estimated aggregate future amortization expense for other intangible assets is as follows:
|
|
|
|
|
|
(In thousands)
|
|
Remainder of 2020
|
$
|
1,924
|
|
2021
|
3,847
|
|
2022
|
3,847
|
|
2023
|
3,847
|
|
2024
|
1,615
|
|
Thereafter
|
4,914
|
|
Note 8: Deposits
A summary of deposits by type follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2020
|
|
At December 31,
2019
|
Non-interest-bearing:
|
|
|
|
Demand
|
$
|
6,193,757
|
|
|
$
|
4,446,463
|
|
Interest-bearing:
|
|
|
|
Health savings accounts
|
6,786,845
|
|
|
6,416,135
|
|
Checking
|
3,280,125
|
|
|
2,689,734
|
|
Money market
|
2,686,650
|
|
|
2,312,840
|
|
Savings
|
4,742,573
|
|
|
4,354,809
|
|
Time deposits
|
2,666,047
|
|
|
3,104,765
|
|
Total interest-bearing
|
$
|
20,162,240
|
|
|
$
|
18,878,283
|
|
Total deposits
|
$
|
26,355,997
|
|
|
$
|
23,324,746
|
|
|
|
|
|
Time deposits and interest-bearing checking, included in above balances, obtained through brokers
|
$
|
718,404
|
|
|
$
|
652,151
|
|
Time deposits, included in above balance, that exceed the FDIC limit
|
519,812
|
|
|
661,334
|
|
Deposit overdrafts reclassified as loan balances
|
791
|
|
|
1,721
|
|
The scheduled maturities of time deposits are as follows:
|
|
|
|
|
|
(In thousands)
|
At June 30,
2020
|
Remainder of 2020
|
$
|
1,753,705
|
|
2021
|
717,029
|
|
2022
|
107,744
|
|
2023
|
38,726
|
|
2024
|
22,333
|
|
Thereafter
|
26,510
|
|
Total time deposits
|
$
|
2,666,047
|
|
Note 9: Borrowings
Total borrowings of $2.8 billion at June 30, 2020 and $3.5 billion at December 31, 2019 are described in detail below.
The following table summarizes securities sold under agreements to repurchase and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2020
|
|
|
At December 31,
2019
|
|
(Dollars in thousands)
|
Amount
|
Rate
|
|
Amount
|
Rate
|
Securities sold under agreements to repurchase (1):
|
|
|
|
|
|
Original maturity of one year or less
|
$
|
312,691
|
|
0.20
|
%
|
|
$
|
240,431
|
|
0.19
|
%
|
Original maturity of greater than one year, non-callable
|
200,000
|
|
0.68
|
|
|
200,000
|
|
1.78
|
|
Total securities sold under agreements to repurchase
|
512,691
|
|
0.39
|
|
|
440,431
|
|
0.91
|
|
Fed funds purchased
|
740,000
|
|
0.08
|
|
|
600,000
|
|
1.59
|
|
Paycheck Protection Program Liquidity Facility
|
436,114
|
|
0.35
|
|
|
—
|
|
—
|
|
Securities sold under agreements to repurchase and other borrowings
|
$
|
1,688,805
|
|
0.24
|
|
|
$
|
1,040,431
|
|
1.30
|
|
(1)The Company has right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase are presented as gross transactions, as only liabilities are outstanding for the periods presented.
Repurchase agreements are used as a source of borrowed funds and are collateralized by U.S. Government agency mortgage-backed securities. Repurchase agreement counterparties are limited to primary dealers in government securities and commercial/municipal customers through the Corporate Treasury function. To bolster the effectiveness of the PPP, the Federal Reserve began supplying liquidity to participating financial institutions through the Paycheck Protection Program Liquidity Facility which extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. The Company began utilizing this facility in the second quarter 2020.
The following table provides information for FHLB advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
At December 31, 2019
|
|
(Dollars in thousands)
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
|
Amount
|
Weighted-
Average Contractual Coupon Rate
|
Maturing within 1 year
|
$
|
265,000
|
|
1.35
|
%
|
|
$
|
1,690,000
|
|
1.79
|
%
|
After 1 but within 2 years
|
150,000
|
|
1.24
|
|
|
200,000
|
|
2.53
|
|
After 2 but within 3 years
|
120
|
|
—
|
|
|
130
|
|
—
|
|
After 3 but within 4 years
|
222
|
|
2.95
|
|
|
229
|
|
2.95
|
|
After 4 but within 5 years
|
100,000
|
|
1.50
|
|
|
50,000
|
|
1.59
|
|
After 5 years
|
7,979
|
|
2.66
|
|
|
8,117
|
|
2.66
|
|
FHLB advances
|
$
|
523,321
|
|
1.37
|
|
|
$
|
1,948,476
|
|
1.87
|
|
|
|
|
|
|
|
Aggregate carrying value of assets pledged as collateral
|
$
|
7,168,851
|
|
|
|
$
|
7,318,748
|
|
|
Remaining borrowing capacity
|
4,166,323
|
|
|
|
2,937,644
|
|
|
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 June 30,
2020
|
|
At December 31,
2019
|
4.375%
|
Senior fixed-rate notes due February 15, 2024
|
$
|
150,000
|
|
|
$
|
150,000
|
|
4.100%
|
Senior fixed-rate notes due March 25, 2029 (1)
|
346,841
|
|
|
317,486
|
|
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2)
|
|
77,320
|
|
|
77,320
|
|
Total notes and subordinated debt
|
|
574,161
|
|
|
544,806
|
|
Discount on senior fixed-rate notes
|
|
(1,303)
|
|
|
(1,412)
|
|
Debt issuance cost on senior fixed-rate notes
|
|
(2,829)
|
|
|
(3,030)
|
|
Long-term debt
|
|
$
|
570,029
|
|
|
$
|
540,364
|
|
(1)The Company has de-designated its fair value hedging relationship on the notes. A $46.8 million basis adjustment included in the carrying value will be amortized over the remaining life of the notes.
(2)The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month London Interbank Offered Rate plus 2.95%, was 3.25% at June 30, 2020 and 4.85% at December 31, 2019.
Note 10: Accumulated Other Comprehensive Income, Net of Tax
The following tables summarize the changes in accumulated other comprehensive income (loss), net of tax, by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
|
(In thousands)
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
1,562
|
|
$
|
17,048
|
|
$
|
(43,410)
|
|
$
|
(24,800)
|
|
|
$
|
17,251
|
|
$
|
(9,184)
|
|
$
|
(44,139)
|
|
$
|
(36,072)
|
|
OCI before reclassifications
|
61,914
|
|
2,186
|
|
—
|
|
64,100
|
|
|
46,231
|
|
26,965
|
|
—
|
|
73,196
|
|
Amounts reclassified from AOCI
|
—
|
|
1,415
|
|
730
|
|
2,145
|
|
|
(6)
|
|
2,868
|
|
1,459
|
|
4,321
|
|
Net current-period OCI
|
61,914
|
|
3,601
|
|
730
|
|
66,245
|
|
|
46,225
|
|
29,833
|
|
1,459
|
|
77,517
|
|
Ending balance
|
$
|
63,476
|
|
$
|
20,649
|
|
$
|
(42,680)
|
|
$
|
41,445
|
|
|
$
|
63,476
|
|
$
|
20,649
|
|
$
|
(42,680)
|
|
$
|
41,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
(In thousands)
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
|
Securities Available For Sale
|
Derivative Instruments
|
Defined Benefit Pension and Other Postretirement Benefit Plans
|
Total
|
Beginning balance
|
$
|
(43,815)
|
|
$
|
(9,117)
|
|
$
|
(48,909)
|
|
$
|
(101,841)
|
|
|
$
|
(71,374)
|
|
$
|
(9,313)
|
|
$
|
(49,965)
|
|
$
|
(130,652)
|
|
OCI/OCL before reclassifications
|
34,409
|
|
(870)
|
|
—
|
|
33,539
|
|
|
61,968
|
|
(1,709)
|
|
—
|
|
60,259
|
|
Amounts reclassified from AOCL
|
—
|
|
1,056
|
|
1,056
|
|
2,112
|
|
|
—
|
|
2,091
|
|
2,112
|
|
4,203
|
|
Net current-period OCI
|
34,409
|
|
186
|
|
1,056
|
|
35,651
|
|
|
61,968
|
|
382
|
|
2,112
|
|
64,462
|
|
Ending balance
|
$
|
(9,406)
|
|
$
|
(8,931)
|
|
$
|
(47,853)
|
|
$
|
(66,190)
|
|
|
$
|
(9,406)
|
|
$
|
(8,931)
|
|
$
|
(47,853)
|
|
$
|
(66,190)
|
|
The following table provides information for the items reclassified from AOCI/AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
Associated Line Item in the Condensed Consolidated Statements of Income
|
AOCI/AOCL Components
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
Unrealized gains on investment securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Gain on sale of investment securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
—
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
Income tax expense
|
Net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Premium amortization and hedge terminations
|
$
|
(1,088)
|
|
|
$
|
(1,408)
|
|
|
$
|
(2,261)
|
|
|
$
|
(2,799)
|
|
Interest expense
|
Premium amortization
|
(828)
|
|
|
(12)
|
|
|
(1,622)
|
|
|
(12)
|
|
Interest income
|
Tax benefit
|
501
|
|
|
364
|
|
|
1,015
|
|
|
720
|
|
Income tax expense
|
Net of tax
|
$
|
(1,415)
|
|
|
$
|
(1,056)
|
|
|
$
|
(2,868)
|
|
|
$
|
(2,091)
|
|
|
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
$
|
(990)
|
|
|
$
|
(1,429)
|
|
|
$
|
(1,980)
|
|
|
$
|
(2,859)
|
|
Other non-interest expense
|
Tax benefit
|
260
|
|
|
373
|
|
|
521
|
|
|
747
|
|
Income tax expense
|
Net of tax
|
$
|
(730)
|
|
|
$
|
(1,056)
|
|
|
$
|
(1,459)
|
|
|
$
|
(2,112)
|
|
|
Note 11: Regulatory Matters
Capital Requirements
Webster Financial Corporation is subject to regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subject to regulatory capital requirements administered by the OCC. Regulatory authorities can initiate certain mandatory actions if Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, which could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures require minimum amounts and ratios to ensure capital adequacy.
Total risk-based capital is comprised of three categories as defined by Basel III capital rules: common equity Tier 1 capital (CET1 capital), Tier 1 capital, and Tier 2 capital. CET1 capital includes common shareholders' equity, less deductions for goodwill, other intangibles, and certain deferred tax adjustments. For purposes of CET1 capital, common shareholders' equity 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 June 30, 2020
|
|
|
|
|
|
|
|
|
Actual (1)
|
|
|
Minimum Requirement
|
|
|
Well Capitalized
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,485,301
|
|
11.17
|
%
|
|
$
|
1,001,376
|
|
4.5
|
%
|
|
$
|
1,446,431
|
|
6.5
|
%
|
Total risk-based capital
|
2,985,837
|
|
13.42
|
|
|
1,780,223
|
|
8.0
|
|
|
2,225,279
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,630,338
|
|
11.82
|
|
|
1,335,167
|
|
6.0
|
|
|
1,780,223
|
|
8.0
|
|
Tier 1 leverage capital
|
2,630,338
|
|
8.33
|
|
|
1,262,430
|
|
4.0
|
|
|
1,578,038
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,666,184
|
|
11.99
|
%
|
|
$
|
1,001,034
|
|
4.5
|
%
|
|
$
|
1,445,938
|
|
6.5
|
%
|
Total risk-based capital
|
2,944,269
|
|
13.24
|
|
|
1,779,616
|
|
8.0
|
|
|
2,224,519
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,666,184
|
|
11.99
|
|
|
1,334,712
|
|
6.0
|
|
|
1,779,616
|
|
8.0
|
|
Tier 1 leverage capital
|
2,666,184
|
|
8.45
|
|
|
1,261,937
|
|
4.0
|
|
|
1,577,421
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Minimum Requirement
|
|
|
Well Capitalized
|
|
(Dollars in thousands)
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Webster Financial Corporation
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,516,361
|
|
11.56
|
%
|
|
$
|
979,739
|
|
4.5
|
%
|
|
$
|
1,415,179
|
|
6.5
|
%
|
Total risk-based capital
|
2,950,181
|
|
13.55
|
|
|
1,741,758
|
|
8.0
|
|
|
2,177,198
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,661,398
|
|
12.22
|
|
|
1,306,319
|
|
6.0
|
|
|
1,741,758
|
|
8.0
|
|
Tier 1 leverage capital
|
2,661,398
|
|
8.96
|
|
|
1,188,507
|
|
4.0
|
|
|
1,485,634
|
|
5.0
|
|
Webster Bank
|
|
|
|
|
|
|
|
|
CET1 risk-based capital
|
$
|
2,527,645
|
|
11.61
|
%
|
|
$
|
979,497
|
|
4.5
|
%
|
|
$
|
1,414,829
|
|
6.5
|
%
|
Total risk-based capital
|
2,739,108
|
|
12.58
|
|
|
1,741,328
|
|
8.0
|
|
|
2,176,660
|
|
10.0
|
|
Tier 1 risk-based capital
|
2,527,645
|
|
11.61
|
|
|
1,305,996
|
|
6.0
|
|
|
1,741,328
|
|
8.0
|
|
Tier 1 leverage capital
|
2,527,645
|
|
8.51
|
|
|
1,187,953
|
|
4.0
|
|
|
1,484,941
|
|
5.0
|
|
(1)In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of CECL on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios and amounts as of June 30, 2020 exclude the impact of the increased allowance for credit losses on loans, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL, adjusted for an approximation of the after-tax provision for credit losses attributable to CECL relative to the incurred loss methodology during the deferral period.
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. Dividends paid by Webster Bank are subject to various federal and state regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels, or would exceed the net income for that year combined with the undistributed net income for the preceding two years. Webster Bank paid no dividends to Webster Financial Corporation during the six months ended June 30, 2020 compared to $110 million during the six months ended June 30, 2019.
Cash Restrictions. Webster Bank is required by Federal Reserve System regulations to hold cash reserve balances on hand or with a Federal Reserve Bank. To address liquidity concerns due to COVID-19 the Federal Reserve reset the requirement to zero, effective March 26, 2020. The reserve requirement ratio is subject to adjustment as conditions warrant.
Note 12: Earnings Per Common Share
Reconciliation of the calculation of basic and diluted earnings per common share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands, except per share data)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Earnings for basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
Net income
|
$
|
53,097
|
|
|
$
|
98,649
|
|
|
$
|
91,296
|
|
|
$
|
198,385
|
|
Less: Preferred stock dividends
|
1,969
|
|
|
1,969
|
|
|
3,938
|
|
|
3,938
|
|
Net income available to common shareholders
|
51,128
|
|
|
96,680
|
|
|
87,358
|
|
|
194,447
|
|
Less: Earnings applicable to participating securities (1)
|
399
|
|
|
487
|
|
|
592
|
|
|
964
|
|
Earnings applicable to common shareholders
|
$
|
50,729
|
|
|
$
|
96,193
|
|
|
$
|
86,766
|
|
|
$
|
193,483
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
89,485
|
|
|
91,534
|
|
|
90,206
|
|
|
91,550
|
|
Effect of dilutive securities
|
85
|
|
|
321
|
|
|
185
|
|
|
348
|
|
Weighted-average common shares outstanding - diluted
|
89,570
|
|
|
91,855
|
|
|
90,391
|
|
|
91,898
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1):
|
|
|
|
|
|
|
|
Basic
|
$
|
0.57
|
|
|
$
|
1.05
|
|
|
$
|
0.96
|
|
|
$
|
2.11
|
|
Diluted
|
0.57
|
|
|
1.05
|
|
|
0.96
|
|
|
2.11
|
|
(1)Earnings per common share amounts under the two-class method, for nonvested time-based restricted shares with nonforfeitable dividends and dividend rights, are determined the same as the presentation above.
Dilutive Securities
The Company maintains stock compensation plans under which restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights may be granted to employees and directors. The effect of dilutive securities for the periods presented is primarily the result of outstanding stock options, as well as non-participating restricted stock.
Potential common shares from non-participating restricted stock, of 192 thousand and 87 thousand for the three months ended June 30, 2020 and 2019, respectively, and 114 thousand and 59 thousand for the six months ended June 30, 2020 and 2019, respectively, are excluded from the effect of dilutive securities because they would have been anti-dilutive under the treasury stock method.
Note 13: Derivative Financial Instruments
Derivative Positions and Offsetting
Derivatives Designated in Hedge Relationships. Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, while certain receive fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into variable-rate debt. Certain purchased options are designated as cash flow hedges. Purchased options allow the Company to limit the potential adverse impact of variable interest rates by establishing a cap or a floor rate in exchange for an upfront premium. The purchased options designated as cash flow hedges represent interest rate caps where payment is received from the counterparty if interest rates rise above the cap rate and interest rate floors where payment is received from the counterparty when interest rates fall below the floor rate.
Derivatives Not Designated in Hedge Relationships. The Company also enters into other derivative transactions to manage economic risks but does not designate the instruments in hedge relationships. Further, the Company enters into derivative contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions structured with matching terms to ensure minimal impact on earnings.
The following table presents the notional amounts and fair values of derivative positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (1)
|
$
|
1,150,000
|
|
$
|
48,793
|
|
|
$
|
75,000
|
|
$
|
331
|
|
|
$
|
1,225,000
|
|
$
|
11,855
|
|
|
$
|
300,000
|
|
$
|
3,153
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (1)
|
4,565,049
|
|
363,143
|
|
|
4,517,068
|
|
17,874
|
|
|
4,869,139
|
|
133,455
|
|
|
4,090,522
|
|
9,732
|
|
Mortgage banking derivatives (2)
|
94,812
|
|
1,846
|
|
|
224
|
|
1
|
|
|
27,873
|
|
329
|
|
|
57,000
|
|
110
|
|
Other (3)
|
99,637
|
|
270
|
|
|
313,020
|
|
1,332
|
|
|
76,544
|
|
398
|
|
|
275,279
|
|
818
|
|
Total not designated as hedging instruments
|
4,759,498
|
|
365,259
|
|
|
4,830,312
|
|
19,207
|
|
|
4,973,556
|
|
134,182
|
|
|
4,422,801
|
|
10,660
|
|
Gross derivative instruments, before netting
|
$
|
5,909,498
|
|
414,052
|
|
|
$
|
4,905,312
|
|
19,538
|
|
|
$
|
6,198,556
|
|
146,037
|
|
|
$
|
4,722,801
|
|
13,813
|
|
Less: Master netting agreements
|
|
12,318
|
|
|
|
12,318
|
|
|
|
4,779
|
|
|
|
4,779
|
|
Cash collateral
|
|
36,739
|
|
|
|
6,313
|
|
|
|
8,100
|
|
|
|
1,871
|
|
Total derivative instruments, after netting
|
|
$
|
364,995
|
|
|
|
$
|
907
|
|
|
|
$
|
133,158
|
|
|
|
$
|
7,163
|
|
(1)Balances related to Chicago Mercantile Exchange (CME) are presented as a single unit of account. In accordance with its rule book, CME legally characterizes variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of interest rate swaps cleared through CME include $3.5 million and $1.1 billion for asset derivatives and $3.5 billion and $2.6 billion for liability derivatives at June 30, 2020 and December 31, 2019, respectively. The related fair values approximate zero.
(2)Notional amounts related to residential loans exclude approved floating rate commitments of $8.1 million at June 30, 2020.
(3)Other derivatives include foreign currency forward contracts related to lending arrangements and customer hedging activity, a Visa equity swap transaction, and risk participation agreements (RPAs). Notional amounts of RPAs include $92.7 million and $65.7 million for asset derivatives and $270.0 million and $223.4 million for liability derivatives at June 30, 2020 and December 31, 2019, respectively, that have insignificant related fair values.
The following table presents fair value positions transitioned from gross to net upon applying counterparty netting agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
(In thousands)
|
Gross
Amount
|
Offset Amount
|
Net Amount on Balance Sheet
|
|
Amounts Not Offset
|
Net Amounts
|
Asset derivatives
|
$
|
49,104
|
|
$
|
49,057
|
|
$
|
47
|
|
|
$
|
487
|
|
$
|
534
|
|
Liability derivatives
|
18,691
|
|
18,631
|
|
60
|
|
|
111
|
|
171
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
(In thousands)
|
Gross
Amount
|
Offset Amount
|
Net Amount on Balance Sheet
|
|
Amounts Not Offset
|
Net Amounts
|
Asset derivatives
|
$
|
13,012
|
|
$
|
12,879
|
|
$
|
133
|
|
|
$
|
299
|
|
$
|
432
|
|
Liability derivatives
|
6,710
|
|
6,650
|
|
60
|
|
|
329
|
|
389
|
|
Derivative Activity
The following tables present the income statement effect of derivatives designated as hedges and additional information related to a fair value hedging adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized In
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
Net Interest Income
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Fair value hedges: (1)
|
|
|
|
|
|
|
|
|
Recognized on derivatives
|
Long-term debt
|
$
|
—
|
|
|
$
|
14,184
|
|
|
$
|
30,693
|
|
|
$
|
15,812
|
|
Recognized on hedged items
|
Long-term debt
|
—
|
|
|
(14,184)
|
|
|
(30,693)
|
|
|
(15,812)
|
|
Net recognized on fair value hedges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
Long-term debt
|
$
|
1,228
|
|
|
$
|
980
|
|
|
$
|
2,349
|
|
|
$
|
1,933
|
|
Interest rate derivatives
|
Interest and fees on loans and leases
|
(1,837)
|
|
|
12
|
|
|
(1,097)
|
|
|
12
|
|
Net recognized on cash flow hedges
|
|
$
|
(609)
|
|
|
$
|
992
|
|
|
$
|
1,252
|
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Line Item in Which Hedged Item is Located
|
Carrying Amount of Hedged Item
|
|
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount (1)
|
|
|
(In thousands)
|
At June 30,
2020
|
|
At December 31,
2019
|
|
At June 30,
2020
|
|
At December 31,
2019
|
Long-term debt
|
$
|
346,841
|
|
|
$
|
317,486
|
|
|
$
|
46,841
|
|
|
$
|
17,486
|
|
(1)The Company has de-designated its fair value hedging relationship on the long-term debt. The $46.8 million basis adjustment included in the carrying value will be amortized over the remaining life of the notes through interest expense.
The following table presents the effect on the income statement for derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized In
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
Non-interest Income
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest rate derivatives
|
Other income
|
$
|
(2,523)
|
|
|
$
|
4,071
|
|
|
$
|
3,403
|
|
|
$
|
5,122
|
|
Mortgage banking derivatives
|
Mortgage banking activities
|
633
|
|
|
157
|
|
|
1,626
|
|
|
(251)
|
|
Other
|
Other income
|
(1,014)
|
|
|
(591)
|
|
|
897
|
|
|
(76)
|
|
Total not designated as hedging instruments
|
|
$
|
(2,904)
|
|
|
$
|
3,637
|
|
|
$
|
5,926
|
|
|
$
|
4,795
|
|
Purchased options designated as cash flow hedges exclude time-value premiums from the assessment of hedge effectiveness. Time-value premiums are amortized on a straight-line basis. At June 30, 2020, the remaining unamortized balance of time-value premiums was $10.8 million.
Over the next twelve months, an estimated $8.0 million decrease to interest expense will be reclassified from AOCL relating to cash flow hedges, and an estimated $1.9 million increase to interest expense will be reclassified from AOCL relating to hedge terminations. At June 30, 2020, the remaining unamortized loss on terminated cash flow hedges is $3.5 million. The maximum length of time over which forecasted transactions are hedged is 4 years.
Additional information about cash flow hedge activity impacting AOCL and the related amounts reclassified to interest expense is provided in Note 10: Accumulated Other Comprehensive Income, Net of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 14: Fair Value Measurements.
Derivative Exposure
The Company had approximately $377.7 million in net margin posted with financial counterparties or the derivative clearing organization at June 30, 2020, which is primarily comprised of $91.6 million in initial margin collateral posted at CME and $316.1 million in CME variation margin posted. At June 30, 2020, $36.9 million of cash collateral received is included in cash and due from banks on the consolidated balance sheet and is considered restricted in nature.
Webster regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions being hedged. Current net credit exposure relating to interest rate derivatives with Webster Bank customers was $362.9 million at June 30, 2020. 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 $40.7 million at June 30, 2020. The Company has incorporated a credit valuation adjustment (CVA) to reflect nonperformance risk in the fair value measurement of its derivatives. The CVA was $5.5 million as of June 30, 2020. Various factors impact changes in the CVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
Note 14: 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, rate volatility, prepayment speeds, credit ratings,) 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 available-for-sale 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 has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, 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 value is validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy. Webster evaluates the credit risk of its counterparties to determine the CVA by considering factors such as the likelihood of default by the counterparty, its net exposure, remaining contractual life, as well as the collateral securing the position. While the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within Level 2 of the fair value hierarchy, the CVA utilizes Level 3 inputs. The Company has assessed the significance of the impact of the CVA on the overall valuation of its derivative positions as of June 30, 2020, and has determined that the CVA is not significant to the overall valuation of its derivative financial instruments. Therefore, the Company has determined that the fair value measures of its derivative financial instruments in their entirety are classified within Level 2 of the fair value hierarchy.
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 generally records residential mortgage loans held for sale under the fair value option of Accounting Standards Codification (ASC) Topic 825 "Financial Instruments." 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. The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.
The following table compares the fair value to unpaid principal balance of assets accounted for under the fair value option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
(In thousands)
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Difference
|
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Difference
|
Originated loans held for sale
|
$
|
46,446
|
|
|
$
|
45,507
|
|
|
$
|
939
|
|
|
$
|
35,750
|
|
|
$
|
35,186
|
|
|
$
|
564
|
|
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 (NAV), 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. The Company 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 $1.6 million at June 30, 2020.
Alternative Investments. Equity investments have a readily determinable fair value when quoted prices are available in an active market. Accordingly, such alternative investments are classified within Level 1 of the fair value hierarchy.
Equity investments that do not have a readily available fair value may qualify for NAV practical expedient measurement, based on specific requirements. The Company's alternative investments accounted for at NAV consist of investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the underlying equity is liquidated. Alternative investments recorded at NAV are not classified within the fair value hierarchy. At June 30, 2020, these alternative investments had a remaining unfunded commitment of $27.9 million.
Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
—
|
|
$
|
189,603
|
|
$
|
—
|
|
|
$
|
189,603
|
|
Agency MBS
|
—
|
|
1,587,236
|
|
—
|
|
|
1,587,236
|
|
Agency CMBS
|
—
|
|
854,913
|
|
—
|
|
|
854,913
|
|
CMBS
|
—
|
|
456,254
|
|
—
|
|
|
456,254
|
|
CLO
|
—
|
|
84,483
|
|
—
|
|
|
84,483
|
|
Corporate debt
|
—
|
|
11,135
|
|
—
|
|
|
11,135
|
|
Total available-for-sale investment securities
|
—
|
|
3,183,624
|
|
—
|
|
|
3,183,624
|
|
Gross derivative instruments, before netting (1)
|
130
|
|
413,922
|
|
—
|
|
|
414,052
|
|
Originated loans held for sale
|
—
|
|
46,446
|
|
—
|
|
|
46,446
|
|
Investments held in Rabbi Trust
|
4,413
|
|
—
|
|
—
|
|
|
4,413
|
|
Alternative investments (2)
|
—
|
|
—
|
|
—
|
|
|
5,585
|
|
Total financial assets held at fair value
|
$
|
4,543
|
|
$
|
3,643,992
|
|
$
|
—
|
|
|
$
|
3,654,120
|
|
Financial liabilities held at fair value:
|
|
|
|
|
|
Gross derivative instruments, before netting (1)
|
$
|
695
|
|
$
|
18,843
|
|
$
|
—
|
|
|
$
|
19,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
|
Total
|
Financial assets held at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
—
|
|
$
|
185,801
|
|
$
|
—
|
|
|
$
|
185,801
|
|
Agency MBS
|
—
|
|
1,612,164
|
|
—
|
|
|
1,612,164
|
|
Agency CMBS
|
—
|
|
581,552
|
|
—
|
|
|
581,552
|
|
CMBS
|
—
|
|
431,871
|
|
—
|
|
|
431,871
|
|
CLO
|
—
|
|
92,205
|
|
—
|
|
|
92,205
|
|
Corporate debt
|
—
|
|
22,240
|
|
—
|
|
|
22,240
|
|
Total available-for-sale investment securities
|
—
|
|
2,925,833
|
|
—
|
|
|
2,925,833
|
|
Gross derivative instruments, before netting (1)
|
328
|
|
145,709
|
|
—
|
|
|
146,037
|
|
Originated loans held for sale
|
—
|
|
35,750
|
|
—
|
|
|
35,750
|
|
Investments held in Rabbi Trust
|
4,780
|
|
—
|
|
—
|
|
|
4,780
|
|
Alternative investments (2)
|
—
|
|
—
|
|
—
|
|
|
4,331
|
|
Total financial assets held at fair value
|
$
|
5,108
|
|
$
|
3,107,292
|
|
$
|
—
|
|
|
$
|
3,116,731
|
|
Financial liabilities held at fair value:
|
|
|
|
|
|
Gross derivative instruments, before netting (1)
|
$
|
611
|
|
$
|
13,202
|
|
$
|
—
|
|
|
$
|
13,813
|
|
(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 13: Derivative Financial Instruments.
(2)Alternative investments are recorded at NAV. Assets measured at NAV are not classified within the fair value hierarchy.
Assets Measured at Fair Value on a Non-Recurring Basis
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. At June 30, 2020, no significant assets classified within Level 3 were identified and measured under this basis. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Alternative Investments. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be 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. These alternative investments are investments in non-public entities that generally cannot be redeemed since the investment is distributed as the underlying equity is liquidated. Accordingly, these alternative investments are classified within Level 2 of the fair value hierarchy. The carrying amount of these alternative investments was $13.4 million at June 30, 2020. No reductions for impairments, or adjustments due to observable price changes, was identified during the six months ended June 30, 2020.
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 fair value and are considered to be recognized at fair value when they are recorded at below cost. This activity primarily consists of commercial loans with observable inputs and is classified within Level 2. On the occasion that these loans should include adjustments for changes in loan characteristics using unobservable inputs, the loans would be classified within Level 3.
Collateral Dependent Loans and Leases. Loans and leases for which the payment 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, less estimated cost to sell, using customized discounting criteria. Accordingly, such collateral dependent loans and leases are classified within Level 3 of the fair value hierarchy.
Other Real Estate Owned and Repossessed Assets. The total book value of OREO and repossessed assets was $5.3 million at June 30, 2020. OREO and repossessed assets are accounted for at the lower of cost or fair value and are considered to be recognized at fair value when recorded 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.
In addition, the amortized cost of consumer loans secured by residential real estate property that are in process of foreclosure amounted to $6.8 million at June 30, 2020.
Fair Value of Financial Instruments and Servicing Assets
The Company is required to disclose the estimated fair value of financial instruments for which it is practicable to estimate fair value, as well as servicing assets. 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 has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, and municipal bonds and notes, 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 collateral dependent 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 fair value of securities sold under agreements to repurchase and other borrowings that mature within 90 days is the carrying value. Fair value for all other balances are estimated using discounted cash flow analysis based on current market rates adjusted for associated credit risks, as appropriate. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow 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 initially recorded at fair value and subsequently measured under the amortization method. 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 reviewed quarterly and held at the lower of the carrying amount or fair value. Fair value adjustments, if any, are included as a component of loan related fees in the consolidated statement of income. During the six months ended June 30, 2020, the Company recorded a $1.2 million valuation allowance. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.
The estimated fair value of selected financial instruments and servicing assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
|
At December 31, 2019
|
|
|
(In thousands)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Held-to-maturity investment securities
|
$
|
5,476,817
|
|
|
$
|
5,745,559
|
|
|
$
|
5,293,918
|
|
|
$
|
5,380,653
|
|
Level 3
|
|
|
|
|
|
|
|
Loans and leases, net
|
21,443,995
|
|
|
21,595,513
|
|
|
19,827,890
|
|
|
19,961,632
|
|
Mortgage servicing assets
|
14,926
|
|
|
18,326
|
|
|
17,484
|
|
|
33,250
|
|
Liabilities:
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
Deposit liabilities
|
$
|
23,689,950
|
|
|
$
|
23,689,950
|
|
|
$
|
20,219,981
|
|
|
$
|
20,219,981
|
|
Time deposits
|
2,666,047
|
|
|
2,678,763
|
|
|
3,104,765
|
|
|
3,102,316
|
|
Securities sold under agreements to repurchase and other borrowings
|
1,688,805
|
|
|
1,693,184
|
|
|
1,040,431
|
|
|
1,041,042
|
|
FHLB advances
|
523,321
|
|
|
533,955
|
|
|
1,948,476
|
|
|
1,950,035
|
|
Long-term debt (1)
|
570,029
|
|
|
519,613
|
|
|
540,364
|
|
|
555,775
|
|
(1)Adjustments to the carrying amount of long-term debt for basis adjustment and unamortized discount and debt issuance cost on senior fixed-rate notes are not included for determination of fair value Refer to Note 9: Borrowings for additional information.
Note 15: Retirement Benefit Plans
Defined benefit pension and other postretirement benefits
The following table summarizes the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(In thousands)
|
Pension Plan
|
SERP
|
Other Benefits
|
|
Pension Plan
|
SERP
|
Other Benefits
|
Interest cost on benefit obligations
|
$
|
1,675
|
|
$
|
12
|
|
$
|
12
|
|
|
$
|
1,977
|
|
$
|
16
|
|
$
|
21
|
|
Expected return on plan assets
|
(3,380)
|
|
—
|
|
—
|
|
|
(2,815)
|
|
—
|
|
—
|
|
Recognized net loss
|
993
|
|
6
|
|
(8)
|
|
|
1,430
|
|
3
|
|
(4)
|
|
Net periodic benefit cost
|
$
|
(712)
|
|
$
|
18
|
|
$
|
4
|
|
|
$
|
592
|
|
$
|
19
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(In thousands)
|
Pension Plan
|
SERP
|
Other Benefits
|
|
Pension Plan
|
SERP
|
Other Benefits
|
Interest cost on benefit obligations
|
$
|
3,350
|
|
$
|
23
|
|
$
|
25
|
|
|
$
|
3,955
|
|
$
|
32
|
|
$
|
42
|
|
Expected return on plan assets
|
(6,760)
|
|
—
|
|
—
|
|
|
(5,630)
|
|
—
|
|
—
|
|
Recognized net loss
|
1,985
|
|
12
|
|
(17)
|
|
|
2,860
|
|
7
|
|
(8)
|
|
Net periodic benefit cost
|
$
|
(1,425)
|
|
$
|
35
|
|
$
|
8
|
|
|
$
|
1,185
|
|
$
|
39
|
|
$
|
34
|
|
The components of net periodic benefit cost, other than service cost, are included within other expense reflected in non-interest expense in the consolidated income statement. The weighted-average expected long-term rate of return is 5.75%.
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 segments reflect how executive management responsibilities are assigned, the type of customer served, how products and services are provided, and how discrete financial information is currently evaluated. Certain Corporate Treasury activities, 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 uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the 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 any mismatch associated with the matched maturity funding concept called Funds Transfer Pricing (FTP) is absorbed in corporate treasury activities. 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 a 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. Beginning in 2020, Webster refined the FTP calculation to reflect the allocation of capital credit to net interest income to better align segment results with key measurements used to review segment performance. Prior period net interest income and income tax expense were revised to reflect this change.
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.
The results of funds transfer pricing and allocations for non-interest expense, as well as non-interest income produces pre-tax, pre-provision net revenue, under which basis the segments are reviewed by executive management.
Webster allocates the provision for credit losses to each segment based on management's estimate of the inherent loss content in each of the specific loan and lease portfolios. During the three months ended June 30, 2019, Webster refined the precision of this allocation approach. Prior period provision for credit losses amounts, and resulting impacts from income tax expense were revised accordingly. Allowance for credit losses on loans and leases is included in total assets within the Corporate and Reconciling category.
The following table presents total assets for Webster's reportable segments and the Corporate and Reconciling category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
|
|
Corporate and
Reconciling
|
Consolidated
Total
|
At June 30, 2020
|
$
|
12,527,397
|
|
$
|
77,992
|
|
$
|
10,150,431
|
|
|
|
$
|
9,952,797
|
|
$
|
32,708,617
|
|
At December 31, 2019
|
11,541,803
|
|
80,176
|
|
9,348,727
|
|
|
|
9,418,638
|
|
30,389,344
|
|
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 June 30, 2020
|
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community Banking
|
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income
|
$
|
104,862
|
|
$
|
39,334
|
|
$
|
104,870
|
|
|
$
|
(24,659)
|
|
$
|
224,407
|
|
Non-interest income
|
14,725
|
|
23,103
|
|
23,405
|
|
|
(1,157)
|
|
60,076
|
|
Non-interest expense
|
44,694
|
|
34,020
|
|
93,686
|
|
|
4,184
|
|
176,584
|
|
Pre-tax, pre-provision net revenue
|
74,893
|
|
28,417
|
|
34,589
|
|
|
(30,000)
|
|
107,899
|
|
Provision for credit losses
|
37,559
|
|
—
|
|
2,444
|
|
|
(3)
|
|
40,000
|
|
Income before income tax expense
|
37,334
|
|
28,417
|
|
32,145
|
|
|
(29,997)
|
|
67,899
|
|
Income tax expense
|
9,143
|
|
7,587
|
|
6,365
|
|
|
(8,293)
|
|
14,802
|
|
Net income
|
$
|
28,191
|
|
$
|
20,830
|
|
$
|
25,780
|
|
|
$
|
(21,704)
|
|
$
|
53,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community Banking
|
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income
|
$
|
100,216
|
|
$
|
44,013
|
|
$
|
107,838
|
|
|
$
|
(10,280)
|
|
$
|
241,787
|
|
Non-interest income
|
14,645
|
|
24,979
|
|
27,675
|
|
|
8,554
|
|
75,853
|
|
Non-interest expense
|
46,196
|
|
34,253
|
|
96,166
|
|
|
4,025
|
|
180,640
|
|
Pre-tax, pre-provision net revenue
|
68,665
|
|
34,739
|
|
39,347
|
|
|
(5,751)
|
|
137,000
|
|
Provision for credit losses
|
7,741
|
|
—
|
|
4,159
|
|
|
—
|
|
11,900
|
|
Income before income tax expense
|
60,924
|
|
34,739
|
|
35,188
|
|
|
(5,751)
|
|
125,100
|
|
Income tax expense
|
15,110
|
|
9,206
|
|
7,459
|
|
|
(5,324)
|
|
26,451
|
|
Net income
|
$
|
45,814
|
|
$
|
25,533
|
|
$
|
27,729
|
|
|
$
|
(427)
|
|
$
|
98,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community Banking
|
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income
|
$
|
204,178
|
|
$
|
82,007
|
|
$
|
204,340
|
|
|
$
|
(35,317)
|
|
$
|
455,208
|
|
Non-interest income
|
27,964
|
|
49,486
|
|
51,025
|
|
|
4,979
|
|
133,454
|
|
Non-interest expense
|
91,238
|
|
71,098
|
|
192,653
|
|
|
431
|
|
$
|
355,420
|
|
Pre-tax, pre-provision net revenue
|
140,904
|
|
$
|
60,395
|
|
62,712
|
|
|
(30,769)
|
|
233,242
|
|
Provision for credit losses
|
101,083
|
|
—
|
|
15,005
|
|
|
(88)
|
|
116,000
|
|
Income before income tax expense
|
39,821
|
|
60,395
|
|
47,707
|
|
|
(30,681)
|
|
117,242
|
|
Income tax expense
|
9,752
|
|
16,125
|
|
9,446
|
|
|
(9,377)
|
|
25,946
|
|
Net income
|
$
|
30,069
|
|
$
|
44,270
|
|
$
|
38,261
|
|
|
$
|
(21,304)
|
|
$
|
91,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
|
Corporate and
Reconciling
|
Consolidated
Total
|
Net interest income
|
$
|
198,558
|
|
$
|
87,111
|
|
$
|
214,128
|
|
|
$
|
(16,459)
|
|
$
|
483,338
|
|
Non-interest income
|
28,656
|
|
50,556
|
|
53,057
|
|
|
12,196
|
|
144,465
|
|
Non-interest expense
|
90,814
|
|
67,775
|
|
191,241
|
|
|
6,496
|
|
356,326
|
|
Pre-tax, pre-provision net revenue
|
136,400
|
|
69,892
|
|
75,944
|
|
|
(10,759)
|
|
271,477
|
|
Provision for credit losses
|
13,982
|
|
—
|
|
6,518
|
|
|
—
|
|
20,500
|
|
Income before income tax expense
|
122,418
|
|
69,892
|
|
69,426
|
|
|
(10,759)
|
|
250,977
|
|
Income tax expense
|
30,361
|
|
18,522
|
|
14,717
|
|
|
(11,008)
|
|
52,592
|
|
Net income
|
$
|
92,057
|
|
$
|
51,370
|
|
$
|
54,709
|
|
|
$
|
249
|
|
$
|
198,385
|
|
Note 17: Revenue from Contracts with Customers
The following tables present revenues within the scope of ASC 606, Revenue from Contracts with Customers and the net amount of other sources of non-interest income that is within the scope of other GAAP topics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
Corporate and
Reconciling
|
Consolidated
Total
|
Non-interest Income:
|
|
|
|
|
|
Deposit service fees
|
$
|
2,703
|
|
$
|
21,741
|
|
$
|
11,488
|
|
$
|
(93)
|
|
$
|
35,839
|
|
Wealth and investment services
|
2,587
|
|
—
|
|
4,553
|
|
(38)
|
|
7,102
|
|
Other
|
—
|
|
1,362
|
|
740
|
|
—
|
|
2,102
|
|
Revenue from contracts with customers
|
5,290
|
|
23,103
|
|
16,781
|
|
(131)
|
|
45,043
|
|
Other sources of non-interest income
|
9,435
|
|
—
|
|
6,624
|
|
(1,026)
|
|
15,033
|
|
Total non-interest income
|
$
|
14,725
|
|
$
|
23,103
|
|
$
|
23,405
|
|
$
|
(1,157)
|
|
$
|
60,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
Corporate and
Reconciling
|
Consolidated
Total
|
Non-interest Income:
|
|
|
|
|
|
Deposit service fees
|
$
|
3,085
|
|
$
|
23,704
|
|
$
|
16,289
|
|
$
|
40
|
|
$
|
43,118
|
|
Wealth and investment services
|
2,542
|
|
—
|
|
5,776
|
|
(9)
|
|
8,309
|
|
Other
|
—
|
|
1,275
|
|
704
|
|
—
|
|
1,979
|
|
Revenue from contracts with customers
|
5,627
|
|
24,979
|
|
22,769
|
|
31
|
|
53,406
|
|
Other sources of non-interest income
|
9,018
|
|
—
|
|
4,906
|
|
8,523
|
|
22,447
|
|
Total non-interest income
|
$
|
14,645
|
|
$
|
24,979
|
|
$
|
27,675
|
|
$
|
8,554
|
|
$
|
75,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
Corporate and
Reconciling
|
Consolidated
Total
|
Non-interest Income:
|
|
|
|
|
|
Deposit service fees
|
$
|
5,762
|
|
$
|
46,583
|
|
$
|
26,080
|
|
$
|
(16)
|
|
$
|
78,409
|
|
Wealth and investment services
|
5,115
|
|
—
|
|
10,771
|
|
(45)
|
|
15,841
|
|
Other
|
—
|
|
2,903
|
|
1,057
|
|
—
|
|
3,960
|
|
Revenue from contracts with customers
|
10,877
|
|
49,486
|
|
37,908
|
|
(61)
|
|
98,210
|
|
Other sources of non-interest income
|
17,087
|
|
—
|
|
13,117
|
|
5,040
|
|
35,244
|
|
Total non-interest income
|
$
|
27,964
|
|
$
|
49,486
|
|
$
|
51,025
|
|
$
|
4,979
|
|
$
|
133,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
|
(In thousands)
|
Commercial
Banking
|
HSA
Bank
|
Community
Banking
|
Corporate and
Reconciling
|
Consolidated
Total
|
Non-interest Income:
|
|
|
|
|
|
Deposit service fees
|
$
|
6,121
|
|
$
|
48,232
|
|
$
|
31,654
|
|
$
|
135
|
|
$
|
86,142
|
|
Wealth and investment services
|
5,026
|
|
—
|
|
10,951
|
|
(17)
|
|
15,960
|
|
Other
|
—
|
|
2,324
|
|
1,205
|
|
—
|
|
3,529
|
|
Revenue from contracts with customers
|
11,147
|
|
50,556
|
|
43,810
|
|
118
|
|
105,631
|
|
Other sources of non-interest income
|
17,509
|
|
—
|
|
9,247
|
|
12,078
|
|
38,834
|
|
Total non-interest income
|
$
|
28,656
|
|
$
|
50,556
|
|
$
|
53,057
|
|
$
|
12,196
|
|
$
|
144,465
|
|
The major types of revenue streams that are within the scope of ASC 606 are described below:
Deposit service fees, predominately consist of fees earned from deposit accounts and interchange fees. 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 the point in time that the card transaction is authorized.
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, while certain obligations may be satisfied at points in time for activities that are transactional in nature.
These disaggregated amounts are reconciled to non-interest income as presented in Note 16: Segment Reporting. Contracts with customers have not generated significant contract assets and liabilities.
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.
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.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2020
|
|
At December 31, 2019
|
Commitments to extend credit
|
$
|
5,893,139
|
|
|
$
|
6,162,658
|
|
Standby letter of credit
|
200,280
|
|
|
188,103
|
|
Commercial letter of credit
|
27,242
|
|
|
29,180
|
|
Total credit-related financial instruments with off-balance sheet risk
|
$
|
6,120,661
|
|
|
$
|
6,379,941
|
|
These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and therefore, management maintains a reserve for unfunded credit commitments to provide for expected losses in connection with funding the unused portion of legal commitments to lend when those commitments are not unconditionally cancellable by Webster. Loss calculation factors are consistent with the ACL methodology for funded loans using PD and LGD applied to the underlying borrower risk and facility grades, a draw down factor applied to utilization rates, and relevant forecast information. This reserve is reported as a component of accrued expenses and other liabilities on the consolidated balance sheet.
The following table provides a summary of activity in the reserve for unfunded credit commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
10,084
|
|
|
$
|
2,511
|
|
|
$
|
2,367
|
|
|
$
|
2,506
|
|
Adoption of ASU No. 2016-13 (CECL)
|
—
|
|
|
—
|
|
|
9,139
|
|
|
—
|
|
Provision (benefit) charged to non-interest expense
|
655
|
|
|
26
|
|
|
(767)
|
|
|
31
|
|
Ending balance
|
$
|
10,739
|
|
|
$
|
2,537
|
|
|
$
|
10,739
|
|
|
$
|
2,537
|
|
Note 19: Subsequent Events
The Company has evaluated events from the date of the Condensed Consolidated Financial Statements and accompanying Notes thereto, June 30, 2020, through the issuance of this Quarterly Report on Form 10-Q and determined that no significant events were identified requiring recognition or disclosure in this report.