WEBSTER FINANCIAL CORPORATION
ANNUAL REPORT 2021
Dear Shareholders,
Last year was a transformative year for Webster. In a
challenging economic environment, along with the pandemic
continuing to impact the way in which we live, we delivered
outstanding financial results while maintaining our focus
on building long-term franchise value. We worked hard
all year to deliver value for our colleagues, our clients, our
communities and our shareholders. In April, we announced
a merger of equals with Sterling Bancorp (Sterling), bringing
together two complementary, high-performing organizations
to create an exceptional new, commercially focused financial
institution. We were pleased to announce the closing of that
transaction effective January 31 of this year. During 2021,
we also successfully executed on our transformational
bank-wide initiatives that resulted in new revenue and
growth opportunities, the development of enhanced digital
capabilities, and the realization of material and structural
expense savings.
Webster achieved record profits in 2021 through significant
revenue growth and prudent expense management, all while
executing on our fundamental banking activities, organically
adding new clients and deepening existing relationships
across every business line and geography. Increased revenues
were the result of strong loan growth in our traditional
commercial businesses and solid performance across a
number of our fee-generating businesses, including wealth and
investment management, HSA Bank and consumer banking.
“We achieved record earnings of
$401 million.”
We achieved record earnings of $401 million. Full-year
earnings per share of $4.42 and year-end tangible book
value per share of $30.22 were both historic highs. Return on
common equity was 12.6%, and return on tangible common
equity was 15.4%. Pre-provision net revenue grew 14.8%, with
a 4.1% increase in revenue and a 1.8% decrease in expenses,
demonstrating positive operating leverage. The efficiency ratio
declined year over year to 56% from 60%.
“The efficiency ratio declined
year over year to 56% from 60%.”
A Letter to Our Shareholders
Overall loan growth was strong across all lines of business at
3% (8% excluding PPP loans), led by commercial and industrial
lending, which was up $1,040 million or 14%, and residential
mortgage, which was up $631 million or 13%. On the deposit
side, we realized a 15% increase in transactional deposits and
8% for non-transactional deposits. HSA Bank accounted for
25% of Webster’s total deposits at year’s end and delivered a
30% increase in assets under management over the prior year.
Throughout the year, Webster was recognized by third parties
for our outstanding performance, market-leading customer
satisfaction and for being a great place to work. Webster was
again the Top SBA Lender by dollar volume in New England
last year. In addition, both Sterling and Webster were among
five banks recognized by Coalition Greenwich as 2021
Greenwich CX Leaders for customer experience in Commercial
Middle Market Banking, demonstrating that we have two
strong commercial banks coming together with significant
momentum and market favorability.
“We were recognized by Coalition Greenwich
as 2021 Greenwich CX Leaders for
Commercial Middle Market Banking.”
With the recent completion of our merger, Webster is now
among the largest commercial banks in the Northeast. We
believe the new Webster is a differentiated bank, and we
are confident that the combination will quickly benefit all
of our stakeholders. We are well-positioned for expanded
opportunities, with the scale and balance sheet to service our
existing clients as they grow and to add new clients across
our expanded geography. The combined new company is
also optimally sized to be responsive to the changing banking
landscape, client preferences and expectations.
We will benefit from a differentiated funding base that
includes HSA Bank and our combined consumer and
commercial banking businesses, as well as an established
direct bank, and new and exciting Banking as a Service (BaaS)
activities. Our commercial businesses have a broad range of
regional and national asset generation capabilities, with deep
industry specialization and increasing national reach. We are
also focused on transforming our overall digital experience for
clients and colleagues.
Leveraging our increased scale, we are actively making
tech-forward investments that enable greater agility and
exceptional client service while ensuring our data remains
safe. Our recent acquisition of cloud-based HSA platform
WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT | 1
provider Bend Financial, Inc. will enhance HSA Bank’s client
experience and drive even better outcomes and value for the
millions of HSA Bank consumers we serve.
We look forward to bringing together the deep experience of
our directors and benefiting from their collective guidance and
expertise as we embark on a new chapter for the company.
We will also cultivate new and differentiating financial
services by expanding our “digital first” banking offerings.
More broadly, we look to foster innovation across the
organization. As a founding member of the USDF Consortium,
Webster has the opportunity to be an early participant in
exciting new distributed ledger/blockchain technologies for
which we believe there are a number of revenue-generating
and cost savings use cases.
As we head into 2022 and beyond, our company remains a
values-based organization, and the commitment to good
corporate citizenship inherent in both legacy companies
continues. We have created an Office of Corporate
Responsibility, focused on creating opportunity and economic
vitality in the communities we serve and overseeing our
continued ESG efforts. Diversity, equity, inclusion and
belonging (DEIB) remain key for our growth and success as an
evolving organization, and we will continue to prioritize these
principles in the way we do business.
“As we bring two great companies together,
we move forward into 2022 with confidence,
excitement and optimism…”
The outlook for Webster is strong as we continue to see
positive economic activity across our expanded footprint,
strengthened business and consumer client confidence,
and continued acceleration of lending activity. We thank our
colleagues for their dedication, execution and support during
an extraordinary 2021.
As we bring two great companies together, we move forward
into 2022 with confidence, excitement and optimism about
the many new and expanded opportunities that lie ahead, all
of which should allow us to deliver incremental value to our
clients, communities and shareholders.
“Diversity, equity, inclusion and belonging
remain key for our growth and success as an
evolving organization…”
Sincerely,
Culture is a critically important component of our integration,
allowing us to succeed and thrive as one company. It
facilitates how we come together with a shared belief in
our established values of integrity, collaboration, agility,
accountability and excellence, along with guiding behaviors, to
sustain an overall positive colleague experience. Our goal is to
be an even more forward-thinking company, designing a work
environment that encourages team-building, provides career
development and rewards high performance.
We are also excited to bring together a board of directors
under Jack’s leadership. We’d like to thank legacy Webster
board member Elizabeth Flynn, who stepped down from
the board after seven years of dedicated and distinguished
board service. And we welcome new board members Mona
Aboelnaga Kanaan, John P. Cahill, James J. Landy, Maureen B.
Mitchell, Richard L. O’Toole and William E. Whiston.
2 | WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT
John R. Ciulla
President and
Chief Executive Officer
Jack L. Kopnisky
Executive Chairman
Board of Directors
Jack L. Kopnisky
Executive Chairman
E. Carol Hayles
Former Executive Vice President
and Chief Financial Officer
CIT Group, Inc.
Richard L. O’Toole
Executive Vice President
and General Counsel
The Related Companies
John R. Ciulla
President and Chief Executive Officer
William L. Atwell
(Lead Independent Director)
Retired Founder and Managing Director
Atwell Partners, LLC
Linda H. Ianieri
Retired
PricewaterhouseCoopers,
LLP Partner
James J. Landy
Retired Banking Executive
Karen R. Osar
Retired Executive Vice President
and Chief Financial Officer
Chemtura Corporation
Mark Pettie
President
Blackthorne Associates, LLC
Mona Aboelnaga Kanaan
Managing Partner
K6 Investments, LLC
Maureen B. Mitchell
Senior Advisor
The Boston Consulting Group
Lauren C. States
Retired Executive
IBM Corporation
John P. Cahill
Chancellor
Archdiocese of New York
Laurence C. Morse
Managing Partner
Fairview Capital Partners, Inc.
William E. Whiston
Chief Financial Officer
Archdiocese of New York
Executive Management Committee
John R. Ciulla
President and Chief Executive Officer
Glenn I. Maclnnes
Chief Financial Officer
Daniel H. Bley
Chief Risk Officer
Luis Massiani
Chief Operating Officer
James P. Blose, Esq.
General Counsel and
Corporate Secretary
Javier Evans
Chief Human Resources Officer
James M. Griffin
Head of Consumer Banking
Christopher J. Motl
President, Commercial Banking
Beatrice Ordonez
Chief Innovation Officer
Robert Rowe
Chief Credit Risk Officer,
Webster Financial Corporation
Karen A. Higgins-Carter
Chief Information Officer
Brian R. Runkle
Head of Bank Operations
Jason A. Soto
Chief Credit Risk Officer,
Webster Bank
Charles L. Wilkins
Head of HSA Bank, a division of
Webster Bank
Elzbieta Cieslik
Chief Audit Officer
WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT | 3
Financial Highlights
For the years ending December 31:
(In thousands, except per share and ratio data)
CONSOLIDATED BALANCE SHEETS
Total assets
Loans and leases
Allowance for credit losses on loans and leases
Investment securities
Deposits
Total equity
STATEMENTS OF INCOME
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income before income tax expense
Income tax expense
Net income
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS
PER COMMON SHARE DATA
Net income - diluted
Dividends declared
Tangible book value per common share
Book value per common share
Weighted-average common shares - diluted
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
ACL on loans and leases/total loans and leases
Net charge-offs/average loans and leases
Non-performing loans and leases/total loans and leases
Non-performing assets/total loans and leases plus OREO
2021
2020
2019
$34,915,599
22,271,729
301,187
10,432,979
29,847,029
3,438,325
901,089
(54,500)
323,372
745,100
533,861
124,997
408,864
32,590,690
21,641,215
359,431
8,894,665
27,335,436
3,234,625
891,393
137,750
285,277
758,946
279,974
59,353
220,621
30,389,344
20,036,986
209,096
8,219,751
23,324,746
3,207,770
955,127
37,800
285,315
715,950
486,692
103,969
382,723
$400,989
212,746
374,848
$4.42
1.60
30.22
36.36
90,206
1.19 %
12.56
2.84
26.41
7.97
9.75
1.35
0.02
0.49
0.51
2.35
1.60
28.04
34.25
90,151
0.68
6.97
3.00
24.24
7.90
9.91
1.66
0.21
0.78
0.79
4.06
1.53
27.19
33.28
91,882
1.32
12.83
3.55
23.00
8.39
10.56
1.04
0.21
0.75
0.79
ACL on loans and leases/non-performing loans and leases
274.36
213.94
138.56
4 | WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT
CORPORATE HEADQUARTERS
Webster Financial Corporation and
Webster Bank, N.A.
200 Elm Street
Stamford, CT 06902
800.325.2424
WebsterBank.com
TRANSFER AGENT AND REGISTRAR
Regular Mail
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
855.222.4926 (Toll Free) 720.864.4321 (Toll)
shareholder@broadridge.com
http://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
Webster’s common stock is traded on the
New York Stock Exchange under the symbol “WBS.”
INVESTOR RELATIONS CONTACT
Emlen Harmon
Director of Investor Relations
203.578.2202
eharmon@websterbank.com
Shareholder Information
CORPORATE PROFILE
Webster Financial Corporation is the holding company
for Webster Bank, National Association, and its HSA Bank
division, 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 130 banking centers and
251 ATMs at year end, as well as a full range of online
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 three distinct lines of business: Commercial
Banking, HSA Bank and Community Banking.
REPORTS
A copy of our Annual Report on Form 10-K for the fiscal year
ending December 31, 2021, 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, please contact
Emlen Harmon, Director of Investor Relations,
200 Elm Street, Stamford, CT 06902. 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 ending December 31, 2021.
ANNUAL MEETING
The annual meeting of shareholders of Webster Financial
Corporation will be held on April 28, 2022, at 4:00 p.m.
In light of the continued uncertainty and ongoing concerns
relating to the COVID-19 pandemic, and for the safety of our
directors, employees and shareholders, the annual meeting
will be held virtually via the internet. Details can be found on
www.wbst.com.
WEBSTER INFORMATION
For more information on Webster products and services,
call 800.325.2424 or visit us at WebsterBank.com.
WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT | 5
2021 ESG Highlights
$360 MILLION
in loans for renewable energy
and energy-efficient components
Cloud migration resulted in
75% REDUCTION
of space and power consumption
More than $444.4 MILLION
to support local community
development efforts
OUTSTANDING CRA rating
Community Reinvestment Act
TOP SBA LENDER
in New England by dollar volume
1 MILLION MEALS
funded in communities we serve
More than 85%
of our colleagues have participated in
“Bias in the Workplace” workshop
Our continued commitment to leadership on responsible lending, sustainability,
corporate citizenship and transparent governance is highlighted in Webster’s
Environmental, Social and Governance (ESG) Report.
The achievements cited above, and many others, are the result of exceptional
contributions from our values-based colleagues and their steadfast dedication to our
clients, our communities and each other.
Learn more about Webster’s sustainability efforts at:
https://public.websteronline.com/about/environmental-social-governance.
6 | WEBSTER FINANCIAL CORPORATION 2021 ANNUAL REPORT
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, 2021
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number: 001-31486
_______________________________________________________________________________________________
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
06-1187536
(I.R.S. Employer Identification No.)
200 Elm Street, Stamford, Connecticut 06902
(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
Common Stock, par value $0.01 per share
Depositary Shares, each representing 1/1000th interest in a share
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock
Depositary Shares, each representing 1/40th interest in a share
of 6.50% Series G Non-Cumulative Perpetual Preferred Stock
Trading Symbols
WBS
Name of each exchange on which registered
New York Stock Exchange
WBS PrF
WBS PrG
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. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ 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 been
subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
☒
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of voting common stock held by non-affiliates, computed by reference using the closing price on June 30, 2021,
the last business day of the registrant’s most recently completed second fiscal quarter, was $4.8 billion.
At February 18, 2022, the number of shares of common stock, par value $0.01 per share, outstanding was 179,590,244.
Documents Incorporated by Reference
Part III: Definitive Proxy Statement (the “Proxy Statement”) for the Annual Meeting of Shareholders to be held on April 28, 2022.
INDEX
Page No.
Key to Acronyms and Terms
Forward-Looking Statements
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.
[Reserved]
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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
EXHIBIT INDEX
Item 16.
Form 10-K Summary
SIGNATURES
ii
iv
1
16
25
26
26
26
27
28
29
56
57
119
119
121
121
121
121
121
122
122
122
123
125
126
i
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
KEY TO ACRONYMS AND TERMS
ACL .......................................... Allowance for credit losses
Agency CMBS ......................... Agency commercial mortgage-backed securities
Agency CMO ........................... Agency collateralized mortgage obligations
Agency MBS ............................ Agency mortgage-backed securities
ALCO ....................................... Asset Liability Committee
ALLL ........................................ Allowance for loan and lease losses
AOCI (AOCL) ......................... Accumulated other comprehensive income (loss), net of tax
ARRC ....................................... Alternative Reference Rates Committee
ASC ........................................... Accounting Standards Codification
ASU or the Update .................. Accounting Standards Update
Basel III Capital Rules ............ Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
Bend .......................................... Bend Financial, Inc.
BHC Act ................................... Bank Holding Company Act of 1956, as amended
Capital Rules ........................... Final rules establishing a new comprehensive capital framework for U.S. banking organizations
CARES Act .............................. The Coronavirus Aid, Relief, and Economic Security Act
CECL ........................................ Current expected credit loss model, defined in ASC 326 “Financial Instruments – Credit Losses”
CET1 ......................................... Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPB ........................................ Consumer Financial Protection Bureau
CLO .......................................... Collateralized loan obligation securities
CMBS ....................................... Non-agency commercial mortgage-backed securities
CME ......................................... Chicago Mercantile Exchange
COVID-19 ................................ Coronavirus
CRA .......................................... Community Reinvestment Act of 1977
DEIB ......................................... Diversity, equity, inclusion and belonging
Dodd-Frank Act ...................... Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DTA / DTL ............................... Deferred tax asset / deferred tax liability
EAD .......................................... Exposure at default
EGRRCPA ............................... Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
ERM ......................................... Enterprise risk management
ERMC ....................................... Enterprise Risk Management Committee
FASB ......................................... Financial Accounting Standards Board
FDIA ......................................... Federal Deposit Insurance Act
FDIC ......................................... Federal Deposit Insurance Corporation
FHLB ........................................ Federal Home Loan Bank
FICO ......................................... Fair Isaac Corporation
FRA ........................................... Federal Reserve Act
FRB ........................................... Federal Reserve Bank
FTP ........................................... Funds Transfer Pricing, a matched maturity funding concept
GAAP ....................................... U.S. Generally Accepted Accounting Principles
Holding Company ................... Webster Financial Corporation
HSA ........................................... Health savings account
HSA Bank ................................ HSA Bank, a division of Webster Bank, National Association
LGD .......................................... Loss given default
LIBOR ...................................... London Interbank Offered Rate
NAV .......................................... Net asset value
NYSE ........................................ New York Stock Exchange
OCC .......................................... Office of the Comptroller of the Currency
OCI (OCL) ............................... Other comprehensive income (loss)
OFAC ....................................... Office of Foreign Assets Control of the U.S. Department of the Treasury
OPEB ........................................ Other post-employment medical and life insurance benefits
OREO ....................................... Other real estate owned
PD ............................................. Probability of default
PPNR ........................................ Pre-tax, pre-provision net revenue
PPP ........................................... Small Business Administration Paycheck Protection Program
ii
QM ............................................ Qualified mortgage
ROU .......................................... Right-of-use
SALT ........................................ State and local tax
Sarbanes-Oxley ........................ Sarbanes-Oxley Act of 2002
SEC ........................................... United States Securities and Exchange Commission
SERP ......................................... Supplemental executive retirement plan
SOFR ........................................ Secured overnight financing rate
Sterling ..................................... Sterling Bancorp, collectively with its consolidated subsidiaries
TDR .......................................... Troubled debt restructuring, defined in ASC 310-40 “Receivables-Troubled Debt Restructurings by Creditors”
USA PATRIOT Act ................ Uniting and Strengthening America by Providing Appropriate Tools Requirement to Intercept and
Obstruct Terrorism Act of 2001
USD ........................................... U.S. Dollar
UTB ........................................... Unrecognized tax benefit
VIE / VOE ................................ Variable interest entity / voting interest entity, defined in ASC 810-10 “Consolidation-Overall”
Webster Bank or the Bank ..... Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the Company ....... Webster Financial Corporation, collectively with its consolidated subsidiaries
iii
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
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. 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, these words are not the exclusive means of identifying such statements. Examples of forward-looking
statements include, but are not limited to:
• projections of revenues, expenses, income or loss, earnings or loss per share, allowance for credit losses (ACL), expense
savings, and other financial items;
• statements of plans, objectives and expectations of Webster Financial Corporation (Webster) 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 our actual results to differ from those discussed in any forward-looking statements
include, but are not limited to:
• our ability to successfully integrate the operations of Webster and Sterling Bancorp (Sterling) and realize the anticipated
benefits of the merger;
• our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties;
• our ability to successfully achieve the anticipated cost reductions and operating efficiencies from planned strategic
initiatives, including process automation, organization simplification, and spending reductions, and avoid any higher than
anticipated costs or delays in the ongoing implementation;
• local, regional, national, and international economic conditions, and the impact they may have on us and our customers;
• volatility and disruption in national and international financial markets;
• the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic, or other unusual and infrequently
occurring events, and any governmental or societal responses thereto;
• changes in laws and regulations, including those concerning banking, taxes, dividends, securities, insurance, and
healthcare, with which we and our subsidiaries must comply;
• adverse conditions in the securities markets that lead to impairment in the value of our investment securities and goodwill;
• inflation, changes in interest rates, and monetary fluctuations;
• the replacement of and transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing
Rate (SOFR) as the primary interest rate benchmark;
• the timely development and acceptance of new products and services, and the perceived value of these products and
services by customers;
• changes in deposit flows, consumer spending, borrowings, and savings habits;
• our ability to implement new technologies and maintain secure and reliable technology systems;
• the effects of any cyber threats, attacks or events, or fraudulent activity;
• performance by our counterparties and vendors;
• our ability to increase market share and control expenses;
• changes in the competitive environment among banks, financial holding companies, and other financial services providers;
• changes in the level of non-performing assets and charge-offs;
• changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and
accounting requirements;
• the effect of changes in accounting policies and practices applicable to us, including the impact of recently adopted
accounting guidance;
• legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental
inquiries, and the results of regulatory examinations or reviews; and
• our ability to appropriately address any environmental, social, governance, and sustainability concerns that may arise from
our business activities.
Any forward-looking statement in this Annual Report on Form 10-K speaks only as of the date on which it is 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.
iv
ITEM 1. BUSINESS
General
PART I
Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the
Bank Holding Company Act of 1956, as amended (BHC Act), incorporated under the laws of Delaware in 1986, and
headquartered in Stamford, Connecticut. Webster Bank, National Association (Webster Bank), and its HSA Bank division
(HSA Bank), deliver a wide range of banking, investment, and financial services to individuals, families, and businesses.
Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment
services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web
and mobile-based banking services throughout the northeastern U.S. from New York to Massachusetts. It also offers equipment
financing, commercial real estate lending, asset-based lending, and treasury and payment solutions, primarily in the eastern U.S.
HSA Bank is a leading provider of health savings accounts (HSAs), and also delivers health reimbursement arrangements, and
flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
Merger with Sterling Bancorp
Effective January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an Agreement and
Plan of Merger dated as of April 18, 2021. Pursuant to the merger agreement, Sterling merged with and into Webster, with
Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-
owned subsidiary of Sterling, merged with and into Webster Bank, with Webster Bank continuing as the surviving bank.
Additional information regarding Webster's merger with Sterling can be found in Part II under the section captioned "Recent
Developments" contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
and within Note 3: Business Developments in the Notes to Consolidated Financial Statements contained in Item 8. Financial
Statements and Supplementary Data.
Subsidiaries and Reportable Segments
At December 31, 2021, Webster Financial Corporation's consolidated subsidiaries included Webster Bank (the Bank), Webster
Wealth Advisors, Inc., and Webster Licensing, LLC. Webster Bank's significant subsidiaries included: Webster Business Credit
Corporation, Webster Capital Finance Inc., Webster Servicing LLC, Webster Public Finance Corporation, and Webster
Mortgage Investment Corporation, a passive investment subsidiary whose primary function is to provide servicing on qualified
passive investments, such as residential and commercial mortgage loans acquired from the Bank. Webster Bank's operations are
organized into reportable segments, which represent its primary businesses.
Beginning in the first quarter of 2022, Webster's reportable segment structure will also reflect the operations of businesses
acquired in connection with the Company's merger with Sterling. The segment reporting information discussed below and
throughout this Form 10-K reflects the organization that remained in effect at December 31, 2021.
Commercial Banking serves corporate customers with more than $2 million of revenue through its Business Banking, Middle
Market, Asset-Based Lending, Equipment Finance, Commercial Real Estate, Sponsor and Specialty Finance, and Treasury and
Payment Solutions business units.
• Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms.
• Middle Market offers a broad range of financial services to a diversified group of companies delivering competitive
products and solutions that meet their specific middle market needs.
• Webster Business Credit Corporation, Webster's asset-based lending business, is a top U.S. asset-based lender, and offers
asset-based loans and revolving credit facilities by financing core working capital with advance rates against inventory,
accounts receivable, equipment or other property owned by the borrower.
• Webster Capital Finance Inc., Webster's equipment finance business, offers small to mid-ticket equipment leasing solutions
for critical equipment, new or used, across the manufacturing, construction and transportation, and environmental sectors.
• Commercial Real Estate offers financing alternatives, primarily in the Northeast and mid-Atlantic, for the purpose of
acquiring, developing, constructing, improving, or refinancing commercial real estate, in which loans are typically secured
by institutional-quality real estate, including apartments, anchored retail, industrial, office, and student and affordable
housing properties, and where the income generated from the secured property is the primary repayment source.
• Sponsor and Specialty Finance offers senior debt capital to companies across the U.S. that are backed by private equity
sponsors and/or are in one of our specialty industries: technology, media and telecommunications, healthcare,
environmental services, and restaurants and franchises.
• Treasury and Payment Solutions offers derivative, treasury, accounts payable, accounts receivable, and trade products and
services, through a dedicated team of treasury professionals and local commercial bankers, to help its business and
institutional customers enhance liquidity, improve operations, and reduce risk.
1
In addition, through its strategic partnership with LPL Financial Holdings Inc., a registered investment advisor and broker-
dealer, and both a Financial Industry Regulatory Authority and Securities Investor Protection Corporation member, Commercial
Banking's wealth group offers an array of wealth management solutions to business owners, operators, and consumers within
Webster's targeted markets and retail footprint, including trust, asset management, financial planning, insurance, retirement, and
investment products. Webster Bank has employees located throughout its distribution network who are registered
representatives of LPL Financial Holdings Inc.
HSA Bank, serviced through Webster Servicing LLC, offers a comprehensive consumer-directed healthcare solution that
includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in
conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care
spending and savings, in accordance with applicable laws. HSAs are distributed nationwide directly to employers and
individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors.
HSA Bank deposits provide long-duration, low cost funding that is used to minimize the Bank's use of wholesale funding in
support of its loan growth. Non-interest revenue is generated predominantly through service fees and interchange income.
Retail Banking operates a distribution network across southern New England and into Westchester Country, New York, that
comprised 130 banking centers and 251 ATMs, a customer care center, and a full range of web and mobile-based banking
services. Retail Banking's business units consist of Consumer Lending and Small Business Banking.
• Consumer Lending offers consumer deposit and fee-based services, residential mortgages, home equity lines, secured and
unsecured loans, and credit card products.
• Small Business Banking offers credit, deposit, and cash flow management products targeted to businesses and professional
service firms with annual revenues of up to $2 million.
Additional information regarding Webster's reportable segments can be found in Part II under the section captioned "Segment
Reporting" contained Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and
within Note 21: Segment Reporting in the Notes to Consolidated Financial Statements contained in Item 8. Financial
Statements and Supplementary Data.
Human Capital Resources
As a values-driven organization, our employees are the cornerstone of our success. At December 31, 2021, Webster had 3,245
total employees, which included 2,424 full-time, 452 part-time, and 369 temporary employees, and consisted of approximately
60% female and 40% male employees. None of our employees were represented by a collective bargaining agreement.
Diversity, Equity, Inclusion and Belonging
We believe that our focus on diversity, equity, inclusion, and belonging (DEIB) is a critical component of how we support the
increasingly diverse perspectives of our employees and clients. It is not only key to our long-term growth, but also having a
workforce comprised of diverse identities, backgrounds, and experiences better helps the clients and communities we serve.
Our commitment to DEIB starts with Webster's senior leadership team, who continuously work to ensure that DEIB is
integrated into the way we do business. Webster has established a DEIB Council, which serves as a platform where senior
leaders and representatives of our various business resource groups shape the strategy and actions of our DEIB efforts. The
Council currently comprises 22 employee members across the organization and is co-chaired by our Chief Executive Officer
and Executive Vice President of Business Banking, both of whom make recommendations on ways to integrate DEIB in the
areas of education and awareness, talent development, employee engagement, and client and community service. We also have
an appointed DEIB Officer to expand our DEIB programs and grow partnerships within our local communities, and to promote
a diverse workforce in an open, inclusive environment.
Compensation and Benefits
Webster's compensation program aims to attract, retain, and reward high-performing talent at all levels of the organization
through a pay-for-performance philosophy. Variable payment opportunities are available to all employees, including corporate
incentive plans, sales/service commission or incentive plans, and equity plans for senior-level executives. Comprehensive
benefits and wellness resources are provided to employees, including medical, dental, vision, wellness incentives, life
insurance, voluntary supplemental life insurance, short-term and long-term disability, as well as a 401(k) retirement savings
plan with a company match, Employee Stock Purchase Plan, Employee Assistance Program, parental leave, and paid time off.
Webster shares in the costs of benefits with its employees by paying approximately 80% of all insurance costs. In addition,
Webster contributes to participating employees’ HSAs through earned incentives for completing activities such as biometric
screenings, wellness physicals, and dental exams. Benefit trends are reviewed regularly and plans are adjusted accordingly to
remain competitive. We believe that our current benefits practices play a key role in employee retention. At December 31,
2021, the average employee tenure was approximately 8.2 years.
2
Learning and Development
We are focused on investing in our current and future talent by actively supporting the success, growth, and career progression
of our employees. Webster's learning and development strategy comprises five core areas: (i) business education and job-
specific training, (ii) professional development, (iii) leadership development, (iv) compliance training, and (v) career programs
and certifications. Our employees have access to hundreds of offerings through Webster Bank University, the Company's
internal destination for learning where we have made available various types of virtual content, from on-demand webinars to
podcasts and e-learning modules. Webster also provides free access to online courses taught by industry experts with curated
learning paths that are designed specifically for their professional interests.
Competition
Webster is subject to strong competition from banks, thrifts, credit unions, non-bank health savings account trustees, consumer
finance companies, investment companies, insurance companies, and online lending and savings institutions. Certain of these
competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems, and a
wider array of commercial and consumer 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 organizations, 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 and
hours, mobile banking, and other automated services. Competition for deposits comes from other commercial banks, thrifts,
credit unions, non-bank health savings account trustees, mutual funds, and other investment alternatives. The primary factors in
competing for consumer and commercial loans are interest rates, loan origination fees, ease and convenience of loan origination
channels, the quality and range of lending services, personalized service, and the ability to close within customers’ desired time
frame. Competition for the origination of loans comes primarily from commercial banks, non-bank lenders, savings institutions,
mortgage banking firms, mortgage brokers, online lenders, and insurance companies. Other factors that affect competition
include the general and local economic conditions, current interest rate levels, and volatility in the lending markets.
Supervision and Regulation
Webster and its bank and non-bank subsidiaries are subject to extensive regulation under federal and state laws. The regulatory
framework applicable to bank holding companies and their depository institutions is intended to protect depositors, the Federal
Deposit Insurance Fund, consumers, and the U.S. banking system as a whole, not necessarily investors in bank holding
companies such as Webster.
Set forth below is a summary of the significant elements of the laws and regulations applicable to Webster and its bank and
non-bank 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. Banking statutes, regulations, and policies are continually under review by
Congress, state legislatures, and federal and state regulatory agencies. Changes in the statutes, regulations, or regulatory policies
applicable to Webster and its bank and non-bank subsidiaries, including how they are implemented or interpreted, could have a
material effect on the results of the Company.
Regulatory Agencies
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, Webster is subject to regulation under the BHC Act and to
inspection, examination, and supervision by its primary regulator, the Board of Governors of the Federal Reserve System.
Webster is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, both of which are administered by the United States Securities and Exchange
Commission (SEC). As a company with securities listed on the New York Stock Exchange (NYSE), Webster is subject to the
rules of the NYSE for listed companies.
Webster Bank is organized as a national banking association under the National Bank Act, and is subject to the supervision of
and regular examination by the Office of the Comptroller of the Currency (OCC), its primary federal regulator, as well as by the
Federal Deposit Insurance Corporation (FDIC), its deposit insurer. As a national banking association, Webster Bank derives its
lending, investment, and other bank activity powers from the National Bank Act, as amended, and the regulations of the OCC
promulgated thereunder. In addition, the Consumer Financial Protection Bureau (CFPB) supervises the Bank to ensure
compliance with federal consumer financial protection laws.
Webster’s non-bank subsidiaries are also subject to regulation by the Board of Governors of the Federal Reserve System and
other applicable federal and state agencies.
3
The Dodd-Frank Act
Created as a response to the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(the Dodd-Frank Act) significantly altered the financial system regulatory regime in the United States. Since its enactment, the
financial services industry has been subject to increased regulation and oversight through enhanced federal government
accountability and transparency measures.
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) was signed
into law, which repealed and amended certain provisions of the Dodd-Frank Act, providing regulatory relief to smaller, less
complex banking organizations primarily as it relates to enhanced prudential standards, and stress testing and liquidity
requirements (discussed further below). In addition to amending the Dodd-Frank Act, EGRRCPA also modified other
provisions regarding bank compliance, consumer protection, and securities laws, to which the federal banking agencies have
issued certain corresponding guidance and proposed or final rules.
Bank Holding Company Activities
In general, the BHC Act limits the business of bank holding companies to banking, managing, or controlling banks and other
activities that the Board of Governors of the Federal Reserve System has determined to be closely related to banking. Bank
holding companies that qualify and elect to become financial holding companies, such as Webster, 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 Board of Governors of the Federal Reserve System 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 (as solely determined by the Board of Governors of the Federal Reserve
System). Activities that are financial in nature include securities underwriting, dealing and market making, sponsoring mutual
funds and investment companies, insurance underwriting, and merchant banking.
Mergers and Acquisitions
Under the BHC Act, prior approval from the Board of Governors of the Federal Reserve System is required in order for any
bank holding company to (i) acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank,
(ii) acquire all or substantially all of the assets of a bank, or (iii) merge or consolidate with any other bank holding company. On
January 30, 2020, the Federal Reserve System issued a final rule that revised its regulations related to determinations of
whether a company has the ability to exercise a controlling influence over another company for purposes of the BHC Act,
thereby expanding the number of presumptions for use in such determination and providing greater transparency on the types of
relationships that the Federal Reserve System generally views as supporting a determination of control. The new rule became
effective April 1, 2020.
Pursuant to Section 18(c) of the Federal Deposit Insurance Act (FDIA), more commonly known as the Bank Merger Act, and
for national banks relying on certain other sources of merger authority, prior written approval from a bank's primary federal
regulator is required before any insured depository institution may consummate a merger transaction, which includes a merger,
consolidation, assumption of deposit liabilities, and certain asset transfers between or among two or more institutions. Prior
written approval of a bank's primary federal regulator is also required for merger transactions between or among affiliated
institutions, as well as for merger transactions between or among non-affiliated institutions. Transactions that do not involve a
transfer of deposit liabilities typically do not require prior approval under the Bank Merger Act, unless the transaction involves
the acquisition of all or substantially all of an institution's assets. When evaluating and acting on proposed merger transactions,
regulators consider the extent of existing competition between and among the merging institutions, other depository institutions,
and other providers of similar or equivalent services in the relevant product and geographic markets, the convenience and needs
of the community to be served, capital adequacy and earnings prospects, and the effectiveness the merger institutions in
combating money-laundering activities, among other factors.
Further, the Change in Bank Control Act of 1978 generally prohibits any person, acting directly or indirectly or in concert with
other persons, from acquiring control of a covered institution without providing at least 60 days prior written notice to the FDIC
or upon receipt of written notice that the FDIC does not disapprove of the acquisition.
On September 29, 2021, the Bank Merger Review Modernization Act of 2021 was introduced in Congress to amend the current
bank merger processes and requirements under the FDIA. Among its provisions, the legislation would authorize the CFPB to
deny bank merger applications if the new consolidated institution would not have adequate systems in place to ensure
compliance with federal consumer laws. Other provisions would require federal banking agencies to perform a cost-benefit
analysis and apply an enhanced competitive effects analysis for a proposed bank merger on the applicable banking markets as
well as the performance of the merging institutions under the Community Reinvestment Act of 1977 (CRA). Following its
introduction, the legislation was referred to committee and no further action thereon has occurred. Webster continues to monitor
the status of this legislation to determine what impact, if any, its potential passage and entry into law may have on the Holding
Company and Webster Bank.
4
Capital Adequacy
The Board of Governors of the Federal Reserve System, the OCC, and the FDIC have adopted the regulatory capital standards
in accordance with Basel III, as developed by the Basel Committee on Banking Supervision (Basel III Capital Rules). The Basel
III Capital Rules, which were fully phased-in on January 1, 2019, strengthened international capital standards by increasing
institutions' minimum capital requirements and holdings of high quality liquid assets, and decreasing bank leverage.
Under the Basel III Capital Rules, Webster's assets, exposures, and certain off-balance sheet commitments and obligations are
subject to risk weights used to determine risk-weighted assets. Risk weights can range from 0% for U.S. government securities
to 1,250% for certain tranches of complex securitization or equity exposures. Risk-weighted assets serve as the base against
which regulatory capital is measured, and are used to calculate Webster's and Webster Banks' minimum capital ratios of CET1
capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based
capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to average tangible assets (Tier 1
leverage capital), as defined in the regulations, which Webster is required to maintain. CET1 capital consists of common
shareholders' equity less deductions for goodwill and other intangible assets, and certain deferred tax adjustments. At the time
of initial adoption of the Basel III Capital Rules, Webster had elected to opt-out of the requirement to include certain
components of accumulated other comprehensive income (AOCI) in CET1 capital. Tier 1 capital consists of CET1 capital plus
preferred stock. Total capital consists of Tier 1 capital and Tier 2 capital (as defined in the regulations). Tier 2 capital includes
subordinated debt and the permissible portion of the ACL.
The following table summarizes the ratio thresholds applicable to Webster pursuant to the Basel III Capital Rules:
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Adequately
Capitalized
4.5 %
8.0
6.0
4.0
Well Capitalized
6.5 %
10.0
8.0
5.0
In addition, the Basel III Capital Rules mandate that most deductions from or adjustments to regulatory capital be made to
CET1 capital, not to the other components. For instance, the deduction of mortgage servicing assets, certain deferred tax assets
(DTAs), and capital investments in unconsolidated financial institutions is required to the extent that any one such category
exceeds 10% of CET1 capital or exceeds 15% of CET1 capital in the aggregate.
The Basel III Capital Rules also include a capital conservation buffer comprised entirely of CET1 capital, which is considered
in addition to the 4.5% CET1 capital ratio, and is equal to 2.5% of risk-weighted assets for both Webster and Webster Bank.
This buffer is designed to absorb losses during periods of economic stress, and is generally required in order to avoid
limitations on capital distributions and certain discretionary bonus payments to executive officers.
On July 22, 2019, the federal banking agencies issued a final rule that simplified the regulatory capital treatment for mortgage
servicing assets, certain DTAs arising from temporary differences, investments in the capital of unconsolidated financial
institutions, and the calculation of minority interest. These provisions were effective as of April 1, 2020.
On August 26, 2020, in response to the COVID-19 pandemic, the federal banking agencies issued a final rule that provided
banking organizations that implemented Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses,
Topic 326, Measurement of Credit Losses on Financial Instruments (CECL) during 2020, the option to delay an estimate of
CECL's effect on regulatory capital for two years ending on January 1, 2022, followed by a three-year transition period ending
on December 31, 2024. Webster elected to utilize the 2020 capital transition relief and delayed the regulatory capital impact of
adopting CECL. Both Webster Financial Corporation's and Webster Bank's ratios remain in excess of being well-capitalized,
even without the benefit of the delayed CECL adoption impact.
Prompt Corrective Action
Pursuant to Section 38 of the FDIA, the federal banking agencies are required to take prompt corrective action if an insured
depository institution fails to meet certain capital adequacy standards.
The following table summarizes the prompt corrective action categories:
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Well
Capitalized
Adequately
Capitalized
Under
Capitalized
4.5 %
8.0
6.0
4.0
< 4.5%
< 8.0
< 6.0
< 4.0
6.5 %
10.0
8.0
5.0
5
Significantly
Under Capitalized
< 3.0%
< 6.0
< 4.0
< 3.0
In addition, an insured depository institution with a ratio of tangible equity less than or equal to 2% is considered to be critically
under capitalized. If an insured depository institution has been determined, after notice and opportunity for a heading, to be in
an unsafe or unsound condition, or if it receives a less-than-satisfactory rating for asset quality, management, earnings, or
liquidity in its most recent examination, the appropriate federal banking agency may downgrade a well capitalized, adequately
capitalized, or under capitalized insured depository institution to the next lower capital category.
All insured depository institutions, regardless of their capital category, are prohibited from making capital distributions or
paying management fees if such distributions or payments would result in the insured depository institution becoming under
capitalized, unless it is shown that the capital distribution would improve financial condition or the management fee is being
paid to a person or entity without a controlling interest in the insured depository institution. Restrictions are placed on certain
brokered deposit activity and on deposit rates offered as the capital category declines below well capitalized. Further, if an
insured depository institution receives notice that it is under capitalized, significantly under capitalized, or critically under
capitalized, the insured depository institution generally must file a written capital restoration plan with the appropriate federal
banking agency within 45 days of receipt, and the bank holding company must guarantee the performance of that plan.
Dividends
The Holding Company is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including
the payment of dividends to shareholders. Dividends paid by the Bank are subject to various federal and state regulatory
limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of
the Bank to fall below specified minimum levels, or would exceed the net income for that year combined with the undistributed
net income for the preceding two years. During the year ended December 31, 2021, Webster Bank paid $200.0 million in
dividends to the Holding Company and had $508.0 million of undistributed net income available for the payment of dividends
at December 31, 2021.
In addition, federal banking regulators have the authority to prohibit Webster from engaging in safe or unsound practices in
conducting its business. The payment of dividends, depending on the financial condition of the Bank, could be deemed an
unsafe or unsound practice, especially if its capital base is depleted to an inadequate level. The ability of Webster Bank to pay
dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital requirements.
Enhanced Prudential Standards
Section 165 of the Dodd-Frank Act requires the Board of Governors of the Federal Reserve System to establish enhanced
prudential standards for larger bank holding companies. On October 10, 2019, pursuant to the enactment of the EGRRCPA, the
Federal Reserve Board, along with other federal bank regulatory agencies, adopted two rules outlining tailored prudential
standards allowing bank holding companies with total consolidated assets of $250 billion or less, such as Webster Financial
Corporation, to be exempt from certain enhanced capital and liquidity prudential standards imposed under Section 165,
including company-run stress testing, capital planning, liquidity coverage ratio, and resolution planning requirements, among
others. Although Webster Financial Corporation is no longer required to conduct company-run stress testing for itself and
Webster Bank, the Company continues to perform certain stress tests internally and incorporates the economic models and
information developed through its stress testing program into its risk management and capital planning activities, which
continue to be subject to the regular supervisory processes of the Federal Reserve System and the OCC.
In addition, under a prior rule issued by the Federal Reserve Board that implemented Section 165 of the Dodd-Frank Act's
enhanced prudential standards, certain publicly traded bank holding companies are required to establish a risk committee that is
responsible for the oversight of enterprise risk management (ERM) practices and that meets other statutory requirements. The
EGRRCPA raised the threshold for mandatory application of the risk committee requirement from publicly traded bank holding
companies with $10 billion or more in total consolidated assets to $50 billion or more. Notwithstanding this change
implemented by EGRRCPA, Webster has maintained its standing Risk Committee of the Board of Directors, which is
comprised of at least three independent directors.
Volcker Rule
Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, prohibits banking entities, such as the Holding
Company and Webster Bank, from (i) engaging in short-term proprietary trading of certain securities, derivatives, commodity
futures, and options on these investments for their own account, and (ii) imposes limits on investments in, and other
relationships with hedge funds or private equity funds. Like the Dodd-Frank Act, the Volcker Rule provides exemptions for
certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company
activities, and organizing and offering hedge funds or private equity funds. The Volcker rule also clarifies that certain activities
are not prohibited, including acting as agent, broker, or custodian. Banking entities with significant trading operations (those
with $20 billion or more in average trading assets and liabilities) are required to establish a detailed compliance program to
which their Chief Executive Officers are required to attest that the program is reasonably designed to achieve compliance with
the Volcker Rule.
6
The EGRRCPA and subsequent promulgation of interagency rules have aimed to simplify and tailor the Volcker Rule's
requirements. On June 25, 2020, the Federal Reserve System, Commodity Futures Trading Commission, FDIC, OCC, and SEC
issued a final rule that modified the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or
private equity funds, known as covered funds. The final rule modifies three areas of the Volcker Rule by (i) streamlining the
covered funds portion of the rule, (ii) addressing the extraterritorial treatment of certain foreign funds, and (iii) permitting
banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was
intended to address. The new rule became effective October 1, 2020. The Federal Reserve System had granted Webster an
extension until July 21, 2022 to bring its holdings into compliance with the Volcker Rule. Webster dissolved its remaining
holdings in illiquid covered funds during 2021 and is fully compliant with the Volcker Rule as of December 31, 2021.
Federal Reserve System
Federal Reserve System regulations require depository institutions to maintain reserves against its transaction accounts and
non-personal time deposits for the purposes of implementing monetary policy. The reserve requirement must be satisfied in the
form of vault cash and, if vault cash is insufficient, by maintaining a balance in an account at a Federal Reserve Bank (FRB).
The Federal Reserve Act (FRA) authorizes different ranges of reserve requirement ratios depending on the amount of
transaction account balances held at each depository institution. Pursuant to the FRA, a zero percent reserve requirement ratio
shall be applied to total reservable liabilities that do not exceed a certain amount, known as the reserve requirement exemption
amount. In addition, transaction account balances maintained over the reserve requirement exemption amount and up to a
certain amount, known as the low reserve tranche, may be subject to a reserve requirement ratio of not more than 3 percent (and
which may be zero), and transaction account balances over the low reserve tranche may be subject to a reserve requirement
ratio of not more than 14 percent (and which may be zero). The reserve requirement exemption and the low reserve tranche are
both subject to adjustment on an annual basis, as applicable, by the Board of Governors of the Federal Reserve System.
Effective March 26, 2020, in response to the COVID-19 pandemic, the reserve requirement ratios on all net transaction
accounts were reduced to zero percent, thereby eliminating reserve requirements for all depository institutions. The annual
indexation of the reserve requirement exemption amount and the low reserve tranche for 2021 was required by statute, but did
not affect depository institutions' reserve requirements, which has remained at zero.
Further, as a national bank and a member of the Federal Reserve System, the Bank is required to subscribe to the capital stock
of its district FRB in an amount equal to 6% of its capital and surplus, of which 50% is paid. The remaining 50% is subject to
call by the Board of Governors of the Federal Reserve System. At December 31, 2021, Webster Bank held an FRB of Boston
stock investment of $60.5 million.
Federal Home Loan Bank System
The Federal Home Loan Bank (FHLB) System provides a central credit facility for its member institutions. Webster Bank, as a
member of the FHLB, is required to purchase and hold shares of FHLB capital stock for its membership and other activities 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 million, plus an amount that varies from 3.0% to 4.5% depending on the
maturities of its FHLB advances, of which there were $11.0 million outstanding at December 31, 2021. Webster Bank was in
compliance with these requirements at December 31, 2021, and held an FHLB of Boston stock investment of $11.3 million.
Source of Strength Doctrine
Section 616 of the Dodd-Frank Act and Federal Reserve System regulations require that bank holding companies serve as a
source of financial strength to their subsidiary banks and commit resources to support each of their subsidiary banks. This
support may be required at times when the Holding Company is not in a financial position to provide such resources without
adversely affecting its ability to meet other obligations. The Federal Reserve System may require a bank holding company to
make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and
unsound practices if it fails to commit resources to such a subsidiary bank, or if it undertakes actions that the Federal Reserve
System believes might jeopardize the bank holding company's ability to commit resources to such subsidiary bank. Capital
loans by banking holding companies to its subsidiary banks would be subordinate in right of payment to deposits and certain
other debts of the subsidiary bank. In the event of bankruptcy, any commitment by a bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to a
priority of payment.
In addition, under the National Bank Act, if Webster Bank's capital stock is impaired by losses or otherwise, the OCC is
authorized to require payment of the deficiency by assessment upon the Holding Company. If the assessment is not paid within
three months after receiving notice thereof, the OCC could order a sale of Webster Bank stock held to cover any deficiency.
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Safety and Soundness Standards
The federal banking agencies have adopted the rules and regulations under the Interagency Guidelines Establishing Standards
for Safety and Soundness pursuant to Section 39 of the FDIA, which are applicable to all insured depository institutions. These
guidelines prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits, asset quality, earnings, and stock
valuation, as determined to be appropriate. If a federal banking agency determines that an institution fails to meet any of the
established standards, the agency may require the institution to submit an acceptable plan to achieve compliance with the
standard. In the event that an institution fails to submit an acceptable plan within the time allowed, or fails, in any material
respect, to implement an accepted plan, the agency must require the institution to correct the deficiency and may take other
supervisory and enforcement actions until the deficiency is corrected.
In more serious instances, enforcement actions may include (i) the issuance of directives to increase capital, the issuance of
formal and informal agreements, (ii) the imposition of civil monetary penalties, (iii) the issuance of a cease and desist order that
can be judicially enforced, (iv) the issuance of removal and prohibition orders against officers, directors, and other institution
affiliated parties, (v) the termination of the insured depository institution’s deposit insurance, (vi) the appointment of a
conservator or receiver for the insured depository institution, and (vii) injunctions or restraining orders based upon a judicial
determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
Transactions with Affiliates and Insiders
Transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the FRA and
Federal Reserve Regulation W. In a bank holding company context, at a minimum, the parent holding company of a national
bank, and any companies that are controlled by such parent holding company, are considered 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 (i) limiting the extent to which an institution or its subsidiaries may engage in covered
transactions with any one affiliate and with all affiliates in the aggregate, and (ii) requiring that all such transactions be on terms
substantially the same, or at least favorable, to the institution or subsidiary as those provided to a non-affiliate. The term
covered transaction includes the making of loans, purchase of assets, the issuance of a guarantee, and similar types of
transactions. Certain covered transactions must be collateralized according to a schedule set forth in the statue.
In addition, Section 22(h) of the FRA and Federal Reserve Regulation O restricts loans to directors, executive officers, and
principal stockholders or insiders. Pursuant to Section 22(h), 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 institution's
employees and does not give preference to the insider over the employees. Further, 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 prior approval from the Company's Board of Directors.
Section 22(g) of the FRA places additional limitations on loans to executive officers.
Consumer Protection and Consumer Financial Protection Bureau Supervision
The Dodd-Frank Act centralized the responsibility for consumer financial protection through the establishment of the CFPB, an
independent agency charged with implementing, enforcing, and examining compliance with federal consumer financial
protection laws. As an insured depository institution with more than $10 billion in total assets, Webster Bank is subject to
supervision by the CFPB. Webster is subject to a number of federal laws designed to protect borrowers and promote lending,
including, but not limited to, 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, and
the Consumer Financial Protection Act of 2010, which is part of the Dodd-Frank Act. The Dodd-Frank Act permits states to
adopt more stringent consumer protection laws and allows state attorneys general to enforce the consumer protection rules
issued by the CFPB.
In addition, the Truth in Lending Act requires creditors to make a reasonable, good faith determination of a consumer's ability
to repay their mortgage loans prior to extending them credit. In making ability-to-repay determinations, creditors must consider
numerous underwriting factors, as prescribed therein, and use reliable third-party records to verify the information they use to
evaluate such factors. Alternatively, the creditor can originate qualified mortgages (QMs), which are entitled to a presumption
that the creditor making the loan satisfied the ability-to-repay requirements. A QM is generally defined as a loan without
negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. The consumer is also required to
have a total debt-to-income ratio that is less than or equal to 43%. Further, the Truth in Lending Act provides a safe harbor for
loans that satisfy the definition of a qualified mortgage and are not higher-priced and a rebuttable presumption for higher-priced
mortgage loans.
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On December 10, 2020, the CFPB issued two final rules amending the ability-to-repay and QM rules of the Truth in Lending
Act. The first replaces the existing 43% debt-to-income ratio limit in the General QM definition with price-based thresholds,
among other changes, and the second creates a new category of QMs, called the Seasoned QM. A loan is eligible to become a
Seasoned QM if the loan meets certain product restrictions at the end of the 36-month seasoning period, including (i) is secured
by a first lien, (ii) has a fixed rate, (iii) has regular, substantially equal periodic payments that are fully amortizing, does not
allow negative amortization, and does not have a balloon payment, (iv) the term does not exceed 30 years, and (v) is not a
higher-priced mortgage. The first rule has a mandatory compliance date of October 1, 2022. The second rule applies to covered
transactions for which institutions received an application after March 1, 2021, however due to the 36-month seasoning period,
there was no immediate impact to Webster.
In addition, on December 7, 2021, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending
Act, to address the anticipated sunset of LIBOR for consumer financial products, which is expected to be discontinued for most
U.S. Dollar (USD) tenors in June 2023. Specifically, the CFPB is amending: (i) the open-end and closed-end provisions to
provide examples of replacement indices for LIBOR indices that meet certain Regulation Z standards, (ii) to permit creditors for
home equity lines of credit and card issuers for credit card accounts to transition existing accounts that use a LIBOR index to a
replacement index on or after April 1, 2022, if certain conditions are met, (iii) to address change-in-terms notice for home
equity lines of credit and credit card accounts and how they apply to accounts transitioning away from using a LIBOR index,
and (iv) to address how the rate reevaluation provisions applicable to credit card accounts apply to the transition from using a
LIBOR index to a replacement index.
For closed-end credit, the final rule identified certain SOFR-based spread-adjusted indices recommended by the Alternative
Reference Rates Committee (ARRC) for consumer products as examples to illustrate a reference rate that would be comparable
to replace 1-month, 3-month, or 6-month tenors of USD LIBOR. For open-end credit, the final rule states that the chosen
replacement index must have historical fluctuations that are substantially similar to those of the LIBOR index, and identifies
certain SOFR-based spread-adjusted indices recommended by the ARRC for consumer products and the Prime rate as examples
that meet this standard. However, the CFPB is reserving judgment about whether to include references to a 1-year USD LIBOR
index and its replacement index until it obtains additional information. The final rule becomes effective April 1, 2022.
Additional information regarding the LIBOR transition, including risk factors associated with its discontinuation and Webster's
transition plan, can be found in Part I - Item 1A. Risk Factors and under the section captioned "LIBOR Transition" contained
elsewhere in Part I - Item 1. Business
Identity Theft
The Commodity Futures Trading Commission and SEC jointly issued final rules and guidelines, implementing provisions of the
Dodd-Frank Act, that required certain regulated entities to establish programs to address risks of identity theft. In accordance
with these rules, financial institutions and creditors are required to develop and implement a written identity theft prevention
program 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. Further, the rules established special requirements for any credit and debit card issuers that are
subject to the Commodity Futures Trading Commission and SEC jurisdictions to assess the validity of notifications of changes
of address under certain circumstances. Webster has an Identity Theft Prevention Program in place, which is approved by the
Board of Directors, satisfying its compliance with these requirements.
Financial Privacy and Data Security
Webster is subject to federal and certain state laws and regulations containing consumer privacy and data protection provisions.
The Gramm-Leach-Bliley Act, along with the implemented regulations issued by the federal banking regulatory agencies,
govern the treatment of nonpublic personal information about consumers by financial institutions. Subject to certain exceptions,
the Financial Privacy Rule of the Gramm-Leach-Bliley Act states that financial institutions are prohibited from disclosing
nonpublic personal information about a consumer to nonaffiliated third parties, unless the institution satisfies various notice and
opt-out requirements and the consumer has not elected to opt out of the disclosure. Regardless as to whether a financial
institution shares nonpublic personal information, the institution must provide notice of its privacy policies and practices to its
consumers, and must follow redisclosure and reuse limitations on any nonpublic personal information it receives from a
nonaffiliated financial institution.
In addition, the Safeguards Rule of the Gramm-Leach-Bliley Act requires that each financial institution develops, implements,
and maintains a comprehensive written information security program that is inclusive of certain prescribed elements and
contains appropriate administrative, technical, and physical safeguards to protect consumer information. The federal banking
regulatory agencies have also adopted guidelines for establishing information security standards and programs to protect such
information, with an increased focus on risk management and processes related to information technology, and the use of third-
parties. The expectation from the federal banking regulatory agencies is that financial institutions have established lines of
defense to ensure that their risk management processes address the risks posed by compromised customer credentials, and that
the financial institution has sufficient business continuity planning processes to ensure rapid recovery, resumption, and
maintenance of operations after a cyber-attack.
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Pursuant to interpretive guidance issued under the Gramm-Leach-Bliley Act and certain state data breach notification laws,
financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic
personal information. Further, on November 18, 2021, the Board of Governors of the Federal Reserve System, the OCC, and
the FDIC issued a final rule that requires a banking organization to notify its primary regulator of certain types of computer
security incidents that result in harm to the confidentiality, integrity, or availability of an information system or the information
that the system processes, stores, or transmits, as soon as possible and no later than 36 hours after the banking organization
determines that a notification incident has occurred. The final rule also requires a bank service provider to notify each affected
banking organization customer as soon as possible when the bank service provider determines that is has experienced a
computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four
or more hours. The final rule becomes effective April 1, 2022, and compliance with the final rule is required by May 1, 2022.
Back on October 19, 2016, the Board of Governors of the Federal Reserve System, the OCC, and the FDIC approved an
advance notice of proposed rulemaking inviting comment on a set of potential enhanced cybersecurity risk-management and
resilience standards that would apply to large and interconnected entities under their supervision, as well as to services provided
by third parties to these institutions. Although the comment period for these proposed rules had since closed, and a final rule
has not yet been published, the proposed rules were considered to apply to depository institutions and depository institution
holding companies with total consolidated assets of $50 billion or more, which includes Webster effective February 1, 2022.
Depositor Preference
The FDIA provides that, in the event of the liquidation or other resolution of an insured depository institution, including the
Bank, 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, claims of insured and uninsured depositors, along with claims of
the FDIC, would have priority in payment ahead of unsecured, non-deposit creditors, including the Holding Company, with
respect to any extensions of credit they have made to such insured depository institution.
Federal Deposit Insurance
The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, for each account ownership
category. The Federal Deposit Insurance Fund is funded mainly through quarterly assessments on insured depository
institutions, such as Webster Bank, and provides insurance coverage for certain deposits up to this maximum amount.
Webster Bank's assessment is calculated in accordance with the FDIC's standardized risk-based methodology by multiplying its
assessment rate by its assessment base, which are determined and paid each quarter. The assessment base equals the Bank's
average consolidated total assets less average tangible equity during the assessment period. As a large bank, or generally one
with $10 billion or more in assets, Webster Bank is assigned an individual rate based on a scorecard, which combines CAMELS
(capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) component ratings, financial measures used to
measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the
relative magnitude of potential losses to the FDIC in the event of the bank's failure, to produce a score that is then converted to
an assessment rate. Assessment rates could be subject to adjustment by the FDIC. For instance, assessment rates decrease for
issuance of long-term unsecured debt, including senior unsecured debt and subordinated debt, increase for holdings of long-
term unsecured or subordinated debt issued by other banks, and increase for significant holdings of brokered deposits for large
banks that are not well-rated or not well-capitalized.
Under the FDIA, the FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's
financial condition is unsafe or unsound, or that the institution has engaged in unsafe and unsound practices, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC. Webster’s management is not aware of any practice,
violation, or condition that might lead to the termination of its deposit insurance.
Debit Card Interchange Fees
The Durbin Amendment to the Dodd-Frank Act requires that the amount of any interchange transaction fee that an issuer may
receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the
issuer with respect to the transaction, and imposes requirements regarding routing and exclusivity of electronic debit
transactions and the usability of debit cards across networks. Pursuant to the Durbin Amendment, interchange fees for certain
electronic debit transactions are capped at 21 cents plus 0.05% of the transaction value for issuers with over $10 billion in
consolidated assets, such as Webster Bank. The regulation also allows covered issuers to receive 1 cent per transaction for
fraud-prevention costs, provided that the issuer meets the fraud-prevention standards established by the Board of Governors of
the Federal Reserve System. HSA Bank's interchange revenue is not subject to these rules.
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Incentive Compensation
The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines for
covered financial institutions with at least $1 billion in total consolidated assets, including the Holding Company and the Bank,
to prohibit incentive-based payment arrangements that encourage inappropriate risks by providing an executive officer,
employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to a material
financial loss to the institution. A proposed rule was issued in 2016, which has not yet been finalized. If the rules are adopted in
the form initially, they will restrict the manner in which executive compensation is presently structured.
Community Reinvestment Act and Fair Lending Laws
Webster Bank has a responsibility under the CRA 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 or services that it believes are best suited
to its particular community. 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. The Bank’s failure to comply with the provisions of the CRA could, at
a minimum, result in regulatory restrictions on its activities, as well as the activities of Webster. Further, the 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 received a
CRA rating of Outstanding in its most recent examination.
On June 5, 2020, the OCC adopted a final rule to strengthen and modernize the CRA by clarifying and expanding the activities
that qualify for CRA credit, updating where activities count for CRA credit, creating a more consistent and objective method for
evaluating CRA performance, and providing for more timely and transparent CRA-related data collection, recordkeeping, and
reporting. The final rule took effect on October 1, 2020, and Webster Bank was required to comply with several of the more
material components by January 1, 2023. However, on December 14, 2021, the OCC adopted a final rule that rescinded the
June 2020 CRA rule (discussed above) and replaced it with a rule that is largely based on the 1995 CRA rules, as amended, that
were issued by the OCC, Board of Governors of the Federal Reserve System, and FDIC. This final rule applies to national
banks and savings institutions, and is intended to facilitate the ongoing interagency work to modernize the CRA regulatory
framework and promote consistency for all insured depository institutions. All banks are required to comply with the final rules
by January 1, 2022, except for the public file and public notice requirements, which have a compliance date of April 1, 2022.
There was no adverse impact to the Bank's CRA compliance under the final rule, but Webster will continue to monitor its
developments and assess the impact of further changes, if any, to CRA regulations proposed by the OCC, Board of Governors
of the Federal Reserve System, and FDIC.
USA PATRIOT Act
Under Title III of the Uniting and Strengthening America by Providing Appropriate Tools Requirement to Intercept and
Obstruct Terrorism Act of 2001 (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
agencies 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 Gramm-Leach-Bliley Act 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 agencies 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 Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury is responsible for administering
economic sanctions that affect transactions with designated foreign countries, nations, and others. The OFAC-administered
sanctions take many different forms, and generally 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). OFAC also publishes lists of persons,
organizations, and countries suspected of aiding, harboring, or engaging in terrorist acts, known as Specially Designated
Nationals and Block Persons. Blocked assets (i.e., property and bank deposits) cannot be paid out, withdrawn, set off, or
transferred in any manner without a license from the OFAC. Failure to comply with these sanctions could have serious legal
and reputational consequences.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance and accounting
measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at
publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under federal
securities laws. We are subject to Sarbanes-Oxley because we are required to file periodic reports with the SEC under the
Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations have
established new membership requirements and additional responsibilities for our audit committee, imposed restrictions on the
relationship between us and our outside auditors (including restrictions on the types of non-audit services our auditors may
provide to us), imposed additional responsibilities for our external financial statements on our Chief Executive Officer and
Chief Financial Officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate
our disclosure controls and procedures and our internal control over financial reporting, and required our auditors to issue a
report on our internal control over financial reporting.
Risk Management Framework
Webster defines risk as the potential that events, expected or unexpected, may have an adverse effect on its earnings, capital, or
enterprise value. Webster maintains a structured ERM framework that provides an integrated, forward-looking approach to
identifying, prioritizing, and managing key risk categories across the organization, including strategic, financial (treasury and
accounting), information, credit, operational, compliance, legal, and reputational risk.
Executive management sets the tone and culture towards ERM through strategy setting, formulating objectives, approving
resource allocations, and establishing and maintaining effective systems of internal controls. A strong risk culture is the
foundation of effective ERM because it influences the decisions of management and employees when weighing risks and
benefits. Management also encourages and supports risk self-identification and timely escalation throughout the organization.
A three line of defense model is utilized with regard to Webster’s risk management:
First Line: Line of Business Units
Line of business units have responsibility for identifying, assessing, escalating, controlling, and mitigating risks inherent to their
core business activities arising from their chosen strategy and ongoing operations.
Second Line: Risk Management Functions
Risk management functions operate independent of the line of business and facilitate development and implementation of risk
management practices, provide risk guidance and assist the lines of business in identification and mitigation of risk, monitor
adequacy of risk responses and timeliness of remediation, and perform control testing.
Third Line: Independent Control Functions
Reporting directly to the Board of Directors, the independent control functions (i.e., Internal Audit, Credit Risk Review)
perform assessments and evaluations of risk management practices and internal controls, identify issues, make
recommendations, and inform the Board of Directors and executive management on matters that require remediation.
Risk identification is a continuous process and occurs at the transaction, portfolio, and enterprise levels. Approaches used to
identify risk include workshops, interviews, process analysis, key risk indicators, risk assessment and data analysis. Identified
risks are assessed based on qualitative and quantitative factors to understand the likelihood that such events will occur and the
degree to which they will impact Webster’s ability to achieve its strategic and business objectives if they occur. Risk
assessments, which are performed by the first or second line of defense functions, evaluate inherent risk (likelihood and impact)
and existing controls (control environment) to arrive at residual risk.
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Webster’s risk appetite statement provides guidance to management regarding the nature and level of residual risk that Webster
is willing to take in pursuit of its objectives. The appetite balances a qualitative risk appetite statement, which is approved
annually by the Board of Directors, with quantitative metrics in the form of corporate-level and business-level scorecards
comprising key risk indicators with established risk tolerance levels. Tolerance levels are periodically reviewed by the
respective oversight committees to ensure the alignment of risk appetite with Webster’s risk profile.
Webster has established operating and oversight structures including policies, processes, people, and control/oversight systems
that support risk-related decision making designed to ensure appropriate authority, accountability, independence, and clarity of
roles and responsibilities. The Board of Directors oversees Webster's ERM approach to risk management and delegates its
authority to Webster's Risk Committee to provide oversight and effective challenge. Along with assisting the Board of Directors
in fulfilling its oversight responsibilities regarding Webster's ERM program, the Risk Committee, which is comprised of at least
three independent Directors, is responsible for reviewing information regarding Webster's policies, procedures, and practices
relating to risk. The Chief Risk Officer has the primary responsibility for the design and implementation of Webster's risk
management framework.
The Enterprise Risk Management Committee (ERMC), which is chaired by the Chief Risk Officer, is the management
committee responsible for overseeing Webster's risk management process, including monitoring the severity, direction, and
trend of risks relative to business strategies and market conditions, assessing management’s ability to manage and mitigate
risks, and ensuring implementation of Webster's risk appetite and strategy. It also directly oversees strategic risk and
reputational risk, and reviews identified emerging risks to Webster. The ERMC has six subcommittees: (i) the Operational Risk
Management Committee, (ii) the Credit Risk Management Committee, (iii) the Asset Liability Committee, (iv) the Information
Risk Committee, (v) the Regulatory Oversight Committee, and (vii) the Litigation Risk Management Committee. The ERMC
subcommittees aggregate and report risk information using established taxonomies and rating methodologies, which categorize
risk data based on shared characteristics in order to assess risks on a common scale, and regularly report and submit their
findings to the ERMC and the Risk Committee of the Board of Directors.
Strategic Risk
Strategic risk is comprised of (i) strategic development risk, or the inability to define the vision, understand the environment, or
formulate a strategy, as well as the types and amount of risk inherent in carrying out the strategy and achieving the desired
business objectives, and (ii) strategic execution risk, or the inability to translate strategy from theoretical into action from the
failure to allocate resources to sustain the strategy and/or the failure to adapt to changes. Webster maintains an active strategic
planning process that is long-term oriented and continuously refined to respond to changes in the operating environment. ERM
and the line of business risk managers, in consultation with the respective executives, perform an annual long range plan
assessment of Webster's strategic choices and initiatives in order to understand and communicate to the Board of Directors the
impact on Webster's risk profile from management's execution of the long range plan. Webster's long-range plan, which is
developed by the Operating Management Committee to align with Webster's risk appetite, capital and liquidity requirements, is
subject to annual review and approval by the Board of Directors, as well as significant strategic actions, such as mergers and
acquisitions or key strategic partnerships, as they arise.
Financial Risk
Financial risk is comprised of (i) accounting risk, or the risk that arises from the inability to maintain a high integrity financial
reporting process, ensure compliance with U.S. Generally Accepted Accounting Principles (GAAP) and regulatory guidelines,
disclosure of appropriate information, and align financial goals with tax efficiency planning, and (ii) treasury risk, or the risk of
capital levels falling below supervisory expectations, that interest rate changes could contribute to a reduction in earnings or net
worth, and decreases or changes in funding sources impacting the ability to efficiently liquidate assets. While we recognize that
we cannot control or predict external factors that may affect Webster's financial resources, management can make prudent
decisions to mitigate the financial impact. Webster's accounting and interest rate, capital, and liquidity financial risk programs
are respectively managed by the Chief Accounting Officer and Treasurer.
The Asset Liability Committee (ALCO), a subcommittee of ERMC, is responsible for the oversight, management, and strategic
direction of interest rate risk, liquidity, capital, balance sheet composition (in conjunction with the Credit Risk Management
Committee), and pricing. The Treasurer serves as the chair of ALCO, or the Asset/Liability Management Manager in the
absence of the Treasurer. Other members include the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer,
Director of Financial Planning and Analysis, Wholesale Bank Manager, Funding Manager, and the Head of Commercial Bank.
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Information Risk
Information risk is comprised of (i) information security risk, or the risk of unauthorized access, use, disclosure, disruption,
modification, perusal, inspection, recording, or destruction of electronic or physical data, and (ii) informational technology risk,
or the risk that systems handing information and process flows may not meet quality and efficiency standards in line with
industry, customer, and regulatory expectations, or may fail causing outages, or that new systems may not be implemented in a
timely manner. The increased use of technology to store and process information, particularly the ability to conduct financial
transactions on mobile devices and cloud technologies, exposes Webster to moderate risk of potential operational disruption or
information security incidents, whether caused by deliberate or accidental acts. Webster is committed to preventing, detecting,
and responding timely to incidents that may impact the confidentiality, integrity, and availability of information assets through
its robust information security and technology risk programs, which are managed under the direction of the Chief Information
Security Officer and Director of CIO Governance.
The Information Risk Committee, a subcommittee of ERMC, is responsible for overseeing information technology and security
risk, including technology risk and cybersecurity, and for reviewing the development, implementation, and maintenance of
Webster’s Information Security Program and its related comprehensive set of technology policies, which align with regulatory
guidance and industry standards. The Director of Information Technology serves as the chair of the Information Risk
Committee, and its members include the Chief Information Officer, Chief Risk Officer, and Chief Information Security Officer.
Credit Risk
Credit risk is defined as the risk of customer or counterparty default due to their lack of willingness or ability to meet financial
obligations. Sources of credit risk could include concentrations, deal structure, asset quality, and collateral values. Webster
mitigates credit risk within its loan, investment, and derivative portfolios through established credit policies, underwriting
guidelines, portfolio management, and troubled asset monitoring tools in order to limit its exposure to default. Credit approval
and reporting requirements are also implemented to ensure proper risk identification, decision rationale, risk ratings, and
disclosure of policy exceptions. The credit risk management program is led by the Chief Credit Officer along with a team of
credit executives who are independent of the loan production and treasury functions.
The Credit Risk Management Committee, a subcommittee of the ERMC, is responsible for oversight and management of credit
risk across the organization at Webster. It qualitatively and quantitatively assesses credit risk and provides a point of view
regarding the overall risk profile and asset mix of the portfolio to support strategic decision making. It also shares credit risk
information as it relates to business line strategy, policy, practices, and controls. The Chief Credit Officer serves as the chair of
the Credit Risk Management Committee, and its members include both risk and line of business representatives.
Operational and Compliance Risks
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or
external events. At Webster, the category of operational risk includes third party, business operations (process), fraud, human
capital, model, and physical security. The operational risk management program is predominantly focused on developing and
implementing tools for assessing business operations risk (process design, execution, and documentation). Other operational
risks associated with people, systems, and external events are managed through a combination of first and second line defense
programs under the supervision of the Chief Financial Officer, Chief Information Officer, Chief Human Resources Officer, and
Chief Risk Officer. The Operational Risk Management Committee, a subcommittee of the ERMC, oversees and provides
credible challenge on operational risks facing the organization, along with mitigation programs and strategies for these risks. In
addition, the Operational Risk Management Committee establishes tolerance levels for the most significant operational risks
and monitors performance against them. The Director of Enterprise and Operational Risk Management and the Senior
Operational Risk Manager serve as co-chairs of the Operational Risk Management Committee, and its members include
representatives from the corporate functions and lines of business.
Compliance risk is defined as the risk of non-compliance with banking laws and regulations, including new regulations and
changes to existing regulations, and the associated harm to consumers and customers. The Regulatory Oversight Committee, a
subcommittee of the ERMC, is responsible for overseeing Webster's compliance with applicable laws and regulations,
including but not limited to, anti-money laundering, fair and responsible banking, lending, privacy, deposit, and investments.
The Director of Corporate Compliance serves has the chair of the Regulatory Oversight Committee, and its members include
representatives from the Chief Risk Officer group, legal department, and lines of business.
Legal and Reputational Risks
Legal risk is defined as the financial or reputational exposure resulting from either bank-initiated or third-party initiated
litigation (whether due to civil or criminal liability, or regulatory action) and the risk that Webster's governance structure is
inadequate to facilitate Board oversight of company activities to ensure alignment with regulatory guidelines and stakeholder
expectations. Reputational risk is defined as the risk that Webster loses customers, employees, or business partners due to
negative public and/or market perception or improper business practices, and the ability to effectively compete.
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The Litigation Risk Management Committee, a subcommittee of the ERMC, oversees Webster's litigation risk management.
The primary responsibility of the Litigation Risk Management Committee is to collect and review information on all pending
litigation deemed to present material risk to Webster as a whole or any of its constituent entities. Other responsibilities include
reviewing and making recommendations regarding the litigation related standards and procedures at Webster to ensure such do
not increase the magnitude for likelihood of litigation risk, as well as identifying, monitoring, and reporting on emerging trends
in litigation and developments in the law relating to Webster's conduct of business. General Counsel serves as the chair of the
Litigation Risk Management Committee, and its members include the Chief Risk Officer, Chief Accounting Officer or
Controller, and Chief Financial Officer.
Additional information regarding risks and uncertainties, along with relevant risk factors that could impact Webster's business,
results of operations, or financial condition can be found in Part I - Item 1A. Risk Factors and throughout Part II of this report.
LIBOR Transition
Webster established a LIBOR transition plan in 2019 commensurate with identified LIBOR transition risks and exposures,
which is aligned with regulatory guidance and ARRC best practices. Management continues to execute according to its LIBOR
transition plan, addressing emerging issues and risks as they arise, while closely monitoring legislative and regulatory guidance
associated with the LIBOR transition.
Accordingly, Webster has set up a governance structure to ensure risks and issues are appropriately discussed and resolved.
This involves a senior management level working group, an executive management level Steering Committee, and regular
updates to the Risk Committee of the Board of Directors. The working group, along with a transition and project manager,
direct the execution of the transition activities on a day-to-day basis. Webster has also engaged an external advisor to assist.
Webster has adopted the SOFR rate and related conventions associated with the product line as the LIBOR replacement index
and ARRC recommended fallback language for impacted contracts, as well as the recommended spread adjustments for legacy
loans and/or derivative products. The Bank continues to work with applicable vendors to ensure the impacted loan, security,
and derivative applications are updated to support the processing of SOFR-based products and related conventions over a
timeline consistent with regulatory guidance and Webster’s transition plan. The Bank began offering SOFR-based loans and
derivatives to its customers in October 2021. As of January 1, 2022, Webster no longer originates new contracts using any
LIBOR index, as defined by regulatory guidance.
Available Information
Webster files reports with the SEC, and makes available, free of charge, on its internet website (www.wbst.com) its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it
electronically files such material with, or furnishes it to, the SEC. The SEC also maintains an internet website (http://
www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. Information contained on Webster's website is not incorporated by reference into this report.
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ITEM 1A. RISK FACTORS
Investment in Webster's securities involves risks and uncertainties, 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 adversely affect our business, results of operations, or financial condition. Before
making an investment decision, you should carefully consider the risks and uncertainties together with all of the other
information included or incorporated by reference in this report. If any of these events or circumstances actually occurs, our
business, results of operations, or financial condition could be significantly impacted.
Strategic Risk
We may encounter significant difficulties in integrating with Sterling and may fail to realize the anticipated benefits of the
merger, or those benefits may take longer to realize than expected.
Although Webster consummated its merger with Sterling on January 31, 2022, we expect integration of systems, operations,
and personnel to continue over the next several years. The successful integration of Webster and Sterling will depend, in part,
on our ability to combine and manage the businesses of Webster and Sterling in a manner that permits growth opportunities,
including enhanced revenues and revenue synergies, operating efficiencies, an expanded market reach, and that does not
materially disrupt the existing customer relationships of Webster or Sterling nor could result in decreased revenues due to loss
of customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be fully
realized or at all, or may take longer to realize than expected.
Failure to achieve these anticipated benefits could also result in increased costs, decreases in the amount of expected revenues,
and diversion of management’s time and energy, and could have an adverse effect on the combined company’s business,
financial condition, results of operations, and prospects. In addition, it is possible that the integration process could result in the
disruption of our ongoing business or cause inconsistencies in standards, controls, procedures, and policies that adversely affect
our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger.
We will continue to incur substantial expenses related to the merger and integration with Sterling.
Webster has incurred and will continue to incur significant, nonrecurring costs in connection with its merger with Sterling, as
there are a large number of processes, policies, procedures, operations, technologies, and systems that need to be integrated. In
addition, the merger may increase the Company's compliance and legal risks, including increased litigation or regulatory actions
such as fines or restrictions, related to business practices or operations of the combined business.
While the Company has planned that a certain level of expenses will be incurred, there are many factors beyond Webster’s
control that could affect the total amount or timing of integration expenses. Further, many of the expenses that will be incurred
are, by nature, difficult to estimate accurately and could, particularly in the near term, exceed the anticipated cost savings that
Webster expects to achieve. Overall, the amount and timing of future charges to earnings as a result of the merger and
integration are uncertain, and there is no assurance that the expected benefits realized will offset the transaction costs over time.
New lines of business or new products and services may subject us to additional risk.
On occasion, we may implement new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where markets are not fully
developed. In developing and marketing new lines of business and/or new products and services, 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 feasible. 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 and/or a new product or service. Further, 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 and/or new products or services could have a material adverse effect
on our business, results of operations, and financial condition.
We may not be able to attract and retain skilled people and loss of key employees may disrupt relationships with customers.
Our success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in most
activities in which we engage can be intense, and we may not be able to hire sufficiently skilled people or retain them. In
addition, the transition to an increased remote work environment, which we believe is likely to survive the COVID-19
pandemic for many organizations, may exacerbate the challenges of attracting and retaining skilled employees as job markets
may be less constrained by physical geography. The unexpected loss of services of our key personnel could have a material
adverse impact on the business because of their skills, knowledge of our markets, years of industry experience, and the
difficulty of promptly finding qualified replacement personnel.
Further, our business is primarily relationship-driven, in that many of our key employees have extensive customer relationships.
The loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow
that employee to a competitor or otherwise choose to transition to another financial services provider. While we believe that our
relationships with key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization.
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We operate in a highly competitive industry and market area.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond
our financial markets, many of which are larger and may have more financial resources than we do. Such competitors primarily
include national, regional, community, and internet banks within the various markets in which we operate. We also face
competition from many other types of financial institutions, including savings and loans, credit unions, non-bank health savings
account trustees, finance companies, brokerage firms, insurance companies, online lenders, factoring companies, and other
financial intermediaries. Some of these organizations are not subject to the same degree of regulation as is imposed on bank
holding companies and federally insured depository institutions, which may give them greater flexibility in accessing funding
and providing various services. Other organizations are larger than we are and may be able to achieve greater economies of
scale or offer a broader range of products and services, or better pricing on products and services, than we can offer.
The financial services industry could become even more competitive as a result of legislative and regulatory changes, and
continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered
barriers to entry and has made it possible for non-banks to offer products and services traditionally provided by banks. The
financial services industry also faces increasing competitive pressure from the introduction of disruptive new technologies, such
as blockchain and digital payments, often by non-traditional competitors and financial technology companies. Among other
things, technology and other changes are allowing customers to complete financial transactions that historically have involved
banks at one or both ends of the transaction.
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 our 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 products; 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, and in turn, could have a material adverse effect on our financial condition and results of operations.
Failure to keep pace with and adapt to technological change could adversely impact our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. These new technologies may be superior to, or render obsolete, the technologies
currently used in our products and services. 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 our operations. Many of our competitors, because of their larger size and available capital, have
substantially greater resources to invest in technological improvements. Developing or acquiring new technologies and
incorporating them into our products and services may require significant investment, take considerable time, and ultimately
may not be successful. We cannot predict which technological developments or innovations will become widely adopted or
how those technologies may be regulated. We also may not be able to effectively market new technology-driven products and
services to our customers. Failure to successfully keep pace with and adapt to 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.
The loss of key partnerships could adversely affect our HSA Bank division.
Our HSA Bank division relies on partnerships with various health insurance carriers and other partners to maximize our
distribution model. In particular, health plan partners who provide high deductible health plan options are a significant source of
new and existing HSA holders. If these health plan partners or other partners choose to align with our competitors or develop
their own solutions, our business, financial condition, and results of operations could be adversely affected.
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Financial Risk
Difficult conditions in the U.S economy and financial markets may have a materially adverse effect on our business,
financial condition, and results of operations.
Our business and financial performance is highly dependent upon the U.S. economy and strength of its financial markets.
Difficult economic and market conditions could adversely affect our business, results of operations, and financial condition. In
particular, we could face some of the following risks, and other unforeseeable risks, in connection with a downturn in the U.S.
economic and market environment:
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loss of confidence in the financial services industry and the debt and equity markets by investors, placing pressure on
Webster’s common share price;
decreased consumer and business confidence levels may decrease credit usage and investment or increase in
delinquencies and default rates;
decreased household or corporate incomes, which could reduce demand for our products and services;
decreased value of collateral securing loans to borrowers, causing a decrease in the asset quality of our loan and lease
portfolio and/or an increase in charge-offs;
decreased confidence in the creditworthiness of the U.S. government and agency securities that we hold;
increased concern over and scrutiny of capital and liquidity levels;
increased competition or consolidation in the financial services industry; and
increased limitations on or potential additional regulation of financial service companies.
The U.S. business environment and financial markets have experienced volatility in recent years and may continue to do so in
the foreseeable future. The prolonged low-interest rate environment resulting from the COVID-19 pandemic, despite a
recovering economy, has presented a challenge for the financial services industry. There can be no assurance that economic
conditions will return to pre-pandemic levels or will not further worsen.
Our profitability depends significantly on local economic conditions in the states in which we conduct business.
The success of our business depends on the general economic conditions of the significant markets in which we operate,
particularly Connecticut, Massachusetts, Rhode Island, New York, and New Jersey. Difficult economic conditions or adverse
changes in such local markets, whether caused by inflation, recession, unemployment, changes in housing or securities markets,
or other factors, could reduce demand for our loans and deposits, increase problem loans and charge-offs, cause a decline in the
value of collateral securing loans, and otherwise negatively affect our performance and financial condition.
Changes in interest rates and spreads may have a materially adverse effect on our business, financial condition, and results
of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. To a large
degree, our consolidated earnings are dependent on net interest income, which is the difference between the interest income
earned from our interest-earning assets and the interest expense paid on our interest-bearing liabilities. Interest rates are highly
sensitive to many factors that are beyond our control, including general economic conditions, the competitive environment
within our markets, consumer preferences for specific loan and deposit products, and policies of various governmental and
regulatory agencies, in particular the FRB. Changes in monetary policy, including changes in interest rates, could influence the
amount of interest we receive on loans and securities, the amount of interest we pay on deposits and borrowings, our ability to
originate loans and obtain deposits, and the fair market value of our financial assets and liabilities.
Increased interest rates may decrease demand for interest-rate based products and services, including loans and deposits, and
may it more difficult for borrowers to meet obligations under variable or adjustable-rate loans and other debt instruments.
Decreased interest rates often result in increased prepayments on loans and securities, as borrowers refinance their loans to
reduce borrowing costs. Under these circumstances, we are further subject to reinvestment risk to the extent that we are unable
to reinvest the cash received from such prepayments that have interest rates comparable to pre-existing loans and securities.
Moreover, if the rates paid on interest-bearing liabilities increase at a faster rate than the yields received on interest-earning
assets, our net interest income, and therefore earnings, could be adversely affected. Conversely, earnings could also be
adversely affected if the yields received on interest-earning assets fall more quickly than the rates paid on interest-bearing
liabilities.
Although management believes that it has designed and implemented effective asset and liability management strategies to
reduce the potential effects of changes in interest rates on our results of operations, an unexpected or prolonged period of
interest rate changes could have a material adverse effect on our financial condition and results of operations. Further, our
interest rate modeling techniques and assumption may not fully predict or capture the impact of actual interest rate changes on
net interest income.
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We may be subject to more stringent capital and liquidity requirements, which could limit our business activities.
The Holding Company and Webster Bank are subject to capital and liquidity requirements and standards imposed as a result of
the Dodd-Frank Act (as amended by EGRRCPA) and the U.S. Basel III Capital Rules. Regulators have and may implement
changes to these standards. If we fail to meet the minimum capital adequacy and liquidity guidelines and other requirements,
our business activities, including lending and our ability to expand, either organically or through acquisitions, could be limited.
It could also result in us being required to take steps to increase our regulatory capital that may be dilutive to shareholders or
limit our ability to pay dividends, or sell or refrain from acquiring assets.
The Holding Company may not pay dividends to shareholders if it is not able to receive dividends from its subsidiary,
Webster Bank.
The Holding Company is a separate and distinct legal entity from our banking and non-banking subsidiaries. A substantial
portion of the Holding Company’s revenues comes from dividends paid by Webster Bank. These dividends are the principal
source of funds to pay dividends to common and preferred shareholders. Whether the Bank is able to pay dividends depends on
its ability to generate sufficient net income and meet certain regulatory requirements, and the amount of such dividends may
then be limited by federal and state laws. In the event the Bank is unable to pay the Holding Company dividends, we may not
be able to pay dividends to our common and preferred shareholders.
Changes in our accounting policies or in accounting standards could materially impact how we report our financial results.
Our accounting policies and methods are fundamental to understanding how we record and report our results of operations and
financial condition. Accordingly, we exercise judgment in selecting and applying these accounting policies and methods so they
comply with GAAP. The Financial Accounting Standards Board (FASB), SEC, and other regulatory bodies that establish
accounting standards periodically change the financial accounting and reporting standards, or the interpretation of those
standards, that govern the preparation of our financial statements. These changes are beyond our control, can be hard to predict,
and could materially impact how we report our results of operations and financial condition. We could be required to apply a
new or revised standard retrospectively, which may result in us having to restate our prior period financial statements by
material amounts.
The preparation of our consolidated financial statements requires the use of estimates that may vary from actual results.
The preparation of our consolidated financial statements in conformity with GAAP requires management to make difficult,
subjective, or complex judgments about matters that are uncertain, which include assumptions and estimates of current risks
and future trends, all of which may undergo material changes. Materially different amounts could be reported under different
conditions or using different assumptions and estimates. Because of the inherent uncertainty of estimates involved in preparing
our financial statements, we may be required to significantly adjust the financial statements as actual events unfold, which
could have a material adverse effect on our financial condition and results of operations. In particular, we could be required to
take actions that include, but are not limited to, increasing the ACL and/or sustaining credit losses that are significantly higher
than the provided allowance, increasing the valuation allowance on our DTAs should new negative evidence become available
indicating that it is more likely than not that some or a portion of our net DTA will not be realized, or recognizing a significant
impairment charge for assets.
A significant merger or acquisition requires us to make estimates, including the fair values of acquired assets and liabilities.
GAAP requires us to record the assets and liabilities of an acquired business to their fair values at the time of the acquisition.
With larger transactions, such as our recent merger with Sterling, fair value and other estimations can take up to four quarters to
finalize. These estimates, and their revisions, can have a substantial effect on the presentation of our financial condition and
operating results after the transaction closes. In addition, the excess of the purchase price over the fair value of the assets
acquired, net of liabilities assumed, is recorded as goodwill. If the estimates that we have used at any financial statement date
are significantly revised in the future, there could be a material negative impact on our goodwill or other acquisition-related
intangibles and our results of operations for the period in which the revisions are made.
If our goodwill were determined to be impaired, it could have a negative impact on our profitability.
GAAP requires that goodwill be tested for impairment at the reporting unit level on at least an annual basis or more frequently
should a triggering event occur. An impairment loss is to be recognized if the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit. A significant decline in our expected future cash flows, a continued
period of local and national economic disruption, changes to financial markets, slower growth rates, or other external factors, all
of which can be highly unpredictable, may impact fair value calculations and require us to recognize an impairment loss in the
future. Such impairment loss may be significant and have a material adverse effect on our financial condition and results of
operations.
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Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all, and may have an
adverse impact on our results of operations.
We invest in certain tax-advantaged investments that support qualified affordable housing projects and other community
development initiatives. Our investments in these projects rely on the ability of the projects to generate a return primarily
through the realization of federal and state income tax credits and other tax benefits. We face the risk that tax credits, which
remain subject to recapture by taxing authorities based on compliance with relevant requirements at the project level, may not
be able to be realized. The risk of not being able to realize the tax credits and other tax benefits associated with a particular
project depends on many factors that are outside our control. A project’s failure to realize these tax credits and other tax
benefits may have a negative impact on our investment, and as a result, on our financial condition and results of operations.
Information Risk
A failure or breach of our information systems, or those of our third-party vendors and 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, and cause losses.
As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions.
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, including mobile banking and other recently developed technologies, may stop operating properly or become disabled
or compromised as a result of a number of factors that may be 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
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 they use to access our products and services, could result in customer
attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, which
could have a materially adverse effect on our results of operations and financial condition.
Additionally, 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 breakdowns or failures of their own systems, capacity constraints,
and cyber-attacks.
In recent years, information security risks for financial institutions have risen due to the increased sophistication and activities
of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been
instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, client
or customer information or the destruction or theft of corporate data. There have also been highly publicized cases where
hackers have requested ransom-payments in exchange for allowing access to systems and/or not disclosing customer
information. In addition, as a result of the COVID-19 pandemic and the related increase in remote working by our personnel
and the personnel of other companies, the risk of cyber-attacks, breaches or similar events, whether through our systems or
those of third parties on which we rely, has increased.
Although Webster has 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 inherent 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 and facilitate the recovery of our systems, computers, software, data, and networks from attack, damage, or
unauthorized access remains a high priority for us. While we have purchased network and privacy liability insurance coverage
(which includes digital asset loss, business interruption loss, network security liability, privacy liability, network extortion, and
data breach coverage), there can be no assurance that such insurance will cover any and all actual losses. As cyber threats and
related regulations 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.
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Credit Risk
Our allowance for credit losses on loans and leases may be insufficient.
We maintain an ACL on loans and leases, which is a reserve established through a provision for credit losses charged to
expense, that represents management’s best estimate of probable credit losses over the life of the loan or lease within our
existing portfolio. The determination of the appropriate level of ACL on loans and leases inherently involves a high degree of
subjectivity and requires us to make significant estimates of current credit risks and trends using existing qualitative and
quantitative information and reasonable supportable forecasts of future economic conditions, all of which may undergo frequent
and material changes. Changes in economic conditions affecting borrowers, the softening of macroeconomic variables that we
are more susceptible to, along with new information regarding existing loans, identification of additional problems loans, and
other factors, both within and outside our control, may indicate the need for an increase in the ACL on loans and leases.
Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for credit losses or the
recognition of additional loan charge-offs, based on judgments different than those of management. In addition, if charge-offs
in future periods exceed the ACL, we may need, depending on an analysis of the adequacy of the ACL, additional provisions to
increase the ACL. An increase in the ACL would result in a decrease in net income, and could have a material adverse effect on
our financial condition, results of operations, and regulatory capital position.
The soundness of other financial institutions could adversely affect our business.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of
other financial institutions. Financial services institutions 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 in general, have led, and may further lead to market-wide
liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions could expose us
to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be impacted if the collateral
held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the financial instrument’s
exposure due to us. There is no assurance that any such losses would not materially or adversely affect our business, financial
condition, or results of operations.
We are subject to the risk of default by our counterparties and clients, particularly with respect to certain types of loans.
Many of our routine transactions expose us to credit risk in the event of default of our counterparties or clients. Our credit risk
may be exacerbated when the collateral held cannot be realized or is liquidated at prices insufficient to cover the full amount of
the loan or derivative exposure to us. In deciding whether to extend credit or enter into other transactions, we may rely on
information furnished by or on behalf of counterparties and clients, including financial statements, credit reports, and other
information. We may also rely on representations of those counterparties, clients, or other third parties, such as independent
auditors, as to the accuracy and completeness of that information. The inaccuracy of that information or those representation
affects our ability to accurately evaluate the default risk of a counterparty or client and could cause us to enter into unfavorable
transactions, which could have a material adverse effect on our financial condition and results of operations.
In addition, we consider our commercial real estate loans and commercial and industrial loans to be higher risk categories in our
loan portfolio because these loans are particularly sensitive to economic conditions. Commercial real estate loans generally
have large balances and can be significantly affected by adverse conditions in the economy that are outside of the borrower’s
control because payments on such loans typically depend on the successful operation and management of the businesses that
hold the loans. In the case of commercial and industrial loans, related collateral often consists of accounts receivable, inventory,
and equipment. This type of collateral typically does not yield substantial recovery in the event of foreclosure and may rapidly
deteriorate, disappear, or be misdirected in advance of foreclosure. In addition, many of our commercial real estate and
commercial and industrial borrowers have more than one loan outstanding with us. Consequently, an adverse development with
respect to one loan or one credit relationship may expose us to significantly greater risk of loss. The risks associated with these
types of loans could have a significant negative affect on our earnings in any quarter.
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Operational and Compliance Risk
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our
business operations.
We are subject to extensive federal and applicable state regulation and supervision, primarily through Webster Bank and certain
non-bank subsidiaries. Banking regulations are primarily intended to protect depositors, the Federal Deposit Insurance Fund,
and the safety and soundness of the U.S 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 continuously review banking laws, regulations, and policies for possible changes, and proposed changes are
to be expected from the current Administration. Changes to statutes, regulations, or regulatory policies, including changes in
interpretation or implementation thereof, could affect us in substantial and unpredictable ways. For example, such changes
could subject us to additional costs, limit the types of financial services and products we may offer, and restrict what we are
able to charge for certain banking services. Failure to comply with laws, regulations, or policies could result in sanctions by
regulatory agencies, civil penalties, and 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 these types of
violations, there can be no assurance that such violations will not occur.
We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership,
policies, and priorities.
Under the current Administration, financial institutions have recently become subject to increased scrutiny and therefore, it is
expected that the baking sector will be subject to more extensive legal and regulatory requirements within the next few years
than under the prior presidential and congressional regime. In addition, changes in key personnel at the regulatory agencies,
including the federal banking regulators, may result in differing interpretations of existing rules and guidelines, including more
stringent enforcement and more severe penalties than previously.
Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical
risks of climate change include discrete events, such as flooding and wildfires, and longer-term shifts in climate patterns, such
as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations, those of our
customers, or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain
disruption and market volatility. In addition, transitioning to a low-carbon economy may entail extensive policy, legal,
technological, and market initiatives. Transition risks, including changes in consumer preferences and additional regulatory
requirements or taxes, could increase our expenses and undermine our strategies. Our reputation and client relationships may be
damaged as a result of our practices related to climate change, including our involvement, or our customers' involvement, in
certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to
conduct or change our activities in response to considerations relating to climate change. We have developed and continue to
enhance processes to assess and monitor the Bank's exposure to climate. However, because the timing and impact of climate
change has limited predictability, our risk management strategies may not be effective in mitigating climate risk exposure.
Changes in federal, state, or local tax laws may negatively impact our financial performance.
We are subject to changes in tax laws that could increase our effective tax rates or cause an increase or decrease in our income
tax liabilities. These law changes may be retroactive to previous periods and as a result, could negatively impact our current and
future financial performance. On September 13, 2021, the House Ways and Means Committee released their proposed tax
reform legislation, which includes an increase in the federal corporate tax rate from 21% to 26.5% for corporations earning
more than $5 million, and alters selected provisions of the Internal Revenue Code, among other changes. At this time, we are
unable to predict whether this change or any other proposed tax law will ultimately be enacted.
We are subject to examinations and challenges by taxing authorities.
We are subject to federal and applicable state and local income tax regulations. Income tax regulations are often complex and
require interpretation. In the normal course of business, we are routinely subject to examinations and challenges from federal
and applicable state and local taxing authorities regarding the amount of taxes due in connection with investments we have
made and the businesses in which we have engaged. Recently, federal and state and local taxing authorities have been
increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to
compliance, sales and use, franchise, gross receipts, payroll, property, and income tax issues such as tax base, apportionment,
and tax credit planning. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable
income or deductions, or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved
in our favor, they could have a material adverse effect on our financial condition and results of operations.
22
Our internal controls may be ineffective, circumvented, or fail.
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 our controls and procedures, failure to implement any necessary improvement of 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.
Our business may be adversely affected by fraud.
As a financial institution, we are inherently exposed to risk in the form of theft and other fraudulent activities by employees,
customers, or other third parties targeting Webster or Webster’s customers or data. Such activity may take many forms,
including check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. Although we devote
substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the
increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.
Health care reform could adversely affect our HSA Bank division.
The enactment of future health care reform affecting HSAs at the federal or state level may affect our HSA Bank division as a
bank custodian of HSAs. We cannot predict if any such reforms will occur, ultimately become law, or if enacted, what the
terms or regulations promulgated pursuant to such laws will be. Any health care reform enacted may be phased in over a
number of years, but could, with respect to the operations of HSA Bank, reduce revenues, increase 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.
We rely on third parties to perform significant operational services for us.
Third parties perform significant operational services on our behalf. For instance, we depend on our vendor-provided core
banking processing systems to process a large number of increasingly complex transactions on a daily basis. Accordingly, we
are exposed to the risk that vendors and third-party service providers might not perform in accordance with their contracts or
service agreements, whether due to changes in their organizational structure, strategic focus, support for existing products,
technology, services, financial condition, or for any other reason. Their 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. Although we
require third-party service providers to have business continuity and disaster recovery plans that are aligned with our plans, we
cannot be assured that such plans will operate successfully or in a timely manner so as to prevent any such material adverse
impact.
The replacement of LIBOR could adversely affect our business and financial condition.
LIBOR and certain other interest rate benchmarks are the subject of recent national, international, and other regulatory guidance
and reform. On March 5, 2021, the United Kingdom administrator of LIBOR announced that the 1-month, 3-month, 6-month
and 12-month USD LIBOR settings would cease to exist after June 30, 2023, and certain other LIBOR settings, including the 1-
week and 2-month USD LIBOR settings, would cease to exist after December 31, 2021. Accordingly, all existing LIBOR
obligations will transition to another benchmark after December 31, 2021, June 30, 2023, or earlier. The U.S. federal banking
agencies issued a statement in November 2020 encouraging banks to transition away from USD LIBOR as soon as practicable
and to stop entering into new contracts that use USD LIBOR by December 31, 2021.
Central banks and regulators in major jurisdictions including the United States have convened working groups to find, and
implement the transition to suitable replacements for interbank offered rates. To identify a successor rate for USD LIBOR, the
Board of Governors of the Federal Reserve Board and the FRB of New York formed the ARRC. On July 29, 2021, the ARRC
formally recommended SOFR as its preferred alternative replacement rate for LIBOR. Webster has adopted SOFR as the
LIBOR replacement rate and began offering SOFR-based lending solutions and derivative contracts to our customers in
October 2021. As of January 1, 2022, Webster no longer originates new contracts using any LIBOR index, as defined by
regulatory guidance.
The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on
our business, financial condition, and results of operations. In particular, the transition could:
•
•
•
adversely affect the interest rates received or paid on the revenues and expenses associated with or the value of our
LIBOR-based assets and liabilities, or the value of other securities or financial arrangements, given LIBOR's role in
determining market interest rates globally;
prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of
LIBOR with SOFR as the alternative reference rate; and
result in disputes, litigation or other actions with borrowers or counterparties about the interpretation and
enforceability of certain fallback language in LIBOR-based contracts and securities.
23
The transition away from LIBOR to SOFR will require the transition to or development of appropriate systems, models, and
analytics to effectively transition our risk management and other processes from LIBOR-based products to those based on
SOFR. Webster has developed a Working Group, Steering Committee, and LIBOR transition plan aligned with regulatory
guidance and ARRC best practices and is actively working to develop processes, systems, and personnel to support this
transition. Timelines and priorities include assessing the impact on our customers, as well as assessing system requirements for
operational processes. There can be no guarantee that our efforts will successfully mitigate the operational risks associated with
the transition away from LIBOR to SOFR as the alternative reference rate. The effect of these developments on our funding
costs, loan, investment, and securities portfolios is uncertain and could adversely impact our business and increase operational
and legal costs.
Legal and Reputational Risk
We are subject to financial and reputational risks from potential liability arising from lawsuits.
The nature of our business ordinarily results in certain legal proceedings and claims. Whether claims or legal actions 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 how the market perceives us, the products and services we offer, as well as
customer demand for those products and services. Any financial liability or reputation damage could have a material adverse
effect on our business, which in turn, could have a material adverse effect on our financial condition and results of operations.
We assess our liabilities and contingencies in connection with outstanding legal proceedings and certain threatened claims and
assessments using the latest and most reliable information. For matters identified where it is probable that we will incur a loss
and the amount can be reasonably estimated, we will establish an accrual for the loss. Once established, the accrual is then
adjusted, as needed, to reflect any relevant developments. However, the actual cost of an outstanding legal proceeding or
threatened claim and assessment, may turn out to be substantially higher than the amount accrued by management.
We are exposed to environmental liability risk with respect to properties to which we obtain title.
A significant portion of our loan portfolio is secured by real property. In the normal course of business, we may foreclose on
and take title of properties securing certain loans, and there is a risk that hazardous or toxic substances could be found on these
properties. If hazardous or toxic substances are found, we may be held liable for remediation costs, including significant
investigation and clean-up costs and for personal injury or property damage. In addition, environmental contamination could
materially reduce the affected property’s value or limit our ability to use or sell the affected property. Although we have
policies and procedures to perform environmental reviews prior to lending against or initiating any foreclosure action on real
property, these reviews may not be sufficient to detect all potential environmental hazards. Further, if we are the owner or
former owner of a contaminated site, we may be subject to common law claims based on damages and costs incurred by others
due to environmental contamination emanating from the property. These remediation costs and liabilities could have a material
adverse effect on our financial condition and results of operations.
General Risk Factors
Our stock price can be volatile.
Stock price volatility may make it more difficult for shareholders to resell their common stock when they want and at prices that
they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in results of operations;
recommendations or projections by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns, and other issues in the financial services and healthcare industries;
perceptions in the marketplace regarding us and/or our competitors;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or
involving us or our competitors;
changes in dividends and capital returns;
issuance of additional shares of Webster common stock;
changes in government regulations; and
geopolitical conditions such as acts or threats of terrorism or military conflicts, including any military conflict between
Russia and Ukraine.
General market fluctuations, including real or anticipated changes in the strength of the economy, industry factors and general
economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss
trends, among other factors, could also cause Webster's stock price to decrease regardless of operating results.
24
The effects of COVID-19 have adversely impacted, and will likely continue to adversely impact, our financial condition and
results of operations.
The COVID-19 pandemic has severely disrupted economic activity in the U.S. and continues to cause disruption both
worldwide and in the markets in which we operate. The extent of these impacts will depend on future developments, including
among others, governmental, regulatory, and private sector actions and responses, actions taken to contain or prevent further
spread, the continued emergence of new and highly contagious variants of the virus, and the use and effectiveness of vaccines
and other treatments, each of which cannot be predicted with certainty.
Our business is dependent upon the ability and willingness of our customers to conduct banking and other financial
transactions, including the payment of loan obligations. COVID-19 has and continues to disrupt the business, activities, and
operations of our customers, which may cause a decline in demand for our products and services which may, in turn, result in a
significant decrease in our business, negatively impacting our liquidity position and financial results. Our financial results could
also be adversely impacted due to an inability of our customers to meet their loan commitments because of their losses
associated with the effects of COVID-19, resulting in increased risk of delinquencies, defaults, foreclosures, declining collateral
values, and other losses. Moreover, current and future governmental action may temporarily require the Company to conduct
business differently with respect to foreclosures, repossessions, payments, deferrals, and other customer-related transactions.
Further, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of
these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our
customers. While we have business continuity plans and other safeguards in place, there is no assurance that such plans and
safeguards will be effective. Our workforce also has been, is, and may continue to be impacted by COVID-19. We have taken
precautions to protect the safety and well-being of our employees and customers, including temporary branch and office
closures during the early phase of the pandemic, but no assurance can be given that our actions will be adequate or appropriate,
nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service in
the future. The pandemic could also negatively impact availability of key personnel and employee productivity which could
adversely impact our ability to deliver products and services to our customers. While most of our employees have returned to
our offices, the increase in remote and work-at-home arrangements in our workforce has also resulted in heightened
cybersecurity, information security, and operational risks.
It is possible that the pandemic and its aftermath will lead to a prolonged economic slowdown or recession in the U.S. economy
or in our markets. The ultimate impacts of COVID-19 are uncertain and could have a material adverse effect on our business,
financial condition, liquidity, and results of operations. Moreover, the effects of the COVID-19 pandemic may heighten the
other risks described in this Annual Report on Form 10-K.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
25
ITEM 2. PROPERTIES
Effective January 31, 2022, in connection with its merger with Sterling, Webster relocated its corporate headquarters from
Waterbury to Stamford, Connecticut. This leased facility houses the Company’s primary executive and administrative
functions, and serves as the principal banking headquarters of Webster Bank. Additional administrative functions are housed in
owned facilities in Waterbury and New Britain, Connecticut, and in leased facilities in Southington, Connecticut, and Jericho,
Pearl River, White Plains, and New York, New York. Webster considers its properties to be suitable and adequate for its current
business needs.
Commercial Banking maintained offices across a geographic footprint that primarily ranged from Boston, Massachusetts, to
Washington, D.C. at December 31, 2021. Significant properties were located in: Greenwich, Hartford, New Haven, New
Milford, Southington, Stamford, and Waterbury, Connecticut; Boston, Massachusetts; Providence, Rhode Island; White Plains
and New York, New York; Conshohocken, Pennsylvania; Baltimore, and Maryland.
HSA Bank is headquartered in Milwaukee, Wisconsin, with an office in Sheboygan, Wisconsin.
Retail Banking operated a distribution network that consisted of 130 banking centers at December 31, 2021:
Location
Connecticut
Massachusetts
Rhode Island
New York
Total
Leased
Owned
Total
62
10
5
7
84
34
9
3
—
46
96
19
8
7
130
During the year ended December 31, 2021, the Retail Banking segment consolidated 25 of its banking centers located across
Connecticut, Massachusetts, and Rhode Island, and integrated these locations into others nearby within its network. This
previously announced strategic action resulted from the Company’s increased focus on balancing physical locations and digital
banking channels, driven by increased client usage of online and mobile banking.
Additional information regarding Webster's owned facilities and leased locations can be found within Note 7: Premises and
Equipment and Note 8: Leasing in the Notes to the Consolidated Financial Statements contained in Part II - Item 8. Financial
Statements and Supplementary Data, respectively.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings can be found within Note 23: Commitments and Contingencies in the Notes to
Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, which is
incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
26
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 stock is traded on the NYSE under the symbol WBS. At February 18, 2022, there
were 7,526 shareholders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., Webster's transfer agent.
Information regarding dividend restrictions can be found under the section captioned "Supervision and Regulation" in Part I -
Item 1. Business and within Note 15: Regulatory Capital and Restrictions in the Notes to the Consolidated Financial Statements
contained in Part II - Item 8. Financial Statements and Supplementary Data, which are incorporated herein by reference.
Recent Sales of Unregistered Securities
There were no unregistered securities sold by Webster during the three year period ended December 31, 2021.
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, 2021:
Period
October
November
December
Total
Total
Number of
Shares
Purchased (1)
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Dollar Amount
Available for
Repurchase
Under the Plans or
Programs (2)
313 $
915
767
1,995
56.27
58.27
54.35
56.45
— $
—
—
—
123,443,785
123,443,785
123,443,785
123,443,785
(1) The total number of shares purchased were acquired at market prices outside of the Company's repurchase program, and related to
stock compensation plan activity.
(2) Webster maintains a common stock repurchase program, which was announced on October 29, 2019 and approved by the Board of
Directors, that authorizes management to purchase up to $200.0 million of its common stock in either open market or privately
negotiated transactions, subject to market conditions and other factors. Due to the effects of the COVID-19 pandemic on the
economic environment, Webster had temporarily suspended repurchases of its common stock under the program in 2020. Further,
pursuant to the Company's executed merger agreement with Sterling dated as of April 18, 2021, Webster was restricted from
repurchasing any shares under the program through the close of the transaction. Now that the transaction has closed effective
January 31, 2022, Webster has resumed its common stock repurchase program subject to prevailing market conditions.
27
Performance Graph
The performance graph compares the yearly percentage change in Webster's cumulative total shareholder return on its common
stock over the last five fiscal years to the cumulative total return of (i) the Standard & Poor’s 500 Index (S&P 500 Index) and
(ii) the Keefe, Bruyette & Woods Regional Banking Index (KRX Index), assuming the reinvestment of dividends and an initial
investment of $100 on December 31, 2016. The KRX Index is a market-capitalization weighted index comprised of 50 regional
banks or thrifts located throughout the United States.
Cumulative total shareholder return is measured by dividing the sum of the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and the difference between the share price at the end and the beginning
of the measurement period, by the share price at the beginning of the measurement period. The plotted points represent the
cumulative total shareholder return on the last trading day of the fiscal year indicated. Historical performance shown on the
graph is not necessarily indicative of future performance.
Webster Financial Corporation
S&P 500 Index
KRX Index
ITEM 6. [RESERVED]
Period Ending December 31,
2016
2017
2018
2019
2020
2021
$
$
$
100 $
100 $
100 $
106 $
122 $
102 $
95 $
116 $
84 $
105 $
153 $
104 $
88 $
181 $
95 $
120
233
130
28
Period EndingIndex ValueFive Year Cumulative Total ReturnWebster Financial Corp.S&P 500 IndexKRX Index201620172018201920202021050100150200250 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
This discussion and analysis provides information that management believes is necessary to understand the Company's financial
condition, changes in financial condition, results of operations, and cash flows for the fiscal year ended December 31, 2021 as
compared to 2020. The following information should be read in conjunction with Webster Financial Corporation's Consolidated
Financial Statements and the accompanying Notes to the Consolidated Financial Statements contained in Part II - Item 8.
Financial Statements and Supplementary Data of this Form 10-K, as well as other information set forth throughout this report.
For discussion and analysis over the Company's 2020 results as compared to 2019, and other 2019 information, refer to Part II -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 26, 2021.
Recent Developments
Mergers and Acquisitions
Effective January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an Agreement and
Plan of Merger dated as of April 18, 2021. The total aggregate consideration payable in the merger was approximately 90
million shares of Webster common stock. Pursuant to the merger agreement, Sterling merged with and into Webster, with
Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-
owned subsidiary of Sterling, merged with and into Webster Bank, with Webster Bank continuing as the surviving bank.
Sterling was a full-service regional bank headquartered in Pearl River, New York, that primarily served the Greater New York
metropolitan area. The merger expanded Webster's geographic footprint and combined two complementary organizations to
create one of the largest commercial banks in the Northeastern U.S.
At the effective time of the merger, each share of Sterling common stock outstanding, other than certain shares held by Webster
and Sterling, was converted into the right to receive a fixed 0.4630 share of Webster common stock. In addition, at the effective
time of the merger, each outstanding share of Sterling 6.50% Series A Non-Cumulative Perpetual Preferred Stock was
converted into the right to receive one share of newly created Webster 6.50% Series G Non-Cumulative Perpetual Preferred
Stock, having substantially the same terms. At the close of the merger, Webster shareholders owned 50.4% of the combined
company, and Sterling shareholders owned 49.6% of the combined company.
During the year ended December 31, 2021, Webster incurred merger-related expenses totaling $37.5 million, which consisted
primarily of professional fees for investment banking, legal, and consulting, and employee severance and retention costs. The
combined company has approximately $65 billion in assets, $44 billion in loans, and $53 billion in deposits based on balances
at December 31, 2021 and operates 202 financial centers across the Northeast region.
In addition, on February 18, 2022, Webster acquired 100% of the equity interests of Bend Financial, Inc. (Bend), a cloud-based
platform solution provider for HSAs, in exchange for cash. The acquisition accelerates Webster’s efforts underway to deliver
enhanced user experiences at HSA Bank.
Additional information regarding Webster's mergers and acquisitions can be found within Note 3: Business Developments in
the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Strategic Initiatives
During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings
measures across the organization through the consolidation of banking centers and corporate facilities, process automation,
ancillary spend reduction, and other organizational actions. At December 31, 2021, key project milestones have been
completed, including the completion of all planned banking center closures, the delivery of a new digital onboarding platform
for retail consumers, an investment in foundational technology modernization, and the realignment of certain business banking
and investment service operations across the Company's reportable segments. These initiatives collectively contributed to the
realization of operational efficiencies and ancillary spend reductions in 2021. As a result of Webster's merger with Sterling,
various strategic initiatives were paused in 2021 but are expected to still be delivered throughout the merger integration period.
In the second quarter of 2022, the Company plans to launch a new HSA Bank digital experience for employers, with consumers
to follow thereafter.
During the year ended December 31, 2021, Webster incurred net strategic initiatives costs of $7.2 million, comprised of a net
$4.8 million in professional and outside services, $3.5 million in occupancy, and $0.5 million in technology and equipment,
partially offset by a net $1.6 million benefit in compensation and benefits. During the third quarter of 2021, the Company
released $3.9 million from its previously recorded severance accrual, with a corresponding adjustment to earnings, as a result of
changes in employee retention assumptions.
29
Additional information regarding the financial statement impact of these strategic initiatives, as well as further details specific
to the Company's segment changes, can be found in Part II within Note 3: Business Developments and Note 21: Segment
Reporting, respectively, in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and
Supplementary Data, and the section captioned "Segment Reporting" contained elsewhere in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.
COVID-19 Update
During 2021, the United States' economy began to recover from the COVID-19 pandemic, as the increased availability and
distribution of COVID-19 vaccines allowed for the easing of restrictive measures that had previously been imposed by state and
local governments. Despite these improvements, certain adverse effects of the COVID-19 pandemic may continue to impact the
macroeconomic environment for some time, including labor shortages, disruptions to global supply chains, and rising
inflationary pressures. These effects are anticipated to continue throughout 2022 but remain uncertain and difficult to predict,
including any impact to Webster's business, liquidity, financial condition, and results of operations.
In 2020, the Federal Reserve reduced interest rates to near zero in response to the effects of the COVID-19 pandemic. However,
in response to inflationary pressures, the FRB has announced that it will begin to taper its purchase of mortgage and other
bonds. Webster expects interest rates to gradually and slowly rise over the course of the next year, but the timing and impact of
the reversal in interest rate trends is unknown at this time.
Results of Operations
The following table summarizes selected financial highlights and key performance indicators:
(In thousands, except per share and percentage data)
Income and performance ratios:
Net income
Net income available to common shareholders
Earnings per diluted common share
Return on average assets
Return on average common tangible common shareholders' equity (non-GAAP)
Return on average common shareholders' equity
Non-interest income as a percentage of total revenue
Asset quality:
Allowance for credit losses on loans and leases
Non-performing assets
Allowance for credit losses on loans and leases / total loans and leases
Net charge-offs (recoveries) / average loans and leases
Nonperforming loans and leases / total loans and leases
Nonperforming assets / total loans and leases plus OREO
Allowance for credit losses on loans and leases / nonperforming loans and leases
Other ratios:
Tangible common equity (non-GAAP)
Tier 1 risk-based capital
Total risk-based capital
CET1 risk-based capital
Shareholders' equity / total assets
Net interest margin
Efficiency ratio (non-GAAP)
Equity and share related:
Common equity
Book value per common share
Tangible book value per common share (non-GAAP)
Common stock closing price
Dividends and equivalents declared per common share
Common shares issued and outstanding
Weighted-average common shares outstanding - basic
Weighted-average common shares outstanding - diluted
At or for the years ended December 31,
2021
2020
2019
$
$
408,864
400,989
4.42
1.19 %
15.35
12.56
26.41
$
220,621
212,746
2.35
0.68 %
8.66
6.97
24.24
382,723
374,848
4.06
1.32 %
16.01
12.83
23.00
$
301,187
112,590
$
359,431
170,314
$
209,096
157,380
1.35 %
0.02
0.49
0.51
274.36
7.97
12.32
13.64
11.72
9.85
2.84
56.16
1.66 %
0.21
0.78
0.79
213.94
7.90
11.99
13.59
11.35
9.92
3.00
59.57
1.04 %
0.21
0.75
0.79
138.56
8.39
12.22
13.55
11.56
10.56
3.55
56.77
$
3,293,288
36.36
30.22
55.84
1.60
90,584
89,983
90,206
$
3,089,588
34.25
28.04
42.15
1.60
90,199
89,967
90,151
$
3,062,733
33.28
27.19
53.36
1.53
92,027
91,559
91,882
30
Non-GAAP Financial Measures
The non-GAAP financial measures identified in the preceding table provide both management and investors with information
useful in understanding Webster's financial position, operating results, the strength of its capital position, and overall business
performance. These measures are used by management for internal planning and forecasting purposes, as well as by securities
analysts, investors, and other interested parties to assess peer company operating performance. Management believes this
presentation, together with the accompanying reconciliations, provides a complete understanding of the factors and trends
affecting the Company's business and allows investors to view its performance in a similar manner.
Tangible book value per common share represents shareholders’ equity less preferred stock and goodwill and other intangible
assets divided by common shares outstanding at the end of the period. The tangible common equity ratio represents
shareholders’ equity less preferred stock, goodwill, and other intangible assets, divided by total assets less goodwill and other
intangible assets. Both of these measures are used by management to evaluate the strength of the Company's capital position.
The return on average tangible common shareholders' equity is calculated using the Company's net income available to
common shareholders, adjusted for the tax-effected amortization of intangible assets, as a percentage of average shareholders’
equity less average preferred stock, average goodwill, and average other intangible assets. This measure is used by management
to assess Webster's performance against its peer financial institutions. The efficiency ratio, which represents the costs expended
to generate a dollar of revenue, is calculated excluding certain non-operational items in order to measure how the Company is
managing its recurring operating expenses.
These non-GAAP financial measures should not be considered a substitute for GAAP basis financial measures. Because non-
GAAP financial measures are not standardized, it may not be possible to compare these with other companies that present
financial measures having the same or similar names.
The following tables reconcile non-GAAP financial measures to the most comparable financial measures defined by GAAP:
(Dollars and shares in thousands, except per share data)
Tangible book value per common share:
Shareholders' equity
Less: Preferred stock
Goodwill and other intangible assets
Tangible common shareholders' equity
Common shares outstanding
Tangible book value per common share
Tangible common equity ratio:
Tangible common shareholders' equity
Total assets
Less: Goodwill and other intangible assets
Tangible assets
Tangible common equity ratio
(Dollars in thousands)
Return on average tangible common shareholders' equity:
Net income
Less: Preferred stock dividends
Add: Intangible assets amortization, tax-affected
Income adjusted for preferred stock dividends and intangible assets amortization
Average shareholders' equity
Less: Average preferred stock
Average goodwill and other intangible assets
Average tangible common shareholders' equity
2021
At December 31,
2020
2019
$
$
$
3,438,325
145,037
556,242
2,737,046
90,584
30.22
$
$
$
3,234,625
145,037
560,756
2,528,832
90,199
28.04
$
$
$
3,207,770
145,037
560,290
2,502,443
92,027
27.19
$
2,737,046
$ 34,915,599
556,242
$ 34,359,357
$
2,528,832
$ 32,590,690
560,756
$ 32,029,934
$
2,502,443
$ 30,389,344
560,290
$ 29,829,054
7.97 %
7.90 %
8.39 %
For the years ended December 31,
2020
2019
2021
$
$
$
$
408,864
7,875
3,565
404,554
3,338,764
145,037
558,462
2,635,265
$
$
$
$
220,621
7,875
3,286
216,032
3,198,491
145,037
560,226
2,493,228
$
$
$
$
382,723
7,875
3,039
377,887
3,067,719
145,037
562,188
2,360,494
Return on average tangible common shareholders' equity
15.35 %
8.66 %
16.01 %
31
(Dollars in thousands)
Efficiency ratio:
Non-interest expense
Less: Foreclosed property activity
Intangible assets amortization
Merger-related
Strategic initiatives
Other expense (1)
Non-interest expense
Net interest income
Add: Tax-equivalent adjustment
Non-interest income
Other income (2)
Less: Gain on sale of investment securities, net
Income
Efficiency ratio
For the years ended December 31,
2020
2019
2021
$
$
$
$
745,100
(535)
4,513
37,454
7,168
2,526
693,974
901,089
9,813
323,372
1,344
—
1,235,618
$
$
$
$
758,946
(1,504)
4,160
—
43,051
—
713,239
891,393
10,246
285,277
10,371
8
1,197,279
$
$
$
$
715,950
(173)
3,847
—
—
1,757
710,519
955,127
9,695
285,315
1,448
29
1,251,556
56.16 %
59.57 %
56.77 %
(1) Other expense includes debt prepayments costs in 2021 and business and facility optimization charges in 2019.
(2) Other income includes low income housing tax credits for all periods presented and a $5.5 million discrete customer derivative fair
value adjustment in 2020.
Net Interest Income
Net interest income is Webster's primary source of revenue, representing 73.6%, 75.8%, and 77.0% of total revenues for the
years ended December 31, 2021, 2020, and 2019, respectively, and is the difference between interest income on interest-earning
assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and
borrowings, which are used to fund interest-earnings assets and other activities. Net interest margin is calculated as the ratio of
tax-equivalent net interest income to average interest-earning assets. Tax-equivalent adjustments are determined assuming a
statutory federal income tax rate of 21%.
Net interest income and net interest margin are influenced by the volume and mix of interest-earning assets and interest-bearing
liabilities, changes in interest rate levels, re-pricing frequencies, contractual maturities, prepayment behavior, and the use of
interest rate derivative financial instruments. These factors are affected by changes in economic conditions which, in turn,
impacts monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.
Net interest income increased $9.7 million, or 1.1%, from $891.4 million for the year ended December 31, 2020 to $901.1
million for the year ended December 31, 2021. The increase is primarily attributed to funding optimization and balance sheet
growth in the continued low interest rate environment. On a fully tax-equivalent basis, net interest income increased $9.3
million from 2020 to 2021.
Net interest margin decreased 16 basis points from 3.00% for the year ended December 31, 2020 to 2.84% for the year ended
December 31, 2021. The decrease is primarily attributed to lower loan and securities yields, partially offset by lower deposit
and borrowings costs and higher Small Business Administration Paycheck Protection Program (PPP) loan fee accretion.
Average interest-earning assets increased $2.0 billion, or 6.7%, from $30.3 billion for the year ended December 31, 2020 to
$32.3 billion for the year ended December 31, 2021, primarily due to increases of $0.2 billion, $0.6 billion, and $1.3 billion in
average loans and leases, taxable and non-taxable investment securities, and interest-bearing deposits held at the FRB,
respectively. The average yield on interest-earning assets decreased 40 basis points from 3.37% during 2020 to 2.97% during
2021, primarily due to lower market rates, partially offset by the aforementioned increases in average earning balances.
Average interest-bearing liabilities increased $1.8 billion, or 6.4%, from $28.6 billion for the year ended December 31, 2020 to
$30.4 billion for the year ended December 31, 2021, primarily due to an increase of $3.2 billion in average deposits, partially
offset by decreases of $0.7 billion and $0.6 billion in federal funds purchased and FHLB advances, respectively. The average
rate on interest-bearing liabilities decreased 25 basis points from 0.39% during 2020 to 0.14% during 2021, primarily due to
borrowings mix and lower market rates.
32
The following table summarizes daily average balances, interest, and average yield/rate by major category, and net interest
margin on a fully tax-equivalent basis:
Years ended December 31,
2021
2020
2019
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
$ 21,584,872 $ 765,682
3.55 % $ 21,385,702 $ 792,929
3.71 % $ 19,209,611 $ 927,395
4.83 %
(Dollars in thousands)
Assets
Interest-earning assets:
Loans and leases (1)
Investment securities: (2)
Taxable
Non-taxable
8,507,766 155,902
720,977
27,728
Total investment securities
9,228,743 183,630
FHLB and FRB stock
Interest-bearing deposits (3)
Loans held for sale
76,015
1,379,081
10,705
1,224
1,875
246
1.88
3.85
2.03
1.61
0.14
2.30
7,899,801 186,237
747,521
28,914
8,647,322 215,151
102,943
3,200
93,011
25,902
246
769
2.43
3.88
2.56
3.11
0.26
2.97
7,019,441 201,128
742,496
28,861
7,761,937 229,989
113,518
56,458
22,437
4,956
1,211
727
2.87
3.89
2.97
4.37
2.14
3.24
Total interest-earning assets
32,279,416 $ 952,657
2.97 % 30,254,880 $ 1,012,295
3.37 % 27,163,961 $ 1,164,278
4.29 %
Allowance for credit losses
Non-interest-earning assets
Total assets
Liabilities and Equity
Interest-bearing liabilities:
(330,868)
2,286,198
$ 34,234,746
(337,496)
2,350,396
$ 32,267,780
(212,561)
2,109,639
$ 29,061,039
Demand deposits
$ 6,897,464 $
—
— % $ 5,698,399 $
—
— % $ 4,300,407 $
—
— %
Health savings accounts
Interest-bearing checking, money
market, and savings
Time deposits
Total deposits
Securities sold under agreements to
repurchase
Federal funds purchased
Other borrowings (4)
FHLB advances
Long-term debt (2)
Total borrowings
7,390,702
5,777
0.08
6,893,996
9,530
0.14
6,240,201
12,316
0.20
12,843,843
2,105,809
6,936
7,418
29,237,818
20,131
527,250
3,027
16,036
—
13
—
108,216
1,708
565,271
16,876
1,216,773
21,624
0.05
0.35
0.07
0.57
0.08
—
1.58
3.22
1.84
10,689,634
25,248
2,760,561
33,119
26,042,590
67,897
467,431
720,995
104,145
2,246
3,330
365
730,125
18,767
564,919
18,051
2,587,615
42,759
0.24
1.20
0.26
0.48
0.46
0.35
2.57
3.45
1.68
9,144,086
54,566
3,267,913
62,695
22,952,607 129,577
296,498
2,595
712,206
15,358
—
—
1,201,839
31,399
468,111
20,527
2,678,654
69,879
0.60
1.92
0.56
0.88
2.16
—
2.61
4.51
2.62
Total interest-bearing liabilities
30,454,591 $ 41,755
0.14 % 28,630,205 $ 110,656
0.39 % 25,631,261 $ 199,456
0.78 %
Non-interest-bearing liabilities
441,391
Total liabilities
Preferred stock
Common shareholders' equity
Total shareholders' equity
Total liabilities and equity
30,895,982
145,037
3,193,727
3,338,764
$ 34,234,746
439,084
29,069,289
145,037
3,053,454
3,198,491
$ 32,267,780
362,059
25,993,320
145,037
2,922,682
3,067,719
$ 29,061,039
Net interest income (tax-equivalent)
Less: Tax-equivalent adjustments
Net interest income
Net interest margin (5)
910,902
(9,813)
$ 901,089
901,639
(10,246)
$ 891,393
964,822
(9,695)
$ 955,127
2.84 %
3.00 %
3.55 %
(1) Non-accrual loans have been included in the computation of average balances.
(2) For the purposes of our yield/rate and margin computations, unsettled trades on securities available-for-sale and unrealized gain
(loss) balances on securities available-for-sale and senior fixed-rate notes hedges are excluded.
(3)
(4)
Interest-bearing deposits are a component of cash and cash equivalents on the Consolidated Statements of Cash Flows included in
Part II - Item 8. Financial Statements and Supplementary Data.
In 2020, the Federal Reserve extended credit to Webster under the Paycheck Protection Program Liquidity Facility as the Bank was
eligible to receive funds as a participating lender of PPP loans. The Bank had settled its obligation as of the third quarter of 2020.
(5) Tax-equivalent net interest margin equals net interest margin for all periods presented.
33
The following table summarizes the change in net interest income attributable to changes in rate and volume, and reflects net
interest income on a fully tax-equivalent basis:
(In thousands)
Change in interest on interest-earning assets:
Loans and leases
Investment securities, taxable
Investment securities, non-taxable
FHLB and FRB stock
Interest-bearing deposits
Loans held for sale
Total interest income
Change in interest on interest-bearing liabilities:
Health savings accounts
Interest-bearing checking, money market, and savings
Time deposits
Securities sold under agreements to repurchase
Federal funds purchased
Other borrowings
FHLB advances
Long-term debt
Total interest expense
Net change in net interest income
Years ended December 31,
2021 vs. 2020
Increase (decrease) due to
2020 vs. 2019
Increase (decrease) due to
Rate (1)
Volume
Total
Rate (1)
Volume
Total
$
$
(31,491) $
(45,088)
(157)
(1,139)
(1,776)
(65)
(79,716) $
4,245 $
14,753
(1,029)
(837)
3,405
(458)
20,079 $
(4,440)
(23,547)
(17,117)
493
(61)
(313)
(1,073)
(1,186)
(47,244) $
(32,472) $
687
5,236
(8,584)
287
(3,256)
(52)
(15,986)
12
(21,656) $
41,735 $
$
$
(27,246)
(30,335)
(1,186)
(1,976)
1,629
(523)
(59,637)
(3,753)
(18,311)
(25,701)
780
(3,317)
(365)
(17,059)
(1,174)
(68,900)
9,263
$ (245,693) $
(41,050)
(143)
(1,295)
(1,748)
(184)
$ (290,113) $
111,226 $ (134,467)
(14,891)
26,159
53
196
(1,757)
(462)
(964)
784
42
226
138,129 $ (151,984)
(4,076)
(38,700)
(19,782)
(1,845)
(12,218)
365
(308)
(6,842)
$
(83,406) $
$ (206,707) $
1,290
9,382
(9,794)
1,496
190
—
(12,324)
4,365
(5,395) $
143,524 $
(2,786)
(29,318)
(29,576)
(349)
(12,028)
365
(12,632)
(2,477)
(88,801)
(63,183)
(1) The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
Average loans and leases increased $0.2 billion, or 0.9%, from $21.4 billion for the year ended December 31, 2020 to $21.6
billion for the year ended December 31, 2021, primarily due to higher commercial loan growth offset by the decrease in PPP
loans. At December 31, 2021 and 2020, the loan and lease portfolio comprised 66.9% and 70.7% of total average interest-
earning assets. The average yield on loans and leases decreased 16 basis points from 3.71% during 2020 to 3.55% during 2021,
primarily due to decreased prepayments and lower market rates.
Average taxable and non-taxable investment securities increased $0.6 billion, or 6.7%, from $8.6 billion for the year ended
December 31, 2020 to $9.2 billion for the year ended December 31, 2021, primarily due to purchases exceeding paydowns and
maturities in both the AFS and HTM portfolios, as a result of the Company's strategic decision to deploy its excess funds into
higher yielding assets which, in turn, increased its investment portfolios. At both December 31, 2021 and 2020, the investment
securities portfolio comprised 28.6% of total average interest-earning assets. The average yield on investment securities
decreased 53 basis points from 2.56% during 2020 to 2.03% during 2021, primarily due to higher premium amortization and
lower interest rates on newly purchased securities.
Average interest-bearing deposits held at the FRB increased $1.3 billion, or 1,382.7%, from $0.1 billion for the year ended
December 31, 2020 to $1.4 billion for the year ended December 31, 2021, primarily due to excess customer liquidity as a result
of government stimulus and reduced spending. At December 31, 2021 and 2020, interest-bearing deposits comprised 4.3% and
0.3% of total average interest-earning assets. The average yield on interest-bearing deposits decreased 12 basis points from
0.26% during 2020 to 0.14% during 2021, primarily due to lower market rates.
Average deposits increased $3.2 billion, or 12.3%, from $26.0 billion for the year ended December 31, 2020 to $29.2 billion for
the year ended December 31, 2021, reflecting increases of $1.2 billion and $2.0 billion in non-interest-bearing deposits and
interest-bearing deposits, respectively. The overall increase in deposits was driven by transactional deposit products resulting
from government stimulus and reduced customer spending. At December 31, 2021 and 2020, deposits comprised 96.0% and
91.0% of total average interest-bearing liabilities, respectively. The average rate on deposits decreased 19 basis points from
0.26% during 2020 to 0.07% during 2021, primarily due to deposit pricing and product mix. Higher cost time deposits as a
percentage of total interest-bearing deposits decreased from 13.6% for the year ended December 31, 2020 to 9.4% for the year
ended December 31, 2021, primarily due to customers' migration to more liquid deposit products.
Average securities sold under agreements to repurchase increased $59.8 million, or 12.8%, from $467.4 million for the year
ended December 31, 2020 to $527.2 million for the year ended December 31, 2021, primarily due to the timing of additional
short-term borrowings and contractual maturities. At December 31, 2021 and 2020, securities sold under agreements to
repurchase comprised 1.7% and 1.6% of total average interest-bearing liabilities. The average rate on securities sold under
agreements to repurchase increased 9 basis points from 0.48% during 2020 to 0.57% during 2021, primarily due to an increase
in cost on long-term borrowings, partially offset by lower market rates.
34
Average federal funds purchased decreased $705.0 million, or 97.8%, from $721.0 million for the year ended December 31,
2020 to $16.0 million for the year ended December 31, 2021, due to contractual maturities in the first quarter of 2021 and the
strategic decision to not purchase federal funds during the remainder of the period. At December 31, 2021 and 2020, federal
funds purchased comprised 0.1% and 2.5% of total average interest-bearing liabilities. The average rate on federal funds
purchased decreased 38 basis points from 0.46% during 2020 to 0.08% during 2021, which was also due to the aforementioned
contractual maturities and current period borrowings mix.
Average FHLB advances decreased $621.9 million, or 85.2%, from $730.1 million for the year ended December 31, 2020 to
$108.2 million for the year ended December 31, 2021, due to prepayments of higher costing FHLB advances in the current
period enabled by excess liquidity. At December 31, 2021 and 2020, FHLB advances comprised 0.4% and 2.6% of total
average interest-bearing liabilities. The average rate on FHLB advances decreased 99 basis points from 2.57% during 2020 to
1.58% during 2021, which was also due to the aforementioned prepayments of higher costing FHLB advances.
Provision for Credit Losses
The provision for credit losses decreased $192.3 million, or 139.6%, from an expense of $137.8 million for the year ended
December 31, 2020 to a benefit of $54.5 million for the year ended December 31, 2021. The decrease is primarily attributed to
improvements in the forecasted economic outlook and favorable credit trends, which were negatively affected by the emergence
of the COVID-19 pandemic in 2020 and resulted in a release of reserves in 2021, partially offset by reserves on newly
originated loans and leases. During the years ended December 31, 2021 and 2020, total net charge-offs were $3.8 million and
$45.1 million, respectively. The $41.3 million decrease from 2020 to 2021 is primarily attributed to a reduced volume of
charge-offs in the commercial non-mortgage portfolio.
Additional information regarding the Company's provision for credit losses and ACL can be found under the the sections
captioned "Loans and Leases" through "Allowance for Credit Losses" contained elsewhere in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.
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
Other income
Total non-interest income
Years ended December 31,
2021
2020
2019
$
$
162,710
36,658
39,586
6,219
14,429
—
63,770
323,372
$
$
156,032
29,127
32,916
18,295
14,561
8
34,338
285,277
$
$
168,022
31,327
32,932
6,115
14,612
29
32,278
285,315
Total non-interest income increased $38.1 million, or 13.4%, from $285.3 million for the year ended December 31, 2020 to
$323.4 million for the year ended December 31, 2021, primarily due to increases in deposit service fees, loan and lease related
fees, wealth and investment services, and other income, partially offset by a decrease in mortgage banking activities.
Deposit service fees increased $6.7 million, or 4.3%, from $156.0 million during 2020 to $162.7 million during 2021, primarily
due to higher interchange, cash management, and wire transfer fees, partially offset by lower checking account service fees.
Loan and lease related fees increased $7.5 million, or 25.9%, from $29.1 million during 2020 to $36.6 million during 2021,
primarily due to higher syndication and line usage fees, and mortgage service rights amortization.
Wealth and investment services increased $6.7 million, or 20.3%, from $32.9 million during 2020 to $39.6 million during 2021,
primarily due to an increase in customer-driven investment services activity.
Mortgage banking activities decreased $12.1 million, or 66.0%, from $18.3 million during 2020 to $6.2 million during 2021,
primarily due to lower volume, as the Company made the strategic decision to originate residential mortgage loans for
investment rather than for sale during 2021.
Other income increased $29.4 million, or 85.7%, from $34.3 million during 2020 to $63.7 million during 2021, primarily due to
realized gains and fair value adjustments on direct investments and gains on sale of commercial loans not originated for sale.
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,
2021
2020
2019
$
$
419,989
55,346
112,831
4,513
12,051
47,235
15,794
77,341
745,100
$
$
428,391
71,029
112,273
4,160
14,125
32,424
18,316
78,228
758,946
$
$
395,402
57,181
105,283
3,847
16,286
21,380
17,954
98,617
715,950
Total non-interest expense decreased $13.8 million , or 1.8%, from $758.9 million for the year ended December 31, 2020 to
$745.1 million for the year ended December 31, 2021, primarily due to decreases in compensation and benefits, occupancy,
marketing, and deposit insurance, partially offset by an increase in professional and outside services.
Compensation and benefits decreased $8.4 million, or 2.0%, from $428.4 million during 2020 to $420.0 million during 2021,
primarily due to the effects of the Company's strategic initiatives, partially offset by merger-related retention and severance
charges and increases in performance and variable-based compensation.
Occupancy decreased $15.7 million, or 22.1%, from $71.0 million during 2020 to $55.3 million during 2021, primarily due to
higher prior period right-of-use (ROU) asset impairment charges and a decline in rent expense resulting from the effects of the
Company's strategic initiatives.
Marketing decreased $2.1 million, or 14.7%, from $14.1 million during 2020 to $12.0 million during 2021, primarily due to
reductions in ancillary spending, including advertising and promotional fees.
Professional and outside services increased $14.8 million, or 45.7%, from $32.4 million during 2020 to $47.2 million during
2021, primarily due to current period merger-related expenses, partially offset by higher prior period strategic initiative charges.
Deposit insurance decreased $2.5 million, or 13.8%, from $18.3 million during 2020 to $15.8 million during 2021, primarily
due to excess cash held at the FRB throughout the majority of 2021, which was strategically redeployed in the fourth quarter.
Income Taxes
Webster recognized income tax expense of $125.0 million for the year ended December 31, 2021 and $59.4 million for the year
ended December 31, 2020, reflecting effective tax rates of 23.4% and 21.2%, respectively.
The $65.6 million increase in income tax expense is due to a higher level of pre-tax income in 2021 as compared to 2020. The
2.2% point increase in the effective tax rate from 2020 to 2021 primarily reflects the effects of higher pre-tax income in 2021,
and $16.4 million of the total $37.5 million in merger-related expenses recognized during the current period that were estimated
to be nondeductible for income tax purposes. Those effects were partially offset by the recognition of $3.3 million in net
discrete tax benefits specific to the year ended December 31, 2021, which included $1.9 million of excess tax benefits from
stock-based compensation, as compared to $0.1 million in net discrete tax benefits specific to the year ended December 31,
2020, which included tax deficiencies of $0.6 million from stock-based compensation.
At both December 31, 2021 and 2020, Webster recorded a valuation allowance on its DTAs of $37.4 million. Webster's
valuation allowance is related to the portion of its state and local tax (SALT) net operating loss carryforwards that, in
management's judgment, is not more likely than not to be realized. At December 31, 2021 and 2020, Webster's gross DTAs
included $64.4 million and $66.8 million, respectively, applicable to SALT net operating loss and credit carryforwards that are
available to offset future taxable income through 2032.
The ultimate realization of those DTAs is dependent on the generation of future taxable income during the periods in which the
net operating loss and credit carryforwards are available. In making its assessment, management considers the Company's
forecasted future results of operations, estimates the content and apportionment of its income by legal entity over the near term
for SALT purposes, and also applies longer-term growth rate assumptions. Based on its estimates, management believes it is
more likely than not that the Company will realize its DTAs, net of the valuation allowance, at December 31, 2021. However, it
is possible that some or all of Webster's net operating loss carryforwards could expire unused or that more net operating loss
carryforwards could be utilized than estimated, either as a result of changes in future forecasted levels of taxable income for
SALT purposes due to the merger with Sterling, or if future economic or market conditions or interest rates were to vary
significantly from the Company's forecasts and, in turn, impact its future results of operations.
Additional information regarding the Company's income taxes, including DTAs, can be found within Note 10: Income Taxes in
the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
36
Segment Reporting
Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking,
HSA Bank, and Retail Banking. These segments reflect how executive management responsibilities are assigned, how discrete
financial information is evaluated, the type of customer served, and how products and services are provided. Segments are
evaluated using pre-tax, pre-provision net revenue (PPNR). Certain Treasury activities, along with the amounts required to
reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling
category. Additional information regarding the Company's reportable segments and its segment reporting methodology at
December 31, 2021 can be found within Note 21: Segment Reporting in the Notes to Consolidated Financial Statements
contained in Part II - Item 8. Financial Statements and Supplementary Data.
Effective January 1, 2021, management realigned certain of Webster's Business Banking and investment services operations to
better serve its customers and deliver operational efficiencies. Under this realignment, the previously reported Community
Banking segment was renamed Retail Banking, and $1.9 billion of loans, $2.2 billion of deposits, and $3.9 billion of assets
under administration (off-balance sheet) were reassigned from Retail Banking to Commercial Banking. Additionally, $131.0
million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. Prior period
amounts have been recasted to reflect the realignment.
Beginning in the first quarter of 2022, Webster's reportable segment structure will also reflect the operations of businesses
acquired in connection with the Company's merger with Sterling. The following is a description of Webster’s three reportable
segments and their primary services at December 31, 2021:
Commercial Banking serves businesses that have more than $2 million of revenue through its Business Banking, Middle
Market, Asset-Based Lending, Equipment Finance, Commercial Real Estate, Sponsor and Specialty Finance, and Treasury and
Payment Solutions business units. Additionally, its Wealth Group provides wealth management solutions to business owners,
operators, and consumers within the Company's targeted markets and retail footprint.
HSA Bank offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement
arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health
plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance
with applicable laws. HSAs are distributed nationwide directly to employers and individual consumers, as well as through
national and regional insurance carriers, benefit consultants, and financial advisors. HSA Bank deposits provide long duration,
low-cost funding that is used to minimize the Company’s use of wholesale funding in support of its loan growth. In addition,
non-interest revenue is generated predominantly through service fees and interchange income.
Retail Banking serves consumer and small business banking customers by offering consumer deposit and fee-based services,
residential mortgages, home equity lines, secured and unsecured loans, and credit card products through its Consumer Lending
and Small Business Banking business units. Retail Banking operates a distribution network consisting of 130 banking centers
and 251 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout
southern New England and into Westchester County, New York.
37
Commercial Banking
Operating Results:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Years ended December 31,
2021
2020
2019
$
$
587,485 $
112,270
257,461
442,294 $
515,027 $
90,498
260,953
344,572 $
476,779
91,184
252,485
315,478
Commercial Banking's PPNR increased $97.7 million, or 28.4%, for the year ended December 31, 2021 as compared to the year
ended December 31, 2020, due to increases in both net interest income and non-interest income, and a decrease in non-interest
expense. The $72.5 million increase in net interest income is primarily attributed to loan and deposit growth and PPP loan fee
acceleration associated with PPP loan forgiveness. The $21.8 million increase in non-interest income is primarily attributed to
higher trust and investment service fees, fair value adjustments on direct investments, gains on sale of commercial loans not
originated for sale, syndication fees, and unused line fees. The $3.5 million decrease in non-interest expense is primarily
attributed to lower support costs.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)
Loans and leases
Deposits
Assets under administration / management (off-balance sheet)
$
At December 31,
2021
15,209,515 $
9,644,719
7,202,286
2020
14,573,343
8,190,997
6,585,795
Loans and leases increased $636.2 million, or 4.4%, at December 31, 2021 as compared to December 31, 2020, primarily due to
commercial non-mortgage and commercial real estate portfolio originations, partially offset by increased prepayment activity
and a decrease in PPP loans. Total portfolio originations for the years ended December 31, 2021 and 2020 were $5.7 billion and
$5.1 billion, respectively. The increase was primarily attributed to increased commercial real estate and commercial non-
mortgage originations, partially offset by lower PPP loan fundings.
Deposits increased $1.5 billion, or 17.7%, at December 31, 2021 as compared to December 31, 2020, primarily due to excess
customer liquidity as a result of government stimulus and reduced spending.
Commercial Banking held $5.1 billion and $4.7 billion in assets under administration and $2.1 billion and $1.9 billion in assets
under management at December 31, 2021 and 2020, respectively. The combined $616.5 million, or 9.4%, increase from 2020 to
2021 was primarily due to new business and market appreciation.
38
HSA Bank
Operating Results:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax net revenue
Years ended December 31,
2021
2020
2019
$
$
168,595 $
102,814
135,997
135,412 $
162,363 $
100,826
140,637
122,552 $
172,685
97,041
135,586
134,140
HSA Bank's pre-tax net revenue increased $12.9 million, or 10.5%, for the year ended December 31, 2021 as compared to the
year ended December 31, 2020, due to increases in both net interest income and non-interest income, and a decrease in non-
interest expense. The $6.2 million increase in net interest income is primarily attributed to deposit growth. The $2.0 million
increase in non-interest income is primarily attributed to increased interchange and investment revenues, partially offset by a
decrease in third-party administrator account closures fees. The $4.6 million decrease in non-interest expense is primarily
attributed to lower compensation and benefits, postage and statement costs, travel and entertainment, occupancy, and supply
costs.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)
Deposits
Assets under administration, through linked brokerage accounts (off-balance sheet)
At December 31,
$
2021
7,397,997 $
3,718,610
2020
7,120,017
2,852,877
Deposits increased $278.0 million, or 3.9%, at December 31, 2021 as compared to December 31, 2020, primarily due to an
increase in the number of account holders and organic deposit growth. HSA deposits accounted for approximately 24.8% and
26.0% of Webster's total consolidated deposits at December 31, 2021 and December 31, 2020, respectively.
Assets under administration, through linked brokerage accounts, increased $865.7 million, or 30.3%, at December 31, 2021 as
compared to December 31, 2020, primarily due to the increased number of account holders, specifically those with investment
accounts, and market appreciation during the year ended December 31, 2021.
39
Retail Banking
Operating Results:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Years ended December 31,
2021
2020
2019
$
$
373,130 $
67,155
296,260
144,025 $
331,821 $
74,147
317,215
88,753 $
347,377
77,149
317,494
107,032
Retail Banking's PPNR increased $55.3 million, or 62.3%, for the year ended December 31, 2021 as compared to the year
ended December 31, 2020, due to an increase in net interest income and a decrease in non-interest expense, offset by a decrease
in non-interest income. The $41.3 million increase in net interest income is primarily attributed to deposit growth, lower interest
rates on deposits, and PPP loan fee acceleration associated with PPP loan forgiveness, partially offset by lower interest rates on
loans. The $7.0 million decrease in non-interest income is primarily attributed to lower mortgage banking fee income, partially
offset by higher deposit service fees, loan servicing fees, and credit card and merchant services fee income. The $21.0 million
decrease in non-interest expense is primarily attributed to lower employee-related, occupancy, technology and equipment, and
marketing expenses.
Selected Balance Sheet Information:
(In thousands)
Loans
Deposits
At December 31,
$
2021
7,062,182 $
12,801,752
2020
7,067,818
12,023,600
Loans decreased $5.6 million, or 0.1%, at December 31, 2021 as compared to December 31, 2020, primarily due to net
principal paydowns within the home equity credit line and loan portfolios, accelerated PPP loan forgiveness paydowns, and the
continued run-off of consumer lending club loans, partially offset by higher residential mortgage loan balances. Total portfolio
originations for the years ended December 31, 2021 and 2020 were $3.2 billion and $2.7 billion, respectively. The increase was
primarily attributed to increased residential mortgage and home equity originations, partially offset by lower PPP loan fundings.
Deposits increased $778.2 million, or 6.5%, at December 31, 2021 as compared to December 31, 2020, primarily due to
customer PPP loan funding, other stimulus effects, and lower customer spending, resulting in higher balances in small business
and consumer transaction accounts. In addition, Retail Banking experienced increases in savings and money market balances as
account holders with maturing certificates of deposits migrated to more liquid deposit products.
40
Financial Condition
Total assets increased $2.3 billion, or 7.1%, from $32.6 billion at December 31, 2020 to $34.9 billion at December 31, 2021.
The change in total assets was primarily attributed to the following:
• Total cash and cash equivalents, which is comprised of cash due from banks and interest-bearing deposits, increased
$198.5 million. The $254.6 million increase in interest-bearing deposits corresponds to the increase in total deposits driven
by excess customer liquidity (discussed further below), which was partially offset by a $56.1 million decrease in cash due
from the FRB and other banks;
• Total investment securities, net increased $1.5 billion, reflecting increases of $908.1 million and $630.2 million in the
available-for-sale and held-to-maturity portfolios, respectively. The total increase is primarily due to purchases exceeding
paydowns and maturities, particularly across the agency mortgage-backed securities (Agency MBS), agency commercial
mortgage-backed securities (Agency CMBS), and non-agency commercial mortgage-backed securities (CMBS) categories.
During 2021, the Company made the strategic decision to deploy its excess funds into higher yielding assets which, in turn,
increased its investment portfolios and included the purchase of $397.0 million in U.S. Treasury notes;
• Loans and leases increased $630.5 million, reflecting increases of $279.4 million and $351.1 million in the commercial and
consumer portfolios, respectively. The total increase is primarily due to originations, particularly across the asset-based
lending, commercial real estate, equipment financing, and residential loan categories, which was partially offset by higher
principal paydowns in commercial non-mortgage as a result of PPP loan forgiveness;
• The ACL on loans and leases decreased $58.2 million, primarily due to improvements in the forecasted economic outlook
and favorable credit trends, which were negatively affected by the emergence of the COVID-19 pandemic in 2020 and
resulted in a release of reserves in 2021, partially offset by reserves on newly originated loans and leases.
• DTAs, net increased $28.1 million, primarily due to the tax effect on current period other comprehensive loss, which
resulted in a $23.2 million deferred tax benefit;
• Premises and equipment, net, which is comprised of ROU leased assets and property and equipment, decreased $22.2
million. The $7.6 million decrease in ROU leased assets is primarily due to operating lease expense, partially offset by the
impact of lease modifications and renewals. The $14.6 million decrease in property and equipment is primarily due to
depreciation charges, partially offset by additions, which were largely attributed to data processing and software; and
• Accrued interest receivable and other assets decreased $95.1 million due to decreases of $163.9 million, $14.8 million, $8.3
million, and $2.2 million in treasury derivative assets, accounts receivable, accrued interest receivable, and assets held for
sale, respectively, which were partially offset by increases of $63.1 million, $28.1 million, and $2.7 million in other assets,
alternative investments, and prepaid expenses, respectively.
Total liabilities increased $2.1 billion, or 7.2%, from $29.4 billion at December 31, 2020 to $31.5 billion at December 31, 2021.
The change in total liabilities was primarily attributed to the following:
• Total deposits increased $2.5 billion, primarily due to excess customer liquidity as a result of government stimulus and
reduced customer spending, reflecting increases of $0.9 billion and $1.6 billion in non-interest bearing deposits and
interest-bearing deposits, respectively. The Company experienced increases across all of its deposit categories except for
time deposits, as customers with maturing higher cost time deposits opted to migrate to more liquid deposit products;
• Securities sold under agreements to repurchase and other borrowings decreased $320.5 million, primarily due to the
paydown of $526.0 million in federal funds during the first quarter of 2021, partially offset by an increase in lower rate,
short-term repurchase agreements;
• FHLB advances decreased $122.2 million, primarily due to a $102.2 million prepayment during the fourth quarter of 2021;
• Operating lease liabilities decreased $13.5 million, which is generally consistent with the change in ROU leased assets
(discussed further above); and
• Accrued expenses and other liabilities increased $70.5 million due to increases of $43.0 million, $13.3 million, $9.3
million, and $5.8 million in other liabilities, accrued income taxes, treasury derivative liabilities, and accounts payable,
which were partially offset by a $1.0 million decrease in accrued interest payable.
Total shareholders' equity increased $203.7 million, or 6.3%, from $3.2 billion at December 31, 2020 to $3.4 billion at
December 31, 2021. The change in shareholders' equity was attributed to the following activity during 2021:
• Net income recognized of $408.9 million;
• Dividends paid to common and preferred shareholders of $145.2 million and $7.9 million, respectively;
• Other comprehensive loss, net of tax, of $64.8 million, primarily due to market value decreases in the Company's available-
for-sale securities portfolio and cash flow hedges;
• Employee stock-based compensation plan activity of $13.7 million, inclusive of restricted stock amortization and
forfeitures;
• Stock options exercised of $3.5 million; and
• Repurchases of treasury stock, at cost, for taxes of $4.4 million associated with employee stock-based compensation plans.
41
Investment Securities
Through its Corporate Treasury function, Webster maintains and invests in debt securities that are primarily used to provide a
source of liquidity for operating needs, to generate interest income, and as a means to manage the Company's interest-rate risk.
Webster's debt securities are classified into two major categories: available-for-sale and held-to-maturity.
ALCO manages the Company's debt securities in accordance with regulatory guidelines and corporate policies, which include
limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security.
In addition, the OCC may further establish individual limits on certain types of investments if the concentration in such
investment presents a safety and soundness concern. At December 31, 2021 and 2020, Webster had investment securities with a
total net carrying value of $10.4 billion and $8.9 billion, respectively, with an average risk weighting for regulatory purposes of
12.5% and 12.9%, respectively. Although the Bank held the entirety of Webster's investment portfolio at both December 31,
2021 and 2020, the Holding Company may also directly hold investments.
The following table summarizes the balances and percentage composition of Webster's investment securities:
(In thousands)
Available-for-sale:
U.S. Treasury notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Total available-for-sale
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes (1)
CMBS
Total held-to-maturity
Total investment securities
At December 31,
2021
2020
Amount
%
Amount
%
$
$
$
$
$
396,966
90,384
1,593,403
1,232,541
886,263
21,847
13,450
4,234,854
42,405
2,901,593
2,378,475
705,918
169,948
6,198,339
10,433,193
9.4 % $
2.2
37.6
29.1
20.9
0.5
0.3
100.0 % $
0.7 % $
46.8
38.4
11.4
2.7
100.0 % $
$
—
154,613
1,457,409
1,117,233
508,018
76,383
13,120
3,326,776
91,622
2,419,751
2,101,227
739,507
216,081
5,568,188
8,894,964
— %
4.6
43.8
33.6
15.3
2.3
0.4
100.0 %
1.6 %
43.5
37.7
13.3
3.9
100.0 %
(1) The balances at December 31, 2021 and 2020, exclude the allowance for credit losses recorded on held-to-maturity debt securities
of $0.2 million and $0.3 million, respectively.
Available-for-sale debt securities increased $908.1 million, or 27.3%, from $3.3 billion at December 31, 2020 to $4.2 billion at
December 31, 2021, primarily due to purchases exceeding paydowns and maturities, particularly across the Agency MBS,
Agency CMBS, and CMBS categories. During 2021, the Company made the strategic decision to deploy its excess funds into
higher yielding assets which, in turn, increased its investment portfolios and included the purchase of $397.0 million in U.S.
Treasury notes. The tax-equivalent yield in the available-for-sale portfolio was 1.73% for the year ended December 31, 2021 as
compared to 2.35% for the year ended December 31, 2020. The 62 basis point decrease is attributed to higher premium
amortization and lower rates on securities purchased in the current period. Available-for-sale debt securities are evaluated for
credit losses on a quarterly basis. For the years ended December 31, 2021 and 2020, gross unrealized losses on available-for-
sale debt securities were $34.3 million and $9.5 million, respectively. Because these unrealized losses were attributable to
factors other than credit deterioration, no ACL was recorded during either period. Further, Webster currently does not intend to
sell these securities, and it is more likely than not that it will not be required to sell these securities prior to the anticipated
recovery of their cost basis.
Held-to-maturity debt securities increased $630.2 million, or 11.3%, from $5.6 billion at December 31, 2020 to $6.2 billion at
December 31, 2021, primarily due to purchases exceeding paydowns and maturities, particularly across the Agency MBS and
Agency CMBS categories. During 2021, the Company made the strategic decision to deploy its excess funds into higher
yielding assets which, in turn, increased its investment portfolios. The tax-equivalent yield in the held-to-maturity portfolio was
2.21% for the year ended December 31, 2021 as compared to 2.67% for the year ended December 31, 2020. The 46 basis point
decrease is attributed to higher premium amortization and lower rates on securities purchased in the current period. Held-to-
maturity debt securities are evaluated for credit losses on a quarterly basis under CECL. For the years ended December 31,
2021 and 2020, gross unrealized losses on held-to-maturity debt securities were $55.7 million and $2.5 million, respectively.
The ACL on held-to-maturity debt securities was $0.2 million and $0.3 million at December 31, 2021 and 2020, respectively.
42
The following table summarizes the amortized cost of investment securities by contractual maturity, along with the respective
weighted-average yields:
1 Year or Less
1 - 5 Years
5 - 10 Years
After 10 Years
Total
Weighted-
Average
Yield (1)
Weighted-
Average
Yield (1)
Weighted-
Average
Yield (1)
Amount
Amount
Amount
Amount
Weighted-
Average
Yield (1)
Amount
Weighted-
Average
Yield (1)
At December 31, 2021
(Dollars in thousands)
Available-for-sale:
U.S. Treasury notes
$
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Total available-for-sale
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Total held-to-maturity
Total investment securities
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
4,686
—
4,686
4,686
— % $ 396,966
0.61 % $
—
— % $
—
— % $ 396,966
0.61 %
—
—
—
—
—
—
963
2,108
2.74
1.75
—
—
—
—
—
—
—
—
1,283
3,266
—
86,863
21,847
—
3.04
1.90
88,138
1,588,029
—
1,232,541
2.61
1.68
—
799,400
—
13,450
2.35
1.85
1.80
1.49
—
1.22
90,384
1,593,403
1,232,541
886,263
21,847
13,450
2.37
1.85
1.80
1.60
1.68
1.22
— % $ 400,037
0.62 % $ 113,259
2.41 % $ 3,721,558
1.76 % $ 4,234,854
1.67 %
— % $
—
— % $
—
— % $
42,405
1.61 % $
42,405
1.61 %
—
—
3.29
—
3,442
2.50
11,328
—
—
167,351
49,213
—
3.30
—
109,701
—
2.09
2.68
2.63
—
2,886,823
2,211,124
542,318
169,948
2.03
1.73
2.90
2.71
2,901,593
2,378,475
705,918
169,948
3.29 % $ 52,655
3.25 % $ 288,380
2.64 % $ 5,852,618
2.02 % $ 6,198,339
3.29 % $ 452,692
0.93 % $ 401,639
2.58 % $ 9,574,176
1.92 % $ 10,433,193
2.03
1.80
2.89
2.71
2.06 %
1.90 %
(1) Weighted-average yields were calculated using amortized cost on a fully-tax equivalent basis, assuming a 21% tax rate.
Additional information regarding the Company's available-for-sale and held-to-maturity investment securities' portfolios can be
found within Note 4: Investment Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Financial Statements and Supplementary Data.
43
Loans and Leases
The following table summarizes the amortized cost and percentage composition of Webster's loans and leases:
(Dollars in thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Other consumer
Total loans and leases (1)
2021
Amount
6,882,480
1,067,248
6,603,180
627,058
5,412,905
1,593,559
85,299
22,271,729
$
$
At December 31,
%
30.9
4.8
29.6
2.8
24.3
7.2
0.4
100.0
2020
Amount
7,085,076
890,598
6,322,637
602,224
4,782,016
1,802,865
155,799
21,641,215
$
$
%
32.8
4.1
29.2
2.8
22.1
8.3
0.7
100.0
(1) The amortized cost balances at December 31, 2021 and 2020, exclude the allowance for credit losses recorded on loans and leases
of $301.2 million and $359.4 million, respectively.
The following table summarizes loans and leases by contractual maturity, along with the indication of whether interest rates are
fixed or variable:
(In thousands)
Fixed rate:
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Other consumer
Total fixed rate loans and leases
Variable rate:
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Other consumer
Total variable rate loans and leases
Total loans and leases (1)
1 Year or Less
1 - 5 Years
5 - 15 Years
After 15 Years
Total
At December 31, 2021
$
$
$
$
$
135,460 $
—
12,254
28,529
530
7,034
8,330
192,137 $
509,982 $
213,377
956,049
—
188
2,998
4,803
1,687,397 $
1,879,534 $
399,052 $
—
94,254
454,185
46,640
24,534
41,334
1,059,999 $
4,727,581 $
848,251
2,733,439
—
6,185
8,387
20,468
8,344,311 $
9,404,310 $
331,220 $
—
134,750
144,344
377,700
182,980
501
1,171,495 $
635,807 $
5,620
1,981,865
—
27,010
127,837
3,480
2,781,619 $
3,953,114 $
78,224 $
—
41,962
—
3,822,810
176,698
96
4,119,790 $
65,154 $
—
648,607
—
1,131,842
1,063,091
6,287
2,914,981 $
7,034,771 $
943,956
—
283,220
627,058
4,247,680
391,246
50,261
6,543,421
5,938,524
1,067,248
6,319,960
—
1,165,225
1,202,313
35,038
15,728,308
22,271,729
(1) Amounts due exclude total accrued interest receivable of $50.7 million.
Credit Policies and Procedures
Webster Bank has credit policies and procedures in place designed to support its lending activities within an acceptable level of
risk, which are reviewed and approved by management and the Board of Directors on a regular basis. To assist with this
process, management inspects reports generated by the Company's loan reporting systems related to loan production, loan
quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans. In response to the
ongoing COVID-19 pandemic, management has implemented incremental policies and procedures to monitor credit risk.
Commercial non-mortgage, asset-based, and equipment finance loans are underwritten after evaluating and understanding the
borrower’s ability to operate and service its debt. Assessment of the borrower's management is a critical element of the
underwriting process and credit decision. Once it is determined that the borrower’s management possesses sound ethics and a
solid business acumen, current and projected cash flows are examined to determine the ability of the borrower to repay
obligations, as contracted. Commercial non-mortgage, asset-based, and equipment finance loans are primarily made based on
the identified cash flows of the borrower, and secondarily on the underlying collateral provided by the borrower. However, the
cash flows of borrowers may not be as expected, and the collateral securing these loans may fluctuate in value. Most
commercial non-mortgage, asset-based, and equipment finance loans are secured by the assets being financed and may
incorporate personal guarantees of the principal balance.
44
Commercial real estate loans are subject to underwriting standards and processes similar to those for commercial non-mortgage,
asset-based, and equipment finance loans. These loans are primarily viewed as cash flow loans, and secondarily as loans
secured by real estate. Repayment of commercial real estate loans is largely dependent on the successful operation of the
property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The
properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which
reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and
evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. All transactions are appraised to
validate market value. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the
general economy. Management periodically utilizes third-party experts to provide insight and guidance about economic
conditions and trends affecting its commercial real estate loan portfolio.
Consumer loans are subject to policies and procedures developed to manage the specific risk characteristics of the portfolio.
These policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized loan
structures, are spread across many different borrowers, minimizing the level of credit risk. Trend and outlook reports are
reviewed by management on a regular basis, and policies and procedures are modified or developed, as needed. Underwriting
factors for residential mortgage and home equity loans include the borrower’s Fair Isaac Corporation (FICO) score, the loan
amount relative to property value, and the borrower’s debt-to-income level. Webster Bank originates both qualified mortgage
and non-qualified mortgage loans, as defined by applicable CFPB rules.
Loan Modifications
Webster works with customers to modify loan agreements when borrowers are experiencing financial difficulty. Webster will
modify a loan to minimize the risk of loss and achieve the best possible outcome for both the borrower and the Company. Loan
modifications can take various forms, including payment deferral, rate reduction, covenant waiver, term extension, or other
actions. Depending on the nature of the modification, it may be accounted for as a troubled debt restructuring (TDR).
Troubled Debt Restructurings
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 each
individual borrower. Webster considers all aspects of the restructuring in determining whether a concession has been granted,
including the debtor's ability to access market rate funds. Generally, a concession exists when the modified terms of the loan are
more attractive to the borrower than standard market terms. Common TDR modifications include changes in covenants, pricing,
and forbearance. Loans in which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral
dependent TDRs and thus, at the date of discharge, are charged down to the fair value of collateral less costs to sell.
COVID-19 Payment Modifications
Webster has accommodated over 2,500 customers impacted by the COVID-19 pandemic through payment-related deferrals. At
December 31, 2021, total outstanding loan balances related to these modifications, in their deferral period, were $78.1 million.
This amount includes all loans associated with a customer relationship where at least one loan has been modified or is in the
process of modification. A significant portion of the COVID-19 payment modifications have not been considered a TDR based
on their nature. Webster continues to actively monitor customer relationships associated with these modified loans. The impact
of these modifications is appropriately reflected in the ACL on loans and leases.
The CARES Act and Interagency Statement
In response to the COVID-19 pandemic, financial institutions were provided relief from certain TDR accounting and disclosure
requirements for qualifying loan modifications through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Specifically, Section 4013 of the CARES Act, which was extended by the Consolidated Appropriations Act, 2021, provided
temporary relief from certain GAAP requirements for loan modifications related to COVID-19. In addition, a group of banking
regulatory agencies issued a revised Interagency Statement that offered practical expedients for evaluating whether COVID-19
loan modifications were TDRs.
At December 31, 2021, total outstanding loan balances associated with loan modifications designated in connection with these
TDR relief provisions, in their deferral period, were $83.1 million. These modifications generally represented payment deferrals
ranging from three to six months in length. The $118.3 million decrease from $201.4 million at December 31, 2020 is the result
of borrowers exiting their payment deferral period. Webster continues to evaluate the effectiveness of this loan modification
program as deferral periods end.
45
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases decreased $58.2 million, or 16.2%, from $359.4 million at December 31, 2020 to $301.2 million
at December 31, 2021, primarily due to improvements in the forecasted economic outlook and favorable credit trends, which
were negatively affected by the emergence of the COVID-19 pandemic in 2020 and resulted in a release of reserves in 2021,
partially offset by reserves on newly originated loans and leases.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories:
(Dollars in thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Other consumer
Total ACL on loans and leases
2021
Amount
$
$
111,351
6,481
133,907
6,138
15,628
23,523
4,159
301,187
At December 31,
% (1)
37.0
2.2
44.4
2.0
5.2
7.8
1.4
100.0
$
$
2020
Amount
133,187
10,832
159,197
9,028
13,989
26,416
6,782
359,431
% (1)
37.1
3.0
44.3
2.5
3.9
7.3
1.9
100.0
(1) The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories.
Methodology
Webster's ACL on loans and leases is considered to be a critical accounting policy. The ACL on loans and leases is a contra-
asset account that offsets the amortized cost basis of loans and leases for the credit losses that are expected to occur over the life
of the asset. Executive management reviews and advises on the adequacy of the allowance, which is maintained at a level that
management deems to be sufficient to cover expected credit losses within the loan and lease portfolios.
The ACL on loans and leases is determined using the CECL model, whereby an expected lifetime credit loss is recognized at
the origination or purchase of an asset, including those acquired through a business combination, which is then reassessed at
each reporting date over the contractual life of the asset. The calculation of expected credit losses includes consideration of past
events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported
amounts. Generally, expected credit losses are determined through a pooled, collective assessment of loans and leases with
similar risk characteristics. However, if the risk characteristics of a loan or lease change such that it no longer matches that of
the collectively assessed pool, it is removed from the population and individually assessed for credit losses. The total ACL on
loans and leases recorded by management represents the aggregated estimated credit loss determined through both the
collective and individual assessments.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on product type, credit
quality, risk ratings, and/or collateral types within its commercial and consumer portfolios, and expected losses are determined
using a Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) framework. Expected credit
losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and
the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit
losses for a given portfolio. Management's PD and LGD calculations are predictive models that measure the current risk profile
of the loan pools using forecasts of future macroeconomic conditions, historical loss information, and credit risk ratings.
Webster's models incorporate a single economic forecast scenario and macroeconomic assumptions over a two year reasonable
and supportable forecast period.
Webster incorporates forecasts of macroeconomic variables in the determination of expected credit losses. Macroeconomic
variables are selected for each class of financing receivable based on relevant factors, such as asset type, the correlation of the
variables to credit losses, among others. Data from a baseline forecast scenario of these variables is used as an input to the
modeled loss calculation. Qualitative adjustments may be applied in relation to economic forecasts when relevant facts and
circumstances are expected to impact credit losses, particularly in times of significant volatility in economic activity.
After the reasonable and supportable forecast period, the credit loss model gradually reverts to historical loss rates for the
remaining life of the loans and leases on a straight-line basis over a one year reversion period. The calculation of EAD follows
an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans
of a similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected
losses and principal paydowns (the combination of contractual repayments and voluntary prepayments). A portion of the
collective ACL is comprised of qualitative adjustments for risk characteristics that are not reflected or captured in the
quantitative models, but are likely to impact the measurement of estimated credit losses.
46
Individually Assessed Loans and Leases. If the risk characteristics of a loan or lease change such that it no longer matches the
risk characteristics of the collectively assessed pool, it is removed from the population and individually assessed for credit
losses. Generally, all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans where
the borrower is experiencing financial difficulty, are individually assessed. The measurement method used to calculate the
expected credit loss on an individually assessed loan or lease is dependent on the type and whether the loan or lease is
considered to be collateral dependent. Methods for collateral dependent loans are either based on the fair value of the collateral
less estimated cost to sell (when the basis of repayment is the sale of collateral), or the present value of the expected cash flows
from the operation of the collateral. For non-collateral dependent loans, either a discounted cash flow method or other loss
factor method is used. Any individually assessed loan or lease for which no specific valuation allowance is deemed necessary is
either the result of sufficient cash flows or sufficient collateral coverage relative to the amortized cost of the asset.
Additional information regarding Webster's ACL methodology can be found within Note 1: Summary of Significant
Accounting Policies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and
Supplementary Data.
Asset Quality Ratios
Webster manages asset quality using risk tolerance levels established through the Company's underwriting standards, servicing,
and management of its loan and lease portfolio. Loans and leases for which a heightened risk of loss has been identified are
regularly monitored to mitigate further deterioration and preserve asset quality in future periods. Non-performing assets, credit
losses, and net charge-offs are considered by management to be key measures of asset quality.
The following table summarizes key asset quality ratios and their underlying components:
(Dollars in thousands)
Non-performing loans and leases
Total loans and leases
At or for the years ended December 31,
$
2021
109,778
22,271,729
$
2020
168,005
21,641,215
$
2019
150,906
20,036,986
Non-performing loans and leases as a percentage of loans and leases
0.49 %
0.78 %
0.75 %
Non-performing assets
Total loans and leases
Add: OREO
Total loans and leases plus OREO
$
112,590
$ 22,271,729
2,812
$ 22,274,541
$
170,314
$ 21,641,215
2,309
$ 21,643,524
$
157,380
$ 20,036,986
6,474
$ 20,043,460
Non-performing assets as a percentage of loans and leases plus OREO
0.51 %
0.79 %
0.79 %
Non-performing assets
Total assets
Non-performing assets as a percentage of total assets
ACL on loans and leases
Non-performing loans and leases
ACL on loans and leases as a percentage of non-performing loans and leases (1)
ACL on loans and leases
Total loans and leases
ACL on loans and leases as a percentage of loans and leases (1)
ACL on loans and leases
Net charge-offs
Ratio of ACL on loans and leases to net charge-offs (1)
$
112,590
34,915,599
$
170,314
32,590,690
$
157,380
30,389,344
0.32 %
0.52 %
0.52 %
$
$
301,187
109,778
274.36 %
$
359,431
168,005
213.94 %
209,096
150,906
138.56 %
$
301,187
22,271,729
$
359,431
21,641,215
$
209,096
20,036,986
1.35 %
1.66 %
1.04 %
$
$
301,187
3,829
78.66x
359,431
45,081
7.97x
$
209,096
41,057
5.09x
(1) The Company adopted CECL on January 1, 2020. The ACL on loans and leases in 2019 was calculated in accordance with the
applicable GAAP for that period.
Total loans and leases increased $630.5 million from December 31, 2020 to December 31, 2021, primarily due to originations,
which were partially offset by higher principal paydowns as a result of PPP loan forgiveness. The growth in loans and leases
contributed to decreases across related asset quality ratios. Further contributing to the changes across asset quality ratios were
the declines experienced in non-performing loans and leases, net charge-offs, and the ACL on loans and leases from
December 31, 2020 to December 31, 2021, which were primarily due to favorable credit trends and improvements in the
forecasted economic outlook, and resulted in a reduced volume of non-performing loans and leases and net charge-offs, along
with a release of reserves in 2021.
47
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category:
2021
2020
2019
At or for the years ended December 31,
Net
Charge-offs
(Recoveries)
Average
Balance
%
Net
Charge-offs
(Recoveries)
Average
Balance
%
Net
Charge-offs
(Recoveries)
Average
Balance
%
Commercial non-mortgage
$
2,305 $ 6,829,799
0.03 % $
37,040 $ 6,598,149
0.56 % $
27,669 $ 5,365,896
0.52 %
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Other consumer
Total
(1,447)
950,602
(0.15)
4,483
375
(1,149)
(4,289)
6,439,830
614,055
0.07
0.06
4,953,100
(0.02)
(36)
2,061
720
1,327
977,920
6,189,848
572,369
4,923,743
—
0.03
0.13
0.03
(262)
3,456
715
2,790
1,073,174
(0.02)
5,249,603
510,510
4,700,990
0.07
0.14
0.06
1,681,921
(0.26)
(1,910)
1,924,623
(0.10)
(1,204)
2,085,778
(0.06)
115,565
3,551
3,829 $ 21,584,872
3.07
0.02 % $
199,050
5,879
45,081 $ 21,385,702
2.95
0.21 % $
223,660
7,893
41,057 $ 19,209,611
3.53
0.21 %
$
The 0.19% decrease in net charge-offs as a percentage of average loans and leases is primarily due to a reduced volume of net
charge-offs in the commercial non-mortgage portfolio during the year ended December 31, 2021, which contributed to $34.7
million of the total $41.3 million decrease in net charge-offs from 2020 to 2021.
Allowance for Credit Losses on Unfunded Loan Commitments
An ACL is also recorded to provide for the unused portion of commitments to lend that are not unconditionally cancellable by
Webster. Under the CECL methodology, the calculation of the allowance generally includes the probability of funding to occur
and a corresponding estimate of expected lifetime credit losses on amounts assumed to be funded. Loss calculation factors are
consistent with those for funded loans using the PD and LGD applied to the underlying borrower's risk and facility grades, a
draw down factor applied to utilization rates, relevant forecast information, and management's qualitative factors. The level of
ACL is monitored quarterly against key metrics from the funded portfolio. The ACL on unfunded loan commitments increased
$0.3 million, or 2.7%, from $12.8 million at December 31, 2020 to $13.1 million at December 31, 2021.
Additional information regarding the activity in the ACL on unfunded loan commitments can be found within Note 23:
Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial
Statements and Supplementary Data.
Liquidity and Capital Resources
Webster manages its cash flow requirements through proactive liquidity measures at both the Holding Company and Webster
Bank in order to maintain stable, cost-effective funding and to promote overall balance sheet strength. The liquidity position of
the Company is continuously monitored and adjustments are made to balance sources and uses of funds, as needed. At
December 31, 2021, management is not aware of any events that are reasonably likely to have a material adverse effect on the
Company’s liquidity position, capital resources, or operating activities. Further, management is not aware of any regulatory
recommendations regarding liquidity, that if implemented, would have a material adverse effect on the Company.
Cash inflows are provided through a variety of sources, including as operating activities such as principal and interest payments
on loans and investments, financing activities, such as unpledged securities that can be sold or utilized to secure funding, and
new deposits. Webster is committed to maintaining a strong base of core deposits, which consists of demand, interest-bearing
checking, savings, health savings, and money market accounts, in order to support growth in its loan and lease portfolio.
Holding Company Liquidity. The primary source of liquidity at the Holding Company 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 Holding Company generally uses its funds for principal and interest payments on senior notes and junior
subordinated debt, dividend payments to preferred and common shareholders, repurchases of its common stock, and purchases
of investment securities, as applicable.
During the year ended December 31, 2021, Webster Bank paid the Holding Company $200.0 million in dividends. There are
certain restrictions on Webster Bank's payment of dividends to the Holding Company. Additional Information regarding
dividend restrictions can be found under the section captioned "Supervision and Regulation" in Part I - Item 1. Business and
within Note 15: Regulatory Capital and Restrictions in the Notes to the Consolidated Financial Statements contained in Part II -
Item 8. Financial Statements and Supplementary Data. At December 31, 2021, there were $508.0 million of retained earnings
available for the payment of dividends by Webster Bank to the Holding Company.
The quarterly cash dividend to common shareholders remained at $0.40 per common share during 2021. On January 18, 2022,
Webster Financial Corporation’s Board of Directors declared a quarterly cash dividend of $0.40 per share. Webster continues to
monitor economic forecasts, anticipated earnings, and its capital position in the determination of its dividend payments.
48
Webster has a common stock repurchase program authorized by the Board of Directors with a remaining repurchase authority
of $123.4 million at December 31, 2021. Due to the effects of the COVID-19 pandemic on the economic environment, Webster
had temporarily suspended repurchases of its common stock under the program in 2020. Further, as part of the Company's
executed merger agreement with Sterling dated as of April 18, 2021, Webster was restricted from repurchasing any shares
under the program through the close of the transaction. Now that the transaction has closed effective January 31, 2022, the
Company has resumed its common stock repurchase program subject to prevailing market conditions. In addition, the Company
will periodically acquire common shares outside of the repurchase program related to stock compensation plan activity. During
the year ended December 31, 2021, a total of 79,242 shares were repurchased at a market value of $4.4 million for this purpose.
Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits. Including time deposits, Webster Bank had
a loan to total deposit ratio of 74.6% and 79.2% at December 31, 2021 and 2020, respectively. The 4.6% point decrease is
attributed to deposit growth exceeding loan growth in the current period.
Webster Bank is required by OCC regulations to maintain a sufficient level of liquidity to ensure safe and sound operations.
The adequacy of liquidity, as assessed by the OCC, depends on factors such as overall asset and liability structure, market
conditions, competition, and the nature of the institution’s deposit and loan customers. At December 31, 2021, Webster Bank
exceeded all regulatory liquidity requirements. Webster has designed a detailed contingency plan in order to respond to any
liquidity concerns in a prompt and comprehensive manner, including early detection of potential problems and corrective action
to address liquidity stress scenarios.
Capital Requirements. Webster Financial Corporation and Webster Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory
actions by regulators that could have a direct material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank
must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items
calculated pursuant to regulatory directives. Capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the Company to maintain
minimum ratios of CET1 capital, Tier 1 capital, Total capital to risk-weighted assets, and Tier 1 capital to average tangible
assets (as defined in the regulations). At December 31, 2021, both Webster Financial Corporation and Webster Bank were
classified as well-capitalized. Management believes that no events or changes have occurred subsequent to year-end that would
change this designation.
In accordance with regulatory capital rules, Webster elected an option to delay the estimated impact of the adoption of CECL
on its regulatory capital over a two-year deferral ending on January 1, 2022, and subsequent three-year transition period ending
on December 31, 2024. Therefore, capital ratios and amounts reported exclude the impact of the increased ACL on loans and
leases, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL. At December 31,
2021, this resulted in a 25, 25, 0, and 16 basis point benefit to Webster Financial Corporation's and Webster Bank's CET1
capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based
capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to average tangible assets (Tier 1
leverage capital), respectively. Both Webster Financial Corporation's and Webster Bank's ratios remain in excess of being well-
capitalized, even without the benefit of the delayed CECL adoption impact.
Additional information regarding the required capital levels and ratios applicable to Webster Financial Corporation and Webster
Bank can be found within Note 15: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements
contained in Part II - Item 8. Financial Statements and Supplementary Data.
Sources and Uses of Funds
Sources of Funds. The primary source of cash flows for Webster Bank’s use in its lending activities and general operational
needs is deposits. Operating activities, such as loan and securities repayments, proceeds from loans and securities held for sale,
and maturities also provide cash inflows. While scheduled loan and securities repayments are a relatively stable source of funds,
prepayments and other deposit inflows are influenced by economic conditions and prevailing interest rates, the timing of which
is inherently uncertain. Additional sources of funds are provided by both short-term and long-term borrowings, and to a lesser
extent, dividends received as part of the Bank's membership with the FHLB of Boston and FRB of Boston.
Deposits. Webster Bank offers a wide variety of checking and savings deposit products designed to meet the transactional and
investment needs of both its consumer and business customers. The Bank’s deposit services include, but are not limited to,
ATM and debit card use, direct deposit, ACH payments, mobile banking, internet-based banking, banking by mail, account
transfers, and overdraft protection, among others. The Bank manages the flow of funds in its deposit accounts and interest rates
consistent with FDIC regulations. Both Webster Bank’s Retail Pricing Committee and its Commercial and Institutional
Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.
49
Total deposits were $29.8 billion and $27.3 billion at December 31, 2021 and 2020, respectively. The $2.5 billion increase was
primarily attributed to excess customer liquidity as a result of government stimulus and reduced customer spending, and
reflected increases across all of deposit categories except for time deposits, as customers with maturing higher cost time
deposits opted to migrate to more liquid products. The aggregate amount of time deposits accounts that exceeded the FDIC
limit of $250,000 represented 0.9% and 1.8% of total deposits at December 31, 2021 and 2020, respectively.
The following table summarizes daily average balances of deposits by type and the weighted-average rates paid thereon:
(Dollars in thousands)
Non-interest-bearing:
Demand
Interest-bearing:
Checking
Health savings accounts
Money market
Savings
Time deposits
Total interest-bearing
2021
Years ended December 31,
2020
2019
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$
6,897,464
— % $
5,698,399
— % $
4,300,407
— %
3,929,941
7,390,702
3,526,373
5,387,529
2,105,809
22,340,354
29,237,818
0.04
0.08
0.11
0.02
0.35
0.09
0.07 % $
3,189,275
6,893,996
2,853,098
4,647,261
2,760,561
20,344,191
26,042,590
0.10
0.14
0.45
0.20
1.20
0.33
0.26 % $
2,604,931
6,240,201
2,365,367
4,173,788
3,267,913
18,652,200
22,952,607
0.14
0.20
1.27
0.50
1.92
0.69
0.56 %
Total average deposits
$
The following table summarizes total uninsured deposits:
(In thousands)
Uninsured deposits (1)
At December 31,
2021
10,936,416
$
$
2020
9,684,817
$
2019
7,473,028
(1) A portion of Webster’s total uninsured deposits are estimated based on the same methodologies and assumptions used for regulatory
reporting requirements.
The following table summarizes the portion of U.S. time deposits in excess of the FDIC insurance limit and time deposits
otherwise uninsured by contractual maturity:
(In thousands)
Portion of U.S. time deposits in excess of insurance limit
Time deposits otherwise uninsured with a maturity of: (1)
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
December 31, 2021
103,772
$
$
189,764
17,688
13,150
7,996
(1)
Includes $124.8 million of Eurodollar deposits due within 3 months or less.
Additional information regarding period-end deposit balances and rates can be found within Note 11: Deposits in the Notes to
Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Borrowings. Webster Bank’s borrowing sources include securities sold under agreements to repurchase, advances from the
FHLB of Boston, and long-term debt. The Bank may also purchase term and overnight federal funds to meet its short-term
liquidity needs. Total borrowed funds were $1.2 billion and $1.7 billion at December 31, 2021 and 2020, respectively, and
represented 3.6% and 5.2% of total assets, respectively. The $0.5 billion decrease from 2020 to 2021 is primarily attributed to
federal funds of $526.0 million maturing in the first quarter of 2021, coupled with the strategic decision to not purchase any
additional federal funds during the remainder of the period.
Webster Bank had additional borrowing capacity from the FHLB of Boston of $5.1 billion and $4.7 billion at December 31,
2021 and 2020, respectively. The Bank also had additional borrowing capacity from the FRB of Boston of $1.5 billion and $1.3
billion at December 31, 2021 and 2020, respectively. Unpledged investment securities of $5.3 billion at December 31, 2021
could have been used for collateral on borrowings or to increase borrowing capacity by $5.1 billion with the FHLB or $5.2
billion with the FRB.
Securities sold under agreements to repurchase are generally a form of short-term funding for the Bank in which it sells
securities to counterparties with an agreement to buy them back in the future at a fixed price. Securities sold under agreements
to repurchase totaled $0.7 billion and $0.5 billion at December 31, 2021 and 2020, respectively. The $0.2 billion increase from
2020 to 2021 is primarily attributed to current period borrowings mix and the timing of additional short-term securities sold
under agreements to repurchase at period end.
50
FHLB advances are not only utilized as a source of funding, but also for interest rate risk management purposes. FHLB
advances totaled $11.0 million and $133.2 million at December 31, 2021 and 2020, respectively. The $122.2 million decrease
from 2020 to 2021 is primarily attributed to the aforementioned $102.2 million prepayment during the fourth quarter of 2021.
Long-term debt consists of senior fixed-rate notes maturing in 2024 and 2029, and floating-rate junior subordinated notes
maturing in 2033. Long-term debt totaled $562.9 million and $567.7 million at December 31, 2021 and 2020, respectively.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon:
(Dollars in thousands)
FHLB advances
Securities sold under agreements to repurchase
Federal funds purchased
Long-term debt
Other borrowings
Total average borrowings
2021
Average
Balance
108,216
527,250
16,036
565,271
—
1,216,773
$
$
Years ended December 31,
2020
Average
Rate
1.58 % $
0.57
0.08
3.22
—
1.84 % $
Average
Balance
730,125
467,431
720,995
564,919
104,145
2,587,615
Average
Rate
2.57 % $
0.48
0.46
3.45
0.35
1.68 % $
2019
Average
Balance
1,201,839
296,498
712,206
468,111
—
2,678,654
Average
Rate
2.61 %
0.88
2.16
4.51
—
2.62 %
Additional information regarding period-end borrowings balances and rates can be found within Note 12: Borrowings in the
Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the FHLB System, which consists of
eleven district Federal Home Loan Banks, each of which is subject to the supervision and regulation of the Federal Housing
Finance Agency. An activity-based capital stock investment in the FHLB is required in order for Webster Bank to maintain is
membership and access advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital
stock investment is restricted as there is no market for it, and it can only be redeemed by the FHLB. Webster Bank held FHLB
capital stock of $11.3 million and $17.5 million at December 31, 2021 and 2020, respectively. During the year ended
December 31, 2021, Webster Bank received $0.3 million in dividends from the FHLB Boston. The most recent FHLB quarterly
cash dividend was paid on November 2, 2021 in an amount equal to an annual yield of 2.05%.
Webster Bank is also required to hold FRB stock equal to 6% of its capital and surplus, of which 50% is paid. The remaining
50% is subject to call when deemed necessary by the Federal Reserve System. Similar to FHLB stock, the FRB capital stock
investment is restricted as there is no market for it, and it can only be redeemed by the FRB. Webster Bank held FRB capital
stock of $60.5 million and $60.1 million at December 31, 2021 and 2020, respectively. During the year ended December 31,
2021, Webster Bank received $0.9 million in dividends from the FRB of Boston. The most recent FRB semi-annual cash
dividend was paid on December 31, 2021 in an amount equal to an annual yield of 1.52%.
Uses of Funds. Webster enters into various contractual obligations in the normal course of business that require future cash
payments and could impact the Company's short-term and long-term liquidity and capital resource needs. The following table
summarizes significant fixed and determinable contractual obligations at December 31, 2021. The actual timing and amounts of
future cash payments may differ from the amounts presented. Based on Webster's current liquidity position, it is expected that
our sources of funds will be sufficient to fulfill these obligations when they come due.
(In thousands)
Senior notes
Junior subordinated debt
FHLB advances
Securities sold under agreements to repurchase
Deposits with stated maturity dates
Operating lease liabilities
Purchase obligations (2)
Total contractual obligations
Less than
one year
— $
—
90
474,896
1,566,257
22,773
89,643
2,153,659 $
$
$
Payments Due by Period (1)
1-3 years
3-5 years
After 5
years
150,000 $
—
202
200,000
161,753
44,239
29,916
586,110 $
— $
—
—
—
69,760
35,572
4,649
109,981 $
338,811 $
77,320
10,705
—
—
42,220
2,573
471,629 $
Total
488,811
77,320
10,997
674,896
1,797,770
144,804
126,781
3,321,379
(1)
Interest payments on borrowings have been excluded.
(2) Purchase obligations represent agreements to purchase goods or services of $1.0 million or more that are enforceable and legally
binding and specify all significant terms.
In addition, in the normal course of business, Webster offers financial instruments with off-balance sheet risk to meet the
financing needs of its customers. These transactions include commitments to extend credit, and commercial and standby letters
of credit, which involve to a varying degree, elements of credit risk. Since many of these commitments are expected to expire
unused or be only partially funded, the total commitment amount of $7.2 billion at December 31, 2021 does not necessarily
reflect future cash payments.
51
Webster also enters into commitments to invest in venture capital and private equity funds, as well as low income housing tax
credit investments to assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for these
alternative investments was $45.5 million at December 31, 2021. However, the timing of capital calls cannot be reasonably
estimated, and depending on the nature of the contract, the entirety of the capital committed by Webster may not be called.
Pension obligations are funded by the Company, as needed, to provide for participant benefit payments as it relates to Webster's
frozen, non-contributory, qualified defined benefit pension plan. Decisions to contribute to the defined benefit pension plan are
made based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the
Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. Webster did not
contribute to its defined benefit pension plan in 2021, and management does not currently anticipate that it will make a
contribution in 2022. Webster's non-qualified supplemental executive retirement plan and other post employment benefit plan
are unfunded. Expected future net benefit payments related to Webster's defined benefit pension and other postretirement
benefit plans include $10.4 million in less than one year, $21.8 million in one to three years, $23.4 million in three to five years,
and $63.6 million after five years.
At December 31, 2021, Webster's consolidated balance sheet reflects a liability for uncertain tax positions of $4.2 million and
$1.9 million of accrued interest and penalties. The ultimate timing and amount of any related future cash settlements cannot be
predicted with reasonable certainty.
Additional information regarding credit-related financial instruments, alternative investments, defined benefit pension and other
postretirement benefit plans, and income taxes can be found within Note 23: Commitments and Contingencies, Note 2: Variable
Interest Entities, Note 19: Retirement Benefit Plans, and Note 10: Income Taxes, respectively, in the Notes to the Consolidated
Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
52
Asset/Liability Management and Market Risk
An effective asset/liability process must balance the risks and rewards from both short-term and long-term interest rate risks
when determining management's strategy and action. To facilitate this, interest rate sensitivity is monitored on an ongoing basis
by ALCO. The primary goal of ALCO is to manage interest rate risk and to maximize net income and net economic value over
time in changing interest rate environments (subject to limits approved by the Board of Directors). The Board of Directors sets
policy limits for earnings at risk for parallel ramps in interest rates over twelve months of +/- 100, 200, and 300 basis points, as
well as interest rate curve twist shocks of +/- 50 and 100 basis points. Limits for economic value, or equity at risk, are set for
parallel shocks in interest rates of +/- 100, 200, and 300 basis points.
Due to the federal funds rate target range being 0 to 0.25% at December 31, 2021 and 2020, the declining interest rate scenarios
for both earnings at risk and equity at risk of minus 100 and 200 basis points or more were not run per ALCO's policy. Instead,
scenarios were run with short-term and long-term interest rates declining to zero, but not below. In 2019, ALCO implemented a
balance sheet repositioning strategy with the goal of reducing asset sensitivity to falling interest rates, which resulted in the
purchase of interest rate floors. ALCO also regularly reviews earnings at risk scenarios for non-parallel changes in interest
rates, as well as long-term scenarios of up to four years in the future.
Management measures interest rate risk using simulation analysis to calculate Webster's earnings at risk and equity at risk.
These risk measures are quantified using simulation software. 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 defined as the change in earnings due to changes in interest rates, excluding the provision for credit losses
and income tax expense. 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, which holds the period end yield curve constant over the twelve month forecast
horizon. At both December 31, 2021 and 2020, the flat rate scenario assumed a federal funds rate of 0.25%. Earnings
simulation analysis incorporates assumptions about balance sheet changes, such as product mix, growth, and loan and deposit
pricing. It is a measure of short-term interest rate risk.
Equity at risk is defined as the change in the net economic value of financial assets and financial 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 financial assets, financial liabilities, and off-balance sheet financial instruments. 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 when interest rates rise and decreasing when interest
rates fall, as compared to a base scenario. In other words, financial 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
when interest rates rise and increasing when interest rates fall, as compared to a base scenario.
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.
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 scenario.
Cash flows for all financial 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.
Financial instruments with explicit options, such as caps, floors, puts, calls, and implicit options, such as prepayment and early
withdrawal abilities, require such modeling approach to more accurately quantify value and risk.
On the asset side, risk is impacted the most by residential 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 low interest rate environments. 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. Implicit floors on deposits, based on historical data, are modeled. Webster
Bank also has the option to change the interest rate paid on these deposits at any time.
53
Webster's earnings at risk model incorporates net interest income and non-interest income and expense items, some of which
vary with interest rates. These items include mortgage banking income, mortgage servicing rights, cash management fees, and
derivative mark-to-market adjustments.
Four main tools are used for managing interest rate risk:
• the size, duration, and credit risk of the investment portfolio;
• the size and duration of the wholesale funding portfolio;
• interest rate contracts; and
• the pricing and structure of loans and deposits.
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 continuously monitors and influences their actions on a regular basis.
Various interest rate contracts, including futures, options, swaps, caps, and floors can be used to manage interest rate risk.
These contracts involve, to varying degrees, levels of credit and interest rate risk. The notional amount of the derivative
instrument, or the amount from which interest and other payments are derived, is not exchanged, and therefore, should not be
used as a measure of credit risk.
In addition, certain derivative instruments, such as forward sales of mortgage-backed securities, are used by Webster Bank to
manage the risk of loss associated with its mortgage banking activities. Generally, prior to closing and funds disbursement, an
interest-rate lock commitment is extended to the borrower. During this time, Webster Bank is subject to the risk that market
interest rates may change, which could impact pricing on loan sales. In an effort to mitigate this risk, Webster Bank establishes
forward delivery sales commitments, thereby setting the sales price.
Webster will also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain
financial assets and financial liabilities. Changes in the market value of these derivative positions are recognized in earnings.
Additional information regarding derivatives can be found within Note 17: Derivative Financial Instruments in the Notes to
Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points
might have on Webster’s net interest income over a twelve month period starting at December 31, 2021 and 2020, as compared
to actual net interest income and assuming no changes in interest rates:
December 31, 2021
December 31, 2020
-200bp
n/a
n/a
-100bp
n/a
n/a
+100bp
4.9%
1.7%
+200bp
10.7%
4.7%
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points
might have on Webster’s PPNR over a twelve month period starting at December 31, 2021 and 2020, as compared to actual
PPNR and assuming no changes in interest rates:
December 31, 2021
December 31, 2020
-200bp
n/a
n/a
-100bp
n/a
n/a
+100bp
7.7%
2.4%
+200bp
16.8%
7.1%
Asset sensitivity for both net interest income and PPNR increased at December 31, 2021 as compared to December 31, 2020,
primarily due to changes in deposit beta assumptions, which were approved by ALCO and are reflective of management's
current deposit strategy and balance sheet composition. Loans at floors have increased $1.1 billion from $3.4 billion at
December 31, 2020 to $4.5 billion at December 31, 2021, lowering overall asset sensitivity, and which is being partially offset
by increased cash held at the FRB as a result of elevated deposits. When interest rates start to rise, not all of these loans will
immediately lift off of their floors. Due to the lower interest rate environment at both December 31, 2021 and 2020,
management did not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were
previously modeled when market rates were higher.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates
might have on Webster’s net interest income for the subsequent twelve month period starting at December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Short End of the Yield Curve
Long End of the Yield Curve
-100bp
n/a
n/a
-50bp
n/a
n/a
+50bp
3.2%
0.2%
+100bp
7.3%
1.5%
-100bp
(3.1)%
n/a
-50bp
(1.4)%
(2.2)%
+50bp
1.3%
1.0%
+100bp
2.6%
2.5%
54
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates
might have on Webster’s PPNR for the subsequent twelve month period starting at December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Short End of the Yield Curve
Long End of the Yield Curve
-100bp
n/a
n/a
-50bp
n/a
n/a
+50bp
5.1%
(0.3)%
+100bp
11.5%
1.7%
-100bp
(5.0)%
n/a
-50bp
(2.3)%
(4.0)%
+50bp
2.1%
1.8%
+100bp
4.0%
4.4%
These non-parallel scenarios are modeled with the short-end of the yield curve moving up or down 50 and 100 basis points,
while the long-end of the yield curve remains unchanged (and vice versa). The short-end of the yield curve is defined as terms
of less than eighteen months and the long-end of the yield curve is defined as terms greater than eighteen months. The results
reflect the annualized impact of immediate interest rate changes.
Sensitivity to the short-end of the yield curve for both net interest income and PPNR increased at December 31, 2021 as
compared to December 31, 2020, primarily due to changes in deposit beta assumptions, which were approved by ALCO and are
reflective of management's current deposit strategy and balance sheet composition, and excess cash held at the FRB. As interest
rates rise, this cash can be deployed into higher yielding financial assets. Net interest income and PPNR were less sensitive to
changes in the long-end of the yield curve at December 31, 2021 as compared to December 31, 2020, primarily due to slower
forecasted prepayment speeds as a result of increases in the long-end of the yield-curve, which in turn, extends the duration for
mortgage-backed securities and residential mortgage loans. Again, due to the lower interest rate environment at both December
31, 2021 and 2020, management did not run standard scenarios with negative interest rate assumptions to model the down rate
scenarios that were previously modeled when market rates were higher.
The following table summarizes the estimated economic value of financial assets, financial liabilities, and off-balance sheet
financial instruments and the corresponding estimated change in economic value if interest rates were to instantaneously
increase or decrease by 100 basis points at December 31, 2021 and 2020:
(Dollars in thousands)
At December 31, 2021
Assets
Liabilities
Net
Net change as % base net economic value
At December 31, 2020
Assets
Liabilities
Net
Net change as % base net economic value
Book
Value
Estimated
Economic
Value
Estimated Economic Value Change
-100bp
+100bp
$
$
$
$
34,915,599 $
31,477,274
3,438,325 $
34,515,422
30,015,357
4,500,065
32,590,690 $
29,356,065
3,234,625 $
32,546,388
29,357,878
3,188,510
$
$
$
$
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(801,524)
(988,401)
186,877
4.2 %
(625,173)
(1,058,460)
433,287
13.6 %
Changes in economic value can best be described through duration, which is a measure of the price sensitivity of financial
instruments due to changes in interest rates. For fixed-rate financial instruments, it can be thought of as the weighted-average
expected time to receive future cash flows, whereas for floating-rate financial instruments, it can be thought of as the weighted-
average expected time until the next rate reset. Overall, the longer the duration, the greater the price sensitivity due to changes
in interest rates. Generally, increases in interest rates reduce the economic value of fixed-rate financial assets as future
discounted cash flows are worth less at higher interest rates. In a rising interest rate environment, the economic value of
financial liabilities decreases for the same reason. A reduction in the economic value of financial liabilities is a benefit to
Webster. Floating-rate financial instruments may have durations as short as one day, and therefore, may have very little price
sensitivity due to changes in interest rates.
Duration gap represents the difference between the duration of financial assets and financial liabilities. A duration gap at or near
zero would imply that the balance sheet is matched, and therefore, would exhibit no change in estimated economic value for
changes in interest rates. At December 31, 2021 and 2020, Webster's duration gap was negative 1.8 years and negative 1.9
years, respectively. A negative duration gap implies that the duration of financial liabilities is longer than duration of financial
assets, and therefore, are more price sensitive and will reset their interest rates more slowly. 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 financial liabilities would more than offset the decreased value of financial assets. The opposite would generally be expected
to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and decrease
when interest rates fall over the long term, absent the effects of any new business booked in the future. At December 31, 2021,
long-term rates have risen by 65 basis points as compared to December 31, 2020. This higher starting point extends financial
asset duration by decreasing residential mortgage loans and mortgage-backed securities prepayment speeds.
55
The aforementioned earnings and economic values estimates are subject to factors that could cause actual results to differ, and
also assume that management does not take any additional action to mitigate any positive or negative effects from changing
interest rates. Management believes that the Company's interest rate risk position at December 31, 2021 represents a reasonable
level of risk given the current interest rate outlook. Management is prepared to take additional action in the event that interest
rates do change rapidly.
Critical Accounting Estimates
The preparation of Webster's Consolidated Financial Statements and accompanying Notes thereto in accordance with GAAP
and practices generally applicable to the financial services industry requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities.
While management's estimates are made based on historical experience, available current information, and other factors that are
deemed to be relevant, actual results could significantly differ from those estimates.
Accounting estimates are necessary in the application of certain accounting policies and can be susceptible to significant change
in the near term. Critical accounting accounting estimates are those estimates made in accordance with GAAP that involve a
significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on Webster's
financial condition or results of operations. Management has identified that Webster's most critical accounting estimate is its
ACL on loans and leases. This critical accounting policy, including its underlying estimates, is discussed directly with the Audit
Committee of the Board of Directors.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases is a reserve established through a provision for credit losses charged to expense, which represents
management’s best estimate of expected lifetime credit losses within Webster's loan and lease portfolios at the balance sheet
date. The calculation of expected credit losses is determined using predictive methods and models that follow a PD and LGD
framework, and include consideration of past events, current conditions, macroeconomic variables (such as unemployment,
gross domestic product, retail sales, and interest rate spreads), and reasonable and supportable economic forecasts that affect the
collectability of the reported amounts. Changes to the ACL on loans and leases, and therefore, to the related provision for credit
losses, can materially affect financial results.
The determination of the appropriate level of ACL on loans and leases inherently involves a high degree of subjectivity and
requires Webster to make significant estimates of current credit risks and trends using existing qualitative and quantitative
information and reasonable supportable forecasts of future economic conditions, all of which may undergo frequent and
material changes. Changes in economic conditions affecting borrowers and macroeconomic variables that Webster is more
susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans,
identification of additional problems loans, the fair value of underlying collateral, and other factors, both within and outside the
Company's control, may indicate the need for an increase or decrease in the ACL on loans and leases.
It is difficult to estimate the sensitivity of how potential changes in any one economic factor or input might affect the overall
reserve because a wide variety of factors and inputs are considered in estimating the ACL and changes in those factors and
inputs considered may not occur at the same rate and may not be consistent across all product types. Further, changes in factors
and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
Executive management reviews and advises on the adequacy of the ACL on loans and leases on a quarterly basis. Although the
overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is
available to absorb credit losses for any of the loan and lease portfolios.
Additional information regarding the determination of the ACL on loans and leases, including Webster's valuation
methodology, can be found in Part II under the section captioned "Allowance for Credit Losses" contained elsewhere in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations and within Note 1: Summary of
Significant Accounting Policies in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements
and Supplementary Data.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market risk can be found in Part II under the section
captioned "Asset/Liability Management and Market Risk" contained in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and within Note 17: Derivative Financial Instruments in the Notes to the
Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data, which are incorporated
herein by reference.
56
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.
58
60
61
62
63
64
66
57
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Webster Financial Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Webster Financial Corporation and subsidiaries (the Company) as
of December 31, 2021 and 2020, 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, 2021, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the
three‑year period ended December 31, 2021, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC Topic 326, Financial Instruments –
Credit Losses.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Assessment of the allowance for credit losses for loans and leases evaluated on a collective basis
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s total allowance for credit losses as of
December 31, 2021 was $301.2 million, of which $280.1 million related to the allowance for credit losses on loans and leases
evaluated on a collective basis (the December 31, 2021 collective ACL). The December 31, 2021 collective ACL include the
measure of expected credit losses on a collective (pooled) basis for those loans and leases that share similar risk
characteristics. The Company’s collectively assessed loans and leases are segmented based on the commercial and consumer
portfolios and expected losses are determined using models that follow a probability of default (PD), loss given default
(LGD), and exposure at default (EAD) framework. The expected credit losses are the product of multiplying the Company’s
estimates of PD, LGD, and individual loan level EAD on an undiscounted basis. The Company’s calculations of PD and
LGD use predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic
conditions, historical loss information, and credit risk ratings for commercial loans. Macroeconomic variables are used as
inputs to the PD and LGD models and are selected based on the correlation of the variables to credit losses for each portfolio
segment. The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a
reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company reverts on a
58
straight-line basis to its historical loss rates, evaluated over the historical observation period, for the remaining life of the
loans and leases. The calculation of EAD follows an iterative process to determine the expected remaining principal balance
of a loan based on historical paydown rates for loans of similar segment within the same portfolio. The calculation of
portfolio exposure in future quarters incorporates expected losses and principal paydown (PPD). PPD is the combination of
contractual repayments and voluntary prepayments. A portion of the collective ACL is comprised of qualitative adjustments
for risk characteristics which are not reflected or captured in the quantitative models but are likely to impact the
measurement of estimated credit losses.
We identified the assessment of the December 31, 2021 collective ACL as a critical audit matter. A high degree of audit
effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the
assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the
collective ACL methodology, including the methods and models used to estimate (1) the PD, LGD, EAD and their
significant assumptions, including the economic forecast scenario and macroeconomic assumptions, the reasonable and
supportable forecast period, the historical observation period, and credit risk ratings for commercial loans (2) qualitative
adjustments and their significant assumptions related to credit concentration, nature and volume of portfolio growth, credit
quality trends and economic considerations not reflected in the PD and LGD models and EAD method. The assessment also
included an evaluation of the conceptual soundness and performance of the PD and LGD models and EAD method. In
addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL
estimates, including controls over the:
•
•
•
•
•
•
•
evaluation of the collective ACL methodology
evaluation of the PD and LGD models and EAD method
identification and determination of the significant assumptions used in the PD and LGD models and EAD method
evaluation of credit risk ratings for commercial loans
evaluation of qualitative adjustments, including the significant assumptions
performance monitoring of the PD and LGD models and EAD method
analysis of the collective ACL results, trends, and ratios.
We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources of data, factors, and
assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In
addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
•
•
•
evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles
evaluating judgments made by the Company relative to the development and performance testing of the PD and
LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and
regulatory practices
assessing the conceptual soundness and performance testing of the PD and LGD models and EAD method by
inspecting the model documentation to determine whether the models are suitable for their intended use
evaluating the selection of the economic forecast scenario and underlying macroeconomic assumptions by
comparing them to the Company’s business environment and relevant industry practices
evaluating the length of the historical observation period and reasonable and supportable forecast periods by
comparing them to specific portfolio risks characteristics and trends
testing individual credit risk ratings for a selection of commercial loans by evaluating the financial performance of
the borrower, sources of repayment, and any relevant guarantees or underlying collateral
evaluating the methodology and assumptions used to develop the qualitative factors and the effect of those factors
on the collective ACL compared with credit trends and identified limitations of the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the December 31, 2021 collective ACL by
evaluating the:
•
•
cumulative results of the audit procedures
potential bias in the accounting estimates.
We have served as the Company's auditor since 2013.
Hartford, Connecticut
February 25, 2022
59
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets:
Cash and due from banks
Interest-bearing deposits
Investment securities available-for-sale, at fair value
Investment securities held-to-maturity, net of allowance for credit losses of $214 and $299
Federal Home Loan Bank and Federal Reserve Bank stock
Loans held for sale (valued under fair value option $4,694 and $14,000)
Loans and leases
Allowance for credit losses on loan and leases
Loans and leases, net
Deferred tax assets, 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
Operating lease liabilities
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity:
Preferred stock, $0.01 par value: Authorized - 3,000,000 shares;
Series F issued and outstanding (6,000 shares)
Common stock, $0.01 par value: Authorized - 200,000,000 shares;
Issued (93,686,311 shares)
Paid-in capital
Retained earnings
Treasury stock, at cost (3,102,690 and 3,487,389 shares)
Accumulated other comprehensive (loss) income, net of tax
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying Notes to Consolidated Financial Statements.
December 31,
2021
2020
137,385 $
324,185
4,234,854
6,198,125
71,836
4,694
22,271,729
(301,187)
21,970,542
109,405
204,557
538,373
17,869
572,305
531,469
34,915,599 $
193,501
69,603
3,326,776
5,567,889
77,594
14,012
21,641,215
(359,431)
21,281,784
81,286
226,743
538,373
22,383
564,195
626,551
32,590,690
7,060,488 $
22,786,541
29,847,029
674,896
10,997
562,931
144,804
236,617
31,477,274
6,155,592
21,179,844
27,335,436
995,355
133,164
567,663
158,280
166,167
29,356,065
145,037
145,037
937
1,108,594
2,333,288
(126,951)
(22,580)
3,438,325
34,915,599 $
937
1,109,532
2,077,522
(140,659)
42,256
3,234,625
32,590,690
$
$
$
$
60
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
2020
2019
2021
$
762,713 $
159,001
20,884
246
942,844
789,719 $
189,683
21,878
769
1,002,049
924,693
207,294
21,869
727
1,154,583
20,131
3,040
1,708
16,876
41,755
901,089
(54,500)
955,589
162,710
36,658
39,586
6,219
14,429
—
63,770
323,372
419,989
55,346
112,831
4,513
12,051
47,235
15,794
77,341
745,100
533,861
124,997
408,864
(7,875)
400,989 $
67,897
5,941
18,767
18,051
110,656
891,393
137,750
753,643
156,032
29,127
32,916
18,295
14,561
8
34,338
285,277
428,391
71,029
112,273
4,160
14,125
32,424
18,316
78,228
758,946
279,974
59,353
220,621
(7,875)
212,746 $
129,577
17,953
31,399
20,527
199,456
955,127
37,800
917,327
168,022
31,327
32,932
6,115
14,612
29
32,278
285,315
395,402
57,181
105,283
3,847
16,286
21,380
17,954
98,617
715,950
486,692
103,969
382,723
(7,875)
374,848
4.43 $
4.42
2.35 $
2.35
4.07
4.06
(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
(Benefit) provision for credit losses
Net interest income after (benefit) provision for credit 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
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 taxes
Income tax expense
Net income
Preferred stock dividends
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
$
$
61
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale
Derivative instruments
Defined benefit pension and postretirement benefit plans
Other comprehensive (loss) income, net of tax
Comprehensive income
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2020
2019
2021
$
408,864 $
220,621 $
382,723
(62,888)
(13,848)
11,900
(64,836)
344,028 $
50,173
29,102
(947)
78,328
298,949 $
88,625
129
5,826
94,580
477,303
$
62
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
Balance at December 31, 2018
Adoption of ASU No. 2016-02
Net income
Other comprehensive income, net of tax
Common stock dividends and equivalents $1.53 per share
Series F preferred stock dividends $1,312.50 per share
Stock-based compensation
Exercise of stock options
Common shares acquired from stock compensation plan activity
Common stock repurchase program
Balance at December 31, 2019
Adoption of ASU No. 2016-13
Net income
Other comprehensive income, net of tax
Common stock dividends and equivalents $1.60 per share
Series F preferred stock dividends $1,312.50 per share
Stock-based compensation
Exercise of stock options
Common shares acquired from stock compensation plan activity
Common stock repurchase program
Balance at December 31, 2020
Net income
Other comprehensive (loss), net of tax
Common stock dividends and equivalents $1.60 per share
Series F preferred stock dividends $1,312.50 per share
Stock-based compensation
Exercise of stock options
Common shares acquired from stock compensation plan activity
Preferred
Stock
Common
Stock
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income,
Net of Tax
Treasury
Stock,
at cost
Total
Shareholders'
Equity
$ 145,037 $
937 $ 1,114,394 $ 1,828,303 $ (71,504) $
(130,652) $ 2,886,515
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(513)
382,723
—
(141,286)
(7,875)
—
—
—
—
—
885
(2,029)
—
—
—
—
—
—
11,741
2,648
(6,616)
(13,003)
—
—
94,580
—
—
—
—
—
—
(513)
382,723
94,580
(141,286)
(7,875)
12,626
619
(6,616)
(13,003)
145,037
937
1,113,250
2,061,352
(76,734)
(36,072)
3,207,770
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(51,213)
220,621
—
(145,363)
(7,875)
—
—
—
—
—
(3,524)
(194)
—
—
—
—
—
—
15,703
434
(3,506)
(76,556)
—
—
78,328
—
—
—
—
—
—
(51,213)
220,621
78,328
(145,363)
(7,875)
12,179
240
(3,506)
(76,556)
145,037
937
1,109,532
2,077,522
(140,659)
42,256
3,234,625
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
408,864
—
(145,223)
(7,875)
—
—
—
—
4,235
(5,173)
—
—
—
—
9,427
8,665
(4,384)
—
408,864
(64,836)
(64,836)
—
—
—
—
—
(145,223)
(7,875)
13,662
3,492
(4,384)
Balance at December 31, 2021
$ 145,037 $
937 $ 1,108,594 $ 2,333,288 $ (126,951) $
(22,580) $ 3,438,325
See accompanying Notes to Consolidated Financial Statements.
63
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
(Benefit) provision for credit losses
Deferred income tax (benefit) expense
Stock-based compensation expense
Depreciation and amortization of property and equipment and intangible assets
Amortization and accretion of net discounts on earnings assets and borrowings
Amortization of low-income housing tax credit investments
Amortization of mortgage servicing assets
Reduction of ROU lease assets
Net (gain) on sale and write-downs of foreclosed properties and repossessed assets
Net (gain) loss on sale and write-downs of property and equipment
Net (gain) on sale of investment securities
Originations of loans held for sale
Proceeds from sale of loans held for sale
Net (gain) on mortgage banking activities
Net (gain) on sale of loans not originated for sale
(Increase) in cash surrender value of life insurance policies
(Gain) from life insurance policies
Net decrease (increase) in derivative contract assets and liabilities
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:
Purchases of available-for-sale securities
Proceeds from principal payments, maturities, and calls of available-for-sale securities
Proceeds from sale of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from principal payments, maturities, and calls of held-to-maturity securities
Net decrease in Federal Home Loan Bank and Federal Reserve Bank stock
Alternative investments (capital calls), net of distributions
Net (increase) in loans
Proceeds from sale of loans not originated for sale
Proceeds from sale of foreclosed properties and repossessed assets
Proceeds from sale of property and equipment
Additions to property and equipment
Proceeds from life insurance policies
Net cash (used for) investing activities
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2020
2019
2021
$
408,864 $
220,621 $
382,723
(54,500)
(4,998)
13,662
35,913
133,069
3,918
5,593
22,781
(744)
(1,236)
—
(235,066)
247,634
(5,912)
(3,862)
(14,429)
(4,402)
173,506
(69,263)
38,064
688,592
(1,957,562)
935,621
—
(1,968,133)
1,288,140
5,758
(11,361)
(773,443)
82,187
1,998
3,221
(16,589)
5,074
(2,405,089)
137,750
(31,236)
12,179
36,616
75,929
5,286
6,562
27,868
(1,938)
1,105
(8)
(449,803)
486,341
(15,305)
(301)
(14,561)
(1,219)
(118,336)
11,120
(8,121)
380,549
(990,904)
627,577
8,963
(1,297,535)
983,864
71,452
(12,244)
(1,681,947)
9,197
11,497
866
(21,280)
1,885
(2,288,609)
37,800
927
12,626
37,507
49,731
3,249
7,318
2,479
(729)
1,340
(29)
(240,305)
216,239
(4,031)
(667)
(14,612)
(4,933)
(123,752)
(35,774)
(23,257)
303,850
(549,541)
556,283
70,087
(1,571,604)
573,703
240
(6,065)
(1,642,501)
20,931
11,562
—
(25,717)
12,866
(2,549,756)
64
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
Proceeds from the issuance of long-term debt
Debt issuance costs
Dividends paid to common shareholders
Dividends paid to preferred shareholders
Exercise of stock options
Common stock repurchase program
Common shares acquired related to stock compensation plan activity
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Non-cash 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
ROU lease assets recorded upon adoption of ASU No. 2016-02
Lessee operating lease liabilities recorded upon adoption of ASU No. 2016-02
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2020
2019
2021
2,511,163
180,470
(302,637)
4,006,319
3,850,000
(5,665,312)
1,465,377
9,200,000
(9,078,332)
(320,459)
—
—
(144,807)
(7,875)
3,492
—
(4,384)
1,914,963
198,466
263,104
461,570 $
(45,076)
—
—
(144,965)
(7,875)
240
(76,556)
(3,506)
1,913,269
5,209
257,895
263,104 $
458,557
300,000
(3,642)
(140,783)
(7,875)
619
(13,003)
(6,616)
2,174,302
(71,604)
329,499
257,895
42,151 $
112,587
118,123 $
94,072
197,200
110,057
1,757 $
78,316
—
—
—
5,394 $
8,578
4,657
—
—
10,440
16,609
—
157,234
178,802
$
$
$
65
Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation is a bank holding company and financial holding company under the BHC Act, incorporated
under the laws of Delaware in 1986, and headquartered in Stamford, Connecticut. Webster Bank is the principal consolidated
subsidiary of Webster Financial Corporation. Webster Bank, and its HSA Bank division, deliver a wide range of banking,
investment, and financial services to individuals, families, and businesses. Webster Bank serves consumer and business
customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of
banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout the
northeastern U.S from New York to Massachusetts. It also offers equipment financing, commercial real estate lending, asset-
based lending, and treasury and payment solutions, primarily in the eastern U.S. HSA Bank is a leading provider of HSAs, and
also delivers health reimbursement arrangements, and flexible spending and commuter benefit account administration services
to employers and individuals in all 50 states.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP, and include the accounts
of Webster Financial Corporation and all other entities in which the Company has a controlling financial interest. Intercompany
transactions and balances have been eliminated in consolidation. Assets that the Company holds or manages in a fiduciary or
agency capacity for customers, referred to as assets under administration or assets under management, are not included on the
accompanying Consolidated Balance Sheets.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications did not
have a significant impact on the Company's consolidated financial statements.
Principles of Consolidation
The purpose of consolidated financial statements is to present the results of operations and the financial position of the
Company and its subsidiaries as if the consolidated group were a single economic entity. In accordance with the applicable
accounting guidance for consolidations, the consolidated financial statements include any voting interest entity (VOE) in which
the Company has a controlling financial interest and any variable interest entity (VIE) for which the Company is deemed to be
the primary beneficiary. The Company generally consolidates its VOEs if the Company, directly or indirectly, owns more
than 50% of the outstanding voting shares of the entity and the non-controlling shareholders do not hold any substantive
participating or controlling rights. The Company evaluates VIEs to understand the purpose and design of the entity, and its
involvement in the ongoing activities of the VIE, and will consolidate the VIE if it has (i) the power to direct the activities of
the VIE that most significantly affect the VIE's economic performance, and (ii) an obligation to absorb losses of the VIE, or the
right to receive benefits from the VIE, that could potentially be significant to the VIE. The Company accounts for
unconsolidated partnerships and certain other investments using the equity method of accounting if it has the ability to
significantly influence the operating and financial policies of the investee. This is generally presumed to exist when the
Company owns between 20% and 50% of a corporation, or when it has greater than 3% to 5% interest in a limited partnership
or similarly structured entity. Additional information regarding consolidated and unconsolidated VIEs can be found within Note
2: Variable Interest Entities.
Use of Estimates
The preparation of the consolidated financial statements in accordance 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 the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash and due from banks and interest-bearing deposits. Cash equivalents have a
maturity of three months or less.
Cash and due from banks includes cash on hand, certain deposits at the FRB of Boston, and cash due from banks. Restricted
cash related to Federal Reserve System requirements and cash collateral received on derivative positions are included in cash
and due from banks.
Interest-bearing deposits includes deposits at the FRB of Boston in excess of reserve requirements, if any, and federal funds
sold to other financial institutions. Federal funds sold essentially represents an uncollateralized loan. Therefore, the Company
regularly evaluates the credit risk associated with the other financial institutions to ensure that Webster does not become
exposed to any significant credit risk on these cash equivalents.
66
Investments in Debt Securities
Debt security transactions are recognized on the trade date, which is the date the order to buy or sell the security is executed.
Investments in debt securities are classified as available-for-sale or held-to-maturity at the time of purchase. Any classification
change subsequent to the trade date is reviewed for compliance with corporate objectives and accounting policies.
Debt securities classified as available-for-sale are recorded at fair value with unrealized gains and losses recorded as a
component of other comprehensive income (OCI) or other comprehensive loss (OCL). If a debt security is transferred from
available-for-sale to held-to-maturity, it is recorded at fair value at the time of transfer and any respective gain or loss would be
recorded as a separate component of OCI or OCL and amortized as an adjustment to interest income over the remaining life of
the security. Debt securities classified as available-for-sale are reviewed for credit losses when the fair value of a security falls
below the amortized cost basis and the decline is evaluated to determine if any portion is attributable to credit loss. The decline
in fair value attributable to credit loss is recorded directly to earnings, with a corresponding allowance for credit loss, limited to
the amount that fair value is less than the amortized cost. If the credit quality subsequently improves, previously recorded
allowance amounts may be reversed. An available-for-sale debt security will be placed on non-accrual status if collection of
principal and interest in accordance with contractual terms is doubtful. When the Company intends to sell an impaired
available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to
recovery of the amortized cost basis, the entire fair value adjustment will immediately be recognized in earnings through non-
interest income. The gain or loss on sale is calculated using the carrying value plus any related accumulated OCI or OCL
balance associated with the securities sold.
Debt securities classified as held-to-maturity are those in which Webster has the ability and intent to hold to maturity. Debt
securities classified as held-to-maturity are recorded at amortized cost net of unamortized premiums and discounts. Discount
accretion income and premium amortization expense are recognized as interest income using the effective interest method, with
consideration given to prepayment assumptions on mortgage backed securities. Premiums are amortized to the earliest call date
for debt securities purchased at a premium, with explicit, non-contingent call features and are callable at a fixed price and preset
date. Debt securities classified as held-to-maturity are reviewed for credit losses under the CECL model with an allowance
recorded on the balance sheet for expected lifetime credit losses. The ACL is calculated on a pooled basis using statistical
models which include forecasted scenarios of future economic conditions. Forecasts revert to long-run loss rates implicitly
through the economic scenario, generally over three years. If the risk for a particular security no longer matches the collective
assessment pool, it is removed and individually assessed for credit deterioration. The non-accrual policy for held-to-maturity
debt securities is the same as for available-for-sale debt securities.
A zero credit loss assumption is maintained for U.S. Treasuries and agency-backed securities in both the available-for-sale and
held-to-maturity portfolios, as applicable. This assumption is subject to quarterly review to ensure it remains appropriate.
Additional information regarding investments in debt securities can be found within Note 4: Investment Securities.
Investments in Equity Securities
The Company’s accounting treatment for unconsolidated equity investments differs for those with and without readily
determinable fair values. Equity investments with readily determinable fair values are recorded at fair value with changes in fair
value recorded in non-interest income. For equity investments without readily determinable fair values, the Company elected
the measurement alternative, and therefore carries these investments at cost, less impairment, if any, plus or minus changes in
observable prices. Certain equity investments that do not have a readily available fair value may qualify for net asset value
(NAV) measurement based on specific requirements. The Company's alternative investments accounted for at NAV consist of
investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the
underlying equity is liquidated. On a quarterly basis, the Company reviews its equity investments without readily determinable
fair values for impairment. If the equity investment is considered impaired, an impairment loss equal to the amount by which
the carrying value exceeds its fair value is recorded through a charge to earnings. The impairment loss may be reversed in a
subsequent period if there are observable transactions for the identical or similar investment of the same issuer at a higher
amount than the carrying amount that was established when the impairment was recognized. Impairments, as well as upward or
downward adjustments resulting from observable price changes in orderly transactions for identical or similar investments, are
included in non-interest income.
Equity investments in entities that finance affordable housing and other community development projects provide a return
primarily through the realization of tax benefits. The Company applies the proportional amortization method to account for its
investments in qualified affordable housing projects.
Investment in Federal Home Loan Bank and Federal Reserve Bank Stock
Webster Bank is a member of the FHLB and the Federal Reserve System, and is required to maintain an investment in capital
stock of both the FHLB and FRB. Based on redemption provisions, FHLB and FRB stock has no quoted market value and is
carried at cost. Membership stock is reviewed for impairment if economic circumstances would warrant review.
67
Loans Held for Sale
Loans that are classified as held for sale at the time of origination are accounted for under the fair value option. Loans not
originated for sale but subsequently transferred to held for sale are valued 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 non-interest income. Gains or losses on the sale of loans held for sale are recorded either as part of mortgage
banking activities or other income. Cash flows from the sale of loans that were originated sale are presented as operating cash
flows. Cash flows from the sale of loans originated for investment then subsequently transferred to held for sale are presented
as investing cash flows. Additional information regarding mortgage banking activities and loans sold can be found within Note
6: Transfers and Servicing of Financial Assets.
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, the Company’s continuing involvement with financial
assets sold is minimal, and generally is 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 other assets obtained or
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 subsequently carried at the
lower of cost or fair value. Additional information regarding transfers of financial assets and mortgage servicing assets can be
found within Note 6: Transfers and Servicing of Financial Assets.
Loans and Leases
Loans and leases are stated at the principal amount outstanding, net of amounts charged off, unearned income, unamortized
premiums and discounts, and deferred loan and lease fees or 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 and are adjusted for
prepayments, as 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.
Non-accrual Loans
Loans and leases are placed on non-accrual status when collection of principal and interest in accordance with contractual terms
is doubtful, which generally occurs when principal or interest payments become 90 days delinquent unless the loan or lease is
well secured and in the process of collection, or sooner if 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. Commercial non-mortgage, asset-based, commercial real
estate, and equipment finance loans and leases are subject to a detailed review when they reach 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 non-mortgage,
asset-based, 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 recovered on residential
real estate and consumer loans, interest payments are taken into income as received on a cash basis.
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Loans are generally 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 loan discharged under Chapter 7 of the U.S. bankruptcy code is removed from non-
accrual status when the bank expects full repayment of the remaining pre-discharged contractual principal and interest, and had
at least six consecutive months of current payments. Additional information regarding non-accrual loans and leases can be
found within Note 5: Loans and Leases.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases for the credit
losses that are expected to occur over the life of the asset. The ACL is established through a provision charged to expense.
Executive management reviews and advises on the adequacy of the allowance, which is maintained at a level that management
deems sufficient to be sufficient to cover expected credit losses within the loan and lease portfolios. The Company has elected
to present accrued interest receivable separately from the amortized cost basis on the consolidated balance sheets and does not
estimate an ACL on accrued interest as policies are in place to ensure timely write-offs and non-accruals.
The ACL on loans and leases is determined using the CECL model, whereby an expected lifetime credit loss is recognized at
the origination or purchase of an asset, including those acquired through a business combination, which is then reassessed at
each reporting date over the contractual life of the asset. Generally, expected credit losses are determined through a pooled,
collective assessment of loans and leases with similar risk characteristics. However, if the risk characteristics of a loan or lease
change such that it no longer matches that of the collectively assessed pool, it is removed from the population and individually
assessed for credit losses. The total ACL on loans and leases recorded by management represents the aggregated estimated
credit loss determined through both the collective and individual assessments.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on product type, credit
quality, risk ratings, and/or collateral types within its commercial and consumer portfolios, and expected losses are determined
using a Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) framework. Expected credit
losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and
the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit
losses for a given portfolio. The Company’s PD and LGD calculations are predictive models that measure the current risk
profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, and credit risk ratings.
The Company employs a dual grade credit risk grading system for estimating the PD and the LGD for its commercial portfolio.
The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk
Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength
of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each
grade corresponding to a progressively greater risk of loss. Grades (1) to (6) are considered pass ratings, and grades (7) to (10)
are considered criticized, as defined by the regulatory agencies. A (7) "Special Mention" rating has s potential weakness that, if
left uncorrected, may result in deterioration of the repayment prospects for the asset. A (8) "Substandard" rating has a well-
defined weakness that jeopardizes the full repayment of the debt. A (9) "Doubtful" rating has all of the same weaknesses as a
substandard asset with the added characteristic that the weakness makes collection or liquidation in full given current facts,
conditions, and values improbable. Assets classified as a (10) "Loss" rating are considered uncollectible and charged off. Risk
ratings, which are assigned to differentiate risk within the portfolio, are reviewed on an ongoing basis and revised to reflect
changes in a borrower's current financial position and outlook, risk profile, and the related collateral and structural position.
Loan officers review updated financial information or other loan factors on at least an annual basis for all pass rated loans to
assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring.
For its consumer portfolio, the Company considers factors such as past due status, updated FICO scores, employment status,
collateral, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans, as
credit quality indicators. For portfolio monitoring purposes, the Company estimates the current value of property secured as
collateral for home equity and residential first mortgage lending products on an ongoing basis. The estimate is based on home
price indices compiled by the S&P/Case-Shiller Home Price Indices. Real estate price data is applied to the loan portfolios
taking into account the age of the most recent valuation and geographic area.
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The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a two year
reasonable and supportable forecast period. After the reasonable and supportable forecast period, the credit loss model
gradually reverts to historical loss rates for the remaining life of the loans and leases on a straight-line basis over a one year
reversion period. Historical loss rates are based on approximately 10 years of recently available data and are updated annually.
The calculation of EAD follows an iterative process to determine the expected remaining principal balance of a loan based on
historical paydown rates for loans of a similar segment within the same portfolio. The calculation of portfolio exposure in future
quarters incorporates expected losses and principal paydowns (the combination of contractual repayments and voluntary
prepayments). A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics that are not
reflected or captured in the quantitative models, but are likely to impact the measurement of estimated credit losses.
Macroeconomic variables are used as inputs to the loss models and are selected based on the correlation of the variables to
credit losses for each class of financing receivable as follows: the commercial model uses unemployment, gross domestic
product, and retail sales (for commercial unfunded); the residential model uses the Case-Shiller Home Price Index; the home
equity loan and line of credit models use interest rate spreads between U.S. Treasuries and corporate bonds and, in addition, the
home equity loan model also uses the Federal Housing Finance Agency Home Price Index; and the personal loan and credit line
models use the Case-Shiller Home Price Index and Federal Housing Finance Agency Home Price Index. There were no changes
to the macroeconomic variables used in the loss models in the current year. Forecasted economic scenarios are sourced from a
third party. Data from the baseline forecast scenario is used as the input to the modeled loss calculation. Changes in forecasts of
macroeconomic variables will impact expectations of lifetime credit losses calculated by the loss models. However, the impact
of changes in macroeconomic forecasts may be different for each portfolio and will reflect the credit quality and nature of the
underlying assets at that time.
To further refine the expected loss estimate, qualitative factors are used reflecting consideration of credit concentration, credit
quality trends, the quality of internal loan reviews, the nature and volume of portfolio growth, staffing levels, underwriting
exceptions, and other economic considerations that are not reflected in the base loss model. Management may apply additional
qualitative adjustments to reflect other relevant facts and circumstances that impact expected credit losses. These economic and
qualitative inputs are used to forecast expected losses over the reasonable and supportable forecast period.
In addition to the above considerations, the ACL calculation includes expectations of prepayments and recoveries. Extensions,
renewals, and modifications are not included in the collective assessment. However, if there is a reasonable expectation of a
TDR, the loan is removed from the collective assessment pool and is individually assessed.
Individually Assessed Loans and Leases. When loans and leases no longer match the risk characteristics of the collectively
assessed pool, they are removed from the collectively assessed population and individually assessed for credit losses. Generally,
all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans where the borrower is
experiencing financial difficulty, are individually assessed.
Individual assessment for collateral dependent commercial loans facing financial difficulty is based on the fair value of the
collateral less estimated cost to sell, the present value of the expected cash flows from the operation of the collateral, or a
scenario weighted approach of both of these methods. If a loan is not collateral dependent, the individual assessment is based on
a discounted cash flow approach. For collateral dependent commercial loans and leases, Webster's 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 individual reviews these appraisals for compliance with the
Financial Institutions Reform Recovery and Enforcement Act and the Uniform Standards of Professional Appraisal Practice.
Individual assessments for residential and home equity loans are based on a discounted cash flow approach or the fair value of
collateral less the estimated costs to sell. Other consumer loans are individually assessed using a loss factor approach based on
historical loss rates. 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 obtaining a new appraisal or other internal valuation method. Fair value is also reassessed, with any excess amount
charged off, for residential and home equity loans that reach 180 days past due per Federal Financial Institutions Examination
Council guidelines.
A fair value shortfall relative to the amortized cost balance is reflected as a valuation allowance within the ACL on loans and
leases. Subsequent to an appraisal or other fair value estimate, should reliable information come to management's attention that
the value has declined further, an additional allowance may be recorded to reflect the particular situation, thereby increasing the
ACL on loans and leases. If the credit quality subsequently improves, the allowance is reversed up to a maximum of the
previously recorded credit losses. Any individually assessed loan for which no specific valuation allowance is necessary is the
result of either sufficient cash flow or sufficient collateral coverage relative to the amortized cost. Additional information
regarding the ACL on loans and leases can be found within Note 5: Loans and Leases.
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Before the adoption of CECL on January 1, 2020, the allowance for loan and lease losses (ALLL) was determined under the
ALLL incurred loss model, which reflected management’s best estimate of probable losses that may be incurred within the
existing loan and lease portfolio as of the related balance sheet date. The ALLL consists of 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. The reserve level reflects management’s view of trends in losses, portfolio quality, and
economic, political, and regulatory conditions. While management utilized its best judgment based on the information available
at the time, the ultimate adequacy of the allowance was dependent upon a variety of factors that were beyond the Company’s
control, which included the performance its portfolio, economic conditions, interest rate sensitivity, and other external factors.
The process for estimating probable losses under the ALLL approach was based on predictive models that measured the current
risk profile of the loan and lease portfolio and combined the measurement with other quantitative and qualitative factors. To
measure credit risk for the commercial, commercial real estate, and equipment financing portfolios, the Company employed a
dual grade credit risk grading system for estimating the PD and the LGD. The credit risk grade system under the ALLL model
is the same as described under the CECL approach. For the Company's consumer portfolio, credit risk factors are also
consistent with the factors used in the CECL approach. Back-testing was performed to compare original estimated losses and
actual observed losses, resulting in ongoing refinements. The balance resulting from this process, together with specific
valuation allowances, determined the overall reserve level.
Charge-off of Uncollectible Loans
Any loan may be charged-off if a loss confirming event has occurred or if there is a period of extended delinquency. Loss
confirming events usually involve the receipt of specific adverse information about the borrower and may include bankruptcy
when unsecured, foreclosure, or receipt of an asset valuation indicating a shortfall between the value of the collateral and the
book value of the loan when the collateral is the sole source of repayment. The Company generally will charge-off commercial
loans when it is determined that the specific loan or a portion thereof is uncollectible. This determination is based on facts and
circumstances of the individual loan and normally includes considering the viability of the related business, the value of any
collateral, the ability and willingness of any guarantors to perform, and the overall financial condition of the borrower. The
Company generally will charge-off residential real estate loans to the estimated fair value of its collateral, net of selling costs,
when becoming 180 days past due.
Allowance for Credit Losses on Unfunded Loan Commitments
The ACL on unfunded loan commitments provides for potential exposure inherent with funding the unused portion of legal
commitments to lend that are not unconditionally cancellable by the Company. Accounting for unfunded loan commitments
follows the CECL model. The calculation of the allowance includes the probability of funding to occur and a corresponding
estimate of expected lifetime credit losses on amounts assumed to be funded. Loss calculation factors are consistent with the
ACL methodology for funded loans using the PD and LGD applied to the underlying borrower risk and facility grades, a draw
down factor applied to utilization rates, relevant forecast information, and management's qualitative factors. The ACL on
unfunded credit commitments is included within accrued expenses and other liabilities on the accompanying Consolidated
Balance Sheets and the related credit expense is reported as a component of other non-interest expense on the accompanying
Consolidated Statements of Income. Additional information regarding the ACL on unfunded loan commitments can be found
within Note 23: Commitments and Contingencies.
Troubled Debt Restructurings
A modified loan is considered a TDR when the following two conditions are met: (i) the borrower is experiencing financial
difficulty, 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 borrower'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.
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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 when determining 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. TDRs are individually assessed loans and
reported as TDRs for the remaining life of the loan. 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. Additional
information regarding TDRs can be found within Note 5: Loans and Leases.
Foreclosed and Repossessed Assets
Real estate acquired through foreclosure or completion of a deed in lieu of foreclosure and other assets acquired through
repossession are recorded at fair value less estimated cost to sell at the date of transfer. Subsequent to the acquisition date, the
foreclosed and repossessed assets are carried at the lower of cost or fair value less estimated selling costs and are included
within other assets on 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. Upon transfer to other real estate owned (OREO), the excess of the loan balance over fair value less
cost to sell is charged off against the ACL. Subsequent write-downs in value, maintenance costs as incurred, and gains or losses
upon sale are charged to non-interest expense on the accompanying Consolidated Statements of Income.
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation and amortization is
computed on a straight-line basis over the estimated useful lives of the assets, as illustrated in the following table. If shorter,
leasehold improvements are amortized over the terms of the respective leases.
Building and Improvements
Leasehold improvements
Fixtures and equipment
Data processing and software
Minimum
5
5
5
3
-
-
-
-
Maximum
40
20
10
7
years
years
years
years
Repairs and maintenance costs are expensed as incurred, while significant improvements are capitalized. Property and
equipment that is actively marketed for sale is reclassified to assets held for disposition. The cost and accumulated depreciation
and amortization of property and equipment that is sold, retired, or otherwise disposed of, is eliminated from accounts and any
resulting gain or loss is recorded as non-interest income or non-interest expense, respectively, on the accompanying
Consolidated Statements of Income Additional information regarding property and equipment can be found within Note 7:
Premises and Equipment.
Leasing
A ROU asset and corresponding lease liability are recognized at the lease commencement date when the Company is a lessee.
ROU lease assets are included in premises and equipment on the accompanying Consolidated Balance Sheets. A ROU asset
reflects the present value of the future minimum lease payments adjusted for any initial direct costs, incentives, or other
payments prior to the lease commencement date. A lease liability represents a legal obligation to make lease payments and is
determined by the present value of the future minimum lease payments, discounted using the rate implicit in the lease or the
Company’s incremental borrowing rate. Variable lease payments that are dependent on an index or rate are initially measured
using the index or rate at the commencement date and are included in the measurement of the lease liability. Renewal options
are not included as part of the ROU asset or lease liability unless the option is deemed reasonably certain to exercise.
For real estate leases, lease components and non-lease components are accounted for as a single lease component. For
equipment leases, lease and non-lease components are accounted for separately. Operating lease expense is comprised of
operating lease costs and variable lease costs, net of sublease income, and is reflected as part of occupancy within non-interest
expense on the accompanying Consolidated Statements of Income. Operating lease expense is recorded on a straight-line basis.
Additional information regarding the Company's lessee arrangements can be found within Note 8: Leasing.
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 if events occur or circumstances change indicating it would more likely than not result in a
reduction of the fair value of the reporting units below their carrying value, including goodwill.
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Goodwill may be evaluated for impairment by performing a qualitative assessment. If the qualitative assessment indicates that it
is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, or, if for any
other reason the Company determines to it be appropriate, then a quantitative assessment will be performed. The quantitative
assessment process utilizes an income and market approach to arrive at an indicated fair value range for the reporting units. The
fair value calculated for each reporting unit is compared to its carrying amount, including goodwill, to ascertain if goodwill
impairment exists. If the fair value exceeds the carrying amount, including goodwill for a reporting unit, it is not considered
impaired. If the fair value is below the carrying amount, including goodwill for a reporting unit, then an impairment charge is
recognized for the amount by which the carrying amount exceeds the calculated fair value, up to but not exceeding the amount
of goodwill allocated to the reporting unit. The resulting amount is charged to non-interest expense on the accompanying
Consolidated Statements of Income.
The Company completed a qualitative assessment for its reporting units during its most recent annual impairment review. Based
on this qualitative assessment, the Company determined that there was no evidence of impairment to the balance of its
goodwill. Additional information regarding goodwill can be found within Note 9: Goodwill and Other Intangible Assets.
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 it 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, such as core deposits and customer
relationships, 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. Additional
information regarding other intangible assets can be found within Note 9: Goodwill and Other Intangible Assets.
Cash Surrender Value of Life Insurance
Bank-owned life insurance represents the cash surrender value of life insurance policies on certain current and former
employees of Webster. Cash surrender value increases and decreases are recorded in non-interest income. Death benefit
proceeds in excess of the cash surrender value are recorded in other non-interest income upon the death of the insured.
Securities Sold Under Agreements to Repurchase
These agreements are accounted for as secured financing transactions since Webster maintains effective control over the
transferred investment securities and the transfer meets the other criteria for such treatment. Obligations to repurchase the sold
investment securities are reflected as a liability on the accompanying Consolidated Balance Sheets. The investment securities
sold with agreement to repurchase to wholesale dealers are transferred to a custodial account for the benefit of the dealer or to
the bank with whom each transaction is executed. The dealers or banks may sell, loan, or otherwise hypothecate such securities
to other parties in the normal course of their operations and agree to resell to Webster the same securities at the maturity date of
the agreements. Webster also enters into repurchase agreements with Bank customers. The investment securities sold with
agreement to repurchase to Bank customers are not transferred, but internally pledged to the repurchase agreement transaction.
Additional information regarding securities sold under agreements to repurchase can be found within Note 12: Borrowings.
Revenue From Contracts With Customers
Revenue from contracts with customers comprises non-interest income earned in exchange for services provided to customers
and is recognized either when services are completed or as they are rendered. These revenue streams include deposit service
fees, wealth and investment services, and an insignificant portion of other non-interest income on the accompanying
Consolidated Statements of Income. The Company identifies the performance obligations included in its contracts with
customers, determines the transaction price, allocates the transaction price to the performance obligations, as applicable, and
recognizes revenue when the performance obligations are satisfied. Services provided over a period of time are generally
transferred to customers evenly over the term of the contracts, and revenue is recognized evenly over the period the services are
provided. Contract assets are included in accrued interest receivable and other assets on the accompanying Consolidated
Balance Sheets. Payment terms vary by services offered, and generally the time between the completion of performance
obligations and receipt of payment is not significant. Additional information regarding contracts with customers can be found
within Note 22: Revenue from Contracts with Customers.
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Share-Based Compensation
Webster maintains stock compensation plans in which restricted stock, restricted stock units, non-qualified stock options,
incentive stock options, or stock appreciation rights may be granted to employees and directors. Share awards are issued from
available treasury shares. Stock compensation expense is recognized over the required service vesting period for each award
based on the grant-date fair value, net of estimated forfeitures (which is adjusted for actual forfeitures when they occur), and is
included as a component of compensation and benefits on the accompanying Consolidated Statements of Income. Share awards
are generally subject to a 3-year vesting period, while certain conditions provide for a 1-year vesting period. For restricted stock
and restricted stock unit awards, fair value is measured using the closing price of Webster's common stock at the grant date. For
certain performance-based restricted stock awards, fair value is measured using the Monte Carlo valuation methodology, which
provides for the 3-year performance period. These awards ultimately vest in a range from 0% to 150% of the target number of
shares under the grant. Compensation expense is subject to adjustment based on management's assessment of Webster's return
on equity performance relative to the target number of shares condition. Stock option awards use the Black-Scholes Option-
Pricing Model to measure fair value at the grant date. Excess tax benefits or tax deficiencies results when tax return deductions
differ from recognized compensation cost determined using the grant-date fair value approach for financial statement purposes.
Dividends are paid on time-based shares upon grant and are non-forfeitable, while dividends are accrued on performance-based
awards and paid with the vested shares when the performance target is met. Additional information regarding share-based
compensation can be found within Note 20: Share-Based Plans.
Income Taxes
Income tax expense (benefit) is comprised of two components, current and deferred. The current component represents income
taxes payable or refundable for the 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. DTAs and deferred tax
liabilities (DTLs) 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. DTAs are recognized if it is more likely than not that 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.
Uncertain tax positions that 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
based on 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 judgment. Webster recognizes interest and penalties on uncertain tax positions and interest on refundable income
taxes as a component of income tax expense and other non-interest income, respectively, on the accompanying Consolidated
Statements of Income. Additional information regarding income taxes can be found within Note 10: Income Taxes.
Earnings per Common Share
Earnings per common share is calculated under the two-class method. Basic earnings per common share is computed by
dividing earnings applicable to common shareholders by the weighted-average number of common shares outstanding,
excluding outstanding participating securities, during the pertinent period. Certain unvested restricted stock awards are
considered participating securities as they have non-forfeitable rights to dividends. 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 shares resulting from stock compensation and warrants for common stock using the treasury stock method.
A reconciliation between the weighted-average common shares used in calculating basic earnings per common share and the
weighted-average common shares used in calculating diluted earnings per common share can be found within Note 16:
Earnings Per Common Share.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in shareholders’ equity during the period, except those resulting from
transactions with shareholders. Comprehensive income consists of net income and the after-tax effect of the following items:
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) related to defined benefit pension and other postretirement benefit plans.
Comprehensive income is reported on the accompanying Consolidated Statements of Shareholders' Equity and the
accompanying Consolidated Statements of Comprehensive Income. Additional information regarding comprehensive income
can be found within Note 14: Accumulated Other Comprehensive (Loss) Income, Net of Tax.
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Derivative Instruments and Hedging Activities
Derivatives are recognized at fair value and are included in accrued interest receivable and other assets and accrued expenses
and other liabilities, as applicable, on the accompanying Consolidated Balance Sheets. The value of exchange-traded contracts
is based on quoted market prices whereas non-exchange traded contracts are valued based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques in which the determination of fair value may require management
judgment or estimation. Cash flows from derivative financial instruments are included in net cash provided by operating
activities on the accompanying Consolidated Statements of Cash Flows.
Derivatives Designated in Hedge Relationships. The Company uses derivatives to hedge exposures or to modify interest rate
characteristics for certain balance sheet accounts under its interest rate risk management strategy. The Company designates
derivatives in qualifying hedge relationships as fair value or cash flow hedges for accounting purposes. Derivative financial
instruments receive hedge accounting treatment if they are qualified and properly designated as a hedge, and remain highly
effective in offsetting changes in the fair value or cash flows attributable to the risk being hedged, both at hedge inception and
on an ongoing basis throughout the life of the hedge. Quarterly prospective and retrospective assessments are performed to
ensure hedging relationships continue to be highly effective. If a hedge relationship is no longer highly effective, hedge
accounting would be discontinued.
The change in fair value on a derivative that is designated and qualifies as a fair value hedge, as well as the offsetting change in
fair value on the hedged item attributable to the risk being hedged, is recognized in earnings. The gain or loss on a derivative
that is designated and qualifies as a cash flow hedge is initially recorded as a component of accumulated other comprehensive
loss, net of tax (AOCL), and either subsequently reclassified to interest income as hedged interest payments are received or to
interest expense as hedged interest payments are made during the same period in which the hedged transaction affects earnings.
Derivatives Not Designated in Hedge Relationships. The Company also enters into derivative transactions that are not
designated in hedge relationships. Derivative financial instruments not designated in hedge relationships are recorded at fair
value with changes in fair value recognized in other non-interest income on the accompanying Consolidated Statements of
Income.
Offsetting Assets and Liabilities. The Company presents derivative assets and derivative liabilities with the same counterparty
and the related variation margin of cash collateral on a net basis on the accompanying Consolidated Balance Sheets. Cash
collateral relating to initial margin is included in accrued interest receivable and other assets on the accompanying Consolidated
Balance Sheets. Securities collateral is not offset. The Company clears all dealer eligible contracts through the Chicago
Mercantile Exchange (CME) and has elected to record non-cleared derivative positions subject to a legally enforceable master
netting agreement on a net basis. Additional information regarding derivatives can be found within Note 17: Derivative
Financial Instruments.
Fair Value Measurements
The Company measures many of its assets and liabilities on a fair value basis in accordance with Accounting Standards
Codification (ASC) Topic 820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is
used to measure certain assets and liabilities on a recurring basis when fair value is the primary basis of accounting, and on a
non-recurring basis when evaluating assets or liabilities for impairment. Additional information regarding the Company's
policies and methodology used to measure fair value can be found within Note 18: Fair Value Measurements.
Employee Retirement Benefit Plans
Webster Bank sponsors a defined contribution postretirement benefit plan offering traditional 401(k) and Roth 401(k) options to
employees who have attained age 21 beginning 90 days after hire. Expenses to maintain the plan, as well as employer matching
contributions, are charged to compensation and benefits on the accompanying Consolidated Statements of Income.
Webster Bank had offered a qualified noncontributory defined benefit pension plan and a non-qualified supplemental executive
retirement plan (SERP) to eligible employees and key executives who met certain age and service requirements. Both the
pension plan and the SERP were frozen effective December 31, 2007. Pension contributions are funded in accordance with the
requirements of the Employee Retirement Income Security Act. Webster Bank also provides for other post-employment
medical and life insurance benefits (OPEB) to certain retired employees. Net periodic benefit costs, which are based upon
actuarial computations of current and future benefits for eligible employees, are charged to other non-interest expense on the
accompanying Consolidated Statements of Income. The funded status of the plans' is recorded as an asset when over-funded or
a liability when under-funded. Additional information regarding the defined benefit pension and postretirement benefit plans
can be found within Note 19: Retirement Benefit Plans.
75
Recently Adopted Accounting Standards Updates (ASUs)
Effective January 1, 2021, the following new accounting guidance was adopted by the Company:
ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.
The Accounting Standards Update (the Update) provides simplification to the accounting for income taxes related to a variety
of topics and makes minor codification improvements. Changes include a requirement that the effects of an enacted change in
tax law be reflected in the computation of the annual effective tax rate in the first interim period that includes the enactment
date of the new legislation and clarification on presentation of non-income based taxes.
The Company adopted the Update on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a
material impact on the Company's consolidated financial statements.
ASU No. 2021-01, Reference Rate Reform (Topic 848) - Scope.
The Update clarifies that certain optional expedients and exceptions provided for in ASU No. 2020-04 for applying GAAP to
contract modifications and hedging relationships apply to derivatives that are affected by the discounting transition. The
amendments are elective and apply to all entities that have derivative instruments that use an interest rate for margining,
discounting, or contract price alignment that is modified as a result of reference rate reform. The Update was effective upon
issuance for application on either a retrospective basis as of any date from the beginning of an interim period that includes or is
subsequent to March 22, 2020, or on a prospective basis beginning on January 7, 2021.
The Company adopted the Update on a prospective basis. The adoption of this guidance did not have a material impact on the
Company's consolidated financial statements.
Accounting Standards Issued but not yet Adopted
The Company has adopted all applicable ASUs issued by the FASB as of December 31, 2021.
76
Note 2: Variable Interest Entities
Webster has an investment interest in the following entities that each meet the definition of a variable interest entity.
Consolidated
Rabbi Trust. The Company established a Rabbi Trust to satisfy its obligations due under the Deferred Compensation Plan for
Directors and Officers and to mitigate expense volatility. The funding of the Rabbi Trust and the discontinuation of the
Deferred Compensation Plan for Directors and Officers occurred during 2012.
Investments held in the Rabbi Trust consist primarily of mutual funds that invest in equity and fixed income securities. Webster
is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that most
significantly impact its economic performance and it has the obligation to absorb losses and/or right to receive benefits of the
Rabbi Trust that could potentially be significant.
The Rabbi Trust's assets and the Company's deferred compensation plan obligation are included in accrued interest receivable
and other assets and accrued expenses and other liabilities, respectively, on the accompanying Consolidated Balance Sheets.
Investment earnings, including appreciation (depreciation) in fair value, and changes in the deferred compensation obligation,
are included in other non-interest income and compensation and benefits, respectively, on the accompanying Consolidated
Statements of Income. Information regarding the fair value of investments held in the Rabbi Trust can be found within Note 18:
Fair Value Measurements.
Non-Consolidated
Tax Credit Finance Investments. Webster makes non-marketable equity investments in entities that sponsor affordable housing
and other community development projects that qualify for the Low Income Housing Tax Credit Program pursuant to Section
42 of the Internal Revenue Code. The purpose of these investments is not only to assist the Bank in meeting its responsibilities
under the CRA, but also to provide a return, primarily through the realization of tax benefits. While Webster's investment in an
entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as the Company is not the primary
beneficiary. Webster has determined that it is not the primary beneficiary due to its inability to direct the activities that most
significantly impact economic performance and the Company does not have the obligation to absorb losses and/or right to
receive benefits. Webster applies the proportional amortization method to subsequently measure its investments in qualified
affordable housing projects.
At December 31, 2021 and 2020, the aggregate carrying value of Webster's tax credit finance investments was $43.4 million
and $37.2 million, respectively, which is included in accrued interest receivable and other assets on the accompanying
Consolidated Balance Sheets, and represents the Company's maximum exposure to loss. At December 31, 2021 and 2020,
unfunded commitments of $11.1 million and $10.2 million were recognized, respectively, and are included in accrued expenses
and other liabilities on the accompanying Consolidated Balance Sheets. During the years ended December 31, 2021 and 2019,
Webster approved additional commitments of $10.1 million and $17.2 million, respectively, to fund tax credit finance
investments. There were no such commitments approved during the year ended December 31, 2020.
Webster Statutory Trust. Webster owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that
has issued, and in the future may issue, trust preferred securities. The Company is not the primary beneficiary of Webster
Statutory Trust. Webster Statutory Trust's only assets are junior subordinated debentures that issued are issued by the Company,
which were acquired using the proceeds from the issuance of trust preferred securities and common stock. The junior
subordinated debentures are included in long-term debt on the accompanying Consolidated Balance Sheets, and the related
interest expense is reported as interest expense on long-term debt on the accompanying Consolidated Statements of Income.
Additional information regarding these junior subordinated debentures can be found within Note 12: Borrowings.
Other Non-Marketable Investments. Webster invests in alternative investments comprising interests in non-public entities that
cannot be redeemed since the investment is distributed as the underlying equity is liquidated. The ultimate timing and amount
of these distributions cannot be predicted with reasonable certainty. For each of these alternative investments that is classified
as a variable interest entity, the Company has determined that it is not the primary beneficiary due to its inability to direct the
activities that most significantly impact economic performance. At December 31, 2021 and 2020, the aggregate carrying value
of Webster's other non-marketable investments was $61.5 million and $34.3 million, respectively, and its maximum exposure to
loss, including unfunded commitments, was $95.9 million and $72.7 million, respectively. Information regarding the fair value
other non-marketable investments can be found within Note 18: Fair Value Measurements.
Webster's equity interests in Other Non-Marketable Investments, as well as in Tax Credit-Finance Investments and Webster
Statutory Trust, are included in accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
Information regarding the Company's accounting policy for its consolidation of variable interest entities can be found under the
section captioned "Principles of Consolidation" within Note 1: Summary of Significant Accounting Policies.
77
Note 3: Business Developments
Merger with Sterling Bancorp
Effective January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an Agreement and
Plan of Merger dated as of April 18, 2021. Pursuant to the merger agreement, Sterling merged with and into Webster, with
Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-
owned subsidiary of Sterling, merged with and into Webster Bank, with Webster Bank continuing as the surviving bank.
Sterling was a full-service regional bank headquartered in Pearl River, New York, that primarily served the Greater New York
metropolitan area. The merger expanded Webster's geographic footprint and combined two complementary organizations to
create one of the largest commercial banks in the Northeast U.S.
At the effective time of the merger, each share of Sterling common stock outstanding, other than certain shares held by Webster
and Sterling, was converted into the right to receive a fixed 0.4630 share of Webster common stock. In connection with the
completion of the merger and in accordance with the merger agreement, the number of authorized shares of Webster common
stock was increased from 200.0 million shares to 400.0 million shares as of January 31, 2022.
In addition, at the effective time of the merger, each outstanding share of Sterling 6.50% Series A Non-Cumulative Perpetual
Preferred Stock was converted into the right to receive one share of newly created Webster 6.50% Series G Non-Cumulative
Perpetual Preferred Stock, having substantially the same terms. Webster registered and issued 135,000 depositary shares on
January 31, 2022, each representing 1/40th interest in a share of 6.50% Series G Non-Cumulative Preferred Perpetual Stock, par
value $0.01 per share, with a liquidation preference equal to $1,000 per share (equivalent to $25 per depositary share) (Series G
Preferred Stock). The Series G Preferred Stock ranks on parity with Webster's 5.25% Series F Non-Cumulative Preferred
Perpetual Stock, par value $0.01 per share, with a liquidation preference of $25,000 per share (equivalent to $25 per depositary
share) (Series F Preferred Stock), and senior to Webster common stock, with respect to the payment of dividends and
distributions upon the liquidation, dissolution, or winding-up of Webster. Additional information regarding Webster's Series F
Preferred Stock can be found within Note 13: Shareholders' Equity.
Further, certain equity awards granted under Sterling's equity compensation plans were converted into a corresponding award
with respect to Webster common stock, generally subject to the same terms and conditions, with the number of shares
underlying such awards adjusted based on the 0.4630 fixed exchange ratio. Additional information regarding Webster's equity
compensation plans can be found within Note 20: Share-Based Plans.
Webster also assumed Sterling's long-term obligations with respect to $274.0 million in aggregate principal amount of 4.00%
fixed-to-floating rate subordinated notes due 2029 issued by Sterling on December 16, 2019, and $225.0 million in aggregate
principal amount of 3.875% fixed-to-floating rate subordinated notes due 2030 issued by Sterling on October 30, 2020.
The transaction will be accounted for as a business combination. Accordingly, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their fair values as of the merger effective date. The determination of fair value
requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future
events that are highly subjective in nature and are subject to change. Given the close proximity between the transaction closing
date and Webster’s Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been completed.
Management expects to complete the initial accounting for its merger with Sterling, including the purchase price allocation,
later in the first quarter of 2022. As a result, the estimated fair values of the assets acquired and liabilities assumed, the
valuation techniques and inputs used to measure and develop the fair values, and any goodwill recorded will be disclosed in
Webster’s Quarterly Report on Form 10-Q for the period ended March 31, 2022, along with supplemental pro forma financial
information as if the merger with Sterling had occurred as of January 1, 2020.
During the year ended December 31, 2021, Webster incurred merger-related expenses totaling $37.5 million, which consisted
primarily of professional fees for investment banking, legal, and consulting, and employee severance and retention costs.
Merger-related expenses are recorded as either professional and outside services, or other non-interest expense on the
accompanying Consolidated Statements of Income.
Bend Financial, Inc. Acquisition
On February 18, 2022, Webster acquired 100% of the equity interests of Bend, a cloud-based platform solution provider for
HSAs, in exchange for cash. The acquisition accelerates Webster’s efforts underway to deliver enhanced user experiences at
HSA Bank. The transaction will be accounted for as a business combination and the assets acquired and liabilities assumed will
be reported at fair value. Webster plans to complete the initial purchase price allocation in the first quarter of 2022, which is not
expected to have a material impact on the Company's consolidated financial statements.
78
Strategic Initiatives
During the fourth quarter of 2020, Webster launched a strategic plan to drive incremental revenue and cost savings measures
across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary
spend reduction, and other organizational actions.
Costs incurred related to the execution of these strategic initiatives consisted of the following for the years ended December 31:
(In thousands)
Severance and other benefits
Professional fees and other related charges
ROU lease asset impairment
Other (1)
Total strategic initiatives costs
Years ended December 31,
2021
2020
(1,562) $
8,569
1,198
(1,037)
7,168 $
17,860
10,788
11,954
2,055
42,657
$
$
(1) Other includes accelerated depreciation and operating lease costs for all periods presented, gain on sale of banking centers and early
lease terminations in 2021, and write-downs of property and equipment in 2020.
Severance and other benefits costs are recorded as compensation and benefits, ROU lease asset impairment charges are
recorded as occupancy, professional fees and other related charges are recorded as either occupancy or professional and outside
services, and other is recorded as either occupancy, technology and equipment, or other non-interest expense on the
accompanying Consolidated Statements of Income.
The following table summarizes the changes in accrued expenses and other liabilities associated with these strategic initiatives:
(In thousands)
Balance at December 31, 2019
Additions charged to expense
Cash payments
Balance at December 31, 2020
Additions charged to expense
Adjustments (1)
Cash payments
Balance at December 31, 2021
Year ended December 31, 2021
Professional fees
and other
related charges
Severance and
other benefits
Total
$
$
$
— $
17,860
(185)
17,675 $
2,340
(3,902)
(10,994)
5,119 $
— $
10,788
(8,668)
2,120 $
8,569
—
(8,962)
1,727 $
—
28,648
(8,853)
19,795
10,909
(3,902)
(19,956)
6,846
(1) Changes in employee retention assumptions during the third quarter of 2021 resulted in a release of the Company's previously
recorded severance accrual.
79
Note 4: Investment Securities
Available-for-Sale
The following table summarizes the amortized cost and fair value of available-for-sale debt securities by major type:
(In thousands)
U.S. Treasury notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Available-for-sale debt securities
(In thousands)
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Available-for-sale debt securities
At December 31, 2021
Amortized
Cost (1)
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value (2)
398,664 $
88,109
1,568,293
1,248,548
887,640
21,860
14,583
4,227,697 $
— $
2,326
36,130
2,537
506
—
—
41,499 $
(1,698) $
(51)
(11,020)
(18,544)
(1,883)
(13)
(1,133)
(34,342) $
396,966
90,384
1,593,403
1,232,541
886,263
21,847
13,450
4,234,854
At December 31, 2020
Amortized
Cost (1)
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value (2)
148,711 $
1,389,100
1,092,430
512,759
76,693
14,557
3,234,250 $
6,000 $
68,598
26,317
1,082
—
—
101,997 $
(98) $
(289)
(1,514)
(5,823)
(310)
(1,437)
(9,471) $
154,613
1,457,409
1,117,233
508,018
76,383
13,120
3,326,776
$
$
$
$
(1) Accrued interest receivable of $7.5 million at both December 31, 2021 and 2020 is excluded from amortized cost and is reported
within accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
(2) Fair value represents net carrying value. No ACL has been recorded on available-for-sale debt securities at December 31, 2021 and
2020, as the securities held are high credit quality and investment grade.
Unrealized Losses
The following table summarizes the gross unrealized losses and fair value of available-for-sale debt securities by length of time
each major security type has been in a continuous unrealized loss position and for which an ACL has not been recorded:
Less Than 12 Months
12 Months or More
Total
At December 31, 2021
(Dollars in thousands)
U.S. Treasury notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Available-for-sale debt securities
in unrealized loss position
(Dollars in thousands)
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$ 396,966 $
7,895
506,602
632,213
724,762
—
4,203
(1,698) $
(51)
(7,354)
(6,163)
(1,744)
—
(76)
— $
—
110,687
335,480
81,253
21,848
9,247
—
—
(3,666)
(12,381)
(139)
(13)
(1,057)
# of
Holdings
8
2
70
28
50
1
3
$
Fair
Value
396,966 $
7,895
617,289
967,693
806,015
21,848
13,450
Unrealized
Losses
(1,698)
(51)
(11,020)
(18,544)
(1,883)
(13)
(1,133)
$ 2,272,641 $
(17,086) $ 558,515 $
(17,256)
162
$ 2,831,156 $
(34,342)
At December 31, 2020
Less Than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
13,137 $
33,742
376,330
409,591
57,728
4,100
(49) $
(219)
(1,514)
(5,486)
(265)
(166)
5,944 $
4,561
—
23,167
18,655
9,020
(49)
(70)
—
(337)
(45)
(1,271)
$
# of
Holdings
5
30
8
38
4
3
Total
Fair
Value
Unrealized
Losses
19,081 $
38,303
376,330
432,758
76,383
13,120
(98)
(289)
(1,514)
(5,823)
(310)
(1,437)
Available-for-sale debt securities
in unrealized loss position
$ 894,628 $
(7,699) $
61,347 $
(1,772)
88
$
955,975 $
(9,471)
80
Available-for-sale debt securities in a continuous unrealized loss position have been assessed for impairment. Since the
Company does not intend to sell nor will it be required to sell these securities prior to their anticipated recovery, and as the
securities are investment grade, management concluded that no impairment is required. The increase in unrealized losses from
2020 to 2021 is primarily due to portfolio activity and higher market rates. Market prices will approach par as the securities
approach maturity. There were no available-for-sale debt securities in non-accrual status at December 31, 2021 and 2020.
Contractual Maturities
The following table summarizes the amortized cost and fair value of available-for-sale debt securities by contractual maturity:
(In thousands)
Maturing within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Available-for-sale debt securities
At December 31, 2021
Amortized
Cost
Fair Value
$
$
—
401,668
113,288
3,712,741
4,227,697
$
$
—
400,037
113,260
3,721,557
4,234,854
Available-for-sale debt securities that are not due at a single maturity date have been categorized based on the maturity date of
the underlying collateral. Actual principal cash flows may differ from this categorization as borrowers have the right to prepay
their obligations with or without prepayment penalties.
Sales of Available-for Sale Debt Securities
There were no sales of available-for-sale debt securities during the year ended December 31, 2021. During the year ended
December 31, 2020, the Company sold available-for-sale debt securities for cash proceeds of $9.0 million, which resulted in
gross realized gains of $8 thousand. During the year ended December 31, 2019, the Company sold available-for-sale debt
securities for cash proceeds of $70.1 million, which resulted in gross realized gains of $773 thousand and gross realized losses
of $744 thousand ($29 thousand net gain on sale).
81
Held-to-Maturity
The following table summarizes the amortized cost, fair value, and ACL of held-to-maturity debt securities by major type:
(In thousands)
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Held-to-maturity debt securities
(In thousands)
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Held-to-maturity debt securities
At December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
655 $
71,444
11,202
51,572
3,381
138,254 $
(25) $
(11,788)
(43,844)
—
—
43,035
2,961,249
2,345,833
757,490
173,329
(55,657) $ 6,280,936
Amortized
Cost (1)
$
42,405 $
2,901,593
2,378,475
705,918
169,948
$ 6,198,339 $
At December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
1,785 $
137,863
60,484
60,371
9,214
269,717 $
(241) $
(84)
(2,213)
(3)
—
93,166
2,557,530
2,159,498
799,875
225,295
(2,541) $ 5,835,364
Amortized
Cost (1)
$
91,622 $
2,419,751
2,101,227
739,507
216,081
$ 5,568,188 $
$
$
Allowance for
Credit Losses
$
Net Carrying
Value
42,405
— $
2,901,593
—
2,378,475
—
705,704
214
—
169,948
214 $ 6,198,125
Allowance for
Credit Losses
$
Net Carrying
Value
91,622
— $
2,419,751
—
2,101,227
—
739,208
299
—
216,081
299 $ 5,567,889
(1) Accrued interest receivable of $21.2 million and $22.1 million at December 31, 2021 and December 31, 2020, respectively, is
excluded from amortized cost and is reported within accrued interest receivable and other assets on the accompanying Consolidated
Balance Sheets.
An ACL on held-to-maturity debt securities is recorded for certain municipal bonds and notes to account for expected lifetime
credit losses. Agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federally-
related entity, and are either explicitly or implicitly guaranteed and therefore, assumed to be zero loss. Held-to-maturity debt
securities with gross unrealized losses and no ACL are considered to be of high credit quality and therefore, zero credit loss is
recorded as of December 31, 2021. The current period unrealized loss position of certain Agency CMBS is primarily attributed
to the changing interest rate environment.
The following table summarizes the activity in the ACL on held-to-maturity debt securities:
(In thousands)
Balance, beginning of period (1)
Adoption of CECL
(Benefit) for credit losses
Balance, end of period
Years ended December 31,
2021
2020
299
—
(85)
214
$
$
—
397
(98)
299
$
$
(1) The Company adopted CECL on January 1, 2020. The prior period beginning balance did not have an allowance recorded under the
applicable GAAP for that period.
Contractual Maturities
The table summarizes the amortized cost and fair value of held-to-maturity debt securities by contractual maturity:
(In thousands)
Maturing within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Held-to-maturity debt securities
At December 31, 2021
Amortized
Cost
Fair Value
$
$
180
7,425
292,727
5,898,007
6,198,339
$
$
180
7,712
304,190
5,968,854
6,280,936
Held-to-maturity debt securities that are not due at a single maturity date have been categorized based on the maturity date of
the underlying collateral. Actual principal cash flows may differ from this categorization as borrowers have the right to prepay
their obligations with or without prepayment penalties.
82
Credit Quality Information
The Company monitors the credit quality of held-to-maturity debt securities through credit ratings provided by Standard &
Poor's Rating Services (S&P), Moody's Investor Services (Moody's), Fitch Ratings Inc., Kroll Bond Rating Agency, and DBRS
Inc. Credit ratings express opinions about the credit quality of a debt security, and are updated at each quarter end. Investment
grade debt securities are rated BBB- or higher by S&P, or Baa3 or higher by Moody's, and are generally considered by the
rating agencies and market participants to be of low credit risk. Conversely, debt securities rated below investment grade, which
are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment
grade debt securities. There were no speculative grade held-to-maturity debt securities at December 31, 2021 and 2020. Held-
to-maturity debt securities that are not rated are collateralized with U.S. Treasury obligations.
The following table summarizes the amortized cost basis of held-to-maturity debt securities based on their lowest credit rating
made publicly available:
(In thousands)
Agency CMOs
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Held-to-maturity
debt securities
(In thousands)
Agency CMOs
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Held-to-maturity
debt securities
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa2
At December 31, 2021
Investment Grade
$
42,405 $
— $
— 2,901,593
— 2,378,475
119,804
—
— $
—
—
227,106
—
— $
—
—
104,232
—
— $
—
—
35,878
—
— $
—
—
8,260
—
— $
—
—
—
—
—
—
—
95
—
207,426
169,948
Not Rated
—
$
—
—
3,117
—
$ 377,374 $ 5,442,277 $ 227,106 $ 104,232 $ 35,878 $
8,260 $
— $
95
$
3,117
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa2
At December 31, 2020
Investment Grade
$
— $
91,622 $
— 2,419,751
— 2,101,227
165,056
—
— $
—
—
201,081
—
— $
—
—
115,619
—
— $
—
—
33,264
—
— $
—
—
8,475
—
— $
—
—
2,066
—
—
—
—
190
—
209,376
216,081
Not Rated
—
$
—
—
4,380
—
$ 425,457 $ 4,777,656 $ 201,081 $ 115,619 $ 33,264 $
8,475 $
2,066 $
190
$
4,380
At December 31, 2021 and 2020, there were no held-to-maturity debt securities past due under the terms of their agreements or
in non-accrual status.
Other Information
At December 31, 2021, Webster had callable CMBS, collateralized loan obligation securities (CLO), corporate debt, and
municipal bonds and notes with an aggregate carrying value of $1.6 billion. The Company considers this prepayment risk in the
evaluation of its interest rate risk profile.
Available-for-sale and held-to-maturity debt securities with carrying values of $1.8 billion and $3.1 billion, respectively, at
December 31, 2021, and $1.3 billion and $2.6 billion, respectively, at December 31, 2020, were pledged to secure public funds,
trust deposits, repurchase agreements, and other purposes, as required or permitted by law.
83
Note 5: Loans and Leases
The following table summarizes loans and leases by portfolio segment and class:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Loans and leases
At December 31,
2021
6,882,480 $
1,067,248
6,603,180
627,058
15,179,966
5,412,905
1,593,559
85,299
7,091,763
22,271,729 $
2020
7,085,076
890,598
6,322,637
602,224
14,900,535
4,782,016
1,802,865
155,799
6,740,680
21,641,215
$
$
The carrying amount of loans and leases includes net unamortized deferred costs/(fees) and net unamortized discounts/
(premiums) of $12.3 million and $(10.5) million at December 31, 2021 and 2020, respectively. The net change from 2020 to
2021 is primarily attributed to increased deferred fees in 2020 due to PPP loans. Accrued interest receivable of $50.7 million
and $57.8 million at December 31, 2021 and 2020, respectively, is excluded from the carrying amount of loans and leases and
is reported within accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets. At
December 31, 2021, Webster had pledged $7.8 billion of eligible loans as collateral to support its borrowing capacity at both
the FHLB of Boston and the FRB of Boston.
Non-Accrual and Past Due Loans and Leases
The following tables summarize the aging of accrual and non-accrual loans and leases by class:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Total
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Total
30-59 Days
Past Due and
Accruing
60-89 Days
Past Due and
Accruing
90 or More
Days Past Due
and Accruing
Non-accrual
Total
Past Due and
Non-accrual
Current
Total Loans
and Leases
At December 31, 2021
$
$
3,729 $
—
508
1,034
5,271
3,212
3,467
379
7,058
12,329 $
4,524 $
—
417
—
4,941
368
1,600
181
2,149
7,090 $
1,977 $
—
519
—
2,496
—
—
—
—
2,496 $
59,607 $
2,086
5,046
3,728
70,467
15,747
23,489
224
39,460
109,927 $
At December 31, 2020
69,837 $ 6,812,643 $ 6,882,480
1,067,248
1,065,162
2,086
6,603,180
6,596,690
6,490
627,058
622,296
4,762
83,175 15,096,791 15,179,966
5,412,905
5,393,578
19,327
1,593,559
1,565,003
28,556
784
85,299
84,515
7,091,763
7,043,096
48,667
131,842 $ 22,139,887 $ 22,271,729
30-59 Days
Past Due and
Accruing
60-89 Days
Past Due and
Accruing
90 or More
Days Past Due
and Accruing
Non-accrual
Total
Past Due and
Non-accrual
Current
Total Loans
and Leases
$
$
612 $
1,174
2,400
5,107
9,293
4,334
5,500
878
10,712
20,005 $
903 $
—
619
2,308
3,830
6,330
1,771
601
8,702
12,532 $
445 $
—
—
—
445
—
—
—
—
445 $
64,073 $
2,594
21,231
7,299
95,197
41,081
31,030
652
72,763
167,960 $
66,033 $ 7,019,043 $ 7,085,076
890,598
886,830
3,768
6,322,637
6,298,387
24,250
14,714
602,224
587,510
108,765 14,791,770 14,900,535
4,782,016
4,730,271
51,745
1,802,865
1,764,564
38,301
155,799
153,668
2,131
92,177
6,740,680
6,648,503
200,942 $ 21,440,273 $ 21,641,215
84
The following table provides additional information on non-accrual loans and leases:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Total
At December 31,
2021
2020
Non-accrual
Non-accrual With
No Allowance
Non-accrual
Non-accrual With
No Allowance
$
$
59,607 $
2,086
5,046
3,728
70,467
15,747
23,489
224
39,460
109,927 $
4,802
2,086
4,310
—
11,198
10,584
18,920
2
29,506
40,704
$
$
64,073 $
2,594
21,231
7,299
95,197
41,081
31,030
652
72,763
167,960 $
16,985
—
15,529
2,983
35,497
29,843
24,091
2
53,936
89,433
Interest on non-accrual loans that would have been recognized as additional interest income had the loans been current in
accordance with their original terms totaled $11.0 million, $9.7 million, and $11.3 million for the years ended December 31,
2021, 2020, and 2019, respectively.
Allowance for Credit Losses on Loans and Leases
The following tables summarize the change in the ACL on loans and leases by portfolio segment:
(In thousands)
ACL on loans and leases:
Beginning balance
Adoption of CECL
(Benefit) provision
Charge-offs
Recoveries
Ending balance
Individually assessed ACL
Collectively assessed ACL
Commercial
Portfolio
2021
Consumer
Portfolio
Total
Commercial
Portfolio
2020
Consumer
Portfolio
Total
Commercial
Portfolio
2019
Consumer
Portfolio
Total
At or for the Years ended December 31,
$ 312,244 $
47,187 $ 359,431
$ 161,669 $
47,427 $ 209,096
$ 164,073 $
48,280 $ 212,353
—
—
—
34,024
23,544
57,568
—
—
—
(48,651)
(5,764)
(54,415)
156,336
(18,488)
137,848
29,174
8,626
37,800
(9,437)
(9,217)
(18,654)
(42,925)
(12,408)
(55,333)
(33,327)
(19,153)
(52,480)
3,721
11,104
14,825
3,140
7,112
10,252
1,749
9,674
11,423
$ 257,877 $
43,310 $ 301,187
$ 312,244 $
47,187 $ 359,431
$ 161,669 $
47,427 $ 209,096
16,965
4,108
21,073
11,687
4,450
16,137
9,428
4,821
14,249
$ 240,912 $
39,202 $ 280,114
$ 300,557 $
42,737 $ 343,294
$ 152,241 $
42,606 $ 194,847
The $58.2 million decrease in the ACL on loans and leases from 2020 to 2021 is primarily due to improvements in the
forecasted economic outlook and favorable credit trends, which were negatively affected by the emergence of the COVID-19
pandemic in 2020 and resulted in a release of reserves in 2021, partially offset by reserves on newly originated loans and leases.
Credit Quality Indicators
To measure credit risk for the commercial portfolio, the Company employs a dual grade credit risk grading system for
estimating the PD and LGD. The credit risk grade system assigns a rating to each borrower and to the facility, which together
form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics
that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk
Profile has ten grades, with each grade corresponding to a progressively greater risk of loss. Grades (1) to (6) are considered
pass ratings, and grades (7) to (10) are considered criticized, as defined by the regulatory agencies. A (7) "Special Mention"
rating has a potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the asset. A
(8) "Substandard" rating has a well-defined weakness that jeopardizes the full repayment of the debt. A (9) "Doubtful" rating
has all of the same weaknesses as a substandard asset with the added characteristic that the weakness makes collection or
liquidation in full given current facts, conditions, and values improbable. Assets classified as a (10) "Loss" rating are considered
uncollectible and are charged-off. Risk ratings, which are assigned to differentiate risk within the portfolio, are reviewed on an
ongoing basis and revised to reflect changes in a borrower's current financial position and outlook, risk profile, and the related
collateral and structural position. Loan officers review updated financial information or other loan factors on at least an annual
basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and
enhanced monitoring.
85
The following tables summarize the amortized cost basis of commercial loans and leases by Composite Credit Risk Profile
grade and origination year:
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
At December 31, 2021
$ 2,270,320 $ 1,179,620 $
14,216
3,660
2,288,196
22,892
46,887
1,249,399
757,343 $
37,877
30,437
825,657
581,633 $
15,575
69,963
667,171
292,637 $
9,721
5,255
307,613
275,789 $ 1,182,562 $
15,399
19,483
310,671
27,808
23,403
1,233,773
6,539,904
143,488
199,088
6,882,480
7,609
—
—
7,609
19,141
—
—
19,141
12,810
—
2,086
14,896
13,456
675
—
14,131
6,113
—
—
6,113
25,850
—
—
25,850
1,375,306
95
—
1,375,401
869,144
3,084
482
872,710
1,331,236
—
227
1,331,463
916,868
119,676
7,306
1,043,850
401,718
51,536
13,874
467,128
1,339,942
79,096
37,980
1,457,018
920,496
59,012
—
979,508
55,610
—
—
55,610
1,005,475
59,687
2,086
1,067,248
6,289,824
253,487
59,869
6,603,180
231,762
—
—
231,762
188,031
108
8,388
196,527
93,547
2,229
4,756
100,532
41,276
3,341
2,612
47,229
14,864
602,068
—
6,278
332
18,712
627,058
15,196
796,050 $ 1,829,351 $ 2,268,891 $ 15,179,966
32,588
600
2,624
35,812
—
—
—
—
Total commercial portfolio
$ 3,902,968 $ 2,337,777 $ 2,272,548 $ 1,772,381 $
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Amortized
Cost Basis
Total
At December 31, 2020
$ 2,771,373 $ 1,052,080 $
32,535
54,716
—
2,858,624
33,969
51,798
—
1,137,847
907,110 $
62,034
66,324
—
1,035,468
481,321 $
435
36,159
163
518,078
231,280 $
8,357
15,535
—
255,172
218,001 $
13,757
23,957
—
255,715
936,592 $
38,496
49,084
—
1,024,172
6,597,757
189,583
297,573
163
7,085,076
26,344
—
—
26,344
15,960
—
2,504
18,464
23,123
775
—
23,898
965,582
27
817
966,426
1,461,201
10,385
1,132
1,472,718
1,242,322
70,704
21,923
1,334,949
249,370
7,934
7,483
264,787
135,263
11,043
6,169
152,475
68,092
6,981
5,749
80,822
11,333
—
—
11,333
527,931
37,539
73,621
639,091
26,433
1,220
2,460
30,113
10,963
—
—
10,963
16,484
—
—
16,484
554,630
35,617
2,962
593,209
1,165,331
69,832
52,968
1,288,131
741,336
41,687
89
783,112
28,113
—
—
28,113
845,543
42,462
2,593
890,598
5,945,110
224,104
153,423
6,322,637
545,506
43,469
29,543
1,577
27,175
4,743
49,789
602,224
909,133 $ 1,584,568 $ 1,835,397 $ 14,900,535
22,879
788
571
24,238
—
—
—
—
(In thousands)
Commercial non-mortgage:
Pass
Special mention
Substandard
Commercial non-mortgage
Asset-based:
Pass
Special mention
Substandard
Asset-based
Commercial real estate:
Pass
Special mention
Substandard
Commercial real estate
Equipment financing:
Pass
Special mention
Substandard
Equipment financing
(In thousands)
Commercial non-mortgage:
Pass
Special mention
Substandard
Doubtful
Commercial non-mortgage
Asset-based:
Pass
Special mention
Substandard
Asset-based
Commercial real estate:
Pass
Special mention
Substandard
Commercial real estate
Equipment financing:
Pass
Special mention
Substandard
Equipment financing
Total commercial portfolio
$ 4,116,181 $ 2,781,504 $ 2,475,137 $ 1,198,615 $
86
To measure credit risk for the consumer portfolio, the most relevant credit characteristic is the FICO score, which is a widely
used credit scoring system that ranges from 300 to 850. A lower FICO score is indicative of higher credit risk and a higher
FICO score is indicative of lower credit risk. FICO scores are updated at least on a quarterly basis.
The following tables summarize the amortized cost basis of consumer loans by FICO score and origination year:
(In thousands)
Residential:
800+
740-799
670-739
580-669
579 and below
Residential
Home equity:
800+
740-799
670-739
580-669
579 and below
Home equity
Other consumer:
800+
740-799
670-739
580-669
579 and below
Other consumer
Total consumer portfolio
(In thousands)
Residential:
800+
740-799
670-739
580-669
579 and below
Residential
Home equity:
800+
740-799
670-739
580-669
579 and below
Home equity
Other consumer:
800+
740-799
670-739
580-669
579 and below
Other consumer
Total consumer portfolio
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
At December 31, 2021
590,238 $
$
1,083,608
374,460
38,644
9,478
2,096,428
428,118 $
421,380
135,146
13,782
1,051
999,477
161,664 $
154,960
73,499
9,348
49,252
448,723
35,502 $
32,172
25,099
3,056
390
96,219
105,198 $
95,662
34,550
9,000
2,519
246,929
735,517 $
456,722
227,863
71,811
33,216
1,525,129
— $
—
—
—
—
—
35,678
42,430
17,493
1,773
380
97,754
30,157
22,030
9,162
1,397
446
63,192
463
2,588
1,061
256
147
4,515
2,198,697
1,343
5,408
7,034
1,083
87
14,955
1,077,624
9,591
9,413
5,889
1,298
725
26,916
2,398
8,303
13,602
2,550
215
27,068
502,707
16,347
13,317
8,220
1,066
1,060
40,010
916
2,985
3,859
735
159
8,654
144,883
11,068
7,711
5,802
1,329
434
26,344
58,189
33,777
31,160
15,042
5,666
143,834
231
379
607
216
40
1,473
274,746
118
77
412
211
21
839
1,669,802
At December 31, 2020
2020
2019
2018
2017
2016
Prior
463,334
409,518
233,744
66,361
22,552
1,195,509
10,160
9,528
5,644
1,267
1,196
27,795
1,223,304
Revolving
Loans
Amortized
Cost Basis
$
360,336 $
654,973
199,329
17,151
—
1,231,789
283,755 $
288,173
118,620
19,389
36,498
746,435
61,048 $
58,249
39,125
8,884
673
167,979
178,849 $
133,416
75,375
11,843
3,278
402,761
268,044 $
176,286
76,666
12,225
3,179
536,400
805,537 $
492,720
248,268
96,333
53,794
1,696,652
— $
—
—
—
—
—
14,439
11,073
10,206
2,234
1,070
39,022
658
1,493
2,284
793
183
5,411
447,194
17,192
12,839
7,318
2,316
1,073
40,738
59,956
43,802
44,025
16,680
7,163
171,626
115
457
665
194
37
1,468
578,606
190
263
228
124
215
1,020
1,869,298
542,600
434,271
275,691
86,126
30,501
1,369,189
7,171
5,119
8,403
1,570
1,428
23,691
1,392,880
30,604
34,797
13,753
1,708
129
80,991
2,827
12,317
14,761
2,344
608
32,857
1,345,637
16,567
13,565
8,855
2,172
919
42,078
5,725
21,036
31,952
5,419
982
65,114
853,627
25,205
19,715
10,761
2,660
880
59,221
2,610
8,925
11,843
2,360
500
26,238
253,438
87
Total
2,056,237
2,244,504
870,617
145,641
95,906
5,412,905
624,364
538,196
311,470
88,266
31,263
1,593,559
15,629
29,268
32,219
6,318
1,865
85,299
7,091,763
Total
1,957,569
1,803,817
757,383
165,825
97,422
4,782,016
706,563
570,062
370,609
113,896
41,735
1,802,865
19,296
49,610
70,136
12,804
3,953
155,799
6,740,680
Collateral Dependent Loans and Leases
A loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is
substantially expected to be provided through the operation or sale of collateral. At December 31, 2021 and 2020, the carrying
amount of collateral dependent commercial loans and leases totaled $16.6 million and $42.1 million, respectively, and the
carrying amount of collateral dependent consumer loans totaled $34.9 million and $60.8 million, respectively. Commercial non-
mortgage, asset-based, and equipment financing loans and leases are generally secured by machinery and equipment,
inventories, receivables, or other non-real estate assets, whereas commercial real estate, residential, home equity, and other
consumer loans are secured by real estate. The ACL for collateral dependent loans and leases is individually assessed based on
the fair value of the collateral less costs to sell at the reporting date. At December 31, 2021 and 2020, the collateral value on
collateral dependent loans and leases totaled $86.0 million and $150.3 million, respectively.
Troubled Debt Restructurings
The following table summarizes information related to TDRs:
(Dollars in thousands)
Accrual status
Non-accrual status
Total TDRs
Additional funds committed to borrowers in TDR status
Specific reserves for TDRs included in the ACL on loans and leases:
Commercial portfolio
Consumer portfolio
At December 31,
2021
2020
110,625 $
52,719
163,344 $
140,089
95,338
235,427
5,975 $
12,895
9,017 $
3,745
8,657
4,071
$
$
$
$
The respective portions of commercial and consumer TDRs deemed to be uncollectible and charged-off were $3.0 million and
$0.4 million during the year ended December 31, 2021, $17.6 million and $0.8 million during the year ended December 31,
2020, and $20.3 million and $1.5 million during the year ended December 31, 2019.
The following table summarizes loans and leases modified as TDRs by class and modification type:
(Dollars in thousands)
Commercial non-mortgage
Extended maturity
Adjusted interest rate
Maturity/rate combined
Other (2)
Commercial real estate
Extended maturity
Maturity/rate combined
Other (2)
Residential
Extended maturity
Maturity/rate combined
Other (2)
Home equity
Extended maturity
Maturity/rate combined
Other (2)
Total TDRs
Years ended December 31,
2021
2020
2019
Number of
Contracts
Recorded
Investment (1)
Number of
Contracts
Recorded
Investment (1)
Number of
Contracts
Recorded
Investment (1)
8 $
—
9
12
1
—
1
1
2
3
85
6
22
150 $
605
—
352
14,160
183
—
1,582
99
401
280
1,809
1,025
1,481
21,977
11 $
1
7
24
1
2
3
3
10
26
3
5
96
192 $
1,070
96
607
40,128
72
377
306
485
1,133
4,215
188
334
6,680
55,691
15 $
2
11
28
3
—
3
7
15
8
6
4
34
136 $
2,413
112
673
65,186
8,356
—
4,816
1,327
2,241
1,001
599
140
1,907
88,771
(1) Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs due to restructurings was
not significant.
(2) Other includes covenant modifications, forbearance, discharges under Chapter 7 bankruptcy, or other concessions.
For the years ended December 31, 2021 and 2019, there were no significant loans and leases modified as TDRs within the
previous 12 months and for which there was a payment default. For the year ended December 31, 2020, there were 4
commercial non-mortgage loans and leases that were modified as TDRs within the previous 12 months and for which there was
a payment default with an aggregated amortized cost of $12.4 million.
88
Note 6: Transfers and Servicing of Financial Assets
Webster originates and sells residential mortgage loans in the normal course of business, primarily to government-sponsored
entities through established programs and securitizations. Residential mortgage origination fees, adjustments for changes in fair
value, and any gain or loss recognized on loans sold are included in mortgage banking activities on the accompanying
Consolidated Statements of Income.
The following table provides information related to mortgage banking activities:
(In thousands)
Proceeds from sale
Loans sold with servicing rights retained
Net gain on sale
Ancillary fees
Fair value option adjustment
$
$
Years ended December 31,
2020
2019
2021
247,634 $
237,834
486,341 $
464,736
216,239
199,114
5,192 $
1,440
(413)
15,305 $
3,230
(240)
4,031
1,614
470
Under certain circumstances, Webster may decide to sell loans that were not originated with the intent to sell. During the years
ended December 31, 2021, 2020, and 2019, the Company sold commercial and consumer loans not originated for sale for cash
proceeds of $82.2 million, $9.2 million, and $20.9 million, respectively, which resulted in net gains on sale of $3.9 million, $0.3
million, and $0.7 million, respectively.
In addition, Webster may retain servicing rights on its residential mortgage loans sold in the normal course of business. At
December 31, 2021 and 2020, the aggregate principal balance of residential mortgage loans serviced for others totaled $2.0
billion and $2.3 billion, respectively. Mortgage servicing assets are held at the lower of cost, net of accumulated amortization,
or fair market value, and are included in accrued interest receivable and other assets on the accompanying Consolidated Balance
Sheets. The Company assesses mortgage servicing assets for impairment each quarter and establishes or adjusts the valuation
allowance to the extent that amortized cost exceeds the estimated fair market value.
The following table presents the change in the carrying amount for mortgage servicing assets:
(In thousands)
Beginning balance
Additions
Amortization
Adjustment to valuation allowance
Ending balance
Years ended December 31,
2021
2020
2019
$
$
13,422 $
2,053
(5,593)
(645)
9,237 $
17,484 $
4,373
(6,562)
(1,873)
13,422 $
21,215
3,587
(7,318)
—
17,484
Loan servicing fees, net of mortgage servicing assets amortization and adjustments to the valuation allowance, were $1.7
million, $1.5 million, and $1.9 million for the years ended December 31, 2021, 2020, and 2019, respectively, and are included
in loan and lease related fees on the accompanying Consolidated Statements of Income. Information regarding the fair value of
loans held for sale and mortgage servicing assets can be found within Note 18: Fair Value Measurements.
As provided for in its sales agreements, the Company may be required to repurchase a loan in the event of certain breaches in
representations and warranties on the underlying loans sold, or in the event the borrower defaults within 90 days of sale.
Webster records a reserve for loan repurchases within accrued expenses and other liabilities on the accompanying Consolidated
Balance Sheets to provide for any potential losses that may be incurred through repurchasing a loan in connection with its
mortgage banking activities. The reserve comprises both existing and anticipated loan repurchase requests, as well as specific
reserves for current identifiable losses and estimated recoveries on any underlying collateral. The provision recorded at the time
of sale is netted against the gain or loss recognized in mortgage banking activities, whereas any incremental provision
subsequently recorded is included in other non-interest expense on the accompanying Consolidated Statements of Income.
The following table summarizes the activity in the reserve for loan repurchases:
(In thousands)
Beginning balance
Provision
Repurchased loans and settlements (charged-off) recovered, net
Ending balance
Years ended December 31,
2020
2019
2021
$
$
747 $
73
(72)
748 $
508 $
141
98
747 $
674
1,865
(2,031)
508
(1) The increased provision and corresponding charge-off in 2019 was related to a discrete legal settlement in connection with
previously sold loans.
89
Note 7: Premises and Equipment
The following table summarizes the components of premises and equipment:
(In thousands)
Land
Buildings and improvements
Leasehold improvements
Fixtures and equipment
Data processing and software
Property and equipment
Less: Accumulated depreciation and amortization
Property and equipment, net
ROU lease assets, net
Premises and equipment, net
At December 31,
2021
2020
9,436 $
67,501
65,606
64,890
105,516
312,949
(228,318)
84,631
119,926
204,557 $
9,436
70,195
71,332
73,730
270,780
495,473
(396,211)
99,262
127,481
226,743
$
$
Depreciation and amortization of property and equipment was $31.4 million, $32.5 million, and $33.7 million for the years
ended December 31, 2021, 2020, and 2019, respectively, and is included in occupancy and technology and equipment expense
on the accompanying Consolidated Statements of Income.
Additional information regarding ROU lease assets can be found within Note 8: Leasing.
The following table summarizes activity in assets held for disposition:
(In thousands)
Beginning balance
Transfers (to) from property and equipment
Sales
Ending balance
Years ended December 31,
2020
2021
$
$
2,654 $
(38)
(2,126)
490 $
—
2,654
—
2,654
There was no significant activity in assets held for disposition during 2019. Assets held for disposition is included in accrued
interest receivable and other assets on the accompanying Consolidated Balance Sheets.
90
Note 8: Leasing
Lessor Arrangements
Webster leases certain types of machinery and equipment to its customers through direct financing leases as part of its
equipment financing portfolio. These leases generally have remaining lease terms of 1 to 10 years, and include options for the
lessee to purchase the lease asset near or at the end of the lease term. Webster recognized interest income from its lessor
activities of $7.5 million, $7.1 million, and $5.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Additional information regarding Webster's equipment financing portfolio can be found within Note 5: Loans and Leases.
The following table summarizes the components of Webster's net investment in its direct financing leases:
(In thousands)
Lease receivables
Unguaranteed residual values
Total net investment
At December 31,
2021
2020
$
$
196,632 $
19,748
216,380 $
207,508
28,609
236,117
The undiscounted scheduled maturities reconciled to the total net investment are as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total lease payments receivable
Present value adjustment
Total net investment
Lessee Arrangements
At December 31,
2021
$
$
68,008
59,554
39,325
29,534
21,687
16,636
234,744
(18,364)
216,380
Webster enters into operating leases in the normal course of business, primarily for office space, banking centers, and other
operational activities. These leases generally have remaining lease terms of one to fifteen years. Webster does not have any
significant sub-leases nor finance leases in which it is the lessee.
The following table summarizes Webster's ROU lease assets and operating lease liabilities:
(In thousands)
ROU lease assets
Operating lease liabilities
Consolidated Balance Sheet Line Item
Premises and equipment, net
Operating lease liabilities
At December 31,
$
2021
119,926
144,804
$
2020
127,481
158,280
ROU lease asset impairments totaled $1.2 million and $12.0 million for the years ended December 31, 2021 and 2020,
respectively, which is recorded in occupancy on the accompanying Consolidated Statements of Income. The increased charge in
2020 was due to Webster's decision to close leased banking centers as part of its strategic initiatives. There were no ROU lease
asset impairments during the year ended December 31, 2019.
The following table summarizes the components of operating lease expense and other relevant information:
(In thousands)
Lease Cost:
Operating lease costs
Variable lease costs
Sublease income
Total operating lease expense
Other Information:
Cash paid for amounts included in the measurement of operating lease liabilities
ROU lease assets obtained in exchange for operating lease liabilities
Weighted-average remaining lease term (years)
Weighted-average discount rate
91
At or for the Years ended December 31,
2020
2019
2021
$
$
$
26,076 $
4,860
(554)
30,382 $
30,487 $
15,226
7.50
3.04 %
30,339 $
5,577
(557)
35,359 $
31,212 $
9,211
8.04
3.19 %
29,908
4,889
(577)
34,220
31,223
22,948
8.39
3.31 %
The undiscounted scheduled maturities reconciled to total operating lease liabilities are as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total operating lease payments
Present value adjustment
Total operating lease liabilities
Note 9: Goodwill and Other Intangible Assets
At December 31,
2021
$
$
25,895
26,539
23,767
21,792
18,656
48,009
164,658
(19,854)
144,804
There has been no change in the carrying amount for goodwill during the year ended December 31, 2021. Information
regarding goodwill by reportable segment can be found within Note 21: Segment Reporting.
Other intangible assets by reportable segment consisted of the following:
(In thousands)
HSA Bank - Core deposits
HSA Bank - Customer relationships
Total other intangible assets
At December 31,
Gross Carrying
Amount
2021
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
2020
Accumulated
Amortization
Net Carrying
Amount
$
$
26,625 $
21,000
47,625 $
18,516 $
11,240
29,756 $
8,109 $
9,760
17,869 $
26,625 $
21,000
47,625 $
15,618 $
9,624
25,242 $
11,007
11,376
22,383
The remaining estimated aggregate future amortization expense for other intangible assets is as follows at December 31, 2021:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
$
4,410
4,315
2,084
2,084
2,084
2,892
92
Note 10: 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,
2020
2019
2021
$
$
109,621 $
20,374
129,995
73,172 $
17,417
90,589
84,447
18,595
103,042
(9,844)
4,846
(4,998)
(23,799)
(7,437)
(31,236)
811
116
927
99,777
25,220
124,997 $
49,373
9,980
59,353 $
85,258
18,711
103,969
Included in the Company's income tax expense for the years ended December 31, 2021, 2020, and 2019, are net tax credits of
approximately $2.6 million, $1.1 million, and $4.8 million, respectively, along with a $0.4 million benefit from operating loss
carryforwards in 2021. The deferred federal benefit in 2021 reflects the effects of elections Webster made on its 2020 federal
tax return to defer cost recovery deductions, which did not impact deferred state and local expense to any significant degree.
The $2.6 million of net tax credits in 2021 includes $0.5 million for increases in federal and state research tax credits previously
estimated for and recognized in 2020. The $4.8 million of net tax credits in 2019 includes $3.0 million related to federal and
state research tax credits, $2.4 million of which relates to the Company’s qualifying technology expenditures incurred before
2019.
The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the
federal statutory rate of 21.0%:
(Dollars in thousands)
Income tax expense at federal statutory rate
Reconciliation to reported income tax expense:
SALT expense, net of federal
Tax-exempt interest income, net
Increase in cash surrender value of life insurance
Tax deficiencies (excess tax benefits), net
Non-deductible FDIC Deposit insurance premiums
Non-deductible merger-related expenses
Other, net
Income tax expense and effective tax rate
$
2021
Years ended December 31,
2020
2019
Amount
Percent
Amount
Percent
Amount
Percent
$
112,111
21.0 % $
58,795
21.0 % $
102,205
21.0 %
19,924
(6,814)
(3,030)
(1,479)
2,064
3,451
(1,230)
124,997
3.7
(1.3)
(0.6)
(0.3)
0.4
0.7
(0.2)
23.4 % $
7,884
(7,181)
(3,058)
484
2,172
—
257
59,353
2.8
(2.6)
(1.1)
0.2
0.8
—
0.1
21.2 % $
14,782
(6,752)
(3,069)
(2,251)
1,904
—
(2,850)
103,969
3.0
(1.4)
(0.6)
(0.4)
0.4
—
(0.6)
21.4 %
93
The following table reflects the significant components of the DTAs, net:
(In thousands)
Deferred tax assets:
Allowance for loan and lease losses
Net operating loss and credit carry forwards
Compensation and employee benefit plans
Lease liabilities under operating leases
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
Net unrealized gain on derivatives
ROU assets under operating leases
Equipment financing leases
Premises and equipment
Goodwill and other intangible assets
Other
Gross deferred tax liabilities
Deferred tax assets, net
At December 31,
2021
2020
78,905
64,366
22,840
38,130
12,790
217,031
37,374
179,657
1,885
2,584
31,580
21,193
879
5,690
6,441
70,252
109,405
$
$
$
$
93,791
66,840
27,643
41,679
8,750
238,703
37,374
201,329
24,364
7,616
33,569
38,511
6,735
5,954
3,294
120,043
81,286
$
$
$
$
The Company's DTAs, net increased by $28.1 million during 2021, primarily reflecting the $5.0 million deferred tax benefit
and a $23.2 million benefit allocated directly to AOCI. The decreases in the equipment financing leases and premises and
equipment DTLs during 2021 reflect elections Webster made on its 2020 federal tax return to defer cost recovery deductions.
The valuation allowance of $37.4 million at both December 31, 2021 and 2020 is attributable to SALT net operating loss
carryforwards, which approximated $1.1 billion at December 31, 2021 and are scheduled to expire in varying amounts during
tax years 2024 through 2032. The valuation allowance has been established for approximately $630.8 million of those net
operating loss carryforwards estimated to expire unused.
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to
realize its total DTAs, net of the valuation allowance. Although taxable income in prior years is no longer able to be included as
a source of taxable income, due to the general repeal of the carryback of net operating losses under the Tax Cuts and Jobs Act
of 2017, significant positive evidence remains in support of management's conclusion regarding the realizability of the
Company's DTAs, including projected future reversals of existing taxable temporary differences and book-taxable income
levels in recent and projected in future years. There can, however, be no assurance that any specific level of future income will
be generated or that the Company’s DTAs will ultimately be realized.
A DTL of $15.3 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 liquidation. Webster does not expect any of those events to occur. At December 31,
2021 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 of 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 limitation periods
Ending balance
Years ended December 31,
2021
2020
2019
$
$
4,252 $
294
434
(186)
(267)
(278)
4,249 $
4,813 $
87
572
(694)
(130)
(396)
4,252 $
2,856
1,106
1,744
(238)
(18)
(637)
4,813
At December 31, 2021, 2020, and 2019, there were $3.5 million, $3.5 million, and $3.9 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. Webster recognized an
expense of $0.3 million during the year ended December 31, 2021, and a benefit of $0.1 million for both the years ended
December 31, 2020 and 2019. At December 31, 2021 and 2020, the Company had accrued interest and penalties related to
UTBs of $1.9 million and $1.7 million respectively.
Webster has determined it is reasonably possible that its total UTBs could decrease by an amount in the range of $1.6 million to
$2.6 million by the end of 2022 as a result of potential lapses in statute-of-limitation periods and/or potential settlements with
taxing authorities concerning various apportionment, tax-base, and research tax credit determinations.
Webster's federal tax returns for all years subsequent to 2016 remain open to examination. Webster's tax returns filed in its
principal state tax jurisdictions of Connecticut, Massachusetts, New York, and Rhode Island for years subsequent to 2014, or
2017, are either under or remain open to examination.
95
At December 31,
2021
2020
$
7,060,488 $
6,155,592
7,397,582
4,182,497
3,718,953
5,689,739
1,797,770
22,786,541
29,847,029 $
7,120,017
3,652,763
2,940,215
4,979,031
2,487,818
21,179,844
27,335,436
120,392 $
256,522
1,577
720,440
504,543
2,007
$
$
$
At December 31,
2021
1,566,257
115,321
46,432
49,849
19,911
1,797,770
$
Note 11: Deposits
The following table summarizes deposits by type:
(In thousands)
Non-interest-bearing:
Demand
Interest-bearing:
Health savings accounts
Checking
Money market
Savings
Time deposits
Total interest-bearing
Total deposits
Time deposits and interest-bearing checking obtained through brokers
Aggregate amount of time deposit accounts that exceeded the FDIC limit
Demand deposit overdrafts reclassified as loan balances
The scheduled maturities of time deposits are as follows:
(In thousands)
2022
2023
2024
2025
2026
Total time deposits
96
Note 12: Borrowings
Total borrowed funds were $1.2 billion and $1.7 billion at December 31, 2021 and 2020, respectively. The components of
Webster's borrowings are discussed further below.
The following table summarizes securities sold under agreements to repurchase and other borrowings:
(Dollars in thousands)
Securities sold under agreements to repurchase (1):
Original maturity of one year or less
Original maturity of greater than one year, non-callable
Total securities sold under agreements to repurchase
Federal funds purchased
Securities sold under agreements to repurchase and other borrowings
At December 31,
2021
2020
Total
Outstanding
Rate
Total
Outstanding
Rate
$
$
474,896
200,000
674,896
—
674,896
0.11 % $
1.32
0.47
—
0.47 % $
269,330
200,000
469,330
526,025
995,355
0.13 %
0.84
0.43
0.08
0.25 %
(1) Webster has the right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements
to repurchase are presented as gross transactions, as only liabilities are outstanding for the periods presented.
Securities sold under agreements to repurchase are used as a source of borrowed funds and are collateralized by Agency MBS.
Webster's repurchase agreement counterparties are limited to primary dealers in government securities, and commercial and
municipal customers through the Corporate Treasury function. Webster may also purchase term and overnight federal funds to
satisfy its short-term liquidity needs.
The following table summarizes information for FHLB advances:
(Dollars in thousands)
Maturing within 1 year
After 1 year but within 2 years
After 2 years but within 3 years
After 3 years but within 4 years
After 4 years but within 5 years
After 5 years
FHLB advances
Aggregate carrying value of assets pledged as collateral
Remaining borrowing capacity at FHLB
At December 31,
2021
2020
Total
Outstanding
Weighted-
Average
Contractual
Coupon Rate
Total
Outstanding
Weighted-
Average
Contractual
Coupon Rate
90
202
—
—
—
10,705
10,997
— % $
2.95
—
—
—
2.03
2.03 % $
25,000
110
215
50,000
50,000
7,839
133,164
0.38 %
—
2.95
1.59
1.42
2.66
1.36 %
7,556,034
5,087,294
$
7,387,054
4,689,642
$
$
$
Webster Bank may borrow up to the amount of eligible mortgages and securities that have been pledged as collateral to secure
FHLB advances, which primarily include certain residential and commercial real estate loans, and home equity lines of credit.
Webster Bank was in compliance with its FHLB collateral requirements at both December 31, 2021 and 2020.
The following table summarizes long-term debt:
(Dollars in thousands)
4.375% Senior fixed-rate notes due February 15, 2024
4.100 % Senior fixed-rate notes due March 25, 2029 (1)
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2)
Total senior and subordinated debt
Discount on senior fixed-rate notes
Debt issuance cost on senior fixed-rate notes
Long-term debt
At December 31,
2021
2020
150,000 $
338,811
77,320
566,131
(974)
(2,226)
562,931 $
150,000
344,164
77,320
571,484
(1,193)
(2,628)
567,663
$
$
(1) Webster de-designated its fair value hedging relationship on these senior notes in 2020. A basis adjustment of $38.8 million and
$44.2 million at December 31, 2021 and 2020, respectively, is included in the carrying value and is being amortized over the
remaining life of the senior notes.
(2) The interest rate on the Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%,
was 3.17% and 3.18% at December 31, 2021 and 2020, respectively.
97
Note 13: Shareholders' Equity
The following table summarizes the changes in Webster's preferred shares, common shares, and treasury shares for the year
ended December 31, 2021:
Balance at January 1, 2021
Restricted share activity
Stock options exercised
Balance at December 31, 2021
Common Stock
Preferred Stock
Series F
6,000
—
—
6,000
Common Stock
Issued
93,686,311
—
—
93,686,311
Treasury Stock
Held
3,487,389
(154,281)
(230,418)
3,102,690
Common Stock
Outstanding
90,198,922
154,281
230,418
90,583,621
Webster maintains a common stock repurchase program, which was announced on October 29, 2019 and approved by the
Board of Directors, that authorizes management to purchase up to $200.0 million of its common stock in either open market or
privately negotiated transactions, subject to market conditions and other factors. Due to the effects of the COVID-19 pandemic
on the economic environment, Webster had temporarily suspended repurchases of its common stock under the program in 2020.
Further, as part of the Company's executed merger agreement with Sterling dated as of April 18, 2021, Webster was restricted
from repurchasing any shares under the program through the close of the transaction. Now that the transaction has closed
effective January 31, 2022, Webster has resumed its common stock repurchase program subject to prevailing market conditions.
At December 31, 2021, the remaining repurchase authority under the common stock repurchase program was $123.4 million.
Preferred Stock
At December 31, 2021, Webster had 6,000,000 depositary shares outstanding, each representing 1/1000th ownership interest in
a share of its Series F Preferred Stock. Dividends on the Series F Preferred Stock are non-cumulative and are not mandatory. If
declared by the Board of Directors (or a duly authorized committee thereof), Webster pays dividends quarterly in arrears on the
fifteenth day of each March, June, September, and December, at a rate equal to 5.25% of the $25,000 per share liquidation
amount per annum. If the Board of Directors (or a duly authorized committee thereof) does not declare a dividend on the Series
F Preferred Stock in respect of a dividend period, a dividend will not accrue and Webster has no obligation to pay any dividend
for that period, regardless as to whether a dividend is declared for a future period on the Series F Preferred stock or any other
series of Webster preferred stock. The terms of the Series F Preferred Stock prohibit Webster from declaring or paying any cash
dividends on its common stock, and from repurchasing, redeeming, or otherwise acquiring Webster common stock or any other
series of Webster preferred stock to which it ranks on parity with, unless dividends have been declared and paid in full on the
Series F Preferred Stock for the most recent dividend period.
The Series F Preferred Stock is perpetual and has no maturity date, and is not subject to any mandatory redemption, sinking
fund, or other similar provisions. Webster may redeem the Series F Preferred Stock at its option, in whole or in part, subject to
the approval of the Federal Reserve Board, on December 15, 2022, or any dividend payment date thereafter, or in whole but not
in part, upon the occurrence of 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. Except with respect to certain non-payment events and changes to the terms of the Series F Preferred Stock, holders
of Series F Preferred Stock have no voting rights nor preemptive or conversion rights. The Series F Preferred Stock is not
convertible or exchangeable for shares of any other class of Webster stock.
Additional information regarding Webster's common and preferred stock, including the subsequent changes as a result of the
Company's merger with Sterling, can be found within Note 3: Business Developments.
98
Note 14: Accumulated Other Comprehensive (Loss) Income, Net of Tax
The following table summarizes the changes in each component of accumulated other comprehensive (loss) income, net of tax:
(In thousands)
Balance at December 31, 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive (loss)
Other comprehensive income, net of tax
Balance at December 31, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Other comprehensive income (loss), net of tax
Balance at December 31, 2020
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Other comprehensive (loss) income, net of tax
Balance at December 31, 2021
$
$
Securities
Available
For Sale
Derivative
Instruments
Defined Benefit
Pension and
Other
Postretirement
Benefit Plans
(71,374) $
88,647
(22)
88,625
17,251
50,179
(6)
50,173
67,424
(62,888)
—
(62,888)
4,536 $
(9,313) $
(4,945)
5,074
129
(9,184)
20,667
8,435
29,102
19,918
(17,109)
3,261
(13,848)
6,070 $
(49,965) $
1,622
4,204
5,826
(44,139)
(3,887)
2,940
(947)
(45,086)
8,876
3,024
11,900
(33,186) $
Total
(130,652)
85,324
9,256
94,580
(36,072)
66,959
11,369
78,328
42,256
(71,121)
6,285
(64,836)
(22,580)
The following table further summarizes the amounts reclassified from accumulated other comprehensive (loss) income:
Accumulated Other Comprehensive
Income (Loss) Components
2021
2020
2019
Associated Line Item in the Consolidated
Statement Of Income
Years ended December 31,
(In thousands)
Securities available-for-sale:
Net unrealized holding gains
Tax (expense)
Net of tax
Derivative instruments:
Hedge terminations
Premium amortization
Tax benefit
Net of tax
Defined benefit pension and other
postretirement benefit plans:
Actuarial net loss amortization
Tax benefit
Net of tax
$
$
$
$
$
$
— $
—
— $
(4,109) $
(306)
1,154
(3,261) $
8 $
(2)
6 $
(7,884) $
(3,536)
2,985
(8,435) $
29 Gain on sale of investment securities, net
(7) Income tax expense
22
(5,509) Interest expense
(1,323) Interest income
1,758 Income tax expense
(5,074)
(4,102) $
1,078
(3,024) $
(3,976) $
1,036
(2,940) $
(5,706) Other non-interest expense
1,502 Income tax expense
(4,204)
99
The following tables summarize each component of other comprehensive (loss) income and the related tax effects:
(In thousands)
Securities available-for-sale:
Net unrealized holding (losses) arising during the year
Total securities available-for-sale
Derivative instruments:
Net unrealized (losses) arising during the year
Reclassification adjustment for net realized losses included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Net actuarial gain arising during the year
Reclassification adjustment for net actuarial loss amortization included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive (loss), net of tax
(In thousands)
Securities available-for-sale:
Net unrealized holding gains arising during the year
Reclassification adjustment for net realized gains included in net income
Total securities available-for-sale
Derivative instruments:
Net unrealized gains arising during the year
Reclassification adjustment for net realized losses included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Net actuarial loss arising during the year
Reclassification adjustment for net actuarial loss amortization included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive income, net of tax
(In thousands)
Securities available-for-sale:
Net unrealized holding gains arising during the year
Reclassification adjustment for net realized gains included in net income
Total securities available-for-sale
Derivative instruments:
Net unrealized (losses) arising during the year
Reclassification adjustment for net realized losses included in net income
Total derivative instruments
Defined benefit pension and other postretirement benefit plans:
Net actuarial gain arising during the year
Reclassification adjustment for net actuarial loss amortization included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive income, net of tax
Year ended December 31, 2021
Amount
Before Tax
Tax Benefit
(Expense)
Amount
Net of Tax
$
(85,368) $
(85,368)
22,480 $
22,480
(62,888)
(62,888)
(23,216)
4,415
(18,801)
12,052
4,102
16,154
(88,015) $
6,107
(1,154)
4,953
(3,176)
(1,078)
(4,254)
23,179 $
(17,109)
3,261
(13,848)
8,876
3,024
11,900
(64,836)
Year ended December 31, 2020
Amount
Before Tax
Tax Benefit
(Expense)
Amount
Net of Tax
68,116 $
(8)
68,108
(17,937) $
2
(17,935)
27,683
11,420
39,103
(5,262)
3,976
(1,286)
105,925 $
(7,016)
(2,985)
(10,001)
1,375
(1,036)
339
(27,597) $
50,179
(6)
50,173
20,667
8,435
29,102
(3,887)
2,940
(947)
78,328
Year ended December 31, 2019
Amount
Before Tax
Tax Benefit
(Expense)
Amount
Net of Tax
120,333 $
(29)
120,304
(31,686) $
7
(31,679)
(6,672)
6,832
160
2,202
5,706
7,908
128,372 $
1,727
(1,758)
(31)
(580)
(1,502)
(2,082)
(33,792) $
88,647
(22)
88,625
(4,945)
5,074
129
1,622
4,204
5,826
94,580
$
$
$
$
$
100
Note 15: Regulatory Capital and Restrictions
Capital Requirements
Webster Financial Corporation and Webster Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators
that could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific
capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant
to regulatory directives. Capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the Company to maintain
minimum ratios of CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted
assets (Tier 1 risk-based capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to
average tangible assets (Tier 1 leverage capital), as defined in the regulations.
CET1 capital consists of common shareholders’ equity less deductions for goodwill and other intangible assets, and certain
deferred tax adjustments. Upon adoption of the Basel III Capital Rules, Webster elected to opt-out of the requirement to include
certain components of accumulated other comprehensive income in CET1 capital. Tier 1 capital consists of CET1 capital plus
preferred stock. Total capital consists of Tier 1 capital and Tier 2 capital, as defined in the regulations. Tier 2 capital includes
permissible portions of subordinated debt and the allowance for credit losses.
At December 31, 2021 and 2020, both Webster Financial Corporation and Webster Bank were classified as well-capitalized.
Management believes that no events or changes have occurred subsequent to year-end that would change this designation.
The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank:
(Dollars in thousands)
Webster Financial Corporation
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Webster Bank
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
(Dollars in thousands)
Webster Financial Corporation
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Webster Bank
CET1 risk-based capital
Total risk-based capital
Tier 1 risk-based capital
Tier 1 leverage capital
Actual (1)
Amount
Ratio
At December 31, 2021
Minimum Requirement
Ratio
Amount
Well Capitalized
Amount
Ratio
2,804,290
3,265,064
2,949,327
2,949,327
3,034,883
3,273,300
3,034,883
3,034,883
11.72 % $
13.64
12.32
8.47
1,076,871
1,914,436
1,435,827
1,393,607
12.69 % $
13.69
12.69
8.72
1,075,920
1,912,747
1,434,560
1,392,821
4.5 % $
8.0
6.0
4.0
4.5 % $
8.0
6.0
4.0
1,555,480
2,393,046
1,914,436
1,742,008
1,554,107
2,390,934
1,912,747
1,741,026
6.5 %
10.0
8.0
5.0
6.5 %
10.0
8.0
5.0
Actual (1)
Amount
Ratio
At December 31, 2020
Minimum Requirement
Ratio
Amount
Well Capitalized
Amount
Ratio
2,543,131
3,045,652
2,688,168
2,688,168
2,791,474
3,071,505
2,791,474
2,791,474
11.35 % $
13.59
11.99
8.32
1,008,512
1,792,910
1,344,682
1,291,980
12.46 % $
13.71
12.46
8.65
1,008,027
1,792,048
1,344,036
1,291,415
4.5 % $
8.0
6.0
4.0
4.5 % $
8.0
6.0
4.0
1,456,739
2,241,137
1,792,910
1,614,975
1,456,039
2,240,060
1,792,048
1,614,268
6.5 %
10.0
8.0
5.0
6.5 %
10.0
8.0
5.0
$
$
$
$
(1)
In accordance with regulatory capital rules, Webster elected an option to delay the estimated impact of the adoption of CECL on its
regulatory capital over a two-year deferral period ending on January 1, 2022, and subsequent three-year transition period ending on
December 31, 2024. As a result, capital ratios and amounts exclude the impact of the increased ACL on loans and leases, held-to-
maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL on January 1, 2020, adjusted for an
approximation of the after-tax provision for credit losses attributable to CECL relative to the incurred loss methodology during the
deferral period.
101
Dividend Restrictions
Webster Financial Corporation is dependent upon dividends from Webster Bank to provide funds for the payment of dividends
to shareholders and to provide for other cash requirements. Dividends paid by the Bank are subject to various federal and state
regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory
capital of the Bank to fall below specified minimum levels or if the amount would exceed the net income for that year
combined with the undistributed net income for the preceding two years. During the years ended December 31, 2021 and 2020,
Webster Bank paid $200.0 million and $20.0 million in dividends to Webster Financial Corporation, to which no express
approval from the OCC was required.
Cash Restrictions
Webster Bank is required under Federal Reserve regulations to maintain cash reserve balances in the form of vault cash or
deposits held at a Federal Reserve Bank to ensure that it is able to meet customer demands. The reserve requirement ratio is
subject to adjustment as economic conditions warrant. Effective March 26, 2020, the Federal Reserve reset the requirement to
zero in order to address liquidity concerns resulting from the COVID-19 pandemic. Pursuant to this action, the Bank was not
required to hold cash reserve balances at both December 31, 2021 and 2020.
Note 16: Earnings Per Common Share
The following table summarizes the calculation of basic and diluted earnings per common share:
(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 allocated to participating securities
Earnings applicable to common shareholders
Shares:
Weighted-average common shares outstanding - basic
Effect of dilutive securities (1)
Weighted-average common shares outstanding - diluted
Earnings per common share:
Basic
Diluted
Years ended December 31,
2020
2019
2021
$
$
$
408,864 $
7,875
400,989
2,302
398,687 $
220,621 $
7,875
212,746
1,272
211,474 $
89,983
223
90,206
89,967
184
90,151
4.43 $
4.42
2.35 $
2.35
382,723
7,875
374,848
1,863
372,985
91,559
323
91,882
4.07
4.06
(1)
Includes stock options and performance-based restricted stock for all periods presented.
Earnings per common share is calculated under the two-class method in which all earnings (distributed and undistributed) are
allocated to common stock and participating securities based on their respective rights to receive dividends. Webster may grant
restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights to
certain employees and directors under its stock-based compensation programs, which entitle recipients to receive non-
forfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These
unvested awards meet the definition of participating securities.
Potential common shares from performance-based restricted stock awards that were not included in the computation of dilutive
earnings per common share because they were anti-dilutive (the exercise price is greater than the weighted-average market
price) under the treasury stock method were 56,829, 43,508, and 73,347 for the years ended December 31, 2021, 2020, and
2019, respectively. Additional information regarding the potential common shares excluded from the effect of dilutive securities
can be found in Note 20: Share-Based Plans.
102
Note 17: Derivative Financial Instruments
Derivative Positions and Offsetting
Derivatives Designated in Hedge Relationships. Interest rate swaps allow the Company to change the fixed or variable nature
of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate
swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, while certain receive
fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into
variable-rate debt. Certain purchased options are designated as cash flow hedges. Purchased options allow the Company to limit
the potential adverse impact of variable interest rates by establishing a cap or floor rate in exchange for an upfront premium.
The purchased options designated as cash flow hedges represent interest rate caps where payment is received from the
counterparty if interest rates rise above the cap rate, and interest rate floors where payment is received from the counterparty
when interest rates fall below the floor rate.
Derivatives Not Designated in Hedge Relationships. The Company also enters into other derivative transactions to manage
economic risks but does not designate the instruments in hedge relationships. Further, the Company enters into derivative
contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions
structured with matching terms to ensure minimal impact on earnings.
The following table presents the notional amounts and fair values, including accrued interest, of derivative positions:
(In thousands)
Designated as hedging instruments:
Interest rate derivatives (1)
Not designated as hedging instruments:
Interest rate derivatives (1)
Mortgage banking derivatives (2)
Other (3)
Total not designated as hedging instruments
Gross derivative instruments, before netting
Less: Master netting agreements
Cash collateral
Total derivative instruments, after netting
(In thousands)
Designated as hedging instruments:
Interest rate derivatives (1)
Not designated as hedging instruments:
Interest rate derivatives (1)
Mortgage banking derivatives (2)
Other (3)
Total not designated as hedging instruments
Gross derivative instruments, before netting
Less: Master netting agreements
Cash collateral
Total derivative instruments, after netting
At December 31, 2021
Asset Derivatives
Liability Derivatives
Notional Amounts
Fair Value
Notional Amounts
Fair Value
$
1,000,000 $
17,583
$
— $
—
4,463,048
14,212
76,755
4,554,015
5,554,015
$
$
141,243
80
211
141,534
159,117
6,364
19,272
133,481
$
4,372,846
—
374,688
4,747,534
4,747,534
$
At December 31, 2020
21,570
—
214
21,784
21,784
6,364
2,119
13,301
Asset Derivatives
Liability Derivatives
Notional Amounts
Fair Value
Notional Amounts
Fair Value
$
1,000,000 $
40,854
$
25,000 $
110
4,421,627
40,771
108,987
4,571,385
5,571,385
$
$
297,085
855
264
298,204
339,058
7,748
33,972
297,338
$
4,468,153
—
360,497
4,828,650
4,853,650
$
12,203
—
377
12,580
12,690
7,748
4,550
392
(1) Balances related to CME are presented as a single unit of account. In accordance with its rule book, CME legally characterizes
variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of
interest rate swaps cleared through CME include $0.4 billion and $0.1 billion for asset derivatives and $2.6 billion and $3.2 billion
for liability derivatives at December 31, 2021 and 2020, respectively. The related fair values approximate zero.
(2) Notional amounts related to residential loans exclude approved floating rate commitments of $1.0 million at December 31, 2021.
(3) Other derivatives include foreign currency forward contracts related to lending arrangements and customer hedging activity, a Visa
equity swap transaction, and risk participation agreements. Notional amounts of risk participation agreements include $66.0 million
and $80.5 million for asset derivatives and $338.2 million and $338.9 million for liability derivatives at December 31, 2021 and
2020, respectively, that have insignificant related fair values.
103
The following table presents fair value positions transitioned from gross to net upon applying counterparty netting agreements:
(In thousands)
Asset derivatives
Liability derivatives
(In thousands)
Asset derivatives
Liability derivatives
Derivative Activity
Gross
Amount
Offset
Amount
At December 31, 2021
Net Amount on
Balance Sheet
Amounts
Not Offset
Net
Amounts
25,636 $
8,483
25,636 $
8,483
$
—
—
51 $
428
51
428
Gross
Amount
Offset
Amount
At December 31, 2020
Net Amount on
Balance Sheet
Amounts
Not Offset
Net
Amounts
41,774 $
12,352
41,720 $
12,298
$
54
54
666 $
265
720
319
$
$
The following table summarizes the income statement effect of derivatives designated as cash flow hedges:
(In thousands)
Interest rate derivatives
Interest rate derivatives
Net recognized on cash flow hedges
Recognized In
Net Interest Income
Years ended December 31,
2020
2019
2021
Long-term debt
Interest and fees on loans and leases
$
$
$
411
(10,676)
(10,265) $
8,206
(6,373)
1,833
$
$
4,241
1,314
5,555
The following table summarizes information related to a fair value hedging adjustment:
Consolidated Balance Sheet Line Item in Which
Hedged Item is Located
(In thousands)
Long-term debt
Carrying Amount of Hedged Item
At December 31,
Cumulative Amount of Fair Value Hedging
Adjustment Included in Carrying Amount
At December 31,
2021
2020
2021
2020
$
338,811
$
344,164
$
38,811
$
44,164
The following table summarizes the income statement effect of derivatives not designated as hedging instruments:
(In thousands)
Interest rate derivatives
Mortgage banking derivatives
Other
Total not designated as hedging instruments
Recognized In
Non-interest Income
Other income
Mortgage banking activities
Other income
Years ended December 31,
2020
2019
2021
$
$
10,369
(776)
878
10,471
$
$
11,068
636
(1,696)
10,008
$
$
8,477
(6)
1,100
9,571
Purchased options designated as cash flow hedges exclude time-value premiums from the assessment of hedge effectiveness.
Time-value premiums are amortized on a straight-line basis. At December 31, 2021, the remaining unamortized balance of
time-value premiums was $5.8 million. Over the next twelve months, an estimated $7.2 million decrease to interest expense
will be reclassified from AOCI (AOCL) relating to cash flow hedges, and an estimated $306 thousand increase to interest
expense will be reclassified from AOCI (AOCL) relating to hedge terminations. At December 31, 2021, the remaining
unamortized loss on terminated cash flow hedges is $650 thousand. The maximum length of time over which forecasted
transactions are hedged is 2.6 years. Additional information about cash flow hedge activity impacting AOCI (AOCL) and the
related amounts reclassified to interest expense is provided in Note 14: Accumulated Other Comprehensive (Loss) Income, Net
of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 18: Fair
Value Measurements.
Derivative Exposure. At December 31, 2021, the Company had $59.9 million in initial margin collateral posted at CME. In
addition, $19.7 million of cash collateral received is included in cash and due from banks in the accompanying Consolidated
Balance Sheets. Webster regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of
default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as
transactions with customers are generally secured by the same collateral of the underlying transactions. Current net credit
exposure relating to interest rate derivatives with Webster Bank customers was $133.4 million at December 31, 2021. 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 $34.1 million
at December 31, 2021. The Company has incorporated a credit valuation adjustment to reflect nonperformance risk in the fair
value measurement of its derivatives. The credit valuation adjustment was $0.4 million and $3.0 million as of December 31,
2021 and December 31, 2020, respectively. Various factors impact changes in the credit valuation adjustment over time,
including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which
affect the total expected exposure of the derivative instruments.
104
Note 18: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The determination of fair value may require the use of estimates when
quoted market prices are not available. Fair value estimates made at a specific point in time are based on management’s
judgments regarding future expected losses, current economic conditions, the risk characteristics of each financial instrument,
and other subjective factors that cannot be determined with precision.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The three levels within the fair value hierarchy are as follows:
•
•
•
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active
markets that Webster has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are
observable for the asset or liability (such as interest rates, rate volatility, prepayment speeds, and credit ratings), or
inputs that are derived principally from or corroborated by market data, by correlation or other means.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. This
includes certain pricing models or other similar techniques that require significant management judgment or
estimation.
An asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize
the use of unobservable inputs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Investment Securities. When unadjusted quoted prices are available in an active market, Webster classifies
available-for-sale investment securities within Level 1 of the valuation hierarchy. U.S. Treasury notes have a readily
determinable fair value and therefore are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, Webster employs an independent pricing service that utilizes matrix pricing to
calculate fair value. These fair value measurements consider observable data such as dealer quotes, market spreads, cash flows,
yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the
respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results
and has a process in place to challenge their valuations and methodologies that appear unusual or unexpected. Agency
collateralized mortgage obligations (Agency CMO), Agency MBS, Agency CMBS, CMBS, CLO, and corporate debt securities
available-for-sale are classified within Level 2 of the fair value hierarchy.
Derivative Instruments. The fair values presented for derivative instruments include any accrued interest. Foreign exchange
contracts are valued based on unadjusted quoted prices in active markets and accordingly are classified within Level 1 of the
fair value hierarchy. Except for mortgage banking derivatives, all other derivative instruments are valued using third-party
valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The
resulting fair value is then validated against valuations performed by independent third parties. These derivative instruments are
classified within Level 2 of the fair value hierarchy.
Mortgage Banking Derivatives. Webster uses forward sales of mortgage loans and mortgage-backed securities to manage the
risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding
certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During
this in-between time period, Webster is subject to the risk that market interest rates may change. If rates rise, investors generally
will pay less to purchase mortgage loans, which would result in a reduction in the gain on sale of the loans, or possibly a loss. In
an effort to mitigate this risk, forward delivery sales commitments are established in which Webster agrees to either deliver
whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives
is determined based on current market prices for similar assets in the secondary market. Accordingly, mortgage banking
derivatives are classified within Level 2 of the fair value hierarchy.
105
Originated Loans Held For Sale. Webster has elected to measure originated residential mortgage loans held for sale at fair
value under the fair value option per ASC Topic 825, Financial Instruments. Electing to measure originated residential
mortgage loans held for sale at fair value reduces certain timing differences and better reflects the price Webster would expect
to receive from the sale of these loans. The fair value of originated residential mortgage loans held for sale is based on quoted
market prices of similar loans sold in conjunction with securitization transactions. Accordingly, originated residential mortgage
loans held for sale are classified within Level 2 of the fair value hierarchy.
The following table compares the fair value to unpaid principal balance of originated residential mortgage loans held for sale:
(In thousands)
Originated loans held for sale
2021
Unpaid
Principal
Balance
Fair Value
At December 31,
Difference
Fair Value
2020
Unpaid
Principal
Balance
Difference
$
4,694
$
5,034
$
(340) $
14,000
$
13,511
$
489
Investments Held in Rabbi Trust. Investments held in the Rabbi Trust consist primarily of mutual funds that invest in equity
and fixed income securities. Shares of these mutual funds are valued based on the NAV as reported by the trustee of the funds,
which represent quoted prices in active markets. Webster has elected to measure the investments held in the Rabbi Trust at fair
value. Accordingly, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. At
December 31, 2021, the cost basis of the investments held in the Rabbi Trust was $1.6 million.
Alternative Investments. Equity investments have a readily determinable fair value when unadjusted quoted prices are available
in an active market for identical assets. Accordingly, these alternative investments are classified within Level 1 of the fair value
hierarchy. At December 31, 2021, equity investments with a readily determinable fair value had a carrying amount of $1.9
million and no remaining unfunded commitment. During the year ended December 31, 2021, there was a net change in fair
value of $0.5 million associated with these alternative investments.
Equity investments that do not have a readily determinable fair value may qualify for the NAV practical expedient if they meet
certain requirements. Webster's alternative investments measured at NAV consist of investments in non-public entities that
cannot be redeemed since investments are distributed as the underlying equity is liquidated. Alternative investments measured
at NAV are not classified within the fair value hierarchy. At December 31, 2021, these alternative investments had a carrying
amount of $25.9 million and a remaining unfunded commitment of $14.1 million.
The following table summarizes the fair values of assets and liabilities measured at fair value on a recurring basis:
(In thousands)
Financial Assets:
Available-for-sale investment securities:
U.S. Treasury notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Total available-for-sale investment securities
Gross derivative instruments, before netting (1)
Originated loans held for sale
Investments held in Rabbi Trust
Alternative investments (2)
Total financial assets
Financial Liabilities:
Gross derivative instruments, before netting (1)
At December 31, 2021
Level 1
Level 2
Level 3
Total
$
$
$
396,966 $
—
—
—
—
—
—
396,966
187
—
3,416
1,877
402,446 $
— $
90,384
1,593,403
1,232,541
886,263
21,847
13,450
3,837,888
158,930
4,694
—
—
4,001,512 $
— $
—
—
—
—
—
—
—
—
—
—
—
— $
396,966
90,384
1,593,403
1,232,541
886,263
21,847
13,450
4,234,854
159,117
4,694
3,416
27,732
4,429,813
141 $
21,643 $
— $
21,784
106
(In thousands)
Financial Assets:
Available-for-sale investment securities:
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Total available-for-sale investment securities
Gross derivative instruments, before netting (1)
Originated loans held for sale
Investments held in Rabbi Trust
Alternative investments (2)
Total financial assets held at fair value
Financial Liabilities:
Gross derivative instruments, before netting (1)
At December 31, 2020
Level 1
Level 2
Level 3
Total
$
$
$
— $
—
—
—
—
—
—
205
—
4,811
—
5,016 $
154,613 $
1,457,409
1,117,233
508,018
76,383
13,120
3,326,776
338,853
14,000
—
—
3,679,629 $
— $
—
—
—
—
—
—
—
—
—
—
— $
154,613
1,457,409
1,117,233
508,018
76,383
13,120
3,326,776
339,058
14,000
4,811
11,112
3,695,757
218 $
12,472 $
— $
12,690
(1) Additional information regarding the impact of netting derivative assets and derivative liabilities, as well as the impact from
offsetting cash collateral paid to the same derivative counterparties, can be found in Note 17: Derivative Financial Instruments.
(2) Certain alternative investments are recorded at NAV. Assets measured at NAV are not classified within the fair value hierarchy.
Assets Measured at Fair Value on a Non-Recurring Basis
Webster measures certain assets at fair value on a non-recurring basis. The following is a description of valuation
methodologies used for assets measured at fair value on a non-recurring basis.
Alternative Investments. The measurement alternative has been elected for alternative investments without readily
determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments
to be measured at cost minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly
transactions for an identical or similar investment of the same issuer. Accordingly, these alternative investments are classified
within Level 2 of the fair value hierarchy. At December 31, 2021, the carrying amount of these alternative investments was
$25.8 million, of which $5.8 million are considered to be measured at fair value as a result of $4.4 million in write-ups due to
observable price changes and a $0.3 million write-down due to impairment during the current period.
Collateral Dependent Loans and Leases. Loans and leases for which repayment is substantially expected to be provided
through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value
of the collateral, less estimated costs to sell at the reporting date, using customized discounting criteria. Accordingly, collateral
dependent loans and leases are classified within Level 3 of the fair value hierarchy.
Other Real Estate Owned and Repossessed Assets. OREO and repossessed assets are held at the lower of cost or fair value and
are considered to be measured at fair value when recorded below cost. The fair value of OREO is calculated using independent
appraisals or internal valuation methods, less estimated selling costs, and may consider available pricing guides, auction results,
and price opinions. Certain repossessed assets may also require assumptions about factors that are not observable in an active
market when determining fair value. Accordingly, OREO and repossessed assets are classified within Level 3 of the fair value
hierarchy. At December 31, 2021, the total book value of OREO and repossessed assets was $2.8 million. In addition, the
amortized cost of consumer loans secured by residential real estate property that are in the process of foreclosure at
December 31, 2021 was $7.5 million.
Estimated Fair Values of Financial Instruments and Mortgage Servicing Assets
Webster is required to disclose the estimated fair values of certain financial instruments and mortgage servicing assets. The
following is a description of the valuation methodologies used to estimate fair value for those assets and liabilities.
Cash and Cash Equivalents. Given the short time frame to maturity, the carrying amount of cash and cash equivalents, which
comprises cash and due from banks and interest-bearing deposits, approximates fair value. Cash and cash equivalents are
classified within Level 1 of the fair value hierarchy.
107
Held-to-Maturity Investment Securities. When quoted market prices are not available, Webster employs an independent
pricing service that utilizes matrix pricing to calculate fair value. These fair value measurements consider observable data such
as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus
prepayments speeds, credit information, and the respective terms and conditions for debt instruments. Management maintains
procedures to monitor the pricing service's results and has a process in place to challenge their valuations and methodologies
that appear unusual or unexpected. Held-to-maturity investment securities, which include Agency CMO, Agency MBS, Agency
CMBS, municipal bonds and notes, are classified within Level 2 of the fair value hierarchy.
Loans and Leases, net. Except for collateral dependent loans and leases, the fair value of loans and leases held for investment
is estimated using a discounted cash flow methodology, based on future prepayments and market interest rates inclusive of an
illiquidity premium for comparable loans and leases. The associated cash flows are then adjusted for associated credit risks and
other potential losses, as appropriate. Loans and leases are classified within Level 3 of the fair value hierarchy.
Mortgage Servicing Assets. Mortgage servicing assets are initially measured at fair value and subsequently measured using the
amortization method. Webster assesses mortgage servicing assets for impairment each quarter and establishes or adjusts the
valuation allowance to the extent that amortized cost exceeds the estimated fair market value. Fair value is calculated as the
present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds,
servicing costs, discount rates, and other economic factors. Accordingly, the primary risk inherent in valuing mortgage
servicing assets is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing assets are
classified within Level 3 of the fair value hierarchy.
Deposit Liabilities. The fair value of deposit liabilities, which comprises demand deposits, interest-bearing checking, savings,
health savings, and money market accounts, reflects the amount payable on demand at the reporting date. Deposit liabilities are
classified within Level 2 of the fair value hierarchy.
Time Deposits. The fair value of fixed-maturity certificates of deposit is estimated using rates that are currently offered for
deposits with similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings. The fair value of securities sold under agreements to
repurchase and other borrowings that mature within 90 days approximates their carrying value. The fair value of securities sold
under agreements to repurchase and other borrowings that mature after 90 days is estimated using a discounted cash flow
methodology based on current market rates and adjusted for associated credit risks, as appropriate. Securities sold under
agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated
using a discounted cash flow methodology in which discount rates are matched with the time period of the expected cash flows
and adjusted for associated credit risks, as appropriate. FHLB advances and long-term debt are classified within Level 2 of the
fair value hierarchy.
The following table summarizes the carrying amounts, estimated fair values, and classifications within the fair value hierarchy
of selected financial instruments and mortgage servicing assets:
(In thousands)
Assets:
Level 1
Cash and cash equivalents
Level 2
At December 31,
2021
2020
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
461,570 $
461,570 $
263,104 $
263,104
Held-to-maturity investment securities
6,198,125
6,280,936
5,567,889
5,835,364
Level 3
Loans and leases, net
Mortgage servicing assets
Liabilities:
Level 2
Deposit liabilities
Time deposits
Securities sold under agreements to repurchase and other borrowings
FHLB advances
Long-term debt (1)
21,970,542
9,237
21,702,732
12,527
21,281,784
13,422
21,413,397
14,362
$ 28,049,259 $ 28,049,259 $ 24,847,618 $ 24,847,618
2,494,601
1,000,189
139,035
538,407
1,794,829
676,581
11,490
515,912
1,797,770
674,896
10,997
562,931
2,487,818
995,355
133,164
567,663
(1) The unamortized discount and debt issuance costs on senior fixed-rate notes and any adjustments made to the carrying amount of
long-term debt for basis adjustments, as applicable, are excluded from the determination of fair value.
108
Note 19: Retirement Benefit Plans
Defined Benefit Pension and Postretirement Benefit Plans
Webster Bank had offered a qualified noncontributory defined benefit pension plan and a SERP to eligible employees and key
executives who met certain age and service requirements. Both the pension plan and the SERP were frozen effective
December 31, 2007. Only those employees who were hired prior to January 1, 2007 and who became participants of the plans
prior to January 1, 2008 have accrued benefits under the plans. Webster Bank also provides for other post-employment medical
and life insurance benefits (OPEB) to certain retired employees. The plans' measurement date coincides with Webster's
December 31 fiscal year end.
The following table summarizes the changes in the benefit obligation, fair value of plan assets, and funded status of the defined
benefit pension and postretirement benefit plans at December 31:
(In thousands)
Change in benefit obligation:
Beginning balance
Interest cost
Actuarial (gain) loss
Benefits paid
Ending balance
Change in plan assets:
Beginning balance
Actual return on plan assets
Employer contributions
Benefits paid
Ending balance
Funded status (1)
Pension Plan
SERP
OPEB
2021
2020
2021
2020
2021
2020
$
$
266,414 $
4,663
(11,131)
(9,683)
250,263
266,268
15,261
—
(9,683)
271,846
21,583 $
241,404 $
6,511
27,376
(8,877)
266,414
239,621
35,524
—
(8,877)
266,268
(146) $
2,046 $
30
(77)
(126)
1,873
—
—
126
(126)
—
(1,873) $
1,935 $
46
194
(129)
2,046
—
—
129
(129)
—
(2,046) $
1,998 $
19
32
(145)
1,904
—
—
145
(145)
—
(1,904) $
2,399
46
(307)
(140)
1,998
—
—
140
(140)
—
(1,998)
(1) The overfunded (underfunded) status of each plan is respectively included in accrued interest receivable and other assets or accrued
expenses and other liabilities on the accompanying Consolidated Balance Sheets, as applicable.
The following table summarizes the weighted-average assumptions used to determine the benefit obligation at December 31:
Discount rate
Assumed healthcare cost trend rate
Pension Plan
SERP
OPEB
2021
2020
2021
2020
2021
2020
2.65 %
n/a
2.29 %
n/a
2.45 %
n/a
1.91 %
n/a
1.99 %
6.25 %
1.40 %
6.50 %
The following table summarizes the amounts recorded in accumulated other comprehensive (loss) income that have not yet
been recognized in net periodic benefit (income) cost at December 31:
(In thousands)
Net actuarial loss (gain)
Deferred tax benefit (expense)
Net amount recorded in (AOCL) AOCI
Pension Plan
SERP
OPEB
2021
2020
2021
2020
2021
2020
$
$
41,792 $
8,636
33,156 $
57,902 $
12,881
45,021 $
658 $
136
522 $
773 $
172
601 $
(620) $
(128)
(492) $
(690)
(153)
(537)
The following table summarizes the components of net periodic benefit (income) cost for the years ended December 31:
(In thousands)
Interest cost
Expected return on plan assets
Amortization of actuarial (gain) loss
Net periodic benefit (income) cost (1)
Pension Plan
2021
2020
2019
2021
SERP
2020
2019
2021
OPEB
2020
2019
4,663
7,941
(14,385) (13,522) (11,436)
6,511
4,102
4,027
$ (5,620) $ (2,984) $ 2,210 $
5,705
30
—
38
68 $
46
—
23
69 $
65
—
14
79 $
19
—
(38)
(19) $
46
—
(74)
(28) $
85
—
(13)
72
(1) Net periodic benefit (income) cost is included in other non-interest expense on the accompanying Consolidated Statements of
Income.
109
The following table summarizes the weighted-average assumptions used to determine net periodic benefit (income) cost for the
years ended December 31:
Discount rate
Expected long-term rate of return on
plan assets
Assumed healthcare cost trend rate (1)
Pension Plan
2020
2021
2.29 % 3.07 % 4.12 %
2019
SERP
2020
2021
1.91 % 2.82 % 3.95 %
2019
OPEB
2020
2021
1.40 % 2.50 % 3.69 %
2019
5.50 % 5.75 % 6.00 %
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6.50 % 6.50 % 6.50 %
n/a
(1) The assumed healthcare cost trend rate used to measure the expected cost of benefits covered by the OPEB for 2022 is 6.25%. The
rate to which the healthcare cost trend rate is assumed to decline (ultimate trend rate) along with the year that the ultimate trend rate
will be reached is 4.40% in 2030.
The discount rates used to determine the benefit obligation and net periodic benefit (income) cost for Webster's defined benefit
pension and postretirement benefit plans were selected by reference to a high-quality bond yield curve, using a full yield curve
approach, and matched to the timing and amount of each plan's expected benefit payments.
The following table summarizes amounts recognized in other comprehensive (loss) income, including reclassification
adjustments, for the years ended December 31:
(In thousands)
Net actuarial (gain) loss
Amounts reclassified from
(AOCL) AOCI
Total (gain) loss recognized in
(OCL) OCI
Pension Plan
2021
2020
2019
2021
SERP
2020
2019
2021
OPEB
2020
2019
$ (12,008) $ 5,375 $ (2,263) $
(77) $
194 $
164 $
33 $
(307) $
(103)
(4,102)
(4,027)
(5,705)
(38)
(23)
(14)
38
74
13
$ (16,110) $ 1,348 $ (7,968) $
(115) $
171 $
150 $
71 $
(233) $
(90)
At December 31, 2021, the expected future benefit payments for the defined benefit pension and postretirement benefits plans
are as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Asset Management
Pension Plan
$
9,969 $
10,345
10,787
11,207
11,587
62,419
SERP
OPEB
116 $
117
128
126
124
581
270
247
224
201
179
609
The pension plan invests primarily in common collective trusts and registered investment companies. However, the pension
plan's investment policy guidelines also allow for the investment in cash and cash equivalents, fixed income securities, and
equity securities. Common collective trusts and registered investment companies are both benchmarked against the Standard &
Poor's 500 Index. Incremental benchmarks used to assess the common collective trusts include the S&P 400 Mid Cap Index,
Russell 200 Index, MSCI ACWI ex U.S. Index, and the Barclay's Capital U.S. Long Credit Index. The standard deviation
should not exceed that of the composite index. The pension plan's investment strategy and asset allocations are monitored by
the Company's Retirement Plans Committee with the assistance of external investment advisors, and the investment portfolio is
rebalanced, as appropriate. The target asset allocation percentages for the year ended December 31, 2021 were 64.5% fixed-
income investments and 35.5% equity investments. The actual asset allocation percentages for the year ended December 31,
2021 were 63.6% fixed-income investments, 35.7% equity investments, and 0.7% cash and cash equivalents.
The overall investment objective of the pension plan is to maintain a diversified portfolio with a targeted expected long-term
rate of return on plan assets of approximately 5.50%. The expected long-term rate of return on plans assets is the average rate of
return expected to be realized on funds invested or expected to be invested to provide for the benefits included in the benefit
obligation. The expected long-term rate of return on plans assets is established at the beginning of the year based upon
historical and projected returns for each asset category. Depending on market conditions, the expected long-term rate of return
on plan assets may exceed or fall short of the targeted percentage.
110
Fair Value Measurement
The following is a description of the valuation methodologies used for the pension plan's assets measured at fair value:
Common Collective Trusts. Common collective trusts are valued based on the NAV as reported by the trustee of the funds. The
funds' underlying investments, which primarily comprise fixed-income debt securities and open-end mutual funds, are valued
using quoted market prices in active markets or unobservable inputs for similar assets. Therefore, common collective trusts are
classified as Level 2 within the fair value hierarchy. Transactions may occur daily within a trust. If a full redemption of the trust
were to be initiated, the investment advisor reserves the right to temporarily delay withdrawals from the trust in order to ensure
that the liquidation of securities is carried out in an orderly business manner.
Registered Investment Companies. Registered investment companies are valued at the daily closing price as reported by the
funds. Registered investment companies held by the pension plan are quoted in an active market and are classified as Level 1
within the fair value hierarchy.
Cash and Cash Equivalents. Cash and cash equivalents are recorded at cost plus accrued interest, which approximates fair
value given the short time frame to maturity, and are classified as Level 1 within the fair value hierarchy.
The following table sets forth by level within the fair value hierarchy the pension plan's assets at fair value:
2021
2020
At December 31,
(In thousands)
Common collective trusts
Registered investment companies $
Cash and cash equivalents
Total pension plan assets
$
Level 1
Level 2
230,923
—
— $
39,082 $
1,841
—
40,923 $ 230,923 $
Level 3
Total
230,923
—
39,082
— $
—
1,841
— $ 271,846
$
$
Multiple-Employer Defined Benefit Pension Plan
Level 1
—
39,645 $
861
Level 2
225,762
— $
—
40,506 $ 225,762 $
Level 3
Total
225,762
—
39,645
— $
—
861
— $ 266,268
Webster Bank participates in a multi-employer plan that provides pension benefits to former employees of a bank acquired by
the Company. Participation in the plan was frozen as of September 1, 2004. The plan maintains a single trust and does not
segregate the assets or liabilities of its participating employers. Minimum required employer contributions are determined by an
independent actuary and are calculated using a 7-year shortfall amortization factor. There are no collective bargaining
agreements or other obligations requiring contributions to the plan, nor has a funding improvement plan been implemented.
The following table summarizes information related to Webster Bank's participation in the multi-employer plan:
(Dollars in thousands)
Plan Name
Pentegra Defined Benefit Plan
for Financial Institutions
Contributions
Years Ended December 31,
Funded Status
At December 31,
Employer
Identification
Number
Plan
Number
Surcharge
Imposed
2021
2020
2019
13-5645888
333
No
$692
$998
$863
2021
At least
80%
2020
At least
80%
Webster Bank's contributions to the multi-employer plan for the years ended December 31, 2021, 2020, and 2019 did not
exceed more than 5% of total plan contributions for the plan years ended June 30, 2020, 2019, and 2018. The plan's Form 5500
was not available for the plan year ended June 30, 2021 as of the date Webster's Consolidated Financial Statements were issued.
As of July 1, 2021, the date of the most recent actuarial valuation, the plan administrator confirmed that Webster Bank’s portion
of the multi-employer plan was $0.5 million overfunded.
Webster Bank Retirement Savings Plan
Webster Bank sponsors a defined contribution postretirement benefit plan established under Section 401(k) of the Internal
Revenue Code. Employees who have attained age 21 may elect to contribute up to 75% of their eligible compensation on either
a pre-tax or post-tax basis. Webster Bank makes matching contributions equal to 100% of the first 2% and 50% of the next 6%
of employees’ contributions after employees have completed one year of eligible service. If an employee fails to enroll in the
plan within 90 days of hire, the employee will be automatically enrolled on a pre-tax basis with a deferral rate set at 3% of
eligible compensation. Compensation and benefits expense included total employer contributions under the plan of $13.1
million, $13.8 million, and $13.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.
111
Note 20: Share-Based Plans
Webster maintains stock compensation plans consisting of restricted stock awards, stock options, and stock appreciation rights,
with shareholder approval for up to 13.4 million shares of common stock, to better align the interests of its employees and
directors with those of its shareholders. At December 31, 2021, there were 4.3 million shares of common stock available for
grant, and no stock appreciation rights had been granted. Stock compensation expense is recognized over the required service
vesting period for each award based on the grant-date fair value, net of estimated forfeitures, and is included as a component of
compensation and benefits on the accompanying Consolidated Statements of Income.
The following table summarizes stock-based compensation plan activity for the year ended December 31, 2021:
Non-Vested Restricted Stock Awards Outstanding
Time-Based
Performance-Based
Stock Options Outstanding
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
Weighted-
Average
Exercise Price
547,185 $
195,749
186,211
27,439
—
529,284
46.59
54.60
48.93
46.65
—
48.77
250,666 $
83,853
65,213
2,889
—
266,417
48.77
54.68
51.99
50.45
—
50.03
410,701 $
—
—
—
303,089
107,612
23.35
—
—
—
23.45
23.05
Balance at January 1, 2021
Granted
Vested
Forfeited
Exercised
Balance at December 31, 2021
Restricted Stock Awards
Time-based restricted stock awards vest over the applicable service period ranging from one to three years. Under the plan, the
number of time-based restricted stock awards that may be granted to an eligible individual per calendar year is limited to
100,000 shares. The fair value of time-based restricted stock awards used to determine compensation expense is measured using
the closing price of Webster's common stock at the grant date.
Performance-based restricted stock awards vest after a three year performance period with a share quantity dependent on the
Company's performance during that period, ranging from 0% to 150%. The total grant date fair value of performance-based
restricted stock awards that had vested during the years ended December 31, 2021, 2020, and 2019 was $12.5 million, $13.5
million, and $12.5 million, respectively. The fair value of performance-based restricted stock awards used to determine
compensation expense is calculated using the Monte-Carlo simulation model, which allows for the incorporation of
performance conditions where 50% of the performance-based shares are based on total shareholder return as compared to
Webster's compensation peer group, and where the remaining 50% of the performance-based shares are based on Webster's
average return on equity during the three year vesting period. 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.
For the years ended December 31, 2021, 2020, and 2019, Webster recognized stock compensation expense, all of which
pertained to its restricted stock awards, of $13.7 million, $12.2 million, and $12.6 million, respectively. The corresponding
income tax benefit recognized was $5.4 million, $2.6 million, and $6.1 million for 2021, 2020, and 2019, respectively. At
December 31, 2021 there was $16.0 million of unrecognized restricted stock expense related to non-vested restricted stock
awards, which is expected to be recognized over a weighted-average period of 1.8 years.
Stock Options
There have been no stock options granted since 2013. Prior to that date, stock options were granted at an exercise price equal to
the market value of Webster's common stock on the grant date. Each stock option grants the holder the right to acquire one
share of Webster common stock over a contractual life of up to 10 years. At December 31, 2021, there were no incentive stock
options outstanding and 107,612 non-qualified stock options outstanding, all of which are exercisable and have a weighted-
average remaining contractual life of 1.1 years.
The total pre-tax intrinsic value of $3.5 million at December 31, 2021, or 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, represents the
aggregate intrinsic value that would have been received by the option holders had all of their outstanding vested options been
exercised on December 31, 2021. For the years ended December 31, 2021, 2020, and 2019, the total intrinsic value of the
options exercised was $9.0 million, $0.1 million, and $2.4 million, respectively.
112
Note 21: Segment Reporting
Webster’s operations are organized into three reportable segments that represent its primary businesses: Commercial Banking,
HSA Bank, and Retail Banking. These segments reflect how executive management responsibilities are assigned, how discrete
financial information is evaluated, the type of customer served, and how products and services are provided. Certain Treasury
activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are
included in the Corporate and Reconciling category.
Effective January 1, 2021, management realigned certain of Webster's business banking and investment services operations to
better serve its customers and deliver operational efficiencies. Under this realignment, the previously reported Community
Banking segment was renamed Retail Banking, and $131.0 million of goodwill was reallocated, on a relative fair value basis,
from Retail Banking to Commercial Banking. There was no goodwill impairment as a result of the reorganization. Prior period
amounts have been recasted to reflect the realignment.
Segment Reporting Methodology
Webster uses an internal profitability reporting system to generate information by reportable segment, which is based on a
series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses,
income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically
reviewed and refined. Changes in estimates and allocations that affect the results of any reportable 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 reportable segment, reflect non-GAAP reporting methodologies. The differences between full profitability
and GAAP results are reconciled in the Corporate and Reconciling category.
Webster allocates interest income and interest expense to each business, through an internal matched maturity Funds Transfer
Pricing (FTP) process. The goal of the FTP allocation is to encourage loan and deposit growth consistent with the Company’s
overall profitability objectives. The FTP process considers the specific interest rate risk and liquidity risk of financial
instruments and other assets and liabilities in each line of business. Loans are assigned an FTP rate for funds used and deposits
are assigned an FTP rate for funds provided. The allocation considers the origination date and the earlier of the maturity date or
the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. The FTP process
transfers the corporate interest rate risk exposure to the treasury function included within the Corporate and Reconciling
category where such exposures are centrally managed.
Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs,
including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. The results
of funds transfer pricing and allocations for non-interest expense, as well as non-interest income produces PPNR, under which
basis the segments are reviewed by executive management.
Webster also allocates the provision for credit losses to each reportable segment based on management's estimate of the
inherent loss content in each of the specific loan and lease portfolios. The ACL on loans and leases is included in total assets
within the Corporate and Reconciling category. Business development expenses, such as merger-related and strategic initiatives
costs, are also generally included in the Corporate and Reconciling category.
The following table presents balance sheet information, including the appropriate allocations, for Webster's reportable segments
and the Corporate and Reconciling category:
(In thousands)
Goodwill
Total assets
(In thousands)
Goodwill
Total assets
At December 31, 2021
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
131,000 $
15,400,886
21,813 $
73,564
385,560
7,663,218
$
— $
11,777,931
538,373
34,915,599
At December 31, 2020
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
131,000 $
14,732,792
21,813 $
80,352
385,560
7,726,287
$
— $
10,051,259
538,373
32,590,690
$
$
113
The following tables present operating results, including the appropriate allocations, for Webster’s reportable segments and the
Corporate and Reconciling category:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
(Benefit) for credit losses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Provision (benefit) for credit losses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Provision for credit losses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2021
587,485 $
112,270
257,461
442,294
(51,348)
493,642
124,891
368,751 $
168,595 $
102,814
135,997
135,412
—
135,412
36,155
99,257 $
373,130
67,155
296,260
144,025
(3,068)
147,093
32,361
114,732
$
$
(228,121) $
41,133
55,382
(242,370)
(84)
(242,286)
(68,410)
(173,876) $
901,089
323,372
745,100
479,361
(54,500)
533,861
124,997
408,864
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2020
515,027 $
90,498
260,953
344,572
152,571
192,001
46,848
145,153 $
162,363 $
100,826
140,637
122,552
—
122,552
32,721
89,831 $
331,821
74,147
317,215
88,753
(14,722)
103,475
22,558
80,917
$
$
(117,818) $
19,806
40,141
(138,153)
(99)
(138,054)
(42,774)
(95,280) $
891,393
285,277
758,946
417,724
137,750
279,974
59,353
220,621
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2019
476,779 $
91,184
252,485
315,478
29,714
285,764
70,298
215,466 $
172,685 $
97,041
135,586
134,140
—
134,140
35,547
98,593 $
347,377
77,149
317,494
107,032
8,086
98,946
20,581
78,365
$
$
(41,714) $
19,941
10,385
(32,158)
—
(32,158)
(22,457)
(9,701) $
955,127
285,315
715,950
524,492
37,800
486,692
103,969
382,723
$
$
$
$
$
$
114
Note 22: Revenue from Contracts with Customers
The following tables summarize revenues recognized in accordance with ASC Topic 606, Revenue from Contracts with
Customers, along with other sources of non-interest income that subject to other GAAP topics, by reportable segment:
(In thousands)
Non-interest Income:
Deposit service fees
Wealth and investment services
Other
Revenue from contracts with customers
Other sources of non-interest income
Total non-interest income
(In thousands)
Non-interest Income:
Deposit service fees
Wealth and investment services
Other
Revenue from contracts with customers
Other sources of non-interest income
Total non-interest income
(In thousands)
Non-interest Income:
Deposit service fees
Wealth and investment services
Other
Revenue from contracts with customers
Other sources of non-interest income
Total non-interest income
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2021
16,946 $
39,623
1,237
57,806
54,464
112,270 $
94,844 $
—
7,970
102,814
—
102,814 $
50,548
—
903
51,451
15,704
67,155
$
$
372 $
(37)
—
335
40,798
41,133 $
162,710
39,586
10,110
212,406
110,966
323,372
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2020
14,744 $
32,951
1,174
48,869
41,629
90,498 $
92,693 $
—
8,133
100,826
—
100,826 $
48,489
—
482
48,971
25,176
74,147
$
$
106 $
(35)
—
71
19,735
19,806 $
156,032
32,916
9,789
198,737
86,540
285,277
Commercial
Banking
HSA
Bank
Retail
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2019
15,694 $
32,967
1,151
49,812
41,372
91,184 $
92,096 $
—
4,945
97,041
—
97,041 $
60,014
—
1,243
61,257
15,892
77,149
$
$
218 $
(35)
—
183
19,758
19,941 $
168,022
32,932
7,339
208,293
77,022
285,315
$
$
$
$
$
$
Deposit service fees consist of fees earned from customer deposit accounts, such as account maintenance fees, insufficient
funds, and other transactional service charges. Performance obligations for account maintenance services are satisfied on a
monthly basis at a fixed transaction price, whereas performance obligations for other deposit service charges resulting from
various customer-initiated transactions are satisfied at a point-in-time when the service is rendered. Payment for deposit service
fees is generally received immediately or in the following month through a direct charge to the customers' accounts. On
occasion, Webster may waive certain fees for its customers. Fee waivers are recognized as a reduction to revenue in the period
the waiver is granted to the customer. Due to the insignificance of the amounts waived, Webster does not reduce its transaction
price to reflect any variable consideration. The deposit service fees revenue stream also includes interchange fees earned from
card transactions. The transaction price for interchange services is based on the transaction value and the interchange rate set by
the card network. Performance obligations for interchange fees are satisfied at a point-in-time when the cardholders' transaction
is authorized and settled. Payment for interchange fees is generally received immediately or in the following month.
Wealth and investment services consist of fees earned from asset management, trust administration, investment advisory
services, and through facilitating securities transactions. Performance obligations for asset management and trust administration
services are satisfied on a monthly basis at a transaction price based on a percentage of the month-end market value of the
assets under administration. Payment for asset management and trust administration services is generally received a few days
after month-end through a direct charge to the customers' accounts. Performance obligations for investment advisory services
are satisfied over the period in which the services are provided through a time-based measurement of progress, and the agreed-
upon transaction price with the customer varies depending on the nature of the services performed. Performance obligations for
facilitating securities transactions are satisfied at the point-in-time when the securities are sold at a transaction price that is
based on a percentage of the contract value. Payment for both investment advisory services and facilitating securities
transactions may be received in advance of the service, but generally is received immediately or in the following month.
These disaggregated amounts are reconciled to non-interest income as presented within Note 21: Segment Reporting. Contracts
with customers did not generate significant contract assets and liabilities at December 31, 2021 and 2020.
115
Note 23: Commitments and Contingencies
Credit-Related Financial Instruments
In the normal course of business, Webster offers financial instruments with off-balance sheet risk to meet the financing needs of
its customers. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of
credit, which involve, to varying degrees, elements of credit risk.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
(In thousands)
Commitments to extend credit
Standby letters of credit
Commercial letters of credit
Total credit-related financial instruments with off-balance sheet risk
At December 31,
2021
6,870,095
224,061
58,175
7,152,331
$
$
2020
6,517,840
207,201
30,522
6,755,563
$
$
Webster enters into contractual commitments to extend credit to its customers, such as revolving credit arrangements, term loan
commitments, and short-term borrowing agreements, generally with fixed expiration dates or other termination clauses and that
require payment of a fee. Substantially all of the Company's commitments to extend credit are contingent upon its customers
maintaining specific credit standards at the time of loan funding, and are often secured by real estate collateral. Since the
majority of the Company's commitments typically expire without being funded, the total contractual amount does not
necessarily represent Webster's future payment requirements.
Standby letters of credit are written conditional commitments issued by the Company to guarantee its customers' performance
to a third party. In the event the customer does not perform in accordance with the terms of its agreement with a third-party,
Webster would be required to fund the commitment. The contractual amount of each standby letter of credit represents the
maximum amount of potential future payments the Company could be required to make. Historically, the majority of Webster's
standby letters of credit expire without being funded. However, if the commitment were funded, the Company has recourse
against the customer. Webster's standby letter of credit agreements are often secured by cash or other collateral.
Commercial letters of credit are issued to finance either domestic or foreign customer trade arrangements. As a general rule,
drafts are committed to be drawn when the goods underlying the transaction are in-transit. Similar to standby letters of credit,
Webster's commercial letter of credit agreements are often secured by the underlying goods subject to trade.
An ACL is recorded within accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets to provide
for the unused portion of commitments to lend that are not unconditionally cancellable by Webster. Under the CECL
methodology, the calculation of the allowance generally includes the probability of funding to occur and a corresponding
estimate of expected lifetime credit losses on amounts assumed to be funded. Loss calculation factors are consistent with those
for funded loans using the PD and LGD applied to the underlying borrower's risk and facility grades, a draw down factor
applied to utilization rates, relevant forecast information, and management's qualitative factors.
The following table summarizes the activity in the ACL on unfunded loan commitments:
(In thousands)
Balance, beginning of period
Adoption of CECL
Provision (benefit)
Balance, end of period
Litigation
Years ended December 31,
2021
2020
2019
$
$
12,755
—
349
13,104
$
$
2,367
9,139
1,249
12,755
$
$
2,506
—
(139)
2,367
Webster is subject to certain legal proceedings and unasserted claims and assessments in the ordinary course of business. Legal
contingencies are evaluated based on information currently available, including advice of counsel and assessment of available
insurance coverage. The Company establishes an accrual for specific legal matters when it determines that the likelihood of an
unfavorable outcome is probable and the loss is reasonably estimable. Once established, each accrual is adjusted to reflect any
subsequent developments. Legal contingencies are subject to inherent uncertainties, and unfavorable rulings may occur that
could cause Webster to either adjust its litigation accrual or incur actual losses that exceed the current estimate, which
ultimately could have a material adverse effect, either individually or in the aggregate, on its business, financial condition, or
operating results. Webster will consider settlement of cases when it is in the best interests of the Company and its stakeholders.
Webster intends to defend itself in all claims asserted against it, and management currently believes that the outcome of these
contingencies will not be material, either individually or in the aggregate, to Webster or its consolidated financial position.
116
Note 24: Parent Company Financial Information
The following tables summarize condensed financial information for the Parent Company only:
CONDENSED BALANCE SHEETS
(In thousands)
Assets:
Cash and due from banks
Intercompany debt securities
Investment in subsidiaries
Alternative investments
Other assets
Total assets
Liabilities and shareholders’ equity:
Senior notes
Junior subordinated debt
Accrued interest payable
Due to subsidiaries
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
CONDENSED STATEMENTS OF INCOME
(In thousands)
Income:
Dividend income from bank subsidiary
Interest on securities and deposits
Alternative investments income (loss)
Other non-interest income
Total income
Expense:
Interest expense on borrowings
Non-interest expense
Total expense
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries
Income tax benefit
Equity in undistributed earnings of subsidiaries
Net income
December 31,
2021
2020
316,193 $
150,000
3,526,782
20,163
3,953
4,017,091 $
485,611 $
77,320
5,861
488
9,486
578,766
3,438,325
4,017,091 $
302,315
150,000
3,340,556
8,970
8,122
3,809,963
490,343
77,320
5,862
324
1,489
575,338
3,234,625
3,809,963
$
$
$
$
Years ended December 31,
2021
2020
2019
$
$
200,000 $
3,444
13,033
75
216,552
16,876
32,187
49,063
167,489
3,121
238,254
408,864 $
20,000 $
5,530
2,467
634
28,631
18,684
16,426
35,110
(6,479)
4,572
222,528
220,621 $
360,000
10,728
(256)
382
370,854
21,062
15,527
36,589
334,265
4,671
43,787
382,723
117
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Derivative instruments
Other comprehensive (loss) income of subsidiaries
Other comprehensive (loss) income, net of tax
Comprehensive income
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Years ended December 31,
2021
2020
2019
$
408,864 $
220,621 $
382,723
226
(65,062)
(64,836)
344,028 $
2,622
75,706
78,328
298,949 $
1,479
93,101
94,580
477,303
$
Years ended December 31,
2021
2020
2019
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries
Other, net
Net cash provided by operating activities
$
408,864 $
220,621 $
382,723
(238,254)
3,562
174,172 $
(222,528)
29,697
27,790 $
(43,787)
23,681
362,617
$
Investing activities:
Alternative investments (capital call), net of distributions
Investment in subsidiaries
Net cash (used in) investing activities
Financing activities:
Issuance of long-term debt
Cash dividends paid to common shareholders
Cash dividends paid to preferred shareholders
Exercise of stock options
Common stock repurchased and acquired from stock compensation plan activity
Net cash (used in) provided by financing activities
(6,304)
—
(6,304)
—
(145,223)
(7,875)
3,492
(4,384)
(153,990)
(3,751)
—
(3,751)
—
(144,967)
(7,875)
240
(80,062)
(232,664)
(1,850)
(296,000)
(297,850)
296,358
(140,783)
(7,875)
619
(19,619)
128,700
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
13,878
302,315
316,193 $
(208,625)
510,940
302,315 $
193,467
317,473
510,940
$
Note 25: Subsequent Events
The Company has evaluated subsequent events from the date of the Consolidated Financial Statements and accompanying
Notes thereto through the date of issuance, and determined that, except for the mergers and acquisitions that are discussed
within Note 3: Business Developments, no other significant events were identified requiring recognition or disclosure.
118
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management has performed an evaluation, under the supervision and with the participation of the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and procedures designed to ensure that (i) the information
required to be disclosed in the reports the Company files under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules and forms, and (ii) such information is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure, were effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes made to the Company's internal control over financial reporting during the fiscal quarter ended
December 31, 2021, that materially affected, or would be reasonably likely to materially affect, the Company's internal control
over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management of Webster Financial Corporation and its Subsidiaries is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule13a-15(f) under the Securities Exchange Act of 1934). The
Company's internal control over financial reporting is a process designed, under the supervision of our Chief Executive Officer
and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of our financial statements for external purposes in accordance with GAAP.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company's
internal control over financial reporting was effective as of December 31, 2021.
KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements of the
Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company's
internal control over financial reporting as of December 31, 2021. The report, which expresses an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting as of December 31, 2021, is included below under the
heading Report of Independent Registered Public Accounting Firm.
119
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Webster Financial Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Webster Financial Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, 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, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated
February 25, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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 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 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.
Hartford, Connecticut
February 25, 2022
120
ITEM 9B. OTHER INFORMATION
Not applicable
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors, Executive Officers, and Corporate Governance
PART III
Webster has adopted a Code of Business Conduct and Ethics that applies to all directors, officers, and employees, including its
principal executive officer, principal financial officer, and principal accounting officer. Webster has also adopted a Corporate
Governance Policy and a charter for each of Board of Directors' standing committees, which include the Audit Committee,
Compensation Committee, Nominating and Corporate Governance Committee, Executive Committee, and Risk Committee.
Webster's Code of Business Conduct and Ethics, Corporate Governance Policy, and the charters of the Audit, Compensation,
and Nominating and Corporate Governance Committees can be found on its internet website (www.wbst.com).
A printed copy of any of these documents can be obtained, without charge, directly from the Company at the following address:
Webster Financial Corporation
200 Elm Street
Stamford, Connecticut 06902
Attn: Investor Relations
Telephone: (203) 578-2202
Information regarding directors and executive officers, and additional information regarding corporate governance, will be
included under the sections captioned "Information as to Nominees," "Director Qualifications and Nominations," "Named
Executive Officers of Webster Financial Corporation," "Committees of the Board; Code of Business Conduct and Ethics and
Corporate Governance Guidelines," and "Delinquent Section 16(a) Reports" (if required to be included) in the Proxy Statement,
which is incorporated herein by reference. The Proxy Statement is required to be filed with the SEC no later than 120 days after
the close of the fiscal year ended December 31, 2021.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be included under the sections captioned "Compensation of Directors,"
"Named Executive Officers of Webster Financial Corporation," "Compensation of Named Executive Officers," and
"Compensation Discussion and Analysis" in the Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes Webster's equity compensation plans in effect as of December 31, 2021:
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
Number of Shares to be
Issued Upon Exercise of
Outstanding Awards (1)
Weighted-Average
Exercise Price of
Outstanding Awards (2)
23.05
—
23.05
Number of Shares
Remaining Available
for Future Issuance (3)
4,951,868
—
4,951,868
507,238 $
—
507,238 $
(1)
Includes 399,626 of performance-based restricted shares (assuming maximum performance) and 107,612 stock options.
(2) The weighted-average exercise price does not take the performance-based restricted shares into account as there is no exercise price.
(3)
Includes 602,833 shares available for future issuance under the Employee Stock Purchase Plan.
Additional information regarding security ownership of certain beneficial owners and management and related stockholder
matters can be found within Note 20: Share-Based Plans in the Notes to Consolidated Financial Statements contained in Part II
- Item 8. Financial Statements and Supplementary Data of this report, and will be included under the sections captioned
"Securities Owned by Management" and "Principal Holders of Voting Securities of Webster" in the Proxy Statement, which are
incorporated herein by reference.
121
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director independence will be included under the
sections captioned "Compensation Committee Interlocks and Insider Participation," "Transactions with Related Persons,"
"Policies and Procedures Regarding Transactions with Related Persons," and "Director Independence" in the Proxy Statement,
which is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services will be included under the section captioned "Auditor Fee
Information" in the Proxy Statement, which is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
PART IV
The Company’s consolidated financial statements, including the notes thereto, and the report of the independent registered
public accounting firm thereon, are included in Part II - Item 8. Financial Statements and Supplementary Data.
Financial Statement Schedules
All financial statement schedules for the Company have been included in the consolidated financial statements or the notes
thereto, or are either inapplicable or not required and therefore have been omitted.
Exhibits
A list of exhibits to this Form 10-K is set forth below.
122
Exhibit
Number
Exhibit Description
2
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
4
4.1
4.2
4.3
4.4
4.5.1
4.5.2
4.5.3
4.6
4.7
4.8
4.9
4.10
4.11
Agreement and Plan of Merger, dated as of April 18, 2021, by and between Sterling
Bancorp and Webster Financial Corporation
Certificate of Incorporation and Bylaws
Fourth Amended and Restated Certificate of Incorporation
Certificate of Amendment to Fourth Amended and Restated Certificate of Incorporation
of Webster Financial Corporation, effective as of January 31, 2022
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
Certificate of Designations establishing the rights of the Company's 5.25% Series F
Non-Cumulative Perpetual Preferred Stock
Certificate of Designations establishing the rights of the Company's 6.50% Series G
Non-Cumulative Perpetual Preferred Stock
Bylaws, as amended effective March 15, 2020
Amendment to Bylaws of Webster Financial Corporation, effective as of January 31,
2022
Instruments Defining the Rights of Security Holders
Description of the Securities of the Registrant
Specimen common stock certificate
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
Deposit Agreement, dated as of December 12, 2017, by and among the Company,
Computershare Shareowner Services LLC, as Depositary, and the Holders of
Depositary Receipts
Deposit Agreement, dated as of March 19, 2013, by and among Astoria Financial
Corporation, Computershare Shareowner Services, LLC, as depositary, and the holders
from time to time of the depositary receipts described therein
First Amendment to the Deposit Agreement, effective as of October 2, 2017, by and
between Sterling Bancorp (as successor in interest to Astoria Financial Corporation)
and Computershare Inc. (as successor in interest to Computershare Shareowner
Services LLC)
Second Amendment to Deposit Agreement, dated as of January 31, 2022, by and
among Webster Financial Corporation, Sterling Bancorp, Computershare Inc. and
Broadridge Corporate Issuer Solutions, Inc.
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
Form of specimen stock certificate for the Company's 5.25% Series F Non-Cumulative
Perpetual Preferred Stock
Senior Debt Indenture, dated March 25, 2019, between Webster Financial Corporation
and The Bank of New York Mellon, as trustee
Supplemental Indenture, dated March 25, 2019, between Webster Financial
Corporation and The Bank of New York Mellon, as trustee
Junior Subordinated Indenture, dated as of September 17, 2003, between the Company
and US Bank, as trustee, relating to the Company's Junior Subordinated Deferrable
Interest Debentures
Exhibit
Included
Incorporated by Reference
Form
8-K
Exhibit
Filing Date
2.1
4/23/2021
10-Q
8-K
8-K
8-K
8-K
8-K
8-A12B
8-A12B
8-A12B
8-K
8-K
3.1
3.2
3.1
3.1
3.1
3.2
3.3
3.3
3.4
3.1
3.5
8/9/2016
2/1/2022
6/11/2008
11/24/2008
7/31/2009
7/31/2009
12/4/2012
12/12/2017
2/1/2022
3/17/2020
2/1/2022
X
10-K
10-K
4.1
10.41
3/10/2006
3/27/1997
8-K
4.1
12/12/2017
8-K
8-K
8-K
8-K
8-K
8-A12B
8-K
8-K
10-Q
4.1
4.2
4.3
4.1
4.2
4.3
4.1
4.2
4
2/1/2022
2/1/2022
2/1/2022
2/11/2014
2/11/2014
12/12/2017
3/25/2019
3/25/2019
5/6/2021
123
Exhibit
Number
Exhibit Description
Exhibit
Included
Incorporated by Reference
Form
Exhibit
Filing Date
10
10.1
10.2
10.3
10.4
10.5
10.6
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
10.20
10.21
10.22
10.23
10.24
10.25
Material Contracts (1)
Webster Financial Corporation 2021 Stock Incentive Plan
Amended and Restated Deferred Compensation Plan for Directors and Officers of
Webster Bank effective January 1, 2005
Amendment No. 1 to the Amended and Restated Deferred Compensation Plan for
Directors and Officers
Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan for
Employees of Webster Bank
Qualified Performance-Based Compensation Plan
Employee Stock Purchase Plan, as amended and restated effective April 1, 2019
Form of Change in Control Agreement, effective as of December 31, 2012, by and
between Webster Financial Corporation and Glenn I. MacInnes
Non-Competition Agreement, dated as of February 22, 2017, between Webster Bank,
N.A., and Glenn I. MacInnes
Retention Agreement, dated as of April 18, 2021, by and between Webster Financial
Corporation and Glenn I. MacInnes
Amended and Restated Non-Competition Agreement, dated as of April 3, 2017,
between Webster Financial Corporation, and Daniel Bley
Form of Change in Control Agreement, effective as of February 1, 2013, by and
between Webster Financial Corporation and Daniel H. Bley
Change in Control Agreement, effective as of January 3, 2014, by and between Webster
Financial Corporation and Charles L. Wilkins
Amended and Restated Non-Competition Agreement, dated as of April 3, 2017,
between Webster Financial Corporation, and Charles Wilkins
Change in Control Agreement, dated as of February 26, 2018, by and between Webster
Financial Corporation and John Ciulla
Amended and Restated Non-Competition Agreement, dated as of April 3, 2017,
between Webster Financial Corporation, and John Ciulla
Retention Agreement, dated as of April 18, 2021, by and between Webster Financial
Corporation and John R. Ciulla
Amended and Restated Non-Competition Agreement, dated as of April 3, 2017,
between Webster Financial Corporation, and Christopher Motl
Change in Control Agreement, dated as of February 26, 2018, by and between Webster
Financial Corporation and Brian Runkle
Non-Solicitation Agreement, dated as of February 26, 2018 by and between Webster
Financial Corporation and Brian Runkle
Change in Control Agreement, dated as of July 16, 2018, by and between Webster
Financial Corporation and Karen Higgins-Carter
Non-Solicitation Agreement, dated as of July 16, 2018, by and between Webster
Financial Corporation and Karen Higgins-Carter
Change in Control Agreement, dated as of November 2, 2020, by and between Webster
Financial Corporation and Jonathan Roberts
Non-Competition Agreement, dated as of November 2, 2020, by and between Webster
Financial Corporation and Jonathan Roberts
Letter Agreement, dated as of April 18, 2021, by and between Webster Financial
Corporation and Jack L. Kopnisky
Retention Agreement, dated as of April 18, 2021, by and between Webster Financial
Corporation and Luis Massiani
10.26
Provident Bank 2005 Supplemental Executive Retirement Plan
X
DEF 14A
8-K
8-K
8-K
A
10.2
3/19/2021
12/21/2007
10.3
12/21/2007
10.1
12/21/2007
DEF 14A
10-Q
8-K
A
10.1
10.1
3/15/2013
5/7/2019
12/27/2012
10-K
10.20
3/1/2017
8-K
10-Q
10.2
10.1
2/1/2022
5/5/2017
10-K
10.13
2/28/2013
10-K
10.13
2/28/2014
10-Q
10.5
5/5/2017
10-K
10.18
3/1/2018
10-Q
8-K
10-Q
10.2
10.1
10.4
5/5/2017
2/1/2022
5/5/2017
10-K
10.23
3/1/2018
10-K
10.24
3/1/2018
10-Q
10.25
8/3/2018
10-Q
10.26
11/5/2018
10-K
10.24
2/26/2021
10-K
10.25
2/26/2021
8-K
8-K
10.3
10.4
2/1/2022
2/1/2022
124
Exhibit
Number
Exhibit Description
10.27
10.28
10.29
10.30
10.31
10.32
10.33
21
23
31.1
31.2
32.1
32.2
101
104
Sterling Bancorp 2014 Stock Incentive Plan
Form of Stock Option Award Agreement Pursuant to the Sterling Bancorp 2014 Stock
Incentive Plan
Sterling Bancorp Amended and Restated 2015 Omnibus Equity and Incentive Plan, as
amended
Form of Stock Option Award Agreement Pursuant to the Sterling Bancorp Amended
and Restated 2015 Omnibus Equity and Incentive Plan
Form of Performance Award Agreement Pursuant to the Sterling Bancorp Amended
and Restated 2015 Omnibus Equity and Incentive Plan
Form of NEO Restricted Stock Award Agreement Pursuant to the Sterling Bancorp
Amended and Restated 2015 Omnibus Equity and Incentive Plan
Form of non-NEO Restricted Stock Award Agreement Pursuant to the Sterling Bancorp
Amended and Restated 2015 Omnibus Equity and Incentive Plan
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
Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed
by the Chief Executive Officer
Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed
by the Chief Financial Officer
The following financial information from the Company's Annual Report on Form 10-K
for the year ended December 31, 2021 formatted in Inline Extensible Business
Reporting Language (iXBRL) includes; (i) Cover Page, (ii) Consolidated Balance
Sheets, (iii) Consolidated Statements of Income, (iv) Consolidated Statements of
Comprehensive Income, (v) Consolidated Statements of Shareholders' Equity, (vi)
Consolidated Statements of Cash Flows, and (vii) Notes To Consolidated Financial
Statements, tagged in summary and in detail
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
Exhibit
Included
Incorporated by Reference
Form
Exhibit
Filing Date
S-8 POS
4.8
2/1/2022
S-8 POS
4.7
2/1/2022
X
X
X
X
X
X
X
X
X
X (2)
X (2)
X
X
(1) Material contracts are management contracts, or compensatory plans, or arrangements in which directors or executive officers are eligible
to participate.
(2) Exhibit is furnished herewith and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934.
ITEM 16. FORM 10-K SUMMARY
Not applicable
125
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 25, 2022.
SIGNATURES
WEBSTER FINANCIAL CORPORATION
By /s/ John R. Ciulla
John R. Ciulla
President, Chief Executive Officer, and Director
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 25, 2022.
Signature:
Title:
/s/ John R. Ciulla
John R. Ciulla
/s/ Glenn I. MacInnes
Glenn I. MacInnes
/s/ Albert J. Wang
Albert J. Wang
/s/ Jack L. Kopnisky
Jack L. Kopnisky
/s/ William L. Atwell
William L. Atwell
/s/ John P. Cahill
John P. Cahill
/s/ E. Carol Hayles
E. Carol Hayles
/s/ Linda H. Ianieri
Linda H. Ianieri
/s/ Mona Aboelnaga Kanaan
Mona Aboelnaga Kanaan
/s/ James L. Landy
James L. Landy
/s/ Maureen B. Mitchell
Maureen B. Mitchell
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Executive Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board
Lead Director
Director
Director
Director
Director
Director
Director
126
/s/ Laurence C. Morse
Laurence C. Morse
/s/ Karen R. Osar
Karen R. Osar
/s/ Richard L. O'Toole
Richard L. O'Toole
/s/ Mark Pettie
Mark Pettie
/s/ Lauren C. States
Lauren C. States
/s/ William E. Whiston
William E. Whiston
Director
Director
Director
Director
Director
Director
127
The Webster symbol is a registered trademark in the U.S.