To help individuals, families and businesses achieve their financial goals.
Our mission:
Our values:
The Webster Way
We take personal responsibility for meeting our customers’ needs.
We respect the dignity of every individual.
We earn trust through ethical behavior.
We give of ourselves in the communities we serve.
We work together to achieve outstanding results.
Our vision:
To be a high performing regional bank.
Our brand promise:
Living Up To You.
WEBSTER FINANCIAL CORPORATION
2015 Annual Report
CELEBRATING
80 YEARS
LIVING UP TO YOU SINCE 1935
The Webster Symbol is registered in the U.S. Patent and Trademark Office.
299331_SR_WFC_CVR_R2.indd 1
3/1/16 5:39 PM
80 years of
serving customers
and communities.
We’ve come a long way in 80 years.
Our heritage dates back to 1935 when
24-year-old Harold Webster Smith
founded the bank with a set of values
that include personal responsibility, respect,
trustworthiness, citizenship, and teamwork.
As our mission has evolved and our vision
has expanded, our core values have endured and
guide our 3,000 bankers in service to our customers
and communities.
In this photo, our founder, hat in hand, delivers the
check for Webster’s first mortgage on the steps of
the customer’s home in 1935.
299331_SR_WFC_CVR_R2.indd 2
3/1/16 5:39 PM
MARCH 2016
Dear Shareholders,
2015 was a seminal year for Webster. In
October, we celebrated our 80th anniversary.
The centerpiece of our celebration has been
the iconic photo from a news clipping that you
see on the inside front cover of this report.
It captures my father, Harold Webster Smith,
delivering the check for the bank’s first loan
to Mr. Joe Baltrush in December 1935 at 114
Chambers Street in Waterbury, Connecticut.
Beyond its historic significance, the photo
embodies the values that remain the essence of
Webster today: the respectful, humble banker,
hat in hand, serving the customer to the best of
his ability.
While our mission has evolved over the years,
the Webster values remain the bedrock for our
3,000-plus community-oriented, values-guided
bankers. These values bring Webster bankers
together and set us apart in the marketplace as
we strive every day to live up to our customers
and communities. Our values form the context
in which we compete and win.
Our Strategic Perspective
Our overarching performance objective is to
achieve and sustainably grow Economic Profit;
that is, to provide a return on shareholders’
equity that, at a minimum, exceeds our cost
of capital which we currently estimate at
just under 10%. While still shy of our goal,
we continue to make meaningful progress in
our quest for Economic Profit (EP), and we
outperformed our Peer Group (midsize banks
identified in the proxy statement) on this crucial
financial metric. The pursuit of Economic Profit
informs our strategic choices and guides capital
and resource allocation, project prioritization,
performance evaluation and compensation
programs. EP is our common language.
Among our four primary lines of business,
Commercial Banking and HSA Bank
consistently earn Economic Profit and have
seen their capital allocations rise by a combined
60% since the end of 2012. Over the same time
frame, Commercial Banking and HSA Bank have
grown their combined pre-tax pre-provision net
revenue (PPNR) by 75%. Community Banking
and Webster Private Bank, which do not yet
earn their cost of capital, have received a much
lower allocation of incremental capital over
the same period. Both businesses have made
significant progress in transforming their
business models, with Community Banking
delivering hard-won PPNR growth of 12%, and
we have confidence in their respective abilities
to earn Economic Profit.
Our management framework tightly links
financial performance, progress toward strategic
goals and compensation programs. A significant
portion of executive pay is variable, much of
it equity-based, and is dependent upon overall
financial performance relative to plan and as
compared to peers, and total shareholder return.
I encourage you to read the Compensation
Discussion and Analysis in the proxy statement,
as you will no doubt appreciate how closely
management’s interests are aligned with yours.
A persistent theme in the banking industry
in recent years has been the confluence of
challenges that have constrained banks’
profitability. Stubbornly low interest rates, tepid
economic growth and heightened regulatory
expectations pose formidable obstacles to
bank performance. In addition, intensifying
competition from both large banks and
“fintech” players further challenges midsize
bank performance. This demanding operating
environment places a premium on making
good strategic choices, differentiating ourselves
competitively and controlling expenses – three
areas where we have excelled and upon which I
will elaborate throughout this letter.
HSA Bank is a case in point, ranking today as
the number one administrator of health savings
account deposits in the nation. HSA Bank has
flourished because we made timely decisions
to replace and upgrade its technology platform,
meaningfully broaden the product set and make
a transformational acquisition. We’ve moved
business development activities up-market
to serve large employers and regional and
national health plans. This highly efficient, scale
business differentiates Webster from our peers
by providing fast-growing low-cost, long-term
deposits that support our strong loan growth.
The HSA Bank funding advantage will only grow
in importance as interest rates ultimately rise.
With the Federal Reserve Board of Governors
moving to a less accommodative monetary
policy in December, Webster is well positioned
to benefit from a gradually rising rate
environment given our modestly asset sensitive
balance sheet and strong core deposit growth.
Webster’s assets are significantly more rate
sensitive than at the beginning of the last rising
rate cycle, as floating rate and periodically
adjusting loans now represent 68% of total
loans. Our deposits are less rate sensitive,
as transaction and health savings account
balances comprise 55% of total deposits.
2015 Financial Highlights
We continue to make meaningful progress
on our journey to become a high performing
regional bank as measured by financial
performance, growth in key customer segments
and customer satisfaction. Over the course of
the year, we strengthened the balance sheet
and delivered record loan and deposit growth
and record revenue and net income. Our results
showcase our sustained progress in executing
our clearly communicated growth strategies.
A common denominator across all of our
businesses remains strong loan growth. Record
full year loan originations of $5.6 billion were
19% higher than in 2014, delivering overall
loan growth of 13%. We have purposefully
grown
commercial
loans to account
for an increasing
share of our
portfolio, now
comprising 57%
of total loans,
up from 45%
five years ago
and growing
Total loans ($ in billions)
$13.9
$15.7
$12.7
2014
2015
2013
at about two to
three percentage
points a year.
57%
45%
2015
2010
Commercial & Commercial Real
Estate as a % of total loans
In 2015, our
loan portfolio’s
credit quality
remained solid
with classified
asset levels,
delinquencies
and charge offs
at pre-recession
levels. Our portfolio remains highly diversified
across products, industries and, increasingly,
geographies through the growth in Commercial
Banking. Webster has maintained discipline
on loan terms and pricing in the face of market
pressures, a claim validated with periodic third
party review. We remain focused on lending
where we believe we have expertise and can
achieve adequate return for the risk we take.
$8.1
$8.1
$7.6
$9.9
$8.3
$6.6
$15.7
$14.9
$18.0
Deposits grew
15% overall.
Loan growth
was fully funded
by growth in
transaction and
health savings
account deposits,
demonstrating
a strikingly
positive
loan-funding
relationship
which underscores our balance sheet strength
and strong liquidity position. Despite strong
loan growth, Webster’s loan-to-deposit ratio is
comfortably below 90% and the borrowings-to-
asset ratio has fallen sharply to 16%.
Non-transactional deposits
($ in billions)
Transactional & HSA deposits
2014
2015
2013
Strong loan growth once again overcame
margin compression to produce record net
interest income. Non-interest income also set
a record, marking seven consecutive years of
core revenue growth. Webster is the only bank
in our Peer Group to achieve this distinction.
Coupling strong revenue growth with our
disciplined expense management has produced
an efficiency
ratio at 60%
or better
for eleven
straight
quarters and
has made
Webster
sustainably
more
competitive.
PPNR growth
has averaged
about 9%
over the past
five years,
including 7%
growth in
2015. We’ve
carefully
balanced the
efficiency
imperative
with the
strategic
imperative
to increase
investments
in technology,
facilities
and risk
management
to ensure that our bankers have the tools they
need to keep pace in today’s rapidly changing
banking environment.
Taken together, these favorable factors drove
earnings per diluted share 3.4% higher to $2.15.
Core return on average shareholders’ equity,
a key component driving Economic Profit,
improved to 8.8%. Core return on average
tangible equity improved to 11.6%.
An important measure of our success is our
market capitalization, which reached an all-time
high in 2015. Our total shareholder return is at
the top of the Peer Group over the three-year
and five-year time horizons and second for
57%
2015
$18.0
$8.1
$9.9
2015
at about two to
three percentage
points a year.
In 2015, our
loan portfolio’s
credit quality
remained solid
with classified
asset levels,
delinquencies
and charge offs
at pre-recession
Deposits grew
15% overall.
Loan growth
was fully funded
by growth in
transaction and
health savings
account deposits,
demonstrating
a strikingly
positive
loan-funding
relationship
Commercial & Commercial Real
Estate as a % of total loans
levels. Our portfolio remains highly diversified
across products, industries and, increasingly,
geographies through the growth in Commercial
Banking. Webster has maintained discipline
on loan terms and pricing in the face of market
pressures, a claim validated with periodic third
party review. We remain focused on lending
where we believe we have expertise and can
achieve adequate return for the risk we take.
Transactional & HSA deposits
Non-transactional deposits
which underscores our balance sheet strength
and strong liquidity position. Despite strong
loan growth, Webster’s loan-to-deposit ratio is
comfortably below 90% and the borrowings-to-
asset ratio has fallen sharply to 16%.
Strong loan growth once again overcame
margin compression to produce record net
interest income. Non-interest income also set
a record, marking seven consecutive years of
core revenue growth. Webster is the only bank
in our Peer Group to achieve this distinction.
Coupling strong revenue growth with our
disciplined expense management has produced
2013
2015
2014
$794
$826
$904
59.7%
59.2%
60.3%
Core operating revenue
($ in millions)
an efficiency
ratio at 60%
or better
for eleven
straight
quarters and
has made
Webster
sustainably
more
competitive.
PPNR growth
has averaged
about 9%
over the past
five years,
including 7%
growth in
2015. We’ve
carefully
balanced the
efficiency
imperative
with the
strategic
imperative
to increase
investments
in technology,
facilities
and risk
management
to ensure that our bankers have the tools they
need to keep pace in today’s rapidly changing
banking environment.
Core PPNR ($ in millions)
Efficiency ratio
$302
$328
2014
2014
2015
2015
2013
2013
$351
Taken together, these favorable factors drove
earnings per diluted share 3.4% higher to $2.15.
Core return on average shareholders’ equity,
a key component driving Economic Profit,
improved to 8.8%. Core return on average
tangible equity improved to 11.6%.
An important measure of our success is our
market capitalization, which reached an all-time
high in 2015. Our total shareholder return is at
the top of the Peer Group over the three-year
and five-year time horizons and second for
the one-year
timeframe
behind one
bank whose
acquisition at
a premium was
announced late
in the year.
11.7%
11.3%
11.6%
8.7%
8.7%
8.8%
2014
2013
Core return on average tangible equity
Core return on average equity
2015
Commercial Banking Leads the Way
Commercial Banking has been a major driver of
Economic Profit, and we expect it to continue to
set the pace for the bank as it extends its reach
into newer geographies, moves up-market with
larger customers, acts as agent with greater
frequency on loan syndications and invests
in enhanced payment solutions to serve our
increasingly sophisticated commercial clients.
Last year,
Commercial
Banking’s loan
portfolio rose by
almost $1 billion,
a 14.5% increase.
Loan growth
was reported in
all commercial
business units
across all
geographies.
$7.5
$6.6
$5.6
2013
2014
2015
Commercial banking loans
($ in billions)
The growth of Commercial Banking has been
deliberate and built on a foundation of prudent,
centralized risk management. We have made
strategic choices to expand into contiguous
metropolitan markets and to grow in chosen
industry segments. Our resoundingly successful
Boston experience dating to 2009 has been the
proving ground for our expansion model. We
continue to invest in commercial banking talent
and technology in markets and segments where
we have seen consistently strong performance
that will deliver increasing Economic Profit
in the years ahead. We leverage our industry
expertise, local leadership and strong customer
relationships to deliver tailored, timely service
with surety of execution. The confidence that
comes from being a Webster customer sets us
apart in the marketplace.
Commercial Banking has distinguished itself
once again for customer service. Webster was
awarded two additional Greenwich Associates’
Excellence awards for client satisfaction,
Overall Satisfaction and Cash Management/
Overall Satisfaction for Middle Market Banking
in the Northeast, evidence of our continuing
successful focus on high service quality and
relationship banking.
Community Banking Expands
Community Banking continued its forward
momentum as it evolves to serve changing
customer preferences and meet new regulatory
requirements, notably in mortgage lending.
Deposits and loans were up smartly on record
loan originations, with strong performances
from both Business Banking and Mortgage
Lending. Business Banking set a record for loan
originations during the year, and the loan book
topped $1.2 billion at year end.
Our focus on mass affluent customers is
delivering valuable customer relationships with
much higher average products and services
per household. Jumbo mortgages, which now
comprise 60% of our mortgage portfolio,
increasingly act as the gateway product to these
relationships.
Webster’s customer service reflects our brand
promise – Living Up To You – and continues to
differentiate us in the market. We earn best-in-
class rankings for percentage of customers who
would recommend banking with Webster to
family and friends. We recently enhanced our
customer experience by expanding the hours
of our Customer Care Center to 24 hours a day,
seven days a week.
We finished the year by announcing plans
to open 17 new banking centers in former
Citibank locations in greater Boston, which
we did in January 2016. In this strategically
and financially compelling transaction, we
simply assumed Citibank’s leases and fixtures
but did not acquire deposit accounts or loans.
Overnight, we gained critical mass in the
economic heart of New England, with minimal
capital investment, expanding the beachhead
that we staked out six years ago with our
successful Commercial Banking initiative.
The expansion advances our goal to be New
England’s leading homegrown bank. Every
Webster business unit will benefit from the
initiative, which we estimate will deliver an
additional $1 billion in deposits and over $500
million in loans over five years.
Importantly, we successfully recruited more
than 80% of the former Citibank staff, ensuring
that we had familiar faces in the market from
the very start. Many moved as a team to
Webster because they identify with our values
and brand promise.
Replacing Citibank as tenant in these prime
locations provides a far more attractive return
on investment than either building out our
network piecemeal or making an expensive
whole bank acquisition. We expect the
transaction will be 4 - 5% dilutive to earnings
per share in 2016, breakeven in 2017 and deliver
Economic Profit in 2018 and thereafter.
HSA Bank Becomes Industry Leader
HSA Bank continued its rapid expansion. On an
organic basis, deposits rose 27% during the year,
and gross account production was double the
prior year.
At the beginning of 2015, we consummated the
acquisition of JPMorgan Chase’s health savings
account business and then began transitioning
the acquired accounts to the HSA Bank
platform. Coming on the heels of HSA Bank’s
conversion to an
industry-leading
technology
platform, this
strategic move
vaulted HSA
Bank to the No. 1
market share in
this fast-growing
field, with $3.8
billion in deposits
HSA deposits & investments
($ in billions)
2014
2015
2013
$4.5
$2.6
$2.1
plus $700 million in assets under administration
in more than 1.7 million accounts across all 50
states. By the end of the first quarter of 2016,
we will have transitioned all of the acquired
accounts onto the HSA Bank platform.
Health savings accounts are helping to
revolutionize health care by changing the way
people use and pay for it. Not only are tax-
advantaged health savings accounts reducing
costs for consumers and plan sponsors alike,
they also are improving the quality of care and
broadening access by reducing excessive use of
health care services.
We anticipate that HSA Bank will continue
to grow rapidly as it executes on the strategic
choices to further integrate with health plans
and insurance exchanges and to increasingly
penetrate the midsized and large group
employer market. HSA Bank is on track to
open a record 320,000 new accounts in the first
quarter of 2016.
Private Banking Poised for Growth
With its shift to a new business model complete,
Webster Private Bank is positioned for success
in meeting the investment management,
fiduciary administration, financial planning
and credit needs of high net worth individuals
and foundations by providing always-objective
advice, competitive products and tailored
counsel. The Private Bank briskly grew its loan
portfolio, thanks in large part to the newly
streamlined process created for underwriting
the often-complex finances of high net worth
individuals efficiently and prudently. Deposits
and fee generating assets grew as well,
despite the headwinds of significant market
volatility. Turbulent markets test the skills of
investment managers and the durability of
client relationships and put a premium on
communication and truly understanding client
needs and objectives, all strengths of the Private
Bank team. 2015 also saw external validation of
our high net worth offering, as Webster Private
Bank was voted Best Private Bank by the readers
of the Connecticut Law Tribune.
economic heart of New England, with minimal
capital investment, expanding the beachhead
that we staked out six years ago with our
successful Commercial Banking initiative.
The expansion advances our goal to be New
England’s leading homegrown bank. Every
Webster business unit will benefit from the
initiative, which we estimate will deliver an
additional $1 billion in deposits and over $500
million in loans over five years.
Importantly, we successfully recruited more
than 80% of the former Citibank staff, ensuring
that we had familiar faces in the market from
the very start. Many moved as a team to
Webster because they identify with our values
and brand promise.
Replacing Citibank as tenant in these prime
locations provides a far more attractive return
on investment than either building out our
network piecemeal or making an expensive
whole bank acquisition. We expect the
transaction will be 4 - 5% dilutive to earnings
per share in 2016, breakeven in 2017 and deliver
Economic Profit in 2018 and thereafter.
HSA Bank Becomes Industry Leader
HSA Bank continued its rapid expansion. On an
organic basis, deposits rose 27% during the year,
and gross account production was double the
prior year.
At the beginning of 2015, we consummated the
acquisition of JPMorgan Chase’s health savings
account business and then began transitioning
the acquired accounts to the HSA Bank
platform. Coming on the heels of HSA Bank’s
$4.5
conversion to an
industry-leading
technology
platform, this
strategic move
vaulted HSA
Bank to the No. 1
market share in
this fast-growing
field, with $3.8
billion in deposits
2015
HSA deposits & investments
plus $700 million in assets under administration
in more than 1.7 million accounts across all 50
states. By the end of the first quarter of 2016,
we will have transitioned all of the acquired
accounts onto the HSA Bank platform.
Health savings accounts are helping to
revolutionize health care by changing the way
people use and pay for it. Not only are tax-
advantaged health savings accounts reducing
costs for consumers and plan sponsors alike,
they also are improving the quality of care and
broadening access by reducing excessive use of
health care services.
We anticipate that HSA Bank will continue
to grow rapidly as it executes on the strategic
choices to further integrate with health plans
and insurance exchanges and to increasingly
penetrate the midsized and large group
employer market. HSA Bank is on track to
open a record 320,000 new accounts in the first
quarter of 2016.
Private Banking Poised for Growth
With its shift to a new business model complete,
Webster Private Bank is positioned for success
in meeting the investment management,
fiduciary administration, financial planning
and credit needs of high net worth individuals
and foundations by providing always-objective
advice, competitive products and tailored
counsel. The Private Bank briskly grew its loan
portfolio, thanks in large part to the newly
streamlined process created for underwriting
the often-complex finances of high net worth
individuals efficiently and prudently. Deposits
and fee generating assets grew as well,
despite the headwinds of significant market
volatility. Turbulent markets test the skills of
investment managers and the durability of
client relationships and put a premium on
communication and truly understanding client
needs and objectives, all strengths of the Private
Bank team. 2015 also saw external validation of
our high net worth offering, as Webster Private
Bank was voted Best Private Bank by the readers
of the Connecticut Law Tribune.
During 2015, the Private Bank added dynamic
new talent in the Rhode Island market and in
our Boston flagship office. In addition, the 17
new Webster banking centers in Boston give
the Private Bank increased visibility and wider
access to wealthy individuals in that very
attractive market.
The Private Bank also expanded its offerings to
include two new services: strategic investment
advisory and agent for trustee. The former
leverages our investment management
capabilities to assist clients with widely
dispersed assets, and the latter relieves trustees,
often family members, of the burdensome
administrative complexities that accompany
that deep responsibility. These valuable new
services generate non-interest income with very
little associated capital.
Robust pipelines coming into 2016 bode well for
assets under management and revenue growth.
Investing in Our Future
Digitization and automation promise to speed
delivery and improve quality of service while
reducing costs and will rapidly become a
competitive necessity. We are rethinking how
we operate, especially in distribution and
origination, to reflect this new reality.
Technological innovations, notably in mobile
banking, are transforming how customers spend,
borrow and save money. More than half of our
active online banking users are conducting
transactions via a mobile smartphone or tablet,
up 33% in the past two years. Nearly 70% of all
transactions are
conducted online,
via mobile devices
or through our
ATMs, and we
expect the trend
to accelerate as
smartphones
become the
banking channel
of choice for most
customers.
Active mobile banking users
105,250
78,900
91,500
2014
2015
2013
We’re implementing multiple mobile banking
application upgrades for our customers,
building on our high rating by J.D. Power for
the quality of our online banking systems.
Later this year we’ll launch a Webster digital
wallet, a mobile payment platform that will give
our customers the convenience of making a
purchase with the simple wave of a smartphone
at a merchant’s check-out.
Our Universal Bankers in our banking centers
and the Customer Care Center increasingly
provide advice and assist customers with their
more complex financial needs. Our goal is to
meet our customers’ needs, as they choose,
across electronic and physical distribution
channels.
Webster bankers are excited by the recent
roll-out across our franchise of salesforce.com,
which will improve customer relationship
management and boost sales productivity.
We’re also in the process of making meaningful
upgrades to our Commercial online banking
system and our Private Banking investment
management platform.
We are rethinking our loan origination
platforms, as well. For example, we recently
launched Fast Track for small business credit
needs up to $100,000, cutting the time from
application to funding by 75% to under two
weeks. Using Fast Track as the pilot program, our
goal is to cut this time to two days for business
and consumer loan applications up to $100,000.
By mapping and automating loan processing
activities and learning from fintech partners
who can do it faster than we can and within
our risk tolerance, we aim to lower our loan
processing costs, increase pull through rates and
enhance the customer experience.
We’re also increasing investment in information
management and data analytics. Enhanced
data-driven marketing techniques are changing
the way we identify and market to customers,
and our marketing spending is shifting
meaningfully to digitally driven direct response
programs. Emphasis on paid search and digital
media in support of sustained direct mail is
providing positive returns and a high level of
marketing effectiveness.
Across our entire network, we are continually
investing in cyber security initiatives, as our
most important responsibility is to operate
in a safe and sound manner that protects our
customers’ privacy, security and identity.
Risk and Capital Management
A key consideration when making strategic
choices is comprehensive risk assessment,
including each strategy’s impact on Webster’s
desired risk levels and the effect on capital and
liquidity in high stress scenarios. As we’ve adapted
purposefully to the more rigorous regulatory
environment, risk management has become a
primary strength and a focal point for investment
with particular emphasis on Bank Secrecy Act,
Information Security, Consumer Compliance and
Stress Testing. This emphasis is reflected in the fact
that risk management operating expenses rose
12% to $53 million last year.
All of our capital ratios remain strong and
comfortably above well-capitalized levels and
sufficient to pass the annual regulatory severely
adverse stress test scenario. Our rigorous
stress testing program has become an integral
management tool for informing our operating
capital ranges. The ample capital levels enable
us to grow and
expand with
confidence while
returning capital
to shareholders
through our cash
dividend, which
last year rose
19%, and through
opportunistic share
repurchases. Our
dividend pay-out
target remains in a range of 40-50%.
Annual dividends
(per common share)
$0.89
$0.55
$0.75
2014
2015
2013
A Comment on Regulatory Reform
Legislation
We are disappointed that meaningful financial
regulatory reform failed to advance in Congress
in 2015. Distinguishing among financial
institutions arbitrarily by size is a much
discussed deficiency of the Dodd-Frank Act
which we are working hard to rectify through
our active participation in multiple national
industry coalitions. Raising or eliminating the
$10 billion and $50 billion asset-size thresholds
is an important legislative priority that would
reduce the regulatory burden.
Most legislators now acknowledge that midsize
banks, those with between $10-50 billion in
assets, do not pose a threat to financial system
stability, nor would most banks of double or
triple (or more) the ‘systemically important
financial institution’ (SIFI) threshold of $50
billion. Midsize banks operate much like
community banks, with simplified balance
sheets, traditional lending practices and
products, common sense underwriting and
‘Main Street DNA.’ We differ significantly from
large, complex, interconnected institutions.
Yet our size traps us between those thresholds
established by the legislation, wedging us
between community banks that are exempted
from many regulations that apply to midsize
banks and larger institutions that can spread
the higher regulatory costs over a much greater
asset base. Webster and other midsize banks
are competitively harmed by this regulatory
scheme – neither exempted nor enormous.
Unnatural thresholds induce uneconomic
decision-making as banks will slow their
growth as they approach $50 billion in assets,
and strategic combinations among midsize
banks have been off the table since they would
push the combined entity over or close to the
threshold, significantly raising regulatory costs
and adding uncertainty as to the intensity of
regulatory scrutiny as banks approach the
threshold. Numerous midsize banks recently
have leapt the $50 billion threshold by merging
with SIFI banks. This exacerbates the ‘barbell
effect’ as the big get bigger and the small stay
small. We are committed to achieve a better
outcome in the next Congress, if not this year,
as we continue our efforts to enact regulatory
media in support of sustained direct mail is
providing positive returns and a high level of
marketing effectiveness.
Across our entire network, we are continually
investing in cyber security initiatives, as our
most important responsibility is to operate
in a safe and sound manner that protects our
customers’ privacy, security and identity.
Risk and Capital Management
A key consideration when making strategic
choices is comprehensive risk assessment,
including each strategy’s impact on Webster’s
desired risk levels and the effect on capital and
liquidity in high stress scenarios. As we’ve adapted
purposefully to the more rigorous regulatory
environment, risk management has become a
primary strength and a focal point for investment
with particular emphasis on Bank Secrecy Act,
Information Security, Consumer Compliance and
Stress Testing. This emphasis is reflected in the fact
that risk management operating expenses rose
12% to $53 million last year.
All of our capital ratios remain strong and
comfortably above well-capitalized levels and
sufficient to pass the annual regulatory severely
adverse stress test scenario. Our rigorous
stress testing program has become an integral
management tool for informing our operating
capital ranges. The ample capital levels enable
$0.89
us to grow and
expand with
confidence while
returning capital
to shareholders
through our cash
dividend, which
last year rose
19%, and through
opportunistic share
repurchases. Our
dividend pay-out
2015
Annual dividends
(per common share)
target remains in a range of 40-50%.
A Comment on Regulatory Reform
Legislation
We are disappointed that meaningful financial
regulatory reform failed to advance in Congress
in 2015. Distinguishing among financial
institutions arbitrarily by size is a much
discussed deficiency of the Dodd-Frank Act
which we are working hard to rectify through
our active participation in multiple national
industry coalitions. Raising or eliminating the
$10 billion and $50 billion asset-size thresholds
is an important legislative priority that would
reduce the regulatory burden.
Most legislators now acknowledge that midsize
banks, those with between $10-50 billion in
assets, do not pose a threat to financial system
stability, nor would most banks of double or
triple (or more) the ‘systemically important
financial institution’ (SIFI) threshold of $50
billion. Midsize banks operate much like
community banks, with simplified balance
sheets, traditional lending practices and
products, common sense underwriting and
‘Main Street DNA.’ We differ significantly from
large, complex, interconnected institutions.
Yet our size traps us between those thresholds
established by the legislation, wedging us
between community banks that are exempted
from many regulations that apply to midsize
banks and larger institutions that can spread
the higher regulatory costs over a much greater
asset base. Webster and other midsize banks
are competitively harmed by this regulatory
scheme – neither exempted nor enormous.
Unnatural thresholds induce uneconomic
decision-making as banks will slow their
growth as they approach $50 billion in assets,
and strategic combinations among midsize
banks have been off the table since they would
push the combined entity over or close to the
threshold, significantly raising regulatory costs
and adding uncertainty as to the intensity of
regulatory scrutiny as banks approach the
threshold. Numerous midsize banks recently
have leapt the $50 billion threshold by merging
with SIFI banks. This exacerbates the ‘barbell
effect’ as the big get bigger and the small stay
small. We are committed to achieve a better
outcome in the next Congress, if not this year,
as we continue our efforts to enact regulatory
reform that enables midsize banks to compete
with confidence as they fulfill their mission to
provide credit and support to customers and
communities.
Recognizing Leadership
The board of directors rewarded two
outstanding Webster bankers with new
responsibilities in recognition of their
contributions to our continued solid strategic
and financial performance. John Ciulla,
who formerly headed Commercial Banking,
was promoted to president with expanded
responsibility for Commercial, Community
and Private Banking as well as Marketing. Joe
Savage, formerly president, was appointed
executive vice chairman to focus on overseeing
our leadership development and banker
engagement programs and to assist me with
organizational choices and strategy.
John and Joe are principled, proven leaders
whose many notable achievements include
having led Commercial Banking to its
remarkable success over the past dozen years.
They encourage and inspire their colleagues
and demonstrate daily the Webster values in
support of our customers and communities.
Webster’s solid performance and strategic
progress reflect the oversight and guidance of
our remarkably dedicated and deeply engaged
board of directors. I’d like to recognize Bob
Finkenzeller in particular for his dedication,
guidance and support as a member of the
Board. Bob will retire from the Board at the
2016 Annual Meeting, having served since the
formation of the holding company in 1986. The
Board and I greatly appreciate Bob’s faithful
service and his contributions to the Board and
to Webster’s growth and progress.
A Legacy of Values
One of the many lessons that I’ve learned
during my career is that when you stop getting
better, you stop being good. That philosophy of
continuous improvement is imbued throughout
Webster.
While we are encouraged by our progress
and proud of our heritage, we know we must
continue to set the performance bar higher,
regardless of the operating environment. As our
performance improves, our potential expands,
in turn creating as-yet untold opportunities to
achieve our overarching goal to be the highest
performing midsize bank in America.
Having recently celebrated my 40th year as a
Webster banker, I can say with confidence that
at no time has Webster been better positioned
or more committed to reach that ambitious goal.
The board of directors and every Webster
banker are thankful for your continued
confidence and support.
Sincerely,
James C. Smith
Chairman and Chief Executive Officer
2015 Business Lines Review
CORPORATE PROFILE:
Webster Financial Corporation is the holding
company for Webster Bank, National
Association, and other subsidiaries and
is regulated by the Federal Reserve Board
of Governors. Webster serves consumers,
businesses, not-for-profit organizations,
and governmental entities in Connecticut,
Massachusetts, Rhode Island, and metro New
York City with a distribution network of 163
banking centers and 316 ATMs at year end,
as well as a full range of telephone, Internet,
and mobile banking services. In addition,
Webster offers commercial real estate, asset-
based lending, and equipment finance services
regionally and health savings accounts
nationally through HSA Bank. Webster Bank is
a member of the FDIC and is regulated by the
Office of the Comptroller of the Currency and
the Bureau of Consumer Financial Protection.
At year end, Webster Bank’s financial
intermediation activities were organized
broadly around four distinct lines of business:
Commercial Banking, Community Banking,
HSA Bank, and Private Banking.
COMMERCIAL BANKING:
Commercial Banking provides lending,
deposit, and treasury and payment solutions
with a focus on building relationships with
companies primarily within our Northeast
footprint having annual revenues greater
than $25 million. Commercial Banking
includes Middle Market; Commercial Real
Estate; Webster Business Credit Corporation,
our asset-based lending subsidiary; Webster
Capital Finance, our equipment financing
subsidiary; and Treasury and Payment
Solutions. Commercial Banking was the largest
profit generator among Webster’s business
lines and together with Business Banking
now accounts for more than half of Webster’s
total loan portfolio. Led by Middle Market and
Commercial Real Estate, Commercial Banking
originated $3.0 billion in new loans, a 3%
increase from the previous year. At year-end,
Commercial Banking had $7.5 billion in loans
and $3.1 billion in deposits.
2015 Business Lines Review
CORPORATE PROFILE:
Webster Financial Corporation is the holding
company for Webster Bank, National
Association, and other subsidiaries and
is regulated by the Federal Reserve Board
of Governors. Webster serves consumers,
businesses, not-for-profit organizations,
and governmental entities in Connecticut,
Massachusetts, Rhode Island, and metro New
York City with a distribution network of 163
banking centers and 316 ATMs at year end,
as well as a full range of telephone, Internet,
and mobile banking services. In addition,
Webster offers commercial real estate, asset-
based lending, and equipment finance services
regionally and health savings accounts
nationally through HSA Bank. Webster Bank is
a member of the FDIC and is regulated by the
Office of the Comptroller of the Currency and
the Bureau of Consumer Financial Protection.
At year end, Webster Bank’s financial
intermediation activities were organized
broadly around four distinct lines of business:
Commercial Banking, Community Banking,
HSA Bank, and Private Banking.
COMMERCIAL BANKING:
Commercial Banking provides lending,
deposit, and treasury and payment solutions
with a focus on building relationships with
companies primarily within our Northeast
footprint having annual revenues greater
than $25 million. Commercial Banking
includes Middle Market; Commercial Real
Estate; Webster Business Credit Corporation,
our asset-based lending subsidiary; Webster
Capital Finance, our equipment financing
subsidiary; and Treasury and Payment
Solutions. Commercial Banking was the largest
profit generator among Webster’s business
lines and together with Business Banking
now accounts for more than half of Webster’s
total loan portfolio. Led by Middle Market and
Commercial Real Estate, Commercial Banking
originated $3.0 billion in new loans, a 3%
increase from the previous year. At year-end,
Commercial Banking had $7.5 billion in loans
and $3.1 billion in deposits.
Middle Market delivers a full array of
financial services to a diversified group
of companies. By leveraging industry
specialization and delivering competitive
products and services, middle market loans
grew 18% to $3.6 billion.
Commercial Real Estate (CRE) provides
financing for the acquisition, development,
construction, or refinancing of commercial
real estate for which the property is the
primary security for the loan and income
generated from the property is the primary
repayment source. CRE has consistently
had strong credit performance and growth
throughout its Boston-to-Washington, D.C.
marketplace. Loans grew 9% to $2.5 billion.
Webster Business Credit Corporation (WBCC),
headquartered in New York, N.Y., is the asset-
based lending subsidiary of Webster Bank and
is one of the top 25 asset-based lenders in the
U.S. WBCC builds relationships with growing
middle market companies by financing core
working capital and import financing needs
primarily with revolving credit facilities with
advance rates against accounts receivable and
inventory. Loans grew 14% to $753 million.
Webster Capital Finance (WCF) is the
equipment finance subsidiary of Webster
Bank. WCF offers small to mid-ticket financing
for critical equipment with specialties in
construction, transportation, environmental
and manufacturing equipment. WCF lends
primarily in the eastern half of the U.S. and in
other select markets. Loans grew 12% to $601
million.
Treasury and Payment Solutions (TPS)
delivers a broad range of deposit, lending,
treasury, and trade services via a dedicated
team of treasury professionals and local
commercial bankers. TPS comprises
Government and Institutional Banking, Cash
Management Sales and Product Management
to deliver holistic solutions to Webster’s
increasingly sophisticated business and
institutional clients. We continue to invest
in our treasury capabilities and grew cash
management services revenue by 6%.
Transaction deposit account balances of $1.8
billion represent 60% of the total commercial
deposits up from 57%.
COMMUNITY BANKING:
Community Banking serves nearly 390,000
customers including 47,000 small businesses.
The business is comprised of the following:
Personal Banking, Business Banking, and a
Distribution network consisting of Banking
Centers, ATMs, a Customer Care Center, and
a full range of on-line and mobile banking
services. At year-end, Community Banking
had $10.4 billion in deposits and $7.6 billion in
loans.
Personal Banking continues to focus on
improving the customer experience by
aligning our delivery channel investments
with our customers’ growing preference to
conduct their banking using electronic and
mobile channels. Transaction deposits grew
$215 million and now comprise 29% of total
Personal Bank deposits. Consumer loan
balances increased by over 12% to $6.4 billion.
Overall loan originations increased by 6%
versus prior year due to increased mortgage
production.
Business Banking loan balances grew 7%
to $1.2 billion at year end. Loan originations
increased 10% to $334 million. Total deposits
grew 10% to $2.1 billion, and transaction
balances grew 13%. In 2015, Business Banking
leveraged specialty lending programs and
industry expertise to grow its share of affinity
and professional segments. The investment
commercial real estate portfolio grew 26%.
The SBA loan portfolio grew 2%, and Webster
was the top SBA lender in Connecticut for
the eighth consecutive year. Fee income grew
14%, as customers utilized enhanced cash flow
products. Business Banking deposits exceeded
loans by 69%, providing a source of low-cost
funding.
HSA BANK:
HSA Bank is a leading administrator of health
savings accounts (HSAs) based on assets under
administration, with 15% total market share
as of year-end. With a focus on HSAs, HSA
Bank also delivers health reimbursement
arrangement (HRA) and flexible spending
account (FSA) administration services to
employers and individuals in all 50 states. At
year end, HSA Bank held more than 1.7
million accounts and $4.5 billion in health
savings account deposits and investments, up
154% and 75%, respectively, reflecting strong
organic growth and the acquisition of the
JPMorgan Chase HSAs. 2015 was HSA Bank’s
highest annual enrollment production year on
record.
PRIVATE BANKING:
Private Banking provides wealth advisory,
investment management, tailored lending,
fiduciary, and banking services to high net
worth individuals and institutional clients.
During 2015, Private Banking continued to
build momentum on the basis of its fully
transformed business model. Loans grew
24% to $490 million resulting from a more
streamlined loan approval process to provide
an enhanced client experience; deposits
increased 8% to $228 million; and assets under
management and administration increased
by 3% to $1.7 billion. 2015 saw the launch
of Private Banking’s Strategic Investment
Advisory Service, an offering expected to
grow assets under administration and related
fee revenue. Private Banking also initiated
the strategic buildout of its presence in the
Massachusetts and Rhode Island markets
with the hiring of experienced local market
professionals.
Financial Highlights
At or for the years ended December 31,
Allowance for loan and lease losses
174,990
159,264
152,573
(In thousands, except per share and ratio data)
CONSOLIDATED BALANCE SHEETS
Total assets
Loans and leases
Investment securities
Deposits
Total equity
STATEMENT OF INCOME
Net interest income
Provision for loan and lease losses
Non-interest income
Net impairment loss recognized in earnings
Non-interest income excluding impairment
Non-interest expense
Income before income tax expense
Income tax expense
Net income
NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS
PER COMMON SHARE DATA
Net income - diluted
Dividends declared
Tangible book value per common share
Book value per common share
KEY PERFORMANCE RATIOS
Return on average assets
Return on average common shareholders’ equity
Net interest margin
Non-interest income as a percentage of total revenue
Tangible common equity
Average shareholders’ equity to average assets
ASSET QUALITY RATIOS
Allowance for loan losses/total loans
Net charge-offs/average loans
Nonperforming loans/total loans
Nonperforming assets/total loans plus OREO
2015
2014
2013
$24,677,820
22,533,172
20,853,145
15,671,735
13,900,025
12,699,776
6,907,683
6,666,828
6,465,652
17,952,778
15,651,605
14,854,420
2,415,571
2,322,815
2,209,348
664,625
49,300
239,545
110
239,655
554,554
300,316
93,976
206,340
628,441
37,250
202,108
1,145
203,253
501,600
291,699
91,973
199,726
596,728
33,500
191,050
7,277
198,327
497,709
256,569
77,113
179,456
$196,969
188,496
168,036
$2.15
0.89
18.71
25.01
0.87 %
8.77
3.08
26.49
7.12
10.12
1.12 %
0.23
0.89
0.93
2.08
0.75
18.10
23.99
0.93
8.85
3.21
24.33
7.45
10.67
1.15
0.23
0.94
0.98
1.86
0.55
16.85
22.77
0.89
8.44
3.26
24.25
7.49
10.61
1.20
0.47
1.28
1.35
93.65
Weighted-average common shares-diluted
91,533
90,620
90,261
Allowance for loan losses/nonperforming loans
125.05
122.62
HSA BANK:
HSA Bank is a leading administrator of health
savings accounts (HSAs) based on assets under
administration, with 15% total market share
as of year-end. With a focus on HSAs, HSA
Bank also delivers health reimbursement
arrangement (HRA) and flexible spending
account (FSA) administration services to
employers and individuals in all 50 states. At
year end, HSA Bank held more than 1.7
million accounts and $4.5 billion in health
savings account deposits and investments, up
154% and 75%, respectively, reflecting strong
organic growth and the acquisition of the
JPMorgan Chase HSAs. 2015 was HSA Bank’s
highest annual enrollment production year on
record.
PRIVATE BANKING:
Private Banking provides wealth advisory,
investment management, tailored lending,
fiduciary, and banking services to high net
worth individuals and institutional clients.
During 2015, Private Banking continued to
build momentum on the basis of its fully
transformed business model. Loans grew
24% to $490 million resulting from a more
streamlined loan approval process to provide
an enhanced client experience; deposits
increased 8% to $228 million; and assets under
management and administration increased
by 3% to $1.7 billion. 2015 saw the launch
of Private Banking’s Strategic Investment
Advisory Service, an offering expected to
grow assets under administration and related
fee revenue. Private Banking also initiated
the strategic buildout of its presence in the
Massachusetts and Rhode Island markets
with the hiring of experienced local market
professionals.
Financial Highlights
At or for the years ended December 31,
(In thousands, except per share and ratio data)
CONSOLIDATED BALANCE SHEETS
Total assets
Loans and leases
2015
2014
2013
$24,677,820
22,533,172
20,853,145
15,671,735
13,900,025
12,699,776
Allowance for loan and lease losses
174,990
159,264
152,573
Investment securities
Deposits
Total equity
STATEMENT OF INCOME
Net interest income
Provision for loan and lease losses
Non-interest income
Net impairment loss recognized in earnings
Non-interest income excluding impairment
Non-interest expense
Income before income tax expense
Income tax expense
Net income
NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS
PER COMMON SHARE DATA
Net income - diluted
Dividends declared
Tangible book value per common share
Book value per common share
6,907,683
6,666,828
6,465,652
17,952,778
15,651,605
14,854,420
2,415,571
2,322,815
2,209,348
664,625
49,300
239,545
110
239,655
554,554
300,316
93,976
206,340
628,441
37,250
202,108
1,145
203,253
501,600
291,699
91,973
199,726
596,728
33,500
191,050
7,277
198,327
497,709
256,569
77,113
179,456
$196,969
188,496
168,036
$2.15
0.89
18.71
25.01
2.08
0.75
18.10
23.99
1.86
0.55
16.85
22.77
Weighted-average common shares-diluted
91,533
90,620
90,261
KEY PERFORMANCE RATIOS
Return on average assets
Return on average common shareholders’ equity
Net interest margin
Non-interest income as a percentage of total revenue
Tangible common equity
Average shareholders’ equity to average assets
ASSET QUALITY RATIOS
Allowance for loan losses/total loans
Net charge-offs/average loans
Nonperforming loans/total loans
Nonperforming assets/total loans plus OREO
0.87 %
8.77
3.08
26.49
7.12
10.12
1.12 %
0.23
0.89
0.93
0.93
8.85
3.21
24.33
7.45
10.67
1.15
0.23
0.94
0.98
Allowance for loan losses/nonperforming loans
125.05
122.62
0.89
8.44
3.26
24.25
7.49
10.61
1.20
0.47
1.28
1.35
93.65
Shareholder Information
Reports
Corporate Headquarters
Webster Financial Corporation and
Webster Bank
145 Bank Street
Waterbury, CT 06702
1-800-325-2424
WebsterBank.com
Transfer Agent and Registrar
Regular Mail:
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
1-855-222-4926
shareholder@broadridge.com
www.shareholder.broadridge.com/webster
Registered/Overnight Mail:
Broadridge Corporate Issuer Solutions, Inc.
Attn: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Dividend Reinvestment and
Stock Purchase Plan
Shareholders wishing to receive a
prospectus for the Dividend Reinvestment
and Stock Purchase Plan are invited
to write to Broadridge Corporate Issuer
Solutions, Inc. at one of the addresses
listed above.
Stock Listing Information
The common stock of Webster is traded
on the New York Stock Exchange under
the symbol “WBS.”
Investor Relations Contact:
Terrence K. Mangan
Senior Vice President,
Investor Relations
(203) 578-2202
tmangan@websterbank.com
A copy of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, as well as our quarterly
reports, news releases, and other information may
be obtained free of charge by accessing our Investor
Relations website (www.wbst.com). For a printed copy
of our Form 10-K, please contact: Terrence K. Mangan,
Senior Vice President, Investor Relations, 145 Bank
Street, Waterbury, CT 06702. The certifications of
Webster’s Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are included as exhibits to our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2015.
Common Stock Dividends and Market Prices
The following table shows dividends declared and the
market price per share by quarter for 2015 and 2014.
COMMON STOCK
(PER SHARE)
CASH DIVIDENDS
MARKET PRICE
DECLARED
HIGH
LOW
END OF
PERIOD
$37.19
35.63
39.55
37.05
$40.72
40.60
41.34
37.38
$34.17
30.97
34.88
29.02
$33.32
32.49
31.91
32.67
$26.53
27.77
28.21
28.71
$32.53
29.14
31.54
31.06
2015
Fourth
Third
Second
First
2014
Fourth
Third
Second
First
$0.23
0.23
0.23
0.20
$0.20
0.20
0.20
0.15
Annual Meeting
The annual meeting of shareholders of Webster
Financial Corporation will be held on April 28, 2016
at 4:00 P.M. at the Mattatuck Museum, 144 West Main
Street, Waterbury, Connecticut.
Webster Information
For more information on Webster products and
services, call 1-800-325-2424 or visit us at
WebsterBank.com.
Webster Financial Corporation and
Webster Bank Board of Directors
James C. Smith
Chairman and Chief Executive Officer
William L. Atwell
Managing Director, Atwell Partners, LLC
Chairman and Chief Executive Officer
Joel S. Becker
Torrco
John R. Ciulla*
President
John J. Crawford
President, Strategem, LLC
Robert A. Finkenzeller
President, Eyelet Crafters, Inc.
Elizabeth E. Flynn
Retired Vice Chairman, Marsh, LLC
C. Michael Jacobi, CPA
President, Stable House 1, LLC
Laurence C. Morse
Managing Partner
Fairview Capital Partners, Inc.
Karen R. Osar
Retired Executive Vice President and
Chief Financial Officer
Chemtura Corporation
Mark Pettie
President, Blackthorne Associates, LLC
Joseph J. Savage*
Executive Vice Chairman
Former Chairman and Chief Executive Officer
Charles W. Shivery
Northeast Utilities
*Webster Bank, N.A. Board of Directors
Reports
A copy of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, as well as our quarterly
reports, news releases, and other information may
be obtained free of charge by accessing our Investor
Relations website (www.wbst.com). For a printed copy
of our Form 10-K, please contact: Terrence K. Mangan,
Senior Vice President, Investor Relations, 145 Bank
Street, Waterbury, CT 06702. The certifications of
Webster’s Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are included as exhibits to our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2015.
Common Stock Dividends and Market Prices
The following table shows dividends declared and the
market price per share by quarter for 2015 and 2014.
COMMON STOCK
(PER SHARE)
CASH DIVIDENDS
MARKET PRICE
DECLARED
HIGH
LOW
$0.23
$40.72
$34.17
0.23
0.23
0.20
40.60
41.34
37.38
30.97
34.88
29.02
END OF
PERIOD
$37.19
35.63
39.55
37.05
$0.20
$33.32
$26.53
$32.53
0.20
0.20
0.15
32.49
31.91
32.67
27.77
28.21
28.71
29.14
31.54
31.06
2015
Fourth
Third
Second
First
2014
Fourth
Third
Second
First
Annual Meeting
The annual meeting of shareholders of Webster
Financial Corporation will be held on April 28, 2016
at 4:00 P.M. at the Mattatuck Museum, 144 West Main
Street, Waterbury, Connecticut.
Webster Information
For more information on Webster products and
services, call 1-800-325-2424 or visit us at
WebsterBank.com.
Webster Financial Corporation and
Webster Bank Board of Directors
Executive Management Group
Webster Financial Corporation
James C. Smith
Chairman and Chief Executive Officer
James C. Smith
Chairman and Chief Executive Officer
William L. Atwell
Managing Director, Atwell Partners, LLC
Joseph J. Savage
Executive Vice Chairman
Joel S. Becker
Chairman and Chief Executive Officer
Torrco
John R. Ciulla
President
John R. Ciulla*
President
John J. Crawford
President, Strategem, LLC
Robert A. Finkenzeller
President, Eyelet Crafters, Inc.
Elizabeth E. Flynn
Retired Vice Chairman, Marsh, LLC
C. Michael Jacobi, CPA
President, Stable House 1, LLC
Laurence C. Morse
Managing Partner
Fairview Capital Partners, Inc.
Karen R. Osar
Retired Executive Vice President and
Chief Financial Officer
Chemtura Corporation
Mark Pettie
President, Blackthorne Associates, LLC
Joseph J. Savage*
Executive Vice Chairman
Glenn I. MacInnes
Executive Vice President and Chief Financial
Officer
Daniel H. Bley
Executive Vice President and Chief Risk Officer
Colin D. Eccles
Executive Vice President and
Chief Information Officer
Daniel M. FitzPatrick
Executive Vice President,
Head of Private Banking
Bernard M. Garrigues
Executive Vice President and
Chief Human Resources Officer
Nitin J. Mhatre
Executive Vice President,
Head of Community Banking
Dawn C. Morris
Executive Vice President and
Chief Marketing Officer
Charles L. Wilkins
Executive Vice President ,
Head of HSA Bank
Charles W. Shivery
Former Chairman and Chief Executive Officer
Northeast Utilities
Harriet Munrett Wolfe, Esq.
Executive Vice President,
General Counsel and Secretary
*Webster Bank, N.A. Board of Directors
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
_______________________________________________________________________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal
Year Ended December 31, 2015
Commission File Number: 001-31486
_______________________________________________________________________________
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
06-1187536
(I.R.S. Employer Identification No.)
145 Bank Street, Waterbury, Connecticut 06702
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (203) 578-2202
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, $.01 par value
Depository Shares, each representing 1/1000th interest in a share
of 6.40% Series E Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
______________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
Yes
been subject to such filing requirements for the past 90 days.
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Act.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes
No
The aggregate market value of common stock held by non-affiliates of Webster Financial Corporation was approximately $3.5 billion, based
on the closing sale price of the common stock on the New York Stock Exchange on June 30, 2015, the last trading day of the registrant's
most recently completed second quarter.
The number of shares of common stock, par value $.01 per share, outstanding as of February 12, 2016 was 91,424,421.
Part III: Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2016.
Documents Incorporated by Reference
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INDEX
Page No.
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
1
11
16
17
17
17
18
21
21
61
62
125
125
127
127
129
129
129
130
130
131
132
i
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ITEM 1. BUSINESS
Forward-Looking Statements
PART 1
The required information is set forth below, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, see the section captioned "Forward-Looking Statements," which is incorporated herein by reference.
General
Webster Financial Corporation is a bank holding company and financial holding company registered under the Bank Holding
Company Act of 1956, as amended, incorporated under the laws of Delaware in 1986 and headquartered in Waterbury, Connecticut.
References in this report to "Webster," the "Company," "we," "our," or "us" mean Webster Financial Corporation and its consolidated
subsidiaries. At December 31, 2015, Webster had assets of $24.7 billion, net loans and leases of $15.5 billion, deposits of $18.0
billion and shareholders' equity of $2.4 billion. At December 31, 2015, Webster Financial Corporation's principal asset is all of
the outstanding capital stock of Webster Bank, National Association (“Webster Bank”).
At December 31, 2015, Webster had 2,946 full-time equivalent employees. None of the employees were represented by a collective
bargaining group. Management considers relations with its employees to be good.
Webster Financial Corporation's common stock is traded on the New York Stock Exchange under the symbol “WBS.” Webster's
internet address is www.websterbank.com and investor relations internet address is www.wbst.com. Webster makes available free
of charge on its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements, and amendments, if any, to those documents filed or furnished pursuant to Section 13(a) of the Securities Exchange
Act of 1934, as soon as practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange
Commission ("SEC"). These documents are also available free of charge on the SEC's website at www.sec.gov. Information on
Webster’s website is not incorporated by reference into this report.
Description of Business
Webster delivers financial services to individuals, families, and businesses primarily from New York to Massachusetts. Webster
provides business and consumer banking, mortgage lending, financial planning, trust, and investment services through 163 banking
offices, 316 ATMs, telephone banking, mobile banking, and its internet website (www.websterbank.com). Webster also offers
equipment financing, commercial real estate lending, and asset-based lending primarily across the Northeast. On a nationwide
basis, through its HSA Bank division, Webster Bank offers and administers health savings accounts, and flexible spending, health
reimbursement, and commuter benefit accounts.
The core of our Company's value proposition is the service delivery model that comes to life through our brand promise, “Living
Up to You,” which encapsulates how our bankers build meaningful relationships with our customers through a deeper understanding
of their lives beyond the bank. This value proposition is delivered by our bankers who are knowledgeable, are deeply committed
to the communities that we serve, know their markets well, and make decisions at the local level. We operate with a local market
orientation as a community-focused, values-guided regional bank. Operating objectives include acquiring and developing high
value customer relationships through sales specialists, universal bankers, marketing, and cross-sale efforts to fuel organic growth
and expand contiguously.
Segments
Webster has four reportable segments: Commercial Banking, Community Banking, HSA Bank, and Private Banking, and has been
operating under this structure for management reporting purposes since 2015. A description of each of the Company’s segments
is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 19:
Segment Reporting in the Notes to Consolidated Financial Statements contained elsewhere in this report and also includes financial
information for, and a description of, these reportable segments.
Subsidiaries of Webster Financial Corporation
Webster Financial Corporation's direct subsidiaries include Webster Bank, Webster Wealth Advisors, Inc., and Webster Licensing,
LLC. The Company also owns all of the outstanding common stock of Webster Statutory Trust, an unconsolidated financial vehicle
that has issued, and may in the future issue, trust preferred securities.
1
Additionally, Webster Bank's direct subsidiaries include Webster Mortgage Investment Corporation ("WMIC"), Webster Business
Credit Corporation (“WBCC”), and Webster Capital Finance, Inc. (“WCF”). Webster Bank is the primary source of community
banking activity within the consolidated group. Residential mortgage origination activity is conducted through Webster Bank.
WMIC is a passive investment subsidiary whose primary function is to provide servicing on qualified passive investments, such
as residential real estate and commercial mortgage real estate loans acquired from Webster Bank. Various commercial lending
products are provided through Webster Bank and its subsidiaries to clients primarily within our regional footprint from New York
to Massachusetts. WBCC provides asset-based lending services. WCF provides equipment financing for end users of equipment.
Webster Bank also has various other subsidiaries that are not significant to the consolidated group.
Competition
Webster is subject to strong competition from banks, thrifts, credit unions, consumer finance companies, investment companies,
insurance companies, e-commerce and other internet-based companies. Certain of these competitors are larger financial institutions
with substantially greater resources, lending limits, larger branch systems, and a wider array of commercial banking services than
Webster. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and
services from non-bank entities, greater technological developments in the industry, and continued bank regulatory reforms.
Webster faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for
deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations,
automated services, and office hours. Competition for deposits comes from other commercial banks, savings institutions, credit
unions, mutual funds, and other investment alternatives. The primary factors in competing for consumer and commercial loans
are interest rates, loan origination fees, the quality and range of lending services, personalized service and ability to close within
customers desired timeframe. Competition for origination of mortgage loans comes primarily from savings institutions, mortgage
banking firms, mortgage brokers, other commercial banks, and insurance companies. Other factors which affect competition
include the general and local economic conditions, current interest rate levels, and volatility in the mortgage markets.
Supervision and Regulation
Webster and its banking and non-banking subsidiaries are subject to comprehensive regulation under federal and state laws. The
regulatory framework applicable to bank holding companies and their subsidiary banks is intended to protect depositors, federal
deposit insurance funds, and the U.S. banking system as a whole. This system is not designed to protect equity investors in bank
holding companies.
Set forth below is a summary of the significant laws and regulations applicable to Webster and its banking and non-banking
subsidiaries. The description that follows is qualified in its entirety by reference to the full text of the statutes, regulations, and
policies that are described. Such statutes, regulations, and policies are subject to ongoing review by Congress and state legislatures
and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable to Webster
and its banking and non-banking subsidiaries could have a material effect on the results of the Company.
Overview
Webster Financial Corporation is a separate and distinct legal entity from Webster Bank and its other subsidiaries. As a registered
bank holding company and a financial holding company it is subject to inspection, examination, and supervision by the Board of
Governors of the Federal Reserve System ("FRB"). and is regulated under the Bank Holding Company Act of 1956, as amended
(“BHC Act”). Webster also is under the jurisdiction of the SEC and is subject to the disclosure and other regulatory requirements
of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC.
Webster is subject to the rules for listed companies of the New York Stock Exchange.
Webster Bank is organized as a national banking association under the National Bank Act. Webster Bank is subject to the supervision
of, and to regular examination by, the Office of the Comptroller of the Currency (“OCC”) as its primary supervisory agency, as
well as by the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. In addition, the Consumer Financial Protection
Bureau ("CFPB") supervises Webster for compliance with federal consumer financial protection laws. Webster also is subject to
oversight by state attorneys general for compliance with state consumer protection laws. Webster Bank's deposits are insured by
the FDIC up to the applicable deposit insurance limits in accordance with FDIC laws and regulations. Webster's non-bank
subsidiaries are subject to federal and state laws and regulations, including regulations of the FRB.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") significantly changed the
financial regulatory regime in the United States. Since the enactment of the Dodd-Frank Act, U.S. banks and financial services
firms have been subject to enhanced regulation and oversight. Several provisions of the Dodd-Frank Act are subject to further
rulemaking, guidance, and interpretation by the federal banking agencies.
2
Bank Holding Company Regulation
Webster Financial Corporation is a bank holding company as defined under the BHC Act. The BHC Act generally limits the
business of bank holding companies to banking, managing or controlling banks, and other activities that the FRB has determined
to be so closely related to banking "as to be a proper incident thereto." Bank holding companies that have elected to become
financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity
that is either (i) financial in nature or incidental to such financial activity (as determined by the FRB in consultation with the
Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and
soundness of depository institutions or the financial system generally (as solely determined by the FRB). Activities that are financial
in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments.
If a bank holding company seeks to engage in the broader range of activities permitted under the BHC Act for financial holding
companies, (i) the holding company and all of its depository institution subsidiaries, must be “well capitalized” and “well managed,”
as defined in FRB Regulation Y, and (ii) it must file a declaration with the FRB that it elects to be a “financial holding company.”
In order for a financial holding company to commence any activity that is financial in nature, incidental thereto, or complementary
to a financial activity, or to acquire a company engaged in any such activity permitted by the BHC Act, each insured depository
institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent
examination under the Community Reinvestment Act of 1977 ("CRA"). This is discussed in the “Community Reinvestment Act
and Fair Lending Laws” section.
The BHC Act generally limits acquisitions by bank holding companies that are not qualified as financial holding companies to
commercial banks and companies engaged in activities that the FRB has determined to be so closely related to banking “as to be
a proper incident thereto.” Financial holding companies also are permitted to acquire control of non-depository institution
companies engaged in activities that are financial in nature and in activities that are incidental and complementary to financial
activities without prior FRB approval. However, the BHC Act, as amended by the Dodd-Frank Act, requires prior written approval
from the FRB or prior written notice to the FRB before a financial holding company may acquire control of a company with
consolidated assets of $10 billion or more.
The BHC Act, the Bank Merger Act, and other federal and state statutes regulate acquisitions of commercial banks. The BHC Act
requires the prior FRB approval for the direct or indirect acquisition of 5% or more of the voting shares of a commercial bank or
its parent holding company. Under the Bank Merger Act, the prior approval of the OCC is required for a national bank to merge
with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of
merger and acquisition transactions, the federal banking agencies will consider, among other things, the competitive effect and
public benefits of the transactions, the capital position of the combined banking organization, the applicant's performance record
under the CRA, and the effectiveness of the subject organizations in combating money laundering activities. For further information
relating to the CRA, see the section titled “Community Reinvestment Act and Fair Lending Laws.”
Enhanced Prudential Standards
Section 165 of the Dodd-Frank Act imposes enhanced prudential standards on larger banking organizations, with certain of these
standards applicable to banking organizations over $10 billion, including Webster and Webster Bank. In October 2012, the FDIC,
the OCC, and the FRB issued separate but similar rules requiring covered banks and bank holding companies with $10 billion to
$50 billion in total consolidated assets to conduct an annual company-run stress test. The annual company-run stress test was
conducted for Webster and Webster Bank. Webster announced the release of its company-run 2015 capital stress test results as
required by the Dodd-Frank Act on June 16, 2015.
In February 2014, the FRB issued a rule further implementing the enhanced prudential standards required by the Dodd-Frank Act.
Although most of the standards only apply to bank holding companies with more than $50 billion in assets, as directed by the
Dodd-Frank Act, the rule contains certain standards that apply to bank holding companies with more than $10 billion in assets,
including a requirement to establish a risk committee of the Company's board of directors to manage enterprise-wide risk. Webster
meets these requirements.
Debit Card Interchange Fees
The Dodd-Frank Act requires that any interchange transaction fee charged for a debit transaction be “reasonable” and proportional
to the cost incurred by the issuer for the transaction, with new regulations that establish such fee standards, eliminate exclusivity
arrangements between issuers and networks for debit card transactions, and limit restrictions on merchant discounting for use of
certain payment forms and minimum or maximum amount thresholds as a condition for acceptance of credit cards. In June 2011,
the FRB approved a final debit card interchange rule pursuant to the Dodd-Frank Act that would cap an issuer's base fee at 21
cents per transaction and allow an additional amount equal to 5 basis points of the transaction's value. The FRB separately issued
a final rule in July 2012 that also allows a fraud-prevention adjustment of 1 cent per transaction conditioned upon an issuer
developing, implementing, and updating reasonably designed fraud-prevention policies and procedures.
3
Identity Theft
In April 2013, the SEC and the Commodity Futures Trading Commission (together, the “Commissions”) jointly issued final rules
and guidelines implementing provisions of the Dodd-Frank Act which require certain regulated entities to establish programs to
address risks of identity theft. First, the rules require financial institutions and creditors to develop and implement a written identity
theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts
or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs
that would satisfy the requirements of the rules. Second, the rules establish special requirements for any credit and debit card
issuers that are subject to the Commissions’ jurisdiction, to assess the validity of notifications of changes of address under certain
circumstances. Webster implemented an ID Theft Prevention Program, approved by its Board of Directors on April 25, 2013, to
address these requirements.
Volcker Rule
Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, restricts the ability of banking entities, such as Webster,
from: (i) engaging in “proprietary trading;” and (ii) investing in or sponsoring certain types of funds (“Covered Funds”), subject
to certain limited exceptions. The implementing regulation defines Covered Funds to include certain investments such as
collateralized loan obligation (“CLO”) and collateralized debt obligation securities. The regulation also provides an exemption
for CLOs meeting certain requirements. CLO compliance with the Volcker Rule is generally required by July 21, 2017.
Derivatives Reform
Title VII of the Dodd-Frank Act imposes requirements related to over-the-counter derivatives. Key provisions of Title VII of the
Dodd-Frank Act are implemented by the Commodity Futures Trading Commission (“CFTC”) with respect to previously unregulated
derivatives, including interest rate swaps. Among other things, the CFTC’s rules apply to swap dealers, major swap participants
and commercial entities that enter into OTC derivatives transactions to hedge or mitigate risk. Under rules and CFTC guidance,
end users are subject to a wide range of requirements including capital, margining, clearing, documentation, reporting, eligibility
and business conduct requirements.
Dividends
The principal source of Webster Financial Corporation's liquidity is dividends from Webster Bank. The prior approval of the OCC
is required if the total of all dividends declared by a national bank in any calendar year would exceed the sum of the bank's net
income for that year and its undistributed net income for the preceding two calendar years, less any required transfers to surplus.
Federal law also prohibits national banks from paying dividends that would be greater than the bank's undivided profits after
deducting statutory bad debt in excess of the bank's allowance for loan and lease losses. At December 31, 2015, there was $335.4
million of undistributed net income available for the payment of dividends by Webster Bank to Webster Financial Corporation.
Webster Bank paid Webster Financial Corporation $110.0 million in dividends during the year ended December 31, 2015.
In addition, Webster Financial Corporation and Webster Bank are subject to other regulatory policies and requirements relating
to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate
federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank
holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.
The appropriate banking agency authorities have indicated that paying dividends that deplete a bank's capital base to an inadequate
level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out
of current operating earnings.
Federal Reserve System
FRB regulations require depository institutions to maintain reserves against their transaction accounts, primarily interest-bearing
and regular checking accounts. Webster Bank's required reserves can be in the form of vault cash and, if vault cash does not fully
satisfy the required reserves, in the form of a balance maintained with the Federal Reserve Bank of Boston. FRB regulations
required for 2015 that reserves be maintained against aggregate transaction accounts except for transaction accounts which are
exempt up to $14.5 million. Transaction accounts greater than $14.5 million up to and including $103.6 million have a reserve
requirement of 3%. A 10% reserve ratio will be assessed on transaction accounts in excess of $103.6 million. The FRB generally
makes annual adjustments to the tiered reserves. Webster Bank is in compliance with these reserve requirements.
As a national bank and member of the Federal Reserve System, Webster Bank is required to hold capital stock of the Federal
Reserve Bank of Boston. The required shares may be adjusted up or down based on changes to Webster Bank's common stock
and paid-in surplus. Webster Bank was in compliance with these requirements, with a total investment in Federal Reserve Bank
of Boston stock of $50.7 million at December 31, 2015. The FRB paid an annual dividend of 6% in 2015.
4
Federal Home Loan Bank System
The Federal Home Loan Bank System provides a central credit facility for member institutions. Webster Bank is a member of the
Federal Home Loan Bank of Boston (“FHLB”). The Bank is required to purchase and hold shares of capital stock in the FHLB
in an amount equal to 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at
the beginning of each year, up to a maximum of $25.0 million. The Bank is also required to hold shares of capital stock in the
FHLB in amounts that vary from 3.0% to 4.5% of its advances, depending on the maturities of those advances. At December 31,
2015, the Bank had approximately $2.7 billion in FHLB advances. Webster Bank was in compliance with these requirements,
with a total investment in FHLB stock of $137.6 million at December 31, 2015. On October 29, 2015, the FHLB declared a
quarterly cash dividend equal to an annual yield of 3.32%.
Source of Strength Doctrine
FRB policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
Section 616 of the Dodd-Frank Act codified the requirement that bank holding companies act as a source of financial strength. As
a result, Webster Financial Corporation is expected to commit resources to support Webster Bank, including at times when Webster
Financial Corporation may not be in a financial position to provide such resources. Any capital loans by a bank holding company
to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary
banks. The U.S. bankruptcy code provides that, in the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to priority of payment.
In addition, under the National Bank Act, if the capital stock of Webster Bank is impaired by losses or otherwise, the OCC is
authorized to require payment of the deficiency by assessment upon Webster Financial Corporation. If the assessment is not paid
within three months, the OCC could order a sale of the Webster Bank stock held by Webster Financial Corporation to cover any
deficiency.
Capital Adequacy and Prompt Corrective Action
In July 2013, the FRB, the OCC, and the FDIC approved final rules (the “Capital Rules”) establishing a new comprehensive capital
framework for U.S. banking organizations. The Capital Rules generally implement the Basel Committee on Banking Supervision’s
(the “Basel Committee”) December 2010 final capital framework referred to as “Basel III” for strengthening international capital
standards. The Capital Rules revise the definitions and the components of regulatory capital, as well as address other issues affecting
the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also address asset risk weights and other matters
affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing general risk-weighting approach
with a more risk-sensitive approach.
The Capital Rules: (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital
ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments
meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to
CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as
compared to existing regulations. Under the Capital Rules, for most banking organizations, including Webster, the most common
form of Additional Tier 1 capital is non-cumulative perpetual preferred stock, and the most common forms of Tier 2 capital are
subordinated notes and a portion of the allocation for loan and lease losses, in each case, subject to the Capital Rules’ specific
requirements.
Pursuant to the Capital Rules, the minimum capital ratios effective January 1, 2015 are as follows:
•
•
•
•
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4.0% Tier 1 capital to adjusted quarterly average consolidated assets, as defined (called “leverage ratio”).
The Rules also introduce a new “capital conservation buffer,” composed entirely of CET1, in addition to these minimum risk-
weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking
institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face
constraints on dividends, equity, and other capital instrument repurchases and compensation based on the amount of the shortfall.
Thus, when fully phased-in on January 1, 2019, the capital standards applicable to Webster will include an additional capital
conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios inclusive of the capital conservation buffer of: (i)
CET1 to risk-weighted assets of at least 7%; (ii) Tier 1 capital to risk-weighted assets of at least 8.5%; and (iii) Total capital to
risk-weighted assets of at least 10.5%.
5
The Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement
that mortgage servicing assets, deferred tax assets arising from temporary differences that could not be realized through net
operating loss carrybacks, and significant investments in non-consolidated financial entities be deducted from CET1 to the extent
that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1. The deductions and
adjustments are being incrementally phased in between January 1, 2015 and January 1, 2018.
In addition, under the current general risk-based capital rules, the effects of accumulated other comprehensive income or loss
items included in shareholders’ equity (for example, mark-to-market of securities held in the available-for-sale portfolio) under
U.S. generally accepted accounting principles are reversed for the purposes of determining regulatory capital ratios. Pursuant to
the Capital Rules, the effects of certain of these items are not excluded; however, non-advanced approaches banking organizations,
including the Company, may make a one-time permanent election to continue to exclude these items. The Company made the
one-time permanent election to continue to exclude these items concurrently with the first filing of certain of Webster’s periodic
regulatory reports in 2015. This election will not affect Webster's ability to meet all capital adequacy requirements to which it is
subject.
The Capital Rules also preclude certain hybrid securities, such as trust preferred securities, from inclusion in bank holding
companies’ Tier 1 capital, subject to phase-out in the case of bank holding companies, such as Webster Financial Corporation, that
had $15 billion or more in total consolidated assets as of December 31, 2009. As of December 31, 2014, the Company had $75
million of trust preferred securities included in the Tier 1 capital for regulatory reporting purposes pursuant to the Federal Reserve’s
capital adequacy guidelines. The Capital Rules require the Company to phase out trust preferred securities from Tier 1 capital.
Excluding trust preferred securities from the Tier 1 capital will not affect Webster’s ability to meet all capital adequacy requirements
to which it is subject.
Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and are being phased in over a 4-year
period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital
conservation buffer will begin on January 1, 2016 at the 0.625% level and increase by 0.625% on each subsequent January 1, until
it reaches 2.5% on January 1, 2019.
With respect to Webster Bank, the Capital Rules revise the “prompt corrective action” (“PCA”) regulations adopted pursuant to
Section 38 of the Federal Deposit Insurance Act (“FDIA”), by: (i) introducing a CET1 ratio requirement at each PCA category
(other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the
minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being
8% (as compared to the Basel I 6%); and (iii) eliminating the provision that provides that a bank with a composite supervisory
rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Capital Rules do not change the total risk-based
capital requirement for any PCA category.
The Capital Rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the
four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending
on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity
exposures, and resulting in higher risk weights for a variety of asset classes.
Management believes Webster is in compliance, and will continue to be in compliance, with the targeted capital ratios as such
requirements are phased in.
Transactions with Affiliates and Insiders
Under federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the
Federal Reserve Act (“FRA”) and its implementing Regulation W. In a bank holding company context, at a minimum, the parent
holding company of a bank, and any companies which are controlled by such parent holding company, are affiliates of the bank.
Generally, sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from
transactions with non-insured affiliates by limiting the extent to which a bank or its subsidiaries may engage in covered transactions
with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms consistent
with safe and sound banking practices.
Further, Section 22(h) of the FRA and its implementing Regulation O restricts loans to directors, executive officers, and principal
stockholders (“insiders”). Under Section 22(h), loans to insiders and their related interests may not exceed, together with all other
outstanding loans to such persons and affiliated entities, the institution's total capital and surplus. Loans to insiders above specified
amounts must receive the prior approval of the board of directors. Further, under Section 22(h) of the FRA, loans to directors,
executive officers, and principal stockholders must be made on terms substantially the same as offered in comparable transactions
to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is
widely available to the bank's employees and does not give preference to the insider over the employees. Section 22(g) of the FRA
places additional limitations on loans to executive officers.
6
Consumer Protection and CFPB Supervision
The Dodd-Frank Act centralizes responsibility for consumer financial protection by creating the CFPB, an independent agency
charged with responsibility for implementing, enforcing, and examining compliance with federal consumer financial laws. The
Company is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors
of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt
Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices
Act, various state law counterparts, and the Consumer Financial Protection Act of 2010, which is part of the Dodd-Frank Act. The
Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products
and potential enforcement actions could also adversely affect the Company’s business, financial condition or operations.
On January 10, 2013, the CFPB issued a final rule implementing the ability-to-repay and qualified mortgage ("QM") provisions
of the Truth in Lending Act, as amended by the Dodd-Frank Act (the “QM Rule”). The ability-to-repay provision requires creditors
to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based
on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party
documents. Under the Dodd-Frank Act and the QM Rule, loans meeting the definition of “qualified mortgage” are entitled to a
presumption that the lender satisfied the ability-to-repay requirements. The presumption is a conclusive presumption/safe harbor
for prime loans meeting the QM requirements and a rebuttable presumption for higher-priced/subprime loans meeting the QM
requirements. The definition of a “qualified mortgage” incorporates the statutory requirements, such as not allowing negative
amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers
if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA, and VA underwriting guidelines may, for
a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits. The QM Rule
became effective on January 10, 2014. The CFPB is expected to continue to issue and amend rules implementing the consumer
financial protection laws, which may impact Webster Bank's operations.
Financial Privacy
Federal law and certain state laws currently contain client privacy protection provisions. These provisions limit the ability of banks
and other financial institutions to disclose non-public information about consumers to affiliated companies and non-affiliated third
parties. These rules require disclosure of privacy policies to clients and, in some circumstances, allow consumers to prevent
disclosure of certain personal information to affiliates or non-affiliated third parties by means of “opt out” or “opt in” authorizations.
Pursuant to the Gramm-Leach-Bliley Act (“GLBA”) and certain state laws, companies are required to notify clients of security
breaches resulting in unauthorized access to their personal information. In connection with the regulations governing the privacy
of consumer financial information, the federal banking agencies have also adopted guidelines for establishing information security
standards and programs to protect such information.
Depositor Preference
The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of
depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative
expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured
depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured,
non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such
insured depository institution.
Federal Deposit Insurance
The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account
a bank's capital level and supervisory rating. The risk matrix utilizes different risk categories distinguished by capital levels. As
a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible equity.
Assessment rates are calculated using formulas that take into account the risk of the institution being assessed.
Webster Bank's FDIC deposit insurance assessment expense totaled $24.0 million, $22.7 million, and $21.1 million for the years
ended December 31, 2015, 2014, and 2013, respectively. FDIC deposit insurance expense includes deposit insurance assessments
and Financing Corporation (“FICO”) assessments related to outstanding FICO bonds. FICO is a mixed-ownership government
corporation established by the Competitive Equality Banking Act of 1987 whose sole purpose was to function as a financing
vehicle for the now defunct Federal Savings & Loan Insurance Corporation.
The Dodd-Frank Act increased the FDIC’s deposit insurance limits to $250,000 per depositor, per insured bank, for each account
ownership category. The Dodd-Frank Act also changed the deposit insurance assessment base and increased the reserve ratio of
the Deposit Insurance Fund (“DIF”) to ensure the future strength of the DIF. Substantially all of the deposits of Webster Bank are
insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
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The Dodd-Frank Act also requires the FDIC to raise the minimum reserve ratio of the DIF from 1.15% to 1.35% by September
30, 2020. Further, the Dodd-Frank Act made banks with $10 billion or more in total assets responsible for this increase. In November
2015 the FDIC proposed regulations that would impose a surcharge of 4.5 cents per $100 on the assessment base, after making
certain adjustments on depository institutions with total consolidated assets of more than $10 billion. The proposed regulations
have not yet been finalized. Under a separate rule adopted by the FDIC in 2011, regular assessment rates for all banks will decline
when the DIF ratio reaches 1.15%, which the FDIC expects will occur in early 2016. If the regulations regarding the surcharge
are adopted in the form initially proposed, the FDIC deposit insurance assessment premiums paid by Webster Bank, will increase,
but the increase will be offset by the reduction in the regular assessment rate when the DIF reaches 1.15%. The FDIC also has
authority to further increase deposit insurance assessments.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC. Webster's management is not aware of any practice, condition, or violation that might lead to
the termination of its deposit insurance.
Incentive Compensation
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting
incentive-based payment arrangements at specified regulated entities, including Webster and Webster Bank, with at least $1 billion
in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. The federal
banking agencies and the SEC proposed such regulations in 2011, but the regulations have not yet been finalized. If the regulations
are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured.
The Dodd-Frank Act also requires publicly traded companies to give stockholders a non-binding vote on executive compensation
at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on
so-called “golden parachute” payments in connection with approvals of mergers and acquisitions. At its 2011 Annual Meeting of
Shareholders, Webster's shareholders voted on a non-binding, advisory basis to hold a non-binding, advisory vote on the
compensation of named executive officers of Webster annually. As a result of the vote, the Board of Directors determined to hold
the vote annually.
Community Reinvestment Act and Fair Lending Laws
Webster Bank has a responsibility under the CRA, as implemented by OCC regulations to help meet the credit needs of its
communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA. In connection with its examination, the OCC assesses
Webster Bank's record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act
prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Webster Bank's failure to
comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the activities of
Webster. Webster Bank's failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions against it by the OCC, as well as other federal regulatory agencies, including the CFPB and the Department
of Justice. Webster Bank's latest OCC CRA rating was “satisfactory.”
USA PATRIOT Act
Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers,
prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies.
Financial institutions also are required to respond to requests for information from federal banking regulatory authorities and law
enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption
granted to complying financial institutions from the privacy provisions of the GLBA and other privacy laws. Financial institutions
that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take
measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money
laundering concerns, and are prohibited from dealing with foreign “shell banks” and persons from jurisdictions of particular
concern. The primary federal banking regulators and the Secretary of the Treasury have adopted regulations to implement several
of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The
effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application
submitted by the financial institution under the Bank Merger Act. Webster has in place a Bank Secrecy Act and USA PATRIOT
Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.
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Office of Foreign Assets Control Regulation
The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals,
and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office
of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally,
they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including
prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging
in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned
country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have
an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S.
persons). Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without
a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Future Legislative Initiatives
From time to time, various legislative and regulatory initiatives are introduced by Congress, state legislatures, and financial
regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and/or
depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could
change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such
legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive
balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether
any such legislation will be enacted, and, if enacted, the effect that it or any implementing regulations would have on the financial
condition or results of operations of the Company. A change in statutes, regulations, or regulatory policies applicable to Webster
or any of its subsidiaries could have a material effect on the business of the Company.
Risk Management Framework
Webster’s Enterprise Risk Management (“ERM") framework provides a structured approach for identifying, assessing and
managing risks across the Company in a coordinated manner, including strategic and reputational risks, as well as, credit, market,
liquidity, capital, and operational risks as discussed in detail below.
The ERM framework enables the aggregation of risk across the enterprise and ensures the Company has the tools, programs and
processes in place to support informed decision making, anticipate risks before they materialize and maintain Webster's risk profile
consistent with its risk strategy and appetite.
Key components of the ERM framework include a culture that promotes proactive risk management by all Webster bankers, a
risk appetite framework, which is embedded in the corporate strategy and risk culture of the bank and consists of a risk appetite
statement and board and business-level scorecards with defined risk tolerance limits, and robust risk governance with effective
and credible challenge including three lines of defense to manage and oversee risk. Bankers in each line of business serve as the
first line of defense and have responsibility for identifying, managing and owning the risks in their businesses. Risk and other
corporate support functions (for example, Human Resources and Legal departments) serve as the second line of defense and are
responsible for providing guidance, oversight and appropriate challenge to the first line of defense. Internal Audit and Credit Risk
Review, both of which are independent of management, serve as the third line of defense and ensure that appropriate risk
management controls, processes and systems are in place and functioning effectively.
The Risk Committee of the Board of Directors (“Risk Committee”), comprised of independent directors, oversees all Webster's
risk-related matters and provides input and guidance to the Board of Directors and the Executive team, as appropriate. Webster's
ERM Committee (“ERMC”), which reports directly to the Risk Committee, is chaired by the Chief Risk Officer ("CRO") and is
comprised of members of Webster's Executive Management Committee and Senior Risk Officers.
The CRO is responsible for establishing and maintaining the Company's ERM framework and overseeing credit risk, operational
risk, compliance risk, Bank Secrecy Act and loan workout/recovery programs. The Corporate Treasurer, who reports to the Chief
Financial Officer ("CFO"), is responsible for overseeing market, liquidity, and capital risk management activities.
Credit Risk
Webster manages and controls credit risk in its loan and investment portfolios through established underwriting practices, adherence
to standards, and utilization of various portfolio and transaction monitoring tools and processes. Credit policies and underwriting
guidelines provide limits on exposure and establish various other standards as deemed necessary and prudent. Additional approval
requirements and reporting are implemented to ensure proper risk identification, decision rationale, risk ratings, and disclosure of
policy exceptions.
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Credit Risk Management ("CRM") policies and transaction approvals are managed under the supervision of the Chief Credit
Officer (“CCO”) who reports to the CRO. The CCO and team of credit executives are independent of the loan production and
Treasury areas. The credit risk function oversees the underwriting, approval and portfolio management process, establishes and
ensures adherence to credit policies, and manages the collections and problem asset resolution activities.
As part of CRM governance, Webster established a CRM Committee ("CRMC") that meets regularly to review key credit risk
topics, issues, and policies. The CRMC reviews Webster's credit risk scorecard, which covers key risk indicators and limits
established as part of the Company's risk appetite framework. The CRMC is chaired by the CCO and includes senior managers
responsible for lending as well as senior managers from the CRM function. Important findings regarding credit quality and trends
within the loan and investment portfolios are regularly reported by the CCO to the ERMC and Risk Committee.
In addition to the CRM team, there is an independent Credit Risk Review function that assesses risk ratings and credit underwriting
process for all areas of the organization that incur credit risk. The head of Credit Risk Review reports directly to the Risk Committee
and administratively to the CRO. Credit Risk Review findings are reported to the CRMC, ERMC and Risk Committee. Corrective
measures are monitored and tested to ensure risk issues are mitigated or resolved.
Market Risk
Market risk refers to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity
prices, and other relevant market rates and prices, such as equity prices. The risk of loss is assessed from the perspective of adverse
changes in fair values, cash flows, and future earnings. Due to the nature of its operations, Webster is primarily exposed to interest
rate risk. Webster's interest rate sensitivity is monitored on an ongoing basis by its Asset and Liability Committee (“ALCO”).
ALCO's primary goal is to manage interest rate risk to maximize earnings and net economic value in changing interest rate and
business environments within risk appetite limits approved by the Board of Directors. ALCO is chaired by Webster's Corporate
Treasurer and members include the CEO, CFO and CRO. ALCO activities and findings are regularly reported to the ERMC, Risk
Committee and Board of Directors.
Liquidity Risk
Liquidity risk refers to the ability to meet a demand for funds by converting assets into cash or cash equivalents and by increasing
liabilities at acceptable costs. Liquidity management of Webster Bank involves maintaining the ability to meet day-to-day and
longer-term cash flow requirements of customers, whether they are depositors wishing to withdraw funds or borrowers requiring
funds to meet their credit needs. Sources of funds include deposits, borrowings, or sales of assets such as unencumbered investment
securities.
Webster requires funds for dividends to shareholders, payment of debt obligations, repurchase of shares, potential acquisitions,
and for general corporate purposes. Its sources of funds include dividends from Webster Bank, income from investment securities,
the issuance of equity, and debt in the capital markets.
Both Webster and Webster Bank maintain a level of liquidity necessary to achieve their business objectives under both normal
and stressed conditions. Liquidity risk is monitored and managed by ALCO and reviewed regularly with the ERMC, Risk Committee
and Board of Directors.
Capital Risk
Webster aims to maintain adequate capital in both normal and stressed environments to support its business objectives and risk
appetite. ALCO monitors regulatory and tangible capital levels according to regulatory requirements and management operating
ranges and recommends capital conservation, generation, and/or deployment strategies. ALCO also has responsibility for the
annual capital plan, capital ratio range setting, contingency planning and stress testing, which are all reviewed and approved by
the Risk Committee and Board of Directors at least annually.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events, such as fraud, cyber-attacks, or natural disasters. The Operational Risk function is responsible for establishing processes
and tools to identify, manage, and aggregate operational risk across the organization; providing guidance and advice on operational
risk matters; and educating the organization on operational risks. Specific programs and functions have been implemented to
manage the risks associated with legal and regulatory requirements, suppliers and other third-parties, information security, business
disruption, fraud, analytical and forecasting models, and new products and services.
Webster's Operational Risk Management Committee ("ORMC"), which consists of senior risk officers and senior managers
responsible for operational risk management to periodically review the aforementioned programs, key operational risk trends,
concerns, and mitigation best practices. The ORMC is chaired by the Director of Operating Risk Management, who is responsible
for overseeing Webster's operational risk management framework.
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Internal Audit
Internal Audit provides an independent and objective assessment of the design and execution of internal controls for all major
business units and operations throughout Webster, including our management systems, risk governance, and policies and
procedures. Internal Audit activities are designed to provide reasonable assurance that resources are safeguarded so that significant
financial, managerial and operating information is complete, accurate and reliable, and that employee actions comply with our
policies and applicable laws and regulations.
Results of Internal Audit reviews are reported to management and the Audit Committee of the Board of Directors. Corrective
measures are monitored to ensure risk issues are mitigated or resolved. The General Auditor reports directly to the Audit Committee
and administratively to the Chief Executive Officer. The appointment or replacement of the General Auditor is overseen by the
Audit Committee.
Additional information on risks and uncertainties and additional factors that could affect the Company's results of operations can
be found in Item 1A and elsewhere within this Form 10-K for the year ended December 31, 2015 and in other reports filed by
Webster Financial Corporation with the SEC.
ITEM 1A. RISK FACTORS
An investment in our securities involves risks, some of which are inherent in the financial services industry and others of which
are more specific to our business. The discussion below addresses the material risks and uncertainties, of which we are currently
aware, that could affect our business, results of operations and financial condition. Before making an investment decision, you
should carefully consider the risks and uncertainties described below together with all of the other information included or
incorporated by reference in this report. If any of the events or circumstances described in the following risks actually occurs, our
business, financial condition or results of operations could suffer.
Risks Relating to the Economy, Financial Markets, Interest Rates and Liquidity.
Difficult conditions in the economy and the financial markets may have a materially adverse effect on our business, financial
condition and results of operations.
Our financial performance is highly dependent upon the business environment in the markets where we operate and in the United
States as a whole. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth,
decreases in business activity, weakening of investor or business confidence, limitations on the availability or increases in the cost
of credit and capital, increases in inflation, changes in interest rates, high unemployment, natural disasters or a combination of
these or other factors.
In particular, we may face the following risks in connection with the current economic and market environment:
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economic and market developments may affect consumer and business confidence levels and may cause declines in credit
usage and adverse changes in payment patterns, causing increases in delinquencies and default rates;
our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select,
manage, and underwrite our customers become less predictive of future behaviors;
• we could suffer decreases in customer desire to do business with us, whether as a result of a decreased demand for loans
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or other financial products and services or decreased deposits or other investments in accounts with us; and
competition in our industry could intensify as a result of the increasing consolidation of financial services companies in
connection with current market conditions, or otherwise.
The business environment in the U.S. has experienced volatility in recent years and may continue to do so for the foreseeable
future. There can be no assurance that economic conditions will not worsen. Difficult economic conditions could adversely affect
our business, results of operations and financial condition.
Changes in local economic conditions could adversely affect our business.
A significant percentage of our mortgage loans are secured by real estate in the State of Connecticut. Our success depends in part
upon economic conditions in this and our other geographic markets. Adverse changes in such local markets could reduce our
growth in loans and deposits, impair our ability to collect our loans, increase problem loans and charges-offs, and otherwise
negatively affect our performance and financial condition.
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The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other
financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other
relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and
hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial
services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to
losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our
counterparty or client. In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated
at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such
losses would not materially and adversely affect our business, financial condition or results of operations.
Changes in interest rates and spreads could have an impact on earnings and results of operations which could have a negative
impact on the value of our stock.
Our consolidated earnings and financial condition are dependent to a large degree upon net interest income, which is the difference
between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate
spreads could adversely affect our earnings and financial condition. We cannot predict with certainty or control changes in interest
rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the Federal
Reserve Board, affect interest income and interest expense. While we have ongoing policies and procedures designed to manage
the risks associated with changes in market interest rates, changes in interest rates still may have an adverse effect on our profitability.
For example, high interest rates could affect the amount of loans that we can originate because higher rates could cause customers
to apply for fewer mortgages, or cause depositors to shift funds from accounts that have a comparatively lower cost to accounts
with a higher cost, or experience customer attrition due to competitor pricing. If the cost of interest-bearing deposits increases at
a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the
asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay
and floating or adjustable rate assets to reset to lower rates. If we are not able to reduce our funding costs sufficiently, due to either
competitive factors or the maturity schedule of existing liabilities, then our net interest margin will decline.
We may not pay dividends if we are not able to receive dividends from our subsidiary, Webster Bank.
We are a separate and distinct legal entity from our banking and non-banking subsidiaries and depend on the payment of cash
dividends from Webster Bank and our existing liquid assets as the principal sources of funds for paying cash dividends on our
common stock. Unless we receive dividends from Webster Bank or choose to use our liquid assets, we may not be able to pay
dividends. Webster Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory
requirements. See “Supervision and Regulation—Dividends” for a discussion of regulatory and other restrictions on dividend
declarations.
Our stock price can be volatile.
Stock price volatility may negatively impact the price at which our common stock may be sold, and may also negatively impact
the timing of any sale. Our stock price can fluctuate widely in response to a variety of factors including, among other things:
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actual or anticipated variations in quarterly operating results;
recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services industry;
new technology used, or services offered, by competitors;
perceptions in the marketplace regarding us and/or our competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
additional investments from third parties;
issuance of additional shares of stock;
changes in government regulations; or
geo-political conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, could also cause our stock price to
decrease regardless of our operating results.
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Regulatory, Compliance, Environmental and Legal Risks
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business
and may negatively impact our financial results.
We, primarily through Webster Bank and certain non-bank subsidiaries, are subject to extensive federal and state regulation and
supervision. Banking regulations are intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and
soundness of the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure,
investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review
banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including
changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable
ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or
limit the pricing we may charge on certain banking services, among other things. Additionally, the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”) has and will continue to change the current bank regulatory structure and
affect the lending, investment, trading and operating activities of financial institutions and their holding companies. Since the
global financial crisis, financial institutions generally have been subject to increased scrutiny from regulatory authorities. Recent
changes to the legal and regulatory framework governing our operations, including the passage and continued implementation of
the Dodd-Frank Act, have drastically revised the laws and regulations under which we operate. In general, bank regulatory agencies
have increased their focus on risk management and customer compliance, and we expect this focus to continue. Additional
compliance requirements are likely and can be costly to implement. Compliance personnel and resources may increase our costs
of operations and adversely impact our earnings.
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/
or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations.
While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations
will not occur. See the section captioned “Supervision and Regulation” in Item 1 of this report for further information.
We are subject to financial and reputational risks from potential liability arising from lawsuits.
The nature of our business ordinarily results in a certain amount of claims and legal action. Whether claims and related legal action
are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us they may result in significant
financial liability and/or adversely affect our market perception, the products and services we offer, as well as impact customer
demand for those products and services. We assess our liabilities and contingencies in connection with outstanding legal proceedings
as well as certain threatened claims utilizing the latest and most reliable information valuable. For matters where a loss is not
probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable we will incur
a loss and the amount can be reasonably estimated, we establish an accrual for the loss. Once established, the accrual is adjusted
periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings or threatened claims,
however, may turn out to be substantially higher than the amount accrued. These costs adversely affect our business, results of
operations and prospects.
We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.
A large portion of our loan portfolio is secured by real estate. In the course of our business, we may foreclose and take title to real
estate and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government
entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection
with environmental contamination, or may be required to clean up hazardous or toxic substances, or chemical releases at a property.
The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former
owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting
from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results
of operations and prospects.
Proposed health care reforms could adversely affect our HSA Bank division and our revenues, financial position and our
results of operations.
The enactment of health care reforms affecting health savings accounts at the federal or state level may affect our HSA Bank
division, which is a bank custodian of health savings accounts. We cannot predict if any such reforms will ultimately become law,
or, if enacted, what their terms or the regulations promulgated pursuant to such laws will be. Any health care reforms enacted may
be phased in over a number of years but, if enacted, could, with respect to the operations of HSA Bank, reduce our revenues,
increase our costs, and require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition,
our results of operations, financial position, and cash flows could be materially adversely affected by such changes.
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Risks Relating to the Competitive Environment in which We Operate
We operate in a highly competitive industry and market area. If we fail to compete effectively, our financial condition and
results of operations may be materially adversely affected.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger
and may have more financial resources than we do. Such competitors primarily include national, regional, and community banks
within the various markets in which we operate. We also face competition from many other types of financial institutions, including,
without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies
and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative,
regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible
for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment
systems. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer
a broader range of products and services than we do, as well as better pricing for those products and services.
Our ability to compete successfully depends on a number of factors, including, among other things:
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the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical
standards and safe, sound assets;
the ability to expand market position;
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our
growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
We may not be able to attract and retain skilled people.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities
in which we engage can be intense and we may not be able to hire people or to retain them. The unexpected loss of services of
one or more of our key personnel could have a material adverse impact on the business because we would lose their skills, knowledge
of the market, years of industry experience and may have difficulty promptly finding qualified replacement personnel.
Risks Relating to Risk Management
We continually encounter technological change. The failure to understand and adapt to these changes could negatively impact
our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-
driven products and services. The effective use of technology can increase efficiency and enable financial institutions to better
serve customers and to reduce costs. However, some new technologies needed to compete effectively result in incremental operating
costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide
products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our
competitors, because of their larger size and available capital, have substantially greater resources to invest in technological
improvements. We may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the
financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results
of operations.
New lines of business or new products and services may subject us to additional risks. A failure to successfully manage these
risks may have a material adverse effect on our business.
From time to time, we may implement new lines of business, offer new products and services within existing lines of business or
shift our asset mix. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and/or new products and services and/or
shifting asset mix, we may invest significant time and resources. Initial timetables for the introduction and development of new
lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable.
External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact
the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/
or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to
successfully manage these risks in the development and implementation of new lines of business or new products or services could
have a material adverse effect on our business, results of operations and financial condition.
14
A failure or breach of our systems, or those of our third party vendors and other service providers, including as a result of
cyber attacks, could disrupt our businesses, result in the misuse of confidential or proprietary information, damage our
reputation, increase our costs and cause losses.
As a large financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions,
and customer, public and regulatory expectations regarding operational and information security have increased over time.
Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures,
disruptions and breakdowns. Our business, financial, accounting, data processing systems or other operating systems and facilities
may stop operating properly or become disabled as a result of a number of factors that may be wholly or partially beyond our
control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages;
natural disasters; pandemics; events arising from political or social matters, including terrorist acts; and cyber attacks. Although
we have business continuity plans and believe we have robust information security procedures and controls in place, disruptions
or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security
breaches of the networks, systems or devices on which customers’ personal information is stored and that our customers use to
access our products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage,
reimbursement or other compensation costs, and/or additional compliance costs, which could materially adversely affect our results
of operations and financial condition.
Third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial
intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and
information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.
Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches,
there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened
and as a result the continued development and enhancement of our controls, processes and practices designed to protect our systems,
computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. As an additional
layer of protection, we have purchased network and privacy liability risk insurance coverage which includes digital asset loss,
business interruption loss, network security liability, privacy liability, network extortion and data breach coverage. As cyber threats
continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate
and remediate any information security vulnerabilities.
We recognize that there is increasing risk that an event could occur and therefore have a high priority focus on our resiliency or
recovery processes. Our Crisis and Incident Response process identifies and considers the various scenarios that could occur, and
we will continue to carry out scenario specific tests across the enterprise.
Disruptions in services provided by third-party vendors that we rely on may result in a material adverse effect on our business.
We rely on third-party vendors to provide products and services necessary to maintain day-to-day operations. For example, we
are dependent on our vendor-provided core banking processing systems to process a large number of increasingly complex
transactions. Accordingly, we are exposed to the risk that these vendors might not perform in accordance with the contracted
arrangements or service level agreements because of changes in the vendor’s organizational structure, financial condition, support
for existing products and services or strategic focus or for any other reason. Such failure to perform could be disruptive to our
operations, which could have a materially adverse impact on our business, results of operations and financial condition. In addition
we require third-party outsourced service providers to have Business Continuity and Disaster Recovery Plans that are aligned with
our overall recovery plans.
Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance
policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and
can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of
the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse
effect on our business, results of operations and financial condition.
We face risks in connection with completed or potential acquisitions.
From time to time we may evaluate expansion through the acquisition of banks or branches, or other financial businesses or assets.
Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among
other things:
• The possible loss of key employees and customers of the target;
•
•
•
•
Potential disruption of the target business;
Potential changes in banking or tax laws or regulations that may affect the target business;
Potential exposure to unknown or contingent liabilities of the target; and
Potential difficulties in integrating the target business into our own.
15
Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of the
Corporation’s tangible book value and net income per common share may occur in connection with any future transaction.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or
other projected benefits from an acquisition could have a material adverse effect on the Corporation’s business, financial condition
and results of operations.
Risks Relating to Accounting Estimates
Our allowance for loan and lease losses may be insufficient.
Our business is subject to periodic fluctuations based on national and local economic conditions. These fluctuations are not
predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition. For example,
declines in housing activity including declines in building permits, housing starts and home prices, may make it more difficult for
our borrowers to sell their homes or refinance their debt. Sales may also slow, which could strain the resources of real estate
developers and builders. We may suffer higher loan and lease losses as a result of these factors and the resulting impact on our
borrowers. Recent economic uncertainty continues to affect employment levels and impact the ability of our borrowers to service
their debt. Bank regulatory agencies also periodically review our allowance for loan and lease losses and may require an increase
in the provision for loan and lease losses or the recognition of further loan charge-offs, based on judgments different than those
of management. In addition, if charge-offs in future periods exceed the allowance for loan and lease losses, we may need, depending
on an analysis of the adequacy of the allowance for loan and lease losses, additional provisions to increase the allowance for loan
losses. Any increases in the allowance for loan and lease losses will result in a decrease in net income and, possibly, capital, and
may have a material adverse effect on our financial condition and results of operations.
If our goodwill and intangible assets are determined to be impaired it could have a negative impact on our profitability.
Applicable accounting standards require that the purchase method of accounting be used for all business combinations. Under
purchase accounting, if the purchase price of an acquired company exceeds the fair value of the acquired company’s net assets,
the excess is carried on the acquirer's balance sheet as goodwill. A significant decline in our expected future cash flows, a continuing
period of market disruption, market capitalization to book value deterioration, or slower growth rates may require us to record
charges in the future related to the impairment of our goodwill and intangible assets. There can be no assurance that future
evaluations of goodwill and intangible assets will not result in findings of impairment and related write-downs. If we were to
conclude that a future write-down is necessary, we would record the appropriate charge, which may have a material adverse effect
on our financial condition and results of operations.
If all or a significant portion of the unrealized losses in our portfolio of investment securities were determined to be other-
than-temporarily impaired, we would recognize a material charge to our earnings and our capital ratios would be adversely
impacted.
When the fair value of a security declines, management must assess whether that decline is other-than-temporary. When
management reviews whether a decline in fair value is other-than-temporary, it considers numerous factors, many of which involve
significant judgment. No assurance can be provided that the amount of the unrealized losses will not increase.
To the extent that any portion of the unrealized losses in our portfolio of investment securities is determined to be other-than-
temporarily impaired, we will recognize a charge to our earnings in the quarter during which such determination is made and our
capital ratios will be adversely impacted. If any such charge is deemed significant, a rating agency might downgrade our credit
rating or put us on a credit watch. A downgrade or a significant reduction in our capital ratios might adversely impact our ability
to access the capital markets or might increase our cost of capital. Even if we do not determine that the unrealized losses associated
with the investment portfolio require an impairment charge, increases in such unrealized losses adversely impact the tangible
common equity ratio, which may adversely impact credit rating agency and investor sentiment. Any such negative perception also
may adversely impact our ability to access the capital markets or might increase our cost of capital.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
16
ITEM 2. PROPERTIES
The Company maintains its headquarters in Waterbury, Connecticut. This owned facility houses the Company's executive and
primary administrative functions, as well as the principal banking headquarters of Webster Bank. The Company considers its
properties are suitable and adequate for present needs.
In addition to the property noted above, the Company's segments maintain the following offices, all of which are either located
at facilities shared with Webster Bank or are leased. Lease expiration dates vary, up to 72 years, with renewal options for 1 to 25
years. For additional information regarding leases and rental payments see Note 20: Commitments and Contingencies in the Notes
to Consolidated Financial Statements contained elsewhere in this report.
Community Banking
The Community Banking segment maintains the following banking centers:
Location
Connecticut
Massachusetts
Rhode Island
New York
Total banking centers
Commercial Banking
Leased
79
8
9
8
104
Owned
43
12
4
—
59
Total
122
20
13
8
163
The Commercial Banking segment maintains offices across a footprint that primarily ranges from Boston, Massachusetts to
Washington D.C. Significant properties include but are not limited to offices in: Hartford, New Haven, Stamford, and Waterbury,
Connecticut; New York and White Plains, New York; Conshohocken, Pennsylvania; and Providence, Rhode Island.
Also included in the Commercial Bank are the subsidiaries Webster Capital Finance with headquarters in Kensington, Connecticut
and Webster Business Credit Corporation with headquarters in New York, New York and offices in: Baltimore, Maryland; Boston,
Massachusetts; Conshohocken, Pennsylvania; and New Milford, Connecticut.
Private Banking
The Private Banking segment is headquartered in Stamford, Connecticut with offices in: Hartford, Connecticut; New Haven,
Connecticut; Waterbury, Connecticut; Greenwich, Connecticut; Wilton, Connecticut; Boston, Massachusetts; White Plains, New
York; and Providence, Rhode Island.
HSA Bank
HSA Bank is headquartered in Milwaukee, Wisconsin with an office in Sheboygan, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Webster and its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of
business. Management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will
not be material to Webster or its consolidated financial position. Webster establishes an accrual for specific legal matters when it
determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Legal proceedings are
subject to inherent uncertainties, and unfavorable rulings could occur that could cause Webster to adjust its litigation accrual or
could have, individually or in the aggregate, a material adverse effect on its business, financial condition, or operating results.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Webster Financial Corporation's common shares trade on the New York Stock Exchange under the symbol “WBS.”
The following table sets forth the high and low intra-day sales prices per share of Webster' Financial Corporation's common stock
and the cash dividends declared per share:
Fourth quarter
Third quarter
Second quarter
First quarter
2015
2014
High
Low
Cash
Dividends
Declared
High
Low
Cash
Dividends
Declared
$ 40.72
$ 34.17
$
40.60
41.34
37.38
30.97
34.88
29.02
0.23
0.23
0.23
0.20
$ 33.32
$ 26.53
$
32.49
31.91
32.67
27.77
28.21
28.71
0.20
0.20
0.20
0.15
On January 26, 2016, Webster Financial Corporation’s Board of Directors declared a quarterly dividend of $0.23 per share.
On February 12, 2016, there were 6,421 shareholders of record as determined by Broadridge, the Company’s transfer agent.
Restrictions on Dividends
Holders of Webster Financial Corporation's common stock are entitled to receive such dividends as the Board of Directors may
declare out of funds legally available for such payments. Webster Financial Corporation, as a bank holding company, is dependent
on dividend payments from Webster Bank for its legally available funds. The Bank paid the holding company $110.0 million in
dividends during the year ended December 31, 2015.
The Bank’s ability to make dividend payments to the holding company is subject to certain regulatory and other requirements.
Under OCC regulations, subject to the Bank meeting applicable regulatory capital requirements before and after payment of
dividends, the Bank may declare a dividend, without prior regulatory approval, limited to net income for the current year to date
as of the declaration date, plus undistributed net income from the preceding two years. At December 31, 2015, Webster Bank was
in compliance with all applicable minimum capital requirements, and there was $335.4 million of undistributed net income available
for the payment of dividends by the Bank to the holding company.
Under the regulations, the OCC may grant specific approval permitting divergence from the requirements and also has the discretion
to prohibit any otherwise permitted capital distribution on general safety and soundness grounds. In addition, the payment of
dividends is subject to certain other restrictions, none of which is expected to limit any dividend policy that the Board of Directors
may in the future decide to adopt.
If the capital of Webster is diminished by depreciation in the value of its property, by losses, or otherwise, to an amount less than
the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the
distribution of assets, no dividends may be paid out of net profits until such deficiency has been repaired. See the “Supervision
and Regulation” section contained elsewhere in this report for additional information on dividends.
Webster Financial Corporation has 5,060,000 outstanding Depository Shares, each representing 1/1000th interest in a share of
6.40% Series E Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $25,000
per share, or $25 per depository share ("Series E Preferred Stock"). The Series E Preferred Stock is redeemable at Webster Financial
Corporation's option, in whole or in part, on December 15, 2017, or any dividend payment date thereafter, or in whole but not in
part, upon a "regulatory capital treatment event" as defined in the Prospectus Supplement. The terms of the Series E Preferred
Stock prohibit the holding company from declaring or paying any cash dividends on its common stock, unless the holding company
has declared and paid full dividends on the Series E Preferred Stock for the most recently completed dividend period.
Exchanges of Registered Securities
Registered securities are exchanged as part of employee and director stock compensation plans.
Recent Sales of Unregistered Securities
No unregistered securities were sold by Webster during the year ended December 31, 2015.
18
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of equity securities for Webster Financial Corporation's
common stock made by or on behalf of Webster or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities
Exchange Act of 1934, during the three months ended December 31, 2015:
Period
October 1-31, 2015
November 1-30, 2015
December 1-31, 2015
Total
Total
Number of
Shares
Purchased (1)
Average Price
Paid Per
Share
21,999
$
1,326
1,833
25,158
36.90
39.47
38.63
37.16
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Dollar Amount
Available for
Repurchase
Under the Plans
or Programs (1)
Total
Number of
Warrants
Purchased (2)
Average Price
Paid Per
Warrant
— $
26,695,115
—
—
—
26,695,115
26,695,115
26,695,115
$
—
—
—
—
—
—
—
—
(1) On December 6, 2012, the Company announced that its Board of Directors had approved the current stock repurchase program which
authorizes management to repurchase, in open market or privately negotiated transactions, subject to market conditions and other
factors, up to a maximum of $100 million of common stock, and will remain in effect until fully utilized or until modified, superseded,
or terminated.
All 25,158 shares repurchased were purchased outside of the repurchase program, at market prices, to fund equity compensation plans.
(2) On June 3, 2011, the Company announced that, with approval from its Board of Directors, it had repurchased a significant number
of the warrants issued as part of Webster's participation in the U.S. Treasury's Capital Purchase Program in a public auction conducted
on behalf of the U.S. Treasury. The Board approved plan provides for additional repurchases from time-to-time, as permitted by
securities laws and other legal requirements. There remain 63,344 outstanding warrants to purchase a share (1:1) of the Company's
common stock, which carry an exercise price of $18.28 per share and expire on November 21, 2018.
19
Performance Graph
The performance graph compares Webster’s cumulative shareholder return on its common stock over the last five fiscal years to
the cumulative total return of the Standard & Poor’s 500 Index (“S&P 500 Index”) and the Keefe, Bruyette & Woods Regional
Banking Index (“KRX Index”). The KRX Index is used as the industry index because Webster believes it provides a representative
comparison and appropriate benchmark against which to measure relative bank stock performance.
Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) for the measurement period
plus share price change for a period by the share price at the beginning of the measurement period. Webster’s cumulative shareholder
return over a five-year period is based on an initial investment of $100 on December 31, 2010.
Comparison of Five Year Cumulative Total Return Among Webster, S&P 500 Index, KRX Index
Period Ending
Webster Financial Corporation
S&P 500 Index
KRX Index
12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015
208
107 $
$
181
118 $
$
171
107 $
$
166 $
157 $
158 $
100 $
100 $
100 $
177 $
178 $
162 $
104 $
102 $
95 $
20
ITEM 6. SELECTED FINANCIAL DATA
The required information is set forth below, in Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, see the section captioned "Results of Operations," which is incorporated herein by reference.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of Webster Financial
Corporation and Notes thereto contained elsewhere in this report (collectively, the “Consolidated Financial Statements”).
Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 (the “Act”). Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects;”
“intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” “plans,” “estimates,” and similar references to future periods;
however, such words are not the exclusive means of identifying such statements.
Examples of forward-looking statements include, but are not limited to:
•
•
•
•
projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items;
statements of plans, objectives and expectations of Webster or its management or Board of Directors;
statements of future economic performance; and
statements of assumptions underlying such statements.
Forward-looking statements are based on Webster’s current expectations and assumptions regarding its business, the economy
and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. Webster’s actual results may differ materially from those
contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of
future performance.
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited
to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
local, regional, national and international economic conditions and the impact they may have on us and our customers
and our assessment of that impact;
volatility and disruption in national and international financial markets;
government intervention in the U.S. financial system;
changes in the level of non-performing assets and charge-offs;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and
accounting requirements;
adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio;
inflation, interest rate, securities market and monetary fluctuations;
the timely development and acceptance of new products and services and perceived overall value of these products and
services by customers;
changes in consumer spending, borrowings and savings habits;
technological changes and cyber-security matters;
the ability to increase market share and control expenses;
changes in the competitive environment among banks, financial holding companies and other financial services providers;
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and
insurance) with which we and our subsidiaries must comply, including the Dodd-Frank Act and the Capital Rules;
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the
Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard
setters;
the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or
other governmental inquiries and the results of regulatory examinations or reviews; and
our success at managing the risks involved in the foregoing items.
Any forward-looking statements made by the Company in this Annual Report on Form 10-K speaks only as of the date they are
made. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible
for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or otherwise, except as may be required by law.
21
Critical Accounting Policies and Accounting Estimates
The Company's significant accounting policies, as described in the Notes to Consolidated Financial Statements, are fundamental
to understanding its results of operations and financial condition. As disclosed in Note 1: Summary of Significant Accounting
Policies, the preparation of Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles
requires management to make judgments and accounting estimates that affect the amounts reported in the Consolidated Financial
Statements and the accompanying Notes. While the Company bases estimates on historical experience, current information and
other factors deemed to be relevant, actual results could differ materially from those estimates.
Accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible
to significant change. Critical accounting policies are defined as those that are most important to the portrayal of the Company's
financial condition and results of operation and require the most difficult, subjective and complex judgment, and could potentially
result in materially different results under different assumptions and conditions. The Company has classified four policies as
critical because they require management to make difficult, subjective and complex judgments about matters that are inherently
uncertain and because it is likely that materially different amounts would be reported under different conditions or using different
assumptions. These policies which have been identified by management and discussed with the appropriate committees of the
Board of Directors govern:
• Allowance for Loan and Lease Losses;
•
Fair Value Measurements;
• Goodwill Valuation; and
•
Income Taxes.
The following is a summary of the Company's critical accounting policies and accounting estimates.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is a reserve established through a provision for credit losses charged to expense, which
represents management’s best estimation of probable losses that are inherent within the Company’s portfolio of loans and leases
as of the balance sheet date. The allowance for loan and lease losses is based on guidance provided in SEC Staff Accounting
Bulletin No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues” and includes amounts calculated in
accordance with Accounting Standards Codification ("ASC") Topic 310, “Receivables” and allowance allocation calculated in
accordance with ASC Topic 450, “Contingencies.”
The level of the allowance for loan and lease losses reflects management’s judgment based on continuing evaluation of industry
concentrations, specific credit risks, loss experience, current portfolio quality, present economic, political, and regulatory conditions
and inherent risks not captured in quantitative modeling and methodologies, as well as trends therein. This allowance balance may
be allocated for specific portfolio credits; however, the entire allowance balance is available for any credit that, in management’s
judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy
of the allowance for loan and lease losses is dependent upon a variety of factors beyond the Company’s control, including
performance of the Company’s loan portfolio, the economy, changes in interest rates, and regulatory authorities altering their loan
classification guidance.
Composition of the allowance for loan and lease losses is more fully illustrated in Note 4: Loans and Leases in the Notes to
Consolidated Financial Statements contained elsewhere in this report.
Fair Value Measurements
The Company records certain assets and liabilities at fair value in the Consolidated Financial Statements. 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, as defined by applicable accounting guidance.
To increase consistency and comparability in fair value measures, management adheres to the three-level hierarchy established to
prioritize the inputs used in valuation techniques, which consists of: (i) unadjusted quoted prices in active markets for identical
assets or liabilities that the reporting entity has the ability to access at the measurement date; (ii) inputs other than quoted prices
that are directly or indirectly observable for the asset or liability; and (iii) inputs that are not observable, rather are reliant upon
pricing models and techniques that require significant management judgment or estimation. All assets and liabilities recorded at
fair value are categorized both on a recurring and nonrecurring basis into the above three levels. At the end of each quarter,
management assesses the valuation hierarchy for each asset or liability and, as a result, assets or liabilities may be transferred
between hierarchy levels due to changes in availability of observable market inputs used to measure fair value at that measurement
date.
22
When observable market prices are not available, fair value is estimated using modeling techniques such as discounted cash flow
analysis. These modeling techniques utilize assumptions that market participants would use in pricing the asset or liability, including
assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and
the risk of nonperformance. Depending on the nature of the asset or liability, the Company uses various valuation techniques and
assumptions when estimating the instrument’s fair value. In addition, changes in legislation or regulatory environment could further
impact these assumptions.
Information for financial instruments measured at fair value on a recurring basis is as follows:
Financial Instrument
Available for sale
securities
Hierarchy
Level 2
Derivative instruments
Level 2
Goodwill Valuation
Valuation Methodology
Consists of agency collateralized mortgage obligations, agency mortgage-backed securities,
agency commercial mortgage-backed securities, non-agency commercial mortgage-backed
securities, collateralized loan obligations, corporate debt, and single-issuer trust preferred
securities, for which quoted market prices are not available. Management employs an
independent pricing service that utilizes matrix pricing to calculate fair value. This fair value
measurement considers observable data such as dealer quotes, dealer price indications,
market spreads, credit information, and the respective terms and conditions for debt
instruments. Procedures are in place to monitor assumptions and establish processes to
challenge valuations received from pricing services that appear unusual or unexpected.
Consists of interest rate swaps and mortgage banking derivatives. Management uses readily
observable market parameters to value these contracts. Further, for interest rate swaps, third-
party consultants are utilized.
Goodwill represents the excess purchase price of businesses acquired over the fair value, at acquisition, of the identifiable net
assets acquired and is assigned to specific reporting units. Goodwill is evaluated for impairment, at least annually, in accordance
with ASC Topic 350, "Intangibles - Goodwill and Other." Quarterly, an assessment of potential triggering events is performed and
should events or circumstances be present that, more likely than not, would reduce the fair value of a reporting unit below its
carrying value, the Company would then evaluate: periods of market disruption; market capitalization to book value erosion;
financial services industry-wide factors; geo-economic factors, and internally developed forecasts to determine if its recorded
goodwill may be impaired. Goodwill is evaluated for impairment by either performing a qualitative evaluation or a two-step
quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, including goodwill. In the annual quantitative analysis, a discounted cash
flow methodology and a comparable company methodology were used. Discounted cash flow estimates, which include significant
management assumptions relating to asset and revenue growth rates, net interest and operating margins, capital requirements,
weighted-average cost of capital, and future economic and market conditions, are used to determine fair value under the two-step
quantitative test. A comparable company methodology is based on a comparison of financial and operating statistics of publicly
traded companies to each of the reporting units, and the appropriate multiples, such as equity value-to-tangible book value, core
deposit premium multiples and/or price-to-earnings per share multiples, are applied to arrive at indications of value for each
reporting unit. In “Step 1,” the fair value of a reporting unit is compared to its carrying amount, including goodwill. If the fair
value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and it is not
necessary to continue to “Step 2” of the impairment process. Otherwise, Step 2 is performed where the implied fair value of
goodwill is compared to the carrying value of goodwill in the reporting unit. If a reporting unit's carrying value of goodwill exceeds
fair value, an impairment is recognized and this difference is charged to non-interest expense.
During 2015, Webster performed its annual impairment test under Step 1 as of its elected measurement date of November 30. The
valuation of goodwill involves estimates which require significant management judgment. The Company utilizes a combined
equally weighted income approach based on discounted cash flows, and comparable company market approach to arrive at an
indicated fair value range for the reporting unit.
The income approach involves several management estimates, including developing a discounted cash flow valuation model which
utilizes variables such as asset and revenue growth rates, expense trends, capital requirements, discount rates, and terminal values.
Based upon an evaluation of key data and market factors, management selects the specific variables to be incorporated into the
valuation model. Projected future cash flows are discounted using estimated rates based on the Capital Asset Pricing Model, which
considers the risk-free interest rate, market risk premium, beta, and unsystematic risk and size premium adjustments specific to
the reporting unit. In the income approach the discount rate used for Consumer Deposits, Business Banking and HSA Bank was
7.7%, 10.4%, and 9.7%, respectively. The long-term growth rate used in determining the terminal value of the reporting unit's
cash flows was estimated at 4.0% and is based on management's assessment of the minimum expected growth rate of each reporting
unit as well as broader economic and regulatory considerations.
The comparable company market approach includes small to mid-sized banks based in the Northeast with significant geographic
or product line overlap to Webster and its reporting units to determine a fair value of each reporting unit.
23
At November 30, 2015, Webster calculated the following multiples for the selected comparable companies, as appropriate for each
reporting unit: core deposit premium, equity value-to-tangible book value, equity value-to-revenue and price-to-earnings per share.
In determining the appropriate multiples to be applied for each reporting unit, the financial and operating statistics of the reporting
units were compared to the comparable companies. Certain financial statistics were compared in identifying the reporting unit’s
most appropriate comparable companies whose multiples were used as the basis for the selected multiple range. For price-to-
earnings per share, 2015 to 2017 net income compound annual growth rate and 2017 net income margins were used, while the
return on tangible book value and return on assets were used for equity value-to-tangible book value multiples. For core deposit
premium multiples, each of those four financial statistics were used. Additionally, a control premium was applied as the comparable
company multiples are on a minority basis.
The indicated values derived from the discounted cash flows and the market comparable company methodologies were equally
weighted to derive the fair value of each reporting unit. This fair value is then compared against the carrying value of each reporting
unit to determine if a Step 2 test is required. In estimating the carrying value of each reporting unit, Webster uses a methodology
that is based upon Basel III asset risk weightings and fully allocates book capital to all assets and liabilities of each reporting unit.
Capital is allocated to assets based on risk weightings and to funding liabilities based on an assessment of operational risk, collateral
needs and residual leverage capital as appropriate.
There was no impairment indicated as a result of the Step 1 test performed as of November 30, 2015. The fair value of the Consumer
Deposits, Business Banking, and HSA Bank reporting units where goodwill resides exceeded carrying value by 19.9%, 80.5%,
and 804.5%, respectively. The Consumer Deposits, Business Banking and HSA Bank reporting units had $377.6 million, $139.0
million, and $21.8 million of goodwill at December 31, 2015, respectively.
With respect to sensitivity analysis related to the Consumer Deposits unit, by which the fair value exceeded the carrying amount
by approximately 20%, stressing: (i) the deposit premium multiple, as part of the Comparable Company Method, down
approximately 100 basis points (“bps”) and the discount rate up approximately 100 bps; or (ii) the deposit premium multiple, as
part of the Comparable Company Method, down approximately 100 basis points and the projection of net income downward by
approximately 20%, assuming no changes in any other variable, would result in the Company having to perform additional analysis
under Step 2.
Calculations around sensitivity are hypothetical and should not be considered to be predictive of future performance. Impacts to
implied fair value based on adverse changes in assumptions should not be extrapolated as the relationship of change in assumption
to the change in fair value may not be linear.
Income Taxes
In accordance with ASC Topic 740, "Income Taxes," certain aspects of accounting for income taxes require significant management
judgment, including assessing the realizability of deferred tax assets ("DTAs") and the measurement of uncertain tax positions
("UTPs"). Such judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. Should
actual factors and conditions differ materially from those used by management, the actual realization of DTAs and resolution of
UTPs could differ materially from the amounts recorded in the Consolidated Financial Statements.
DTAs generally represent items for which a benefit has been recognized for financial accounting purposes that cannot be realized
for tax purposes until a future period. The realization of DTAs depends upon future sources of taxable income and the availability
of prior years' taxable income to which loss-carryback, refund claims may be made. Valuation allowances are established for those
DTAs determined not likely to be realized based on management's judgment.
Income taxes are more fully described in Note 8: Income Taxes in the Notes to Consolidated Financial Statements contained
elsewhere in this report.
Recently Issued Accounting Standards Updates
Refer to Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements contained elsewhere
in this report for a summary of recently issued accounting standards and their expected impact on the Company's financial
statements.
24
Results of Operations
Selected financial data is presented in the following table:
(Dollars in thousands, except per share data)
BALANCE SHEETS
2015
At or for the years ended December 31,
2013
2012
2014
2011
Total assets
Loans and leases, net
Investment securities
Deposits
Borrowings
Series E preferred stock
Total shareholders' equity
STATEMENTS OF INCOME
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Non-interest income (less securities amounts)
Gain on sale of investment securities, net
Impairment losses on securities, recognized in earnings
Loss on trading securities, net
Non-interest expense
Income from continuing operations before income tax expense
Income tax expense
Income from continuing operations
Earnings applicable to common shareholders
Per Share Data
Basic income from continuing operations per common share
Basic earnings per common share
Diluted income from continuing operations per common share
Diluted earnings per common share
Dividends and dividend equivalents declared per common share
Dividends declared per Series A preferred share
Dividends declared per Series E preferred share
Book value per common share
Tangible book value per common share (non-GAAP)
Key Performance Ratios
$ 24,677,820
$ 22,533,172
$ 20,853,145
$ 20,147,081
$ 18,714,561
15,496,745
13,740,761
12,547,203
11,851,567
10,991,917
6,907,683
6,666,828
6,465,652
6,243,689
5,848,491
17,952,778
15,651,605
14,854,420
14,530,835
13,656,025
4,041,895
4,336,424
3,612,448
3,238,048
2,969,904
122,710
122,710
122,710
122,710
—
2,415,571
2,322,815
2,209,348
2,093,783
1,845,985
$
760,040
$
718,941
$
687,640
$
693,502
$
699,723
95,415
664,625
49,300
239,046
609
(110)
—
554,554
300,316
93,976
206,340
196,969
2.17
2.17
2.15
2.15
0.89
$
$
$
90,500
628,441
37,250
197,754
5,499
(1,145)
—
501,600
291,699
91,973
199,726
188,496
2.10
2.10
2.08
2.08
0.75
$
$
$
90,912
596,728
33,500
197,615
712
(7,277)
—
497,709
256,569
77,113
179,456
168,036
1.90
1.90
1.86
1.86
0.55
$
$
$
21.25
85.00
85.00
1,600.00
1,600.00
1,648.89
25.01
18.71
23.99
18.10
22.77
16.85
114,594
578,908
21,500
189,411
3,347
—
—
501,294
248,872
75,133
173,739
170,531
1.96
1.96
1.86
1.86
0.35
85.00
—
22.76
16.43
$
$
$
135,955
563,768
22,500
175,018
3,823
—
(1,799)
510,580
207,730
58,419
149,311
147,285
1.67
1.69
1.59
1.61
0.16
85.00
—
20.74
14.51
$
$
$
Tangible common equity ratio (non-GAAP)
7.12%
7.45%
7.49%
7.15%
7.00%
Return on average assets
Return on average common shareholders’ equity
Return on average tangible common shareholders' equity (non-GAAP)
Net interest margin
Efficiency ratio (non-GAAP)
Asset Quality Ratios
Non-performing loans and leases as a percentage of loans and leases (1)
Non-performing assets as a percentage of loans and leases plus OREO (1)
Non-performing assets as a percentage of total assets (1)
Allowance for loan and lease losses as a percentage of non-performing
loans and leases (1)
Allowance for loan and lease losses as a percentage of loans and leases
Net charge-offs as a percentage of average loans and leases
Ratio of allowance for loan and lease losses to net charge-offs
0.87
8.77
12.05
3.08
59.73
0.89%
0.92
0.59
0.93
8.85
11.90
3.21
59.23
0.93%
0.98
0.61
125.05
122.62
1.12
0.23
5.21 x
1.15
0.23
5.21 x
0.89
8.44
11.77
3.26
60.32
1.28%
1.34
0.82
94.10
1.20
0.47
2.63 x
0.90
8.97
12.80
3.32
62.71
1.61%
1.64
0.98
91.25
1.47
0.68
2.28 x
0.83
8.19
12.04
3.47
65.08
1.67%
1.71
1.03
124.47
2.08
1.00
2.11 x
(1) U.S. Government guaranteed loans were reclassified from non-accrual to over 90 days past due and accruing to reflect a policy change
effective in 2015 and applied retrospectively. As a result, the ratio has been recalculated and presented accordingly.
25
The non-GAAP financial measures, identified in the preceding table, have been presented because management believes their use
provides additional clarity in assessing the results of the Company. Other companies may define or calculate non-GAAP financial
measures differently.
The following tables reconcile these non-GAAP financial measures with financial measures defined by GAAP, :
(Dollars and shares in thousands, except per share data)
2015
2014
2013
2012
2011
At December 31,
Tangible book value per common share (non-GAAP):
Shareholders' equity (GAAP)
Less: Preferred equity (GAAP)
Goodwill and other intangible assets (GAAP)
$ 2,415,571
$ 2,322,815
$ 2,209,348
$ 2,093,783
$ 1,845,985
122,710
577,699
151,649
532,553
151,649
535,238
151,649
540,157
28,939
545,577
Tangible common equity (non-GAAP)
$ 1,715,162
$ 1,638,613
$ 1,522,461
$ 1,401,977
$ 1,271,469
Common shares outstanding
91,677
90,512
90,369
85,341
Tangible book value per common share (non-GAAP)
$
18.71
$
18.10
$
16.85
$
16.43
$
87,600
14.51
Tangible common equity ratio (non-GAAP):
Shareholders' equity (GAAP)
Less: Preferred stock (GAAP)
Goodwill and other intangible assets (GAAP)
$ 2,415,571
$ 2,322,815
$ 2,209,348
$ 2,093,783
$ 1,845,985
122,710
577,699
151,649
532,553
151,649
535,238
151,649
540,157
28,939
545,577
Tangible common shareholders' equity (non-GAAP)
$ 1,715,162
$ 1,638,613
$ 1,522,461
$ 1,401,977
$ 1,271,469
Total assets (GAAP)
$ 24,677,820
$ 22,533,172
$ 20,853,145
$ 20,147,081
$ 18,714,561
Less: Goodwill and other intangible assets (GAAP)
577,699
532,553
535,238
540,157
545,577
Tangible assets (non-GAAP)
$ 24,100,121
$ 22,000,619
$ 20,317,907
$ 19,606,924
$ 18,168,984
Tangible common equity ratio (non-GAAP)
7.12%
7.45%
7.49%
7.15%
7.00%
(Dollars in thousands)
Return on average tangible common shareholders' equity (non-
GAAP):
For the years ended December 31,
2015
2014
2013
2012
2011
Income from continuing operations (GAAP)
$
206,340
$
199,726
$
179,456
$
173,739
$
149,311
Preferred stock dividends (GAAP)
Intangible assets amortization, tax-affected at 35% (GAAP)
Income from discontinued operations, net of tax and loss
attributable to non-controlling interest (GAAP)
Income adjusted for preferred stock dividends and amortization
of intangibles (non-GAAP)
Average shareholders' equity (non-GAAP)
Less: Average preferred stock (non-GAAP)
Average goodwill and other intangible assets (non-GAAP)
Average non-controlling interests (non-GAAP)
8,711
4,121
—
10,556
1,745
10,803
3,197
—
—
2,460
3,523
—
3,286
3,632
1,996
$
201,750
$
190,915
$
171,850
$
174,802
$
151,653
$ 2,388,897
$ 2,289,699
$ 2,149,873
$ 1,946,833
$ 1,846,369
134,682
579,366
—
151,649
533,549
—
151,649
537,650
—
38,335
542,782
—
28,942
548,340
9,119
Average tangible common equity (non-GAAP)
$ 1,674,849
$ 1,604,501
$ 1,460,574
$ 1,365,716
$ 1,259,968
Return on average tangible common shareholders' equity (non-
GAAP)
12.05%
11.90%
11.77%
12.80%
12.04%
Efficiency ratio (non-GAAP):
Non-interest expense (GAAP)
Less: Foreclosed property expense (GAAP)
Intangible assets amortization (GAAP)
Other expense (non-GAAP)
Non-interest expense (non-GAAP)
Net interest income (GAAP)
Add: FTE adjustment (non-GAAP)
Non-interest income (GAAP)
Less: Gain on sale of investment securities, net (GAAP)
Other (non-GAAP)
Income (non-GAAP)
Efficiency ratio (non-GAAP)
$
554,554
$
501,600
$
497,709
$
501,294
$
510,580
$
$
$
$
827
6,340
665
546,722
664,625
10,617
239,545
609
(1,111)
$
$
1,223
2,685
1,732
495,960
628,441
11,124
202,108
5,499
(1,145)
$
$
1,338
4,919
4,354
487,098
596,728
13,221
191,050
712
(7,277)
1,028
5,420
3,762
491,084
578,908
14,751
192,758
3,347
—
$
$
3,050
5,588
11,075
490,867
563,768
15,497
177,042
2,024
—
$
915,289
$
837,319
$
807,564
$
783,070
$
754,283
59.73%
59.23%
60.32%
62.71%
65.08%
26
The following table summarizes daily average balances, interest and average yields, and net interest margin on a fully tax-equivalent
basis:
Years ended December 31,
2015
2014
2013
Average
Balance
Interest
Average
Yields
Average
Balance
Interest
Average
Yields
Average
Balance
Interest
Average
Yields
(Dollars in thousands)
Assets
Interest-earning assets:
Loans and leases
$14,746,168 $ 554,632
3.76% $13,275,340 $ 513,705
3.87% $12,235,821 $ 490,985
4.01%
Securities (1)
Federal Home Loan and Federal
Reserve Bank stock
Interest-bearing deposits
Loans held for sale
6,846,297
207,675
3.04
6,446,799
210,721
3.28
6,268,889
204,287
3.28
188,631
107,569
41,101
6,479
281
1,590
3.43
0.26
3.87
168,036
4,719
24,376
22,642
63
857
2.81
0.26
3.78
158,233
3,437
21,800
63,870
84
2,068
2.17
0.39
3.24
Total interest-earning assets
21,929,766 $ 770,657
3.52% 19,937,193 $ 730,065
3.67% 18,748,613 $ 700,861
3.74%
Non-interest-earning assets
Total assets
1,673,793
$23,603,559
1,523,768
$21,460,961
1,514,052
$20,262,665
Liabilities and equity
Interest-bearing liabilities:
Demand deposits
$ 3,564,751 $
—
—% $ 3,216,777 $
—
—% $ 2,939,324 $
—
—%
Savings, checking, & money market
deposits
Time deposits
Total deposits
Securities sold under agreements to
repurchase and other borrowings
11,846,049
21,472
2,138,778
24,559
17,549,578
46,031
0.18
1.15
0.26
9,863,703
17,800
2,280,668
26,362
15,361,148
44,162
0.18
1.16
0.29
9,511,386
2,357,321
14,808,031
18,376
28,206
46,582
0.19
1.20
0.31
1,144,963
16,861
1.47
1,353,308
19,388
1.43
1,228,002
20,800
1.69
Federal Home Loan Bank advances
2,084,496
22,858
Long-term debt
Total borrowings
226,292
9,665
3,455,751
49,384
1.10
4.27
1.43
2,038,749
16,909
252,368
10,041
3,644,425
46,338
0.83
3.98
1.27
1,652,471
16,229
233,850
7,301
3,114,323
44,330
0.98
3.12
1.42
Total interest-bearing liabilities
21,005,329 $ 95,415
0.45% 19,005,573 $ 90,500
0.48% 17,922,354 $ 90,912
0.51%
Non-interest-bearing liabilities
209,333
Total liabilities
21,214,662
Preferred stock
Common shareholders' equity
Webster Financial Corporation
shareholders' equity
134,682
2,254,215
2,388,897
Total liabilities and equity
$23,603,559
165,689
19,171,262
151,649
2,138,050
2,289,699
$21,460,961
190,438
18,112,792
151,649
1,998,224
2,149,873
$20,262,665
Tax-equivalent net interest income
Less: tax equivalent adjustments
Net interest income
Net interest margin
675,242
(10,617)
$ 664,625
639,565
(11,124)
$ 628,441
609,949
(13,221)
$ 596,728
3.08%
3.21%
3.26%
(1) Daily average balances and yields of securities available for sale are based upon historical amortized cost.
27
Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense
on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company's largest
source of revenue, representing 73.5% of total revenue for the year ended December 31, 2015. Net interest margin is the ratio of
tax-equivalent net interest income to average earning assets for the period.
Net interest income and net interest margin are impacted by the level of interest rates secured, mix of assets earning and liabilities
paying those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These conditions are influenced
by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing
strategies, as well as the extent of interest ceded to non-performing assets.
Webster manages the risk of changes in interest rates on net interest income and net interest margin through its Asset/Liability
Committee ("ALCO") and through related interest rate risk monitoring and management policies. Four main tools are used for
managing interest rate risk: (i) the size and duration and credit risk of the investment portfolio; (ii) the size and duration of the
wholesale funding portfolio; (iii) off-balance sheet interest rate contracts; and (iv) the pricing and structure of loans and deposits.
ALCO meets at least monthly to make decisions on the investment and funding portfolios based on the economic outlook, its
interest rate expectations, the portfolio risk position, and other factors. See the “Asset/Liability Management and Market Risk”
section for further discussion of Webster’s interest rate risk position.
Market interest rates remained at historically low levels during the periods covered by this report. However, the federal funds rate
target range, which had been at 0-0.25% since December 16, 2008, was increased to 0.25-0.5% by the Federal Reserve, effective
December 16, 2015.
Comparison of 2015 to 2014
Financial Performance
Net income of $206.3 million for the year ended December 31, 2015 increased 3.3% over the year ended December 31, 2014,
largely due to record high levels of loan growth offsetting margin pressure, increased fee income; primarily due to acquired HSA
accounts, and continued expense discipline.
Income before income tax expense was $300.3 million for the year ended December 31, 2015, an increase of $8.6 million from
$291.7 million for the year ended December 31, 2014.
The primary factors positively impacting income before income tax expense include:
• interest income increased $41.1 million; and
• deposit service fees increased $33.1 million.
The primary factors negatively impacting income before income tax expense include:
• non-interest expense increased $53.0 million; and
• provision for loan and lease losses increased $12.1 million.
The impact of the items outlined above, coupled with the effect from income taxes of $94.0 million and $92.0 million for the years
ended December 31, 2015 and 2014, respectively, resulted in net income of $206.3 million and diluted earnings per share of $2.15
for the year ended December 31, 2015 compared to net income of $199.7 million and diluted earnings per share of $2.08 for the
year ended December 31, 2014.
Expense discipline, coupled with net interest and fee income growth maintained an operating efficiency below 60%. The efficiency
ratio, a non-GAAP financial measure which quantifies the cost expended to generate a dollar of revenue was 59.73% for 2015
and 59.23% for 2014.
Credit quality improved as demonstrated by the decline in asset quality ratios. Net charge-offs as a percentage of average loans
and leases was 0.23% for both the year ended December 31, 2015 and 2014. Non-performing assets as a percentage of loans,
leases, and other real estate owned decreased to 0.93% at December 31, 2015 from 0.98% at December 31, 2014, driven by loan
growth exceeding a slight increase in non-performing assets.
28
Net Interest Income
Net interest income totaled $664.6 million for the year ended December 31, 2015 compared to $628.4 million for the year ended
December 31, 2014, an increase of $36.2 million. Net interest income increased primarily due to an increase in average interest-
earning assets, substantially strong loan and lease growth of 12.7%, partially offset by an overall decline in reinvestment spreads
on earning assets, most notably securities. Average interest-earning assets during 2015 increased $2.0 billion compared to 2014.
The average yield on interest-earning assets decreased 15 basis points to 3.52% during 2015 from 3.67% during 2014. The average
yield on interest-earning assets is primarily impacted by changes in market interest rates as well as changes in the volume and
relative mix of interest-earning assets. Average interest-bearing liabilities during 2015 increased $2.0 billion compared to 2014,
primarily from health savings accounts, while the average cost of interest-bearing liabilities decreased 3 basis points to 0.45%
during 2015 compared to 0.48% during 2014.
Net interest margin decreased 13 basis points to 3.08% for the year ended December 31, 2015 from 3.21% for the year ended
December 31, 2014. The decrease in net interest margin is due primarily to reinvestment at reduced spreads on loans and leases
and securities, somewhat offset by a rise in lower cost deposits.
The following table presents the components of the change in net interest income attributable to changes in rate and volume, and
reflects net interest income on a fully tax-equivalent basis:
(In thousands)
Change in interest on interest-earning assets:
Loans and leases
Loans held for sale
Investments (2)
Total interest income
Change in interest on interest-bearing liabilities:
Deposits
Borrowings
Total interest expense
Change in tax-equivalent net interest income
Years ended December 31,
2015 vs. 2014
Increase (decrease) due to
Rate (1)
Volume
Total
$
$
$
$
$
(19,489)
151
(16,403)
(35,741)
(2,691)
6,263
3,572
(39,313)
$
$
$
$
$
60,416
583
15,334
76,333
4,560
(3,217)
1,343
74,990
$
$
$
$
$
40,927
734
(1,069)
40,592
1,869
3,046
4,915
35,677
(1) The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
(2) Investments include: Securities; Federal Home Loan and Federal Reserve Bank stock; and Interest-bearing deposits.
Average loans and leases increased $1.5 billion during the year ended December 31, 2015 as compared to the year ended December
31, 2014. The loan and lease portfolio comprised 67.2% of the average interest-earning assets at December 31, 2015 as compared
to 66.6% of the average interest-earning assets at December 31, 2014. The loan and lease portfolio yield decreased 11 basis points
to 3.76% for the year ended December 31, 2015, compared to the loan and lease portfolio yield of 3.87% for the year ended
December 31, 2014. The decrease in the yield on average loans and leases is due to the repayment of higher yielding loans and
leases coupled with the addition of lower yielding loans and leases in the current low interest rate environment.
Average investments increased $503.3 million during the year ended December 31, 2015 as compared to the year ended December
31, 2014. The investments portfolio comprised 32.6% of the average interest-earning assets at December 31, 2015 as compared
to 33.3% of the average interest-earnings assets at December 31, 2014. The investments portfolio yield decreased 25 basis points
to 3.00% for the year ended December 31, 2015 compared to the investments portfolio yield of 3.25% for the year ended December
31, 2014. The decrease in the yield on securities is due to lower market rates on purchases made during 2015.
Average deposits increased $2.2 billion during the year ended December 31, 2015 compared to the year ended December 31,
2014. The increase comprised of $348.0 million in non-interest-bearing deposits and $1.8 billion in interest-bearing deposits. The
increase in interest-bearing deposits, and an improved product mix to low-cost deposits was primarily a result of $1.4 billion in
acquired health savings account deposits. The average cost of deposits decreased 3 basis points to 0.26% for the year ended
December 31, 2015 from 0.29% for the year ended December 31, 2014. The decrease in the average cost of deposits is the result
of product mix, the maturity of higher costing certificates of deposit, and pricing on certain deposit products.
29
Average borrowings decreased $188.7 million during the year ended December 31, 2015 compared to the year ended December
31, 2014. Cash received as part of the health savings account acquisition was utilized to pay down certain short-term FHLB
advances. Average securities sold under agreements to repurchase and other borrowings decreased $208.3 million, and average
FHLB advances increased $45.7 million. The $26.1 million decrease in average long-term debt is due to the issuance of $150
million aggregate principal amount of senior notes in February 2014, ahead of a prior issuance that matured in April 2014. The
average cost of borrowings increased 16 basis points to 1.43% for the year ended December 31, 2015 from 1.27% for the year
ended December 31, 2014. The increase in average cost of borrowings is a result of the pay down of short-term lower cost FHLB
borrowings and subsequent additional borrowings at higher rates.
Cash flow hedges impacted the average cost of borrowings as follows:
(In thousands)
Interest rate swaps on repurchase agreements
Interest rate swaps on FHLB advances
Interest rate swaps on senior fixed-rate notes
Interest rate swaps on brokered CDs and deposits
Net increase to interest expense on borrowings
Provision for Loan and Lease Losses
Years ended December 31,
2015
1,442
8,272
306
632
10,652
$
$
2014
2,224
6,043
267
151
8,685
$
$
Management performs a quarterly review of the loan and lease portfolio to determine the adequacy of the allowance for loan and
lease losses. At December 31, 2015, the allowance for loan and lease losses totaled $175.0 million, or 1.12% of total loans and
leases, compared to $159.3 million, or 1.15% of total loans and leases, at December 31, 2014.
Several factors are considered when determining the level of the allowance for loan and lease losses, including loan growth,
portfolio composition, portfolio risk profile, credit performance, changes in the levels of non-performing loans and leases and
changes in the economic environment. These factors, coupled with current and projected net charge-offs, impact the required level
of the provision for loan and lease losses. For the year ended December 31, 2015, total net charge-offs were $33.6 million compared
to $30.6 million for the year ended December 31, 2014.
The provision for loan and lease losses totaled $49.3 million for the year ended December 31, 2015, an increase of $12.1 million
compared to the year ended December 31, 2014. The increase in provision for loan and lease losses was due primarily to the
increase in loan balances and increase in specific reserves on impaired loans, partially offset with improved credit quality.
See the “Allowance for Loan and Lease Losses Methodology” section for further details.
30
Non-Interest Income
(Dollars in thousands)
Deposit service fees
Loan and lease related fees
Wealth and investment services
Mortgage banking activities
Increase in cash surrender value of life insurance policies
Gain on sale of investment securities, net
Impairment loss on securities recognized in earnings
Other income
Total non-interest income
Years ended December 31,
Increase (decrease)
2015
2014
Amount
$
136,578
$
103,431
$
33,147
25,594
32,486
7,795
13,020
609
(110)
23,573
23,212
34,946
4,070
13,178
5,499
(1,145)
18,917
2,382
(2,460)
3,725
(158)
(4,890)
(1,035)
4,656
Percent
32.0%
10.3
(7.0)
91.5
(1.2)
(88.9)
(90.4)
24.6
$
239,545
$
202,108
$
37,437
18.5%
Total non-interest income was $239.5 million for the year ended December 31, 2015, an increase of $37.4 million from the year
ended December 31, 2014. The increase is attributable to higher deposit service fees, other income, mortgage banking activities,
loan and lease related fees and a decrease in impairment loss on securities, partially offset by lower net gain on sale of investment
securities and wealth and investment services.
Deposit service fees totaled for $136.6 million 2015 compared to $103.4 million for 2014. The increase was a result of increased
checking account service charges and check card interchange income due primarily to the acquired health savings accounts and
new account growth.
Other income totaled $23.6 million for 2015 compared to $18.9 million for 2014. The increase was primarily due to alternative
investment income, estimated interest on refundable income taxes, credit card fees, and client swap activity, partially offset by
lower death benefit proceeds from bank owned life insurance.
Mortgage banking activities totaled $7.8 million for 2015 compared to $4.1 million for 2014. The increase was due to higher
settlement volume and gain on sale rate driven by lower interest rates in 2015.
Loan and lease related fees totaled $25.6 million for 2015 compared to $23.2 million for 2014. The increase was primarily due to
increased syndication activity, unused line fees, and loan servicing fees.
Impairment loss on securities recognized in earnings totaled $0.1 million for 2015 compared to $1.1 million for 2014. The decrease
was due to lower impairment losses recognized on collateralized loan obligation securities.
Net gain on investment securities totaled $0.6 million for 2015 compared to $5.5 million for 2014. The prior year’s amount included
gains from the sale of non-Volcker Rule compliant pooled trust preferred securities.
Wealth and investment services totaled $32.5 million for 2015 compared to $34.9 million for 2014. The decrease was primarily
due to an adverse impact on sales production driven by market volatility, and lower revenue as a result of lower assets under
administration values.
31
Non-Interest Expense
(Dollars in thousands)
Compensation and benefits
Occupancy
Technology and equipment
Intangible assets amortization
Marketing
Professional and outside services
Deposit insurance
Other expense
Total non-interest expense
Years ended December 31,
Increase (decrease)
2015
2014
Amount
$
297,517
$
270,151
$
27,366
48,836
80,026
6,340
16,053
11,156
24,042
70,584
47,325
61,993
2,685
15,379
8,296
22,670
73,101
1,511
18,033
3,655
674
2,860
1,372
(2,517)
$
554,554
$
501,600
$
52,954
Percent
10.1%
3.2
29.1
136.1
4.4
34.5
6.1
(3.4)
10.6%
Total non-interest expense was $554.6 million for the year ended December 31, 2015, an increase of $53.0 million from the year
ended December 31, 2014. The increase for the year ended December 31, 2015 is primarily attributable to higher compensation
and benefits, technology and equipment, professional and outside services, occupancy, intangible assets amortization, and deposit
insurance expenses, partially offset by a reduction in other expenses.
Compensation and benefits totaled $297.5 million for 2015 compared to $270.2 million for 2014. The increase was primarily
driven by base compensation and temporary help to support HSA Bank’s account growth, incentives and commissions, and larger
group medical claims.
Technology and equipment totaled $80.0 million for 2015 compared to $62.0 million for 2014. The increase was due to transitional
service costs related to the HSA acquisition and implementation costs associated with a new HSA technology platform.
Professional and outside services totaled $11.2 million for 2015 compared to $8.3 million for 2014. The increase was primarily
due to information technology consulting services.
Occupancy costs totaled $48.8 million for 2015 compared to $47.3 million for 2014. The increase was primarily due to the addition
of HSA Bank’s facility in Milwaukee, WI, and additional snow removal costs.
Intangible assets amortization totaled $6.3 million for 2015 compared to $2.7 million for 2014. The increase was due to intangibles
acquired as part of the health savings accounts acquisition.
Deposit Insurance totaled $24.0 million for 2015 compared to $22.7 million for 2014. The increase was primarily due to growth
in assets.
Other expense totaled $70.6 million for 2015 compared to $73.1 million for 2014. The decrease was due to a favorable adjustment
to the unfunded reserve related to the refinement of estimates and a recovery of previous years deposit insurance expense.
Income Taxes
Webster recognized income tax expense of $94.0 million in 2015 and $92.0 million in 2014, and the effective tax rates were 31.3%
and 31.5%, respectively. The decrease in the effective rate principally reflects a $4.4 million net deferred tax benefit recognized
in 2015, partially offset by the effects of increased state and local tax expense in 2015.
The $4.4 million net deferred tax benefit was part of a $5.8 million reduction in the Company’s beginning-of-year valuation
allowance on its state and local deferred tax assets, due to a change in their estimated realizability. This change is expected to
result in increased deferred expense in future years, including $2.0 million in 2016, or about 0.6% in effective-rate terms.
For additional information on Webster's income taxes, including its deferred tax assets and uncertain tax positions, see Note 8:
Income Taxes in the Notes to Consolidated Financial Statements contained elsewhere in this report.
32
Comparison of 2014 and 2013
Financial Performance
The Company achieved a record level of net income available to common shareholders of $189.2 million for the year ended
December 31, 2014. The Company's operating efficiency continued to improve as evidenced by a decrease of 106 basis points in
the efficiency ratio, record high levels of low cost deposits, continued total loan growth, steady improvement in credit quality, and
continued strong capital ratios.
Income before income tax expense was $291.7 million for the year ended December 31, 2014, an increase of $35.1 million from
$256.6 million for the year ended December 31, 2013.
The primary factors positively impacting income before tax expense include:
• interest income increased $31.3 million;
• impairment losses on securities decreased by $6.1 million;
• net gain on sale of investment securities increased $4.8 million;
• deposit service fees increased $4.5 million;
• loan and lease related fees increased $1.4 million;
• interest expense decreased $0.4 million; and
• wealth and investment service fees increased $0.2 million.
The primary factors negatively impacting income before income tax expense include:
• income from mortgage banking activities decreased $12.3 million;
• non-interest expense increased $3.9 million; and
• provision for loan and lease losses increased $3.8 million.
The impact of the items outlined above, and the effect from income taxes of $92.0 million and $77.1 million, and preferred stock
dividends of $10.6 million and $10.8 million for the years ended December 31, 2014 and 2013, respectively, resulted in net income
available to common shareholders of $189.2 million for the year ended December 31, 2014 compared to $168.7 million for the
year ended December 31, 2013. Diluted net income available to common shareholders was $2.08 and $1.86 per share for the years
ended December 31, 2014 and 2013, respectively.
Net interest income increased $31.7 million to $628.4 million for the year ended December 31, 2014. Average total interest-earning
assets increased by $1.2 billion, while the average yield decreased by 7 basis points in 2014 compared to 2013. Average total
interest-bearing liabilities increased $1.1 billion, while the average cost decreased by 3 basis points in 2014 compared to 2013.
Credit quality improved as evidenced by improvement in asset quality ratios. Net charge-offs as a percentage of average loans
and leases decreased to 0.23% for the year ended December 31, 2014 from 0.47% for the year ended December 31, 2013, and
non-performing assets as a percentage of loans, leases and other real estate owned decreased to 1.00% at December 31, 2014 from
1.35% at December 31, 2013. The continued improvement in credit quality in 2014 resulted in a reduction in total past due and
non-accrual loans at December 31, 2014 compared to December 31, 2013.
Net Interest Income
Net interest income totaled $628. 4 million for the year ended December 31, 2014 compared to $596.7 million for the year ended
December 31, 2013, an increase of $31.7 million. Net interest income increased primarily due to an increase in average interest-
earning assets, partially offset by an overall decline in reinvestment spreads on earning assets. Average interest-earning assets
during the year ended December 31, 2014 increased $1.2 billion compared to the year ended December 31, 2013. The average
yield on interest-earning assets decreased 7 basis points to 3.67% for the year ended December 31, 2014 from 3.74% for the year
ended December 31, 2013. The average yield on interest-earning assets is primarily impacted by changes in market interest rates
as well as changes in the volume and relative mix of interest-earning assets. The net interest margin decreased 5 basis points to
3.21% during the year ended December 31, 2014 from 3.26% for the year ended December 31, 2013. The decrease in net interest
margin is due primarily to reinvestment of interest-earning assets at reduced spreads, partially offset by less premium amortization
on mortgage-backed securities. Market interest rates remained at historically low levels during the periods reported.
33
The following table presents the components of the change in net interest income attributable to changes in rate and volume, and
reflects net interest income on a fully tax-equivalent basis:
(In thousands)
Change in interest on interest-earning assets:
Loans and leases
Loans held for sale
Investments (2)
Total interest income
Change in interest on interest-bearing liabilities:
Deposits
Borrowings
Total interest expense
Change in tax-equivalent net interest income
Years ended December 31,
2014 vs. 2013
Increase (decrease) due to
Rate (1)
Volume
Total
$
$
$
$
$
(21,748) $
113
(2,214)
(23,849) $
(3,396) $
(2,473)
(5,869) $
(17,980) $
44,469 $
(1,325)
9,909
53,053 $
976 $
4,481
5,457 $
47,596 $
22,721
(1,212)
7,695
29,204
(2,420)
2,008
(412)
29,616
(1) The change attributable to mix, a combined impact of rate and volume, is included with the change due to Rate.
(2) Investments include: Securities; Federal Home Loan and Federal Reserve Bank stock; and Interest-bearing deposits.
Average loans and leases increased $1.0 billion during the year ended December 31, 2014 as compared to the year ended December
31, 2013. The loan and lease portfolio comprised 66.6% of the average interest-earning assets at December 31, 2014 as compared
to 65.3% of the average interest-earning assets at December 31, 2013. The loan and lease portfolio yield decreased 14 basis points
to 3.87% for the year ended December 31, 2014, compared to the loan and lease portfolio yield of 4.01% for the year ended
December 31, 2013. The decrease in the yield on average loans and leases is due to the repayment of higher yielding loans and
leases and the addition of lower yielding loans and leases in the current low interest rate environment.
Average investments increased $190.3 million during the year ended December 31, 2014 as compared to the year ended December
31, 2013. The investments portfolio comprised 33.3% of the average interest-earning assets at December 31, 2014 as compared
to 34.4% of the average interest-earnings assets at December 31, 2013. The investments portfolio yield increased 7 basis points
to 3.11% for the year ended December 31, 2014 compared to the investments portfolio yield of 3.04% for the year ended December
31, 2013. The yield on average investments increased primarily due to larger FHLB holdings, paying an increased dividend rate.
Average total deposits increased $553.1 million during the year ended December 31, 2014 compared to the year ended December
31, 2013. The increase is due to a $277.4 million increase in non-interest-bearing deposits and an increase of $275.7 million in
interest-bearing deposits. The average cost of deposits decreased 2 basis points to 0.29% for the year ended December 31, 2014
from 0.31% for the year ended December 31, 2013. The decrease in the average cost of deposits is the result of improved pricing
on certain deposit products and product mix, as the proportion of higher costing certificates of deposit to total interest-bearing
deposits decreased to 18.8% for the year ended December 31, 2014 from 19.9% for the year ended December 31, 2013.
Average total borrowings increased $530.1 million during the year ended December 31, 2014 compared to the year ended December
31, 2013. Borrowings increased as growth in loans and securities exceeded the growth in deposits and operating cash flows.
Average securities sold under agreements to repurchase and other borrowings increased $125.3 million, and average FHLB advances
increased $386.3 million. The $18.5 million increase in average long-term debt is due to the issuance of $150 million aggregate
principal amount of senior notes in February 2014, ahead of a prior issuance that matured in April 2014. The average cost of
borrowings decreased 15 basis points to 1.27% for the year ended December 31, 2014 from 1.42% for the year ended December
31, 2013. The decrease in average cost of borrowings is a result of a larger percentage of total borrowings for securities sold under
agreements to repurchase and FHLB advances at lower rates.
Cash flow hedges impacted the average cost of borrowings as follows:
(In thousands)
Interest rate swaps on repurchase agreements
Interest rate swaps on FHLB advances
Interest rate swaps on senior fixed-rate notes
Interest rate swaps on brokered CDs and deposits
Interest rate swaps on junior subordinated debt
Net increase to interest expense on borrowings
34
Years ended December 31,
2014
2013
2,224
6,043
267
151
—
8,685
$
$
3,319
6,454
—
—
(3)
9,770
$
$
Provision for Loan and Lease Losses
Management performs a quarterly review of the loan and lease portfolio to determine the adequacy of the allowance for loan and
lease losses. At December 31, 2014, the allowance for loan and lease losses totaled $159.3 million, or 1.15% of total loans and
leases, compared to $152.6 million, or 1.20% of total loans and leases, at December 31, 2013.
Several factors are considered when determining the level of the allowance for loan and lease losses, including loan growth,
portfolio composition, portfolio risk profile, credit performance, changes in the levels of non-performing loans and leases and
changes in the economic environment. These factors, coupled with net charge-offs during the period, impact the required level of
the provision for loan and lease losses. For the year ended December 31, 2014, total net charge-offs were $30.6 million compared
to $58.1 million for the year ended December 31, 2013.
The provision for loan and lease losses was $37.3 million for the year ended December 31, 2014 an increase of $3.8 million
compared to the year ended December 31, 2013. The increase in provision for loan and lease losses was due primarily to the
increase in loan balances, partially offset by improved credit quality.
Non-Interest Income
(Dollars in thousands)
Deposit service fees
Loan and lease related fees
Wealth and investment services
Mortgage banking activities
Increase in cash surrender value of life insurance policies
Gain on sale of investment securities, net
Impairment loss on securities recognized in earnings
Other income
Total non-interest income
Years ended December 31,
Increase (decrease)
2014
2013
Amount
Percent
$
103,431
$
98,968
$
23,212
34,946
4,070
13,178
5,499
(1,145)
18,917
21,860
34,771
16,359
13,770
712
(7,277)
11,887
4,463
1,352
175
(12,229)
(592)
4,787
6,132
7,030
4.5%
6.2
0.5
(75.1)
(4.3)
672.3
(84.3)
59.1
$
202,108
$
191,050
$
11,058
5.8%
Total non-interest income was $202.1 million for the year ended December 31, 2014, an increase of $11.1 million from the year
ended December 31, 2013. The increase is primarily attributable to an increase in other income, a lower impairment loss on
securities, an increased gain on sale of securities, and increased deposit service fees due to account growth primarily at the
Company's HSA Bank division, offset by a decrease in mortgage banking activities.
Other income increased $7.0 million, or 59.1%, due to increased commercial customer interest rate derivative activity, a private
equity fund distribution, gain from bank owned life insurance policies, and miscellaneous rebate income.
The decrease in impairment loss on securities recognized in earnings of $6.1 million, or 84.3%, is due to the requirement to divest
certain collateralized loan obligation ("CLO") and collateralized debt obligation ("CDO") securities that were subject to the Volcker
Rule. The required divestiture situation resulted in the full write-down of unrealized market losses of certain CLO and CDO
securities to market value in December 2013. The additional impairment loss recognized in 2014 represents the continued write-
down of market losses related to the CLO securities as required until the conformance date in July 2017.
Net gain on sale of investment securities increased $4.8 million primarily due to the sale of four non Volcker Rule compliant
pooled trust preferred positions during the year.
Deposit service fees increased $4.5 million, or 4.5%, due to volume driven debit card interchange revenue and checking account
services charges from the Company's HSA Bank division, cash management fees, and ATM and other account surcharges, offset
by a reduction in NSF charges.
The decrease in mortgage banking activities of $12.3 million, or 75.1%, is due to increased residential mortgage loan interest rates
resulting in lower refinancing volumes. Originations of loans held for sale were $297.0 million for the year ended December 31,
2014 compared to $687.1 million for the year ended December 31, 2013.
35
Non-Interest Expense
(Dollars in thousands)
Compensation and benefits
Occupancy
Technology and equipment
Intangible assets amortization
Marketing
Professional and outside services
Deposit insurance
Other expense
Total non-interest expense
Years ended December 31,
Increase (decrease)
2014
2013
Amount
Percent
$ 270,151
$ 264,835
$
5,316
2.0%
47,325
61,993
2,685
15,379
8,296
22,670
73,101
48,794
60,326
4,919
15,502
9,532
21,114
72,687
(1,469)
1,667
(2,234)
(123)
(1,236)
1,556
414
$ 501,600
$ 497,709
$
3,891
(3.0)
2.8
(45.4)
(0.8)
(13.0)
7.4
0.6
0.8%
Total non-interest expense was $501.6 million for the year ended December 31, 2014, an increase of $3.9 million from the year
ended December 31, 2013. The increase for the year ended December 31, 2014 is primarily attributable to higher compensation
and benefits, technology and equipment expense, and deposit insurance, offset by lower intangible asset amortization, occupancy,
and professional and outside services.
Compensation and benefits increased $5.3 million, or 2.0%, due to additional staffing within the commercial, business banking,
HSA Bank, and compliance areas, an increase in incentive related expense, and annual merit increases, offset by lower expenses
in pension, stock based compensation, and 401(k) match.
Technology and equipment expense increased $1.7 million, or 2.8%, primarily due to infrastructure investments at the Company's
HSA Bank division.
Deposit insurance increased $1.6 million, or 7.4%, due primarily to an increase in overall assets and the addition of high risk
weighted assets.
Intangible assets amortization decreased $2.2 million, or 45.4%, due to the completion of core deposit intangibles amortization
related a 2004 acquisition.
Occupancy costs decreased $1.5 million, or 3.0%, due to lower depreciation on buildings and leasehold improvements and lower
occupancy related maintenance costs.
Professional and outside services decreased $1.2 million, or 13.0%, due to lower consulting costs.
Income Taxes
Webster recognized income tax expense of $92.0 million in 2014 and $77.1 million in 2013. The effective tax rates were 31.5%
and 30.1%, respectively. The increase in the effective rate principally reflects the effects of the increased pre-tax income in 2014,
the $1.7 million benefit recognized in 2013 to correct the immaterial errors in prior periods, decreased benefits from tax-exempt
interest income in 2014, and increased state tax expense in 2014 which also included a $2.0 million benefit recognized in the first
quarter.
36
Segment Results
Beginning in January of 2015, Webster’s operations are divided into four reportable segments that represent its core businesses –
Commercial Banking, Community Banking, HSA Bank, and Private Banking. Community Banking includes the operating segments
of Webster's Personal Banking and Business Banking. With the acquisition of a health savings account business in early 2015, the
reported revenue of the HSA Bank segment grew in excess of 10% of the combined revenue of all operating segments. As a result,
beginning in the first quarter of 2015. we began reporting the HSA Bank and Private Banking segments separately. These segments
reflect how executive management responsibilities are assigned by the chief operating decision maker for each of the core
businesses, the products and services provided, the type of customer served, and reflects how discrete financial information is
currently evaluated. The Company’s Treasury unit and consumer liquidating portfolio are included in the Corporate and Reconciling
category along with the amounts required to reconcile profitability metrics to GAAP reported amounts. The 2014 and 2013 segment
results have been adjusted for comparability to the 2015 segment presentation.
The following tables present net income, selected balance sheet information, and assets under administration/management for
Webster’s reportable segments for the periods presented:
(In thousands)
Commercial Banking
Community Banking
HSA Bank
Private Banking
Corporate and Reconciling
Net income
Years ended December 31,
2015
105,639
77,652
39,173
(511)
(15,613)
206,340
$
$
2014
109,548
73,720
18,164
(504)
(1,202)
199,726
$
$
2013
91,347
74,534
17,385
(722)
(3,088)
179,456
$
$
The increased net loss in the Corporate and Reconciling category for the year ended December 31, 2015, is primarily attributable
to an increase in asset sensitivity and the impact of lower long term interest rates.
(In thousands)
Total assets
Total loans and leases
Total deposits
Commercial
Banking
Community
Banking
At December 31, 2015
Private
Banking
HSA Bank
Corporate and
Reconciling
Consolidated
Total
$
7,505,513 $
8,441,950 $
95,815 $
493,571 $
8,140,971 $
24,677,820
7,509,453
7,592,553
54
3,073,276
10,449,231
3,802,313
490,112
228,497
79,563
399,461
15,671,735
17,952,778
Total assets under administration/management
—
2,762,759
692,306
1,726,385
—
5,181,450
(In thousands)
Total assets
Total loans and leases
Total deposits
Commercial
Banking
Community
Banking
At December 31, 2014
Private
Banking
HSA Bank
Corporate and
Reconciling
Consolidated
Total
$
6,550,868 $
8,123,928 $
26,680 $
398,893 $
7,432,803 $
22,533,172
6,559,020
6,853,115
166
3,203,344
10,103,698
1,824,799
395,667
211,298
92,057
308,466
13,900,025
15,651,605
Total assets under administration/management
—
2,754,775
746,983
1,676,961
—
5,178,719
(In thousands)
Total assets
Total loans and leases
Total deposits
Commercial
Banking
Community
Banking
At December 31, 2013
Private
Banking
HSA Bank
Corporate and
Reconciling
Consolidated
Total
$
5,682,129 $
7,738,597 $
19,524 $
346,338 $
7,066,557 $
20,853,145
5,628,303
6,622,747
141
2,948,072
10,014,509
1,533,310
343,682
206,035
104,903
152,494
12,699,776
14,854,420
Total assets under administration/management
—
2,534,819
571,824
1,980,413
—
5,087,056
37
Commercial Banking
The Commercial Banking segment includes middle market, asset-based lending, commercial real estate, equipment finance, and
treasury and payment solutions, which includes government and institutional banking. Webster Bank’s Commercial Banking group
takes a relationship approach to providing lending, deposit, and cash management services to middle market companies
predominately within its franchise territory. Additionally, it serves as a referral source to Private Banking and Community Banking.
Specifically, Webster deploys local decision making through Regional Presidents and capitalizes on the expertise of its Relationship
Managers to offer a compelling value proposition to customers and prospects. Webster has successfully deployed this model
throughout its footprint. The Middle Market expansion into Philadelphia in 2015 has been successful, attracting and developing
critical market-facing talent and generating new profitable relationships.
Commercial Banking Results:
(In thousands)
Net interest income
Provision (benefit) for loan and lease losses
Net interest income after provision
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
(In thousands)
Total assets
Total loans and leases
Total deposits
$
$
Years ended December 31,
2014
238,186
13,088
225,098
37,270
102,374
159,994
50,446
109,548
$
$
2015
255,845
30,160
225,685
37,784
109,718
153,751
48,112
105,639
2013
217,582
17,971
199,611
30,797
99,801
130,607
39,260
91,347
$
$
2015
$ 7,505,513
7,509,453
3,073,276
At December 31,
2014
$ 6,550,868
6,559,020
3,203,344
2013
$ 5,682,129
5,628,303
2,948,072
Net income decreased $3.9 million in 2015 compared to 2014. Net interest income increased $17.7 million in 2015 compared to
2014. The increase is primarily due to greater loan and deposit volumes and lower cost of funds. The provision for loan and lease
losses increased $17.1 million in 2015 compared to 2014. The increase is primarily due to year over year loan and lease growth
of $0.9 billion. Management believes the reserve level is adequate to cover inherent losses in the Commercial Banking portfolio
at December 31, 2015. Non-interest income increased $0.5 million in 2015 compared to 2014. The increase is primarily due to
fees generated from loan related activities. Non-interest expense increased $7.3 million in 2015 compared to 2014. The increase
is primarily due to costs related to strategic new hires, FDIC insurance and investments in technology.
Net income increased $18.2 million in 2014 compared to 2013. Net interest income increased $20.6 million in 2014 compared to
2013. The increase is primarily due to greater loan and deposit volumes, greater deferred loan fees, and the continuing lower cost
of funds. The provision for loan and lease losses decreased $4.9 million in 2014 compared to 2013. The decline is due in part to
Commercial Banking realizing continued improvement in asset quality, including declines in charge-offs in the portfolio as of
December 31, 2014. Non-interest income increased $6.5 million in 2014 compared to 2013, primarily due to fees generated from
loan related activities and interest rate derivative products. Non-interest expense increased $2.6 million in 2014 compared to 2013.
The increase is primarily related to strategic new hires.
Total loans were $7.5 billion, $6.6 billion, and $5.6 billion at December 31, 2015, 2014, and 2013, respectively. Loans increased
$950.4 million for the year ended December 31, 2015 compared to the year ended December 31, 2014, due to continued growth
in new originations. Loans increased $930.7 million for the year ended December 31, 2014 compared to the year ended December
31, 2013, primarily due to new originations. Loan originations were $3.0 billion, $2.9 billion and $2.4 billion in 2015, 2014 and
2013, respectively. The increase of $96.5 million in originations for the year ended December 31, 2015 is due to continued expansion
of Commercial Banking activities across all business lines within the segment.
Total deposits were $3.1 billion, $3.2 billion, and $2.9 billion at December 31, 2015, 2014, and 2013, respectively. Deposits
decreased $130.1 million for the year ended December 31, 2015 compared to the year ended December 31, 2014. Deposits increased
$255.3 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The decrease in 2015 is
due to large, short-term deposits received in the fourth quarter of 2014 that exited the bank in 2015. The increase in 2014 is a result
of new business development and operating funds maintained for cash management services.
38
Community Banking
Community Banking serves consumer and business banking customers primarily throughout southern New England and into
Westchester County, New York. This segment is comprised of the following: Personal Banking, Business Banking, and a distribution
network consisting of 163 banking centers and 316 ATMs, a customer care center, telephone banking, and a full range of web and
mobile-based banking services.
Personal Banking includes the following consumer products: deposit and fee-based services, residential mortgages, home equity
lines/loans, unsecured consumer loans, and credit cards. In addition, Webster Investment Services ("WIS') offers investment and
securities-related services, including brokerage and investment advice through a strategic partnership with LPL Financial (“LPL”).
Webster has employees who are LPL registered representatives located throughout its branch network, offering customers
investment products, including stocks and bonds, mutual funds, annuities, and managed accounts. Brokerage and online investing
services are available for customers.
Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms with
annual revenues of up to $20 million. This unit works to build full customer relationships through business bankers and business
certified banking center managers supported by a team of customer care center bankers and industry and product specialists.
In December, 2015, the Company negotiated an agreement with Citigroup Inc. to assume 17 banking center leases located in the
greater Boston market and to purchase the related leasehold improvements. At December 31, 2015, the Company had finalized,
with the lessors, the terms of 16 of the 17 leases. The transaction which closed in 2016, did not include the purchase of loans or
deposits, significantly increases the Community Banking presence in the Boston market. There was no impact to the Company's
financial statements in 2015.
Community Banking Results:
(In thousands)
Net interest income
Provision for loan and lease losses
Net interest income after provision
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
(In thousands)
Total assets
Total loans
Total deposits
$
$
Years ended December 31,
2014
354,781
26,345
328,436
103,543
324,312
107,667
33,947
73,720
$
$
2015
354,709
19,603
335,106
108,604
330,692
113,018
35,366
77,652
2013
347,395
19,219
328,176
116,182
337,795
106,563
32,029
74,534
$
$
2015
$ 8,441,950
7,592,553
10,449,231
At December 31,
2014
$ 8,123,928
6,853,115
10,103,698
2013
$ 7,738,597
6,622,747
10,014,509
Total assets under administration
2,762,759
2,754,775
2,534,819
Net income increased $3.9 million in 2015 compared to 2014. Net interest income was flat in 2015 compared to 2014 as benefits
of increased loan and deposit growth were offset by the effects of a persistent low interest rate environment. The provision for
loan and lease losses decreased by $6.7 million,
driven by lower charge-offs and improved asset quality. Management believes the
reserve level is adequate to cover inherent losses in the Community Banking portfolio. Non-interest income increased $5.1 million
in 2015 compared to 2014, primarily due to an increase in gains on the sale of mortgage loans and growth in fees associated with
credit and debit cards. Non-interest expense increased $6.4 million in 2015 compared to 2014. The increase is due to increased
compensation and benefits, marketing expenses and increased snow removal costs which were partially offset by a decrease in
amortization expense of intangible assets.
39
Net income was flat in 2014 compared to 2013. Net interest income increased $7.4 million in 2014 compared to 2013 driven by
increases in loan and deposit balances and wider deposit spreads. The provision for loan and lease losses increased $7.1 million
in 2014 compared to 2013 due to loan growth and an increase in specific reserves on impaired loans, partially offset by improving
asset quality and loss rate improvement. Non-interest income decreased $12.6 million in 2014 compared to 2013, primarily due
to a $12.3 million decline in gains from the sales of mortgage loans resulting from lower transaction volumes. Other fee revenues
were essentially flat, as increases in investment services and debit card revenue were offset by a reduction in NSF charges. Non-
interest expense decreased $13.5 million in 2014 compared to 2013. The decrease is reflective of the improvement in costs related
to debit card processing, loan workout, variable compensation, and shared services. Compensation was down modestly, as continued
reductions in Banking Center staffing were offset by an increase in Universal Bankers, Business Bankers and WIS financial
consultants.
Total loans were $7.6 billion at December 31, 2015 and $6.9 billion at December 31, 2014 and $6.6 billion in 2013. Loans increased
$739.4 million for the year ended December 31, 2015 compared to the year ended December 31, 2014, due to growth in residential
mortgages, business banking loans and unsecured personal loans. Loans increased $230.4 million for the year ended December
31, 2014 compared to the year ended December 31, 2013. The net increase was due to $92.4 million of growth in the Business
Banking portfolio, with the remainder driven by growth in residential mortgages, home equity lines, and personal loans. Loan
originations were $2.4 billion, $1.7 billion and $2.2 billion for the years ended 2015, 2014 and 2013, respectively. The increase
of $739.4 million in originations for the year ended December 31, 2015 is due to increases in residential mortgage originations
driven by growth in correspondent channels and increased refinancing activity in the market associated with refinances tied to
low interest rates and a strong spring home purchase season.
Total deposits were $10.4 billion, $10.1 billion, and $10.0 billion, for the years ended December 31, 2015, 2014, and 2013,
respectively. Deposits increased $345.5 million for the year ended December 31, 2015 compared to the year ended December 31,
2014, due to growth in business and personal transaction account balances which was partially offset by a decrease in certificate
deposit balances. Deposits increased $89.2 million for the year ended December 31, 2014 compared to the year ended December
31, 2013 due to continued growth in both business and consumer transaction deposit balances.
At December 31, 2015 and 2014, Webster Investment Services had $2.8 billion of assets under administration in its strategic
partnership with LPL compared to $2.5 billion at December 31, 2013. These assets are not included in the balance sheet information
amounts. LPL, is a broker dealer registered with the Securities and Exchange Commission, a registered investment advisor under
federal and applicable state laws, a member of the Financial Industry Regulatory Authority (“FINRA”), and a member of the
Securities Investor Protection Corporation (“SIPC”).
Community Banking finished the year by announcing plans to open 17 new banking centers in former Citibank locations in greater
Boston in January 2016. The agreement involved leases, all of which include renewal options, and fixtures, but did not include
deposit accounts or loans. The transaction will result in an immediate increase in Community Banking operating expenses in the
first quarter of 2016. Revenue growth is expected to accelerate over the coming quarters as new deposit and lending relationships
are developed. The transaction is expected to be modestly dilutive to earnings per share in 2016, break-even in 2017 and accretive
thereafter.
40
HSA Bank
HSA Bank, a division of Webster Bank, offers health savings accounts, health reimbursement accounts, flexible spending accounts,
and other financial solutions for healthcare. These solutions are used in conjunction with high deductible health plans and are
offered through employers or directly to consumers and are distributed nationwide directly, and through multiple partnerships.
On January 13, 2015, Webster Bank completed its acquisition of JPMorgan Chase Bank, N.A.'s health savings account business.
The acquisition of approximately 829,000 accounts, including $1.4 billion in deposits, and $185.0 million in assets under
administration which are not included in the balance sheet information amounts, solidifies the HSA Bank division as a leading
administrator and depository of health savings accounts with more than 1.7 million accounts and more than $4.5 billion in footings
at December 31, 2015.
HSA Bank Results:
(In thousands)
Net interest income
Provision for loan and lease losses
Net interest income after provision
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
(In thousands)
Total assets
Total deposits
$
$
$
$
$
Years ended December 31,
2014
38,822
—
38,822
28,553
40,900
26,475
8,311
18,164
$
$
2015
73,433
—
73,433
64,243
80,662
57,014
17,841
39,173
2015
95,815
3,802,313
At December 31, 2015
2014
26,680
1,824,799
$
$
2013
32,807
—
32,807
21,963
29,962
24,808
7,423
17,385
2013
19,524
1,533,310
Total assets under administration
692,306
746,983
571,824
Net income increased $21.0 million in 2015 compared to 2014. Net interest income increased $34.6 million in 2015 compared to
2014. The increase was due to HSA Bank's deposit balance growth, account growth, pricing initiatives, and the positive impact
of the acquisition. Cost of deposits declined 6 basis points. The shift in cost is primarily due to the JPM acquisition. Non-interest
income increased $35.7 million for the year ended December 31, 2015, from the comparable period in 2014. The increase in non-
interest income is due to the growth in service fees, and interchange income related to HSA Bank's customer accounts. Non-interest
expense increased $39.8 million for the year ended December 31, 2015 from the comparable period in 2014, primarily due to an
increase in processing costs to support the organic growth and the acquired health savings accounts. Third party servicing costs
to service the JPM portfolio were $12.9 million for the year.
Net income increased $0.8 million in 2014 compared to 2013. Net interest income increased $6.0 million in 2014 compared to
2013. The increase was due to HSA Bank's deposit balance growth and account growth. Non-interest income increased $6.6 million
for the year ended December 31, 2015, from the comparable period in 2014. The increase in non-interest income is due to the
growth in service fees related to HSA Bank's deposits. Non-interest expense increased $10.9 million for the year ended December
31, 2015 from the comparable period in 2014, primarily due to an increase in processing costs to support the organic growth in
deposits.
Total deposits increased $2.0 billion at December 31, 2015 compared to December 31, 2014. Of the $2.0 billion, $1.4 billion was
attributable to the acquired balances, and $577.5 million was attributable to the deposit growth for the year ended December 31,
2015. Additionally, HSA Bank had $692.3 million in assets under administration through linked brokerage accounts at
December 31, 2015 compared to $747.0 million at December 31, 2014. The $54.7 million decline in linked brokerage balances
is driven primarily by two events; a custodial only relationship exited in August 2015, reducing linked brokerage accounts by
$385.4 million, offset by continued organic growth and the health savings account acquisition in January 2015 that added $185.0
million in linked brokerage accounts.
41
HSA Bank experienced a 108% increase in deposit balances and a 154% increase in accounts from the prior year. This growth
was primarily driven by the JPM acquisition and increased penetration into larger employer groups and direct relationships with
health insurance carriers. In support of this focus, HSA Bank completed a platform upgrade in 2014 and added new products, such
as health reimbursement accounts, flexible spending accounts, and commuter benefits, and capabilities such as mobile banking,
bill pay and multi-purse cards. Branding and positioning were refreshed to reflect new capabilities, and resources were added to
focus on the new products for insurance carriers and large employers. In 2016, HSA Bank will focus on the integration and
conversion of the newly acquired portfolio and continued advancement of initiatives to optimize distribution channels and drive
future revenue growth.
Private Banking
Private Banking provides local, full relationship banking that serves high net worth clients, not-for-profit organizations, and
business clients for asset management, trust, loan, and deposit products and financial planning services. The segment is focused
on generating revenues from fees earned on clients’ assets under management and administration. The majority of the client
relationships include lending and/or deposit accounts, which also generate significant revenues through net interest income; along
with ancillary fee and interest rate derivative revenues.
Private Banking Results:
(In thousands)
Net interest income
Provision for loan and lease losses
Net interest income after provision
Non-interest income
Non-interest expense
Loss before income taxes
Income tax benefit
Net loss
(In thousands)
Total assets
Total loans
Total deposits
$
$
$
Years ended December 31,
2014
2015
10,240
386
9,854
9,183
19,781
(744)
(233)
(511)
$
$
8,877
765
8,112
9,843
18,691
(736)
(232)
(504)
$
$
2015
493,571
490,112
228,497
$
At December 31, 2015
2014
398,893
395,667
211,298
$
2013
8,185
397
7,788
10,963
19,783
(1,032)
(310)
(722)
2013
346,338
343,682
206,035
Total assets under administration/management
1,726,385
1,676,961
1,980,413
Net losses increased $7.0 thousand in 2015 compared to 2014. Net interest income increased $1.4 million in 2015 compared to
2014. The increase was due to Private Banking's $94.4 million growth in loan balances compared to the same period in 2014.
Non-interest income decreased $0.7 million for the year ended December 31, 2015 from the comparable period in 2014. The
decrease in non-interest income is due to the full-year impact of reduced fee revenue from net assets under management outflows
in 2014. In 2015, net positive assets under management inflows were offset by a net decline in assets under management valuations
resulting from volatile market performance, primarily in the second half of the year. Non-interest expense increased $1.1 million
for the year ended December 31, 2015 from the comparable period in 2014, primarily due to: an increased investment in marketing;
consulting related to enhancing investment management systems; occupancy expenses related to the physical move of the wealth
advisory business; and, expenses in support of the increased level of loan production in 2015.
Net losses decreased $0.2 million in 2014 compared to 2013. Net interest income increased $0.7 million in 2014 compared to
2013. The increase was due to Private Banking's $52.0 million growth in loan balances compared to the same period in 2013.
Non-interest income decreased $1.1 million in 2014 compared to 2013 The decrease was primarily due to the disposition of non-
strategic portfolio assets in the third quarter of 2013 and revenue reductions tied to outflow of assets under management related
to a strategic shift in the Private Banking investment model in 2014. Non-interest expense decreased $1.1 million in 2014 compared
to 2013 due to the disposition of non-strategic portfolio assets in the third quarter of 2013 and lower expense associated with staff
vacancies in 2014.
Private Banking total loans were $490.1 million, $395.7 million and $343.7 million at December 31, 2015, 2014, and 2013,
respectively. Loans increased $94.4 million for the year ended December 31, 2015, as loan originations and advances outpaced
principal paydowns. Loan originations were $183.1 million, $103.4 million and $156.2 million for the years ended 2015, 2014
and 2013, respectively. The increase of $79.7 million in originations for the year ended December 31, 2015 is due to continued
42
favorable residential mortgage interest rates and increased production of non-residential loans, facilitated by a more streamlined
process for approving and processing loans to high net worth customers.
Private Banking had approximately $1.5 billion in assets under management at December 31, 2015 and December 31, 2014 and
$1.8 billion at December 31, 2013, and $276.1 million, $214.7 million and $228.4 million in assets under administration at
December 31, 2015, December 31, 2014 and December 31, 2013, respectively. Private Bank assets under management and assets
under administration include assets attributable to, Webster Financial Corporation's subsidiary, Webster Wealth Advisers, and
managed or administered under contractual arrangements between advisory personnel of that entity and Commonwealth Financial
Network (“Commonwealth”). Such assets were $419.8 million at December 31, 2015, compared to $389.2 million at December
31, 2014 and $371.8 million at December 31, 2013. These assets are not included in the balance sheet information amounts.
Commonwealth, a provider of investment and insurance programs for financial institutions, is a broker dealer and investment
adviser registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority
(“FINRA”) and the Securities Investor Protection Corporation (“SIPC”).
The Private Bank continued to build momentum on the basis of its fully transformed business model. During 2015, Private Bank
loans grew 23.9%, deposits increased by 8.1% and assets under management and administration increased by 2.9%. 2015 saw the
launch of Private Bank’s Strategic Investment Advisory Service, an offering expected to grow assets under administration and
related fee revenue. The Private Bank also initiated the strategic buildout of its presence in the Massachusetts and Rhode Island
markets with the hire of highly experienced local market professionals.
Financial Condition
Webster had total assets of $24.7 billion at December 31, 2015 compared to $22.5 billion at December 31, 2014, an increase of
$2.1 billion, or 9.5%. Webster’s loan-to-deposit ratio was 87.3% at December 31, 2015 compared to 88.8% at December 31, 2014.
Net loans and leases were $15.5 billion at December 31, 2015, an increase of $1.8 billion compared to $13.7 billion, at December 31,
2014. The allowance for loan and lease losses was $175.0 million at December 31, 2015, an increase of $15.7 million compared
to $159.3 million, at December 31, 2014. These increases were driven by strong loan origination activity.
Total deposits of $18.0 billion at December 31, 2015 increased $2.3 billion compared to $15.7 billion at December 31, 2014. Non-
interest-bearing deposits increased 3.2%, and interest-bearing deposits increased 18.1% during the year ended December 31, 2015
due to the Company’s HSA acquisition.
At December 31, 2015, total shareholders' equity was $2.4 billion compared to $2.3 billion at December 31, 2014, an increase of
$92.8 million or, 4.0%. Changes in shareholders' equity for the year ended December 31, 2015 consisted of an increase of $206.3
million for net income offset by a decrease of $21.8 million for other comprehensive loss, $81.2 million for dividends to common
shareholders, $8.7 million for dividends paid to preferred shareholders, and $17.8 million of treasury stock at cost.
On April 20, 2015, the quarterly cash dividend to common shareholders increased to $0.23 per common share, from $0.20 per
common share. See the "Selected Financial Highlights" section contained elsewhere in this item and Note 13: Regulatory Matters
in the Notes to Consolidated Financial Statements contained elsewhere in this report for information on Webster’s regulatory
capital levels and ratios.
Investment Securities Portfolio
Webster Bank's investment securities portfolio is managed within regulatory guidelines and corporate policy, which include
limitations on aspects such as concentrations in and types of investments as well as minimum risk ratings per type of security. The
Office of the Comptroller of the Currency may establish additional individual limits on a certain type of investment if the
concentration in such investment presents a safety and soundness concern. The holding company also may hold investment
securities directly.
Webster Bank maintains, through the Corporate Treasury Unit of the Company, an investment securities portfolio that is primarily
structured to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest rate
risk. The portfolio is classified into two major categories, available-for-sale and held-to-maturity. The available-for-sale portfolio
consists primarily of agency collateralized mortgage obligations ("agency CMO"), agency mortgage-backed securities ("agency
MBS"), non-agency commercial mortgage-backed securities ("non-agency CMBS"), and CLOs. The held-to-maturity portfolio
consists primarily of agency CMO, agency MBS, agency commercial mortgage-backed securities ("agency CMBS"), municipal
bonds, and non-agency CMBS. At December 31, 2015, the Company had no investments in obligations of individual states,
counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.
43
The combined carrying value of investment securities totaled $6.9 billion and $6.7 billion at December 31, 2015 and December 31,
2014, respectively. Available-for-sale securities increased by $190.8 million, primarily due to purchases exceeding paydowns,
maturities, and sales. Held-to-maturity securities increased by $50.1 million, primarily due to the purchases of agency MBS and
agency CMBS exceeding the portfolio paydowns and calls. On a tax-equivalent basis, the yield in the securities portfolio for the
years ended December 31, 2015 and 2014 was 3.04% and 3.28%, respectively.
The Company held $3.3 billion in investment securities that are in an unrealized loss position at December 31, 2015. Approximately
$2.3 billion of this total has been in an unrealized loss position for less than twelve months, while the remainder, $1.0 billion, has
been in an unrealized loss position for twelve months or longer. The total unrealized loss was $58.7 million at December 31, 2015.
These investment securities were evaluated by management and were determined not to be other-than-temporarily impaired. The
Company does not have the intent to sell these investment securities, and it is more likely than not that it will not have to sell these
securities before the recovery of their cost basis. To the extent that credit movements and other related factors influence the fair
value of investments, the Company may be required to record impairment charges for other-than-temporary impairment ("OTTI")
in future periods.
For the year ended December 31, 2015, the Company recorded OTTI of $110 thousand on its available-for-sale securities. The
amortized cost of available-for-sale securities is net of $3.3 million and $3.7 million of OTTI at December 31, 2015 and
December 31, 2014, respectively, related to certain CLO securities that are considered Covered Funds as defined by Section 619
of the Dodd-Frank Act, commonly known as the Volcker Rule.
The following table summarizes the amortized cost and fair value of investment securities:
2015
2014
At December 31,
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$
924 $
— $
— $
$
525 $
— $
— $
(In thousands)
Available-for-sale:
U.S. Treasury Bills
Agency CMO
Agency MBS
Agency CMBS
Non-agency CMBS
CLO
Single issuer trust preferred
securities
Corporate debt securities
Equities-financial institutions
Securities available-for-sale
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
Non-agency CMBS
Private Label MBS
546,168
1,075,941
215,670
574,686
431,837
42,168
104,031
3,499
$ 2,994,924 $
$
407,494 $
2,030,176
686,086
435,905
360,018
3,373
Securities held-to-maturity
$ 3,923,052 $
543,417
1,030,724
80,400
534,631
426,269
41,981
106,520
3,500
$ 2,767,967 $
$
442,129 $
2,134,319
578,687
373,211
338,723
5,886
$ 3,872,955 $
8,636
10,462
—
18,885
482
(1,065)
(12,668)
(134)
(123)
(1,017)
525
550,988
1,028,518
80,266
553,393
425,734
38,245
—
110,301
3,781
2,403
5,903
44,649 $ (18,743) $ 2,793,873
(3,736)
—
—
(739) $
6,584 $
57,196
1,597
15,138
9,428
100
447,974
2,180,175
579,141
388,294
347,136
5,986
90,043 $ (14,292) $ 3,948,706
(11,340)
(1,143)
(55)
(1,015)
—
5,532
6,459
639
7,485
592
(2,946)
(17,291)
(959)
(2,905)
(3,270)
924
548,754
1,065,109
215,350
579,266
429,159
—
2,290
—
37,170
(4,998)
106,321
—
2,578
(921)
22,997 $ (33,290) $ 2,984,631
3,717 $
38,813
4,253
12,019
5,046
46
409,153
2,049,081
690,014
447,507
362,360
3,419
63,894 $ (25,412) $ 3,961,534
(2,058) $
(19,908)
(325)
(417)
(2,704)
—
44
The following table summarizes the amount and weighted-average yield by contractual maturity for debt securities:
Within 1 Year
1 - 5 Years
5 - 10 Years
After 10 Years
Total
Amount
Weighted
Average
Yield
Amount
Weighted
Average
Yield
Amount
Weighted
Average
Yield
Amount
Weighted
Average
Yield
Amount
Weighted
Average
Yield
At December 31, 2015
(Dollars in thousands)
Available-for-sale:
U.S. Treasury Bills
Agency CMO
Agency MBS
Agency CMBS
$
924
0.22% $
—
—
—
—
—
—
Non-agency CMBS
29,727
2.13
CLO
Single issuer trust preferred
securities
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—% $
—
—% $
—
—% $
924
0.22%
11,072
2.74
—
—
118,466
304,195
—
—
—
—
2.36
2.44
—
—
537,682
1,065,109
215,350
431,073
124,964
37,170
—
2.53
2.58
2.79
3.96
2.84
2.01
—
548,754
1,065,109
215,350
579,266
429,159
37,170
106,321
2.53
2.58
2.79
3.53
2.56
2.01
3.11
Corporate debt securities
5,009
2.63
101,312
3.14
Securities available-for-sale
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
Non-agency CMBS
Private Label MBS
Securities held-to-maturity
Total debt securities
$
$
$
$
35,660
2.15% $ 101,312
3.14% $ 433,733
2.42% $2,411,348
2.83% $2,982,053
2.77%
—
—
—
—
—
320
5.48
—
—
—
—
—% $
—
—% $
11,853
2.98% $ 395,641
2.69% $ 407,494
2.70%
22,651
—
7,917
—
3,373
4.20
—
6.04
—
4.60
25,855
—
11,109
—
—
3.93
—
6.66
—
—
1,981,670
686,086
416,559
360,018
—
2.73
2.76
5.95
3.30
—
2,030,176
686,086
435,905
360,018
3,373
2.76
2.76
5.96
3.30
4.60
320
5.48% $
33,941
4.67% $
48,817
4.32% $3,839,974
3.13% $3,923,052
3.16%
35,980
2.18% $ 135,253
3.53% $ 482,550
2.62% $6,251,322
3.02% $6,905,105
2.99%
The benchmark 10-year U.S. Treasury rate increased to 2.27% on December 31, 2015 from 2.17% on December 31, 2014. Webster
Bank has the ability to use its investment portfolio, as well as interest-rate derivative financial instruments within internal policy
guidelines, to hedge and manage interest rate risk as part of its asset/liability strategy. See Note 15: Derivative Financial Instruments
in the Notes to Consolidated Financial Statements contained elsewhere in this report for additional information concerning the
use of derivative financial instruments.
Alternative Investments
The Volcker Rule prohibits investments in private equity funds and other non-marketable investments that are considered Covered
Funds. Conformance with the final rule is required by July 21, 2017 for certain non-compliant Covered Funds. Additional extensions
are available if the retention of such ownership interest is necessary to fulfill a contractual obligation of the banking entity. The
Company does not expect any material impact to the financial statements related to Volcker Rule requirements for its alternative
investments. Alternative investments are included in other assets in the Consolidated Balance Sheets with gains and losses related
to these holdings included in other non-interest income in the Consolidated Statements of Income.
Investments in Private Equity Funds. These funds totaled $10.9 million at December 31, 2015 and $10.2 million at December 31,
2014. The majority of these funds are held at cost based on ownership percentage in the fund, while some are accounted for at
fair value using a net asset value. The Company recognized a net gain of $2.7 million and $733 thousand and a net loss of $392
thousand for the years ended December 31, 2015, 2014, and 2013, respectively.
Other Non-Marketable Investments. These investments, which include preferred share ownership in non-public equity ventures,
totaled $5.5 million and $6.8 million at December 31, 2015 and December 31, 2014 respectively. These investments are held at
cost and subject to impairment testing. The Company recognized a net loss of $398 thousand for the year ended December 31,
2015, and a net gain of $110 thousand and $3 thousand for the years ended December 31, 2014 and 2013, respectively.
45
Loans and Leases
The following table provides the composition of loans and leases:
(Dollars in thousands)
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
2015
2014
2013
2012
2011
At December 31,
Residential
Consumer:
Home equity
Liquidating - home equity
Other consumer
Total consumer
Commercial:
$ 4,042,960
25.8
$ 3,498,675
25.2
$ 3,353,967
26.5
$ 3,285,945
27.2
$ 3,213,814
28.7
2,360,244
15.1
2,367,402
17.0
2,355,257
18.5
2,448,207
20.4
2,554,879
22.8
79,171
248,830
0.5
1.6
92,056
75,307
0.7
0.5
104,902
60,681
0.8
0.5
121,875
43,672
1.0
0.4
147,553
37,506
1.3
0.3
2,688,245
17.2
2,534,765
18.2
2,520,840
19.8
2,613,754
21.8
2,739,938
24.4
Commercial non-mortgage
3,575,042
22.8
3,098,892
22.3
2,734,025
21.5
2,409,816
20.0
1,939,629
17.3
Asset-based
755,709
4.8
662,615
4.8
560,666
4.4
505,425
4.2
454,078
4.0
Total commercial
4,330,751
27.6
3,761,507
27.1
3,294,691
25.9
2,915,241
24.2
2,393,707
21.3
Commercial real estate:
Commercial real estate
3,696,596
23.6
3,326,906
23.9
2,856,110
22.5
2,644,229
22.0
2,274,110
20.3
Commercial construction
300,246
1.9
235,449
1.7
205,397
1.6
142,070
1.2
113,534
0.9
Total commercial real estate
3,996,842
25.5
3,562,355
25.6
3,061,507
24.1
2,786,299
23.2
2,387,644
21.2
Equipment financing
Net unamortized premiums
Net deferred fees
594,984
7,477
10,476
3.8
—
0.1
532,117
2,580
8,026
3.8
—
0.1
455,434
5,466
7,871
3.6
—
0.1
414,783
6,254
6,420
3.4
0.1
0.1
469,679
8,132
12,490
4.2
0.1
0.1
Total loans and leases
$ 15,671,735 100.0
$ 13,900,025 100.0
$ 12,699,776 100.0
$ 12,028,696 100.0
$ 11,225,404 100.0
Total residential loans were $4.0 billion at December 31, 2015, a net increase of $544.3 million from December 31, 2014, primarily
the result of originations of $1,097.3 million during the year ended December 31, 2015, partially offset by loan payments.
Total consumer loans were $2.7 billion at December 31, 2015, a net increase of $153.5 million from December 31, 2014, primarily
the result of originations of $688.5 million during the year ended December 31, 2015, partially offset by loan payments.
Total commercial loans were $4.3 billion at December 31, 2015, a net increase of $569.2 million from December 31, 2014. The
growth in commercial loans is primarily related to new originations of $1.8 billion in commercial non-mortgage loans for the year
ended December 31, 2015, partially offset by loan payments. Asset-based loans increased $93.1 million from December 31, 2014,
reflective of $281.6 million in originations and line usage during the year ended December 31, 2015, partially offset by loan
payments.
Total commercial real estate loans were $4.0 billion at December 31, 2015, a net increase of $434.5 million from December 31,
2014 as a result of originations of $1.1 billion during the year ended December 31, 2015, partially offset by loan payments.
Equipment financing loans and leases were $595.0 million at December 31, 2015, a net increase of $62.9 million from December 31,
2014, primarily the result of $236.3 million in originations during the year ended December 31, 2015, partially offset by loan
payments.
46
The following table provides contractual maturity and interest-rate sensitivity information for loans and leases:
(In thousands)
Residential
Consumer:
Home equity
Liquidating - home equity
Other consumer
Total consumer
Commercial:
Commercial non-mortgage
Asset-based
Total commercial
Commercial real estate:
Commercial real estate
Commercial construction
Total commercial real estate
Equipment financing
Total loans and leases
(In thousands)
Fixed rate
Variable rate
Total loans and leases
Asset Quality
At December 31, 2015
Contractual Maturity
One Year Or Less
More Than One
To Five Years
More Than Five
Years
Total
$
1,134
$
42,185
$ 4,017,682
$ 4,061,001
2,939
—
1,853
4,792
435,313
148,541
583,854
275,696
63,484
339,180
22,106
62,395
3,381
230,326
296,102
2,551,060
601,347
3,152,407
1,343,311
169,670
1,512,981
455,910
2,308,502
2,373,836
76,181
16,983
79,562
249,162
2,401,666
2,702,560
576,411
3,327
579,738
2,073,417
66,071
2,139,488
122,510
3,562,784
753,215
4,315,999
3,692,424
299,225
3,991,649
600,526
$
951,066
$ 5,459,585
$ 9,261,084
$ 15,671,735
Interest-Rate Sensitivity
One Year Or Less
More Than One
To Five Years
More Than Five
Years
Total
$
$
133,654
817,412
951,066
$ 1,053,934
$ 3,829,349
$ 5,016,937
4,405,651
5,431,735
10,654,798
$ 5,459,585
$ 9,261,084
$ 15,671,735
Management maintains asset quality within established risk tolerance levels through its underwriting standards, servicing, and
management of loans and leases. Non-performing assets, loan and lease delinquency, and credit loss levels are considered to be
key measures of asset quality.
The following table provides key asset quality ratios:
Non-performing loans and leases as a percentage of loans and leases (1)
Non-performing assets as a percentage of loans and leases plus OREO (1)
Non-performing assets as a percentage of total assets (1)
Allowance for loan and lease losses as a percentage of non-performing loans and leases (1)
Allowance for loan and lease losses as a percentage of loans and leases
Net charge-offs as a percentage of average loans and leases
At or for the years ended December 31,
2015
2014
2013
2012
2011
0.89%
0.93%
1.28%
1.61%
1.67%
0.92
0.59
0.98
0.61
1.34
0.82
1.64
0.98
1.71
1.03
125.05
122.62
94.10
91.25
124.47
1.12
0.23
1.15
0.23
1.20
0.47
1.47
0.68
2.08
1.00
Ratio of allowance for loan and lease losses to net charge-offs
5.21x
5.21x
2.63x
2.28x
2.11x
(1) U.S. Government guaranteed loans of approximately $2.0 million, $0.8 million, $0.7 million and $0.5 million were reclassified from
non-accrual to over 90 days past due and accruing as of December 31, 2014, 2013, 2012 and 2011, respectively, to reflect a policy
change effective in the first quarter of 2015 and applied retrospectively. See Note 1: Summary of Significant Accounting Policies in
the Notes to Consolidated Financial Statements.
47
Non-performing Assets
The following table provides information regarding lending-related non-performing assets:
0.98
3.45
0.31
1.10
1.44
0.41
1.24
1.42
5.96
1.63
1.52
1.67
24,943
5,091
116
30,150
27,884
1,880
29,764
32,197
6,762
38,959
7,154
187,586
163
(Dollars in thousands)
Residential (3)
Consumer:
Home equity
Liquidating - home equity
Other consumer
Total consumer
Commercial:
2015
Amount (1) % (2)
2014
Amount (1) % (2)
At December 31,
2013
Amount (1) % (2)
2012
Amount (1) % (2)
2011
Amount (1) % (2)
$
54,101
1.34
$
64,022
1.83
$
80,589
2.40
$
94,854
2.89
$
81,559
2.54
33,414
3,865
558
37,837
1.42
4.88
0.22
1.41
35,490
4,460
280
40,230
1.50
4.84
0.37
1.59
45,434
6,245
139
51,818
1.93
5.95
0.23
2.06
49,402
8,133
135
57,670
2.02
6.67
0.31
2.21
Commercial non-mortgage
27,086
0.76
6,436
0.21
10,933
0.40
17,538
0.73
Asset-based loans
Total commercial
Commercial real estate:
Commercial real estate
Commercial construction
Total commercial real estate
Equipment financing
Total non-performing loans and leases (4)
Deferred costs and unamortized premiums
—
—
—
—
—
—
—
—
27,086
0.63
6,436
0.17
10,933
0.33
17,538
0.60
0.45
1.15
0.51
0.12
0.89
16,750
3,461
20,211
706
139,941
128
0.45
1.55
0.52
0.10
0.94
15,016
3,659
18,675
518
129,881
267
0.47
2.06
0.58
0.25
1.28
13,428
4,235
17,663
1,141
162,144
303
0.59
3.58
0.74
0.80
1.62
15,634
5,092
20,726
3,325
194,113
351
Total (4)
$ 140,069
$ 130,148
$ 162,447
$ 194,464
$ 187,749
Total non-performing loans and leases (4)
$ 139,941
$ 129,881
$ 162,144
$ 194,113
$ 187,586
Foreclosed and repossessed assets:
Residential and consumer
Commercial
5,029
—
Total foreclosed and repossessed assets
$
5,029
$
3,517
2,999
6,516
4,930
3,752
8,682
$
Total non-performing assets (4)
$ 144,970
$ 136,397
$ 170,826
2,659
723
$
3,382
$ 197,495
2,884
2,084
4,968
$
$ 192,554
(1) Balances by class exclude the impact of net deferred costs and unamortized premiums.
(2) Represents the principal balance of non-performing loans and leases as a percentage of the outstanding principal balance within the
comparable loan and lease category. The percentage excludes the impact of deferred costs and unamortized premiums.
(3) U.S. Government guaranteed loans of approximately $2.0 million, $0.8 million, $0.7 million and $0.5 million were reclassified from
non-accrual to over 90 days past due and accruing as of December 31, 2014, 2013, 2012 and 2011, respectively, to reflect a policy
change effective in the first quarter of 2015 and applied retrospectively. See Note 1: Summary of Significant Accounting Policies in
the Notes to Consolidated Financial Statements.
(4) Includes non-accrual restructured loans and leases of $100.9 million, $76.9 million, $103.0 million, $115.6 million and $77.0 million
as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively.
The following table provides detail of non-performing loan and lease activity:
(In thousands)
Beginning balance
Additions
Paydowns/draws
Reclassification of Chapter 7 Loans to accrual status
Charge-offs post modification
Other reductions
Ending balance
48
Years ended December 31,
2015
129,881 $
136,863
(84,219)
—
(34,363)
(8,221)
139,941 $
2014
162,144
106,525
(81,116)
(17,601)
(34,000)
(6,071)
129,881
$
$
Impaired Loans and Leases
Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect
all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest
payments. Impairment is evaluated on a pooled basis for smaller-balance loans of a similar nature. Consumer and residential loans
for which the borrower has been discharged in Chapter 7 bankruptcy are considered collateral dependent impaired loans at the
date of discharge. Commercial, commercial real estate, and equipment financing loans and leases over a specific dollar amount,
risk rated substandard or worse, and non-accruing, all troubled debt restructurings and all loans that have had a partial charge-off
are evaluated individually for impairment. Impairment may be evaluated at the present value of estimated future cash flows using
the original interest rate of the loan or at the fair value of collateral, less estimated selling costs. To the extent that an impaired
loan or lease balance is collateral dependent, the Company determines the fair value of the collateral.
For residential and consumer collateral dependent loans, a third-party appraisal is obtained upon loan default. Fair value of the
collateral for residential and consumer collateral dependent loans is reevaluated every six months, by either a new appraisal or
other internal valuation methods. Fair value is also reassessed, with any excess amount charged off, for consumer loans that reach
180 days past due per Federal Financial Institutions Examination Council guidelines. For commercial, commercial real estate, and
equipment financing collateral dependent loans and leases, Webster's impairment process requires the Company to determine the
fair value of the collateral by obtaining a third-party appraisal or asset valuation, an interim valuation analysis, blue book reference,
or other internal methods. Fair value of the collateral for commercial loans is reevaluated quarterly. Whenever the Company has
a third-party real estate appraisal performed by independent licensed appraisers, a licensed in-house appraisal officer or qualified
reviewer reviews these appraisals for compliance with the Financial Institutions Reform Recovery and Enforcement Act and the
Uniform Standards of Professional Appraisal Practice.
A fair value shortfall is recorded as an impairment reserve against the allowance for loan and lease losses. Subsequent to an
appraisal or other fair value estimate, should reliable information come to management's attention that the value has declined
further, additional impairment may be recorded to reflect the particular situation, thereby increasing the allowance for loan and
lease losses. Any impaired loan for which no specific valuation allowance was necessary at December 31, 2015 and December 31,
2014 is the result of either sufficient cash flow or sufficient collateral coverage of the book balance.
At December 31, 2015, there were 1,764 impaired loans and leases with a recorded investment balance of $279.2 million, which
included loans and leases of $183.9 million with an impairment allowance of $22.2 million, compared to 1,828 impaired loans
and leases with a recorded investment balance of $330.9 million, which included loans and leases of $217.8 million, with an
impairment allowance of $25.3 million at December 31, 2014.
Troubled Debt Restructurings ("TDRs")
A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties; and (ii)
the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual
borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including
the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more
attractive to the borrower than standard market terms. The most common types of modifications include covenant modifications,
forbearance, and/or other concessions. If the modification agreement is violated, the loan is reevaluated to determine if it should
be handled by the Company’s Restructuring and Recovery group for resolution, which may result in foreclosure. Loans for which
the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus, impaired at
the date of discharge and charged down to the fair value of collateral less cost to sell.
The Company’s policy is to place consumer loan TDRs, except those that were performing prior to TDR status, on non-accrual
status for a minimum period of 6 months. Commercial TDRs are evaluated on a case-by-case basis for determination of whether
or not to place them on non-accrual status. Loans qualify for return to accrual status once they have demonstrated performance
with the restructured terms of the loan agreement for a minimum of 6 months. Initially, all TDRs are reported as impaired. Generally,
TDRs are classified as impaired loans and reported as TDRs for the remaining life of the loan. Impaired and TDR classification
may be removed if the borrower demonstrates compliance with the modified terms for a minimum of 6 months and through one
fiscal year-end, and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a
borrower with similar credit at the time of restructuring. In the limited circumstance that a loan is removed from TDR classification,
it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified by the loan
agreement.
49
The following tables provide information for TDRs:
(In thousands)
Residential
Consumer
Commercial
2015
Amount % (1)
3.31
$ 134,448
1.79
48,425
1.01
89,817
Total recorded investment of TDRs(2) $ 272,690
1.74
2014
Amount % (1)
4.05
$ 141,982
1.97
50,249
1.61
126,563
2.29
$ 318,794
At December 31,
2013
Amount % (1)
4.24
$ 142,413
2.05
52,092
2.15
146,428
2.68
$ 340,933
2012
Amount % (1)
4.45
$ 146,479
2.08
54,675
3.30
201,488
3.35
$ 402,642
2011
Amount % (1)
4.19
$ 134,844
1.32
36,503
5.17
271,430
3.94
$ 442,777
(1) Represents the balance of TDRs as a percentage of the outstanding balance within the comparable loan and lease category. The
percentage includes the impact of deferred costs and unamortized premiums.
(2) Total recorded investment of TDRs excludes accrued interest receivable of $1.1 million, $1.4 million, $1.0 million, $1.5 million and
$1.5 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively.
The following tables provide information for TDRs:
(In thousands)
Beginning balance
Additions
Paydowns/draws on existing TDRs, net
Charge-offs post modification
Transfers to OREO
Ending balance
(In thousands)
Accrual status
Non-accrual status
Total recorded investment of TDRs
Accruing TDRs performing under modified terms more than one year
Specific reserves for TDRs included in the balance of allowance for loan and lease losses
Additional funds committed to borrowers in TDR status
Years ended December 31,
2015
318,794
44,787
(76,615)
(11,785)
(2,491)
272,690
2014
340,933
37,802
(44,231)
(13,456)
(2,254)
318,794
$
$
At December 31,
2015
171,784
100,906
272,690
55.0%
21,405
1,133
$
$
$
2014
241,855
76,939
318,794
67.5%
23,785
552
$
$
$
$
$
See Note 4: Loans and Leases in the Notes to Consolidated Financial Statements contained elsewhere in this report for a discussion
of the amount of modified loans, modified loan characteristics, and Webster’s evaluation of the success of its modification efforts.
50
Delinquent loans and leases
The following table provides information regarding loans and leases past due 30 days or more and accruing income:
(Dollars in thousands)
Residential
Consumer:
Home equity
Liquidating - home equity
Other consumer
Commercial:
2015
Amount (1) % (2)
0.37
$
15,032
2014
Amount (1) % (2)
0.49
$
17,216
At December 31,
2013
Amount (1) % (2)
0.55
$
18,285
2012
Amount (1) % (2)
0.77
$
25,182
2011
Amount (1) % (2)
0.76
$
24,361
12,225
1,036
2,000
0.52
1.31
0.80
14,757
1,658
1,110
0.62
1.80
1.47
18,290
1,806
636
0.78
1.72
1.05
24,344
3,588
516
0.99
2.94
1.18
20,394
4,538
453
0.80
3.08
1.21
Commercial non-mortgage
4,052
0.11
2,099
0.07
4,100
0.15
2,769
0.11
4,619
0.24
Commercial real estate:
Commercial real estate
Equipment financing
Loans and leases past due 30-89 days
Residential (3)
Commercial non-mortgage
Commercial real estate
Commercial construction
Loans and leases past due 90 days and
accruing
Total loans and leases over 30 days
delinquent
Deferred costs and unamortized
premiums
2,250
602
37,197
2,029
0.06
0.10
0.24
0.05
22 —
— —
— —
2,714
701
40,255
2,039
0.08
0.13
0.29
0.06
48 —
— —
— —
4,897
362
48,376
781
4,269
232
0.17
0.08
0.38
0.02
0.16
0.01
14,710
1,926
73,035
686
346
891
0.56
0.46
0.61
0.02
0.01
0.03
— —
— —
1,766
4,800
60,931
493
161
428
135
0.08
1.02
0.54
0.02
0.01
0.02
0.12
2,051
0.01
2,087
0.02
5,282
0.04
1,923
0.02
1,217
0.01
39,248
0.25
42,342
0.30
53,658
0.42
74,958
0.62
62,148
0.55
86
96
189
214
194
Total (4)
$
39,334
$
42,438
$
53,847
$
75,172
$
62,342
(1) Past due loan and lease balances exclude non-accrual loans and leases.
(2) Represents the principal balance of past due loans and leases as a percentage of the outstanding principal balance within the comparable
loan and lease category. The percentage excludes the impact of deferred costs and unamortized premiums.
(3) U.S. Government guaranteed loans of approximately $2.0 million, $0.8 million, $0.7 million and $0.5 million were reclassified from
non-accrual to over 90 days past due and accruing as of December 31, 2014, 2013, 2012 and 2011, respectively, to reflect a policy
change effective in the first quarter of 2015 and applied retrospectively. See Note 1: Summary of Significant Accounting Policies in
the Notes to the Consolidated Financial Statements.
(4) Loans and leases 30 days or more days past due and accruing exclude $0.6 million, $0.5 million, $0.7 million, $0.9 million and $0.7
million of accrued interest receivable as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively.
Allowance for Loan and Lease Losses Methodology
The allowance for loan and lease losses ("ALLL") is maintained at a level deemed sufficient by management to cover probable
losses inherent within the loan and lease portfolios. Executive management reviews and advises on the adequacy of these reserves.
The ALLL policy is considered a critical accounting policy.
The quarterly process for estimating probable losses is based on predictive models, the current risk profile of loan portfolios, and
other relevant factors. Management's judgment and assumptions influence loss estimates and ALLL balances. Management
considers factors such as the nature and volume of portfolio growth, national and regional economic conditions and trends, and
other internal performance metrics, and how each of these factors is expected to impact near term loss trends. While actual future
conditions and realized losses may vary significantly from assumptions, management believes the ALLL is adequate as of
December 31, 2015.
51
Webster’s methodology for assessing an appropriate level of the ALLL includes three key elements:
(i) Impaired loans and leases are either analyzed on an individual or pooled basis and assessed for specific reserves based on
collateral, cash flow, and probability of re-default specific to each loan or lease;
(ii) Loans and leases with similar risk characteristics are segmented into homogeneous pools and modeled using quantitative
methods. The commercial portfolio loss estimate is based on the expected loss methodology - specifically, probability of
default and loss given default. Changes in risk ratings and other risk factors, for both performing and non-performing loans
and leases, will affect the calculation of the allowance. Residential and consumer portfolio loss estimates are based on roll
rate models. Webster Bank considers other quantitative contributing factors for risks impacting the performance of loan
portfolios that are not explicitly included in the quantitative models and may adjust loss estimates based on these factors.
Contributing factors may include, but are not limited to, collateral values, unemployment, and other changes in economic
activity, and internal performance metrics; and
(iii) Webster Bank also considers qualitative factors that are not explicitly factored into the quantitative models but that can
have an incremental or regressive impact on losses incurred in the current loan and lease portfolio. Examples include staffing
levels, credit concentrations, and macro-economic trends. The quantitative and qualitative contributing factors are consistent
with interagency regulatory guidance.
Webster Bank has credit policies and procedures in place designed to support loan growth within an acceptable level of risk.
Management reviews and approves these policies and procedures on a regular basis. To assist management with its review, reports
related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem
loans are generated by loan reporting systems.
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt.
Underwriting standards are designed in support for the promotion of relationships rather than transactional banking. Once it is
determined that the borrower’s management possesses sound ethics and solid business acumen, the Company examines current
and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial and industrial loans
are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by
the borrower. The cash flows of borrowers; however, may not be as expected, and the collateral securing these loans may fluctuate
in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate personal guarantees
of the principals.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in
addition to those specific to real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured
by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the
market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s
commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to
adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans
based on collateral, geography, and risk grade criteria. Commercial real estate loans may be adversely affected by conditions in
the real estate markets or in the general economy. The Company also utilizes third-party experts to provide insight and guidance
about economic conditions and trends affecting its commercial real estate loan portfolio.
Commercial construction loans have unique risk characteristics and are provided to experienced developers/sponsors with strong
track records of successful completion and sound financial condition and are underwritten utilizing feasibility studies, independent
appraisals, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners.
Commercial construction loans are generally based upon estimates of costs and value associated with the complete project. These
estimates may be subject to change as the construction project proceeds. In addition, these loans often include partial or full
completion guarantees. Sources of repayment for these types of loans may be pre-committed permanent loans from approved
long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is
obtained. These loans are closely monitored with on-site inspections by third-party professionals and the Company's internal staff.
Policies and procedures are in place to manage consumer loan risk and are developed and modified, as needed. Policies and
procedures, coupled with relatively small loan amounts, and predominately collateralized structures spread across many individual
borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis. Underwriting factors for
mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s
debt to income level and are also influenced by regulatory requirements. Additionally, Webster Bank originates both qualified
mortgage ("QM") and non-QM loans as defined by the Consumer Financial Protection Bureau rules that went into effect on January
10, 2014, with appropriate policies, procedures, and underwriting guidelines that include ability-to-repay standards.
52
The ALLL methodology for groups of loans collectively evaluated for impairment is comprised of both a quantitative and qualitative
analysis. A key assumption in the quantitative component of the reserve is the loss emergence period ("LEP"). The LEP is an
estimate of the average amount of time from an event signaling the potential inability of a borrower to continue to pay as agreed
to the point at which a loss on that loan is confirmed. In general, the LEP is expected to be shorter in an economic slowdown or
recession and longer during times of economic stability or growth as customers are better able to delay loss confirmation after a
potential loss event has occurred. In conjunction with the Company's annual review of ALLL assumptions, management has
performed an analysis of the LEP for both commercial and consumer loans, using charge-off data, servicing data and behavioral
data. The analysis confirmed a 24 month LEP for the home equity, business banking and commercial & industrial loan portfolios,
while the LEP for unsecured consumer portfolio was reduced from 18 to 12 months, and the LEP for residential mortgages and
for the commercial real estate portfolio were increased from 24 months to 30 months and 36 months, respectively. Another key
ALLL assumption is the look back period ("LBP"), which represents the historical period of time over which data is used to
estimate loss rates. Commercial loss models continue to use an LBP that goes back to 2007, with the more recent 2011-2015 years
weighted more heavily than the 2007-2010 prior years. The updates to the LEP estimate and the LBP estimate, coupled with the
update of the qualitative factors, did not have a material impact on the overall ALLL.
At December 31, 2015 the ALLL was $175.0 million compared to $159.3 million at December 31, 2014. The increase of $15.7
million in the reserve at December 31, 2015 compared to December 31, 2014 is primarily due to loan growth. The ALLL as a
percentage of the total loan and lease portfolio decreased from 1.15% at December 31, 2014 to 1.12% at December 31, 2015,
reflecting improved asset quality in most portfolios and particularly in the residential and commercial real estate loan portfolios.
The ALLL as a percentage of total non-performing loans and leases increased to 125.05% at December 31, 2015 from 122.62%
at December 31, 2014.
The following table provides an allocation of the ALLL by portfolio segment:
At December 31,
(Dollars in thousands)
Residential
Consumer
Commercial
Commercial real estate
Equipment financing
2015
Amount
$
25,876
42,052
66,686
34,889
5,487
Total ALLL
$ 174,990
2014
Amount
$
25,452
43,518
52,114
32,102
6,078
$ 159,264
% (1)
0.64
1.56
1.55
0.87
0.91
1.12
2013
Amount
$
23,027
41,951
51,001
32,408
4,186
$ 152,573
% (1)
0.73
1.71
1.39
0.90
1.13
1.15
2012
Amount
$
32,030
56,995
50,562
33,210
4,332
$ 177,129
% (1)
0.69
1.65
1.55
1.06
0.91
1.20
2011
Amount
$
37,193
72,939
65,295
48,436
9,624
$ 233,487
% (1)
0.97
2.17
1.74
1.19
1.03
1.47
% (1)
1.16
2.64
2.74
2.03
2.03
2.08
(1) Percentage represents allocated allowance for loan and lease losses to total loans and leases within the comparable category. However,
the allocation of a portion of the allowance to one category of loans and leases does not preclude its availability to absorb losses in
other categories.
The ALLL reserve allocated to the residential loan portfolio at December 31, 2015 increased $0.4 million compared to December 31,
2014. The year-over-year increase is attributable to loan growth.
The ALLL reserve allocated to the consumer portfolio at December 31, 2015 decreased $1.5 million compared to December 31,
2014. The year-over-year decrease is attributable to lower future expected losses and reduced levels of delinquencies and non-
performing loans.
The ALLL reserve allocated to the commercial portfolio at December 31, 2015 increased $14.6 million compared to December 31,
2014. The year-over-year increase is attributable to a $566.7 million increase in loans during the year and a $105.3 million increase
in commercial loans rated substandard.
The ALLL reserve allocated to the commercial real estate portfolio at December 31, 2015 increased $2.8 million compared to
December 31, 2014. The year-over-year increase is attributable to loan growth of more than $437.2 million, and to an extension
of the loss emergence period (LEP) for this portfolio. These increases were offset partially by a decrease in the reserve for impaired
loans. The extended LEP increases expected future losses by forecasting over a longer time horizon. Absent that change, expected
loss rates for CRE are lower than they were at December 31, 2014.
The ALLL reserve allocated to the equipment financing portfolio at December 31, 2015 decreased $0.6 million compared to
December 31, 2014. The decrease is attributed to improving asset quality and lower expected future loses.
53
The following tables provide detail of activity in the ALLL:
(In thousands)
Beginning balance
Provision
Charge-offs:
Residential
Consumer
Commercial
Commercial real estate
Equipment financing
Total charge-offs
Recoveries:
Residential
Consumer
Commercial
Commercial real estate
Equipment financing
Total recoveries
Net charge-offs
Ending balance
At or for the years ended December 31,
2015
$ 159,264
49,300
2014
$ 152,573
37,250
2013
$ 177,129
33,500
2012
$ 233,487
21,500
2011
$ 321,665
22,500
(6,508)
(17,679)
(11,522)
(7,578)
(273)
(43,560)
(6,214)
(20,712)
(13,668)
(3,237)
(595)
(44,426)
(11,592)
(29,037)
(19,126)
(15,425)
(279)
(75,459)
(12,927)
(43,920)
(35,793)
(9,894)
(1,668)
(104,202)
(11,524)
(52,997)
(39,933)
(22,721)
(2,154)
(129,329)
875
4,366
2,738
647
1,360
9,986
(33,574)
$ 174,990
1,324
5,055
4,369
885
2,234
13,867
(30,559)
$ 159,264
1,402
6,185
5,123
1,648
3,045
17,403
(58,056)
$ 152,573
803
7,040
6,817
2,210
9,474
26,344
(77,858)
$ 177,129
933
5,449
5,276
544
6,449
18,651
(110,678)
$ 233,487
Net charge-offs for the years ended December 31, 2015 and 2014 were $33.6 million and $30.6 million, respectively, consisting
of $5.6 million and $4.9 million, respectively, in net charges for residential loans, $13.3 million and $15.7 million, respectively,
in net charges for consumer loans, $8.8 million and $9.3 million, respectively, in net charges for commercial loans, $6.9 million
and $2.4 million, respectively, in net charges for commercial real estate loans, and net recoveries of $1.1 million and $1.6 million,
respectively, for equipment financing loans and leases. Net charge-offs increased by $3.0 million during the year ended December
31, 2015 compared to the year ended December 31, 2014. The increase in net charge-off activity reflects higher levels of losses,
offset somewhat by lower levels of recoveries, coupled with increased loan balances for the year ended December 31, 2015.
The following table provides a summary of total net charge-offs (recoveries) to average loans and leases by category:
Residential
Consumer
Commercial
Commercial real estate
Equipment financing
Total net charge-offs to total average loans and leases
Reserve for Unfunded Credit Commitments
Years ended December 31,
2015
2014
2013
2012
2011
0.15%
0.51
0.22
0.18
(0.20)
0.23%
0.14%
0.61
0.26
0.07
(0.34)
0.23%
0.31%
0.74
0.55
0.48
(0.67)
0.47%
0.37%
1.37
1.12
0.30
(1.84)
0.68%
0.34%
1.70
1.53
0.99
(0.73)
1.00%
The reserve for unfunded credit commitments provides for probable losses inherent with funding the unused portion of legal
commitments to lend. The reserve calculation includes factors that are consistent with ALLL methodology for funded loans using
the loss given default, probability of default, and a draw down factor applied to the underlying borrower risk and facility grades.
The following tables provide detail of activity in the reserve for unfunded credit commitments:
(In thousands)
Beginning balance
(Benefit) provision
Ending balance
At or for the years ended December 31,
2015
2014
2013
2012
2011
$
$
5,151
(3,032)
2,119
$
$
4,384
767
5,151
$
$
5,662
(1,278)
4,384
$
$
5,449
213
5,662
$
$
9,378
(3,929)
5,449
See Note 20: Commitments and Contingencies for information regarding a change in the draw down factor estimation for 2015.
54
Sources of Funds and Liquidity
Sources of Funds. The primary source of Webster Bank’s cash flows for use in lending and meeting its general operational needs
is deposits. Operating activities, such as loan and mortgage-backed securities repayments, and securities sale proceeds and
maturities, also provide cash flows. While scheduled loan and security repayments are a relatively stable source of funds, loan
and investment security prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions
and are inherently uncertain. Additional sources of funds are provided by Federal Home Loan Bank advances or other borrowings.
Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the Federal Home Loan Bank System,
which consists of twelve district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing
Finance Agency. An activity-based FHLB capital stock investment is required in order for Webster Bank to access advances and
other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in that there
is no market for it, and it can only be redeemed by the FHLB. Webster Bank held FHLB capital stock of $137.6 million at
December 31, 2015 and $142.6 million at December 31, 2014 for its membership and for outstanding advances and other extensions
of credit. Webster Bank received $3.4 million in dividends from the FHLB during 2015.
Additionally, Webster Bank is required to hold Federal Reserve Bank of Boston ("FRB") stock equal to 6% of its capital and
surplus of which 50% is paid. The remaining 50% is subject to call when deemed necessary by the Board of Governors of the
Federal Reserve System. The FRB capital stock investment is restricted in that there is no market for it, and it can only be redeemed
by the FRB. At both December 31, 2015 and December 31, 2014, Webster Bank held $50.7 million of FRB capital stock. Webster
Bank received $3.0 million in dividends from the FRB during 2015.
Deposits. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use;
direct deposit; ACH payments; combined statements; mobile banking services; internet-based banking; bank by mail; as well as
overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and
investment needs for both consumer and business customers throughout 163 banking centers within its primary market area.
Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with
Federal Deposit Insurance Corporation ("FDIC") regulations. Webster Bank’s Retail Pricing Committee and its Commercial and
Institutional Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.
Total average deposits increased $2.2 billion, or 14.2%, in 2015 compared to 2014 and increased $553.1 million, or 3.7%, in 2014
compared to 2013. A significant component of the increase was due to acquired JPMorgan Chase health savings accounts.
Additionally, there has been steady growth in deposits, most significantly for health savings accounts and non-interest bearing
classifications, partially offset by declining money market and time deposits. As a result, the average cost of deposits continues
to decline.
Daily average balances of deposits by type and weighted-average rates paid thereon for the periods as indicated:
(Dollars in thousands)
Non-interest-bearing:
Demand
Interest-bearing:
Checking
Health savings accounts
Money market
Savings
Time deposits
Total interest-bearing
Total average deposits
Years ended December 31,
2015
2014
2013
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$
3,564,751
$
3,216,777
$
2,939,324
2,245,015
3,561,900
2,076,770
3,962,364
2,138,778
13,984,827
17,549,578
$
0.06%
0.24
0.23
0.18
1.15
0.33
0.26% $
2,054,318
1,738,368
2,171,469
3,899,548
2,280,668
12,144,371
15,361,148
0.05%
0.30
0.19
0.19
1.16
0.36
0.29% $
1,873,337
1,454,558
2,341,568
3,841,923
2,357,321
11,868,707
14,808,031
0.05%
0.41
0.20
0.18
1.20
0.39
0.31%
Total deposits were $18.0 billion, $15.7 billion, and $14.9 billion at December 31, 2015, 2014, and 2013, respectively, with time
deposits with a denomination of $100 thousand or more represented approximately 5.6%, 6.6%, and 5.8%, respectively, of total
deposits. For additional information, see Note 2: Acquisition and Note 9: Deposits in the Notes to Consolidated Financial Statements
contained elsewhere in this report.
55
The following table presents time deposits with a denomination of $100 thousand or more at December 31, 2015 by maturity
periods:
(In thousands)
Due within 3 months
Due after 3 months and within 6 months
Due after 6 months and within 12 months
Due after 12 months
Time deposits with a denomination of $100 thousand or more
$
$
208,597
95,845
111,810
589,323
1,005,575
Borrowings. Utilized as a source of funding for liquidity and interest rate risk management purposes, borrowings primarily consist
of FHLB advances and securities sold under agreements to repurchase, whereby securities are delivered to counterparties under
an agreement to repurchase the securities at a fixed price in the future. At December 31, 2015 and December 31, 2014, FHLB
advances totaled $2.7 billion and $2.9 billion, respectively. Webster Bank had additional borrowing capacity from the FHLB of
approximately $1.2 billion and $0.7 billion at December 31, 2015 and December 31, 2014, respectively. Webster Bank also had
additional borrowing capacity at the FRB of $0.7 billion at December 31, 2015 and $0.8 billion December 31, 2014. In addition,
unpledged securities of $4.0 billion could have been used to increase borrowing capacity by $3.6 billion, at the FHLB, or at the
FRB, or alternatively used to collateralize other borrowings such as repurchase agreements, at December 31, 2015.
In addition, Webster Bank may utilize term and overnight Fed funds to meet short-term liquidity needs. The Company's long-term
debt consists of senior fixed-rate notes maturing in 2024 and junior subordinated notes maturing in 2033. Total borrowed funds
were $4.0 billion, $4.3 billion and $3.6 billion, and represented 16.4%, 19.2% and 17.3% of total assets at December 31, 2015,
2014 and 2013, respectively. For additional information, see Note 10: Borrowings in the Notes to Consolidated Financial Statements
contained elsewhere in this report.
Daily average balances of borrowings by type and weighted-average rates paid thereon for the periods as indicated:
(Dollars in thousands)
FHLB advances
Securities sold under agreements to repurchase
Federal funds
Long-term debt
Total average borrowings
Years ended December 31,
2015
Average
Balance
2,084,496
842,207
302,756
226,292
3,455,751
$
$
Average
Rate
1.10% $
1.93
0.21
4.27
1.43% $
2014
Average
Balance
2,038,749
966,304
387,004
252,368
3,644,425
Average
Rate
0.83% $
1.93
0.20
3.98
1.27% $
2013
Average
Balance
1,652,471
972,313
255,689
233,850
3,114,323
Average
Rate
0.98%
2.09
0.18
3.12
1.42%
Total average borrowings decreased $188.7 million, or 5.2%, in 2015 compared to 2014 and increased $530.1 million, or 17.0%,
in 2014 compared to 2013. The decrease in 2015 compared to 2014 was primarily due to lower borrowings of securities sold under
agreements to repurchase and Federal funds. The increase in 2014 compared to 2013 was primarily due to greater utilization of
FHLB advances at lower interest rates. Average borrowings represented 14.6%, 17.0%, and 15.4% of average total assets for
December 31, 2015, 2014, and 2013, respectively.
The following table sets forth additional information for short-term borrowings:
(Dollars in thousands)
Securities sold under agreements to repurchase:
At end of year
Average during year
Highest month-end balance during year
Federal funds purchased:
At end of year
Average during year
Highest month-end balance during year
At or for the years ended December 31,
2015
2014
2013
Amount
Rate
Amount
Rate
Amount
Rate
$ 334,400
325,015
409,756
0.15% $ 409,756
374,935
0.15
459,259
—
0.15% $ 359,662
316,560
0.16
372,922
—
317,000
302,756
479,000
0.39
0.21
—
291,000
387,004
457,000
0.17
0.20
—
322,000
255,689
398,000
0.16%
0.15
—
0.20
0.18
—
56
The following table summarizes contractual obligations to make future payments as of December 31, 2015:
(In thousands)
Senior notes
Junior subordinated debt
FHLB advances
Securities sold under agreements to repurchase
Fed funds purchased
Deposits with stated maturity dates
Operating leases
Purchase obligations
Total contractual obligations
$
$
Payments Due by Period (1)
Total
Less than
one year
1-3 years
3-5 years
150,000 $
77,320
2,664,115
834,400
317,000
2,086,154
184,258
183,651
— $
—
2,026,213
434,400
317,000
1,034,275
25,218
48,667
6,496,898 $ 3,885,773 $ 1,216,711 $
— $
—
201,076
400,000
—
494,703
42,138
78,794
— $
—
278,628
—
—
557,080
32,788
56,190
924,686 $
After 5
years
150,000
77,320
158,198
—
—
96
84,114
—
469,728
(1) Amounts for borrowings do not include interest. Amounts for leases are reflected as specified in the underlying contracts.
The Company also has the following obligations which have been excluded from the above table:
• unfunded commitments remaining for particular investments in private equity funds of $6.8 million, for which neither the
payment timing, nor eventual obligation is certain;
• credit related financial instruments with contractual amounts totaling $5.0 billion, of which many of these commitments
are expected to expire unused or only partially used, and therefore, the total amount of these commitments does not necessarily
reflect future cash payments; and
• liabilities for uncertain tax positions totaling $7.6 million, for which uncertainty exists regarding the amount that may
ultimately be paid, as well as the timing of any such payment.
Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive
liquidity management at both the holding company and Webster Bank. Liquidity comes from a variety of cash flow sources such
as operating activities, including principal and interest payments on loans and investments, or financing activities, including
unpledged securities which can be utilized to secure funding or sold, and new deposits. Webster is committed to maintaining a
strong, increasing base of core deposits to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in
order to maintain stable, cost effective funding to promote overall balance sheet strength.
Holding Company Liquidity. Webster’s primary source of liquidity at the holding company level is dividends from Webster Bank.
To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional
liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and capital securities, the
payment of dividends to preferred and common shareholders, repurchases of Webster’s common stock, and purchases of available-
for-sale securities. There are certain restrictions on the payment of dividends by Webster Bank to the holding company, which are
described in the “Supervision and Regulation” section of Item 1. At December 31, 2015, there was $335.4 million of retained
earnings available for the payment of dividends by Webster Bank to the holding company. Webster Bank paid $110.0 million in
dividends to the holding company during the year ended December 31, 2015.
Webster periodically repurchases common shares to fund employee compensation plans. In addition, the Company has a common
stock repurchase program authorized by the Board of Directors. The Company records the repurchase of shares of common stock
at cost based on the settlement date for these transactions. During the year ended December 31, 2015, a total of 496,878 shares
of common stock were repurchased at a cost of approximately $17.8 million, of which 146,878 shares were purchased to fund
employee compensation plans at a cost of approximately $5.2 million, and 350,000 shares were purchased under the common
stock repurchase program at a cost of approximately $12.6 million. At December 31, 2015, there was $26.7 million of remaining
repurchase authority under the common stock repurchase program.
Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits, consisting of demand, checking, savings,
health savings, and money market accounts. The primary use of this funding is for loan portfolio growth. Webster Bank had a loan
to total deposit ratio of 87.3% and 88.8% at December 31, 2015 and December 31, 2014, respectively.
Webster Bank is required by regulations adopted by the Office of the Comptroller of the Currency ("OCC") to maintain liquidity
sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on such factors as
the overall asset/liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers.
Webster Bank exceeded all regulatory liquidity requirements as of December 31, 2015. Webster has a detailed liquidity contingency
plan designed to respond to liquidity concerns in a prompt and comprehensive manner. It is designed to provide early detection
of potential problems and details specific actions required to address liquidity stress scenarios.
57
Applicable OCC regulations require Webster Bank, as a commercial bank, to satisfy certain minimum leverage and risk-based
capital requirements. As an OCC regulated commercial institution, it is also subject to minimum tangible capital requirements.
As of December 31, 2015, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC
requirements for a “well capitalized” institution. See Note 13: Regulatory Matters in the Notes to Consolidated Financial Statements
contained elsewhere in this report for a further discussion of regulatory requirements applicable to Webster and Webster Bank.
The liquidity position of the Company is continuously monitored, and adjustments are made to the balance between sources and
uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse
effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory
recommendations regarding liquidity, which, if implemented, would have a material adverse effect on the Company.
Off-Balance Sheet Arrangements
Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements
or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business,
for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit,
interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements
or facilitate certain trade arrangements. These transactions give rise to, in varying degrees, elements of credit, interest rate, and
liquidity risk. For the year ended December 31, 2015, Webster did not engage in any off-balance sheet transactions that would
have a material effect on its financial condition.
Asset/Liability Management and Market Risk
An effective asset/liability management process must balance the risks and rewards from both short and long-term interest rate
risks in determining management strategy and action. To facilitate and manage this process, Webster has an ALCO Committee.
The primary goal of ALCO is to manage interest rate risk to maximize net income and net economic value over time in changing
interest rate environments subject to Board approved risk limits. The Board sets limits for earnings at risk for parallel ramps in
interest rates over twelve months of plus and minus 100 and 200 basis points. Economic value or “equity at risk” limits are set
for parallel shocks in interest rates of plus and minus 100 and 200 basis points. Based on the historic lows in short-term interest
rates as of December 31, 2015 and 2014, the declining interest rate scenarios for both the earnings at risk for parallel ramps and
the equity at risk for parallel shocks have been temporarily suspended per ALCO policy. ALCO also regularly reviews earnings
at risk scenarios for non-parallel changes in rates, as well as longer-term earnings at risk for up to four years in the future.
Management measures interest rate risk using simulation analysis to calculate earnings and equity at risk. These risk measures are
quantified using simulation software from one of the leading firms in the field of asset/liability modeling. Key assumptions relate
to the behavior of interest rates and spreads, prepayment speeds, and the run-off of deposits. From such simulations, interest rate
risk is quantified, and appropriate strategies are formulated and implemented.
Earnings at risk is calculated as the change in income before income tax expense, excluding provision for loan and lease losses
("PPNR") due to changes in interest rates. Interest rates are assumed to change up or down in a parallel fashion, and earnings
results are compared to a flat rate scenario as a base. The flat rate scenario holds the end of the period yield curve constant over
the twelve month forecast horizon. Earnings simulation analysis incorporates assumptions about balance sheet changes such as
asset and liability growth, loan and deposit pricing, and changes to the mix of assets and liabilities. It is a measure of short-term
interest rate risk. Equity at risk is calculated as the change in the net economic value of assets and liabilities due to changes in
interest rates compared to a base net economic value. Equity at risk analyzes sensitivity in the present value of cash flows over
the expected life of existing assets, liabilities, and off-balance sheet contracts. It is a measure of the long-term interest rate risk to
future earnings streams embedded in the current balance sheet.
Asset sensitivity is defined as earnings or net economic value increasing compared to a base scenario when interest rates rise and
decreasing when interest rates fall. In other words, assets are more sensitive to changing interest rates than liabilities and therefore,
re-price faster. Likewise, liability sensitivity is defined as earnings or net economic value decreasing compared to a base scenario
when interest rates rise and increasing when interest rates fall.
Key assumptions underlying the present value of cash flows include the behavior of interest rates and spreads, asset prepayment
speeds, and attrition rates on deposits. Cash flow projections from the model are compared to market expectations for similar
collateral types and adjusted based on experience with Webster Bank's own portfolio. The model's valuation results are compared
to observable market prices for similar instruments whenever possible. The behavior of deposit and loan customers is studied
using historical time series analysis to model future customer behavior under varying interest rate environments.
58
The equity at risk simulation process uses multiple interest rate paths generated by an arbitrage-free trinomial lattice term structure
model. The Base Case rate scenario, against which all others are compared, uses the month-end LIBOR/Swap yield curve as a
starting point to derive forward rates for future months. Using interest rate swap option volatilities as inputs, the model creates
multiple rate paths for this scenario with forward rates as the mean. In shock scenarios, the starting yield curve is shocked up or
down in a parallel fashion. Future rate paths are then constructed in a similar manner to the Base Case.
Cash flows for all instruments are generated using product specific prepayment models and account specific system data for
properties such as maturity date, amortization type, coupon rate, repricing frequency, and repricing date. The asset/liability
simulation software is enhanced with a mortgage prepayment model and a Collateralized Mortgage Obligation database.
Instruments with explicit options such as caps, floors, puts and calls, and implicit options such as prepayment and early withdrawal
ability require such a rate and cash flow modeling approach to more accurately quantify value and risk. On the asset side, risk is
impacted the most by mortgage loans and mortgage-backed securities, which can typically prepay at any time without penalty and
may have embedded caps and floors. In the loan portfolio, floors are a benefit to interest income in this low rate environment.
Floating-rate loans at floors pay a higher interest rate than a loan at a fully indexed rate without a floor, as with a floor there is a
limit on how low the interest rate can fall. As market rates rise; however, the interest rate paid on these loans does not rise until
the fully indexed rate rises through the contractual floor. On the liability side, there is a large concentration of customers with
indeterminate maturity deposits who have options to add or withdraw funds from their accounts at any time. Webster Bank also
has the option to change the interest rate paid on these deposits at any time.
Webster's earnings at risk model incorporates net interest income, non-interest income and expense items, some of which vary
with interest rates. These items include mortgage banking income, servicing rights, cash management fees, and derivative mark-
to-market adjustments.
Four main tools are used for managing interest rate risk: (i) the size and duration of the investment portfolio; (ii) the size and
duration of the wholesale funding portfolio; (iii) off-balance sheet interest rate contracts; and (iv) the pricing and structure of loans
and deposits. ALCO meets at least monthly to make decisions on the investment and funding portfolios based on the economic
outlook, the Committee's interest rate expectations, the risk position, and other factors. ALCO delegates pricing and product design
responsibilities to individuals and sub-committees but monitors and influences their actions on a regular basis.
Various interest rate contracts, including futures and options, interest rate swaps, and interest rate caps and floors can be used to
manage interest rate risk. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is
the possibility that a loss may occur if a counterparty to a transaction fails to perform according to the terms of the contract. The
notional amount of interest rate contracts is the amount upon which interest and other payments are based. The notional amount
is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 15: Derivative Financial Instruments in
the Notes to Consolidated Financial Statements contained elsewhere in this report for additional information.
Certain derivative instruments, primarily forward sales of mortgage-backed securities, are utilized by Webster Bank in its efforts
to manage risk of loss associated with its mortgage banking activities. Prior to closing and funds disbursement, an interest-rate
lock commitment is generally extended to the borrower. During such time, Webster Bank is subject to risk that market rates of
interest may change impacting pricing on loan sales. In an effort to mitigate this risk, forward delivery sales commitments are
established, thereby setting the sales price.
The following table summarizes the estimated impact that gradual parallel changes in income of 100 and 200 basis points, over
a twelve month period starting December 31, 2015 and December 31, 2014, might have on Webster’s net interest income ("NII")
for the subsequent twelve month period compared to NII assuming no change in interest rates:
December 31, 2015
December 31, 2014
-200bp
N/A
N/A
-100bp
N/A
N/A
+100bp
1.6%
1.8%
+200bp
3.2%
3.7%
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points,
over a twelve month period starting December 31, 2015 and December 31, 2014, might have on Webster’s pre-tax, pre-provision
earnings ("PPNR") for the subsequent twelve month period, compared to PPNR assuming no change in interest rates:
December 31, 2015
December 31, 2014
-200bp
N/A
N/A
-100bp
N/A
N/A
+100bp
1.9%
2.7%
+200bp
4.0%
5.7%
59
Interest rates are assumed to change up or down in a parallel fashion, and NII and PPNR results in each scenario are compared to
a flat rate scenario as a base. The flat rate scenario holds the end of period yield curve constant over a twelve month forecast
horizon. The flat rate scenario as of December 31, 2014 assumed a Fed Funds rate of 0.25%, while the scenario as of December 31,
2015 assumed a rate of 0.50%. Asset sensitivity for both NII and PPNR has declined on December 31, 2015 as compared to
December 31, 2014. The declines were due to increased residential loan portfolio balances, increased investment balances due to
the acquisition of the health savings account business of JPMorgan Chase Bank, N.A., and decreased forecast prepay speeds in
the investment and residential loan portfolios, partially offset by increased demand deposit and HSA deposit balances. Since the
Fed Funds rate was at 0.50% on December 31, 2015, the -100 and -200 basis point scenarios have been excluded.
Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets
and liabilities. Changes in the market value of these positions are recognized in earnings.
The following table summarizes the estimated impact that immediate non-parallel changes in income might have on Webster’s
NII for the subsequent twelve month period starting December 31, 2015 and December 31, 2014:
December 31, 2015
December 31, 2014
Short End of the Yield Curve
Long End of the Yield Curve
-100bp
N/A
N/A
-50bp
N/A
N/A
+50bp
0.2%
(0.1)%
+100bp
0.8%
0.2%
-100bp
(4.2)%
(5.5)%
-50bp
(1.8)%
(2.4)%
+50bp
1.5%
2.0%
+100bp
2.7%
3.8%
The following table summarizes the estimated impact that immediate non-parallel changes in interest rates might have on Webster’s
PPNR for the subsequent twelve month period starting December 31, 2015 and December 31, 2014:
December 31, 2015
December 31, 2014
Short End of the Yield Curve
Long End of the Yield Curve
-100bp
N/A
N/A
-50bp
N/A
N/A
+50bp
(0.5)%
(0.3)%
+100bp
(0.3)%
(0.1)%
-100bp
(6.9)%
(9.8)%
-50bp
(3.0)%
(4.1)%
+50bp
2.7%
3.6%
+100bp
5.0%
6.8%
The non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while
the long end of the yield curve remains unchanged and vice versa. The short end of the yield curve is defined as terms of less than
eighteen months, and the long end as terms of greater than eighteen months. These results above reflect the annualized impact of
immediate rate changes. The actual impact can be uneven during the year especially in the short end scenarios where asset yields
tied to Prime or LIBOR change immediately, while certain deposit rate changes take more time.
Sensitivity to the short end of the yield curve for NII was more positive from December 31, 2014 a due to increased demand
deposit and HSA deposit balances, and lower amounts of loans at floors. Sensitivity to the short end of the yield curve for PPNR
at December 31, 2015 was more negative than at December 31, 2014 due primarily to the expiration of the Fed Funds futures
position as of June 30, 2015, partially offset by increased demand deposit and HSA deposit balances.
Sensitivity to decreases in the long end of the yield curve was less negative than at December 31, 2014 in both NII and PPNR due
to decreased forecast prepayment speeds in the residential loan and investment portfolios.
Conversely, sensitivity to increases in the long end of the yield curve was less positive than December 31, 2014 in both NII and
PPNR due to decreased forecast prepayment speeds in the residential loan and investment portfolios.
The following table summarizes the estimated economic value of assets, liabilities, and off-balance sheet contracts and the projected
change to economic values if interest rates instantaneously increase or decrease by 100 basis points:
(Dollars in thousands)
At December 31, 2015
Assets
Liabilities
Net
Net change as % base net economic value
At December 31, 2014
Assets
Liabilities
Net
Net change as % base net economic value
Book
Value
Estimated
Economic
Value
Estimated Economic Value Change
-100 bp
+100 bp
24,677,820 $
22,262,249
2,415,571 $
24,407,172
21,484,973
2,922,199
22,533,172 $
20,210,357
2,322,815 $
22,388,119
19,799,495
2,588,624
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
(490,190)
(553,740)
63,550
2.2%
(423,429)
(455,452)
32,023
1.2%
$
$
$
$
60
Changes in economic value can be best described using duration. Duration is a measure of the price sensitivity of financial
instruments for small changes in interest rates. For fixed rate instruments, it can also be thought of as the weighted-average expected
time to receive future cash flows. For floating rate instruments, it can be thought of as the weighted-average expected time until
the next rate reset. The longer the duration, the greater the price sensitivity for given changes in interest rates. Floating rate
instruments may have durations as short as one day and therefore, have very little price sensitivity due to changes in interest rates.
Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher
discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in value of a liability is
a benefit; however, as this is an obligation of Webster.
Duration gap is the difference between the duration of assets and the duration of liabilities. A duration gap near zero implies that
the balance sheet is matched and would exhibit no change in estimated economic value for a small change in interest rates. Webster's
duration gap was negative 1.0 years at December 31, 2015. At December 31, 2014, the duration gap was a negative 0.8 years. A
negative duration gap implies that liabilities are longer than assets and therefore will reset their interest rates slower than assets.
Consequently, Webster's net estimated economic value would generally be expected to increase when interest rates rise as the
benefit of the decreased value of liabilities would more than offset the decreased value of assets. The opposite would generally
be expected to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and
decrease when interest rates fall over the longer term absent the effects of new business booked in the future. The change in
Webster's duration gap is due primarily to the increase in demand deposit and HSA deposit balances as of December 31, 2015.
These estimates assume that management does not take any action to mitigate any positive or negative effects from changing
interest rates. The earnings and economic values estimates are subject to factors that could cause actual results to differ. Management
believes that Webster's interest rate risk position at December 31, 2015 represents a reasonable level of risk given the current
interest rate outlook. Management, as always, is prepared to act in the event that interest rates do change rapidly.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and related data presented herein have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a banking institution are monetary in nature. As
a result, interest rates have a more significant impact on Webster's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required information is set forth above, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, see the section captioned "Asset/Liability Management and Market Risk," which is incorporated herein by reference.
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page No.
63
64
65
66
67
68
70
62
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Webster Financial Corporation:
We have audited the accompanying consolidated balance sheets of Webster Financial Corporation and subsidiaries (the Company)
as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Webster Financial Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Webster Financial Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Hartford, Connecticut
February 29, 2016
63
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2015
2014
$
251,258
155,907
2,984,631
3,923,052
188,347
37,091
15,671,735
(174,990)
15,496,745
101,578
129,426
538,373
39,326
503,093
328,993
$ 24,677,820
$
261,544
132,695
2,793,873
3,872,955
193,290
67,952
13,900,025
(159,264)
13,740,761
73,873
121,933
529,887
2,666
440,073
301,670
$ 22,533,172
$
3,713,063
14,239,715
17,952,778
1,151,400
2,664,139
226,356
267,576
22,262,249
$
3,598,872
12,052,733
15,651,605
1,250,756
2,859,431
226,237
222,328
20,210,357
—
122,710
28,939
122,710
937
1,124,325
1,317,559
(71,854)
(78,106)
2,415,571
$ 24,677,820
936
1,127,534
1,202,251
(103,294)
(56,261)
2,322,815
$ 22,533,172
(In thousands, except share data)
Assets:
Cash and due from banks
Interest-bearing deposits
Securities available-for-sale, at fair value
Securities held-to-maturity (fair value of $3,961,534 and $3,948,706)
Federal Home Loan Bank and Federal Reserve Bank stock
Loans held for sale
Loans and leases
Allowance for loan and lease losses
Loans and leases, net
Deferred tax asset, net
Premises and equipment, net
Goodwill
Other intangible assets, net
Cash surrender value of life insurance policies
Accrued interest receivable and other assets
Total assets
Liabilities and shareholders' equity:
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Securities sold under agreements to repurchase and other borrowings
Federal Home Loan Bank advances
Long-term debt
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity:
Preferred stock, $.01 par value: Authorized - 3,000,000 shares;
Series A issued and outstanding (28,939 shares at December 31, 2014)
Series E issued and outstanding (5,060 shares)
Common stock, $.01 par value: Authorized - 200,000,000 shares;
Issued (93,651,601 and 93,623,090 shares)
Paid-in capital
Retained earnings
Treasury stock, at cost (2,090,409 and 3,241,555 shares)
Accumulated other comprehensive loss, net of tax
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying Notes to Consolidated Financial Statements.
64
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Interest Income:
Interest and fees on loans and leases
Taxable interest and dividends on securities
Non-taxable interest on securities
Loans held for sale
Total interest income
Interest Expense:
Deposits
Securities sold under agreements to repurchase and other borrowings
Federal Home Loan Bank advances
Long-term debt
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest Income:
Deposit service fees
Loan and lease related fees
Wealth and investment services
Mortgage banking activities
Increase in cash surrender value of life insurance policies
Gain on sale of investment securities, net
Impairment loss on securities recognized in earnings
Other income
Total non-interest income
Non-interest Expense:
Compensation and benefits
Occupancy
Technology and equipment
Intangible assets amortization
Marketing
Professional and outside services
Deposit insurance
Other expense
Total non-interest expense
Income before income tax expense
Income tax expense
Net income
Preferred stock dividends and other
Earnings applicable to common shareholders
Earnings per common share:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
65
Years ended December 31,
2015
2014
2013
$
$
$
552,441
190,061
15,948
1,590
760,040
46,031
16,861
22,858
9,665
95,415
664,625
49,300
615,325
136,578
25,594
32,486
7,795
13,020
609
(110)
23,573
239,545
297,517
48,836
80,026
6,340
16,053
11,156
24,042
70,584
554,554
300,316
93,976
206,340
(9,371)
196,969
2.17
2.15
$
$
$
511,612
189,408
17,064
857
718,941
44,162
19,388
16,909
10,041
90,500
628,441
37,250
591,191
103,431
23,212
34,946
4,070
13,178
5,499
(1,145)
18,917
202,108
270,151
47,325
61,993
2,685
15,379
8,296
22,670
73,101
501,600
291,699
91,973
199,726
(11,230)
188,496
2.10
2.08
489,372
174,579
21,621
2,068
687,640
46,582
20,800
16,229
7,301
90,912
596,728
33,500
563,228
98,968
21,860
34,771
16,359
13,770
712
(7,277)
11,887
191,050
264,835
48,794
60,326
4,919
15,502
9,532
21,114
72,687
497,709
256,569
77,113
179,456
(11,420)
168,036
1.90
1.86
$
$
$
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Total available-for-sale and transferred securities
Total derivative instruments
Total defined benefit pension and postretirement benefit plans
Other comprehensive loss, net of tax
Comprehensive income
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2015
2014
2013
$
206,340
$
199,726
$
179,456
(22,828)
2,550
(1,567)
(21,845)
184,495
$
19,038
(7,324)
(19,426)
(7,712)
192,014
$
(45,358)
9,696
19,379
(16,283)
163,173
$
66
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
Balance at December 31, 2012
Cumulative effect of change in accounting principal
Net income
Other comprehensive loss, net of tax
Dividends and dividend equivalents declared on common
stock $0.55 per share
Dividends on Series A preferred stock $85.00 per share
Dividends on Series E preferred stock $1,648.89 per share
Common stock issued
Stock-based compensation, net of tax impact
Exercise of stock options
Shares acquired related to employee share-based
compensation plans
Common stock warrants repurchased
Preferred
Stock
Common
Stock
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Tax
Treasury
Stock, at
cost
Total
Shareholders'
Equity
$ 151,649 $
907 $ 1,145,620 $ 1,000,427 $ (172,807) $
(32,266) $ 2,093,530
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27
—
—
—
—
—
—
—
19
—
—
253
179,456
—
(49,164)
(2,460)
(8,343)
—
—
—
—
—
—
(20,737)
(36,256)
57,697
2,813
(2,101)
—
(30)
(3,265)
10,027
—
—
—
4,837
(672)
—
—
—
253
179,456
(16,283)
(16,283)
—
—
—
—
—
—
—
—
(49,145)
(2,460)
(8,343)
731
9,575
2,736
(672)
(30)
Balance at December 31, 2013
151,649
934
1,125,584
1,080,648
(100,918)
(48,549)
2,209,348
Net income
Other comprehensive loss, net of tax
Dividends and dividend equivalents declared on common
stock $0.75 per share
Dividends on Series A preferred stock $85.00 per share
Dividends on Series E preferred stock $1,600.00 per share
Common stock issued
Stock-based compensation, net of tax impact
Exercise of stock options
Shares acquired related to employee share-based
compensation plans
Common stock repurchased
Common stock warrants repurchased
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
57
—
—
433
3,223
(1,760)
—
—
(3)
199,726
—
(67,747)
(2,460)
(8,096)
—
180
—
—
—
—
—
—
—
—
6,710
3,981
(2,326)
— (10,741)
—
—
—
199,726
(7,712)
(7,712)
—
—
—
—
—
—
—
—
—
(67,690)
(2,460)
(8,096)
435
10,113
2,221
(2,326)
(10,741)
(3)
Balance at December 31, 2014
151,649
936
1,127,534
1,202,251
(103,294)
(56,261)
2,322,815
Net income
Other comprehensive loss, net of tax
Dividends and dividend equivalents declared on common
stock $0.89 per share
Dividends on Series A preferred stock $21.25 per share
Dividends on Series E preferred stock $1,600.00 per share
Common stock issued
Preferred stock conversion
Stock-based compensation, net of tax impact
Exercise of stock options
Shares acquired related to employee share-based
compensation plans
Common stock repurchased
Common stock warrants repurchased
—
—
—
—
—
—
(28,939)
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
206,340
—
119
(81,316)
(615)
(8,096)
—
—
—
—
—
—
—
—
32,368
(1,005)
11,046
—
—
5,841
(5,251)
— (12,564)
—
—
—
—
(1)
(3,429)
2,906
(2,781)
—
—
(23)
—
206,340
(21,845)
(21,845)
—
—
—
—
—
—
—
—
—
—
(81,197)
(615)
(8,096)
—
—
12,947
3,060
(5,251)
(12,564)
(23)
Balance at December 31, 2015
$ 122,710 $
937 $ 1,124,325 $ 1,317,559 $ (71,854) $
(78,106) $ 2,415,571
See accompanying Notes to Consolidated Financial Statements.
67
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities:
Years ended December 31,
2015
2014
2013
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
206,340
$
199,726
$
179,456
Provision for loan and lease losses
Deferred tax (benefit) expense
Depreciation and amortization
Amortization of earning assets and funding premium/discount, net
Stock-based compensation
Gain on sale, net of write-down, on foreclosed and repossessed assets
(Gain) loss on sale, net of write-down, on premises and equipment
Impairment loss on securities recognized in earnings
Gain on the sale of investment securities, net
Increase in cash surrender value of life insurance policies
Gain from life insurance policies
Gain, net on sale of loans held for sale
Proceeds from sale of loans held for sale
Originations of loans held for sale
Net (increase) decrease in accrued interest receivable and other assets
Net increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
Investing Activities:
Net (increase) decrease in interest-bearing deposits
Purchases of available-for-sale securities
Proceeds from maturities and principal payments of available-for-sale securities
Proceeds from sales of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from maturities and principal payments of held-to-maturity securities
Net proceeds (purchase) of Federal Home Loan Bank stock
Net increase in loans
Proceeds from loans not originated for sale
Purchase of life insurance policies
Proceeds from life insurance policies
Proceeds from the sale of foreclosed properties and repossessed assets
Proceeds from the sale of premises and equipment
Purchases of premises and equipment
Acquisition of business, net cash acquired
Net cash used for investing activities
See accompanying Notes to Consolidated Financial Statements.
49,300
(15,513)
34,678
54,555
10,935
(311)
(244)
110
(609)
(13,020)
(220)
(7,795)
452,590
(449,048)
(49,899)
35,336
307,185
(23,212)
(903,240)
558,301
123,270
(761,033)
681,124
4,943
(1,813,811)
33,644
(50,000)
3,912
10,511
650
(36,115)
1,396,414
(774,642)
37,250
(5,154)
30,585
50,758
10,223
(1,297)
(292)
1,145
(5,499)
(13,178)
(2,229)
(4,070)
287,132
(296,996)
(24,502)
9,213
272,815
(109,021)
(217,920)
416,821
98,402
(1,113,958)
575,009
(34,412)
(1,269,290)
—
—
2,178
8,995
3,565
(30,039)
—
(1,669,670)
33,500
11,499
36,019
61,395
10,664
(1,295)
1,287
7,277
(712)
(13,770)
(1,070)
(16,359)
773,887
(687,090)
84,077
(14,812)
463,953
31,761
(952,995)
741,467
57,804
(989,397)
717,601
(3,248)
(741,818)
12,771
—
1,768
7,745
1,304
(21,886)
—
(1,137,123)
68
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
Financing Activities:
Net increase in deposits
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net (decrease) increase in securities sold under agreements to repurchase and
other borrowings
Issuance of long-term debt
Repayment of long-term debt
Debt issuance costs
Dividends paid to common shareholders
Dividends paid to preferred shareholders
Exercise of stock options
Excess tax benefits from stock-based compensation
Common stock issued
Common stock repurchased
Shares acquired related to employee share-based compensation plans
Common stock warrants repurchased
Net cash provided by financing activities
Net (decrease) increase in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Noncash investing and financing activities:
Transfer of loans and leases to foreclosed properties and repossessed assets
Transfer of loans from portfolio to loans held for sale
Deposits assumed in business acquisition
Preferred stock conversion
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2015
2014
2013
853,921
13,505,000
(13,700,279)
797,244
10,372,226
(9,565,192)
323,348
4,928,120
(4,703,287)
(99,356)
—
—
—
(80,964)
(8,711)
3,060
2,338
—
(12,564)
(5,251)
(23)
457,171
(10,286)
261,544
251,258
95,428
106,991
8,714
585
1,446,899
28,939
$
$
$
(80,906)
150,000
(150,000)
(1,349)
(67,431)
(10,556)
2,221
1,161
435
(10,741)
(2,326)
(3)
1,434,783
37,928
223,616
261,544
89,942
102,973
5,532
—
—
—
$
$
$
$
$
$
255,502
—
(102,579)
—
(48,952)
(10,803)
2,736
389
731
—
(672)
(30)
644,503
(28,667)
252,283
223,616
88,388
62,926
11,750
106
—
—
69
Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation (collectively, with its consolidated subsidiaries, “Webster” or the “Company”) is a bank holding
company and financial holding company under the Bank Holding Company Act of 1956, as amended, incorporated under the laws
of Delaware in 1986 and headquartered in Waterbury, Connecticut. At December 31, 2015, Webster Financial Corporation's
principal asset is all of the outstanding capital stock of Webster Bank, National Association ("Webster Bank").
Webster, through Webster Bank and various non-banking financial services subsidiaries, delivers financial services to individuals,
families, and businesses primarily from New York to Massachusetts. Webster provides business and consumer banking, mortgage
lending, financial planning, trust, and investment services through banking offices, ATMs, telephone banking, mobile banking
and its internet website (www.websterbank.com or www.wbst.com). Webster also offers equipment financing, commercial real
estate lending, and asset-based lending primarily across the Northeast. On a nationwide basis, through its HSA Bank division,
Webster Bank offers and administers health savings accounts, flexible spending accounts, health reimbursement accounts, and
commuter benefits.
Basis of Presentation
The consolidated financial statements include the accounts of Webster Financial Corporation and all other entities in which it has
a controlling financial interest. Intercompany accounts and transactions have been eliminated in consolidation. Webster's accounting
and financial reporting policies conform, in all material respects, to U.S. Generally Accepted Accounting Principles (“GAAP”)
and to general practices within the financial services industry.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an
immaterial effect on net income, comprehensive income, total assets, total liabilities, total shareholders' equity, net cash provided
by operating activities, net cash used for investing activities, and net cash provided by financing activities.
Assets that the Company holds or manages in a fiduciary or agency capacity for customers, typically referred to as assets under
administration or assets under management are not included in the accompanying Consolidated Balance Sheets since those assets
are not Webster's, and the Company is not the primary beneficiary.
Variable Interest Entities. The Company determines whether it has a controlling financial interest in an entity by first evaluating
whether the entity is a voting interest entity or a Variable Interest Entity (“VIE”) under GAAP. Voting interest entities are entities
in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity
holder with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s
activities. The Company consolidates VIEs in which it has at least a majority of the voting interest. VIEs are entities that lack one
or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when the Company has
both the power and ability to direct the activities of the VIE that most significantly impact the VIE's economic performance and
an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The Company owns the common stock of a trust which has issued trust preferred securities. The trust is a VIE in which the
Company is not the primary beneficiary and therefore, is not consolidated. The trust's only assets are junior subordinated debentures
issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities
and common stock. The junior subordinated debentures are included in long-term debt and the Company’s equity interest in the
trust is included in other assets in the accompanying Consolidated Balance Sheets. Interest expense on the junior subordinated
debentures is reported in interest expense on long-term debt in the accompanying Consolidated Statements of Income.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of these consolidated financial statements. The allowance for loan and lease losses, the fair value measurements of financial
instruments, the valuation of investments for other-than-temporary impairment, the goodwill and intangible assets valuation,
income taxes, the, as well as the status of contingencies, are particularly subject to change. Actual results could differ from those
estimates.
Acquisition
On January 13, 2015 (the "acquisition date"), Webster Bank completed its acquisition of the health savings account business of
JPMorgan Chase Bank, N.A. The results of the acquisition have been included in the financial statements from the acquisition
date. See Note 2: Acquisition for further information.
70
Cash Equivalents
Cash equivalents have a maturity of three months or less.
Cash and due from banks. Cash equivalents, including cash on hand, certain cash due from banks, and deposits at the Federal
Reserve Banks, are referenced as cash and due from banks in the accompanying Consolidated Balance Sheets and Consolidated
Statements of Cash Flows.
Interest-bearing deposits. Cash equivalents, primarily representing deposits at the Federal Reserve Banks in excess of reserve
requirements, and federal funds sold, which essentially represent uncollateralized loans to other financial institutions, are referenced
as interest-bearing deposits in the accompanying Consolidated Balance Sheets and Consolidated Statements of Cash Flows. The
Company regularly evaluates the credit risk associated with those financial institutions to assess that Webster is not exposed to
any significant credit risk on cash equivalents.
Investment Securities
Investment securities are classified as available-for-sale ("AFS") or held-to-maturity ("HTM") at the time of purchase. Any
subsequent change to classification is reviewed for compliance with corporate objectives and accounting policy. Debt securities
classified as HTM are those which Webster has the ability and intent to hold to maturity. Securities classified as HTM are recorded
at amortized cost net of unamortized premiums and discounts. Discount accretion income and premium amortization expense are
recognized as interest income according to a constant yield methodology, with consideration given to prepayment assumptions
on mortgage backed securities. Securities classified as AFS are recorded at fair value with unrealized gains and losses recorded
as a component of other comprehensive income (“OCI”). Securities transferred from AFS to HTM are recorded at fair value at
the time of transfer, and the respective gain or loss is recorded as a separate component of OCI and amortized as an adjustment
to interest income over the remaining life of the security.
All securities classified as AFS or HTM that are in an unrealized loss position are evaluated for other-than-temporary impairment
("OTTI") on a quarterly basis. The evaluation considers several qualitative factors, including the period of time the security has
been in a loss position, and the amount of the unrealized loss. If the Company intends to sell the security or it is more than likely
the Company will be required to sell the security prior to recovery of its amortized cost basis, the security is written down to fair
value, and the loss is recognized in non-interest income in the accompanying Consolidated Statements of Income. If the Company
does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security prior to
recovery of its amortized cost basis, only the credit component of the unrealized loss is recorded as an impairment charge to a
debt security and recognized as a loss. The remaining loss component would be recorded to accumulated other comprehensive
loss in the accompanying Consolidated Balance Sheets. The entire amount of an unrealized loss position of an equity security that
is considered OTTI is recorded as an impairment loss in non-interest income in the accompanying Consolidated Statements of
Income.
The specific identification method is used to determine realized gains and losses on sales of securities. See Note 3: Investment
Securities for further information.
Federal Home Loan Bank and Federal Reserve Bank Stock
Webster Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston and the Federal Reserve Bank ("FRB") system
and is required to maintain an investment in capital stock of the FHLB and FRB. Based on redemption provisions, the stock of
both the FHLB and the FRB has no quoted market value and is carried at cost. Membership stock is not reviewed for impairment
unless economic circumstances warrant special review.
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. For loans not previously held for sale, once a decision has been made to sell loans, such loans shall be transferred into the
loans held for sale classification. The majority of loans held for sale are residential mortgage loans. Loans held for sale are carried
at the lower of cost or fair value and are valued on an individual asset basis. Any cost amount in excess of fair value is recorded
as a valuation allowance and recognized as a reduction of other income in the Consolidated Statements of Income. Gains or losses
on the sale of loans held for sale are recorded as non-interest income. Direct loan origination costs and fees are deferred and
recognized as part of the gain or loss at the time of sale. Cash flows from sale of loans made by the Company that were acquired
specifically for resale are presented as operating cash flows. All other cash flows from sale of loans are presented as investing
cash flows. See Note 5: Transfers of Financial Assets and Mortgage Servicing Assets for further information.
71
Transfers and Servicing of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred
assets is generally considered to have been surrendered when: (i) the transferred assets are legally isolated from the Company or
its consolidated affiliates, even in bankruptcy or other receivership; (ii) the transferee has the right to pledge or exchange the assets
with no conditions that constrain the transferee and provide more than a trivial benefit to the Company; and (iii) the Company
does not maintain the obligation or unilateral ability to reclaim or repurchase the assets.
The Company sells financial assets in the normal course of business, the majority of which are residential mortgage loan sales
primarily to government-sponsored enterprises through established programs, commercial loan sales through participation
agreements, and other individual or portfolio loan and securities sales. In accordance with accounting guidance for asset transfers,
the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized
from the balance sheet. With the exception of servicing and certain performance-based guarantees, the Company’s continuing
involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses
covering certain characteristics of the mortgage loans sold and the Company's origination process. The gain or loss on sale depends
on the previous carrying amount of the transferred financial assets, the consideration received, and any liabilities incurred in
exchange for the transferred assets.
When the Company sells financial assets, it may retain servicing rights and/or other interests in the financial assets. Servicing
assets and any other interests held by the Company are recorded at fair value upon transfer, and thereafter are carried at the lower
of cost or fair value. See Note 5: Transfers of Financial Assets and Mortgage Servicing Assets for further information.
Loans and Leases
Loans and leases are stated at the principal amount outstanding, net of amounts charged off, unamortized premiums and discounts,
and deferred loan and lease fees/costs which are recognized as yield adjustments using the interest method. These yield adjustments
are amortized over the contractual life of the related loans and leases adjusted for estimated prepayments when applicable. Interest
on loans and leases is credited to interest income as earned based on the interest rate applied to principal amounts outstanding.
Cash flows from loans and leases are presented as investing cash flows.
Loans and leases 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 loan or lease 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. Residential real estate loans, excluding loans fully insured against loss and in the process
of collection, and consumer loans are placed on non-accrual status at 90 days past due, or at the date when the Company is notified
that the borrower is discharged in bankruptcy. A charge-off is recorded at 180 days if the loan balance exceeds the fair value of
the collateral less costs to sell. Residential loans that are more than 90 days past due, fully insured against loss, and in the process
of collection, remain accruing and are reported as 90 days or more past due and accruing. Commercial, commercial real estate
loans, and equipment finance loans or leases are subject to a detailed review when 90 days past due to determine accrual status,
or when payment is uncertain and a specific consideration is made to put a loan or lease on non-accrual status.
When loans and leases are placed on non-accrual status, the accrual of interest is discontinued, and any unpaid accrued interest is
reversed and charged against interest income. If ultimate repayment of a non-accrual loan or lease is expected, any payments
received are applied in accordance with contractual terms. If ultimate repayment is not expected on commercial, commercial real
estate, and equipment finance loans and leases, any payment received on a non-accrual loan or lease is applied to principal until
the unpaid balance has been fully recovered. Any excess is then credited to interest income when received. If the Company
determines, through a current valuation analysis, that principal can be repaid on residential real estate and consumer loans, interest
payments may be taken into income as received on a cash basis. Except for loans discharged under Chapter 7 of the Bankruptcy
Code, loans are removed from non-accrual status when they become current as to principal and interest or demonstrate a period
of performance under contractual terms and, in the opinion of management, are fully collectible as to principal and interest. Pursuant
to regulatory guidance, a Chapter 7 discharged bankruptcy loan is removed from non-accrual status when the bank expects full
repayment of the remaining pre-discharged contractual principal and interest, the loan is a closed-end amortizing loan, it is fully
collateralized, and post-discharge the loan had at least six consecutive months of current payments. See Note 4: Loans and Leases
for further information.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses ("ALLL") is a reserve established through a provision for loan and lease losses charged
to expense and represents management’s best estimate of probable losses that may be incurred within the existing loan and lease
portfolio as of the balance sheet date. The level of the allowance reflects management’s view of trends in losses, current portfolio
quality, and present economic, political, and regulatory conditions. Portions of the allowance may be allocated for specific loans
and leases; however, the entire allowance is available for any loan or lease that is charged off. A charge-off is recorded on a case-
by-case basis when all or a portion of the loan or lease is deemed to be uncollectible. Back-testing is performed to compare original
72
estimated losses and actual observed losses, resulting in ongoing refinements. While management utilizes its best judgment based
on the information available at the time, the ultimate adequacy of the allowance is dependent upon a variety of factors that are
beyond the Company’s control, which include the performance of the Company’s portfolio, economic conditions, interest rate
sensitivity, and the view of the regulatory authorities regarding loan classifications.
The ALLL consists of the following three elements: (i) specific valuation allowances established for probable losses on impaired
loans and leases; (ii) quantitative valuation allowances calculated using loss experience for like loans and leases with similar
characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) qualitative factors determined
based on general economic conditions and other factors that may be internal or external to the Company.
Loans and leases are considered impaired when, based on current information and events, it is probable the Company will be
unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled
principal and interest payments. Impairment is evaluated on a pooled basis for smaller-balance homogeneous residential and
consumer loans. Commercial, commercial real estate, and equipment financing loans and leases over a specific dollar amount and
all troubled debt restructurings ("TDR") are evaluated individually for impairment. A loan identified as a TDR is considered an
impaired loan for the entire term of the loan, with few exceptions. If a loan is impaired, a specific valuation allowance may be
established, and the loan is reported net, at the present value of estimated future cash flows using the loan’s original interest rate
or at the fair value of collateral less cost to sell if repayment is expected from collateral liquidation. Interest payments on non-
accruing impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in
which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Factors considered by management in determining impairment include payment status, collateral value, discharged bankruptcy,
and the likelihood of collecting scheduled principal and interest payments. Consumer modified loans are analyzed for re-default
probability, which is considered when determining the impaired reserve for ALLL. The current or weighted-average (for multiple
notes within a commercial borrowing arrangement) interest rate of the loan is used as the discount rate when the interest rate floats
with a specified index. A change in terms or payments would be included in the impairment calculation. See Note 4: Loans and
Leases for further information.
Reserve for Unfunded Commitments
The reserve for unfunded commitments provides for probable losses inherent with funding the unused portion of legal commitments
to lend. The unfunded reserve calculation includes factors that are consistent with ALLL methodology for funded loans using the
loss given default, probability of default, and a draw down factor applied to the underlying borrower risk and facility grades. The
reserve for unfunded credit commitments is included within other liabilities in the accompanying Consolidated Balance Sheets,
and changes in the reserve are reported as a component of other expense in the accompanying Consolidated Statements of Income.
See Note 20: Commitments and Contingencies for further information.
Troubled Debt Restructurings
A modified loan is considered a TDR when the following two conditions are met: (i) the borrower is experiencing financial
difficulties; and (ii) the modification constitutes a concession. The Company considers all aspects of the restructuring in determining
whether a concession has been granted, including the debtor's ability to access funds at a market rate. In general, a concession
exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Modified terms are
dependent upon the financial position and needs of the individual borrower. The most common types of modifications include
covenant modifications and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are
considered collateral dependent TDRs, impaired at the date of discharge, and charged down to the fair value of collateral less cost
to sell, if management considers that loss potential likely exists.
The Company’s policy is to place consumer loan TDRs, except those that were performing prior to TDR status, on non-accrual
status for a minimum period of six months. Commercial TDRs are evaluated on a case-by-case basis for determination of whether
or not to place them on non-accrual status. Loans qualify for return to accrual status once they have demonstrated performance
with the restructured terms of the loan agreement for a minimum of six months. Initially, all TDRs are reported as impaired.
Generally, TDRs are classified as impaired loans and reported as TDRs for the remaining life of the loan. Impaired and TDR
classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months
and through a fiscal year-end and the restructuring agreement specifies a market rate of interest equal to that which would be
provided to a borrower with similar credit at the time of restructuring. In the limited circumstance that a loan is removed from
TDR classification, it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified
by the loan agreement. The Company’s loan and lease portfolio includes loans that have been restructured into an A-Note/B-Note
structure as a result of evaluating the cash flow of the borrowers to support repayment. Webster immediately charged off the
balances of the B-Notes. The restructuring agreements specify a market interest rate equal to that which would be provided to a
borrower with similar credit at the time of restructuring. See Note 4: Loans and Leases for further information.
73
Foreclosed and Repossessed Assets
Real estate acquired through foreclosure (“OREO”) or other assets acquired through repossession are carried at the lower of cost
or market value less estimated selling costs and are included within other assets in the accompanying Consolidated Balance Sheets.
Independent appraisals generally are obtained to substantiate fair value and may be subject to adjustment based upon historical
experience or specific geographic trends impacting the property. Within 90 days of a loan being foreclosed upon, the excess of
loan balance over fair value less cost to sell is charged off against the allowance for loan and lease losses. Subsequent write-downs
in value, maintenance costs as incurred, and gains or losses upon sale are charged to non-interest expense in the accompanying
Consolidated Statements of Income.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation. Depreciation of premises and equipment is computed
on a straight-line basis over the estimated useful lives of the assets, as follows:
Building and Improvements
Leasehold improvements
Fixtures and equipment
Data processing and software
5 - 40 years
5 - 20 years (or term or lease, if shorter)
5 - 10 years
years
3 - 7
Repairs and maintenance costs are charged to non-interest expense as incurred. Premises and equipment being actively marketed
for sale are reclassified as assets held for disposition. The cost and accumulated depreciation relating to premises and equipment
retired or otherwise disposed of are eliminated, and any resulting losses are charged to non-interest expense. See Note 6: Premises
and Equipment for further information.
Goodwill
Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired and
is assigned to specific reporting units. Goodwill is not subject to amortization but rather is evaluated for impairment annually, or
more frequently in interim periods if events occur or circumstances change indicating it would more likely than not result in a
reduction of the fair value of a reporting unit below its carrying value.
Goodwill is evaluated for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative
evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, including goodwill. The Company utilizes an equally weighted combined income and market approach
to arrive at an indicated fair value range for the reporting unit. In “Step 1,” the fair value of a reporting unit is compared to its
carrying amount, including goodwill, to ascertain if a goodwill impairment exists. If the fair value of the reporting unit exceeds
its carrying amount, goodwill of the reporting unit is not considered impaired, and it is not necessary to continue to “Step 2” of
the impairment process. Otherwise, Step 2 is performed where the implied fair value of goodwill is compared to the carrying value
of goodwill in the reporting unit. If a reporting unit's carrying value exceeds fair value, the difference is charged to non-interest
expense. See Note 7: Goodwill and Other Intangible Assets for further information.
Other Intangible Assets
Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of
contractual or other legal rights, or because the asset is capable of being sold or exchanged either separately or in combination
with a related contract, asset, or liability. Other intangible assets with finite useful lives are amortized to non-interest expense over
their estimated useful lives and are evaluated for impairment whenever events occur or circumstances change indicating the
carrying amount of the asset may not be recoverable. Core deposit intangibles resulting from the health savings account acquisition
are amortized on an accelerated basis over their estimated useful lives. Core deposit intangibles existing prior to the health savings
account acquisition continue to be amortized on a straight line basis over their remaining estimated useful lives. Intangible assets
relating to customer relationships are amortized on a straight line basis over their estimated useful lives. See Note 7: Goodwill
and Other Intangible Assets for further information.
Cash Surrender Value of Life Insurance
The investment in life insurance represents the cash surrender value of life insurance policies on certain current and former officers
of Webster. Increases in the cash surrender value are recorded as non-interest income. Decreases are the result of collection on the
policies due to the death of an insured. Death benefit proceeds in excess of cash surrender value are recorded in other non-interest
income when realized.
74
Securities Sold Under Agreements to Repurchase
These agreements are accounted for as secured financing transactions since Webster maintains effective control over the transferred
securities and the transfer meets the other criteria for such accounting. Obligations to repurchase securities sold are reflected as a
liability in the accompanying Consolidated Balance Sheets. The securities underlying the agreements are delivered to a custodial
account for the benefit of the dealer or bank with whom each transaction is executed. The dealers or banks, which may sell, loan,
or otherwise hypothecate such securities to other parties in the normal course of their operations, agree to resell to Webster the
same securities at the maturity date of the agreements. The securities underlying the agreements with Bank customers are pledged;
however, the customer does not have ability to hypothecate the underlying securities. See Note 10: Borrowings for further
information.
Share-Based Compensation
Webster maintains an equity incentive plan under which non-qualified stock options, incentive stock options, restricted stock,
restricted stock units, or stock appreciation rights may be granted to employees and directors. Share awards are issued from
available treasury shares. Stock-based compensation cost is recognized over the requisite service period for the awards, based on
the grant-date fair value, net of estimated forfeitures, and is reported as a component of compensation and benefits expense. All
awards are subject to a minimum one-year service vesting period. For stock option awards the Black-Scholes Option-Pricing
Model is used to measure fair value at the date of grant. For time-based restricted stock and restricted stock unit awards, fair value
is measured using the Company's common stock closing price at the date of grant.
The Company grants performance-based restricted stock awards that vest after a three year performance period. Awards granted
in 2015 and 2014 vest in a range from zero to 150% while awards granted prior to 2014 vest in a range from zero to 200% of the
target number of shares under the grant. The Company records compensation expense over the vesting period, based on a fair
value. Compensation expense is subject to adjustment based on management's assessment of Webster's return on equity performance
relative to the target number of shares condition. Dividends are accrued on the performance-based shares and paid when the
performance target is met. See Note 18: Share-Based Plans for further information.
Excess tax benefits result when tax return deductions exceed recognized compensation cost determined using the grant-date fair
value approach for financial statement purposes. Excess tax benefits are presented as a cash inflow from financing activities and
a cash outflow from operating activities.
Income Taxes
Income tax expense, or benefit, is comprised of two components, current and deferred. The current component reflects taxes
payable or refundable for a current period based on applicable tax laws, and the deferred component represents the tax effects of
temporary differences between amounts recognized for financial accounting and tax purposes. Deferred tax assets and liabilities
reflect the tax effects of such differences that are anticipated to result in taxable or deductible amounts in the future, when the
temporary differences reverse. Deferred tax assets are recognized if it is more likely than not they will be realized, and may be
reduced by a valuation allowance if it is more likely than not that all or some portion will not be realized.
Tax positions that are uncertain but meet a more likely than not recognition threshold are initially and subsequently measured as
the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority
that has full knowledge of all relevant information. The determination of whether or not a tax position meets the more likely than
not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to
management's judgment. Webster recognizes interest expense and penalties on uncertain tax positions as a component of income
tax expense and recognizes interest income on refundable income taxes as a component of other non-interest income. See Note
8: Income Taxes for further information.
Earnings Per Common Share
Earnings per common share is computed under the two-class method. Basic earnings per common share is computed by dividing
earnings allocated to common shareholders by the weighted-average number of common shares outstanding during the applicable
period, excluding outstanding non-participating securities. Non-vested restricted stock awards are participating securities as they
have non-forfeitable rights to dividends or dividend equivalents. Diluted earnings per common share is computed using the
weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of
stock compensation and warrants for common stock using the treasury stock method. A reconciliation of the weighted-average
shares used in calculating basic earnings per common share and the weighted-average common shares used in calculating diluted
earnings per common share is provided in Note 14: Earnings Per Common Share.
75
Comprehensive Income
Comprehensive income includes all changes in shareholders’ equity during a period, except those resulting from transactions with
shareholders. In addition to net income, Webster's components of other comprehensive income consists of the after-tax effect of
changes in net unrealized gain/loss on securities available for sale, changes in net unrealized gain/loss on derivative instruments,
and changes in net actuarial gain/loss and prior service cost for defined benefit pension and other postretirement benefit plans.
Comprehensive income is reported in the accompanying Consolidated Statements of Shareholders' Equity, Consolidated Statements
of Comprehensive Income, and Note 12: Accumulated Other Comprehensive Loss, Net of Tax.
Derivative Instruments and Hedging Activities
Derivatives are recognized as assets and liabilities in the accompanying Consolidated Balance Sheets and measured at fair value.
For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based
on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair
value may require management judgment or estimation, relating to future rates and credit activities.
Interest Rate Swap Agreements. For asset/liability management purposes, the Company uses interest rate swap agreements to
hedge various exposures or to modify interest rate characteristics of various balance sheet accounts. Interest rate swaps are contracts
in which a series of interest rate flows are exchanged over a prescribed period of time. The notional amount on which the interest
payments are based is not exchanged. These swap agreements are derivative instruments and generally convert a portion of the
Company’s variable-rate debt to a fixed-rate (cash flow hedge), or convert a portion of its fixed-rate debt to a variable-rate (fair
value hedge).
Webster uses forward-settle interest rate swaps to protect the Company against adverse fluctuations in interest rates by reducing
its exposure to variability in cash flows relating to interest payments on forecasted debt issuances. Forward-settle swaps typically
have a future effective date that coincides with the expected debt issuance date. The forward-settle swaps are typically terminated
and cash settled upon hedge debt issuance date.
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as well as the offsetting gain or loss
on the hedged item attributable to the risk being hedged, is recognized currently in earnings in the same accounting period. The
effective portion of the gain or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially reported
as a component of other comprehensive income and subsequently reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is
recognized in non-interest income.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are qualified and properly designated
as hedges and are expected to be, and are, effective in substantially reducing interest rate risk arising from specifically identified
assets and liabilities. A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged
transactions attributable to the changes in the hedged risk. The Company expects that the hedging relationship will be highly
effective; however, it does not assume there is no ineffectiveness. The Company performs quarterly prospective and retrospective
assessments of the hedge effectiveness to ensure the hedging relationship continues to be highly effective and that hedge accounting
can continue to be applied. Those derivative financial instruments that do not meet specified hedging criteria are recorded at fair
value with changes in fair value recorded in income.
Cash flows from derivative financial instruments designated for hedge accounting are classified in the cash flow statement in the
same category as the cash flows of the asset or liability being hedged.
Derivative Loan Commitments. Mortgage loan commitments related to the origination of mortgages that will be held for sale
upon funding are considered derivative instruments. Loan commitments that are derivatives are recognized at fair value on the
Consolidated Balance Sheets in other assets and other liabilities with changes in their fair values recorded in non-interest income.
Counterparty Credit Risk. The Company's exposures with the majority of its approved financial institution counterparties are
fully cash collateralized. In accordance with Webster policies, institutional counterparties must be fully underwritten and approved
through the Company’s credit approval process. The Company’s credit exposure on interest rate swaps is limited to the net favorable
value and interest payments of all swaps by each of the counterparties. Credit exposure may be reduced by the amount of collateral
pledged by the counterparty. The Company evaluates the credit risk of its counterparties, taking into account such factors as the
likelihood of default, its net exposures, and remaining contractual life, among other things, in determining if any adjustments
related to credit risk are required. See Note 15: Derivative Financial Instruments for further information.
76
Fair Value Measurements
The Company measures many of its assets and liabilities on a fair value basis, in accordance with Accounting Standards Codification
Topic 820, "Fair Value Measurement." Fair value is used on a recurring basis for certain assets and liabilities in which fair value
is the primary basis of accounting. Examples of these include derivative instruments and AFS securities. Additionally, fair value
is used on a non-recurring basis to evaluate assets or liabilities for impairment. Examples of these include impaired loans and
leases, mortgage servicing assets, long-lived assets, goodwill, and loans held for sale, which are accounted for at the lower of cost
or fair value. Further information regarding the Company's policies and methodology used to measure fair value is presented in
Note 16: Fair Value Measurements.
Employee Retirement Benefit Plan
Webster Bank maintains a noncontributory defined benefit pension plan covering all employees that were participants on or before
December 31, 2007. Costs related to this qualified plan, based upon actuarial computations of current and future benefits for
eligible employees, are charged to non-interest expense and are funded in accordance with the requirements of the Employee
Retirement Income Security Act. A supplemental retirement plan is also maintained for select executive level employees that were
participants on or before December 31, 2007. Webster also provides postretirement healthcare benefits to certain retired employees.
Fee Revenue
Generally, fee revenue from deposit service charges and loans is recorded when earned, except where ultimate collection is
uncertain, in which case revenue is recognized as received. Trust revenue is recorded as earned on individual accounts based upon
a percentage of asset value. Fee income on managed institutional accounts is recognized as earned and collected quarterly based
on the quarter-end value of assets managed.
Marketing Costs
Marketing costs are expensed as incurred over the projected benefit period.
Recently Adopted Accounting Standards Updates
Effective January 1, 2015, the following new accounting guidance was adopted by the Company:
• Accounting Standards Update ("ASU") No. 2014-01, Investments - Equity Method and Joint Ventures (Topic 323) -
Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task
Force);
• ASU No. 2014-04, Receivables, Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of
Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging
Issues Task Force);
• ASU No. 2014-11, Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings,
and Disclosures; and
• ASU No. 2014-14, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Classification of Certain
Government-Guaranteed Residential Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task
Force).
The adoption of these accounting standards did not have a material impact on the Company's financial statements.
77
Recently Issued Accounting Standards Updates
The following table identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:
ASU
Description
ASU No. 2016-01, Financial
Instruments—Overall
(Subtopic 825-10) -
"Recognition and
Measurement of Financial
Assets and Financial
Liabilities."
ASU No. 2015-16, Business
Combinations (Topic 805) -
"Simplifying the Accounting
for Measurement - Period
Adjustments."
ASU No. 2015-07, Fair Value
Measurement (Topic 820) -
"Disclosures for Investments
in Certain Entities That
Calculate Net Asset Value per
Share (or its Equivalent) (a
consensus of the FASB
Emerging Issues Task Force)."
ASU No. 2015-03, Interest -
Imputation of Interest
(Subtopic 835-30) -
"Simplifying the Presentation
of Debt Issuance Costs."
ASU No. 2015-02,
Consolidation (Topic 810) -
"Amendments to the
Consolidation Analysis."
ASU No. 2014-09, Revenue
from Contracts with
Customers (Topic 606)
Equity investments not accounted for under the equity method or those
that do not result in consolidation of the investee are to be measured
at fair value with changes in the fair value recognized through net
income. Entities are to present separately in other comprehensive
income, the portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk when an
election to measure the liability at fair value in accordance with the
fair value option for financial instruments has been made. Also, the
requirement to disclose the method(s) and significant assumptions
used to estimate the fair value for financial instruments measured at
amortized cost on the balance sheet has been eliminated.
Accounting for adjustments made to provisional amounts recognized
in a business combination is simplified. First, the acquirer must
recognize adjustments to provisional amounts that are identified
during the measurement period in the reporting period in which the
adjustment amount is determined, and record in that period’s financial
statements, the effect on earnings of changes in depreciation,
amortization, or other income effects, if any, as a result of the change
to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. Second, adjustments to provisional
amounts that are identified after December 15, 2015 and that are within
the measurement period should be applied prospectively. Upon
transition, an entity would be required to disclose the nature of, and
reason for, the change in accounting principle. An entity would provide
that disclosure in the first annual period of adoption and in the interim
periods within the first annual period.
The requirement to categorize within the fair value hierarchy all
investments for which fair value is measured using net asset value per
share as a practical expedient has been removed. Additional
requirements to make certain disclosures has been modified to apply
to, rather than all investments that are eligible to be, only those
investments that an entity has elected to be measured at fair value using
net asset value per share as a practical expedient. An entity should
apply the guidance on a retrospective basis.
The presentation of debt issuance costs has been simplified by
requiring that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not
affected by the amendments in this Update. An entity should apply the
guidance on a retrospective basis.
Limited partnerships and similar legal entities, the evaluation of fees
paid to a decision maker or a service provider as a variable interest,
the effect of fee arrangements and related parties on the primary
beneficiary determination, and certain investment funds are affected
by the guidance which analyzes consolidation requirements.
A single comprehensive model has been established for an entity to
recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled, and will supersede nearly all existing
revenue recognition guidance, and clarify and converge revenue
recognition principles under US GAAP and IFRS. The five steps to
recognizing revenue: (i) identify the contracts with the customer; (ii)
identify the separate performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to
the separate performance obligations; and (v) recognize revenue when
each performance obligation is satisfied. The most significant potential
impact to banking entities relates to less prescriptive derecognition
requirements on the sale of owned real estate properties. An entity may
elect either a full retrospective or a modified retrospective application.
ASU No. 2015-14 - Revenue from Contracts with Customers (Topic
606), defers the effective date to annual and interim periods beginning
after December 15, 2017.
78
Effective Date and
Financial Statement Impact
The Company intends to
adopt the Update for the
first quarter of 2018 and is
in the process of assessing
the impact on its financial
statements.
The Update is effective
beginning January 1, 2016
and will not have a material
impact on the Company's
financial statements.
The Update is effective
beginning January 1, 2016
and will not have a material
impact on the Company's
financial statements.
The Update is effective
beginning January 1, 2016
and will not have a material
impact on the Company's
financial statements.
The Update is effective
beginning January 1, 2016
and will not have a material
impact on the Company's
financial statements.
The Company intends to
adopt the Update for the
first quarter of 2018.
Adoption is not anticipated
to have a material impact on
the Company's financial
statements.
Note 2: Acquisition
Business Combination
On January 13, 2015 Webster Bank completed its acquisition of the health savings account business of JPMorgan Chase Bank,
N.A. As a result of the acquisition, the Company became the leading administrator of health savings accounts on a nationwide
basis. The acquisition significantly augments a source of stable, low cost, long duration deposits.
The acquisition-date fair value of the consideration transferred consisted of the following:
(In thousands)
Cash
Contingent consideration (1)
Total net consideration transferred
At January 13,
2015
$
$
50,485
(5,000)
45,485
(1) The contingent consideration entitles the Company to receive a rebate of the premium paid for account attrition that occurs during the
eighteen-month period beginning on January 13, 2015, the closing date of the transaction.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
(In thousands)
Cash
Intangible assets
Total identifiable assets acquired
Deposits
Contingent liability (1)
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
At January 13,
2015
1,446,898
43,000
1,489,898
1,446,899
6,000
1,452,899
36,999
8,486
45,485
$
$
$
$
$
$
(1) The contingent liability represents an obligation that existed at the acquisition date. Accordingly, Webster assumed the contingent
liability as part of the transaction and has accounted for it at fair value.
The fair value of the acquired identifiable intangible assets includes a core deposit intangible and customer relationships. Refer
to Note 7: Goodwill and Other Intangible Assets for additional information relating to the initial amounts of goodwill and other
intangible assets recognized.
Refer to Note 16: Fair Value Measurements for additional information on the valuation assumptions related to the contingent
consideration and contingent liability recorded.
Asset Purchase
In December 2015, the Company negotiated an agreement with Citigroup Inc. to assume 17 banking center leases located in the
greater Boston market and to purchase the related leasehold improvements. At December 31, 2015, the Company had finalized,
with the lessors, the terms of 16 of the 17 leases. The transaction which closed in 2016, did not include the purchase of loans or
deposits, significantly increases Webster Bank's Community Banking presence in the Boston market. There was no impact to the
Company's financial statements in 2015; however, refer to Note 20: Commitments and Contingencies for information regarding
the impact relating to future minimum rental payments.
79
Note 3: Investment Securities
A Summary of the amortized cost and fair value of investment securities is presented below:
(In thousands)
Available-for-sale:
U.S. Treasury Bills
Agency collateralized mortgage
obligations (“agency CMO”)
Agency mortgage-backed
securities (“agency MBS”)
Agency commercial mortgage-
backed securities (“agency
CMBS”)
Non-agency commercial
mortgage-backed securities ("non-
agency CMBS")
Collateralized loan obligations
("CLO")
Single issuer trust preferred
securities
Corporate debt securities
Equities - financial institutions
At December 31,
2015
2014
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$
924 $
— $
— $
924
$
525 $
— $
— $
525
546,168
5,532
(2,946)
548,754
543,417
8,636
(1,065)
550,988
1,075,941
6,459
(17,291)
1,065,109
1,030,724
10,462
(12,668)
1,028,518
215,670
639
(959)
215,350
80,400
—
(134)
80,266
574,686
7,485
(2,905)
579,266
534,631
18,885
(123)
553,393
431,837
592
(3,270)
429,159
426,269
482
(1,017)
425,734
42,168
104,031
3,499
—
2,290
—
(4,998)
37,170
—
106,321
(921)
2,578
41,981
106,520
3,500
—
3,781
2,403
(3,736)
38,245
—
—
110,301
5,903
Total available-for-sale
$ 2,994,924 $
22,997 $ (33,290) $ 2,984,631
$ 2,767,967 $
44,649 $ (18,743) $ 2,793,873
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
Non-agency CMBS
Private Label MBS
$ 407,494 $
3,717 $
(2,058) $ 409,153
$ 442,129 $
6,584 $
(739) $ 447,974
2,030,176
38,813
(19,908)
2,049,081
2,134,319
57,196
(11,340)
2,180,175
686,086
435,905
360,018
3,373
4,253
12,019
5,046
46
(325)
(417)
690,014
447,507
(2,704)
362,360
—
3,419
578,687
373,211
338,723
5,886
1,597
15,138
9,428
100
(1,143)
579,141
(55)
388,294
(1,015)
347,136
—
5,986
Total held-to-maturity
$ 3,923,052 $
63,894 $ (25,412) $ 3,961,534
$ 3,872,955 $
90,043 $ (14,292) $ 3,948,706
Other-Than-Temporary Impairment
The balance of OTTI, included in the amortized cost columns above, is related to certain CLO securities that are considered
Covered Funds as defined by Section 619 of the Dodd-Frank Act, which continue to decline due to CLO deal refinancing and
modifications.
To the extent that changes occur in interest rates, credit movements, and other factors that impact fair value and expected recovery
of amortized cost of its investment securities, the Company may be required to record a charge for OTTI in future periods.
The following table presents the changes in OTTI:
(In thousands)
Beginning balance
Reduction for securities sold or called
Additions for OTTI not previously recognized
Ending balance
Years ended December 31,
2015
2014
2013
$
$
3,696
$
16,633
$
10,460
(518)
110
(14,082)
1,145
(1,104)
7,277
3,288
$
3,696
$
16,633
80
Fair Value and Unrealized Losses
The following tables provide information on fair value and unrealized losses for the individual securities with an unrealized loss,
aggregated by investment security type and length of time that the individual securities have been in a continuous unrealized loss
position:
(Dollars in thousands)
Available-for-sale:
Agency CMO
Agency MBS
Agency CMBS
Non-agency CMBS
CLO
Single issuer trust preferred securities
Equities-financial institutions
Total available-for-sale in an unrealized
loss position
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
Non-agency CMBS
At December 31, 2015
Less Than Twelve Months
Twelve Months or Longer
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
# of
Holdings
Total
Fair
Value
Unrealized
Losses
$
195,369 $
(2,195) $
26,039 $
(751)
481,839
124,241
276,330
211,515
4,087
2,578
(6,386)
351,911
(10,905)
(959)
(2,879)
(2,709)
(128)
(921)
—
19,382
15,708
33,083
—
—
(26)
(561)
(4,870)
—
14
84
7
29
13
8
1
$
221,408 $
(2,946)
833,750
124,241
295,712
227,223
37,170
2,578
(17,291)
(959)
(2,905)
(3,270)
(4,998)
(921)
$ 1,295,959 $
(16,177) $ 446,123 $
(17,113)
156
$ 1,742,082 $
(33,290)
$
143,364 $
(1,304) $
27,928 $
(754)
551,918
110,864
29,034
142,382
(7,089)
470,828
(12,819)
(325)
(130)
(1,983)
—
13,829
30,129
—
(287)
(721)
13
87
7
27
18
$
171,292 $
(2,058)
1,022,746
(19,908)
110,864
42,863
172,511
(325)
(417)
(2,704)
Total held-to-maturity in an unrealized loss
position
$
977,562 $
(10,831) $ 542,714 $
(14,581)
152
$ 1,520,276 $
(25,412)
(Dollars in thousands)
Available-for-sale:
Agency CMO
Agency MBS
Agency CMBS
Non-agency CMBS
CLO
Single issuer trust preferred securities
Equities-financial institutions
Total available-for-sale in an unrealized
loss position
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
Non-agency CMBS
Total held-to-maturity in an unrealized
loss position
At December 31, 2014
Less Than Twelve Months
Twelve Months or Longer
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
# of
Holdings
Total
Fair
Value
Unrealized
Losses
$
47,217 $
(240) $
35,968 $
(825)
3,691
80,266
24,932
99,221
4,150
—
(18)
(134)
(117)
(1,017)
(36)
—
641,355
(12,650)
—
9,396
—
—
(6)
—
34,095
(3,700)
—
—
259,477 $
(1,562) $
720,814 $
(17,181)
52,172 $
(187) $
24,942 $
(552)
20,791
324,394
5,341
13,003
(86)
608,568
(11,254)
(1,143)
(23)
(30)
—
3,074
65,913
—
(32)
(985)
$
$
$
415,701 $
(1,469) $
702,497 $
(12,823)
8
64
4
4
6
8
—
94
6
44
17
15
7
89
$
83,185 $
(1,065)
645,046
(12,668)
80,266
34,328
99,221
38,245
—
(134)
(123)
(1,017)
(3,736)
—
980,291 $
(18,743)
77,114 $
(739)
629,359
324,394
8,415
78,916
(11,340)
(1,143)
(55)
(1,015)
$
$
$ 1,118,198 $
(14,292)
81
Impairment Analysis
The following impairment analysis by investment security type, summarizes the basis for evaluating if investment securities within
the Company’s available-for-sale and held-to-maturity portfolios are other-than-temporarily impaired. Unless otherwise noted for
an investment security type, management does not intend to sell these investments and has determined, based upon available
evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of their
amortized cost. As such, based on the following impairment analysis the Company does not consider these securities to be other-
than-temporarily impaired at December 31, 2015.
Available-for-Sale Securities
Agency CMO. There were unrealized losses of $2.9 million on the Company’s investment in agency CMO at December 31, 2015,
compared to $1.1 million at December 31, 2014. Unrealized losses increased due to higher market rates which resulted in lower
security prices since December 31, 2014. The contractual cash flows for these investments are performing as expected, and there
has been no change in the underlying credit quality.
Agency MBS.
There were unrealized losses of $17.3 million on the Company’s investment in residential mortgage-backed securities
issued by government agencies at December 31, 2015, compared to $12.7 million at December 31, 2014. Unrealized losses
increased due to higher market rates which resulted in lower security prices since December 31, 2014. These investments are
issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct
or indirect. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS. There were unrealized losses of $1.0 million on the Company's investment in commercial mortgage-backed
securities issued by government agencies at December 31, 2015, compared to $0.1 million at December 31, 2014. Unrealized
losses increased due to higher market rates which resulted in lower security prices since December 31, 2014.
Non-agency CMBS. There were unrealized losses of $2.9 million on the Company’s investment in non-agency commercial
mortgage-backed securities at December 31, 2015, compared to $0.1 million at December 31, 2014. Unrealized losses increased
due to higher market rates which resulted in lower security prices since December 31, 2014. Internal and external metrics are
considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential losses
under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.
CLO. There were unrealized losses of $3.3 million on the Company’s investments in CLO at December 31, 2015 compared to
$1.0 million unrealized losses at December 31, 2014. Unrealized losses increased due to higher market spreads for the asset class
which resulted in lower security prices since December 31, 2014. Internal stress tests are performed on individual bonds to monitor
potential losses under stress scenarios.
Single issuer trust preferred securities. There were unrealized losses of $5.0 million on the Company's investment in single issuer
trust preferred securities at December 31, 2015, compared to $3.7 million at December 31, 2014. Unrealized losses increased due
to higher market spreads which resulted in lower security prices since December 31, 2014. The single issuer portfolio consists of
four investments issued by three large capitalization money center financial institutions, which continue to service the debt. The
Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost.
Equities - financial institutions. There were $0.9 million unrealized losses on the Company’s investment in equities - financial
institutions at December 31, 2015 compared to no unrealized losses at December 31, 2014.
Held-to-Maturity Securities
Agency CMO. There were unrealized losses of $2.1 million on the Company’s investment in agency CMO at December 31, 2015,
compared to $0.7 million at December 31, 2014. Unrealized losses increased due to higher market rates which resulted in lower
security prices since December 31, 2014. The contractual cash flows for these investments are performing as expected, and there
has been no change in the underlying credit quality.
Agency MBS. There were unrealized losses of $19.9 million on the Company’s investment in residential mortgage-backed securities
issued by government agencies at December 31, 2015, compared to $11.3 million at December 31, 2014. Unrealized losses
increased due to higher market rates which resulted in lower security prices since December 31, 2014. These investments are
issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct
or indirect. There has been no change in the credit quality, and the contractual cash flows are performing as expected.
Agency CMBS. There were unrealized losses of $0.3 million on the Company’s investment in commercial mortgage-backed
securities issued by government agencies at December 31, 2015, compared to $1.1 million at December 31, 2014. Unrealized
losses decreased due to security seasoning which resulted in higher security prices since December 31, 2014.
82
Municipal bonds and notes. There were unrealized losses of $417 thousand on the Company’s investment in municipal bonds
and notes at December 31, 2015, compared to $55 thousand at December 31, 2014, as market rates were essentially unchanged.
The Company performs periodic credit reviews of the issuers and the securities are currently performing as expected.
Non-agency CMBS. There were unrealized losses of $2.7 million on the Company’s investment in non-agency commercial
mortgage-backed securities at December 31, 2015, compared to $1.0 million unrealized losses at December 31, 2014. Unrealized
losses increased due to higher market rates which resulted in lower security prices since December 31, 2014. Internal and external
metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential
losses under stress scenarios.
Sales of Available-for Sale Securities
The following table provides information on sales of available-for-sale securities:
(In thousands)
Proceeds from sales
Gross realized gains on sales
Gross realized losses on sales
Gain on sale of investment securities, net
Contractual Maturities
$
$
$
2015
Years ended December 31,
2014
126,580
$
$
95,101
2013
57,804
1,029
420
609
$
$
7,268
1,769
5,499
$
$
2,847
2,135
712
The amortized cost and fair value of debt securities by contractual maturity are set forth below:
(In thousands)
Due in one year or less
Due after one year through five years
Due after five through ten years
Due after ten years
Total debt securities
At December 31, 2015
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
35,660
35,941 $
101,313
99,028
433,733
435,444
2,421,012
2,411,347
2,991,425 $ 2,982,053
$
320 $
323
34,880
50,534
3,875,797
$ 3,923,052 $ 3,961,534
33,940
48,818
3,839,974
For the maturity schedule above, mortgage-backed securities and collateralized loan obligations, 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 because borrowers have the right to prepay obligations with or without prepayment penalties.
At December 31, 2015, the Company had a carrying value of $961.6 million in callable securities in its CMBS, CLO, and municipal
bond portfolios. The Company considers these factors in the evaluation of its interest rate risk profile. These maturities do not
reflect actual duration which is impacted by prepayment.
Securities with a carrying value totaling $2.6 billion at December 31, 2015 and $2.9 billion at December 31, 2014 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)
Residential
Consumer
Commercial
Commercial Real Estate
Equipment Financing
Loans and leases (1)(2)
At December 31,
2015
4,061,001
2,702,560
4,315,999
3,991,649
600,526
15,671,735
$
$
2014
3,509,175
2,549,401
3,749,270
3,554,428
537,751
13,900,025
$
$
(1) Loan and lease balances include net deferred fees and unamortized premiums of $18.0 million and $10.6 million at December 31, 2015
and December 31, 2014, respectively.
(2) Accrued interest of $43.1 million and $38.4 million at December 31, 2015 and December 31, 2014, respectively, are not included in the
loan and lease balances.
83
At December 31, 2015, the Company had pledged $6.1 billion of eligible loans as collateral to support available borrowing capacity
at the Federal Home Loan Bank of Boston and the Federal Reserve Bank of Boston.
Loans and Leases Portfolio Aging
The following tables summarize the aging of loans and leases:
(In thousands)
Residential
Consumer:
Home equity
Other consumer
Commercial:
Commercial non-mortgage
Asset-based
Commercial real estate:
Commercial real estate
Commercial construction
Equipment financing
Total
(In thousands)
Residential (2)
Consumer:
Home equity
Other consumer
Commercial:
Commercial non-mortgage
Asset-based
Commercial real estate:
Commercial real estate
Commercial construction
Equipment financing
Total
At December 31, 2015
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(1)
Current
Total Loans
and Leases
$
10,365 $
4,703 $
2,029 $
54,201 $
71,298 $ 3,989,703 $ 4,061,001
9,061
1,390
768
—
4,242
615
3,288
—
—
—
22
—
37,337
560
27,037
—
50,640
2,565
2,402,758
246,597
2,453,398
249,162
31,115
—
3,531,669
753,215
3,562,784
753,215
1,624
—
543
23,751 $
625
—
59
13,532 $
$
—
—
—
2,051 $
16,767
3,461
706
140,069 $
19,016
3,461
1,308
3,692,424
3,673,408
299,225
295,764
600,526
599,218
179,403 $ 15,492,332 $ 15,671,735
At December 31, 2014
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 (1)
Current
Total Loans
and Leases
$
11,410 $
5,840 $
2,039 $
64,117 $
83,406 $ 3,425,769 $ 3,509,175
11,393
704
1,948
—
5,076
410
153
—
—
—
48
—
40,026
281 $
56,495
1,395
2,417,275
74,236
2,473,770
75,631
6,449
—
8,598
—
3,079,342
661,330
3,087,940
661,330
2,325
—
551
28,331 $
392
—
150
12,021 $
$
—
—
—
2,087 $
15,038
3,659
578
130,148 $
17,755
3,659
1,279
3,320,407
3,302,652
234,021
230,362
537,751
536,472
172,587 $ 13,727,438 $ 13,900,025
(1) Loans and leases 30 days or more days past due and accruing exclude $0.6 million and $0.5 million of accrued interest receivable at
December 31, 2015 and December 31, 2014, respectively.
(2) U.S. Government guaranteed loans of approximately $2.0 million were reclassified from non-accrual to over 90 days past due and
accruing reflective of a policy change effective in the first quarter of 2015.
Interest on non-accrual loans and leases that would have been recorded as additional interest income for the years ended December
31, 2015, 2014, and 2013, had the loans and leases been current in accordance with their original terms, totaled $8.2 million, $9.3
million, and $11.4 million, respectively.
84
Allowance for Loan and Lease Losses
The following tables summarize the activity in, as well as the loan and lease balances that were evaluated for, the ALLL:
Loans and leases
$ 4,061,001 $ 2,702,560 $ 4,315,999 $ 3,991,649 $
134,448 $
48,425 $
56,581 $
39,295 $
3,926,553
2,654,135
4,259,418
3,952,354
422 $
279,171
600,104
15,392,564
600,526 $ 15,671,735
At or for the Year ended December 31, 2015
Residential
Consumer
Commercial
Commercial
Real Estate
Equipment
Financing
Total
25,452 $
6,057
(6,508)
875
25,876 $
10,364 $
15,512 $
43,518 $
11,847
(17,679)
4,366
42,052 $
3,477 $
38,575 $
52,114 $
23,356
(11,522)
2,738
66,686 $
5,197 $
61,489 $
32,102 $
9,718
(7,578)
647
34,889 $
3,163 $
31,726 $
6,078 $
(1,678)
(273)
1,360
5,487 $
3 $
5,484 $
159,264
49,300
(43,560)
9,986
174,990
22,204
152,786
At or for the Year ended December 31, 2014
Residential
Consumer
Commercial
Commercial
Real Estate
Equipment
Financing
Total
23,027 $
7,315
(6,214)
1,324
25,452 $
12,094 $
13,358 $
41,951 $
17,224
(20,712)
5,055
43,518 $
4,237 $
39,281 $
51,001 $
10,412
(13,668)
4,369
52,114 $
2,710 $
49,404 $
32,408 $
2,046
(3,237)
885
32,102 $
6,232 $
25,870 $
4,186 $
253
(595)
2,234
6,078 $
28 $
6,050 $
152,573
37,250
(44,426)
13,867
159,264
25,301
133,963
(In thousands)
Allowance for loan and lease losses:
Balance at January 1, 2015
Provision (benefit) charged to expense
Losses charged off
Recoveries
Balance at December 31, 2015
Individually evaluated for impairment
Collectively evaluated for impairment
Loan and lease balances:
Individually evaluated for impairment
Collectively evaluated for impairment
$
$
$
$
$
(In thousands)
Allowance for loan and lease losses:
Balance at January 1, 2014
Provision (benefit) charged to expense
Losses charged off
Recoveries
Balance at December 31, 2014
Individually evaluated for impairment
Collectively evaluated for impairment
Loan and lease balances:
Individually evaluated for impairment
Collectively evaluated for impairment
$
$
$
$
$
Loans and leases
$ 3,509,175 $ 2,549,401 $ 3,749,270 $ 3,554,428 $
141,982 $
50,249 $
36,176 $
101,817 $
3,367,193
2,499,152
3,713,094
3,452,611
632 $
330,856
537,119
13,569,169
537,751 $ 13,900,025
(In thousands)
Allowance for loan and lease losses:
Balance at January 1, 2013
Provision (benefit) charged to expense
Losses charged off
Recoveries
Balance at December 31, 2013
Individually evaluated for impairment
Collectively evaluated for impairment
Loan and lease balances:
Individually evaluated for impairment
Collectively evaluated for impairment
$
$
$
$
$
At or for the Year ended December 31, 2013
Residential
Consumer
Commercial
Commercial
Real Estate
Equipment
Financing
Total
32,030 $
1,187
(11,592)
1,402
23,027 $
10,535 $
12,492 $
56,995 $
7,808
(29,037)
6,185
41,951 $
4,595 $
37,356 $
50,562 $
14,442
(19,126)
5,123
51,001 $
1,878 $
49,123 $
33,210 $
12,975
(15,425)
1,648
32,408 $
3,445 $
28,963 $
4,332 $
(2,912)
(279)
3,045
4,186 $
— $
4,186 $
177,129
33,500
(75,459)
17,403
152,573
20,453
132,120
142,413 $
52,092 $
52,018 $
104,808 $
3,219,012
2,484,596
3,230,833
2,953,554
210 $
351,541
460,240
12,348,235
460,450 $ 12,699,776
Loans and leases
$ 3,361,425 $ 2,536,688 $ 3,282,851 $ 3,058,362 $
85
Impaired Loans and Leases
The following tables summarize impaired loans and leases:
(In thousands)
Residential:
1-4 family
Consumer:
Home equity
Commercial:
Commercial non-mortgage
Commercial real estate:
Commercial real estate
Commercial construction
Equipment financing
Total
(In thousands)
Residential:
1-4 family
Consumer:
Home equity
Commercial:
Commercial non-mortgage
Commercial real estate:
Commercial real estate
Commercial construction
Equipment financing
Total
At December 31, 2015
Unpaid
Principal
Balance
Total
Recorded
Investment (1)
Recorded
Investment
No Allowance
Recorded
Investment
With Allowance
Related
Valuation
Allowance
$
148,144 $
134,448 $
23,024 $
111,424 $
10,364
56,680
48,425
25,130
23,295
67,116
56,581
31,600
24,981
36,980
7,010
612
316,542 $
33,333
5,962
422
279,171 $
$
9,204
5,939
328
95,225 $
24,129
23
94
183,946 $
3,477
5,197
3,160
3
3
22,204
At December 31, 2014
Unpaid
Principal
Balance
Total
Recorded
Investment (1)
Recorded
Investment
No Allowance
Recorded
Investment
With Allowance
Related
Valuation
Allowance
$
157,152 $
141,982 $
24,335 $
117,647 $
12,094
60,424
50,249
26,432
23,817
41,019
36,176
15,998
20,178
99,687
7,218
629
366,129 $
95,656
6,161
632
330,856 $
40,306
5,940
—
113,011 $
$
55,350
221
632
217,845 $
4,237
2,710
6,222
10
28
25,301
(1) Total recorded investment of impaired loans and leases exclude $1.7 million and $1.4 million of accrued interest receivable at
December 31, 2015 and December 31, 2014, respectively.
86
1,954
1,724
—
—
—
—
3,678
(In thousands)
Residential
Consumer
Commercial
Commercial real estate:
Commercial real estate
Commercial
construction
Equipment financing
The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases:
Years ended December 31,
Average
Recorded
Investment
$ 138,215 $
49,337
46,379
2015
Accrued
Interest
Income
Cash Basis
Interest
Income
4,473 $
1,451
1,319
1,139
1,099
—
Average
Recorded
Investment
$ 142,198 $
51,171
44,097
2014
Accrued
Interest
Income
Cash Basis
Interest
Income
4,644 $
1,484
2,326
1,221
1,203
—
Average
Recorded
Investment
$ 144,325 $
53,318
60,558
2013
Accrued
Interest
Income
Cash Basis
Interest
Income
4,119 $
1,003
2,889
64,495
1,165
—
93,209
3,429
—
105,676
4,476
Total
$ 305,015 $
6,062
527
133
16
8,557 $
—
—
2,238
8,381
421
$ 339,477 $
269
28
12,180 $
—
—
2,424
15,254
1,284
$ 380,415 $
620
22
13,129 $
Credit Quality Indicators. To measure credit risk for the commercial, commercial real estate, and equipment financing portfolios,
the Company employs a dual grade credit risk grading system for estimating the probability of borrower default and the loss given
default. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit
Risk Profile (“CCRP”). 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 CCRP has 10 grades, with each grade
corresponding to a progressively greater risk of default. Grades 1 through 6 are considered pass ratings, and 7 through 10 are
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 the borrowers’ current financial positions and outlooks, risk profiles, and the
related collateral and structural positions. 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 “Special Mention” (7) credit has the potential weakness that, if left uncorrected, may result in deterioration of the repayment
prospects for the asset. “Substandard” (8) assets have a well defined weakness that jeopardizes the full repayment of the debt. An
asset rated “Doubtful” (9) 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 “Loss” (10) in
accordance with regulatory guidelines are considered uncollectible and charged off.
The following table summarize commercial, commercial real estate and equipment financing loans and leases segregated by risk
rating exposure:
(In thousands)
(1) - (6) Pass
(7) Special Mention
(8) Substandard
(9) Doubtful
Total
Commercial
Commercial Real Estate
Equipment Financing
At December 31,
2015
4,023,255
$
At December 31,
2014
3,545,218
$
At December 31,
2015
3,857,019
$
At December 31,
2014
3,408,128
$
At December 31,
2015
At December 31,
2014
$
586,445
$
516,116
70,904
220,389
1,451
88,777
115,106
169
55,030
79,289
311
33,453
112,354
493
1,628
12,453
—
4,364
17,271
—
$
4,315,999
$
3,749,270
$
3,991,649
$
3,554,428
$
600,526
$
537,751
For residential and consumer loans, the Company considers factors such as past due status, updated FICO scores, employment
status, home prices, loan to value, geography, loans discharged in bankruptcy, and the status of first lien position loans on second
lien position loans as credit quality indicators. On an ongoing basis for portfolio monitoring purposes, the Company estimates the
current value of property secured as collateral for both home equity and residential first mortgage lending products. The estimate
is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The Case-Shiller data indicates trends for
Metropolitan Statistical Areas. The trend data is applied to the loan portfolios taking into account the age of the most recent
valuation and geographic area.
87
Troubled Debt Restructurings
The following table summarizes information for TDRs:
(Dollars in thousands)
Accrual status
Non-accrual status
Total recorded investment of TDRs (1)
Accruing TDRs performing under modified terms more than one year
Specific reserves for TDRs included in the balance of allowance for loan and lease losses
Additional funds committed to borrowers in TDR status
At December 31,
2015
171,784
100,906
272,690
55.0%
21,405
1,133
$
$
$
2014
241,855
76,939
318,794
67.5%
23,785
552
$
$
$
(1) Total recorded investment of TDRs exclude $1.1 million and $1.4 million at December 31, 2015 and December 31, 2014, respectively,
of accrued interest receivable.
For years ended December 31, 2015, 2014 and 2013, Webster charged off $11.8 million, $13.5 million, and $24.4 million,
respectively, for the portion of TDRs deemed to be uncollectible.
TDRs may be modified by means of extended maturity, below market adjusted interest rates, a combination of rate and maturity,
or other means, including covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
The following table provides information on the type of concession for loans and leases modified as TDRs:
(Dollars in thousands)
Residential:
Extended Maturity
Adjusted Interest rates
Combination Rate and Maturity
Other (2)
Consumer:
Extended Maturity
Adjusted Interest rates
Combination Rate and Maturity
Other (2)
Commercial:
Extended Maturity
Adjusted Interest rates
Combination Rate and Maturity
Other (2)
Commercial real estate:
Extended Maturity
Combination Rate and Maturity
Other (2)
Equipment Financing
Extended Maturity
Total
Years ended December 31,
2015
2014
2013
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)
27 $
3
26
30
12
—
12
68
3
1
7
20
1
1
1
4,909
573
5,315
4,366
1,012
—
945
3,646
254
24
5,361
22,048
315
42
405
27 $
3
22
55
19
1
6
90
7
1
22
6
—
2
—
—
212 $
—
49,215
1
262 $
3,547
448
4,220
11,791
944
51
411
4,931
422
25
1,212
7,431
—
11,106
—
492
47,031
27 $
8
45
44
24
4
14
100
3
—
22
4
3
6
1
—
305 $
5,219
2,759
8,264
9,497
1,159
154
1,504
4,247
7,525
—
1,083
4,603
226
15,520
68
—
61,828
(1) Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings
was not significant.
(2) Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, and/or other concessions.
88
The following table provides information on loans and leases modified as TDRs within the previous 12 months and for which
there was a payment default during the periods presented:
(Dollars in thousands)
Residential
Consumer
Commercial
Commercial real estate
Total
Years ended December 31,
2015
2014
2013
Number of
Loans and
Leases
1
1
—
—
2
$
$
Recorded
Investment
55
3
—
—
58
Number of
Loans and
Leases
7
2
—
—
9
$
$
Recorded
Investment
1,494
24
—
—
1,518
Number of
Loans and
Leases
9
4
1
—
14
$
$
Recorded
Investment
1,201
339
47
—
1,587
The recorded investment of TDRs in commercial, commercial real estate, and equipment financing segregated by risk rating
exposure is as follows:
(In thousands)
(1) - (6) Pass
(7) Special Mention
(8) Substandard
(9) Doubtful
Total
At December 31,
2015
2014
12,970
2,999
72,132
1,717
89,818
$
$
40,734
8,275
77,211
343
126,563
$
$
Note 5: Transfers of Financial Assets and Mortgage Servicing Assets
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 securities. The gain or loss on residential mortgage loans sold is included
as mortgage banking activities in the accompanying Consolidated Statements of Income.
The Company may be required to repurchase a loan in the event of certain breaches of the representations and warranties, or in
the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases
provides for estimated losses pertaining to the potential repurchase of loans associated with the Company's mortgage banking
activities. The reserve reflects management’s monthly evaluation of the identity of counterparty, the vintage of the loans sold, the
amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintages
held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s
expectation of losses from repurchase requests for which the Company has not yet been notified, as the performance of loans sold
and the quality of the servicing provided by the acquirer may also impact the reserve. The provision recorded at the time of the
loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale,
is recorded in other non-interest expense in the accompanying Consolidated Statements of Income.
The following table provides a summary of activity in the reserve for loan repurchases:
Years ended December 31,
2014
2013
2015
$
$
1,059
133
—
1,192
$
$
2,254
(493)
(702)
1,059
$
$
2,617
1,209
(1,572)
2,254
(In thousands)
Beginning balance
Provision (benefit)
Loss on repurchased loans and settlements
Ending balance
89
The following table provides information for mortgage banking activities:
(In thousands)
Residential mortgage loans:
Proceeds from the sale of loans held for sale
Net gain on sale
Loans sold with servicing rights retained
Commercial loans:
Proceeds from the sale of loans held for sale
Net gain (loss) on sale
Years ended December 31,
2014
2015 (1)
2013
$ 452,590
7,795
416,277
$ 287,132
4,070
264,292
$ 773,887
16,359
690,300
729
145
—
—
12,771
(229)
(1) Additionally, certain consumer loans not originated for sale were sold at cost for cash proceeds of $32.9 million.
Mortgage Servicing Assets
The Company has retained servicing rights on residential mortgage loans totaling $2.5 billion and $2.4 billion at December 31,
2015 and 2014, respectively. The resulting mortgage servicing assets of $20.7 million and $19.4 million at December 31, 2015
and 2014, respectively, are carried at the lower of cost or fair value and are included as a component of other assets in the
accompanying Consolidated Balance Sheets. Changes in fair value are included as a component of other non-interest income in
the accompanying Consolidated Statements of Income.
The following table presents the changes in fair value for those mortgage servicing assets:
(In thousands)
Beginning balance
Originations of servicing assets
Changes in fair value:
Due to payoffs/paydowns
Due to market changes
Ending balance
Years ended December 31,
2015
2014
$
$
28,690
8,027
(2,741)
(408)
33,568
$
$
29,150
4,581
(2,577)
(2,464)
28,690
See Note 16: Fair Value Measurements for a further discussion on the fair value of mortgage servicing assets.
Loan servicing fees, net of mortgage servicing rights amortization, were $1.5 million, $1.5 million, and $3.0 million, for the years
ended December 31, 2015, 2014, and 2013, respectively, and are included as a component of loan related fees in the accompanying
Consolidated Statements of Income.
90
Note 6: Premises and Equipment
A summary of premises and equipment follows:
(In thousands)
Land
Buildings and improvements
Leasehold improvements
Fixtures and equipment
Data processing and software
Total premises and equipment
Less: Accumulated depreciation and amortization
Premises and equipment, net
At December 31,
2015
12,899
94,686
79,917
73,686
195,308
456,496
(327,070)
129,426
$
$
2014
12,987
95,843
78,029
73,180
175,887
435,926
(313,993)
121,933
$
$
Depreciation and amortization of premises and equipment was $28.4 million, $27.9 million, and $31.1 million for the years ended
December 31, 2015, 2014, and 2013, respectively.
The following table provides a summary of activity for assets held for disposition:
(In thousands)
Beginning balance
Additions
Write-downs
Sales
Ending balance
Years ended December 31,
2015
2014
$
$
759
144
—
(266)
637
$
$
1,567
1,061
(432)
(1,437)
759
91
Note 7: Goodwill and Other Intangible Assets
The following table presents the carrying value for goodwill allocated by reportable segment:
(In thousands)
Balance at January 1, 2015
Goodwill acquired
Balance at December 31, 2015
Community
Banking
HSA
Bank
Total Goodwill
$
$
516,560 $
13,327 $
529,887
—
8,486
8,486
516,560 $
21,813 $
538,373
The goodwill arising from the HSA Bank acquisition is attributable primarily to expected synergies of the business combination.
The full amount of goodwill recorded in the current period is expected to be deductible for income tax purposes.
The gross carrying amount and accumulated amortization of core deposit intangibles ("CDI") and customer relationships included
in the reportable segments are as follows:
(In thousands)
Community Banking, CDI
HSA Bank:
CDI
Customer relationships
Total HSA Bank
Total other intangible assets
$
At December 31,
2015
2014
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
49,420 $
(48,277) $
1,143
$
49,420 $
(46,754) $
2,666
22,000
21,000
43,000
92,420 $
(3,269)
(1,548)
(4,817)
(53,094) $
18,731
19,452
38,183
39,326
$
—
—
—
49,420 $
—
—
—
(46,754) $
—
—
—
2,666
The intangibles arising from the HSA Bank acquisition were recorded at fair value, including CDI assets with an estimated useful
life of 9 years and customer relationship intangible assets with an estimated useful life of 13 years.
As of December 31, 2015, the remaining estimated aggregate future amortization expense for intangible assets is as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
$
5,652
4,062
3,847
3,847
3,847
18,071
92
Note 8: Income Taxes
Income tax expense reflects the following expense (benefit) components:
(In thousands)
Current:
Federal
State and local
Total current
Deferred:
Federal
State and local
Total deferred
Total federal
Total state and local
Income tax expense
Years ended December 31,
2015
2014
2013
$
$
98,442
11,047
109,489
$
90,542
6,585
97,127
(7,279)
(8,234)
(15,513)
(3,784)
(1,370)
(5,154)
91,163
2,813
93,976
$
86,758
5,215
91,973
$
$
62,042
3,572
65,614
10,760
739
11,499
72,802
4,311
77,113
The Company's income tax expense reflects the benefits of an operating loss carryforward of $3.0 million in 2015, and net tax
credits of $2.1 million, $0.3 million, and $0.6 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the
federal statutory rate of 35.0%:
(Dollars in thousands)
Income tax expense at federal statutory rate
Reconciliation to reported income tax expense:
State and local income taxes, net of federal benefit
Tax-exempt interest income, net
Decrease in valuation allowance applicable to net
state deferred tax assets, net of federal effects
Increase in cash surrender value of life insurance
Other, net
Years ended December 31,
2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
$
105,111
35.0% $
102,095
35.0% $
89,799
35.0%
7,613
(7,117)
(5,785)
(4,557)
(1,289)
2.5
(2.4)
(1.9)
(1.5)
(0.4)
3,390
(7,335)
—
(4,612)
(1,565)
1.2
(2.5)
—
(1.6)
(0.6)
2,802
(8,517)
—
(4,819)
(2,152)
1.1
(3.3)
—
(1.9)
(0.8)
Income tax expense and effective tax rate
$
93,976
31.3% $
91,973
31.5% $
77,113
30.1%
Refundable income taxes totaling $56.6 million and $56.7 million at December 31, 2015 and 2014, respectively, are reflected in
accrued interest receivable and other assets in the accompanying Consolidated Balance Sheets, and are largely attributable to
federal carryback claims applicable to 2008 and 2009 losses. During 2015, the Internal Revenue Service (“IRS”) completed its
examination of Webster and submitted its report to the U.S. congressional Joint Committee on Taxation (“JCT”). The JCT completed
its review in late 2015, taking no exception to the conclusions reached by the IRS. The refunds, which include estimated non-
contingent accrued interest income of $2.8 million and $1.0 million at December 31, 2015 and 2014, respectively, are anticipated
to be received by the Company in early 2016.
93
The following table reflects the significant components of the deferred tax asset, net (“DTA”):
(In thousands)
Deferred tax assets:
Allowance for loan and lease losses
Net operating loss and credit carry forwards
Compensation and employee benefit plans
Net losses on derivative instruments
Net unrealized loss on securities available for sale
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Net unrealized gain on securities available for sale
Equipment-financing leases
Deferred income on repurchase of debt
Intangible assets
Mortgage servicing assets
Other
Gross deferred tax liabilities
Deferred tax asset, net
At December 31,
2015
2014
$
$
$
$
70,937
62,403
52,422
11,734
4,138
27,862
229,496
(74,918)
154,578
$
$
— $
23,934
6,376
9,165
7,127
6,398
53,000
101,578
$
65,288
64,561
47,748
12,637
—
27,300
217,534
(80,722)
136,812
10,288
21,930
8,502
9,242
7,230
5,747
62,939
73,873
The Company's DTA increased by $27.7 million during 2015, reflecting primarily the $15.5 million deferred tax benefit and a
$14.3 million benefit allocated directly to shareholders equity. The $15.5 million deferred benefit included a $5.8 million reduction
in the beginning-of-year valuation allowance applicable to state and local deferred tax assets. The $14.3 million benefit allocated
to shareholders' equity included $13.3 million related to a reduction in valuations of available-for-sale securities during the year.
The $74.9 million valuation allowance at December 31, 2015 consisted of $69.6 million attributable to net state deferred tax assets
and $5.3 million to capital losses, deductible only to the extent of capital gains for federal tax purposes. The decrease in the
valuation allowance includes: (i) a $1.0 million decrease applicable to capital losses; (ii) the $5.8 million reduction in the beginning-
of-year valuation allowance noted above, applicable to a change in the Company’s estimated realizability of state deferred tax
assets for which a full valuation allowance had been established at the beginning of the year, including $4.4 million applicable to
future years; and (iii) a $1.0 million increase applicable to changes in net state deferred tax assets for which a full valuation
allowance had been established at both the beginning and end of the year.
Management believes it is more likely than not that Webster will realize its total deferred tax assets, net of the valuation allowance.
Significant positive evidence exists in support of management’s conclusion regarding the realization of Webster's DTA, including:
book-taxable income levels in recent years and projected future years; recoverable taxes paid in 2015 and 2014; and projected
future reversals of existing taxable temporary differences. There can, however, be no assurance that any specific level of future
income will be generated or that the Company’s DTA will ultimately be realized.
Capital losses approximating $15.4 million at December 31, 2015 are scheduled to expire in varying amounts during tax years
2017 and 2018. A full valuation allowance has been established for the tax effect of these losses, as noted above.
State net operating losses approximating $1.2 billion at December 31, 2015 are scheduled to expire in varying amounts during
tax years 2021 through 2032, and credits, totaling $2.2 million at December 31, 2015, have a five-year carryover period, with
excess credits subject to expiration annually. A valuation allowance of $58.0 million, net, has been established for those state net
operating losses and credits not expected to be utilized, and is included in the valuation allowance attributable to net state deferred
tax assets as noted above.
A deferred tax liability of $21.4 million has not been recognized for certain thrift bad-debt reserves, established before 1988, that
would become taxable upon the occurrence of certain events: distributions by Webster Bank in excess of certain earnings and
profits; the redemption of Webster Bank’s stock; or a liquidation. Webster does not expect any of those events to occur. At
December 31, 2015 and 2014 the cumulative taxable temporary differences applicable to those reserves approximated $58.0
million.
94
The following table reflects a reconciliation of the beginning and ending balances for unrecognized tax benefits (“UTBs”):
(In thousands)
Beginning balance
Additions as a result of tax positions taken during the current year
Additions as a result of tax positions taken during prior years
Reductions as a result of tax positions taken during prior years
Reductions relating to settlements with taxing authorities
Reductions as a result of lapse of statute of limitations
Ending balance
Years ended December 31,
2015
2014
2013
$
$
4,593
865
1,254
(247)
(992)
(379)
5,094
$
$
3,109
956
1,031
—
—
(503)
4,593
$
$
3,119
528
442
(460)
—
(520)
3,109
At December 31, 2015, 2014, and 2013, there are $3.3 million, $3.0 million, and $2.0 million, respectively, of UTBs that, if
recognized, would affect the effective tax rate.
Webster recognizes interest and penalties related to UTBs, where applicable, in income tax expense. During the years ended
December 31, 2015, 2014, and 2013, Webster recognized interest and penalties totaling $1.1 million, $0.5 million, and $0.3 million,
respectively. At December 31, 2015 and 2014, the Company had accrued interest and penalties related to UTBs of $2.5 million
and $1.6 million, respectively.
Webster has determined it is reasonably possible that its total UTBs could decrease by an amount in the range of $2.2 million to
$3.4 million by the end of 2016, primarily as a result of potential settlements with state and local taxing authorities concerning
tax-base and apportionment determinations.
Webster is currently under, or subject to, examination by various taxing authorities. Federal tax returns for all years subsequent
to 2009 are either under, or remain open to, examination. For Webster’s principal state tax jurisdictions, returns for years subsequent
to the following are either under, or remain open to, examination: Massachusetts and Rhode Island 2010; Connecticut 2011; and
New York 2012.
95
Note 9: Deposits
A summary of deposits by type follows:
(In thousands)
Non-interest-bearing:
Demand
Interest-bearing:
Checking
Health savings accounts
Money market
Savings
Time deposits
Total interest-bearing
Total deposits
At December 31,
2015
2014
$ 3,713,063
$ 3,598,872
2,369,971
3,802,313
1,933,460
4,047,817
2,086,154
14,239,715
$ 17,952,778
2,155,047
1,824,799
1,908,522
3,892,778
2,271,587
12,052,733
$ 15,651,605
Time deposits and interest-bearing checking, included in above balances, obtained through brokers
Time deposits, included in above balance, that meet or exceed the Federal Deposit Insurance Corporation
limit
Demand deposit overdrafts reclassified as loan balances
$
910,304
$
651,725
542,206
1,356
533,980
1,655
The scheduled maturities of time deposits are as follows:
$
At December 31,
2015
1,034,275
253,782
240,921
392,926
164,154
96
2,086,154
$
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total time deposits
96
Note 10: Borrowings
The following table summarizes securities sold under agreements to repurchase and other borrowings:
(In thousands)
Securities sold under agreements to repurchase:
Original maturity of one year or less
Original maturity of greater than one year, non-callable
Total securities sold under agreements to repurchase
Fed funds purchased
Securities sold under agreements to repurchase and other borrowings
At December 31,
2015
2014
$
334,400
500,000
834,400
317,000
$ 1,151,400
$
409,756
550,000
959,756
291,000
$ 1,250,756
Repurchase agreements are used as a source of borrowed funds and are collateralized by U.S. Government agency mortgage-
backed securities which are delivered to broker/dealers. Repurchase agreements with counterparties are limited to primary dealers
in government securities and commercial/municipal customers through Webster’s Treasury Sales desk. Dealer counterparties have
the right to pledge, transfer, or hypothecate purchased securities during the term of the transaction. The Company has right of
offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase represents
the gross amount for these transactions, as only liabilities are outstanding for the periods presented.
The following table provides information for Federal Home Loan Bank advances maturing:
(Dollars in thousands)
Within 1 year
After 1 but within 2 years
After 2 but within 3 years
After 3 but within 4 years
After 4 but within 5 years
After 5 years
Unamortized premiums
Federal Home Loan Bank advances
At December 31,
2015
2014
Total
Outstanding
2,025,934
500
200,000
103,026
175,000
159,655
2,664,115
24
2,664,139
$
$
Weighted-
Average Contractual
Coupon Rate
0.55%
5.66
1.36
1.54
1.77
1.60
0.79%
Total
Outstanding
2,275,000
145,934
500
200,000
78,026
159,934
2,859,394
37
2,859,431
$
$
Weighted-
Average Contractual
Coupon Rate
0.23%
1.80
5.66
1.36
1.95
1.27
0.50%
At December 31, 2015, Webster Bank had pledged loans and securities with an aggregate carrying value of $5.7 billion as collateral
for borrowings, with a remaining borrowing capacity from the FHLB of approximately $1.2 billion. At December 31, 2014, Webster
Bank had pledged loans and securities with an aggregate carrying value of $5.2 billion as collateral for borrowings, with a remaining
borrowing capacity from the FHLB of approximately $0.7 billion. In addition, at December 31, 2015 and 2014 Webster Bank had
an unused line of credit of approximately $5.0 million. At December 31, 2015 and 2014, Webster Bank was in compliance with
FHLB collateral requirements.
The following table summarizes long-term debt:
(Dollars in thousands)
4.375% Senior fixed-rate notes due February 15, 2024
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (1)
Total notes and subordinated debt
Unamortized discount on senior fixed-rate notes
Long-term debt
At December 31,
2015
2014
$ 150,000
77,320
227,320
(964)
$ 226,356
$ 150,000
77,320
227,320
(1,083)
$ 226,237
(1) The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%, was
3.48% at December 31, 2015 and 3.19% at December 31, 2014.
97
Note 11: Shareholders' Equity
Share activity during the year ended December 31, 2015 is as follows:
Balance at January 1, 2015
Restricted share activity
Stock options exercised
Common stock repurchased
Warrant exercise
Series A conversion
Balance at December 31, 2015
Common Stock
Preferred
Stock Series A
28,939
—
—
—
—
(28,939)
—
Preferred
Stock Series E
5,060
—
—
—
—
—
5,060
Common
Stock Issued
93,623,090
—
—
—
28,511
Treasury
Stock Held
3,241,555
(377,598)
(58,473)
350,000
—
— (1,065,075)
2,090,409
93,651,601
Common
Stock
Outstanding
90,381,535
377,598
58,473
(350,000)
28,511
1,065,075
91,561,192
On December 6, 2012, Webster announced that its Board of Directors had authorized a $100 million common stock repurchase
program under which shares may be repurchased from time to time in the open market or in privately negotiated transactions,
subject to market conditions and other factors. Common stock repurchased during 2015 was acquired at an average cost of $35.90
per common share, which results in a remaining repurchase authority for the common stock repurchase program of $26.7 million
at December 31, 2015.
On June 8, 2011, the U.S. Treasury closed an underwritten public offering of 3,282,276 warrants issued in connection with the
Company’s participation in the Capital Purchase Program, each representing the right to purchase one share of Webster common
stock, $0.01 par value per share. The warrants have an exercise price of $18.28, expire on November 21, 2018. The Company did
not receive any of the proceeds of the warrant offering; however, Webster paid $14.4 million to purchase 2,282,276 warrants at
auction, which were subsequently canceled. The Company purchased 1,210 warrants from the open market, while 58,365 warrants
were exercised in cashless exchanges, during 2015 leaving 63,344 warrants outstanding and exercisable at December 31, 2015.
On June 1, 2015, Webster exercised its right, as specified in the Prospectus Supplement, for conversion of all the outstanding
shares of 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred
Stock") for Webster common stock, issued from treasury stock held. Each share of Series A Preferred Stock received 36.8046
shares of Webster common stock, reflecting an approximate conversion price of $27.17 per share based on the initial issuance
price of $1,000 per share of Series A Preferred Stock, and cash in lieu of any fractional share of common stock.
Preferred Stock
On December 4, 2012, Webster closed on a public offering of 5,060,000 depository shares, each representing 1/1000th ownership
interest in a share of Webster's 6.40% Series E Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a
liquidation preference of $25,000 per share (equivalent to $25 per depository share) (the "Series E Preferred Stock"). Webster will
pay dividends as declared by the Board of Directors or a duly authorized committee of the Board. Dividends are payable at a rate
of 6.40% per annum, quarterly in arrears, on the fifteenth day of each March, June, September, and December. Dividends on the
Series E Preferred Stock are not cumulative and are not mandatory. If for any reason the Board of Directors or a duly authorized
Committee of the Board does not declare a dividend on the Series E Preferred Stock for any dividend period, such dividend will
not accrue or be payable, and Webster will have no obligation to pay dividends for such dividend period, whether or not dividends
are declared for any future dividend periods. The terms of the Series E Preferred Stock prohibit the Company from declaring or
paying any cash dividends on its common stock, unless Webster has declared and paid full dividends on the Series E Preferred
Stock for the most recently completed dividend period.
The Company may redeem the Series E Preferred Stock, at its option in whole or in part, on December 15, 2017, or any dividend
payment date thereafter, or in whole but not in part upon a "regulatory capital treatment event" as defined in the Prospectus
Supplement, at a redemption price equal to the liquidation preference plus any declared and unpaid dividends, without accumulation
of any undeclared dividends. The Series E Preferred Stock does not have any voting rights except with respect to authorizing or
increasing the authorized amount of senior stock, certain changes to the terms of the Series E Preferred Stock, or in the case of
certain dividend nonpayments.
98
Note 12: Accumulated Other Comprehensive Loss, Net of Tax
The following table summarizes the changes in accumulated other comprehensive loss, net of tax by component:
(In thousands)
Balance at December 31, 2012
Available
For Sale
and
Transferred
Securities
Derivative
Instruments
Defined
Benefit
Pension and
Other
Postretirement
Benefit Plans
Total
$
42,741
$
(27,902)
$
(47,105)
$ (32,266)
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current-period other comprehensive (loss) income, net of tax
Balance at December 31, 2013
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current-period other comprehensive income (loss), net of tax
Balance at December 31, 2014
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current-period other comprehensive (loss) income, net of tax
(49,572)
4,214
(45,358)
(2,617)
21,811
(2,773)
19,038
16,421
(22,512)
(316)
(22,828)
3,744
5,952
9,696
(18,206)
(12,506)
5,182
(7,324)
(25,530)
(3,136)
5,686
2,550
17,298
2,081
19,379
(27,726)
(19,496)
70
(19,426)
(47,152)
(3,395)
1,828
(1,567)
(28,530)
12,247
(16,283)
(48,549)
(10,191)
2,479
(7,712)
(56,261)
(29,043)
7,198
(21,845)
Balance at December 31, 2015
$
(6,407)
$
(22,980)
$
(48,719)
$ (78,106)
The following table provides information for the items reclassified from accumulated other comprehensive loss, net of tax:
Accumulated Other Comprehensive Loss
Components
(In thousands)
Available-for-sale and transferred securities:
Unrealized gains (losses) on investments
Unrealized gains (losses) on investments
Tax (expense) benefit
Net of tax
Derivative instruments:
Cash flow hedges
Tax benefit
Net of tax
Defined benefit pension and other
postretirement benefit plans:
Amortization of net loss
Prior service costs
Tax benefit
Net of tax
Years ended December 31,
2015
2014
2013
Associated Line Item in the
Consolidated Statements Of Income
$
$
609
(110)
(183)
316
$
5,499
$
712
Gain on sale of investment securities, net
(1,145)
(1,581)
(7,277)
Impairment loss recognized in earnings
2,351
Income tax expense
$
2,773
$ (4,214)
$ (8,965)
$ (8,100)
$ (9,272)
Total interest expense
3,279
2,918
3,320
Income tax expense
$ (5,686)
$ (5,182)
$ (5,952)
$ (2,809)
(73)
1,054
$ (1,828)
$
$
(37)
(73)
40
(70)
$ (3,169)
Compensation and benefits
(73)
Compensation and benefits
1,161
Income tax expense
$ (2,081)
99
The following tables summarize the items and related tax effects for each component of other comprehensive loss, net of tax:
(In thousands)
Available-for-sale and transferred securities:
Net unrealized loss during the period
Reclassification for net gain included in net income
Net non-credit other than temporary impairment
Amortization of unrealized loss on securities transferred to held-to-maturity
Total available-for-sale and transferred securities
Derivative instruments:
Net unrealized loss during the period
Reclassification adjustment for net loss included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Current year actuarial loss
Reclassification adjustment for amortization of net loss included in net income
Reclassification adjustment for prior service cost included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive loss
(In thousands)
Available-for-sale and transferred securities:
Net unrealized gain during the period
Reclassification for net gain included in net income
Net non-credit other than temporary impairment
Amortization of unrealized loss on securities transferred to held-to-maturity
Total available-for-sale and transferred securities
Derivative instruments:
Net unrealized loss during the period
Reclassification adjustment for net loss included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Current year actuarial loss
Reclassification adjustment for amortization of net loss included in net income
Reclassification adjustment for prior service cost included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive loss
(In thousands)
Available-for-sale and transferred securities:
Net unrealized loss during the period
Reclassification for net gain included in net income
Net non-credit other than temporary impairment
Amortization of unrealized loss on securities transferred to held-to-maturity
Total available-for-sale and transferred securities
Derivative instruments:
Net unrealized gain during the period
Reclassification adjustment for net loss included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Current year actuarial gain
Reclassification adjustment for amortization of net loss included in net income
Reclassification adjustment for prior service cost included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive loss
100
$
$
$
$
$
$
Year ended December 31, 2015
Tax Benefit
(Expense)
Net of Tax
Amount
Pre-Tax
Amount
(35,701)
(609)
110
37
(36,163)
(4,945)
8,965
4,020
(5,367)
2,809
73
(2,485)
(34,628)
$
$
13,166
223
(40)
(14)
13,335
1,809
(3,279)
(1,470)
1,972
(1,027)
(27)
918
12,783
$
$
(22,535)
(386)
70
23
(22,828)
(3,136)
5,686
2,550
(3,395)
1,782
46
(1,567)
(21,845)
Year ended December 31, 2014
Tax Benefit
(Expense)
Net of Tax
Amount
Pre-Tax
Amount
34,242
(5,499)
1,145
60
29,948
(19,589)
8,100
(11,489)
(30,683)
37
73
(30,573)
(12,114)
$
$
(12,469)
1,999
(418)
(22)
(10,910)
7,083
(2,918)
4,165
11,187
(14)
(26)
11,147
4,402
$
$
21,773
(3,500)
727
38
19,038
(12,506)
5,182
(7,324)
(19,496)
23
47
(19,426)
(7,712)
Year ended December 31, 2013
Tax Benefit
(Expense)
Net of Tax
Amount
Pre-Tax
Amount
(77,524)
(712)
7,277
296
(70,663)
5,826
9,272
15,098
26,949
3,169
73
30,191
(25,374)
$
$
27,762
255
(2,606)
(106)
25,305
(2,082)
(3,320)
(5,402)
(9,651)
(1,135)
(26)
(10,812)
9,091
$
$
(49,762)
(457)
4,671
190
(45,358)
3,744
5,952
9,696
17,298
2,034
47
19,379
(16,283)
Note 13: Regulatory Matters
Capital Requirements
Webster is subject to regulatory capital requirements administered by the Federal Reserve, while Webster Bank is subject to
regulatory capital requirements administered by the Office of the Comptroller of the Currency ("OCC"). Regulatory authorities
can initiate certain mandatory actions if Webster 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 the Company 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, to ensure capital adequacy, require minimum amounts and ratios.
Basel III rules enhanced the comprehensive methodology for calculating risk-weighted assets which vary by asset class previously
established under Basel I rules. Under Basel III, total risk-based capital is comprised of three categories: Common Equity Tier 1
capital ("CET1 capital"); additional Tier 1 capital; and Tier 2 capital. CET1 capital includes common shareholders' equity, less
deductions for goodwill, other intangibles, and certain deferred tax losses. Webster's common shareholders' equity, for purposes
of CET1, excludes accumulated other comprehensive 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. Basel III became effective
on January 1, 2015 for non-advanced approach banks as defined, and all prior period data is based on Basel I rules.
The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank, N.A.:
(Dollars in thousands)
At December 31, 2015
Webster Financial Corporation
Common equity tier 1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Webster Bank, N.A.
Common equity tier 1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
At December 31, 2014
Webster Financial Corporation
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Webster Bank, N.A.
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Actual (1)
Minimum
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
Capital Requirements (1)
$ 1,825,717
2,201,928
1,966,829
1,966,829
10.7% $
12.9
11.5
8.2
766,928
1,363,427
1,022,570
954,403
4.5% $ 1,107,785
1,704,284
8.0
1,363,427
6.0
1,193,004
4.0
$ 1,870,852
2,047,961
1,870,852
1,870,852
11.0% $
12.0
11.0
7.9
765,232
1,360,412
1,020,309
953,371
4.5% $ 1,105,335
1,700,515
8.0
1,360,412
6.0
1,191,714
4.0
$ 2,096,772
1,931,276
1,931,276
14.1% $ 1,192,651
596,326
13.0
859,241
9.0
8.0% $ 1,490,814
894,488
4.0
1,074,051
4.0
$ 1,939,229
1,774,814
1,774,814
13.0% $ 1,190,242
595,121
11.9
858,197
8.3
8.0% $ 1,487,803
892,682
4.0
1,072,746
4.0
6.5%
10.0
8.0
5.0
6.5%
10.0
8.0
5.0
10.0%
6.0
5.0
10.0%
6.0
5.0
(1) Calculated under the Basel III capital standard at December 31, 2015 and under the Basel I capital standard at December 31, 2014.
Dividend Restrictions
In the ordinary course of business, Webster is dependent upon dividends from Webster Bank to provide funds for its cash
requirements, including payments of dividends to shareholders. Banking regulations may limit the amount of dividends that may
be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of
Webster Bank to fall below specified minimum levels, or if dividends declared exceed the net income for that year combined with
the undistributed net income for the preceding two years. In addition, the OCC has discretion to prohibit any otherwise permitted
capital distribution on general safety and soundness grounds. Dividends paid by Webster Bank to Webster totaled $110 million
and $100 million during the years ended December 31, 2015 and 2014, respectively.
Cash Restrictions
Webster Bank is required by FRB regulations to hold cash reserve balances on hand or with the Federal Reserve Banks. Pursuant
to this requirement, the Bank held $109.4 million and $38.3 million at December 31, 2015 and 2014, respectively.
101
Note 14: Earnings Per Common Share
Reconciliation of the calculation of basic and diluted earnings per common share follows:
(In thousands, except per share data)
Earnings for basic and diluted earnings per common share:
Net income
Less: Preferred stock dividends
Net income available to common shareholders
Less: Earnings applicable to participating securities
Earnings applicable to common shareholders
Shares:
Years ended December 31,
2015
2014
2013
$ 206,340
8,711
197,629
660
$ 196,969
$ 199,726
10,556
189,170
674
$ 188,496
$ 179,456
10,803
168,653
617
$ 168,036
Weighted-average common shares outstanding - basic
90,968
89,899
88,713
Effect of dilutive securities:
Stock options and restricted stock
Warrants - US Treasury
Warrants - Warburg
Weighted-average common shares outstanding - diluted
Earnings per common share:
Basic
Diluted
524
41
—
91,533
466
255
—
90,620
436
190
922
90,261
$
$
2.17
2.15
$
2.10
2.08
1.90
1.86
Potential common shares excluded from the effect of dilutive securities because they would have been anti-dilutive, are as follows:
(In thousands)
Stock options (shares with exercise price greater than market price)
Restricted stock (due to performance conditions on non-participating shares)
Years ended December 31,
2015
213
92
2014
587
171
2013
850
201
Basic weighted-average common shares outstanding includes the effect of conversion of the Series A Preferred Stock which
occurred on June 1, 2015. Prior to that, the Series A Preferred Stock was considered to be anti-dilutive. Refer to Note 11:
Shareholders' Equity and Note 18: Share-Based Plans for further information relating to potential common shares excluded from
the effect of dilutive securities.
102
Note 15: Derivative Financial Instruments
Risk Management Objective of Using Derivatives
Webster manages economic risks, including interest rate, liquidity, and credit risk by managing the amount, sources, and duration
of its debt funding along with the use of interest rate derivative financial instruments. Webster enters into interest rate derivative
financial instruments to manage exposure related to business activities that result in the receipt or payment of both future known
and uncertain cash amounts determined by interest rates.
Webster’s primary objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure
to interest rate movements. To accomplish these objectives, Webster uses interest rate swaps and interest rate caps as part of its
interest rate risk management strategy. Interest rate swaps and caps designated as cash flow hedges are designed to manage the
risk associated with a forecasted event or an uncertain variable-rate cash flow. Forward-settle interest rate swaps protect the
Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest
payments on forecasted debt issuances.
Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for
the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise
above the strike rate on the contract in exchange for payment of an up-front premium.
The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded as
accumulated other comprehensive loss ("AOCL") and is reclassified into earnings in the subsequent periods that the hedged
forecasted transaction affects earnings. During the year ended December 31, 2015, such derivatives were used to hedge the variable
cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in
the fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2015, 2014, and 2013,
the Company recorded no ineffectiveness, or immaterial amounts of ineffectiveness, in earnings attributable to the difference in
the effective date of the hedge and the effective date of the debt issuance.
Webster is also exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in benchmark interest
rates. Webster, on occasion, uses interest rate swaps to manage its exposure to changes in fair value on these obligations attributable
to changes in the benchmark interest rates. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate
amounts from a counterparty in exchange for Webster making variable-rate payments over the life of the agreements without the
exchange of the underlying notional amount. For a qualifying derivative designated as a fair value hedge, the gain or loss on the
derivative, as well as the gain or loss on the hedged item, is recognized in interest expense. Webster did not have interest rate
derivative financial instruments designated as fair value hedges at December 31, 2015 and December 31, 2014. As a result, there
was no impact on interest expense related to fair value hedges during the year ended December 31, 2015, while there was a
reduction to interest expense of $1.1 million and $3.4 million for the years ended December 31, 2014 and 2013, respectively,
related to previous fair value hedges.
Additional derivative instruments include interest rate swap and cap contracts sold to commercial and other customers who wish
to modify loan interest rate sensitivity. These contracts are offset with dealer counterparty transactions structured with matching
terms. As a result, there is minimal impact on earnings, except for fee income earned in such transactions which is recorded in
other non-interest income.
The Company enters into Risk Participation Agreements ("RPA") as financial guarantees of performance on interest rate swap
derivatives. The purchased (asset) or sold (liability) guarantee allows the Company to participate-in (for a fee received) or
participate-out (for a fee paid) the risk associated with certain derivative positions executed with the borrower by a lead bank. The
RPA guarantee is recorded on the balance sheet at fair value, with changes in fair value recognized each period in other non-interest
income.
Other derivatives include foreign currency forward contracts related to lending arrangements and a VISA equity swap transaction,
neither of which are designated for hedge accounting.
103
Derivative Positions
The notional amounts of derivative instruments are shown in the table below:
(In thousands)
Interest rate derivatives
RPA-In
RPA-Out
Other
Total notional amount of derivative instruments
At December 31,
2015
5,366,372
92,985
41,798
12,858
5,514,013
$
$
2014
10,237,325
55,626
34,822
60
10,327,833
$
$
The table below presents the fair value for derivative instruments as classified in the accompanying Consolidated Balance Sheets:
(In thousands)
Derivatives designated as hedging instruments:
Interest rate derivatives
Derivatives not designated as hedging instruments:
Interest rate derivatives
RPA-In
RPA-Out
Other
Total derivatives not designated as hedging instruments
At December 31,
2015
2014
Other
Assets
Other
Liabilities
Other
Assets
Other
Liabilities
$
2,507
$
1,359
$
4,481
$
4,598
58,304
—
153
183
$ 58,640
38,619
245
—
75
$ 38,939
48,209
—
182
—
$ 48,391
31,915
258
—
7
$ 32,180
Changes in the fair value of derivatives not qualifying for hedge accounting treatment are reported as a component of other non-
interest income in the accompanying Consolidated Statements of Income as follows:
(In thousands)
Interest rate derivatives
RPA
Other
Total impact on non-interest income
Years ended December 31,
2015
2014
2013
$
4,361
$
4,482
$
3,244
(33)
(63)
51
(253)
—
(120)
$
4,265
$
4,280
$
3,124
Information about the valuation methods used to measure fair value is provided in Note 16: Fair Value Measurements.
Amounts Recorded in AOCL Related to Cash Flow Hedges
Amounts for the effective portion of changes in the fair value of derivatives are reclassified to interest expense as interest payments
are made on Webster's variable-rate debt. Over the next twelve months, the Company estimates that $1.7 million will be reclassified
from AOCL as an increase to interest expense.
Webster records gains and losses related to swap terminations as OCI. These balances are subsequently amortized into interest
expense over the respective terms of the hedged debt instruments. At December 31, 2015, the remaining unamortized loss on the
termination of cash flow hedges is $29.0 million. Over the next twelve months, the Company estimates that $7.7 million will be
reclassified from AOCL as an increase to interest expense.
Additional information about cash flow hedge activity impacting AOCL, and the related amounts reclassified to interest expense
is provided in Note 12: Accumulated Other Comprehensive Loss, Net of Tax.
Offsetting Derivatives
Webster has entered into transactions with counterparties that are subject to a master netting agreement. Hedge accounting positions
are recorded on a gross basis in other assets for a gain position and in other liabilities for a loss position, while non-hedge accounting
net positions are recorded in other assets for a net gain position or in other liabilities for a net loss position, in the accompanying
Consolidated Balance Sheets.
104
The tables below present the financial assets and liabilities for non-customer derivative positions, including futures contracts,
summarized by dealer counterparty, or Webster's designated derivative clearing organization ("DCO"):
Hedge Accounting Positions
At December 31, 2015
Non-Hedge Accounting
Positions
Gain
Loss
Gain
Loss
Liability, net
Notional
Amount
Cash Collateral
Posted
$
391,745
$
248 $
(1,359) $
504 $
(3,439) $
(4,046) $
274,353
5,775
387,550
421,545
1,352,206
752
—
377
1,130
—
—
—
—
—
—
348
—
125
138
(4,104)
(433)
(2,048)
(1,912)
(3,004)
(433)
(1,546)
(644)
1,140
(28,366)
(27,226)
$ 2,833,174
$
2,507 $
(1,359) $
2,255 $
(40,302) $
(36,899) $
3,800
3,020
—
1,300
470
42,975
51,565
Notional
Amount
Hedge Accounting Positions
Gain
Loss
At December 31, 2014
Non-Hedge Accounting
Positions
Gain
Loss
(Liability)/
Asset, net
Cash Collateral
Posted
(Received)
$
427,430
$
— $
(739) $
1,861 $
(6,576) $
(5,454) $
319,663
11,538
303,663
424,401
6,631,936
1,494
—
747
2,240
—
—
—
—
—
(3,858)
978
—
1,147
867
555
(6,420)
(834)
(1,627)
(1,698)
(3,948)
(834)
267
1,409
(17,629)
(20,932)
$ 8,118,631
$
4,481 $
(4,597) $
5,408 $
(34,784) $
(29,492) $
5,300
3,610
—
(400)
(1,420)
39,037
46,127
Net
Exposure (1)
$
—
16
—
—
—
15,749
Net
Exposure (1)
$
—
—
—
—
—
18,105
(In thousands)
Dealer A
Dealer B
Dealer C
Dealer D
Dealer E
DCO
Total
(In thousands)
Dealer A
Dealer B
Dealer C
Dealer D
Dealer E
DCO
Total
(1) Net positive exposure represents over-collateralized loss positions which can result from DCO initial margin requirements posted in
compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Counterparty Credit Risk
Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their
ability to meet contractual terms. The Company has International Swap Derivative Association ("ISDA") Master agreements,
including a Credit Support Annex ("CSA"), with all derivative counterparties. The ISDA Master agreements provide that on each
payment date, all amounts otherwise owing the same currency under the same transaction are netted so that only a single amount
is owed in that currency. The ISDA provides, if the parties so elect, for such netting of amounts in the same currency among all
transactions identified as being subject to such election that have common payment dates and booking offices. Under the CSA,
daily net exposure in excess of a negotiated threshold is secured by posted cash collateral. The Company has negotiated a zero
threshold with the majority of its approved financial institution counterparties. In accordance with Webster policies, institutional
counterparties must be analyzed and approved through the Company’s credit approval process.
The Company’s credit exposure on interest rate derivatives with non-dealer counterparties is limited to the net favorable value,
including accrued interest, of all such instruments, reduced by the amount of collateral pledged by the counterparties. The Company's
credit exposure related to derivatives with dealer counterparties is significantly mitigated with cash collateral equal to or in excess
of the market value of the instrument, updated daily.
In accordance with counterparty credit agreements and derivative clearing rules, the Company had approximately $51.6 million
in net margin collateral posted with financial counterparties at December 31, 2015, all of which is comprised of margin collateral
posted to financial counterparties or DCO. Collateral levels for approved financial institution counterparties are monitored daily
and adjusted as necessary. In the event of default, should the collateral not be returned, the exposure would be offset by terminating
the transaction.
The Company regularly evaluates the credit risk of its counterparties, taking into account the likelihood of default, net exposures,
and remaining contractual life, among other related factors. The Company's net current credit exposure relating to interest rate
derivatives with Webster Bank customers was $58.3 million at December 31, 2015. 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 $19.8 million at December 31, 2015. The credit exposure is
mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions being hedged.
105
Mortgage Banking Derivatives
Forward sales of mortgage loans and MBS are utilized by Webster in its efforts to manage risk of loss associated with its mortgage
loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans,
interest rate lock commitments are generally extended to the borrowers. During the period from commitment date to closing date,
Webster is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to
purchase such loans causing a reduction in the anticipated gain on sale of the loans and possibly resulting in a loss. In an effort to
mitigate such risk, forward delivery sales commitments are established under which Webster agrees to deliver whole mortgage
loans to various investors or issue MBS. At December 31, 2015, outstanding rate locks totaled approximately $62.5 million and
the outstanding commitments to sell residential mortgage loans totaled approximately $84.4 million. Forward sales, which include
mandatory forward commitments of approximately $82.0 million at December 31, 2015, establish the price to be received upon
the sale of the related mortgage loan, thereby mitigating certain interest rate risk. There is; however, still certain execution risk
specifically related to Webster’s ability to close and deliver to its investors the mortgage loans it has committed to sell. The interest
rate locked loan commitments and forward sales commitments are recorded at fair value, with changes in fair value recorded as
non-interest income in the accompanying Consolidated Statements of Income. The fair value of interest rate locked loan and
forward sales commitments totaled gains of $819 thousand and $18 thousand, at December 31, 2015 and 2014, respectively, and
are recorded as a component of other assets in the accompanying Consolidated Balance Sheets.
Note 16: 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 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 inputs other than quoted market prices that are directly or indirectly observable for
the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the
asset or liability (such as interest rates, volatilities, prepayment speeds, credit ratings, etc.), or inputs that are derived
principally or corroborated by market data, by correlation, or other means.
Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations
are reliant upon pricing models and techniques that require significant management judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Investment Securities. When quoted prices are available in an active market, the Company classifies securities
within Level 1 of the valuation hierarchy. Level 1 securities include equity securities in financial institutions and U.S. Treasury
Bills.
If quoted market prices are not available, the Company classifies securities within Level 2 of the valuation hierarchy, and employs
an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable
data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus
prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains
procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that
appear unusual or unexpected. Level 2 securities include agency CMO, agency MBS, agency CMBS, non-agency CMBS, CLO,
single-issuer trust preferred securities, and corporate debt securities.
106
Derivative Instruments. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified
within Level 1 of the fair value hierarchy. Derivative instruments are valued using third-party valuation software, which considers
the present value of cash flows discounted using observable forward rate assumptions. The resulting fair values are validated
against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy. In determining
if any fair value adjustment related to credit risk is required, Webster evaluates the credit risk of its counterparties by considering
factors such as the likelihood of default by the counterparties, its net exposures, the remaining contractual life, as well as the
amount of collateral securing the position. Webster reviews its counterparty exposure on a regular basis, and, when necessary,
appropriate business actions are taken to adjust the exposure. When determining fair value, Webster applies the portfolio exception
with respect to measuring counterparty credit risk for all of its derivative transactions subject to a master netting arrangement.
The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.
Mortgage Banking Derivatives. Mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss
associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-
family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from
commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise,
investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss.
In an effort to mitigate such risk, forward delivery sales commitments are established, under which the Company agrees to deliver
whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives
is determined based on current market prices for similar assets in the secondary market and therefore, classified within Level 2
of the fair value hierarchy.
Investments Held in Rabbi Trust. Investments held in the Rabbi Trust primarily include mutual funds that invest in equity and
fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for
the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the
fair value hierarchy. Webster has elected to measure the investments held in the Rabbi Trust at fair value. The Company consolidates
the invested assets of the trust along with the total deferred compensation obligations and includes them in other assets and other
liabilities, respectively, in the accompanying Consolidated Balance Sheets. Earnings in the Rabbi Trust, including appreciation or
depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation
and benefits in the accompanying Consolidated Statements of Income. The cost basis of the investments held in Rabbi Trust is
$3.9 million as of December 31, 2015.
Alternative Investments. The Company generally records alternative investments at cost, subject to impairment testing. The
alternative investments that are carried at cost are considered to be measured at fair value on a non-recurring basis when there is
impairment. There are certain funds in which the ownership percentage is greater than 3% and are therefore, recorded at fair value
on a recurring basis based upon the net asset value of the respective fund. Alternative investments are non-public entities that
cannot be redeemed since the Company’s investment is distributed as the underlying investments are liquidated. As such, these
investments are classified within Level 3 of the fair value hierarchy. The Company has $6.8 million in unfunded commitments
remaining for its alternative investments as of December 31, 2015. See the Investment Securities Portfolio section of Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion of the Company's
alternative investments.
Contingent Consideration. The contingent consideration arrangement entitles the Company to receive a rebate of the purchase
price relating to the premium paid for account attrition that occurs during the eighteen-month period beginning on the acquisition
date. The valuation is reliant upon a pricing model and techniques that require significant management judgment or estimation.
Therefore, the contingent consideration is classified within Level 3 of the fair value hierarchy. The key assumptions considered
in the valuation model are a 2.5% annual growth rate in deposits, a 13.0% annual account attrition rate plus approximately 6.0%
of shock attrition in 2015, a 16.5% discount rate, and a premium on deposits of 4.5%. Subsequent to acquisition closing, the fair
value will adjusted for any changes primarily in attrition milestones.
Contingent Liability. The liability valuation is based upon unobservable inputs. Therefore, the contingent liability is classified
within Level 3 of the fair value hierarchy. The fair value of the contingency represents the estimated price to transfer the liability
between market participants at the measurement date under current market conditions.
107
Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:
(In thousands)
Financial assets held at fair value:
Available-for-sale investment securities:
U.S. Treasury Bills
Agency CMO
Agency MBS
Agency CMBS
Non-agency CMBS
CLO
Single issuer trust preferred securities
Corporate debt
Equity securities
Total available-for-sale investment securities
Derivative instruments
Mortgage banking derivatives
Investments held in Rabbi Trust
Alternative investments
Contingent Consideration
Total financial assets held at fair value
Financial liabilities held at fair value:
Derivative instruments
Contingent Liability
Total financial liabilities held at fair value
(In thousands)
Financial assets held at fair value:
Available-for-sale investment securities:
U.S. Treasury Bills
Agency CMO
Agency MBS
Agency CMBS
Non-agency CMBS
CLO
Single issuer trust preferred securities
Corporate debt
Equity securities
Total available-for-sale investment securities
Derivative instruments
Mortgage banking derivatives
Investments held in Rabbi Trust
Alternative investments
Total financial assets held at fair value
Financial liabilities held at fair value:
Derivative instruments
Contingent Liability
Total financial liabilities held at fair value
At December 31, 2015
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
924
—
—
—
—
—
—
—
2,578
3,502
183
—
5,372
—
—
9,057
66
—
66
$
$
$
$
—
548,754
1,065,109
215,350
579,266
429,159
37,170
106,321
—
2,981,129
60,964
819
—
—
—
3,042,912
40,232
—
40,232
At December 31, 2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
$
$
$
$
525
—
—
—
—
—
—
—
5,903
6,428
—
—
5,901
—
12,329
293
—
293
$
$
$
$
—
550,988
1,028,518
80,266
553,393
425,734
38,245
110,301
—
2,787,445
52,872
18
—
—
2,840,335
36,484
—
36,484
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
3,471
5,331
8,802
—
6,000
6,000
Significant
Unobservable
Inputs
(Level 3)
—
—
—
—
—
—
—
—
—
—
—
—
—
475
475
—
—
—
$
$
$
$
$
$
$
$
Total
924
548,754
1,065,109
215,350
579,266
429,159
37,170
106,321
2,578
2,984,631
61,147
819
5,372
3,471
5,331
3,060,771
40,298
6,000
46,298
Total
525
550,988
1,028,518
80,266
553,393
425,734
38,245
110,301
5,903
2,793,873
52,872
18
5,901
475
2,853,139
36,777
—
36,777
108
The following table presents the changes in Level 3 assets that are measured at fair value on a recurring basis:
(In thousands)
Balance at January 1, 2015
Acquisition
Unrealized (loss) gain included in net income
Purchases/capital funding
Distributions
Balance at December 31, 2015
Alternative
Investments
475
$
—
(170)
3,219
(53)
3,471
$
Financial Assets
Contingent
Consideration
$
— $
5,000
331
—
—
5,331
$
$
Total
475
5,000
161
3,219
(53)
8,802
Contingent
Liability
—
6,000
—
—
—
6,000
$
$
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis, that is, the assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. The
following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Loans Held for Sale. Loans held for sale are accounted for at the lower of cost or market and are considered to be recognized at
fair value when they are recorded at below cost. The fair value of 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. On occasion, the loans held for sale portfolio includes commercial loans, which require
adjustments for changes in loan characteristics. When observable data is unavailable, such loans are classified within Level 3.
Collateral Dependent Impaired Loans and Leases. Impaired loans and leases for which repayment is expected to be provided
solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair
value of such collateral using customized discounting criteria. As such, collateral dependent impaired loans and leases are classified
as Level 3 of the fair value hierarchy.
Other Real Estate Owned (OREO) and Repossessed Assets. The total book value of OREO and repossessed assets was $5.0
million at December 31, 2015. OREO and repossessed assets are accounted for at the lower of cost or market and are considered
to be recognized at fair value when they are recorded at below cost. The fair value of OREO is based on independent appraisals
or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results,
and price opinions. Certain assets require assumptions about factors that are not observable in an active market in the determination
of fair value, as such, OREO and repossessed assets are classified as Level 3 of the fair value hierarchy.
Mortgage Servicing Assets. Mortgage servicing assets are accounted for at cost, subject to impairment testing. When the carrying
cost exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is calculated as
the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds,
servicing costs, discount rates, and other economic factors, as such, the primary risk inherent in valuing mortgage servicing assets
is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 3
of the fair value hierarchy.
The table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-
recurring basis at December 31, 2015:
(Dollars in thousands)
Asset
Impaired loans and leases
Fair Value Valuation Methodology
$ 19,644
Real Estate Appraisals
Other real estate owned
$
652
Real Estate Appraisals
Mortgage servicing assets
$ 33,568
Discounted cash flow
Unobservable Inputs
Discount for appraisal type
Discount for costs to sell
Discount for appraisal type
Discount for costs to sell
Constant prepayment rate
Discount rates
Range of Inputs
4% - 15%
0% - 8%
0% - 20%
8%
7.4% - 32.4%
1.4% - 3.4%
109
Fair Value of Financial Instruments
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is
practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash, Due from Banks, and Interest-bearing Deposits. The carrying amount of cash, due from banks, and interest-bearing deposits
is used to approximate fair value, given the short time frame to maturity and, as such, these assets do not present unanticipated
credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.
Held-to-Maturity Investment Securities. When quoted market prices are not available, the Company employs an independent
pricing service 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. Webster has procedures to monitor the pricing service's assumptions and
establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Held-to-maturity investments,
which include agency CMO, agency MBS, agency CMBS, Municipal, and Private Label MBS securities, are classified within
Level 2 of the fair value hierarchy.
Loans and Leases, net. The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow
method, using future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases.
The associated cash flows are adjusted for credit and other potential losses. Fair value for impaired loans and leases is estimated
using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.
Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities. Deposit liabilities are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings. The carrying value is an estimate of fair value for
those securities sold under agreements to repurchase and other borrowings that mature within 90 days. The fair values of all other
borrowings are estimated using discounted cash flow analysis based on current market rates adjusted, as appropriate, for associated
credit risks. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value
hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated
using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flow and are adjusted,
as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.
110
The estimated fair values of selected financial instruments are as follows:
(In thousands)
Financial Assets:
Level 2
At December 31,
2015
2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Held-to-maturity investment securities
Loans held for sale
$
3,923,052
37,091
$
3,961,534
37,457
$
3,872,955
67,952
$
3,948,706
68,705
Level 3
Loans and leases, net
Mortgage servicing assets (1)
Alternative investments
Financial Liabilities:
Level 2
15,496,745
20,698
12,900
15,453,892
33,568
14,294
13,740,761
19,379
16,524
13,775,850
28,690
18,046
Deposit liabilities, other than time deposits
Time deposits
Securities sold under agreements to repurchase and other borrowings
Federal Home Loan Bank advances (2)
Long-term debt (3)
$ 15,866,624
2,086,154
1,151,400
2,664,139
226,356
$ 15,866,624
2,095,357
1,163,974
2,647,872
218,143
$ 13,380,018
2,271,587
1,250,756
2,859,431
226,237
$ 13,380,018
2,288,760
1,271,596
2,872,515
227,751
The following adjustments to the carrying amount are not included in the fair value:
(1) Mortgage servicing assets is net of reserves of $32 thousand at December 31, 2015 and $23 thousand at December 31, 2014.
(2) FHLB advances is net of unamortized premiums of $24 thousand at December 31, 2015 and $37 thousand at December 31, 2014.
(3) Long-term debt is net of unamortized discounts of $1.0 million at December 31, 2015 and $1.1 million at December 31, 2014.
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.
Note 17: Retirement Benefit Plans
Webster Bank offered a defined benefit noncontributory pension plan through December 31, 2007 for eligible employees who
met certain minimum service and age requirements. Pension plan benefits were based upon employee earnings during the period
of credited service. A supplemental defined benefit retirement plan was also offered to certain employees who were at the Executive
Vice President level or above through December 31, 2007. The supplemental defined benefit retirement plan provides eligible
participants with additional pension benefits. Webster also provides postretirement healthcare benefits to certain retired employees.
The Webster Bank Pension Plan and the supplemental defined benefit retirement plan were frozen as of December 31, 2007. No
additional benefits have been accrued since that time. Employees hired on or after January 1, 2007 receive no qualified or
supplemental retirement income under the plans. All other employees accrue no additional qualified or supplemental retirement
income after January 1, 2008, and the amount of their qualified and supplemental retirement income will not exceed the amount
of benefits determined as of December 31, 2007. Additional contributions to the Webster Bank Pension Plan will be made as
deemed appropriate by management in conjunction with information provided by the Plan’s actuaries.
There were $241 thousand and $143 thousand in Company contributions to the supplemental defined benefit retirement plan for
the years ended December 31, 2015 and 2014, respectively.
Effective December 31, 2014, the mortality assumptions used in the pension liability assessment was updated to the RP-2014 table
with the Mercer MMP-2007 mortality improvement projection scale applied generationally.
December 31st is the measurement date used for the pension, supplemental pension, and postretirement benefit plans.
111
The following table sets forth changes in benefit obligation, changes in plan assets, and the funded status of the pension plans and
other postretirement benefit plans at December 31:
(In thousands)
Change in benefit obligation:
Beginning balance
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid and administrative expenses
Ending balance
Change in plan assets:
Beginning balance
Actual return on plan assets
Employer contributions
Benefits paid and administrative expenses
Ending balance
Funded status of the plan at year end
Webster Pension
Webster SERP
Other Benefits
2015
2014
2015
2014
2015
2014
$ 210,548
45
8,008
(8,588)
(6,368)
203,645
$ 171,189
40
8,068
38,472
(7,221)
210,548
172,976
(5,239)
—
(6,368)
161,369
162,182
18,015
—
(7,221)
172,976
$ (42,276) $ (37,572)
$
$
10,041 $
—
345
373
(241)
10,518
$
8,675
—
364
1,145
(143)
10,041
—
—
241
(241)
—
(10,518) $
—
—
143
(143)
—
(10,041) $
4,133 $
—
123
(178)
(225)
3,853
—
—
225
(225)
—
(3,853) $
3,821
—
139
470
(297)
4,133
—
—
297
(297)
—
(4,133)
The accumulated benefit obligation for the pension plans and the postretirement benefit plan was $218.0 million and $224.7 million
at the years ended December 31, 2015 and 2014, respectively. An asset is recognized for an overfunded plan, and a liability is
recognized for an underfunded plan.
Amounts recognized in the statement of financial position consist of the following:
(In thousands)
Accrued expenses and other liabilities
Webster
Pension
2015
Webster
SERP
Other
Benefits
Webster
Pension
2014
Webster
SERP
Other
Benefits
$
(42,276) $
(10,518) $
(3,853) $
(37,572) $
(10,041) $
(4,133)
Webster expects that $7.2 million in net actuarial loss and $14 thousand in prior service cost will be recognized as components of
net periodic benefit cost in 2016. The components of accumulated other comprehensive loss related to pensions and other
postretirement benefits at December 31, 2015 and 2014 are summarized below:
(In thousands)
Net actuarial loss
Prior service cost
Total pre-tax amounts included in accumulated other
comprehensive loss
Deferred tax benefit
Amounts included in accumulated other
comprehensive loss, net of tax
Webster
Pension
2015
Webster
SERP
Other
Benefits
Webster
Pension
2014
Webster
SERP
Other
Benefits
$
$
$
73,238 $
—
73,238 $
26,447
2,412 $
—
2,412 $
871
$
$
591
14
605
218
70,437 $
—
70,437 $
25,415
2,430 $
—
2,430 $
877
46,791 $
1,541 $
387
$
45,022 $
1,553 $
816
87
903
326
577
Expected future benefit payments for the pension plans and other postretirement benefit plans are presented below:
(In thousands)
2016
2017
2018
2019
2020
2021-2025
$
Webster
Pension
7,034
7,785
8,425
8,728
9,050
52,144
$
Webster
SERP
4,015
928
801
5,597
142
679
$
Other
Benefits
391
388
380
367
349
1,441
112
The components of the net periodic benefit cost (benefit) for the Company’s defined benefit pension plans were as follows:
2015
2014
2013
2015
2014
2013
2015
2014
2013
Years ended December 31,
(In thousands)
Service cost
Interest cost on benefit obligations
Expected return on plan assets
Amortization of prior service cost
Recognized net loss
Net periodic benefit cost (benefit)
$
Webster Pension
40 $
45 $
$
8,008
(11,873)
—
5,724
1,904 $
8,068
(11,495)
—
2,781
(606) $
40
7,365
(11,114)
—
6,355
2,646
$
$
Webster SERP
— $
364
—
—
135
499 $
— $
345
—
—
390
735 $
Other Postretirement Benefits
— $ — $ — $ —
109
289
—
—
73
—
—
125
182
414
139
—
73
5
217 $
123
—
73
47
243 $
$
Changes in funded status related to the Company’s defined benefit pension plans recognized as a component of other comprehensive
income in the accompanying Consolidated Statements of Comprehensive Income were as follows:
(In thousands)
Net loss (gain)
Amounts reclassified from accumulated
other comprehensive income
Amortization of prior service cost
Total loss (gain) recognized in other
comprehensive income (loss)
Fair Value Measurements
Years ended December 31,
2015
2014
2013
2015
2014
2013
2015
2014
2013
Webster Pension
$
8,525 $ 31,951 $ (23,238) $
Webster SERP
1,145 $
372 $
Other Postretirement Benefits
(160) $
(178) $
470 $
(239)
(5,724)
—
(2,781)
—
(6,355)
—
(390)
—
(134)
—
(125)
—
(47)
(73)
(5)
(73)
—
(73)
$
2,801 $ 29,170 $ (29,593) $
(18) $
1,011 $
(285) $
(298) $
392 $
(312)
The following is a description of the valuation methodologies used for the pension plan assets measured at fair value, including
the general classification of such instruments pursuant to the valuation hierarchy:
Registered investment companies. Exchange traded funds are quoted at market prices in an exchange and active market, which
represent the net asset values of shares held by the plan at year end. Money market funds are shown at cost, which approximates
fair value. The exchange traded fund is benchmarked against the S&P 500 Index.
Common collective trust. The net asset value ("NAV"), as provided by the trustee, is used as a practical expedient to estimate fair
value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient
is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported
NAV. Plan transactions (purchases and sales) may occur daily. Were the Plan to initiate a full redemption of the collective trust,
the investment adviser reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations
will be carried out in an orderly business manner. The common collective trust funds performance are benchmarked against the
Standard and Poor’s 500 Stock Index, the S&P 400 Mid Cap Index, the Russell 2000 Index, the MSCI ACWI ex U.S. Index, and
the Barclays Capital U.S. Long Credit Index.
Investment contract with insurance company. These investments are valued at fair value by discounting the related cash flows
based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. Holdings
of insurance company investment contracts are classified as Level 3 investments.
113
A summary of the fair value and hierarchy classification of financial assets of the pension plan is as follows:
(In thousands)
Registered investment companies:
Exchange traded funds
Cash and cash equivalents
Common collective funds:
Fixed Income funds
Equity Funds
Insurance company investment
contract
Total
2015
2014
At December 31,
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
$
28,329 $
295
28,329 $
295
— $
—
— $
—
28,287 $
871
28,287 $
871
— $
—
80,783
51,028
934
—
—
—
80,783
51,028
—
$ 161,369 $
28,624 $ 131,811 $
—
—
94,928
47,813
934
934
1,077
$ 172,976 $
—
—
—
94,928
47,813
—
29,158 $ 142,741 $
—
—
—
—
1,077
1,077
The following table sets forth a summary of changes in the fair value of Level 3 assets of the pension plan:
(In thousands)
Beginning balance
Unrealized gains relating to instruments still held at the reporting date
Benefit payments, administrative expenses, and interest income, net
Ending balance
Years ended December 31,
2015
2014
$ 1,077
$ 1,196
(28)
(115)
(2)
(117)
$
934
$ 1,077
The following table presents the target allocation and the pension plan asset allocation for the periods indicated, by asset
category:
Fixed income investments
Equity investments
Total
Target
Allocation
2016
50%
50
100%
Percentage of plan assets
2015
2014
51%
49
100%
56%
44
100%
The Retirement Plan Committee (the “Committee”) is a fiduciary under ERISA and is charged with the responsibility for directing
and monitoring the investment management of the pension plan. To assist the Committee in this function, it engages the services
of investment managers and advisor's who possess the necessary expertise to manage the pension plan assets within the established
investment policy guidelines and objectives. The investment policy guidelines and objectives is reviewed at a minimum annually
by the Committee.
The primary objective of the pension plan investment strategy is to provide long-term total return through capital appreciation
and dividend and interest income. The Plan invests in registered investment companies and bank collective trusts. The volatility,
as measured by standard deviation, of the pension plan’s assets should not exceed that of the Composite Index. The investment
policy guidelines allow the plan assets to be invested in certain types of cash equivalents, fixed income securities, equity securities,
mutual funds, and collective trusts. Investments in mutual funds and collective trust funds are substantially limited to funds with
the securities characteristic of their assigned benchmarks.
The pension plan investment strategy is designed to maintain a diversified portfolio, with a target average long-term rate of 7.00%,
however, there is no certainty that the portfolio will perform to expectations. Asset allocations are monitored monthly, and the
portfolio is rebalanced as needed.
Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:
Discount rate
Rate of compensation increase
Webster Pension
Webster SERP
Other Benefits
2015
4.20%
n/a
2014
3.85%
n/a
2015
3.75%
n/a
2014
3.50%
n/a
2015
3.35%
n/a
2014
3.15%
n/a
114
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:
Discount rate
Expected long-term return on assets
Rate of compensation increase
Assumed healthcare cost trend
Webster Pension
Webster SERP
Other Benefits
2015
3.85%
7.00%
n/a
n/a
2014
4.80%
7.25%
n/a
n/a
2013
3.90%
7.50%
n/a
n/a
2015
2014
2013
2015
2014
2013
3.50%
4.25%
3.40%
3.15%
3.75%
2.85%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
8.0%
8.0%
8.0%
The assumed healthcare cost-trend rate is 8.0% for 2015 and 2016, declining 1.0% each year thereafter until 2019 when the rate
will be 5.0%. An increase of 1.0% in the assumed healthcare cost-trend rate for 2015 would have increased the net periodic
postretirement benefit cost by $6 thousand and increased the accumulated benefit obligation by $211 thousand. A decrease of 1.0%
in the assumed healthcare cost trend rate for 2015 would have decreased the net periodic postretirement benefit cost by $6 thousand
and decreased the accumulated benefit obligation by $190 thousand.
Multiple-employer plan
Webster Bank is a sponsor of a multiple-employer pension plan administered by Pentegra (the “Fund”) for the benefit of former
employees of a bank acquired by Webster. The Fund does not segregate the assets or liabilities of its participating employers in
the ongoing administration of this plan. According to the Fund’s administrators, as of July 1, 2015, the date of the latest actuarial
valuation, Webster’s portion of the plan was under-funded by $0.9 million.
The following table sets forth contributions and funding status of the Fund:
(In thousands)
EIN/Pension Plan Number
13-5645888/333
Contributions by Webster Bank
period ended December 31,
2015
$340
2014
$765
2013
$870
Funded Status of Plan
2015
2014
At least 80 percent At least 80 percent
Multi-employer accounting is applied to the Fund. As a multiple-employer plan, there are no collective bargained contracts affecting
the Fund's contribution or benefit provisions. All shortfall amortization basis are being amortized over seven years, as required
by the Pension Protection Act. All benefit accruals were frozen as of September 1, 2004. The Company's contributions to the Fund
did not exceed more than 5 percent of total Fund contributions for the years ended December 31, 2015, 2014, and 2013.
Webster Bank Retirement Savings Plan
Webster provides an employee retirement savings plan governed by section 401(k) of the Internal Revenue Code (the "Code”).
For the period March 1, 2009 through February 1, 2012, Webster matched 100% of a participant’s pre-tax contributions to the
extent the pre-tax contributions did not exceed 5% of compensation. If a participant fails to make a pre-tax contribution election
within 90 days of his or her date of hire, automatic pre-tax contributions will commence 90 days after his or her date of hire at a
rate equal to 3% of compensation. The 2% non-elective contribution has been eliminated; however, Webster continues to contribute
the special transition credits.
Effective February 1, 2012, Webster matches 100% of the first 2% and 50% of the next 6% of employees’ pre-tax contributions
based on annual compensation. Webster continues to contribute the special transition credits under the employee retirement savings
plan.
Compensation and benefit expense included $10.9 million, $10.6 million, and $11.2 million for the years ended December 31,
2015, 2014, and 2013, respectively, for employer contributions.
115
Note 18: Share-Based Plans
Webster maintains stock compensation plans (collectively, the "Plans") under which non-qualified stock options, incentive stock
options, restricted stock, restricted stock units, or stock appreciation rights may be granted to employees and directors. The Company
believes these share awards better align the interests of its employees with those of its shareholders. Stock compensation cost is
recognized over the required service vesting period for the awards, based on the grant-date fair value, net of estimated forfeitures,
and is included as a component of compensation and benefits reflected in non-interest expense. The Plans have shareholder approval
for up to 10.9 million shares of common stock. At December 31, 2015, there were 1.3 million common shares remaining available
for grant, while no stock appreciation rights have been granted.
The following table provides a summary of stock compensation expense, and the related income tax benefit, recognized in the
accompanying Consolidated Statements of Income:
(In thousands)
Stock options
Restricted stock
Total stock compensation expense
Income tax benefit
Years ended December 31,
2015
379
10,556
10,935
3,903
$
$
$
2014
1,175
9,048
10,223
3,553
$
$
$
2013
3,902
6,762
10,664
5,344
$
$
$
The following table provides a summary of unrecognized stock compensation expense:
(Dollars in thousands)
Stock options
Restricted stock
At December 31, 2015
Unrecognized
Compensation
Expense
$
$
43
10,937
Weighted-
Average Period
To Be Recognized
0.1 years
1.9 years
The following table provides a summary of the activity under the Plans for the year ended December 31, 2015:
Unvested Restricted Stock Awards
Time-Based
Performance-Based
Stock Options
Outstanding
Number
of
Shares
Weighted-
Average
Grant Date
Fair Value
Number
of
Units
Weighted-
Average
Grant Date
Fair Value
Number
of
Shares
Weighted-
Average
Grant Date
Fair Value
Number
of
Shares
Weighted-
Average
Exercise
Price
Balance at January 1, 2015
243,015 $
27.03
2,279 $
29.34
130,193 $
28.61
1,900,144 $
24.95
Granted
223,190
34.82
12,531
34.45
138,591
36.15
—
—
Exercised options
Vested restricted stock awards (1)
Forfeited
—
(220,866)
(9,194)
—
28.83
30.27
—
—
—
—
(221,320)
18.09
(12,722)
33.53
(153,063)
31.27
—
—
—
—
—
(151,750)
Balance at December 31, 2015
236,145 $
32.58
2,088 $
34.45
115,721 $
34.14
1,527,074 $
Options exercisable, at December 31, 2015
Options expected to vest, at December 31, 2015
(1) Vested for purposes of recording compensation expense.
1,420,758 $
105,378 $
116
—
45.36
23.92
23.99
23.00
Time-based restricted stock. Time-based restricted stock awards vest over the applicable service period ranging from one to five
years. The Plans limit the number of time-based awards that may be granted to an eligible individual in a calendar year to 100,000
shares. Compensation expense is recorded over the vesting period based on fair value, which is measured using the Company's
common stock closing price at the date of grant.
Performance-based restricted stock. Performance-based restricted stock awards vest after a three year performance period, with
share quantity dependent on that performance. Awards granted in 2015 and 2014 vest in a range from zero to 150% while previous
awards vest in a range from zero to 200% of the target number of shares under the grant. The performance-based shares granted
in 2015 vest, 50% based upon Webster's ranking for total shareholder return versus Webster's compensation peer group companies
and 50% upon Webster's average of return on equity for each year during the three year vesting period. The compensation peer
group companies are utilized because they represent the financial institutions that best compare with Webster. The Company
records compensation expense over the vesting period, based on a fair value calculated using the Monte-Carlo simulation model,
which allows for the incorporation of the performance condition for the 50% of the performance-based shares tied to total
shareholder return versus the compensation peer group, and based on a fair value of the market price on the date of grant for the
remaining 50% of the performance-based shares tied to Webster's return on equity. Compensation expense is subject to adjustment
based on management's assessment of Webster's return on equity performance relative to the target number of shares condition.
The total fair value of restricted stock awards vested during the years ended December 31, 2015, 2014, and 2013 was $11.6 million,
$9.4 million, and $5.1 million, respectively.
Stock options. Stock option awards have an exercise price equal to the market price of Webster's stock on the date of grant and
vest over periods ranging from three to four years. Each option grants the holder the right to acquire a share of Webster common
stock over a contractual life of up to ten years.
There were no stock options granted for 2015 and 2014. The fair value of each option award for 2013 was $10.96, as estimated
on the date of grant using the Black-Scholes Option-Pricing Model using the following weighted-average assumptions: 6.9 years
expected term; 1.80% expected dividend yield; 10.00% expected forfeiture rate; 58.97% expected volatility; and a 1.36% risk-
free interest rate. The weighted-average remaining contractual term for options expected to vest at December 31, 2015 was 7.2
years.
These assumptions can be highly subjective and therefore, Webster uses historical data within the valuation model. The expected
term of options granted is derived from actual option exercise and employee termination tendencies. The expected dividend yield
is based on the current annual dividend on a current stock price. The expected forfeiture rate is calculated based on actual forfeiture
activity trends. The expected volatility is derived from historical returns of the daily closing stock price over periods of time equal
to the duration of the expected term of options granted. The risk-free interest rate is based on the U.S. Treasury yield curve in
effect at the date of grant for periods that coincide with the contractual life of the option.
Aggregate intrinsic value represents the total pretax intrinsic value (the difference between Webster's closing stock price on the
last trading day of the year and the weighted-average exercise price, multiplied by the number of shares) that would have been
received by the option holders had all option holders exercised their options at that time. At December 31, 2015, the aggregate
intrinsic value of options outstanding, options exercisable, and options expected to vest was $22.5 million, $21.0 million, and $1.5
million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2015, 2014, and 2013
was $4.3 million, $1.9 million, and $1.8 million, respectively.
There were 1,388,957 non-qualified stock options and 138,117 incentive stock options outstanding at December 31, 2015.
The following table summarizes information about options outstanding and options exercisable at December 31, 2015:
Range of Exercise Prices
$ 5.14 - 20.00
$ 20.01 - 30.00
$ 30.01 - 40.00
$ 40.01 - 48.88
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life (years)
Weighted-
Average
Exercise
Price
3.2
6.1
2.0
1.0
4.0
$
$
9.67
23.54
32.03
47.77
23.92
Number of
Shares
448,941
672,339
192,518
213,276
1,527,074
Weighted-
Average
Remaining
Contractual
Life (years)
Weighted-
Average
Exercise
Price
3.2
5.9
2.0
1.0
3.8
$
$
9.67
23.65
32.03
47.77
23.99
Number of
Shares
448,941
566,023
192,518
213,276
1,420,758
117
Note 19: Segment Reporting
Beginning in January of 2015, Webster’s operations are divided into four reportable segments that represent its core businesses –
Commercial Banking, Community Banking, HSA Bank, and Private Banking. Community Banking includes the operating segments
of Webster's Personal Banking and Business Banking. With the acquisition of a health savings account business in early 2015, the
reported revenue of the HSA Bank segment grew in excess of 10% of the combined revenue of all operating segments. As a result,
beginning in the first quarter of 2015. we began reporting the HSA Bank and Private Banking segments separately. These segments
reflect how executive management responsibilities are assigned by the chief operating decision maker for each of the core
businesses, the products and services provided, the type of customer served, and reflects how discrete financial information is
currently evaluated. The Company’s Treasury unit and consumer liquidating portfolio are included in the Corporate and Reconciling
category along with the amounts required to reconcile profitability metrics to GAAP reported amounts. The 2014 and 2013 segment
results have been adjusted for comparability to the 2015 segment presentation.
Webster’s reportable segment results are intended to reflect each segment as if it were a stand-alone business. Webster uses an
internal profitability reporting system to generate information by operating segment, which is based on a series of management
estimates and allocations regarding funds transfer pricing, provision for loan and lease losses, non-interest expense, income taxes,
and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined.
Changes in estimates and allocations that affect the reported results of any operating segment do not affect the consolidated financial
position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each
operating segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are
reconciled in the Corporate and Reconciling category.
The Company uses a matched maturity funding concept, called funds transfer pricing (“FTP”), to allocate interest income and
interest expense to each business while also transferring the primary interest rate risk exposures to the Corporate and Reconciling
category. The allocation process considers the specific interest rate risk and liquidity risk of financial instruments and other assets
and liabilities in each line of business. The matched maturity funding concept considers the origination date and the earlier of the
maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. Loans
are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. This process is executed by the
Company’s Financial Planning and Analysis division and is overseen by the Company’s Asset/Liability Committee.
Webster allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss
content in each of the specific loan and lease portfolios. Provision expense for certain elements of risk that are not deemed
specifically attributable to a reportable segment, such as the provision for the consumer liquidating portfolio, is shown as part of
the Corporate and Reconciling category.
Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs,
including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Income tax
expense is allocated to each reportable segment based on the consolidated effective income tax rate for the period shown.
118
The following tables present the results for Webster’s reportable segments and the Corporate and Reconciling category, which
incorporates the allocation of the provision for loan and lease losses and income tax expense:
Year ended December 31, 2015
(In thousands)
Net interest income (loss)
Provision (benefit) for loan and lease losses
Net interest income (loss) after provision
for loan and lease losses
Non-interest income
Non-interest expense
Income (loss) before income tax expense
Income tax expense (benefit)
Net income (loss)
Commercial
Banking
Community
Banking
$
255,845
30,160
$
354,709
19,603
$
HSA Bank
73,433
—
225,685
37,784
109,718
153,751
48,112
105,639
$
335,106
108,604
330,692
113,018
35,366
77,652
$
$
73,433
64,243
80,662
57,014
17,841
39,173
Private
Banking
10,240
386
9,854
9,183
19,781
(744)
(233)
(511)
$
$
Corporate and
Reconciling
(29,602)
(849)
$
Consolidated
Total
664,625
49,300
$
(28,753)
19,731
13,701
(22,723)
(7,110)
(15,613)
$
615,325
239,545
554,554
300,316
93,976
206,340
$
Year ended December 31, 2014
(In thousands)
Net interest income (loss)
Provision (benefit) for loan and lease losses
Net interest income (loss) after provision
for loan and lease losses
Non-interest income
Non-interest expense
Income (loss) before income tax expense
Income tax expense (benefit)
Net income (loss)
Commercial
Banking
Community
Banking
$
238,186
13,088
$
354,781
26,345
$
HSA Bank
38,822
—
225,098
37,270
102,374
159,994
50,446
109,548
328,436
103,543
324,312
107,667
33,947
73,720
$
$
$
38,822
28,553
40,900
26,475
8,311
18,164
Private
Banking
8,877
765
8,112
9,843
18,691
(736)
(232)
(504)
$
$
Corporate and
Reconciling
(12,225)
(2,948)
$
Consolidated
Total
628,441
37,250
$
(9,277)
22,899
15,323
(1,701)
(499)
(1,202)
$
591,191
202,108
501,600
291,699
91,973
199,726
$
Year ended December 31, 2013
(In thousands)
Net interest income
Provision (benefit) for loan and lease losses
Net interest income after provision for loan
and lease losses
Non-interest income
Non-interest expense
Income before income tax expense
Income tax expense
Net income (loss)
Commercial
Banking
Community
Banking
$
217,582
17,971
$
347,395
19,219
$
HSA Bank
32,807
—
199,611
30,797
99,801
130,607
39,260
91,347
328,176
116,182
337,795
106,563
32,029
74,534
$
$
$
32,807
21,963
29,962
24,808
7,423
17,385
Private
Banking
8,185
397
7,788
10,963
19,783
(1,032)
(310)
(722)
$
$
Corporate and
Reconciling
(9,241)
(4,087)
$
Consolidated
Total
596,728
33,500
$
(5,154)
11,145
10,368
(4,377)
(1,289)
(3,088)
$
563,228
191,050
497,709
256,569
77,113
179,456
$
(In thousands)
At December 31, 2015
At December 31, 2014
At December 31, 2013
Total Assets
Commercial
Banking
Community
Banking
HSA Bank
Private
Banking
Corporate and
Reconciling
Consolidated
Total
$ 7,505,513
$ 8,441,950
$
95,815
$
493,571
$ 8,140,971
$24,677,820
6,550,868
5,682,129
8,123,928
7,738,597
26,680
19,524
398,893
346,338
7,432,803
22,533,172
7,066,557
20,853,145
119
Note 20: Commitments and Contingencies
Lease Commitments
Webster is obligated under various non-cancelable operating leases for properties used as banking and other office facilities. The
leases contain renewal options and escalation clauses which provide for increased rental expense, or are for equipment upgrades.
Rental expense under the leases was $21.5 million, $20.5 million, and $20.3 million for the years ended December 31, 2015, 2014,
and 2013, respectively, and is recorded as a component of occupancy expense in the accompanying Consolidated Statements of
Income.
Rental income from sub-leases on certain of these properties is netted as a component of occupancy expense, while rental income
under various non-cancelable operating leases for properties owned is recorded as a component of other non-interest income in
the accompanying Consolidated Statements of Income. Rental income was $0.8 million for the years ended December 31, 2015
and 2014, and $0.9 million for the year ended December 31, 2013.
The following table summarizes future minimum rental payments and receipts under lease agreements, including the greater Boston
locations acquired through Citigroup Inc.:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total future minimum rental payments and receipts
Credit-Related Financial Instruments
At December 31, 2015
Rental
Payments
25,218
23,140
18,998
17,227
15,561
84,114
184,258
$
$
Rental
Receipts
690
422
248
147
89
84
1,680
$
$
The Company offers credit-related financial instruments, in the normal course of business to meet certain financing needs of its
customers, that involve off-balance sheet risk. These transactions may include an unused commitment to extend credit, standby
letter of credit, or commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
(In thousands)
Commitments to extend credit
Standby letter of credit
Commercial letter of credit
Total credit-related financial instruments with off-balance sheet risk
At December 31,
2015
$ 4,851,994
133,294
45,742
$ 5,031,030
2014
$ 4,376,733
142,964
27,787
$ 4,547,484
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 they relate to.
120
These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and
therefore, management maintains a specific reserve for unfunded credit commitments. This reserve is reported as a component of
accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.
The following table provides a summary of activity in the reserve for unfunded credit commitments:
(In thousands)
Beginning balance
(Benefit) provision
Ending balance
Years ended December 31,
2015
5,151
(3,032)
2,119
$
$
2014
4,384
767
5,151
$
$
2013
5,662
(1,278)
4,384
$
$
The benefit recorded in 2015 to the reserve for unfunded credit commitments is the result of a change in a key assumption used
in calculating expected incremental utilization of credit. The updated assumption is based on a more detailed analysis of customer
behavior and performance in the months prior to a charge-off, rather than a general overall utilization rate, which should result in
a better estimate of potential loss on credit-related financial instruments.
Litigation
Webster is involved in routine legal proceedings occurring in the ordinary course of business and is subject to loss contingencies
related to such litigation and claims arising therefrom. Webster evaluates these contingencies based on information currently
available, including advice of counsel and assessment of available insurance coverage. Webster establishes accruals for litigation
and claims when a loss contingency is considered probable and the related amount is reasonably estimable. These accruals are
periodically reviewed and may be adjusted as circumstances change. Webster also estimates certain loss contingencies for possible
litigation and claims, whether or not there is an accrued probable loss. Webster believes it has defenses to all the claims asserted
against it in existing litigation matters and intends to defend itself in all matters.
Based upon its current knowledge, after consultation with counsel and after taking into consideration its current litigation accruals,
Webster believes that at December 31, 2015 any reasonably possible losses, in addition to amounts accrued, are not material to
Webster’s consolidated financial condition. However, in light of the uncertainties involved in such actions and proceedings, there
is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts currently accrued by Webster
or that the Company’s litigation accrual will not need to be adjusted in future periods. Such an outcome could be material to the
Company’s operating results in a particular period, depending on, among other factors, the size of the loss or liability imposed
and the level of the Company’s income for that period.
121
Note 21: Parent Company Information
Financial information for the Parent Company only is presented in the following tables:
Condensed Balance Sheets
(In thousands)
Assets:
Cash and due from banks
Securities available for sale, at fair value
Investment in subsidiaries
Due to subsidiaries
Alternative investments
Other assets
Total assets
Liabilities and shareholders’ equity:
Senior notes
Junior subordinated debt
Accrued interest payable
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Condensed Statements of Income
(In thousands)
Operating Income:
Dividend income from bank subsidiary
Interest on securities and interest-bearing deposits
Gain on sale of investment securities, net
Alternative investments income (loss)
Other non-interest income
Total operating income
Operating Expense:
Interest expense on borrowings
Compensation and benefits
Other non-interest expense
Total operating expense
Income before income tax benefit and equity in undistributed earnings of subsidiaries and
associated companies
Income tax benefit
Equity in undistributed earnings of subsidiaries and associated companies
December 31,
2015
2014
$
279,644
$
272,492
2,578
5,902
2,347,068
2,249,910
(48)
6,795
16,359
(165)
10,046
14,356
$ 2,652,396
$ 2,552,541
$
149,036
$
148,917
77,320
2,591
7,878
77,320
2,582
907
236,825
229,726
2,415,571
2,322,815
$ 2,652,396
$ 2,552,541
Years ended December 31,
2015
2014
2013
$
110,000
$
100,000
$
90,000
546
—
2,274
152
613
1,185
804
151
1,025
1,273
(392)
152
112,972
102,753
92,058
9,665
10,965
6,005
26,635
86,337
2,929
117,074
10,041
10,290
4,562
24,893
77,860
8,798
113,068
7,273
10,787
5,966
24,026
68,032
9,742
101,682
Net income
$
206,340
$
199,726
$
179,456
122
Condensed Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive loss, net of tax:
Net unrealized (losses) gains on available for sale securities
Net unrealized gains (losses) on derivative instruments
Other comprehensive loss of subsidiaries and associated companies
Other comprehensive loss, net of tax
Comprehensive income
Condensed Statements of Cash Flows
(In thousands)
Operating activities:
Net income
Years ended December 31,
2015
2014
2013
$
206,340
$
199,726
$
179,456
(2,109)
1,223
(20,959)
(21,845)
725
(2,932)
(5,505)
(7,712)
(616)
1,152
(16,819)
(16,283)
$
184,495
$
192,014
$
163,173
Years ended December 31,
2015
2014
2013
$
206,340
$
199,726
$
179,456
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries and associated companies
(117,074)
(113,068)
(101,682)
Stock-based compensation
Other, net
Net cash provided by operating activities
Investing activities:
Purchases of available for sale securities
Proceeds from sale of available for sale securities
Net cash (used for) provided by investing activities
Financing activities:
Issuance of long-term debt
Repayment of long-term debt
Cash dividends paid to common shareholders
Cash dividends paid to preferred shareholders
Exercise of stock options
Excess tax benefits from stock-based compensation
Common stock issued
10,935
9,066
109,267
—
—
—
—
—
(80,964)
(8,711)
3,060
2,338
—
10,223
(10,721)
86,160
(3,500)
3,499
(1)
150,000
(150,000)
(67,431)
(10,556)
2,221
1,161
435
Common stock repurchased/shares acquired related to employee share-based plans
(17,815)
(13,067)
10,664
(1,934)
86,504
(75)
13,544
13,469
—
—
(48,952)
(10,803)
2,736
389
731
(672)
(30)
(56,601)
43,372
230,201
Common stock warrants repurchased
Net cash used for financing activities
Increase (decrease) in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
(23)
(102,115)
7,152
272,492
(3)
(87,240)
(1,081)
273,573
$
279,644
$
272,492
$
273,573
123
Note 22: Selected Quarterly Consolidated Financial Information (Unaudited)
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Non-interest income (less securities amounts)
Gain on sale of investment securities, net
Impairment loss recognized in earnings
Non-interest expense
Income before income tax expense
Income tax expense
Net income
Earnings applicable to common shareholders
Earnings per common share:
Basic
Diluted
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Non-interest income (less securities amounts)
Gain on sale of investment securities, net
Impairment loss recognized in earnings
Non-interest expense
Income before income tax expense
Income tax expense
Net income
Earnings applicable to common shareholders
Earnings per common share:
Basic
Diluted
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
$
182,912
$
186,970
$
191,998
$
23,148
159,764
9,750
57,847
43
—
134,090
73,814
24,092
23,459
163,511
12,750
59,365
486
—
137,446
73,166
20,663
23,988
168,010
13,000
61,537
—
(82)
139,854
76,611
25,075
49,722
$
52,503
$
51,536
$
46,937
$
50,277
$
49,341
$
50,414
$
0.52
0.52
$
0.55
0.55
$
0.54
0.54
0.55
0.55
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
$
177,779
$
177,497
$
179,914
$
22,478
155,301
9,000
45,580
4,336
(88)
124,463
71,666
21,237
22,375
155,122
9,250
47,669
—
(73)
122,475
70,993
23,159
22,544
157,370
9,500
50,952
42
(85)
124,498
74,281
23,824
50,429
$
47,834
$
50,457
$
198,160
24,820
173,340
13,800
60,297
80
(28)
143,164
76,725
24,146
52,579
183,751
23,103
160,648
9,500
53,553
1,121
(899)
130,164
74,759
23,753
51,006
47,617
$
45,008
$
47,647
$
48,224
$
0.53
0.53
$
0.50
0.50
$
0.53
0.53
0.54
0.53
$
$
$
$
$
$
124
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Webster’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
design and operation of Webster’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) (the “Exchange Act”) as of the end of the period covered by this report. Based
upon that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that Webster’s
disclosure controls and procedures were effective as of the end of the period covered by this report for recording, processing,
summarizing and reporting the information Webster is required to disclose in the reports it files under the Exchange Act within
the time periods specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Webster’s management has issued a report on its assessment of the effectiveness of Webster’s internal control over financial
reporting as of December 31, 2015.
Webster’s independent registered public accounting firm has issued a report on the effectiveness of Webster’s internal control over
financial reporting as of December 31, 2015. The report expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2015.
There were no changes made in Webster’s internal control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting. The reports of Webster’s management and of Webster’s independent registered public accounting firm follow.
MANAGEMENT REPORT ON INTERNAL CONTROL
We, as management of Webster Financial Corporation and its Subsidiaries (“Webster” or the “Company”), are responsible for
establishing and maintaining effective internal control over financial reporting. Pursuant to the rules and regulations of the Securities
and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the
Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Internal controls over financial reporting includes those policies and procedures that pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial
statements.
Management has evaluated the effectiveness of Webster’s internal control over financial reporting as of December 31, 2015 based
on the control criteria established in a report entitled Internal Control – Integrated Framework (2013), issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that Webster’s internal
control over financial reporting is effective as of December 31, 2015.
The independent registered public accounting firm of KPMG LLP, as auditor of Webster’s financial statements, has issued an
opinion on Webster’s internal control over financial reporting as of December 31, 2015.
/s/ James C. Smith
James C. Smith
Chairman and Chief Executive Officer
February 29, 2016
/s/ Glenn I. MacInnes
Glenn I. MacInnes
Executive Vice President and Chief Financial Officer
125
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Webster Financial Corporation:
We have audited Webster Financial Corporation and subsidiaries' internal control over financial reporting as of December 31,
2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Webster Financial Corporation’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management Report on Internal Control. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Webster Financial Corporation and subsidiaries' maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Webster Financial Corporation and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified opinion on those
consolidated financial statements.
Hartford, Connecticut
February 29, 2016
126
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth certain information for Webster’s executive officers, each of whom is appointed to serve for a one-
year period:
Name
James C. Smith
Joseph J. Savage
John R. Ciulla
Glenn I. MacInnes
Daniel H. Bley
Colin D. Eccles
Daniel M. FitzPatrick
Bernard M. Garrigues
Nitin J. Mhatre
Dawn C. Morris
Charles L. Wilkins
Harriet Munrett Wolfe
Gregory S. Madar
Age at
December 31, 2015
66
63
50
54
47
57
57
57
45
48
54
62
53
Positions Held
Chairman, Chief Executive Officer and Director
Executive Vice Chairman and Director of Webster Bank
President and Director of Webster Bank
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Risk Officer
Executive Vice President and Chief Information Officer
Executive Vice President, Private Banking
Executive Vice President and Chief Human Resources Officer
Executive Vice President, Community Banking
Executive Vice President and Chief Marketing Officer
Executive Vice President, HSA Bank
Executive Vice President, General Counsel and Secretary
Senior Vice President and Chief Accounting Officer
Information concerning the principal occupation of these executive officers of Webster Financial Corporation and Webster Bank
during at least the last five years is set forth below.
James C. Smith is Chairman and Chief Executive Officer of Webster and Webster Bank. Mr. Smith joined Webster Bank in 1975
and was appointed CEO of the bank and the holding company in 1987 and Chairman in 1995. He was elected President, Chief
Operating Officer and a director of Webster Bank in 1982 and of the holding company at its inception in 1986. He served as
President of Webster and Webster Bank until 2000, and again from 2008 through 2011. Mr. Smith serves as Vice Chairman of the
Midsize Banks Coalition of America. He is a past member of the board of directors of the American Bankers Association and
served several years as co-chairman of the ABA’s American Bankers Council for midsize banks. He is a past member of the board
of directors of the Financial Services Roundtable. Mr. Smith served as a member of the Federal Advisory Council, which advises
the deliberations of the Federal Reserve Board of Governors, and served on the board of directors of the Federal Reserve Bank
of Boston. He served on the board of directors of the Federal Home Loan Bank of Boston. He served on the executive committee
of the Connecticut Bankers Association. Mr. Smith is actively engaged in community service and supports numerous civic
organizations including as a member of the board of Saint Mary’s Health System in Waterbury, Connecticut.
Joseph J. Savage is Executive Vice Chairman of Webster and Webster Bank. He joined Webster in April 2002 as Executive Vice
President, Commercial Banking and was promoted to President of Webster Bank and elected to the board of directors of Webster
Bank in January 2014. He was appointed to his current position in October 2015. Prior to joining Webster, Mr. Savage was Executive
Vice President of the Communications and Energy Banking Group for CoBank in Denver, Colorado from 1996 to April 2002. Mr.
Savage serves as a director of the Travelers Championship Committee. He serves on the board of the Bushnell and the Connecticut
Bankers Association. He was also the chair of the 2013-14 United Way Campaign for United Way of Central and Northeastern
Connecticut.
John R. Ciulla is President of Webster and Webster Bank. Mr. Ciulla joined Webster in 2004 and has served in a variety of
management positions at the company, including chief credit risk officer and senior vice president, commercial banking, where
he was responsible for several business units. He was promoted from executive vice president and head of Middle market banking
to lead Commercial Banking in January 2014 and President in October 2015. Prior to joining Webster, Mr. Ciulla was managing
director of The Bank of New York, where he worked from 1997 to 2004. He is the Vice Chairman of the board of the Connecticut
Business & Industry Association and serves on the board of the Business Council of Fairfield County.
127
Glenn I. MacInnes is Executive Vice President and Chief Financial Officer of Webster and Webster Bank. He joined Webster in
2011. Prior to joining Webster, Mr. MacInnes was Chief Financial Officer at New Alliance Bancshares for two years and was
employed for 11 years at Citigroup in a series of positions, including deputy CFO for Citibank North America and CFO of Citibank
(West) FSB. Mr. MacInnes serves on the Board of Wellmore Behavioral Health, Inc.
Daniel H. Bley is Executive Vice President and Chief Risk Officer of Webster and Webster Bank since August of 2010. Prior to
joining Webster, Mr. Bley worked at ABN AMRO and Royal Bank of Scotland from 1990 to 2010, having served as Managing
Director of Financial Institutions Credit Risk and Group Senior Vice President, Head of Financial Institutions and Trading Credit
Risk Management. Mr. Bley currently serves on the Board of Directors of Junior Achievement of Western Connecticut.
Colin D. Eccles is Executive Vice President and Chief Information Officer of Webster and Webster Bank. He joined Webster in
January of 2013. Prior to joining Webster, Mr. Eccles served as CIO for Umpqua Holdings in Portland, Ore. Before that, he worked
for Washington Mutual Bank from January 2002 to January 2009 and was the CIO for the Retail Bank. He worked for Hogan
Systems in Dallas, Texas from May 1994 to January 2002. He also worked for the First National Bank of South Africa from August
1988 to May 1994.
Daniel M. FitzPatrick is Executive Vice President, Head of Private Banking of Webster and Webster Bank. He joined Webster
in October 2012. Prior to joining Webster, Mr. FitzPatrick was Regional Managing Director for the BNY Mellon Wealth
Management business in Fairfield and Westchester counties. Before that, he held the positions of: Managing Director, Goldman
Sachs and CEO at The Goldman Sachs Trust Company, N.A.; Managing Director at Citigroup and CEO of its Citi Trust division;
Managing Director of Samoset Capital Group LLC and CEO of Samoset Financial Services LLC; and Managing Director and
head of Fiduciary Management at J.P. Morgan. Mr. FitzPatrick serves as a Board Member for Greenwich Emergency Medical
Services, Inc. and as Vice President and a member of the Board of Governors of The Preston Mountain Club, Inc.
Bernard M. Garrigues is Executive Vice President and Chief Human Resources Officer of Webster and Webster Bank. Mr.
Garrigues joined Webster in 2014. Prior to joining Webster, Mr. Garrigues was with TIMEX Group in Middlebury, Connecticut,
where he was the Chief Human Resources Officer having comprehensive global HR responsibility for several thousand employees
in 22 countries. Previously, he worked 21 years for General Electric where he served as global head of HR with a number of GE
businesses, including GE Commercial Finance, GE Capital Real Estate, GE Capital IT Solutions and Healthcare in both the United
States and Europe. Mr. Garrigues is Six Sigma Green Belt certified, a published author, and a seasoned guest lecturer.
Nitin J. Mhatre is Executive Vice President, Head of Community Banking of Webster and Webster Bank. He joined Webster in
October 2008 as Executive Vice President, Consumer Lending of Webster Bank and was appointed Executive Vice President,
Consumer Finance in January 2009. He was promoted to his current position in August of 2013. Prior to joining Webster, Mr.
Mhatre worked at Citigroup across multiple geographies including St. Louis - Missouri, Stamford - Connecticut, Guam - USA
and India, in various capacities. In his most recent position, he was the Managing Director for the Home Equity Retail business
for CitiMortgage based in Stamford, Connecticut. Mr. Mhatre is a board member of Consumer Bankers Association headquartered
in Washington, D.C. and also serves on the board of Junior Achievement of Southwest New England.
Dawn C. Morris is Executive Vice President and Chief Marketing Officer of Webster and Webster Bank. She joined Webster in
March 2014. Prior to joining Webster, Ms. Morris was with Citizens Bank in Dedham, Mass., where she served in a variety of
roles, including head of customer segment management, product and segment marketing, and business banking product
management. Earlier in her career, Ms. Morris worked in a number of business line and marketing roles at RBC Bank in North
Carolina. Ms. Morris serves on the boards of The Hartford Stage, Marketing EDGE, and the Girl Scouts of Eastern Massachusetts.
She is also on the Executive Committee for the Connecticut Veterans Day Parade and is co-chair with Connecticut Governor
Dannel Malloy of the Governor’s Prevention Partnership.
Charles L. Wilkins is Executive Vice President, Head of HSA Bank of Webster and Webster Bank. He joined Webster in 2014.
Prior to joining Webster, he was president of his own consulting practice specializing in healthcare and financial services from
June 2012 to December 2013. Prior to this, Mr. Wilkins was general manager and chief executive officer of OptumHealth Financial
Services, a division of UnitedHealth Group in Minnesota from August 2007 to June 2012. He is an active volunteer with the United
Way, Special Olympics, and Crossroad Career Network.
Harriet Munrett Wolfe is Executive Vice President, General Counsel and Corporate Secretary of Webster and Webster Bank.
She joined Webster in March 1997 as Senior Vice President and Counsel, was appointed Secretary in June 1997, and General
Counsel in September 1999. In January 2003, she was appointed Executive Vice President. Prior to this, Ms. Wolfe was in private
practice. Ms. Wolfe serves as a board member of the University of Connecticut Foundation, Inc., and as a member of the Foundation’s
Executive Committee, Audit Committee, and Chair of the Real Estate Committee.
128
Gregory S. Madar is Senior Vice President and Chief Accounting Officer of Webster and Webster Bank. He joined Webster in
1995 as Vice President and Tax Manager. Mr. Madar served in a number of senior finance positions including Senior Vice President
and Controller from February 2002 to February 2011 when he was promoted to his current position. Mr. Madar is a Certified
Public Accountant and previously worked for KPMG LLP.
Webster has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including the
principal executive officers, principal financial officer and principal accounting officer. It has also adopted Corporate Governance
Guidelines (“Guidelines”) and charters for the Audit, Compensation, Nominating and Corporate Governance, Executive and Risk
Committees of the Board of Directors. The Guidelines and the charters of the Audit, Compensation, and Nominating and Corporate
Governance Committees can be found on Webster's website (www.websterbank.com).
You can also obtain a printed copy of any of these documents without charge by contacting Webster at the following address:
Webster Financial Corporation
145 Bank Street
Waterbury, Connecticut 06702
Attn: Investor Relations
Telephone: (203) 578-2202
Additional information required under this item may be found under the sections captioned “Information as to Nominees” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in Webster's Proxy Statement (“the Proxy Statement”), which will
be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended December
31, 2015, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers and directors is omitted from this report and may be found in the
Company's 2016 Proxy Statement (Schedule 14A) under the sections captioned “Compensation Discussion and Analysis” and
“Compensation of Directors,” and the information included therein is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Stock-Based Compensation Plans
Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2015,
represents stock-based compensation plans approved by shareholders and is presented in the table below. There are no plans that
have not been approved by shareholders.
Plan Category
Plans approved by shareholders
Plans not approved by shareholders
Total
Number of
Shares to be
Issued Upon
Exercise of
Outstanding
Awards
1,527,074
—
1,527,074
Weighted-
Average
Exercise
Price of
Outstanding
Awards
$
$
23.92
—
23.92
Number of
Shares
Available
for Future
Grants
1,339,337
—
1,339,337
Further information required by this Item is omitted herewith and may be found under the sections captioned “Stock Owned by
Management” and “Principal Holders of Voting Securities of Webster” in the Proxy Statement and such information included
therein is incorporated herein by reference. Additional information is presented in Note 18: Share-Based Plans in the Notes to
Consolidated Financial Statements contained elsewhere in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director independence is omitted from this report and
may be found under the sections captioned “Certain Relationships”, “Compensation Committee Interlocks and Insider
Participation” and “Corporate Governance” in the Proxy Statement and the information included therein is incorporated herein
by reference.
129
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accounting fees and services is omitted from this report and may be found under the section
captioned “Auditor Fee Information” in the Proxy Statement and the information included therein is incorporated herein by
reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following documents are filed as part of the Annual Report on Form 10-K:
(1) Consolidated Financial Statements of Registrant and its subsidiaries are included within Item 8 of Part II of this report.
(2) Consolidated Financial Statement schedules for which provision is made in the applicable accounting regulations of
the Securities and Exchange Commission have been omitted because they are not applicable or the required information
is included in the Consolidated Financial Statements or Notes thereto included within Item 8 of Part II of this report.
(3) The exhibits to this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding such exhibits
and is incorporated herein by reference.
(b) Exhibits to this Form 10-K are attached or incorporated herein by reference as stated above.
(c) Not applicable
130
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 29, 2016.
WEBSTER FINANCIAL CORPORATION
By /s/ James C. Smith
James C. Smith
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on February 29, 2016.
Signature:
Title:
/s/ James C. Smith
James C. Smith
/s/ Glenn I. MacInnes
Glenn I. MacInnes
/s/ Gregory S. Madar
Gregory S. Madar
/s/ William L. Atwell
William L. Atwell
/s/ Joel S. Becker
Joel S. Becker
/s/ John J. Crawford
John J. Crawford
/s/ Robert A. Finkenzeller
Robert A. Finkenzeller
/s/ Elizabeth E. Flynn
Elizabeth E. Flynn
/s/ C. Michael Jacobi
C. Michael Jacobi
/s/ Laurence C. Morse
Laurence C. Morse
/s/ Karen R. Osar
Karen R. Osar
/s/ Mark Pettie
Mark Pettie
/s/ Charles W. Shivery
Charles W. Shivery
Chairman and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President – Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
131
WEBSTER FINANCIAL CORPORATION
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
Filed
Herewith
Incorporated by Reference
Form
Exhibit
Filing Date
Certificate of Incorporation and Bylaws.
Third Amended and Restated Certificate of Incorporation
10-Q
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10
10.1
10.2
10.3
10.4
10.5
10.6
Certificate of Designations establishing the rights of the
Company's 8.50% Series A Non-Cumulative Perpetual
Convertible Preferred Stock
Certificate of Designations establishing the rights of the
Company's Fixed Rate Cumulative Perpetual Preferred Stock,
Series B
Certificate of Designations establishing the rights of the
Company's Perpetual Participating Preferred Stock, Series C
Certificate of Designations establishing the rights of the
Company's Non-Voting Perpetual Participating Preferred Stock,
Series D
Certificate of Designations establishing the rights of the
Company's 6.40% Series E Non-Cumulative Perpetual
Preferred Stock
Bylaws, as amended effective June 9, 2014
Instruments Defining the Rights of Security Holders.
Specimen common stock certificate
Specimen stock certificate for the Company's 8.50% Series A
Non-Cumulative Perpetual Convertible Preferred Stock
Form of specimen stock certificate for the Company's 6.40%
Series E Non-Cumulative Perpetual Preferred Stock
Junior Subordinated Indenture, dated as of January 29, 1997,
between the Company and The Bank of New York, as trustee,
relating to the Company's Junior Subordinated Deferrable
Interest Debentures
Warrant to purchase shares of Corporation common stock
Deposit Agreement, dated as of December 4, 2012, by and
among the Company, Computershare Shareowner Services
LLC, as Depositary, and the Holders of Depositary Receipts
Senior Debt Indenture, dated as of February 11, 2014, between
the Company and The Bank of New York Mellon, as trustee
Supplemental Indenture, dated as of February 11, 2014,
between the Company and The Bank of New York Mellon, as
trustee, relating to the Company’s 4.375% Senior Notes due
February 15, 2024
Material Contracts
3.1
3.1
3.1
3.1
3.2
3.3
3.1
4.1
4.1
4.3
5/2/2012
6/11/2008
11/24/2008
7/31/2009
7/31/2009
12/4/2012
6/12/2014
3/10/2006
6/11/2008
12/4/2012
10.41
4.2
3/27/1997
11/24/2008
4.1
4.1
12/04/2012
2/11/2014
8-K
8-K
8-K
8-K
8-A12B
8-K
10-K
8-K
8-K
10-K
8-K
8-K
8-K
8-K
4.2
2/11/2014
Amended and Restated 1992 Stock Option Plan
10-Q
10.1
5/2/2012
Amended and Restated Deferred Compensation Plan for
Directors and Officers of Webster Bank effective January 1,
2005
Supplemental Retirement Plan for Employees of Webster Bank,
as amended and restated effective January 1, 2005
Qualified Performance-Based Compensation Plan
Employee Stock Purchase Plan
Form of Change in Control Agreement, effective as of
December 31, 2012, by and between Webster Financial
Corporation and James C. Smith, Glenn I. MacInnes and
Joseph J. Savage
132
8-K
8-K
DEF 14A
DEF 14A
10.2
10.1
A
A
12/21/2007
12/21/2007
3/7/2008
3/23/2000
8-K
10.1
12/27/2012
Exhibit Description
Filed
Herewith
Incorporated by Reference
Form
Exhibit
Filing Date
10-K
10.13
2/28/2013
10-K
10.13
2/28/2014
8-K
10.2
12/27/2012
10-K
10.22
2/28/2013
10-K
10.18
2/28/2014
10-Q
10.3
5/7/2014
10-Q
10.4
5/7/2014
10-Q
10-Q
10.1
10.2
8/6/2014
8/6/2014
10-K
10.22
2/27/2015
Exhibit
Number
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
21
23.1
31.1
31.2
Form of Change in Control Agreement, effective as of February
1, 2013, by and between Webster Financial Corporation and
Daniel H. Bley, Colin D. Eccles, Daniel M. FitzPatrick, Nitin J.
Mhatre and Harriet Munrett Wolfe
Change in Control Agreement, effective as of January 3, 2014,
by and between Webster Financial Corporation and Charles L.
Wilkins
Form of Non-Competition Agreement, effective as of
December 31, 2012, between Webster Financial Corporation
and James C. Smith, Glenn I. MacInnes and Joseph J. Savage
Description of Arrangement for Directors Fees.
X
Form of Non-Solicitation Agreement, effective as of February
1, 2013, by and between Webster Financial Corporation and
Daniel H. Bley, Colin D. Eccles, Daniel M. FitzPatrick, Nitin J.
Mhatre and Harriet Munrett Wolfe
Non-Solicitation Agreement, effective as of January 3, 2014, by
and between Webster Financial Corporation and Charles L.
Wilkins
Change in Control Agreement, dated as of March 10, 2014, by
and between Webster Financial Corporation and Dawn C.
Morris
Non-Solicitation Agreement, dated as of March 10, 2014, by
and between Webster Financial Corporation and Dawn C.
Morris
Change in Control Agreement, dated as of April 28, 2014, by
and between Webster Financial Corporation and Bernard
Garrigues
Non-Solicitation Agreement, dated as of April 28, 2014, by and
between Webster Financial Corporation and Bernard Garrigues
Non-Competition Agreement, dated as of November 13, 2014,
between Webster Bank, N.A., acting through its division, HSA
Bank, and Charles L. Wilkins.
Non-Competition Agreement, dated as of February 24, 2016,
between Webster Bank, N.A., and Nitin Mhatre.
Non-Competition Agreement, dated as of February 24, 2016,
between Webster Bank, N.A., and Daniel H. Bley.
Subsidiaries.
Consent of KPMG LLP.
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed by the Chief Executive Officer.
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed by the Chief Financial Officer.
X
X
X
X
X
X
X
X
32.1 + Written statement pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, signed by the Chief Executive Officer.
32.2 + Written statement pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, signed by the Chief Financial Officer.
133
Exhibit
Number
Exhibit Description
Filed
Herewith
Incorporated by Reference
Form
Exhibit
Filing Date
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
X
X
X
X
X
X
Note: Exhibit numbers 10.1 – 10.9 and 10.11 – 10.19 are management contracts or compensatory plans or arrangements in which directors or
executive officers are eligible to participate.
+ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability
of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
134
EXHIBIT 31.1
I, James C. Smith, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Webster Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 29, 2016
/s/ James C. Smith
James C. Smith
Chairman and Chief Executive Officer
EXHIBIT 31.2
I, Glenn I. MacInnes, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Webster Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 29, 2016
/s/ Glenn I. MacInnes
Glenn I. MacInnes
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Webster
Financial Corporation (the “Company”) hereby certifies that, to his knowledge on the date hereof:
(a) the Form 10-K Report of the Company for the year ended December 31, 2015 filed on the date hereof with the Securities and
Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: February 29, 2016
/s/ James C. Smith
James C. Smith
Chairman and Chief Executive Officer
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and
shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or
incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended, except
to the extent that the Company specifically incorporates it by reference.
A signed original of this written statement required by Section 906 of the Sarbanes Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Webster
Financial Corporation (the “Company”) hereby certifies that, to his knowledge on the date hereof:
(a) the Form 10-K Report of the Company for the year ended December 31, 2015 filed on the date hereof with the Securities and
Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: February 29, 2016
/s/ Glenn I. MacInnes
Glenn I. MacInnes
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and
shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or
incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended, except
to the extent that the Company specifically incorporates it by reference.
A signed original of this written statement required by Section 906 of the Sarbanes Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
80 years of
serving customers
and communities.
We’ve come a long way in 80 years.
Our heritage dates back to 1935 when
24-year-old Harold Webster Smith
founded the bank with a set of values
that include personal responsibility, respect,
trustworthiness, citizenship, and teamwork.
As our mission has evolved and our vision
has expanded, our core values have endured and
guide our 3,000 bankers in service to our customers
and communities.
In this photo, our founder, hat in hand, delivers the
check for Webster’s first mortgage on the steps of
the customer’s home in 1935.
299331_SR_WFC_CVR_R2.indd 2
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Our mission:
To help individuals, families and businesses achieve their financial goals.
Our values:
The Webster Way
We take personal responsibility for meeting our customers’ needs.
We respect the dignity of every individual.
We earn trust through ethical behavior.
We give of ourselves in the communities we serve.
We work together to achieve outstanding results.
Our vision:
To be a high performing regional bank.
Our brand promise:
Living Up To You.
WEBSTER FINANCIAL CORPORATION
2015 Annual Report
CELEBRATING
80 YEARS
LIVING UP TO YOU SINCE 1935
The Webster Symbol is registered in the U.S. Patent and Trademark Office.
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