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A Letter from the Chairman
and Chief Executive Officer
Dear Stockholders,
While the banking industry faced many distinct
challenges in 2023, Webster once again demonstrated
our resilience. Despite liquidity crises at several regional
banks and an uncertain economic outlook, we enhanced
our operating position and executed at a high level. Our
performance was empowered by the commitment of our
colleagues, our unique and diverse funding capabilities,
and the strength of our customer relationships.
Throughout the year we sharpened our focus, adding
funding verticals and investing in key businesses to
achieve a strategic advantage in the marketplace. We
successfully completed the conversion to a common
technology platform. We are particularly proud of our
deposit growth, which permitted us to prudently grow
and support our clients in an unusually competitive
funding environment. Our colleagues delivered
remarkable results amid tremendous change, and I am
very proud of their consistent agility while remaining
rooted in our mission and values.
Our operating results improved in a challenging
environment. We reported full-year earnings of $868
million, earnings per share of $4.91 and our return on
tangible common equity was 17.0%. Our reported EPS
was the highest in the company’s history. On an
adjusted basis, full-year earnings were $1.1 billion,
our EPS was $5.99 and our return on tangible common
equity was 20.5%.
We ended the year with a tangible book value of $32.39
per share, an increase of 11.4% versus prior year and a
record in our 88-year history.
Deposits grew by 12.4% and we increased our net
interest margin on a full-year basis.
Our efficiency ratio of 42% compares favorably to peers
and is reflective of our expense discipline and synergies
realized as a result of our merger.
Over $125 million of capital was returned to our
stockholders through share repurchases, and another
$278 million was returned through common dividends.
Our industry-leading profitability supports our organic
growth and allows us to continue to invest in our business
and return capital to our stockholders. A disciplined
approach to allocating capital has served us well and
will enable us to further grow in key segments, thus
maximizing overall value.
“Our colleagues delivered remarkable results
amid tremendous change, and I am very proud
of their consistent agility while remaining
rooted in our mission and values.”
We continue to invest in our risk infrastructure and
capabilities in support of the company’s growth. We
have a comprehensive and robust risk management
framework that has evolved with our size and regulatory
expectations. Our risk culture remains strong with all
colleagues empowered to identify and mitigate risks as
they emerge, ensuring that the company’s risk profile is
aligned with our risk appetite.
Last year, we achieved several meaningful strategic
accomplishments. We closed the acquisition of
interLINK, a cash sweep program between broker/
dealers, clearing firms and banks. Our interLINK
platform utilizes highly scalable technology providing
core funding to Webster. As of year-end, interLINK
increased Webster’s core deposits by $5.7 billion,
providing additional liquidity with minimal
operating cost.
Webster Financial Corporation Annual Report 2023 | 1
A Letter from the Chairman and CEO (cont.)
We also announced the acquisition of Ametros, the
market-leading administrator of claimants’ funds from
medical settlements. Ametros provides Webster with
another fast-growing, long-duration, low-cost source of
deposits as well as fee income.
We converted to a common technology platform,
expanding our product and operating capabilities,
deepening existing client relationships, and improving
our capability to develop new ones. Going forward, we
will build upon this unified and enhanced platform to
streamline our account opening process and enhance
our online and mobile channels for our business and
consumer products, thus elevating our clients’
digital experience.
Our multi-year Community Investment Strategy continues
to empower people and strengthen communities by
expanding access to capital. We introduced “Webster
You’re Home,” our Special Purpose Credit Program,
which broadens homeownership opportunities in low- to
moderate-income (LMI) communities and helps to build
generational wealth. In addition, we launched our
Minority and Women-Owned Business Enterprise
(MWBE) program, supporting the growth and
development of MWBE small businesses across
our footprint.
of operating the bank. The demonstration of integrity,
dedication and grit by our talented Webster team
reinforced our already strong reputation in
the marketplace.
Our ability to be a great company is possible because of
our colleagues’ exceptional and sustained efforts. We
strive to provide an enriching and rewarding workplace
for everyone at Webster. Our latest engagement survey
indicated the majority of our 4,200 colleagues view our
greatest strengths as “our sense of purpose” and
“inclusion.” This feedback makes us a stronger
organization and allows us to support our colleagues’
success in serving our clients and customers.
I would like to express my appreciation to our Board
of Directors for their continued trust and confidence. I
also want to thank former Executive Chairman Jack
Kopnisky for his counsel and partnership, which has
been invaluable during the past two years. Jack’s
contributions to the industry have been significant
and we appreciate his leadership in helping build
our company.
We are excited about Webster’s advantageous position
and the momentum we are carrying into 2024. On behalf
of the Board of Directors and our executive management
team, we thank our stockholders for their ongoing
support of our vision to become the best regional
commercial bank in the country.
“Our multi-year Community Investment Strategy
continues to empower people and strengthen
communities by expanding access to capital.”
Sincerely,
John R. Ciulla
Chairman and Chief Executive Officer
We increased the presence of our signature Webster
Finance Lab initiative, helping nonprofit partners create
opportunities for LMI youth to gain the skills needed for
economic empowerment and financial success. In
addition, we continued to refine our Corporate
Responsibility program, including metrics and auditable
controls consistent with industry and regulatory
expectations. I encourage you to read our latest
Corporate Responsibility Report for more information
on our actions and performance.
Our colleagues delivered on these strategic priorities
all while executing on their day-to-day responsibilities
2 | Webster Financial Corporation Annual Report 2023
Board of Directors
Executive Management Committee
John R. Ciulla
Chairman and Chief Executive Officer
William L. Atwell
Former President
Cigna International
John P. Cahill
Chancellor
Archdiocese of New York
E. Carol Hayles
Former Executive Vice President
and Chief Financial Officer
CIT Group, Inc.
Linda H. Ianieri
Former Partner
PricewaterhouseCoopers, LLP
Mona Aboelnaga Kanaan
Managing Partner
K6 Investments, LLC
James J. Landy
Former Chair of the Board of Directors
Hudson Valley Holding Corp.
Maureen B. Mitchell
Senior Advisor
The Boston Consulting Group
Laurence C. Morse
Managing Partner
Fairview Capital Partners, Inc.
Karen R. Osar
Former Executive Vice President
and Chief Financial Officer
Chemtura Corporation
Richard O’Toole
Lead Independent Director
Executive Vice President
The Related Companies
Mark Pettie
President
Blackthorne Associates, LLC
Lauren C. States
Former Vice President, Strategy
and Transformation
IBM Software Group
John R. Ciulla
Chairman and Chief Executive Officer
Kristy Berner
General Counsel and Corporate Secretary
Daniel H. Bley
Chief Risk Officer
Javier L. Evans
Chief Human Resources Officer
James M. Griffin
Head of Consumer Banking
Benjamin L. Krynick
Head of Bank Operations
Glenn I. MacInnes
Chief Financial Officer
Luis Massiani
President and Chief Operating Officer
Christopher J. Motl
President, Commercial Banking
Vikram Nafde
Chief Information Officer
Jason A. Soto
Chief Credit Officer
Marissa M. Weidner
Chief Corporate Responsibility Officer
Charles L. Wilkins
Head of HSA Bank,
a division of Webster Bank
Elzbieta Cieslik
Chief Audit Officer
William E. Whiston
Senior Advisor and Former Chief Financial Officer
Archdiocese of New York
Webster Financial Corporation Annual Report 2023 | 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 (benefit) for credit losses
Non-interest income
Non-interest expense
Income before income tax expense
Income tax expense
Net income
2023
2022
2021
$74,945,249
50,726,052
635,737
16,034,317
60,784,284
8,689,996
2,337,269
150,747
314,337
1,416,355
1,084,504
216,664
867,840
71,277,521
49,764,426
594,741
14,457,394
54,054,340
8,056,186
2,034,286
280,619
440,783
1,396,473
797,977
153,694
644,283
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
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$851,190
628,364
400,989
PER COMMON SHARE DATA
Net income - diluted
Dividends declared
Tangible book value per common share
Book value per common share
$4.91
1.60
32.39
48.87
3.72
1.60
29.07
44.67
Weighted-average common shares - diluted
171,883
167,547
KEY PERFORMANCE RATIOS
Return on average assets
Return on average common stockholders’ equity
Net interest margin
Non-interest income as a percentage of total revenue
Tangible common equity
Average stockholders’ equity to average assets
KEY PERFORMANCE 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
1.18%
10.59
3.52
11.85
7.73
11.28
1.25
0.21
0.41
0.43
0.99
8.44
3.49
17.81
7.38
11.92
1.20
0.15
0.41
0.41
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
ACL on loans and leases/non-performing loans and leases
303.39
291.84
274.36
4 | Webster Financial Corporation Annual Report 2023
Stockholder Information
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
Stockholders 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
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 198 banking
centers and 349 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
Consumer Financial Protection Bureau. At year end,
Webster Bank’s financial intermediation activities were
organized broadly around three distinct lines of business:
Commercial Banking, Consumer Banking and HSA Bank.
Reports
A copy of our Annual Report on Form 10-K for the fiscal
year ending December 31, 2023, as well as our quarterly
reports, news releases and other information, may
be obtained free of charge by accessing our Investor
Relations website (https://investors.websterbank.
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, 2023.
Annual Meeting
The Annual Meeting of stockholders of Webster Financial
Corporation will be held on April 24, 2024 at 3:00 p.m. E.T.
The Annual Meeting will be held virtually via the
Internet to allow us to facilitate participation for more
stockholders regardless of their geographic location
and provide us with another opportunity to reduce our
environmental impact.
Webster Information
For more information on Webster products and services,
call 800.325.2424 or visit us at WebsterBank.com.
Webster Financial Corporation Annual Report 2023 | 5
Corporate Responsibility
Highlights 2023
The Office of Corporate Responsibility (OCR) was established in 2022, building on Webster’s long-standing record of
corporate responsibility and community engagement. OCR manages all community-facing activities, including Community
Reinvestment Act (CRA) and Fair and Responsible Banking; Community Investment, Engagement and Philanthropy;
Government Relations and Public Affairs; Supplier Diversity; and Environmental, Social and Governance efforts.
Community Investment Strategy
Our multiyear strategy creates greater opportunity and value for clients and communities, with a focus on these pillars:
Support Affordable
Housing and
Homeownership
Promote
Engagement
in the Community
Invest in Small
Businesses
Increase Access to
Banking Services
Special Purpose Credit Program
In 2023, Webster announced the launch of “Webster
You’re Home,” our first Special Purpose Credit
Program (SPCP) aimed at expanding homeownership
opportunities in historically underserved areas. Designed
to support low- to moderate-income (LMI) first-time
homebuyers, the program provides an alternative to
traditional loan programs and terms in our core footprint
states of Connecticut, Massachusetts, New York and
Rhode Island.
Supplier Diversity Program
Our Supplier Diversity Program seeks to identify capable
diverse suppliers and provide them with the opportunity
to compete in a fair and equitable environment. We
welcome all suppliers who have the capabilities to
provide Webster with goods and services.
Community Service Hours
Webster colleagues shared 16,962 hours of their time
and expertise in 2023, helping to build vibrant and healthy
communities through a variety of partnerships. Webster
provides all colleagues with 16 hours of paid time to
volunteer at the organizations of their choice.
Webster Finance Labs
We continued the expansion of our signature Finance Lab
initiative in 2023, opening our first Connecticut Finance
Lab in Bridgeport and announcing new Finance Labs for
Hartford, CT, Waterbury, CT and Taunton, MA. Our Finance
Labs help nonprofit partners in LMI communities create
opportunities for students to gain the skills needed for
economic empowerment and financial success.
Community Access to Capital and Credit
Our Minority and Women-owned Business Enterprise
(MWBE) team supports the growth and development of
MWBE small businesses and organizations focused on
community and economic development in underserved
areas. Our Community Liaison Officers provide support
and financial education to LMI and minority borrowers.
They also work to increase residential lending opportunities
to meet local credit needs across the footprint.
Business Resource Groups
Webster’s eight Business Resource Groups (BRGs)
provided innovative programming, community outreach and
partnerships in 2023. All colleagues are welcome to join the
BRGs: African and Caribbean Heritage Connection, Allies for
Disabilities and Accessibility, Amigos Connected, Military
Veterans Community Network, Multi-Generations, Pan Asian
Collective, Webster PRIDE and Webster Women’s Network.
To learn more about OCR, visit https://public.websteronline.com/about/corporate-responsibility
6 | Webster Financial Corporation Annual Report 2023
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, 2023
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
WBS-PrF
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
WBS-PrG
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 transition 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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, 2023, the last
business day of the registrant’s most recently completed second fiscal quarter, was approximately $6.5 billion.
The number of shares of common stock, par value $0.01 per share, outstanding as of February 23, 2024 was 171,753,097.
Part III: Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 2024 (the “Proxy Statement”).
Documents Incorporated by Reference
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 1C.
Cybersecurity
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
15
24
25
27
27
27
28
29
30
62
63
145
145
148
148
148
148
148
149
149
149
150
152
153
i
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
Ametros .................................... Ametros Financial Corporation
AOCI (AOCL) ......................... Accumulated other comprehensive income (loss), net of tax
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
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 the Basel III Capital Rules
CET1 Risk-Based Capital ...... Ratio of CET1 capital to total risk-weighted assets, defined by the Basel III Capital Rules
CFPB ........................................ Consumer Financial Protection Bureau
CLO .......................................... Collateralized loan obligation securities
CMBS ....................................... Non-agency commercial mortgage-backed securities
COVID-19 ................................ Coronavirus
CRA .......................................... Community Reinvestment Act of 1977
DEIB ......................................... Diversity, equity, inclusion and belonging
DTA / DTL ............................... Deferred tax asset / deferred tax liability
EAD .......................................... Exposure at default
ESG ........................................... Environmental, Social, and Governance
ERMC ....................................... Enterprise Risk Management Committee
FASB ......................................... Financial Accounting Standards Board
FDIA ......................................... Federal Deposit Insurance Act
FDIC ......................................... Federal Deposit Insurance Corporation
FDIF ......................................... Federal Deposit Insurance Fund
FHLB ........................................ Federal Home Loan Bank
FICO ......................................... Fair Isaac Corporation
FRA ........................................... Federal Reserve Act
FRB ........................................... Federal Reserve Bank
FTE ........................................... Fully tax-equivalent
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
interLINK ................................ Interlink Insured Sweep LLC
IRA ........................................... Inflation Reduction Act of 2022
LGD .......................................... Loss given default
LIBOR ...................................... London Inter-Bank Offered Rate
LIHTC ...................................... Low income housing tax-credit
Moody's .................................... Moody's Investor Services
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
PCD ........................................... Purchased credit deteriorated
PD ............................................. Probability of default
ii
PPNR ........................................ Pre-tax, pre-provision net revenue
ROU .......................................... Right-of-use
S&P ........................................... Standard and Poor's Rating Services
SALT ........................................ State and local tax
SEC ........................................... U.S. 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”
Tier 1 Leverage Capital .......... Ratio of Tier 1 capital to average tangible assets, defined by the Basel III Capital Rules
Tier 1 Risk-Based Capital ...... Ratio of Tier 1 capital to total risk-weighted assets, defined by the Basel III Capital Rules
Total Risk-Based Capital ........ Ratio of total capital to total risk-weighted assets, defined by the Basel III Capital Rules
Uniting and Strengthening America by Providing Appropriate Tools Requirement to Intercept and
Obstruct Terrorism Act of 2001
USA PATRIOT Act ................
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
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 forward-looking statements.
Examples of forward-looking statements include, but are not limited to:
• projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items;
• statements of plans, objectives, and expectations of the Company 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 the Company’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. The Company’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 the Company's actual results to differ from those
discussed in any forward-looking statements include, but are not limited to:
• our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties;
• continued regulatory changes or other mitigation efforts taken by government agencies in response to turmoil in the
banking industry, including due to the bank failures in 2023;
• volatility in Webster's stock price due to investor sentiment, including in light of turmoil in the banking industry;
• local, regional, national, and international economic conditions, and the impact they may have on us or our customers;
• volatility and disruption in national and international financial markets, including as a result of geopolitical conflict;
• unforeseen events, such as pandemics or natural disasters, and any governmental or societal responses thereto;
• changes in laws and regulations, or existing laws and regulations that we become subject to, including those concerning
banking, taxes, dividends, securities, insurance, and healthcare administration, with which we and our subsidiaries must
comply;
• adverse conditions in the securities markets that could lead to impairment in the value of our securities portfolio;
• inflation, monetary fluctuations, and changes in interest rates, including the impact of such changes on economic
conditions, customer behavior, funding costs, and our loans and leases and securities portfolios;
• possible changes in governmental monetary and fiscal policies, including, but not limited to, Federal Reserve policies in
connection with continued inflationary pressures and the ability of the U.S. Congress to increase the U.S. statutory debt
limit, as needed, and pass a budget funding the federal government;
• the impact of any U.S. federal government shutdown;
• the timely development and acceptance of new products and services, and the perceived value of those 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 information and technology systems;
• the effects of any cybersecurity threats or fraudulent activity, including those that involve our third-party vendors and
service providers;
• performance by our counterparties and third-party vendors;
• our ability to increase market share and control expenses;
• changes in the competitive environment among banks, financial holding companies, and other traditional and non-
traditional financial services providers;
• our ability to maintain adequate sources of funding and liquidity;
• changes in the mix of loan geographies, sectors, or types and the level of non-performing assets and charge-offs;
• changes in estimates of future reserve requirements based upon periodic review thereof under relevant regulatory and
accounting requirements;
• the effect of changes in accounting policies and practices applicable to us, including impacts 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;
• our ability to appropriately address any environmental, social, governmental, and sustainability concerns that may arise
from our business activities; and
• our ability to assess and monitor the effect of artificial intelligence on our business and operations.
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 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, and its HSA Bank Division, is
a leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three
differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking. While its core footprint spans the
northeastern U.S. from New York to Massachusetts, certain businesses operate in extended geographies. HSA Bank is one of
the largest providers of employee benefits solutions in the U.S.
Available Information
The Company files reports with the SEC, and makes available, free of charge, within the investor relations section of its internet
website (http://investors.websterbank.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 as soon as reasonably practicable after it electronically files such
material with, or furnishes it to, the SEC. The SEC website (http://www.sec.gov) makes reports, proxy and information
statements, and other information filed electronically with the SEC available to the public free of charge. Information contained
on the Company's website is not incorporated by reference into this Annual Report on Form 10-K.
Mergers and Acquisitions
On January 31, 2022, the Company completed its merger with Sterling. Pursuant to the merger agreement, Sterling Bancorp
merged with and into the Holding Company, with the Holding Company continuing as the surviving corporation. Following the
merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling Bancorp, merged with and into the
Bank, with the 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 the Company's geographic
footprint and combined two complementary organizations to create one of the largest commercial banks in the northeastern U.S.
On February 18, 2022, the Bank acquired Bend, a cloud-based platform solution provider for HSAs. The acquisition accelerated
the Company's efforts underway to deliver enhanced user experiences at HSA Bank.
On January 11, 2023, the Bank acquired interLINK, a technology-enabled deposit management platform that administers over
$9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The
acquisition provided the Company with access to a unique source of core deposit funding and scalable liquidity and added
another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities.
On January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims
settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology
platform. The Company believes that the acquisition will provide a fast-growing source of low-cost and long-duration deposits,
new sources of non-interest income, and enhance its employee benefit and healthcare financial services expertise.
Additional information regarding the Company's mergers and acquisitions 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 2: Mergers and Acquisitions in the Notes to Consolidated Financial Statements contained in Item
8. Financial Statements and Supplementary Data.
Subsidiaries and Reportable Segments
The Holding Company's principal consolidated subsidiary is the Bank. As of December 31, 2023, the Bank's significant
wholly-owned subsidiaries included: Webster Servicing LLC, Webster Public Finance Corporation, Sterling National Funding
Corporation, Webster Mortgage Investment Corporation, Sterling Business Credit LLC, Webster Wealth Advisors, Inc.,
Webster Licensing, LLC, Bend Financial, Inc., Interlink Insured Sweep LLC, Webster Investment Services, Inc., Webster
Preferred Capital Corporation, and Webster Community Development Corporation.
As of December 31, 2023, the Company's operations are organized into three reportable segments that represent its primary
businesses: Commercial Banking, HSA Bank, and Consumer Banking.
1
Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and
Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance,
Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management
business units.
• Commercial Real Estate offers financing alternatives 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.
• Equipment Finance offers small to mid-ticket equipment leasing solutions for critical equipment, new or used, across the
manufacturing, construction and transportation, and environmental sectors.
• 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.
• Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms.
• Asset-Based Lending, which is a top U.S. asset-based lender, 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.
• Commercial Services offers accounts receivable factoring and trade financing, and payroll funding and business process
outsourcing to temporary staffing agencies nationwide, including full back-office, technology, and tax accounting services.
• Public Sector Finance offers financing solutions exclusively to state, municipal, and local government entities.
• Mortgage Warehouse offers warehouse financing facilities consisting of temporary lines of credit, and which are secured
by 1-4 family residential mortgages, to independent mortgage origination companies.
• Sponsor and Specialty Finance offers senior debt capital to companies across the U.S. that are backed by private equity
sponsors and/or privately owned in one of our specialty industries: technology and infrastructure, healthcare,
environmental services, business and information services, lender finance, and fund banking.
• Verticals and Support offers credit, deposit, and cash flow management to businesses and professional service firms in the
legal, not-for-profit, and property management sectors, as well as to local and state governments.
• Private Banking offers an array of wealth management solutions to business owners and operators, including trust, asset
management, financial planning, insurance, retirement, and investment products.
• Treasury Management 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.
HSA Bank, serviced through Webster Servicing LLC, offers a comprehensive consumer-directed employee benefit and
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. HSAs are distributed nationwide through employers for and to
individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors.
HSA 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.
Consumer Banking operates a distribution network, primarily throughout southern New England and the New York metro and
suburban markets, that comprises 198 banking centers and 349 ATMs, a customer care center, and a full range of web and
mobile-based banking services. Consumer 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 the Company's reportable segments can be found in Part II under the section captioned
"Segment Reporting" contained in 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.
2
Human Capital Resources
At December 31, 2023, the Company had 4,131 full-time employees and 130 part-time employees, comprised of 61% female
and 39% male employees. The average full-time and part-time employee tenure at the Company is approximately 9.0 years.
Diversity, Equity, Inclusion and Belonging
The Company believes DEIB is critical to its growth and success as a leading commercial bank. The Company's commitment to
DEIB starts with the senior leadership team, who works to ensure that DEIB is integrated into the way the Company does
business. Meeting the increasingly diverse needs of clients is a key to the Company’s long-term success, and having a
workforce with diverse backgrounds and experiences better helps the clients and communities that the Company serves to
achieve their financial goals.
The Company has established a DEIB Council, which serves as a platform where senior leaders and representatives of various
internal business resource groups meet quarterly to shape the strategy and actions of the Company’s DEIB efforts. The DEIB
Council is comprised of 39 employee members across the organization and is co-chaired by the Chief Executive Officer and
Executive Vice President of Business Banking. The DEIB Council makes recommendations on ways to integrate DEIB in the
areas of education and awareness, talent development, employee engagement, and client and community service, and reports
quarterly to the Company’s Corporate Responsibility Committee. The Company's Senior Managing Director of DEIB is
responsible for strengthening DEIB efforts with employees, clients, and community partners, and promoting a diverse
workforce in an open, inclusive environment.
In 2022, the Company developed diversity scorecards to measure the recruitment, retention, and promotion of underrepresented
groups, reinforcing that DEIB is a driver of performance. Notable progress was made in 2023 in the areas of diversity turnover,
diversity tenure, and DEIB learning and development training hours, with all three indicators exceeding 2023 goals. Areas of
focus for 2024 through 2026 include the percentage of Senior Managing Directors and above who are women and/or persons of
color, new hire diversity, and the diversity promotion rate.
Compensation and Benefits
The Company's compensation program is designed to attract, retain, and reward performance and align incentives with the
achievement of strategic goals and both short- and long-term operating objectives. The Company has an Incentive
Compensation Oversight Committee that reviews and approves all business-line incentives and sales plans each year, which
ensures consistent governance and behavior. The Company’s Rewards and Recognition Program drives a culture of
appreciation, recognizes leadership, and provides employees with meaningful monetary awards, as well as non-monetary
recognition.
Competitive benefits packages that reflect the needs of the Company’s workforce are offered to employees, which include
medical, dental, and vision plans, prescription benefits, life insurance and disability benefits, HSAs, wellness incentives, health
coaching, and telemedicine, as well as paid parental leave, paid time off and paid holidays, matching 401(k) retirement savings
plans, Employee Stock Purchase Plan, Employee Assistance Program, back-up child and elder care, Student Loan Repayment
Program, pet insurance, and other wellness programs. Benefit plans are continually reviewed and evolved as necessary to
remain competitive and meet the needs of the Company’s workforce.
Learning and Development
The Company is focused on investing in its current and future talent by actively supporting the success, growth, and career
progression of its employees. Employees have access to more than 490 courses offered through Webster Bank University, the
Company's internal learning resource that offers on-demand webinars, e-learning, and in-person learning programs. The
Company also provides unlimited access to self-directed e-learning courses taught by industry experts with curated learning
paths that are designed specifically for their professional interests through the Company's LinkedIn partnership.
The Company is committed to building and strengthening its workforce for the future with professional and career development
programs that go well beyond the immediate skills needed for a current role. In 2023, the Company offered 65 different
professional development courses, of which nine were instructor-led programs offered multiple times throughout the year, and
and 49 leadership skill development programs. More than 1,500 employees took advantage of and participated in these
programs collectively.
The Company makes significant investments in formal development programs to build its talent pipeline. In 2023, the
Company’s internship program hosted 25 individuals, who worked in eight lines of business across the bank. In addition, the
Company’s Rotational Program offers early-career, high potential college graduates rotating assignments throughout the bank
over either an eighteen month or a two-year period, with tracks in Commercial Banking, Finance, HSA Bank, Audit, and
Consumer Bank. After completing the program, all 13 Rotational Analysts were hired in 2023.
In 2023, the Company launched The RISE Emerging Talent Program with 21 high-potential individual contributors who are
likely to move into a management role or a role with more responsibility. This hybrid program gives participants a chance to
learn with peers from across the Bank with three days in the classroom and the balance through virtual instructor led training.
3
Competition
The Company is subject to strong competition from other commercial banks, savings banks, credit unions, non-bank health
savings account trustees, consumer finance companies, investment companies, insurance companies, online lending and savings
institutions, and other non-bank financial services companies. 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 the Company. Competition could intensify in the future as a result of industry consolidation, the increasing
availability of products and services from non-bank organizations including financial technology companies, greater
technological developments in the industry, and continued bank regulatory reforms.
The Company 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, savings banks, credit unions, non-bank health savings account trustees, money market mutual funds,
financial technology companies, and other non-bank financial services companies. The primary factors in competing for
commercial and consumer 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 each customer's 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
The Holding Company 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 FDIF, consumers, and the U.S. banking system as a whole.
Set forth in the paragraphs below is a summary of the significant elements of the laws and regulations applicable to the Holding
Company 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 the Holding Company 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
The Holding Company is a separate and distinct legal entity from the Bank and its other subsidiaries. As a registered bank
holding company and a financial holding company, Webster Financial Corporation is subject to regulation under the BHC Act
and to inspection, examination, and supervision by its primary federal regulator, the Board of Governors of the Federal Reserve
System. As a publicly-traded company, 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 SEC.
As a publicly-traded company with securities listed on the NYSE, Webster is subject to the rules of the NYSE.
The Bank is organized as a national banking association under the National Bank Act, as amended, and is subject to the
supervision of and regular examination by the OCC, its primary federal regulator, as well as by the FDIC, its deposit insurer. As
a national banking association, the 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 CFPB supervises the Bank to ensure
compliance with federal consumer financial protection laws.
The Holding Company’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.
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 Financial Corporation, may
engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either 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 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. If a financial holding
company or its bank ceases to be well capitalized or well managed, the Board of Governors of the Federal Reserve System may
impose corrective capital and managerial requirements and activity restrictions.
4
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 acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank,
acquire all or substantially all of the assets of a bank, or merge or consolidate with any other bank holding company. Generally,
the Holding Company is not required to obtain prior approval from the Board of Governors of the Federal Reserve System to
acquire a non-bank that engages in activities that are financial in nature or incidental to activities that are financial in nature, as
long as the Holding Company meets the capital, managerial, and CRA requirements to qualify as a financial holding company.
However, the Holding Company is required to receive prior approval from the Board of Governors of the Federal Reserve
System for an acquisition in which the total consolidated assets to be acquired exceeds $10 billion.
Pursuant to Section 18(c) of the 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.
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. The Basel III Capital Rules
strengthened international capital adequacy standards by increasing institutions' minimum capital requirements and holdings of
high-quality liquid assets and decreasing bank leverage.
Under the Basel III Capital Rules, the Company'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 the Holding Company's and the Bank's minimum capital
ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1 Leverage Capital, as
defined in the regulations, which the Company is required to maintain. CET1 capital consists of common stockholders' 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, the Company had elected to opt-out of the requirement to include certain components of 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 qualifying subordinated debt and the permissible portion of the
ACL.
The following table summarizes the ratio thresholds applicable to the Company pursuant to the Basel III Capital Rules as of
December 31, 2023:
CET1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
Adequately
Capitalized
4.5 %
6.0
8.0
4.0
Well Capitalized
6.5 %
8.0
10.0
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 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.
5
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 the Holding Company and the
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 August 26, 2020, in response to the COVID-19 pandemic, the federal banking agencies issued a final rule that provided
banking organizations that had implemented 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. The
Company elected to utilize the 2020 capital transition relief and delayed the regulatory capital impact of adopting CECL. Both
the Holding Company's and the Bank's ratios remain in excess of being well-capitalized, even without the benefit of the delayed
CECL adoption impact. Additional information regarding the delayed CECL adoption impact on regulatory capital can be
found in Part II under the section captioned "Liquidity and Capital Resources" contained in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, and within Note 13: Regulatory Matters in the Notes to
Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data.
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
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
Well
Capitalized
Adequately
Capitalized
Under
Capitalized
6.5 %
8.0
10.0
5.0
4.5 %
6.0
8.0
4.0
< 4.5%
< 6.0
< 8.0
< 4.0
Significantly
Under Capitalized
< 3.0%
< 4.0
< 6.0
< 3.0
Each of the Bank's capital ratios exceeded those required for an insured depository institution to be considered well capitalized
at December 31, 2023.
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 hearing, 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.
Enhanced Prudential Standards
The Board of Governors of the Federal Reserve System established enhanced prudential standards for larger bank holding
companies based on size and certain risk-based indicators. On October 10, 2019, the Federal Reserve Board, along with other
federal bank regulatory agencies, tailored these prudential standards allowing bank holding companies with total consolidated
assets of $250 billion or less to be exempt from certain enhanced capital and liquidity prudential standards, including company-
run stress testing, capital planning, liquidity coverage ratio, and resolution planning requirements, among others. Although the
Holding Company's total consolidated assets are beneath the $250 billion threshold, the Company performs 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, publicly-traded bank holding companies with $50 billion or more in total consolidated assets are required to
maintain a risk committee that is responsible for the oversight of enterprise risk management practices and that meets other
statutory requirements. The Company maintains a standing Risk Committee of the Board of Directors that oversees its risk
management program.
6
Volcker Rule
The Volcker Rule prohibits banking entities, such as the Holding Company and the Bank, from engaging in short-term
proprietary trading of certain securities, derivatives, commodity futures, and options on these investments for their own
account, and imposes limits on investments in, and other relationships with hedge funds or private equity funds. Banking
entities with significant trading operations (those with between $1 and $20 billion in average trading assets and liabilities) are
subject to a simplified Volcker Rule compliance program. The Company has incorporated Volcker Rule compliance by
reference to the statutory requirements in existing policies, procedures, and compliance programs where relevant and as
appropriate for its activities, size, scope, and complexity. The Volcker Rule does not have a material impact on the Company.
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, which became effective on October 1, 2020, modified three areas of the Volcker
Rule by streamlining the covered funds portion of the rule, addressing the extraterritorial treatment of certain foreign funds, and
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 Federal Reserve System had granted the Company an extension until July 21, 2022 to bring
its holdings into compliance with the Volcker Rule. The Company dissolved its remaining holdings in illiquid covered funds
during 2021, and believes its holdings to be fully compliant with the Volcker Rule as of December 31, 2023.
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 FRB. The FRA authorizes
different ranges of reserve requirement ratios depending on the amount of transaction account balances held at each depository
institution. 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.
Further, as a national bank and a member of the Federal Reserve System, Webster 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, 2023, the Bank held an FRB of New
York stock investment of $227.9 million.
Federal Home Loan Bank System
The FHLB System provides a central credit facility for its member institutions. The 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 0.05%
of total assets as of December 31, 2022, up to a maximum of $5 million, plus an amount that varies from 3.0% to 4.0%
depending on the maturities of its FHLB advances, of which there were $2.4 billion outstanding at December 31, 2023. The
Bank was in compliance with these requirements at December 31, 2023, and held a FHLB stock investment of $99.0 million.
Source of Strength Doctrine
Bank holding companies are required to 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 the 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 the Bank stock held to cover any deficiency.
Safety and Soundness Standards
The federal banking agencies have adopted the rules and regulations under the Interagency Guidelines Establishing Standards
for Safety and Soundness, 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.
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The OCC also has guidelines establishing heightened standards for large national banks, which establish minimum standards
for the design and implementation of a risk governance framework. A large bank is defined as a bank with more than $50
billion in average total consolidated assets from its four most recently filed quarterly Call Reports. Upon becoming a covered
bank, the bank should have a risk governance framework in compliance with the guidelines within 18 months from the as of
date of the most recently filed Call Report used to calculate the average. The framework of a parent holding company may be
used when the risks are substantially similar. With the filing of its Call Report for the quarter ended December 31, 2022, the
Bank became a covered bank, and will have 18 months to comply with these heightened OCC guidelines. The Company took
steps in 2023 to ensure that its risk governance framework meets the OCC heightened standards, and expects to meet the
required guidelines within the mandatory timeframe.
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 the issuance of directives to increase capital, the issuance of formal
and informal agreements, the imposition of civil monetary penalties, the issuance of a cease and desist order that can be
judicially enforced, the issuance of removal and prohibition orders against officers, directors, and other institution affiliated
parties, the termination of the insured depository institution’s deposit insurance, the appointment of a conservator or receiver
for the insured depository institution, and injunctions or restraining orders based upon a judicial determination that the FDIC, as
receiver, would be harmed if such equitable relief was not granted.
Resolution Planning
There is currently a moratorium for insured depository institutions with more than $50 billion in assets but less than $100
billion in assets submitting to the FDIC periodic plans for resolution in the event of an insured depository institution's failure.
On August 29, 2023, the FDIC proposed amendments to the resolution planning requirements for insured depository institutions
with $50 billion or more in total assets. At December 31, 2023, the Company has approximately $75 billion in consolidated
assets. The amendments would require insured depository institutions with between $50 billion and $100 billion in assets to
submit information filings on a two-year cycle with an interim update of key information. While the Company would have time
to prepare and submit a resolution plan, preparing and submitting such plan may increase related compliance costs.
Dividends
The Holding Company is dependent upon dividends from the Bank to provide funds for its cash requirements, including the
payment of dividends to stockholders. Dividends paid by the Bank are subject to 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, 2023, the Bank declared and paid $600.0 million in dividends
to the Holding Company and had $788.7 million of undistributed net income available for the declaration and payment of
dividends at December 31, 2023.
In addition, federal banking regulators have the authority to prohibit the Company from engaging in unsafe or unsound
practices in conducting its business. The declaration and 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 the Bank to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and
capital requirements.
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.
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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 CFPB is responsible for implementing, enforcing, and examining compliance with federal consumer financial protection
laws. As an insured depository institution with more than $10 billion in total assets, the Bank is subject to supervision by the
CFPB. There are a number of federal laws, which the Company is subject to, that are 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.
Identity Theft
Certain regulated entities are required 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
Company 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
The Company is subject to federal and certain state laws and regulations containing consumer privacy and data protection
provisions addressing the treatment of nonpublic personal information about consumers by financial institutions. Subject to
certain exceptions, 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.
The federal banking regulatory agencies have 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.
Financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic
personal information and 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.
Community Reinvestment Act and Fair Lending Laws
The 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 the 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 the Company. 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. The Bank received a CRA rating
of Outstanding in its most recent examination.
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Federal Deposit Insurance
The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, for each account ownership
category. The FDIF is funded mainly through quarterly assessments on insured depository institutions, such as the Bank, and
provides insurance coverage for certain deposits up to this maximum amount.
The 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, the 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 are subject to adjustment by the FDIC. For instance, assessment rates could (i) decrease for the issuance of
long-term unsecured debt, including senior unsecured debt and subordinated debt, (ii) increase for holdings of long-term
unsecured or subordinated debt issued by other banks, or (iii) increase for significant holdings of brokered deposits for large
banks that are not well rated or not well capitalized. On October 18, 2022, the FDIC increased the initial deposit base deposit
insurance assessment rate schedules uniformly by 2 basis points for all insured depository institutions, beginning in the first
quarterly assessment period of 2023. The increase in assessment rate schedules is intended to increase the likelihood that the
reserve ratio of the FDIF reaches the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses
incurred by protecting uninsured depositors of Silicon Valley Bank and Signature Bank upon their failure in March 2023. The
final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits
balance reported as of December 31, 2022. The special assessment is to be collected for an anticipated total of eight quarterly
assessment periods beginning with the first quarter of 2024, which has a payment date of June 28, 2024. The FDIC retains the
right to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment if
actual losses exceed the amounts collected.
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. The Company’s management is not aware of any practice, violation,
or condition that might lead to the termination of its deposit insurance.
Depositor Preference
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.
Anti-Money Laundering
A major focus of U.S. federal governmental policy as it relates to financial institutions is aimed at combating money laundering
and terrorist financing. The failure of a financial institution to maintain and implement adequate programs to combat money
laundering and terrorist financing, or to comply with the relevant laws and regulations, could have serious legal and reputational
consequences for the financial institution, including causing the applicable bank regulatory authorities to not approve merger or
acquisition transactions or to prohibit such transactions even if prior approval is not required.
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 federal 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.
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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 under the Bank
Merger Act. The Company 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. The Company also complies with the
sanctions administered by the OFAC of the U.S. Department of the Treasury, which is responsible for administering economic
sanctions that affect transactions with designated foreign countries, nations, and others. The OFAC 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.
Debit Card Interchange Fees
The Board of Governors of the Federal Reserve System requires that the amount of any interchange transaction fee that a debit
card issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost
incurred by the debit card 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. 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 the Bank. The regulation also allows covered debit card issuers to receive 1 cent per transaction for fraud-prevention
costs, provided that the debit card issuer meets the fraud-prevention standards established by the FRB. HSA Bank's interchange
revenue is not subject to these rules.
Risk Management Framework
The Company defines risk as the potential that events, expected or unexpected, may have an adverse effect on its earnings,
capital, or franchise/enterprise value. The Company maintains a structured risk management framework that provides an
integrated, forward-looking approach to identifying, prioritizing, and managing all risk categories across the organization:
Information, Reputational, Operational, Credit, Compliance, Financial, and Strategic.
The Chief Executive Officer and Executive management set the tone at the top and reinforce risk culture through strategy
setting, formulating objectives, approving resource allocations, and establishing and maintaining effective systems of internal
control. A strong risk culture is the foundation of effective risk management because it influences the decisions of management
and employees when weighing risks and benefits. The Chief Executive Officer and Executive management also encourage and
support risk self-identification and timely escalation throughout the organization.
The Company has adopted the Three Line Model, in which the First Line manages risks, ensures compliance, performs control
activities, and works in coordination with the Second Line, who in turn provides additional expertise, support, and tools, and
challenges risk management to enhance efficiency and effectiveness of the control environment. The Third Line provides an
independent and objective assurance to management and the Board of Directors and assesses whether the First and Second Line
functions are operating effectively. Detailed roles and responsibilities for each line are outlined below.
Front Line Units, also referred to as First Line functions, represent process owners that engage in activities designed to generate
revenue and reduce expenses, provide operational and technology services, and provide operational support and servicing in the
delivery of products or services. Since Front Line Unit activities inherently create risk, the Front Line Units are responsible for
assessing and managing that risk.
Independent Risk Management, also referred to as the Second Line Function, is responsible for identifying, measuring,
monitoring, or controlling risks independently from the Front Line Units and providing effective challenge to the Front Line
Units. Independent Risk Management includes Enterprise Risk that reports to the Chief Risk Officer, Credit Risk Management
that reports to the Chief Credit Officer, and the SOX Program Office that reports to the Chief Accounting Officer. The SOX
Program Office maintains sufficient autonomy from the Front Line Units to be considered independent.
Internal Audit, also referred to as the Third Line Function, independently assesses the Company’s risk management processes
and controls using methodology developed from professional auditing standards and regulatory guidance. Internal Audit
undertakes these responsibilities through periodic reviews of the Company’s business activities, operations, and systems, and
through special or retrospective reviews that may be specifically requested by the Audit Committee or management. Internal
Audit is led by the Chief Audit Executive who reports to the Audit Committee.
Risk identification at the Company is a continuous process and occurs at the transaction, portfolio, and enterprise levels.
Approaches used to identify risk include process and data analysis, key risk indicators, and risk assessments. 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 the Company’s ability to achieve its strategic and business objectives if they occur. Risk assessments
evaluate inherent risk (likelihood and impact) and existing controls (control environment) to arrive at residual risk.
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The Company has established and maintains a Risk Appetite Statement which provides guidance to management regarding the
nature and level of residual risk that it 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 board-level
and management-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 the Company’s risk
profile.
The Company has established operating and oversight structures including policies, processes, 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 the Company's approach to risk management and delegates its
authority to the Risk Committee to provide oversight and effective challenge. Along with assisting the Board of Directors in
fulfilling its oversight responsibilities, the Risk Committee is responsible for reviewing information regarding the Company's
policies, procedures, and practices relating to risk. The Chief Risk Officer has the primary responsibility for the design and
implementation of the Company's risk management framework.
The ERMC, which is chaired by the Chief Risk Officer, is the management committee responsible for overseeing the
Company's risk management process, including monitoring the severity, direction, and trend of current and emerging risks
relative to business strategies and market conditions, assessing the quality of risk programs to manage and mitigate risks, and
ensuring implementation of the Company's risk appetite and strategy. To support the ERMC in its oversight responsibilities, it
has seven subcommittees: (i) Information Risk Committee, (ii) Operational Risk Management Committee, (iii) Litigation Risk
Management Committee (iv) Credit Risk Management Committee, (v) Regulatory Compliance Committee, (vi) Bank Secrecy
Act and Fraud Oversight Committee, and (vii) Asset Liability Committee.
Information Risk
Information risk encompasses Information Technology and Information Security risks. Informational Technology risk is
defined as 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. Information Security risk is defined as the risk of unauthorized access, use, disclosure, disruption,
modification, perusal, inspection, recording, or destruction of electronic or physical data.
The increased use of technology to store and process information, particularly the ability to conduct financial transactions on
mobile devices and cloud technologies, exposes the Company to moderate risk of potential operational disruption or
information security incidents, whether caused by deliberate or accidental acts. The Company is committed to preventing,
detecting, and responding timely to incidents that may impact the confidentiality, integrity, and availability of information
assets through its information security and technology risk programs, which are managed under the direction of the Chief
Information Security Officer and Senior Managing Director of Information Risk Management. The Information Risk
Committee provides primary oversight to Information Risk.
Reputational Risk
Reputational risk is defined as the potential that negative publicity regarding the Company's conduct, business practices, or
associations, whether true or not, will adversely affect its revenues, operations, and customer base, or require costly litigation or
other defensive measures. Reputational risk may also impair the Company's competitiveness by affecting its ability to establish
new relationships or continue servicing existing customers. Reputational risk is inherent in all Company's activities, especially
when dealing with stakeholders such as customers, counterparties, investors, regulators, colleagues, and communities.
In addition, reputational risk arises when the Company associates its brand with solutions and services offered through
outsourced arrangements, negative publicity regarding matters such as unethical or deceptive business practices, violations of
laws or regulations, high profile litigation, poor financial performance, poor execution, or inferior customer service.
Reputational risk is managed through strong corporate governance, risk culture, and a Code of Ethics. Setting the tone at the
top, the Board of Directors and executive leadership actively support risk awareness by mandating accurate and timely
management information and communication. The Company's ethical standards are reinforced through recruiting, training, and
performance management. The Company also maintains strong fair and responsible banking practices, which permeate
interactions with clients, vendors, and counterparties. The ERMC provides primary oversight to Reputational risk.
Operational Risk
Operational risk is defined as the risk of loss, whether direct or indirect, due to the inadequacy or failure of processes and
systems, human error, or from external events. Operational risk encompasses the following risks: Fraud, Third Parties, Human
Capital, Business Operations, Model, Legal, and Physical Security.
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The Company mitigates Operational risk through the establishment of an Operational Risk Management Program, which
provides for a set of tools to identify, assess, monitor, and report operational risk activities. The program enables the lines of
business and corporate functions to establish accountability for performance and execution, and allows for timely and effective
management of identified risks, control failures, or other related gap/deficiencies that are reinforced through incentive
structures. The Company seeks to control operational risk within an acceptable range, which is determined by the types of
businesses in which it engages, and the volume of activity within those lines of business. Control of operational losses depends
on identifying the types of transactions and operational risks faced at the enterprise and business level, and ensuring effective
internal control processes are in place to mitigate these risks. The Operational Risk Management Committee provides primary
oversight to Operational risk as a whole. The Litigation Risk Committee provides primary oversight to Legal risk.
Credit Risk
Credit risk is defined as the risk of loss resulting from the failure of a borrower or counterparty to honor its financial or
contractual obligations to the Company. Credit risk arises in the Company's lending operations, and in its funding and
investment activities where counterparties have repayment or other obligations to the Company. Credit risk can also arise from
other solutions or services that involve customer obligations for the transfer of funds.
The overall focus of Credit risk management is to balance returns relative to risk while operating within stated risk tolerances.
The Company maintains underwriting standards consistent with its desired risk profile and robust credit process. The
Company's loan portfolio, which includes both commercial and consumer lending activity, is actively managed to avoid
significant concentrations in borrowers, counterparties, industries, and solutions that could create excessive correlated risk.
Diversification of the loan portfolio across commercial and industrial, specialty finance, and real estate lending is important in
managing credit risk. Accordingly, management aims to actively measure and management concentrations by portfolio,
industry sector and specific sub-sectors, geography, single obligor, and other guidelines. The Company is primarily a
relationship lender. In addition, the Company will only assume credit risk when it can effectively manage from an infrastructure
or operational perspective, and it has industry, product, and market expertise.
The Credit Risk Management Committee provides primary oversight to Credit risk.
Compliance Risks
Compliance risk is defined as the risk to current or anticipated earnings or capital arising from violations of, or non-compliance
with, laws, rules, regulations, prescribed practices, internal policies and procedures, or prudent ethical standards. Compliance
risk exposes the Company to fines, civil monetary penalties, payment of damages, and the voiding of contracts. The Company's
activities subject to overall compliance, consumer protection, and regulatory risk include deposit account management, lending
products and services, privacy protections, investment management, and fiduciary services.
Compliance risk is managed through the execution of a comprehensive Compliance Management Program, which is designed
to identify and evaluate risks of non-compliance, assess, test, and monitor the effectiveness of internal controls, and report and
escalate significant issues. The Regulatory Compliance Committee provides primary oversight to Compliance risk as a whole.
The BSA and Fraud Oversight Committee provides primary oversight to Compliance risks specific to the BSA.
Financial Risk
Financial risk encompasses Treasury and Accounting risk. Treasury risk includes the risk (i) of capital levels falling below
supervisory expectations or being incommensurate with the level of risk; (ii) that the value of a security or investment will
decrease; (iii) changes in interest rates could contribute to a reduction in earnings and net worth; and (iv) from decreases or
changes in funding sources. Accounting risk includes the risks that arise from the inability to (i) comply with GAAP and
regulatory laws/guidelines; (ii) ensure a high integrity financial reporting process; and (iii) disclose appropriate information.
The Treasury components of Financial risk are managed through interest rate, liquidity, and capital scenario analysis and stress
testing. Accounting risk is managed through internal control over financial reporting. The Company's Treasury and Accounting
Risk Programs are respectively managed by the Treasurer and Chief Accounting Officer. The Asset Liability Committee
provides primary oversight of Treasury risk. The Disclosure and SOX Committees provide primary oversight of Accounting
risk.
Strategic Risk
Strategic risk is defined as the risk to the Company's current or projected financial condition, expected returns and resilience
arising from the inability to select and execute strategic choices, suboptimal company positioning, ineffective organizational
structures, poor implementation of priorities and initiatives, inadequate risk management infrastructure, or the lack of
responsiveness to changes in the financial services ecosystem and operating environment.
The Company seeks to achieve its performance objectives by making management decisions, such as the selection of strategic
choices, applying planning assumptions, assessing internal capabilities and the external environment, ensuring capital and
resources are dedicated to the right priorities, and ensuring effective execution by periodically reviewing specific plans.
Strategic risk underscores the need for balance between risk and return, evaluating opportunity against the risk of loss of value.
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The long-range strategic planning process ensures that strategic choices and initiatives are viewed with the overarching goal of
allocating capital and resources to support strategies that create value for customers and stockholders and sustainably grow
economic profit over time. The impact of a strategic plan on the Company's risk appetite and risk profile is evaluated as part of
the strategic planning process. The long-range strategic planning process is managed by the Corporate Strategy Officer. The
ERMC and Risk Committee provide primary oversight to Strategic risk.
Additional information regarding risks and uncertainties, and relevant risk factors that could impact the Company'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.
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ITEM 1A. RISK FACTORS
Investment in Webster stock 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 in the paragraphs 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.
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 technology infrastructure must continue to be safeguarded and monitored for
potential failures, disruptions, and breakdowns. Our business, financial, accounting, data processing, 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, all of which may contribute to a cybersecurity threat.
Although we have business continuity plans and information security and technology processes and controls in place, we are at
risk of cybersecurity threats due to disruptions or failures in the operational systems or technology infrastructures that support
our businesses and customers, or cyber-attacks or security breaches of the networks, systems, or devices on which information
assets are stored or are used by customers to access our products and services. Any of these incidents could result in customer
attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement, or other compensation costs, which
could have a material adverse effect on our business strategy, results of operations, or 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 risk and information security risk, including breakdowns or failures of their own systems, capacity constraints,
and cyber-attacks, each of which could pose a cybersecurity risk.
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,
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.
Our inherent risk and exposure to information security matters remains heightened, and as a result, the continued development
and enhancement of our controls, processes, and practices designed to protect operational 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, such insurance may not cover any and all actual losses. As
cybersecurity 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.
Reputational Risk
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to
our ESG practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG
practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on
these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights.
Increased ESG-related compliance costs for us as well as among our third-party suppliers, vendors, and various other parties
within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory
requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do
business with certain partners, access to capital, and the price of our stock.
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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 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 we can reasonably estimate the amount, 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 be substantially higher than the amount accrued by management.
Operational Risk
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,
such plans may not operate successfully or in a timely manner so as to prevent any such material adverse impact.
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.
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.
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.
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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 direct or indirect 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 managing climate risk. Further, our ability to attract and retain employees may also be harmed if our
response to climate change is perceived as ineffective or insufficient. We have developed and continue to enhance processes to
assess and monitor the Bank's exposure to climate risk. However, because the timing and impact of climate change have limited
predictability, our risk management strategies may not be effective in mitigating climate risk exposure.
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 expected 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. Any such losses could 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
commercial 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 representations
affects our ability to evaluate the default risk of a counterparty or client accurately and could cause us to enter into unfavorable
transactions, which could have a material adverse effect on our financial condition and results of operations.
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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 economic conditions 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. In 2023, higher interest rates and inflation
affected the profitability of new commercial real estate developments, the feasibility of some projects, and the volume of
commercial real estate investments. The commercial real estate market has experienced increased property vacancies and
declining rent growth.
We are subject to commercial lending concentration risks.
At December 31, 2023, approximately 75% of our loan and lease portfolio consisted of commercial non-mortgage, commercial
real estate, and multi-family loans, and a large portion of the borrowers or properties associated with these loans are
geographically concentrated in New York City and proximate areas. We continue to monitor risks associated with office space,
anchor tenants, and the general economic and physical risks (such as severe weather, public health, and personal safety risks),
affecting commercial properties and borrowers in the Greater New York City area. Additional information regarding our
commercial lending business can be found in Part II under the section captioned "Loans and Leases" contained in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 FDIF, and the safety and soundness
of the U.S banking system as a whole, not stockholders. 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 if there is a
change in the office of the President of the U.S. 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.
As a result of the bank failures in 2023, it is expected that the banking sector will be subject to more extensive legal and
regulatory requirements within the next few years. 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. Disagreements between, or in, the U.S. Congress on the federal budget
and debt ceiling may lead to total or partial government shutdowns, which can create economic instability and negatively affect
our business and financial performance. New federal or state laws and regulations regarding lending and funding practices and
liquidity standards could negatively impact the Bank’s business operations, increase the cost of compliance, and adversely
affect profitability. The failure of banks to follow existing laws and regulations contributes to bank failures, which also
adversely affects the banking industry and can lead to special FDIC assessments, such as what we will be paying in 2024.
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.
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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.
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.
Financial Risk
Difficult conditions or volatility in the U.S. economy and financial markets may have a materially adverse effect on our
business, financial condition, and results of operations.
As a financial services company, our business and overall 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.
The risks associated with our business become more acute in periods of a slowing economy or slow growth. In particular, we
could face some of the following 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
our 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. economy and financial markets have experienced volatility in recent years and may continue to do so in the
foreseeable future. Robust demand, labor shortages and supply chain constraints has led to persistent inflationary pressures
throughout the economy. In response to these inflationary pressures, the FRB has raised benchmark interest rates in recent
months and may continue to raise interest rates in response to economic conditions, particularly a continued high rate of
inflation. Amidst these uncertainties, financial markets have continued to experience volatility. If financial markets remain
volatile or if the aforementioned conditions result in further economic stress or recession, the performance of various segments
of our business, including the value of our investment securities portfolio, could be significantly impacted.
Inflation rose sharply throughout 2022, and continued to rise through the third quarter of 2023, at levels not seen for over 40
years. Prolonged periods of inflation may further impact our profitability by negatively impacting our fixed costs and expenses,
including increasing funding costs and expense related to talent acquisition and retention. If significant inflation continues, our
business could be negatively affected by, among other things, increased default rates leading to credit losses which could
decrease our appetite for new credit extensions. In addition, a prolonged period of inflation could cause an increase in wages
and other costs to the Company. These inflationary pressures could result in missed earnings and budgetary projections causing
our stock price to suffer. We continue to closely monitor the pace of inflation and the impacts of inflation on the larger market,
including labor and supply chain impacts.
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Our profitability depends significantly on local economic conditions in the states in which we conduct business.
The success of our business also 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. 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
make it more difficult for borrowers to meet obligations under variable-rate or adjustable-rate loans and other debt instruments.
Decreased interest rates often increase 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 cannot reinvest the
cash received from such prepayments with interest rates comparable to pre-existing loans and securities.
In a rising interest rate environment, which has occurred recently, competition for cost-effective deposits increases, making it
more costly for the Bank to fund loan growth. Rapid and unexpected volatility in interest rates creates additional uncertainty
and potential for adverse financial effects. There can be no assurance that the Bank will not be materially adversely affected by
future changes in 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. 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 financial condition and results of operations, interest rates are
affected by many factors outside of our control and any 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.
Changes in our financial condition or in the general banking industry, or changes in interest rates, could result in a loss of
depositor confidence.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend
credit and to repay liabilities as they become due or as demanded by customers. Our primary source of liquidity is our large
supply of interest-bearing and non-interest bearing deposits. The continued availability of this supply of deposits depends on
customer willingness to maintain deposit balances with banks in general and us in particular, as well as the continued inflow of
deposits for new and existing customers. The availability of deposits can also be impacted by regulatory changes (e.g., changes
in FDIC insurance, liquidity requirements, healthcare reform etc.), changes in financial condition of the Bank, other banks, or
the banking industry in general, changes in the interest rates our competitors pay on their deposits, and other events which can
impact the perceived safety or economic benefits of bank deposits. While we make significant efforts to consider and plan for
hypothetical disruptions in our deposit funding, market-related, geopolitical, or other events could impact the liquidity derived
from deposits.
Unrealized losses in our available-for-sale securities portfolio could negatively impact our business.
As market interest rates have increased, we have experienced significant unrealized losses on our available-for-sale securities
portfolio. Unrealized losses related to available-for-sale securities are reflected in (AOCL) in our Consolidated Balance Sheets
and reduce the level of our tangible common equity. Such unrealized losses do not affect our regulatory capital ratios. We
actively monitor our available-for-sale securities portfolio and believe that it is not more likely than not that the Company will
be required to sell securities before the recovery of the amortized cost basis. Nonetheless, our access to liquidity sources,
financial condition, and results of operations, could be affected by unrealized losses if securities must be sold at a loss.
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of the Company, which
could lead to a loss of depositor confidence and result in an increase in withdrawals, particularly among those with uninsured
deposits.
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The proportion of our deposit account balances that exceed the FDIC insurance limits may expose the Bank to enhanced
liquidity risk in times of financial distress.
In its assessment of the failures of Silicon Valley Bank and Signature Bank in the first quarter of 2023, the FDIC concluded that
a significant contributing factor to the failures of these institutions was the proportion of deposits held by each institution that
exceeded FDIC insurance limits. The FDIC similarly concluded that an overreliance on uninsured deposits contributed to the
subsequent failure of First Republic Bank in the second quarter of 2023.
In response to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, many large depositors across the
industry withdrew deposits in excess of the applicable deposit insurance limits and deposited these funds in other financial
institutions. If a significant portion of our deposits were to be withdrawn within a short period of time such that additional
sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding at favorable
terms, which may have an adverse effect on our net interest margin. Additionally, obtaining adequate funding to meet our
deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period.
Further, interest rates paid for borrowings generally exceed interest rates paid on deposits. Our ability to attract and retain
depositors during a time of actual or perceived distress of instability in the marketplace may be limited.
Higher mortgage rates and low inventory adversely impact our ability to originate or refinance residential mortgage loans.
The residential mortgage lending business is sensitive to changes in interest rates, especially long-term interest rates. Lower
interest rates generally increase the volume of mortgage originations and refinancing, while higher interest rates generally cause
that volume to decrease. Therefore, our residential mortgage performance is typically correlated to fluctuations in interest rates.
The 10-year Treasury rate averaged 3.96% during 2023, which is 251 basis points higher than average rates experienced during
2021. The sustained higher rates experienced throughout 2023 and 2022 have negatively impacted the mortgage market,
including our loan origination volume and refinancing activity. Adverse market conditions, including increased volatility,
changes in interest rates and mortgage spreads, and reduced market demand could result in greater risk in retaining mortgage
loans. A reduction in our residential mortgage origination and refinancing volume could have a materially adverse effect on our
financial condition and results of operations.
We may be subject to more stringent capital and liquidity requirements, which could limit our business activities.
The Holding Company and the Bank are subject to capital and liquidity requirements and standards. 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
stockholders or limit our ability to pay dividends, or sell or refrain from acquiring assets.
Our stock price can be volatile.
Stock price volatility may make it more difficult for stockholders 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:
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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, or actions between Israel and its neighbors.
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 our stock price to decrease regardless of operating results.
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The Holding Company may not pay dividends to stockholders if it is not able to receive dividends from its subsidiary,
Webster Bank.
The Holding Company is a separate and distinct legal entity from the Bank and its non-banking subsidiaries. A substantial
portion of the Holding Company’s revenues comes from dividends paid by the Bank. These dividends are the principal source
of funds to pay dividends to common and preferred stockholders. 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 stockholders.
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 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 the Company's Consolidated Financial Statements, and the accompanying Notes thereto, 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. Material estimates subject to change include, among other items, the allowance for credit losses, the carrying value
of goodwill or other intangible assets, the fair value estimates of certain assets and liabilities, and the realization of deferred tax
assets and liabilities.
A significant merger or acquisition requires us to make estimates, including the fair values of assets acquired and liabilities
assumed.
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, 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
upon the occurrence of a triggering event. 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 an impairment loss may be significant and have a material adverse effect on our financial condition and
results of operations.
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 of 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.
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Strategic Risk
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 the loss of key employees or the inability to maintain appropriate
staffing may disrupt relationships with customers and adversely impact our business.
Our success depends, in large part, on our ability to attract, develop, compensate, motivate, and retain skilled people, including
executives, managers, and other key employees with the skills and know-how necessary to run our business. The failure to
attract or retain talented executives, managers, and employees with diverse backgrounds and experiences, or the loss of certain
executives, managers, and key employees, could have a material adverse impact on our business. These risks may be
heightened when U.S. labor markets, or segments of those markets, are especially competitive.
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. The recent transition towards companies offering remote and hybrid work
environments, which is expected to endure, as well as our workplace policies (or perceptions of those policies by current and
potential employees), including policies with respect to remote and hybrid work, could impact our ability to attract and retain
talent with the necessary skills and experience. In addition, the transition to remote and hybrid work environments may
exacerbate the challenges of attracting and retaining skilled employees because 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 are good, we cannot guarantee that all of our key personnel will remain with our organization.
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 traditional
competitors primarily include national, regional, community, and internet banks within the various markets in which we
operate, including the HSA market. 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 that is imposed on bank holding companies and federally insured depository institutions, which may give
them greater flexibility in accessing funding and providing various services. Moreover, organizations that are larger than we are
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 what 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.
23
Our ability to compete successfully depends on a number of factors, including, among other things:
•
•
•
•
•
•
the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high
ethical standards, and safe, sound financial position;
the ability to expand our market position;
the scope, relevance, and pricing of products and services offered to meet customer needs and demands, including
within the HSA market;
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 and the use of artificial intelligence. 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 and information to provide products and services that will
satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have
substantially greater resources to invest in technological improvements because of their larger size and available capital.
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 and deposit administration activities.
Our HSA Bank division, the sweep deposit management program that we acquired with interLINK in January 2023, and the
insurance claim settlement funds platform that we acquired in with Ametros in January 2024, all rely on partnerships with either
health insurance carriers or other financial services partners to maximize our distribution model. To the extent that we fail to
maintain such partnerships, which may be due to mergers and/or acquisitions and may result in changes to their business
processes, or our partners choosing to align with competitors or develop their own solutions, our business, financial condition,
and results of operations could be adversely affected. 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.
There is significant competition for our existing partners, and our failure to retain our existing larger partner relationships upon
expiration or the earlier loss of a relationship upon the exercise of a partner's early termination rights, or the expiration or
termination of a substantial number of small partner relationships, could have a material adverse effect on our results of
operations (including growth rates) and financial condition to the extent that we do not acquire new partners of similar size and
profitability or otherwise grow our business. In addition, existing relationships may be renewed with less favorable terms to the
Company in response to increased competition for such relationships. The competition for new partners is also significant, and
our failure to attract new partners could adversely affect our ability to grow.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
24
ITEM 1C. CYBERSECURITY
Risk Management and Strategy. The Company has processes for assessing, identifying, and managing material risks from
cybersecurity threats, and is committed to the prevention, detection, and timely response to cybersecurity threats that may
impact the confidentiality, integrity, and availability of its information systems and information assets.
The Company has an Information Security Risk Management Program and a Technology Risk Management Program under its
Risk Management Framework for the identification, assessment, measurement, mitigation, monitoring, and internal reporting of
risks associated with its information systems, information assets, and third parties, including vendors and service providers. The
Information Security Risk Management Program and Technology Risk Management Program align with the Company’s Third-
Party Risk Management Program in regard to protecting information assets.
The Information Security Risk Management Program and Technology Risk Management Program are managed by the
Company’s Corporate Information Security team, led by the Chief Information Security Officer. On average, the Corporate
Information Security team members have over a decade of cybersecurity experience and hold over 100 industry-leading
certifications in cybersecurity. All information security managers have attained a bachelor’s degree in a related field of study,
with several also having a related master’s degree.
“Zero trust principles” drive the Company’s information security architecture, and the Company deploys a “defense in-depth”
strategy to protect against cybersecurity threats, layering multiple levels of information security and technology controls within
business processes for information assets and relationships with third parties based on the National Institute of Standards and
Technology Special Publication 800-53 Framework. The Company’s information systems and risk management are also subject
to regulatory requirements and examination by federal banking regulators.
The identification of control weaknesses and vulnerabilities affecting information assets and/or relationships with third parties
allows the Company to mitigate risk from, and respond to, cybersecurity threats. Initial risk assessments are performed upon the
acquisition, or as part of the development of, information assets in order to evaluate the inherent risk associated with network
and host environments and assess the adequacy of implemented technology operation processes and controls. Risk and control
self-assessments are conducted on an annual basis to identify gaps resulting from any process changes that occurred during the
year, and to evaluate whether the levels of cybersecurity risk remain within the tolerance set in the Company’s Risk Appetite
Statement or whether a risk needs to be mitigated.
Due diligence is performed prior to onboarding all third parties with access to the Company’s information assets to ensure such
parties maintain security controls contractually required by the Company as part of its Third Party Risk Management Program.
The Company provides ongoing monitoring, including cybersecurity maturity assessments, of third parties using a risk-based
approach to determine the extent and frequency of periodic assessments. Semi-annual cybersecurity maturity assessments are
conducted by the Company’s Corporate Information Security team on its information systems using industry-standard
guidelines and tools, including the Federal Financial Institutions Examination Council Cybersecurity Assessment Tool and the
Center for Internet Security Critical Security Controls.
Because cybersecurity threats continue to evolve, thereby increasing inherent risk, the Company’s Corporate Information
Security team is augmented by contracted external managed security service providers, who collectively work 24/7 to monitor
cybersecurity threats through processes such as endpoint and network security, email protection, data loss prevention,
vulnerability scanning and mitigation, identity and access management, logging and monitoring, and threat hunting.
Independent third parties test the Company’s cyber capabilities and audit its cloud security. The Company regularly tests its
systems to discover and address any potential vulnerabilities. Senior and Executive management also participate in
cybersecurity industry collaboration and information-sharing forums and utilize the information gained to drive protective and
detective cybersecurity strategies and tactics.
The Company requires information security education, training at the time of hire, and annually thereafter, by its employees
(including contractors and other third parties for training purposes), designed to mitigate accidental information security
incidents. Phishing simulation activities are regularly conducted to assess employees’ competency at identifying potential
threats. Employees are assigned incremental training requirements should they fail to identify simulated phishing emails
through the initial training.
The Company’s Corporate Information Security team members are also responsible for completing additional mandatory
annual training to understand the processes, procedures, and technical requirements for securing information assets across the
enterprise. The Company also offers ongoing practice and specialized education for Corporate Information Security team
members to stay up to date with emerging trends in cybersecurity threat protection, detection, and response.
The Information Security Management Program sets forth enterprise-wide coordinated responses to identified threats, ensuring
timely mitigation and remediation, and facilitating awareness and communication. Tabletop exercises are held regularly at the
Senior and Executive management levels, and annually at the Board of Directors level, to validate roles and responsibilities, and
response protocols respective to cybersecurity threats.
25
Employees, contractors, and third parties are required to immediately report any suspected cybersecurity threats to the
Corporate Information Security team for triaging. Any threat assessed by the Corporate Information Security team that could
impact the safety of customers or personnel, cause damage to, or threaten the confidentiality, integrity, or availability of
information assets, or bring about significant business interruption, are escalated for further assessment. In the event that the
Chief Information Security Officer, in consultation with the Company’s Legal and Compliance teams, determines that a
material cybersecurity incident has occurred, a dedicated Crisis Incident Response Team comprised of individuals from various
departments across the organization is assigned to coordinate all planned cybersecurity incident-related response activities. The
Company will engage third party specialists to assist in any cybersecurity incident investigation, as needed.
Cybersecurity threats that are identified and deemed material are escalated and communicated directly to Senior and Executive
Management and the Risk Committee of the Board of Directors. Materiality determinations are made under the Company's
Disclosure Controls and Procedures to ensure timely cybersecurity incident disclosure notification in accordance with securities
laws and/or regulations.
Material Cybersecurity Threat Risks. The Company has not experienced any material losses relating to cybersecurity threats or
incidents for the year ended December 31, 2023. However, it is possible that the Company could suffer such losses in the
future. Information regarding risks from material cybersecurity threats can be found under the section captioned "Information
Risk" contained in Item 1A. Risk Factors.
Governance. Oversight of information security risk and information technology risk is the operational responsibility of the
Information Risk Committee, which is a management committee, with additional oversight from the Enterprise Risk
Management Committee, which is also a management committee, and the Risk Committee of the Board of Directors.
Additional information regarding the Company’s risk management framework, including management-level and Board-level
committee experience and expertise, oversight responsibilities, and information risk governance, can be found under the section
captioned “Risk Management Framework” contained in Item 1. Business.
26
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Stamford, Connecticut. This leased facility houses the Company’s primary
executive and administrative functions and serves as the principal banking headquarters of the Bank. Additional corporate
functions are housed in owned facilities in Waterbury, Connecticut, and in leased facilities in Southington, Hartford, and New
Haven, Connecticut; Providence, Rhode Island; Boston, Massachusetts; Jericho, White Plains, and New York, New York; and
Paramus, New Jersey. The Company considers its properties to be suitable and adequate for its current business needs.
Commercial Banking maintains offices across a geographic footprint that ranges from Massachusetts to California. Premises
are located in Boston, Massachusetts; Westerly, Rhode Island; Conshohocken, and Radnor, Pennsylvania; Baltimore, and
Columbia, Maryland; Atlanta, Georgia; Dallas, Texas; and Laguna Niguel, and Ladera Ranch, California.
HSA Bank is headquartered in Milwaukee, Wisconsin, with an additional leased office in Sheboygan, Wisconsin.
Consumer Banking operates a distribution network that consists of 198 banking centers:
Location
Connecticut
Massachusetts
Rhode Island
New York
Total
Leased
Owned
Total
61
9
4
38
112
34
9
3
40
86
95
18
7
78
198
Additional information regarding the Company's owned facilities and leased locations can be found within Note 6: Premises
and Equipment and Note 7: Leasing, respectively, in the Notes to Consolidated Financial Statements contained in
Part II - Item 8. Financial Statements and Supplementary Data.
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.
27
PART II
ITEM 5. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Information
The Company's common stock is traded on the NYSE under the symbol WBS. At February 23, 2024, there were
8,352 holders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., the Company'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 14: Regulatory Capital and Restrictions in the Notes to 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 the Company during the three year period ended December 31, 2023.
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of equity securities for the Company’s common stock
made by or on behalf of the Company 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, 2023:
Period
October 1, 2023 - October 31, 2023
November 1, 2023 - November 30, 2023
December 1, 2023 - December 31, 2023
Total
Total
Number of
Shares
Purchased (1)
Average Price
Paid Per Share (2)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Amount Available
for Purchase
Under the Plans or
Programs (3)
11,505 $
537
1,058
13,100
38.25
42.21
47.78
39.18
— $
—
—
—
293,356,942
293,356,942
293,356,942
293,356,942
(1) All 13,100 of the shares purchased during the three months ended December 31, 2023, were acquired outside of the Company's
common stock repurchase program at market prices and related to employee share-based compensation plan activity.
(2) The average price paid per share is calculated on a trade date basis and excludes commissions and other transaction costs.
(3) The Company maintains a common stock repurchase program, which was approved by the Board of Directors on October 24, 2017,
that authorizes management to purchase shares of Webster common stock in open market or privately negotiated transactions,
through block trades, and pursuant to any adopted predetermined trading plan, subject to the availability and trading price of stock,
general market conditions, alternative uses for capital, regulatory considerations, and the Company's financial performance. On
April 27, 2022, the Board of Directors increased the Company's authority to repurchase shares of Webster common stock under the
repurchase program by $600.0 million in shares. This existing repurchase program will remain in effect until fully utilized or until
modified, superseded, or terminated.
28
Performance Graph
The performance graph compares the yearly percentage change in the Company's cumulative total stockholder return on its
common stock over the last five 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, 2018. The KRX Index is a market-capitalization weighted index comprised of 50
regional banks or thrifts located throughout the United States.
Cumulative total stockholder 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 stockholder return on the last trading day of the 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,
2018
2019
2020
2021
2022
2023
$
$
$
100 $
100 $
100 $
112 $
131 $
124 $
93 $
156 $
113 $
126 $
200 $
155 $
111 $
164 $
144 $
123
207
143
29
Year EndingIndex ValueFive-Year Cumulative Total ReturnWebster Financial CorporationS&P 500 IndexKRX Index201820192020202120222023050100150200250 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information that management believes is necessary to understand the
Company's financial condition, results of operations, and cash flows for the year ended December 31, 2023, as compared to
2022. This information should be read in conjunction with the Company's Consolidated Financial Statements, and the
accompanying Notes thereto, contained in Part II - Item 8. Financial Statements and Supplementary Data, as well as other
information set forth throughout this report. For discussion and analysis of the Company's 2022 results, as compared to 2021,
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 year ended December 31, 2022, which was filed with the SEC on March 10,
2023. The Company's financial condition and operating results for the year ended December 31, 2023, are not necessarily
indicative of the financial condition or operating results that may be attained in future periods.
Executive Overview
Banking Industry Developments
Throughout 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and concerns
related to liquidity, deposit outflows, unrealized losses on securities, the credit quality of commercial real estate portfolios, and
eroding consumer confidence in the banking system.
Despite these negative industry developments, the Company's total deposits at December 31, 2023, were $60.8 billion,
representing a net $6.8 billion increase as compared to its total deposits at December 31, 2022. The Holding Company's and the
Bank's regulatory capital ratios at December 31, 2023, also remained in excess of the well-capitalized minimum as defined by
capital adequacy guidelines and the regulatory framework for prompt corrective action.
Additional information regarding regulatory capital ratios can be found in Part I under the section captioned "Supervision and
Regulation" contained in Item 1. Business and within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated
Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Ametros Acquisition
On January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims
settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology
platform. The Company believes that the acquisition will provide a fast-growing source of low-cost and long-duration deposits,
new sources of non-interest income, and enhance its employee benefit and healthcare financial services expertise.
Additional information regarding the acquisition of Ametros can be found within Note 25: Subsequent Events in the Notes to
Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
interLINK Acquisition
On January 11, 2023, the Bank acquired interLINK, a technology-enabled deposit management platform that administers over
$9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The
acquisition expanded the Company's core deposit funding sources and scalable liquidity and added another technology-enabled
channel to its already differentiated, omnichannel deposit gathering capabilities. At December 31, 2023, interLINK provided
the Company with an additional $5.7 billion of money market deposits.
Additional information regarding the acquisition of interLINK can be found within Note 2: Mergers and Acquisitions in the
Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Sterling Integration Update
On January 31, 2022, the Company completed its merger with Sterling. In July 2023, the Company executed and completed its
transition to a unified core operating system (“core conversion”). This involved changing and/or merging the legacy Webster
and legacy Sterling platforms and software that had historically been used to process the Bank's daily operating activities, as
well as other internal systems and applications. The completion of such core conversion marked a significant milestone in the
Company's overall integration process.
During the year ended December 31, 2023, the Company recorded merger-related expenses, primarily as it relates to the merger
with Sterling, totaling $162.5 million, which comprised of $40.5 million in Compensation and benefits, $1.4 million in
Occupancy, $19.2 million in Technology and equipment, $2.5 million in Marketing, $67.3 million in Professional and outside
services, and $31.6 million in Other expense.
Additional information regarding the merger with Sterling can be found within Note 2: Mergers and Acquisitions in the Notes
to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
30
Results of Operations
The following table summarizes selected financial highlights and key performance indicators:
(In thousands, except per share data)
Income and performance ratios:
Net income
Net income available to common stockholders
Earnings per diluted common share
Return on average assets
Return on average tangible common stockholders' equity (non-GAAP)
Return on average common stockholders' equity
Non-interest income as a percentage of total revenue
Asset quality:
ACL on loans and leases
Non-performing assets (1)
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 (1)
Non-performing assets / total loans and leases plus OREO and
repossessed assets (1)
ACL on loans and leases / non-performing loans and leases (1)
Other ratios:
Tangible common equity (non-GAAP)
Tier 1 risk-based capital
Total risk-based capital
CET1 risk-based capital
Stockholders' 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,
2023
2022
2021
$
$
867,840
851,190
4.91
1.18 %
16.95
10.59
11.85
$
644,283
628,364
3.72
0.99 %
13.34
8.44
17.81
408,864
400,989
4.42
1.19 %
15.35
12.56
26.41
$
635,737
218,600
$
594,741
206,136
$
301,187
112,590
1.25 %
0.21
0.41
0.43
303.39
7.73 %
11.62
13.72
11.11
11.60
3.52
42.15
1.20 %
0.15
0.41
0.41
291.84
7.38 %
11.23
13.25
10.71
11.30
3.49
43.42
1.35 %
0.02
0.49
0.51
274.36
7.97 %
12.32
13.64
11.72
9.85
2.84
56.16
$
8,406,017
48.87
32.39
50.76
1.60
172,022
171,775
171,883
$
7,772,207
44.67
29.07
47.34
1.60
174,008
167,452
167,547
$
3,293,288
36.36
30.22
55.84
1.60
90,584
89,983
90,206
(1) Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net
unamortized deferred (fees)/costs on loans and leases.
31
Non-GAAP Financial Measures
The non-GAAP financial measures identified in the preceding table provide both management and investors with information
useful in understanding the Company's financial position, results of operations, the strength of its capital position, and overall
business performance. These non-GAAP financial measures are used by management for performance measurement purposes,
as well as for internal planning and forecasting, and by securities analysts, investors, and other interested parties to assess peer
company operating performance. Management believes that this presentation, together with the accompanying reconciliations,
provides investors with a more 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 stockholders’ equity less preferred stock and goodwill and other intangible
assets (tangible common equity) divided by common shares outstanding at the end of the reporting period. The tangible
common equity ratio represents tangible common equity divided by total assets less goodwill and other intangible assets
(tangible assets). Both of these measures are used by management to evaluate the Company's capital position. The annualized
return on average tangible common stockholders' equity is calculated using net income available to common stockholders,
adjusted for the annualized tax-effected amortization of intangible assets, as a percentage of average tangible common equity.
This measure is used by management to assess the Company'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 well 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:
(In thousands, except per share data)
Tangible book value per common share:
Stockholders' equity
Less: Preferred stock
Goodwill and other intangible assets
Tangible common stockholders' equity
Common shares outstanding
Tangible book value per common share
Book value per common share (GAAP)
Tangible common equity ratio:
Tangible common stockholders' equity
Total assets
Less: Goodwill and other intangible assets
Tangible assets
Tangible common equity ratio
Common stockholders' equity to total assets (GAAP)
(In thousands)
Return on average tangible common stockholders' equity:
Net income
Less: Preferred stock dividends
Add: Intangible assets amortization, tax-affected
Net income adjusted for preferred stock dividends and
intangible assets amortization
Average stockholders' equity
Less: Average preferred stock
Average goodwill and other intangible assets
Average tangible common stockholders' equity
Return on average tangible common stockholders' equity
Return on average common stockholders' equity (GAAP)
32
2023
At December 31,
2022
2021
$ 8,689,996
283,979
2,834,600
$ 5,571,417
172,022
32.39
48.87
$
$
$ 8,056,186
283,979
2,713,446
$ 5,058,761
174,008
29.07
44.67
$
$
$ 3,438,325
145,037
556,242
$ 2,737,046
90,584
30.22
36.36
$
$
$ 5,571,417
$ 74,945,249
2,834,600
$ 72,110,649
$ 5,058,761
$ 71,277,521
2,713,446
$ 68,564,075
$ 2,737,046
$ 34,915,599
556,242
$ 34,359,357
7.73 %
11.22 %
7.38 %
10.90 %
7.97 %
9.43 %
For the years ended December 31,
2022
2021
2023
$
867,840
16,650
28,604
$
879,794
$ 8,323,955
283,979
2,848,114
$ 5,191,862
$
644,283
15,919
25,233
$
408,864
7,875
3,565
$
653,597
$ 7,721,488
272,179
2,548,254
$ 4,901,055
$
404,554
$ 3,338,764
145,037
558,462
$ 2,635,265
16.95 %
10.59 %
13.34 %
8.44 %
15.35 %
12.56 %
(In thousands)
Efficiency ratio:
Non-interest expense
Less: Foreclosed property activity
Intangible assets amortization
Operating lease depreciation
Merger-related expenses
Strategic initiatives charges
Common stock contribution to charitable foundation
FDIC special assessment
Other expense (1)
Non-interest expense
Net interest income
Add: Tax-equivalent adjustment
Non-interest income
Other income (2)
Less: Operating lease depreciation
(Loss) on sale of investment securities
Gain on extinguishment of borrowings
Income
For the years ended December 31,
2022
2021
2023
$ 1,416,355
(1,282)
36,207
5,569
162,517
—
—
47,164
—
$ 1,166,180
$ 2,337,269
68,939
314,337
18,059
5,569
(33,620)
—
$ 2,766,655
$ 1,396,473
(906)
31,940
8,193
246,461
(3,032)
10,500
—
—
$ 1,103,317
$ 2,034,286
47,128
440,783
22,887
8,193
(6,751)
2,548
$ 2,541,094
$
745,100
(535)
4,513
—
37,454
7,168
—
—
2,526
693,974
901,089
9,813
323,372
1,344
—
—
—
$ 1,235,618
$
$
Efficiency ratio
Non-interest expense as a percentage of total revenue (GAAP)
42.15 %
53.41 %
43.42 %
56.42 %
56.16 %
60.85 %
(1) Other expense (non-GAAP) includes debt prepayments costs in 2021.
(2) Other income (non-GAAP) includes the taxable equivalent of net income generated from LIHTC investments.
33
Net Interest Income
Net interest income is the Company's primary source of revenue, representing 88.1%, and 82.2% of total revenues for the years
ended December 31, 2023, and 2022, respectively. Net interest income is the difference between interest income on
interest-earning assets (i.e., loans and leases and investment securities) and interest expense on interest-bearing liabilities
(i.e., deposits and borrowings), which are used to fund interest-earning assets and other activities. Net interest margin is
calculated as the ratio of FTE net interest income to average interest-earning assets.
Net interest income, net interest margin, yields, and ratios on an FTE basis are considered non-GAAP financial measures, and
are used by management to evaluate the comparability of the Company's revenue arising from both taxable and non-taxable
sources. FTE 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 impacts
monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.
Given the merger with Sterling on January 31, 2022, net interest income for the year ended December 31, 2022, does not reflect
a full year of combined average balances and combined average yields/rates when compared to the year ended December 31,
2023. The timing of the Sterling merger was a contributing factor to the year over year change in the majority of the Company's
interest-earning assets and interest-bearing liabilities, in addition to the drivers that are discussed in more detail below.
Net interest income increased $0.3 billion, or 14.9%, from $2.0 billion for the year ended December 31, 2022, to $2.3 billion
for the year ended December 31, 2023. On an FTE basis, net interest income also increased $0.3 billion. Net interest margin
increased 3 basis points from 3.49% for the year ended December 31, 2022, to 3.52% for the year ended December 31, 2023.
These net increases are primarily attributed to higher average loan and lease balances, higher average deposit balances, the
impact of the higher interest rate environment, and lower purchase accounting accretion on interest-earning assets that were
acquired from Sterling.
Average total interest-earning assets increased $8.3 billion, or 14.0%, from $59.2 billion for the year ended December 31, 2022,
to $67.5 billion for the year ended December 31, 2023, primarily due to increases of $6.8 billion, $1.0 billion, $0.3 billion, and
$0.1 billion in average loans and leases, average interest-bearing deposits, average total investment securities, and average
FHLB and FRB stock, respectively. The average yield on interest-earning assets increased 151 basis points from 3.91% for the
year ended December 31, 2022, to 5.42% for the year ended December 31, 2023, primarily due to the higher interest rate
environment, partially offset by lower purchase accounting accretion on interest-earning assets that were acquired from
Sterling.
Average loans and leases increased $6.8 billion, or 15.7%, from $43.8 billion for the year ended December 31, 2022, to
$50.6 billion for the year ended December 31, 2023, primarily due to organic loan growth. At December 31, 2023, and 2022,
average loans and leases comprised 75.0% and 73.9% of average total interest-earning assets, respectively. The average yield
on loans and leases increased 165 basis points from 4.50% for the year ended December 31, 2022, to 6.15% for the year ended
December 31, 2023, primarily due to the higher interest rate environment, partially offset by lower purchase accounting
accretion on loans and leases that were acquired from Sterling.
Average interest-bearing deposits held at the FRB increased $1.0 billion, or 162.1%, from $0.6 billion for the year ended
December 31, 2022, to $1.6 billion for the year ended December 31, 2023, which was a direct result of the Company's risk
management approach to hold higher levels of on-balance sheet liquidity in 2023. At December 31, 2023, and 2022, average
interest-bearing deposits comprised 2.32% and 1.01% of average total interest-earning assets, respectively. The average yield
on interest-bearing deposits increased 352 basis points from 1.62% for the year ended December 31, 2022, to 5.14% for the
year ended December 31, 2023, primarily due to the higher rate environment.
Average total investment securities increased $0.3 billion, or 2.1%, from $14.5 billion for the year ended December 31, 2022, to
$14.8 billion for the year ended December 31, 2023, primarily due to a higher volume of purchase activity net of paydowns,
partially offset by sales of U.S. Treasury notes and Corporate debt securities. At December 31, 2023, and 2022, average total
investment securities comprised 22.0% and 24.6% of average total interest-earning assets, respectively. The average yield on
total investment securities increased 75 basis points from 2.31% for the year ended December 31, 2022, to 3.06% for the year
ended December 31, 2023, primarily due to the reinvestment of funds received from securities that either had matured or were
sold at higher yields.
Average FHLB and FRB stock increased $0.1 billion, or 41.1%, from $0.3 billion for the year ended December 31, 2022, to
$0.4 billion for the year ended December 31, 2023, primarily due to the additional FHLB stock investment required as a result
of the increase in average FHLB advances. At December 31, 2023, and 2022, average FHLB and FRB stock comprised 0.6%
and 0.5% of total average interest-earning assets, respectively. The average yield on FHLB and FRB stock increased 303 basis
points from 3.03% for the year ended December 31, 2022, to 6.06% for the year ended December 31, 2023, primarily due to the
higher interest rate environment.
34
Average total interest-bearing liabilities increased $8.1 billion, or 14.4%, from $55.9 billion for the year ended December 31,
2022, to $64.0 billion for the year ended December 31, 2023, primarily due to increases of $6.4 billion and $2.3 billion in
average total deposits and average FHLB advances, respectively, partially offset by decreases of $0.4 billion, and $0.3 billion in
average federal funds purchased and average securities sold under agreements to repurchase, respectively. The average rate on
interest-bearing liabilities increased 157 basis points from 0.45% for the year ended December 31, 2022, to 2.02% for the year
ended December 31, 2023, primarily due to the higher interest rate environment.
Average total deposits increased $6.4 billion, or 12.4%, from $51.8 billion for the year ended December 31, 2022, to $58.2
billion for the year ended December 31, 2023, reflecting an increase of $7.7 billion in interest-bearing deposits, partially offset
by a decrease of $1.3 billion in non-interest-bearing deposits. The overall increase in deposits was primarily due to the
acquisition of interLINK, as well as time deposit and HSA deposit growth, partially offset by decreases in non-interest-bearing
and savings deposits. The decreases in non-interest bearing and savings deposits, and the increase in time deposits, were driven
by increased market interest rates as customers sought higher yielding deposit products. December 31, 2023, and 2022, average
total deposits comprised 91.1% and 92.7% of average total interest-bearing liabilities, respectively. The average rate on deposits
increased 148 basis points from 0.27% for the year ended December 31, 2022, to 1.75% for the year ended December 31, 2023,
primarily due to the higher interest rate environment and growth in higher costing deposit products. Average higher cost time
deposits as a percentage of average total interest-bearing deposits increased from 7.3% for the year ended December 31, 2022,
to 14.0% for the year ended December 31, 2023, primarily due to a shift in customer preferences from lower rate checking and
savings products into higher rate certificates of deposit products.
Average FHLB advances increased $2.3 billion, or 117.5%, from $2.0 billion for the year ended December 31, 2022, to
$4.3 billion for the year ended December 31, 2023, primarily due to short-term funding needs and a direct result of the
Company's risk management approach to hold higher levels of on-balance sheet liquidity in 2023. At December 31, 2023, and
2022, average FHLB advances comprised 6.7% and 3.5% of total average interest-bearing liabilities, respectively. The average
rate on FHLB advances increased 223 basis points from 2.98% for the year ended December 31, 2022, to 5.21% for the year
ended December 31, 2023, primarily due to the higher interest rate environment.
Average federal funds purchased decreased $0.4 billion, or 72.0%, from $0.6 billion for the year ended December 31, 2022, to
$0.2 billion for the year ended December 31, 2023, primarily due to the additional liquidity generated from the interLINK
deposit sweep program, which allowed for the Company to decrease its federal funds borrowing volume in 2023. At
December 31, 2023, and 2022, average federal funds purchased comprised 0.3% and 1.1% of total average interest-bearing
liabilities, respectively. The average rate on federal funds purchased increased 212 basis points from 2.58% for the year ended
December 31, 2022, to 4.70% for the year ended December 31, 2023, primarily due to the higher interest rate environment.
Average securities sold under agreements to repurchase decreased $0.3 billion, or 54.8%, from $0.5 billion for the year ended
December 31, 2022, to $0.2 billion for the year ended December 31, 2023, primarily due to the Company's extinguishment of
its two long-term structured repurchase agreements in the third quarter of 2022, and the overall timing of maturities. At
December 31, 2023, and 2022, average securities sold under agreements to repurchase comprised 0.3% and 0.8% of total
average interest-bearing liabilities, respectively. The average rate on securities sold under agreements to repurchase decreased
20 basis points from 0.78% for the year ended December 31, 2022, to 0.58% for the year ended December 31, 2023, primarily
due to the Company's extinguishment of its two long-term structured repurchase agreements in the third quarter of 2022, which
were contracted at a higher cost.
35
(In thousands)
Assets
Interest-earning assets:
Loans and leases (1)
Investment securities: (2)
Taxable
Non-taxable
The following table summarizes daily average balances, interest, and average yield/rate by major category, and net interest
margin on an FTE basis:
Years ended December 31,
2023
2022
2021
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
$ 50,637,569 $ 3,113,709
6.15 % $ 43,751,112 $ 1,967,761
4.50 % $ 21,584,872 $ 765,682
3.55 %
12,350,012 423,289
2,489,732
54,207
Total investment securities
14,839,744 477,496
FHLB and FRB stock
Interest-bearing deposits (3)
Loans held for sale
408,673
24,785
1,564,255
80,475
28,710
734
3.22
2.18
3.06
6.06
5.14
2.56
12,067,294 295,158
2,461,428
50,442
14,528,722 345,600
289,595
596,912
9,842
8,775
9,651
78
2.36
2.05
2.31
3.03
1.62
0.80
8,507,766 155,902
720,977
27,728
9,228,743 183,630
76,015
1,379,081
10,705
1,224
1,875
246
1.88
3.85
2.03
1.61
0.14
2.30
Total interest-earning assets
67,478,951 $ 3,697,199
5.42 % 59,176,183 $ 2,331,865
3.91 % 32,279,416 $ 952,657
2.97 %
Non-interest-earning assets
6,344,931
Total assets
$ 73,823,882
5,586,025
$ 64,762,208
1,955,330
$ 34,234,746
Liabilities and Equity
Interest-bearing liabilities:
Deposits:
Demand deposits
$ 11,596,949 $
—
— % $ 12,912,894 $
—
— % $ 6,897,464 $
—
— %
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
FHLB advances
Long-term debt (2)
8,249,332
12,366
0.15
7,826,576
6,315
0.08
7,390,702
5,777
0.08
31,874,457 756,521
6,531,610 252,531
58,252,348 1,021,418
210,676
167,495
—
1,231
7,871
—
4,275,394 222,537
1,058,621
37,934
2.37
3.87
1.75
0.58
4.70
—
5.21
3.69
28,266,128 115,271
2,838,502
16,966
51,844,100 138,552
466,282
3,614
598,269
15,444
—
1
1,965,577
58,557
1,031,446
34,283
0.41
0.60
0.27
0.78
2.58
—
2.98
3.44
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
0.05
0.35
0.07
0.57
0.08
—
1.58
3.22
Total interest-bearing liabilities
63,964,534 $ 1,290,991
2.02 % 55,905,674 $ 250,451
0.45 % 30,454,591 $ 41,755
0.14 %
Non-interest-bearing liabilities
1,535,393
Total liabilities
Preferred stock
65,499,927
283,979
Common stockholders' equity
8,039,976
Total stockholders' equity
8,323,955
Total liabilities and equity
$ 73,823,882
1,135,046
57,040,720
272,179
7,449,309
7,721,488
$ 64,762,208
441,391
30,895,982
145,037
3,193,727
3,338,764
$ 34,234,746
Net interest income (FTE)
Less: FTE adjustment
Net interest income
2,406,208
(68,939)
$ 2,337,269
2,081,414
(47,128)
$ 2,034,286
910,902
(9,813)
$ 901,089
Net interest margin (FTE)
3.52 %
3.49 %
2.84 %
(1) Non-accrual loans have been included in the computation of average balances.
(2) For the purposes of our average yield/rate and margin computations, unsettled trades on investment securities, unrealized gains
(losses) on available-for-sale investment securities, and basis adjustments on long-term debt from de-designated fair value hedges
are excluded.
(3)
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.
36
The following table summarizes the change in net interest income attributable to changes in rate and volume, and reflects net
interest income on an FTE basis:
Years ended December 31,
2023 vs. 2022
Increase (decrease) due to
2022 vs. 2021
Increase (decrease) due to
Rate (1)
Volume
Total
Rate (1)
Volume
Total
(In thousands)
Change in interest on interest-earning assets:
Loans and leases
Investment securities
FHLB and FRB stock
Interest-bearing deposits
Loans held for sale
Total interest income
$
833,430 $
124,572
12,402
55,184
364
$ 1,025,952 $
312,518 $ 1,145,948
131,896
16,010
70,824
656
339,382 $ 1,365,334
7,324
3,608
15,640
292
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
$
5,710 $
596,023
178,262
(402)
3,547
(1)
95,168
2,715
881,022 $
144,930 $
$
$
341 $
45,227
57,303
(1,981)
(11,120)
—
68,812
936
6,051
641,250
235,565
(2,383)
(7,573)
(1)
163,980
3,651
159,518 $ 1,040,540
324,794
179,864 $
$
$
$
$
$
580,849 $
67,152
4,113
8,840
48
661,002 $
621,230 $ 1,202,079
161,970
94,818
7,551
3,438
7,776
(1,064)
(168)
(216)
718,206 $ 1,379,208
197 $
108,272
11,274
937
14,960
1
27,530
2,388
165,559 $
495,443 $
538
341 $
108,335
63
9,548
(1,726)
587
(350)
15,431
471
1
—
56,849
29,319
17,407
15,019
43,137 $
208,696
675,069 $ 1,170,512
(1) The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
Provision for Credit Losses
The provision for credit losses totaled $150.7 million and $280.6 million for the year ended December 31, 2023, and 2022,
respectively. The balance for the year ended December 31, 2022, included the establishment of the initial ACL of
$175.1 million for non-PCD loans and leases that were acquired from Sterling in the merger. Excluding this charge, the
provision for credit losses increased $45.2 million, primarily due to the impact of the current macroeconomic environment on
credit performance and organic loan growth.
Additional information regarding the Company's provision for credit losses and ACL can be found under the sections captioned
"Loans and Leases" through "Allowance for Credit Losses on Loans and Leases" contained elsewhere in this Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
37
Non-Interest Income
(In thousands)
Deposit service fees
Loan and lease related fees
Wealth and investment services
Mortgage banking activities
Cash surrender value of life insurance policies
(Loss) on sale of investment securities
Other income
Total non-interest income
Years ended December 31,
2023
2022
2021
169,318
84,861
28,999
1,240
26,228
(33,620)
37,311
314,337
$
$
198,472
102,987
40,277
705
29,237
(6,751)
75,856
440,783
$
$
162,710
36,658
39,586
6,219
14,429
—
63,770
323,372
$
$
Total non-interest income decreased $126.5 million, or 28.7%, from $440.8 million for the year ended December 31, 2022, to
$314.3 million for the year ended December 31, 2023, primarily due to decreases in Other income, Deposit service fees, Loan
and lease related fees, and Wealth and investment services, and an increase in (Loss) on sale of investment securities.
Other income decreased $38.6 million, or 50.8%, from $75.9 million for the year ended December 31, 2022, to $37.3 million
for the year ended December 31, 2023, primarily due to lower income generated from customer interest rate derivative activities
and direct investments.
Deposit service fees decreased $29.2 million, or 14.7%, from $198.5 million for the year ended December 31, 2022, to
$169.3 million for the year ended December 31, 2023, primarily due to lower customer account service fees and cash
management and analysis fees, partially offset by higher interchange income.
Loan and lease related fees decreased $18.1 million, or 17.6%, from $103.0 million for the year ended December 31, 2022, to
$84.9 million for the year ended December 31, 2023, primarily due to lower loan servicing fee income, syndication fees, and
prepayment penalties.
Wealth and investment services decreased $11.3 million, or 28.0%, from $40.3 million for the year ended December 31, 2022,
to $29.0 million for the year ended December 31, 2023, primarily due to lower net investment services income in 2023, which
is a direct result of the outsourcing of the consumer investment services platform effective as of the fourth quarter of 2022.
During the year ended December 31, 2023, the Company sold $827.0 million of U.S. Treasury notes, Corporate debt securities,
and Municipal bonds and notes classified as available-for-sale for proceeds of $789.6 million, which resulted in $37.4 million
of gross realized losses. The $33.6 million loss on sale of investment securities included in non-interest income for the
year ended December 31, 2023, represents the portion of the total charge that was not attributed to a decline in credit quality.
During the year ended December 31, 2022, the Company sold $179.7 million of Municipal bonds and notes classified as
available-for-sale for proceeds of $172.9 million, which resulted in $6.8 million of gross realized losses.
38
Non-Interest Expense
(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,
2023
2022
2021
$
$
711,752
77,520
197,928
36,207
18,622
107,497
98,081
168,748
1,416,355
$
$
723,620
113,899
186,384
31,940
16,438
117,530
26,574
180,088
1,396,473
$
$
419,989
55,346
112,831
4,513
12,051
47,235
15,794
77,341
745,100
Total non-interest expense remained relatively flat at approximately $1.4 billion for both the years ended December 31, 2023
and 2022. Although the financial statement caption as a whole did not change significantly, notable fluctuations were
experienced in Compensation and benefits, Occupancy, Technology and equipment, Professional and outside services, Deposit
insurance, and Other expense.
Compensation and benefits decreased $11.9 million, or 1.6%, from $723.6 million for the year ended December 31, 2022, to
$711.7 million for the year ended December 31, 2023, primarily due to a $38.5 million decrease in merger-related expenses,
particularly as it relates to severance and retention, the outsourcing of the consumer investment services platform effective as of
the fourth quarter of 2022, and decreases in incentive compensation and commissions, partially offset by increases in salaries,
group insurance, and other compensation costs.
Occupancy decreased $36.4 million, or 31.9%, from $113.9 million for the year ended December 31, 2022, to $77.5 million for
the year ended December 31, 2023, primarily due to the launch of the Company's corporate real estate consolidation plan in the
second quarter of 2022, which resulted in a $23.1 million ROU asset impairment charge and a combined $12.3 million in
related exit costs and accelerated depreciation on property and equipment for the year ended December 31, 2022. There were no
such charges, or similar charges, for the year ended December 31, 2023.
Technology and equipment increased $11.5 million, or 6.2%, from $186.4 million for the year ended December 31, 2022, to
$197.9 million for the year ended December 31, 2023, primarily due to an increase in technology service contracts and
automated services, partially offset by a $5.5 million decrease in merger-related expenses.
Professional and outside services decreased $10.0 million, or 8.5%, from $117.5 million for the year ended December 31, 2022,
to $107.5 million for the year ended December 31, 2023, primarily due to a $5.7 million decrease in merger-related expenses
and decreased consulting costs, partially offset by an increase in legal fees.
Deposit insurance increased $71.5 million, or 269.1%, from $26.6 million for the year ended December 31, 2022, to
$98.1 million for the year ended December 31, 2023, primarily due to the $47.2 million FDIC special assessment charge
recorded in the fourth quarter of 2023, and the impact of the increased initial base deposit insurance assessment rate schedules
adopted by the FDIC, which took effect in the first quarter of 2023 for all insured depository institutions.
Other expense decreased $11.4 million, or 6.3%, from $180.1 million for the year ended December 31, 2022, to $168.7 million
for the year ended December 31, 2023, primarily due to the $10.5 million common stock contribution to the Webster Bank
Charitable Foundation in the third quarter of 2022, as there was no such charge for the year ended December 31, 2023.
39
Income Taxes
For the years ended December 31, 2023, and 2022, the Company recognized income tax expense of $216.7 million and
$153.7 million, respectively, reflecting effective tax rates of 20.0% and 19.3%, respectively.
The $63.0 million increase in income tax expense is primarily due the increase in pre-tax income in 2023, which included lower
one-time charges associated with the Sterling merger as compared to 2022. The 0.7% point increase in the effective tax rate
primarily reflects the effects of the lower one-time charges and related tax benefits in 2023 associated with the Sterling merger,
partially offset by the effects of higher tax-exempt income and lower SALT expense in 2023 as compared to 2022.
At December 31, 2023, and 2022, the Company recorded a valuation allowance on its DTAs of $28.7 million and $29.2 million,
respectively. The valuation allowance at December 31, 2023, is primarily related to the portion of SALT net operating loss
carryforwards that, in management's judgment, is not more likely than not to be realized. At December 31, 2023, and 2022, the
Company's gross DTAs included $64.2 million and $66.9 million, respectively, applicable to SALT net operating loss and
credit carryforwards that are available to offset future taxable income, generally through 2032.
The ultimate realization of 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, 2023. However, it
is possible that some or all of the Company's net operating loss and credit carryforwards could expire unused, or that more net
operating loss and credit carryforwards could be utilized than estimated, either as a result of changes in future forecasted levels
of taxable income 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 9: Income Taxes in
the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
40
Segment Reporting
The Company's operations are organized into three reportable segments that represent its primary businesses: Commercial
Banking, HSA Bank, and Consumer 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 PPNR. Certain Treasury activities, including the operations of interLINK, 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 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.
Given the merger with Sterling on January 31, 2022, operating results for the Commercial Banking and Consumer Banking
segments for the year ended December 31, 2022, do not reflect a full year of combined business activities when compared to
the year ended December 31, 2023. Similarly, operating results for the HSA Bank segment for the year ended December 31,
2022, do not reflect a full year of business activities associated with Bend given the acquisition on February 18, 2022. The
timing of both the Sterling merger and Bend acquisition was a contributing factor to the year over year change in their
corresponding segments' PPNR, in addition to the drivers that are discussed in more detail throughout this section.
The following is a description of the Company’s three reportable segments and their primary services at December 31, 2023:
Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and
Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance,
Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management
business units.
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.
Consumer Banking serves individual customers and small businesses with less than $2 million of revenues by offering
consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and
investment services. Consumer Banking operates a distribution network consisting of 198 banking centers and 349 ATMs, a
customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England
and the New York Metro and Suburban markets.
Effective as of the fourth quarter of 2022, the presentation of Consumer Banking's operating results was impacted by the
restructuring of a process by which the Company offers brokerage, investment advisory, and certain insurance-related services
to customers. The staff providing these services, which had previously been employees of the Bank, are now employees of a
third-party service provider. As a result, the Company now recognizes income from this program on a net basis, which thereby
reduces gross reported non-interest income and corresponding compensation non-interest expense.
41
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,
2023
1,537,031 $
132,660
439,290
1,230,401 $
2022
1,346,384 $
171,437
398,100
1,119,721 $
$
$
2021
585,297
83,538
192,977
475,858
Commercial Banking's PPNR increased $110.6 million, or 9.9%, for the year ended December 31, 2023, as compared to the
year ended December 31, 2022, due to increases in both net interest income and non-interest income, partially offset by an
increase in non-interest expense. The $190.6 million increase in net interest income is primarily due to organic loan growth, the
impact of the higher interest rate environment, and lower deposit balances. The $38.8 million decrease in non-interest income is
primarily due to lower customer interest rate derivative activities, other loan servicing fees, prepayment penalties, syndication
fees, cash management fees, and other miscellaneous income. The $41.2 million increase in non-interest expense is primarily
due to an increase in both technology and employee-related costs in order to support balance sheet growth.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)
Loans and leases
Deposits
Assets under administration / management (off-balance sheet)
$
At December 31,
2023
40,934,356 $
18,245,575
2,911,293
2022
40,115,067
19,563,227
2,258,635
Loans and leases increased $0.8 billion, or 2.0%, at December 31, 2023, as compared to at December 31, 2022, primarily due to
organic growth in the commercial real estate and commercial non-mortgage categories, partially offset by net principal
paydowns in the warehouse lending, equipment finance, and asset-based lending categories. Total portfolio originations for the
years ended December 31, 2023, and 2022, were $9.2 billion and $14.7 billion, respectively. The $5.5 billion decrease was
primarily due to a decrease in commercial real estate and commercial non-mortgage originations.
Deposits decreased $1.3 billion, or 6.7%, at December 31, 2023, as compared to at December 31, 2022, primarily due to a
decrease in non-interest-bearing deposits, as increased interest rates drove customers to seek higher yielding deposit products
and other alternatives elsewhere. This decrease was partially offset by the seasonal inflow of municipal deposits.
Commercial Banking held $0.9 billion and $0.6 billion in assets under administration and $2.0 billion and $1.7 billion in assets
under management at December 31, 2023, and 2022, respectively. The combined increase of $0.6 billion, or 28.9%, was
primarily due to customers shifting their deposits into investment accounts to purchase U.S. Treasury securities with
government-backing, and higher valuations in the equity markets during 2023.
42
HSA Bank
Operating Results:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax net revenue
Years ended December 31,
2023
2022
2021
$
$
302,856 $
88,113
168,160
222,809 $
218,149 $
104,586
151,329
171,406 $
168,595
102,814
134,258
137,151
HSA Bank's pre-tax net revenue increased $51.4 million, or 30.0%, for the year ended December 31, 2023, as compared to the
year ended December 31, 2022, due to an increase in net interest income, partially offset by a decrease in non-interest income
and an increase in non-interest expense. The $84.7 million increase in net interest income is primarily due to an increase in the
net deposit interest rate spread and organic deposit growth. The $16.5 million decrease in non-interest income is primarily due
to lower customer fees. The $16.8 million increase in non-interest expense is primarily due to an increase in compensation and
benefits, higher service contract expenses related to additional account holders, and costs associated with the ongoing HSA
Bank user experience build out.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)
Deposits
Assets under administration, through linked brokerage accounts (off-balance sheet)
At December 31,
$
2023
8,287,705 $
4,641,830
2022
7,944,919
3,393,832
Deposits increased $0.3 billion, or 4.3%, at December 31, 2023, as compared to at December 31, 2022, primarily due to an
increase in the number of account holders and organic deposit growth. HSA deposits accounted for approximately 13.6% and
14.7% of the Company's total consolidated deposits at December 31, 2023, and 2022, respectively.
Assets under administration, through linked brokerage accounts, increased $1.2 billion, or 36.8%, at December 31, 2023, as
compared to at December 31, 2022, primarily due to additional account holders and higher valuations in the equity markets
during 2023.
43
Consumer Banking
Operating Results:
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Years ended December 31,
2023
2022
2021
$
$
798,483 $
107,456
425,281
480,658 $
720,789 $
119,691
426,133
414,347 $
375,318
95,887
297,217
173,988
Consumer Banking's PPNR increased $66.3 million, or 16.0%, for the year ended December 31, 2023, as compared to the year
ended December 31, 2022, due to an increase in net interest income, partially offset by a decrease in non-interest income and an
increase in non-interest expense. The $77.7 million increase in net interest income is primarily due to organic loan and deposit
growth, and the impact of the higher interest rate environment. The $12.2 million decrease in non-interest income is primarily
due to lower net investment services income driven by the outsourcing of the consumer investment services platform in the
fourth quarter of 2022, and lower deposit fees and loan servicing fee income, partially offset by higher miscellaneous fee
income. The $0.8 million decrease in non-interest expense is primarily due to lower technology and lower compensation and
benefits expenses driven by the outsourcing of the consumer investment services platform effective as of the fourth quarter of
2022, partially offset by increased staffing, marketing, and servicing costs associated with deposit growth initiatives.
Selected Balance Sheet Information:
(In thousands)
Loans
Deposits
Assets under administration (off-balance sheet)
$
At December 31,
2023
9,781,332 $
24,059,997
7,876,437
2022
9,624,465
23,609,941
7,872,397
Loans increased $0.2 billion, or 1.6%, at December 31, 2023, as compared to at December 31, 2022, primarily due to growth in
residential mortgages and small business commercial loans, partially offset by net principal paydowns in home equity and other
consumer loans. Total portfolio originations for the years ended December 31, 2023, and 2022, were $1.3 billion and
$2.8 billion, respectively. The $1.5 billion decrease was primarily due to the increase in market rates and low housing
inventories, which resulted in lower residential mortgage originations, particularly mortgage refinances.
Deposits increased $0.5 billion, or 1.9%, at December 31, 2023, as compared to at December 31, 2022, primarily due to the
impact of the higher interest rate environment, which has attracted consumers to certificates of deposit products, partially offset
by lower money market, savings, and demand deposit account balances.
Assets under administration remained flat at $7.9 billion at both December 31, 2023, and 2022, as customer investment
activities were offset by higher valuations in the equity markets during 2023.
44
Financial Condition
Total assets increased $3.6 billion, or 5.1%, from $71.3 billion at December 31, 2022, to $74.9 billion at December 31, 2023.
The change in total assets was primarily attributed to the following, which experienced changes greater than $100 million:
• Cash and cash equivalents increased $875.9 million, primarily due to the Company's risk management approach to hold
higher levels of on-balance sheet liquidity in 2023;
• Total investment securities, net increased $1.6 billion, reflecting increases of $1.1 billion and $0.5 billion in the available-
for-sale and held-to-maturity portfolios, respectively. The increase in total investment securities was primarily due to
purchases exceeding paydown activities, primarily across the Agency MBS and Agency CMBS categories, partially offset
by $0.8 billion in sales of available-for-sale U.S. Treasury notes, Corporate debt securities, and Municipal bonds and notes;
• FHLB and FRB stock decreased $119.0 million, primarily due to the lower FHLB stock investment required as a result of
the decrease in FHLB advances;
• Loans and leases increased $1.0 billion, primarily due to $10.5 billion of originations during the year ended December 31,
2023, particularly across the commercial non-mortgage and commercial real estate categories, partially offset by net
principal paydowns and sales of commercial and consumer loans not originated for sale;
• Goodwill and other net intangible assets increased a combined $121.2 million. Goodwill increased $117.4 million, which
reflects the $143.2 million recognized in connection with the interLINK acquisition, partially offset by the impact of the
Sterling merger measurement period adjustments recorded during the first quarter of 2023. The $3.8 million increase in
other net intangible assets is primarily due to the $36.0 million broker dealer relationship and $4.0 million non-competition
agreement recognized in connection with the interLINK acquisition, partially offset by amortization charges; and
• Accrued interest receivable and other assets increased $271.9 million. Notable drivers of the change included increases in
LIHTC and other alternative investments, and accrued interest receivable, which were partially offset by decreases in
miscellaneous receivables and income taxes receivable.
Total liabilities increased $3.1 billion, or 4.8%, from $63.2 billion at December 31, 2022, to $66.3 billion at December 31,
2023. The change in total liabilities was attributed to the following:
• Total deposits increased $6.8 billion, reflecting a $8.9 billion increase in interest-bearing deposits, partially offset by a
$2.2 billion decrease in non-interest-bearing deposits. The overall increase in deposits is primarily due to $5.7 billion of
sweep money market deposits added at December 31, 2023, as a result of the interLINK acquisition, as well as time deposit
and HSA deposit growth, partially offset by decreases in checking and savings account products;
• Securities sold under agreements to repurchase and other borrowings decreased $0.7 billion, primarily due to the additional
liquidity generated from the interLINK deposit sweep program, which allowed for a $0.8 billion decrease in federal funds.
• FHLB advances decreased $3.1 billion, primarily due to the additional liquidity generated from the interLINK deposit
sweep program, which also allowed for a decrease in FHLB advances;
• Long-term debt decreased $24.3 million, primarily due to the repurchase and retirement of $17.5 million of the 4.375%
Senior fixed-rate notes due February 15, 2024; and
• Accrued expenses and other liabilities increased $122.3 million. Notable drivers of the change included increases in
unfunded LIHTC commitments and accrued interest payable, as well as the impact of the FDIC special assessment charge
recorded in the fourth quarter of 2023, which were partially offset by a decrease in treasury derivative liabilities.
Total stockholders' equity increased $0.6 billion, or 7.9%, from $8.1 billion at December 31, 2022, to $8.7 billion at
December 31, 2023. The change in stockholders' equity was attributed to the following:
• The adoption of ASU No. 2022-02, which resulted in a $4.3 million cumulative-effect adjustment to retained earnings;
• Net income recognized of $867.8 million;
• Other comprehensive income, net of tax, of $134.4 million;
• Dividends paid to common and preferred stockholders of $278.3 million and $16.7 million, respectively;
• Stock-based compensation expense of $54.1 million;
• Stock options exercised of $1.7 million; and
• Repurchases of common stock of $108.8 million under the Company's common stock repurchase program and
$16.3 million related to employee share-based compensation plans.
45
Investment Securities
Through its Corporate Treasury function, the Company 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. The Company's investment securities are classified into two major categories: available-for-sale and
held-to-maturity.
The ALCO manages the Company's investment 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 security presents a safety and soundness concern. At December 31, 2023, and 2022, the Company had
total investment securities of $16.0 billion and $14.5 billion, respectively, with an average risk weighting for regulatory
purposes of 17.2% and 19.0%, respectively. Although the Bank held the entirety of the Company's investment securities
portfolio at both December 31, 2023, and 2022, the Holding Company may also directly hold investments.
The following table summarizes the balances and percentage composition of the Company's investment securities:
(In thousands)
Available-for-sale:
U.S. Treasury notes
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Private label MBS
Other
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,
2023
2022
Amount
%
Amount
%
$
$
$
$
$
—
264,633
1,573,233
48,941
3,347,098
2,288,071
763,749
—
622,155
42,808
9,041
8,959,729
23,470
2,409,521
3,625,627
916,104
100,075
7,074,797
16,034,526
— % $
3.0
17.6
0.5
37.4
25.5
8.5
—
6.9
0.5
0.1
100.0 % $
0.3 % $
34.1
51.2
13.0
1.4
100.0 % $
$
717,040
258,374
1,633,202
59,965
2,158,024
1,406,486
896,640
2,107
704,412
44,249
12,198
7,892,697
28,358
2,626,114
2,831,949
928,845
149,613
6,564,879
14,457,576
9.1 %
3.3
20.7
0.8
27.3
17.8
11.4
—
8.9
0.6
0.1
100.0 %
0.4 %
40.0
43.1
14.2
2.3
100.0 %
(1) The balances at both December 31, 2023, and 2022, exclude the $0.2 million ACL recorded on held-to-maturity securities.
Available-for-sale securities increased $1.1 billion, or 13.5%, from $7.9 billion at December 31, 2022, to $9.0 billion at
December 31, 2023, primarily due to purchases exceeding paydown activities, particularly across the Agency MBS and Agency
CMBS categories, partially offset by sales of $0.8 billion in U.S. Treasury notes, Corporate debt securities, and Municipal
bonds and notes. The sale of available-for-sale securities during the year ended December 31, 2023, resulted in $37.4 million of
gross realized losses, $3.8 million of which was attributed to a decline in credit quality, and therefore has been included in the
Provision for credit losses. The average FTE yield on the available-for-sale portfolio was 3.11% for the year ended
December 31, 2023, as compared to 2.29% for the year ended December 31, 2022. The 82 basis point increase is primarily due
to higher market rates on securities purchased throughout 2023.
At December 31, 2023, and 2022, gross unrealized losses on available-for-sale securities were $0.8 billion and $0.9 billion,
respectively. The $0.1 billion decrease is primarily due to lower long-term market rates. Available-for-sale securities are
evaluated for credit losses on a quarterly basis. At both December 31, 2023, and 2022, no ACL was recorded on available-for-
sale securities as each of the securities in the Company's portfolio are investment grade and current as to principal and interest,
and their price changes are consistent with interest and credit spreads when adjusting for convexity, rating, and industry
differences. As of December 31, 2023, based on current market conditions and the Company's targeted balance sheet
composition strategy, the Company intends to hold its available-for-sale securities in unrealized loss positions through the
anticipated recovery period.
46
Held-to-maturity securities increased $0.5 billion, or 7.8%, from $6.6 billion at December 31, 2022, to $7.1 billion at
December 31, 2023, primarily due to purchases exceeding paydown activities, particularly across the Agency MBS and Agency
CMBS categories. The average FTE yield on the held-to-maturity portfolio was 2.99% for the year ended December 31, 2023,
as compared to 2.33% for the year ended December 31, 2022. The 66 basis point increase is primarily due to higher market
rates on securities purchased throughout 2023.
At both December 31, 2023, and 2022, gross unrealized losses on held-to-maturity securities were $0.8 billion. Held-to-
maturity securities are evaluated for credit losses on a quarterly basis under the CECL methodology. At both December 31,
2023, and 2022, the ACL on held-to-maturity securities was $0.2 million.
The following table summarizes the book value of investment securities by the earlier of either contractual maturity or call date,
as applicable, 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)
Amount
Amount
Weighted-
Average
Yield (1)
Amount
Weighted-
Average
Yield (1)
Amount
Weighted-
Average
Yield (1)
Amount
Weighted-
Average
Yield (1)
At December 31, 2023
(In thousands)
Available-for-sale:
Government agency debentures
$ —
— % $ 75,557
2.41 % $
7,661
2.20 % $ 181,415
3.26 % $ 264,633
2.99 %
Municipal bonds and notes
19,427
1.79
174,479
Agency CMO
Agency MBS
Agency CMBS
CMBS
Corporate debt
Private label MBS
Other
—
4
8,345
—
—
290
(4.41)
0.85
18,388
101,209
—
68,718
9,182
3.45
172,687
—
—
—
—
—
4,848
1.68
4.04
1.31
1.11
6.94
2.88
—
3.80
691,790
4,567
137,261
31,895
—
386,533
—
4,193
1.56
3.10
1.77
2.12
—
3.22
—
2.70
687,537
44,084
3,191,445
2,146,622
695,031
53,753
42,808
—
1.61
2.86
3.85
4.41
6.92
3.54
4.01
—
1,573,233
48,941
3,347,098
2,288,071
763,749
622,155
42,808
9,041
1.60
2.89
3.75
4.22
6.92
3.16
4.01
3.29
Total available-for-sale
$ 36,958
1.99 % $ 616,176
2.60 % $ 1,263,900
2.12 % $ 7,042,695
4.08 % $ 8,959,729
3.70 %
Held-to-maturity:
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
$ —
— % $
77
—
8,045
—
2.81
—
3.30
—
—
673
—
59,259
—
— % $
—
— % $
23,470
2.90 % $
23,470
2.90 %
2.14
—
3.23
—
28,266
120,928
214,304
—
2.60
2.67
2.69
—
2,380,505
3,504,699
634,496
100,075
2.49
3.53
3.22
2.66
2,409,521
3,625,627
916,104
100,075
Total held-to-maturity
$ 8,122
3.29 % $ 59,932
3.22 % $ 363,498
2.67 % $ 6,643,245
3.11 % $ 7,074,797
Total investment securities
$ 45,080
2.22 % $ 676,108
2.66 % $ 1,627,398
2.24 % $ 13,685,940
3.61 % $ 16,034,526
2.49
3.50
3.10
2.66
3.09 %
3.43 %
(1) Weighted-average yields exclude FTE adjustments, and are calculated using the sum of the total book value multiplied by the yield
divided by the sum of the total book value for each security, major type, and maturity bucket.
Additional information regarding the Company's investment securities' portfolios can be found within Note 3: Investment
Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and
Supplementary Data.
47
Loans and Leases
The following table summarizes the amortized cost and percentage composition of the Company's loans and leases:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Equipment financing
Warehouse lending
Residential
Home equity
Other consumer
Total loans and leases (1)
2023
Amount
16,885,475
1,557,841
13,569,762
7,587,970
1,328,786
—
8,227,923
1,516,955
51,340
50,726,052
$
$
At December 31,
%
33.3 % $
3.1
26.7
15.0
2.6
—
16.2
3.0
0.1
100.0 % $
2022
Amount
16,392,795
1,821,642
12,997,163
6,621,982
1,628,393
641,976
7,963,420
1,633,107
63,948
49,764,426
%
32.9 %
3.7
26.1
13.3
3.3
1.3
16.0
3.3
0.1
100.0 %
(1) The amortized cost balances at December 31, 2023, and 2022, exclude the ACL recorded on loans and leases of $635.7 million and
$594.7 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
Multi-family
Equipment financing
Residential
Home equity
Other consumer
Total fixed rate loans and leases
Variable rate:
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Residential
Home equity
Other consumer
Total variable rate loans and leases (2)
Total loans and leases (1)
1 Year or Less
1 - 5 Years
5 - 15 Years
After 15 Years
Total
At December 31, 2023
$
$
$
$
$
179,863 $
5,237
562,651
340,938
121,617
703
3,128
19,626
1,233,763 $
4,052,885 $
444,341
2,180,159
432,243
673
2,656
9,311
7,122,268 $
8,356,031 $
671,268 $
82,268
1,902,473
3,239,735
960,431
45,960
24,893
7,708
6,934,736 $
7,608,188 $
1,025,995
4,757,420
1,093,364
19,570
6,581
11,862
14,522,980 $
21,457,716 $
2,286,452 $
—
1,155,443
1,227,315
246,738
384,135
173,002
975
5,474,060 $
493,831 $
—
2,213,151
1,161,328
290,941
130,675
1,727
4,291,653 $
9,765,713 $
1,520,997 $
—
109,287
63,427
—
5,578,347
210,931
131
7,483,120 $
71,991 $
—
689,178
29,620
1,907,594
965,089
—
3,663,472 $
11,146,592 $
4,658,580
87,505
3,729,854
4,871,415
1,328,786
6,009,145
411,954
28,440
21,125,679
12,226,895
1,470,336
9,839,908
2,716,555
2,218,778
1,105,001
22,900
29,600,373
50,726,052
(1) Amounts due exclude total accrued interest receivable of $270.4 million.
(2) The Company has a back-to-back swap program, whereby it enters into an interest rate swap with a qualified customer and
simultaneously enters into an equal and opposite interest-rate swap with a swap counterparty, to hedge interest rate risk. At
December 31, 2023, there were 880 customer interest rate swaps arrangements with a total notional amount of $7.0 billion to
convert floating-rate loan payments to fixed-rate loan payments.
48
Portfolio Concentrations
The Company actively monitors and manages concentrations of credit risk pertaining to specific industries and geographies that
may exist in its loan and lease portfolio.
At December 31, 2023, and 2022, commercial non-mortgage, commercial real estate, and multi family loans comprised 75.0%
and 72.3%, respectively, of the Company's loan and lease portfolio, with a large portion of the borrowers or properties
associated with these loans geographically concentrated in New York City and the proximate areas.
The following table summarizes commercial non-mortgage loans by industry, as determined using standardized industry
classification codes, which are used by the Company to categorize loans based on the borrower's type of business.
(In thousands)
Finance
Services
Communications
Manufacturing
Retail & Wholesale
Healthcare
Real Estate
Transportation & Public Utilities
Construction
Other
Total Commercial non-mortgage
2023
Amount
4,109,280
2,928,621
1,166,668
1,163,798
874,547
848,867
815,769
547,967
477,303
3,952,655
16,885,475
$
$
At December 31,
%
24.4 % $
17.3
6.9
6.9
5.2
5.0
4.8
3.3
2.8
23.4
100.0 % $
2022
Amount
3,780,409
3,038,338
1,073,233
1,141,943
1,003,892
751,779
656,002
762,935
491,365
3,692,899
16,392,795
%
23.1 %
18.5
6.5
7.0
6.1
4.6
4.0
4.7
3.0
22.5
100.0 %
As illustrated above, the Company's commercial non-mortgage portfolio is well diversified across industries, and concentrations
are generally consistent year over year. Any change in composition is consistent with the Company's portfolio growth strategy.
The following table summarizes commercial real estate and multifamily loans by geography and property type:
(In thousands)
Geography:
New York City
Other New York County
Connecticut
New Jersey
Massachusetts
Southeast
Other
Total Commercial real estate & Multifamily
Property Type:
Multifamily
Industrial & Warehouse
Retail
Healthcare & Senior Living
Construction
Office
Hotel
Other
Total Commercial real estate & Multifamily
2023
Amount
7,482,324
3,321,313
1,749,839
1,729,139
1,338,936
2,311,574
3,224,607
21,157,732
7,587,970
3,467,859
1,765,512
1,576,511
1,442,621
1,041,451
489,379
3,786,429
21,157,732
$
$
$
$
At December 31,
%
35.4 % $
15.7
8.3
8.2
6.3
10.9
15.2
100.0 % $
35.9 % $
16.4
8.3
7.5
6.8
4.9
2.3
17.9
100.0 % $
2022
Amount
7,043,329
3,169,801
1,558,888
1,525,757
1,375,289
1,991,929
2,954,152
19,619,145
6,621,982
3,102,205
1,821,498
1,605,075
1,143,153
1,322,492
498,716
3,504,024
19,619,145
%
35.9 %
16.2
7.9
7.8
7.0
10.1
15.1
100.0 %
33.8 %
15.8
9.3
8.2
5.8
6.7
2.5
17.9
100.0 %
Given the foundational change in office demand driven by the acceptance of remote work options, the commercial real estate
market has experienced an increase in office property vacancies following the COVID-19 pandemic. As such, commercial real
estate performance across the United States related to the office sector continues to be an area of uncertainty.
At December 31, 2023, the Company's outstanding balance for commercial real estate office loans was $1.0 billion, or 2.1% of
total loans and leases. In addition, at December 31, 2023, the Company has established reserves of $35.7 million against
commercial real estate office loans. While the Company does anticipate ongoing change in the office sector, management
believes that its reserve levels reflect the expected credit losses in the portfolio.
49
Credit Policies and Procedures
The 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.
Commercial non-mortgage, asset-based, equipment finance, and warehouse lending 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 has been 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. Warehouse lending loans are primarily made based on the borrower's ability to originate high-quality, first-mortgage
residential loans that can be sold into the agency, government, or private jumbo markets, and secondarily on the underlying
cash flows of the borrower. However, the cash flows of borrowers may not be as expected, and the collateral securing these
loans, as applicable, 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. Warehouse lending
loans are generally uncommitted facilities.
Commercial real estate loans, including multi-family, are subject to underwriting standards and processes similar to those for
commercial non-mortgage, asset-based, equipment finance, and warehouse lending 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 determine 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 FICO score, the loan amount relative to property
value, and the borrower’s debt-to-income level. The Bank originates both qualified mortgage and non-qualified mortgage loans,
as defined by applicable CFPB rules.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases increased $41.0 million, or 6.9%, from $594.7 million at December 31, 2022, to $635.7 million at
December 31, 2023, primarily due to the impact of the current macroeconomic environment on credit performance and organic
loan growth, partially offset by net charge-offs.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Equipment financing
Warehouse lending
Residential
Home equity
Other consumer
Total ACL on loans and leases
At December 31,
2023
2022
Amount
% (1)
Amount
% (1)
$
$
211,699
15,828
248,921
80,582
20,633
—
29,739
26,154
2,181
635,737
33.3 % $
2.5
39.2
12.7
3.2
—
4.7
4.1
0.3
100.0 % $
197,950
16,094
214,771
80,652
23,081
577
26,907
32,296
2,413
594,741
33.3 %
2.7
36.1
13.6
3.9
0.1
4.5
5.4
0.4
100.0 %
(1) The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories.
50
Methodology
The Company'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 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 and credit
quality, and expected losses are determined using models that follow a PD, LGD, EAD, or loss rate framework. For portfolios
using the PD, LGD, and 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, loan-level risk attributes, and credit quality indicators. 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, the loan's amortization schedule, and prepayment rates. Under the loss rate framework, expected
credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date. For
each loan segment identified, management applies an expected historical loss trend based on third-party loss estimates, and
correlates them to observed economic metrics, and reasonable and supportable forecasts of economic conditions.
The Company's models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and
supportable forecast period. The development of the reasonable and supportable forecast assumes each macroeconomic variable
will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts.
Reversion towards long-term expectations generally begins two to three years from the forecast start date and is complete
within three to five years. Certain models use output reversion and revert to mean historical portfolio loss rates on a
straight-line basis in the third year of the forecast. Other models incorporate a reasonable and supportable forecast of various
macroeconomic variables over the remaining life of the Company's assets.
The Company 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 and
the correlation of the variables to credit losses, among others. Data from the forecast scenario of these macroeconomic variables
are used as inputs to the modeled loss calculation.
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. Qualitative factors are based on
management's judgement of the Company, market, industry, or business specific data including loan trends, portfolio segment
composition, and loan rating or credit scores. 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.
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 and loans with a charge-off 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 the Company'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.
51
Asset Quality Ratios
The Company 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:
(In thousands)
Non-performing loans and leases (1)
Total loans and leases
At or for the years ended December 31,
$
2023
209,544
50,726,052
$
2022
203,791
49,764,426
$
2021
109,778
22,271,729
Non-performing loans and leases as a percentage of loans and leases
0.41 %
0.41 %
0.49 %
Non-performing assets (1)
Total loans and leases
Add: OREO and repossessed assets
Total loans and leases plus OREO and repossessed assets
$
218,600
$ 50,726,052
9,056
$ 50,735,108
$
206,136
$ 49,764,426
2,345
$ 49,766,771
$
112,590
$ 22,271,729
2,812
$ 22,274,541
Non-performing assets as a percentage of loans and leases plus OREO
and repossessed assets
0.43 %
0.41 %
0.51 %
Non-performing assets (1)
Total assets
Non-performing assets as a percentage of total assets
ACL on loans and leases
Non-performing loans and leases (1)
ACL on loans and leases as a percentage of non-performing loans and leases
ACL on loans and leases
Total loans and leases
$
218,600
74,945,249
$
206,136
71,277,521
$
112,590
34,915,599
0.29 %
0.29 %
0.32 %
$
$
635,737
209,544
303.39 %
$
594,741
203,791
291.84 %
301,187
109,778
274.36 %
$
635,737
50,726,052
$
594,741
49,764,426
$
301,187
22,271,729
ACL on loans and leases as a percentage of loans and leases
1.25 %
1.20 %
1.35 %
ACL on loans and leases
Net charge-offs (2)
Ratio of ACL on loans and leases to net charge-offs
$
$
635,737
108,086
5.88x
$
594,741
67,288
8.84x
301,187
3,829
78.66x
(1) Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net
unamortized deferred (fees)/costs on loans and leases.
(2) The $40.8 million increase in net charge-offs from December 31, 2022, to December 31, 2023, is primarily due to the impact of the
current macroeconomic environment on credit performance and higher commercial portfolio optimization charges in 2023.
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category:
2023
2022
2021
At or for the years ended December 31,
(In thousands)
Net
Charge-offs
(Recoveries)
Average
Balance
%
Net
Charge-offs
(Recoveries)
Average
Balance
%
Net
Charge-offs
(Recoveries)
Average
Balance
%
Commercial non-mortgage
$
13,531 $ 16,900,423
0.08 % $
44,250 $ 13,625,382
0.32 % $
2,305 $ 6,829,799
0.03 %
Asset-based
Commercial real estate
Multi-family
Equipment financing
Warehouse lending
Residential
Home equity
Other consumer
Total
17,088
1,699,064
62,208
13,397,036
4,473
1,746,888
20,471
11,299,259
1.01
0.46
0.05
0.33
—
7,072,507
1,509,948
316,729
8,126,878
0.04
1,560,707
(0.01)
3,447
4,949
—
3,601
(123)
0.26
0.18
0.02
0.06
—
(1,447)
4,483
—
375
—
950,602
(0.15)
5,324,853
0.08
1,114,977
—
614,055
0.06
—
—
6,025,702
1,660,935
537,430
7,112,890
(0.02)
1,663,198
(0.25)
(1,149)
(4,289)
4,953,100
(0.02)
1,681,921
(0.26)
1,298
931
—
(1,377)
(4,201)
3,385
54,277
$ 108,086 $ 50,637,569
6.24
0.21 % $
1,443
79,428
67,288 $ 43,751,112
1.82
0.15 % $
3,551
115,565
3,829 $ 21,584,872
3.07
0.02 %
52
Liquidity and Capital Resources
The Company manages its cash flow requirements through proactive liquidity measures at both the Holding Company and the
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 appropriate.
At December 31, 2023, 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. Although regulatory agencies have not issued formal
guidance mandating more stringent liquidity and capital requirements, the Company is anticipating a greater focus on the
liquidity and capital adequacy of financial institutions in response to the high-profile bank failures that occurred in 2023, and
has taken appropriate measures to mitigate the risk that such requirements, if implemented, may have on its business, financial
positions, and results of operations.
Cash inflows are provided through a variety of sources, including principal and interest payments on loans and investments,
unpledged securities that can be sold or utilized to secure funding, and new deposits. The Company is committed to maintaining
a strong base of core deposits, which consist of demand, interest-bearing checking, savings, health savings, and money market
accounts, to support growth in its loan portfolios. Management actively monitors the interest rate environment and makes
adjustments to its deposit strategy in response to evolving market conditions, bank funding needs, and client relationship
dynamics.
Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from the 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, subordinated
notes, and junior subordinated debt, dividend payments to preferred and common stockholders, repurchases of its common
stock, and purchases of investment securities, as applicable.
During the year ended December 31, 2023, the Bank paid $600.0 million in dividends to the Holding Company. At
December 31, 2023, there was $788.7 million of retained earnings available for the payment of dividends by the Bank to the
Holding Company. On January 24, 2024, the Bank was approved to pay the Holding Company $175.0 million in dividends for
the first quarter of 2024.
There are certain restrictions on the Bank's payment of dividends to the Holding Company, which can be found within the
section captioned "Supervision and Regulation" in Part I - Item 1. Business, and within Note 14: Regulatory Capital and
Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and
Supplementary Data.
The quarterly cash dividend to common stockholders remained at $0.40 per common share throughout 2023. On January 24,
2024, it was announced that the Holding Company's Board of Directors had declared a quarterly cash dividend of $0.40 per
share on Webster common stock. For Series F Preferred Stock and Series G Preferred Stock, quarterly cash dividends of
$328.125 per share and $16.25 per share were declared, respectively. The Company continues to monitor economic forecasts,
anticipated earnings, and its capital position in the determination of its dividend payments.
The Holding Company maintains a common stock repurchase program, which was approved by the Board of Directors, that
authorizes management to purchase shares of its common stock in open market or privately negotiated transactions, through
block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions. During the year ended
December 31, 2023, the Holding Company repurchased 2,667,149 shares under the repurchase program at a weighted-average
price of $40.49 per share, totaling $108.0 million. At December 31, 2023, the Holding Company's remaining purchase authority
was $293.4 million. In addition, the Company will periodically acquire common shares outside of the repurchase program
related to employee stock compensation plan activity. During the year ended December 31, 2023, the Company repurchased
315,729 shares at a weighted-average price of $51.48 per share, totaling $16.3 million, for this purpose.
The IRA imposed a 1% excise tax on the value of net stock repurchased by certain publicly traded corporations, including the
Company, after December 31, 2022. At December 31, 2023, the Company has recorded a $0.8 million liability for such excise
tax owed, with an offset to Treasury stock on the Consolidated Balance Sheet.
Webster Bank Liquidity. The Bank's primary source of funding is its core deposits. Including time deposits, the Bank had a loan
to total deposit ratio of 83.5% and 92.1% at December 31, 2023, and 2022, respectively.
The 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, 2023, the Bank
exceeded all regulatory liquidity requirements. The Company 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.
53
Capital Requirements. The Holding Company and the 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 Consolidated Financial Statements. Under capital adequacy
guidelines and/or the the regulatory framework for prompt corrective action (applies to the Bank only), both the Holding
Company and the 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 Basel III to ensure capital adequacy require the Holding Company and the Bank to
maintain minimum ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1
Leverage Capital, as defined in the regulations. At December 31, 2023, both the Holding Company and the 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, the Company elected an option to delay the estimated impact of the adoption of
CECL on its regulatory capital over a two-year deferral period, which ended on January 1, 2022, and subsequent three-year
transition period ending on December 31, 2024. During the three-year transition period, capital ratios will phase out the
aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption in the initial two years. For 2022,
2023, and 2024, the Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31,
2021, with full absorption occurring in 2025. At December 31, 2023, the regulatory capital benefit allowed from the delayed
CECL adoption resulted in a 6, 6, and 4 basis point increase to the Holding Company's and the Bank's CET1 Risk-Based
Capital, Tier 1 Risk-Based Capital, and Tier 1 Leverage Capital, respectively, and a 1 basis point decrease to Total Risk-Based
Capital. Both the Holding Company's and the Bank's regulatory ratios remain in excess of being well-capitalized, even without
the regulatory capital benefit of the delayed CECL adoption impact.
Additional information regarding the required regulatory capital levels and ratios applicable to the Holding Company and the
Bank can be found within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements
contained in Part II - Item 8. Financial Statements and Supplementary Data.
54
Sources and Uses of Funds
Sources of Funds. Deposits are the primary source of cash flows for the Bank’s lending activities and general operational
needs. Loan and securities repayments, proceeds from sales of loans and securities held for sale, and maturities also provide
cash flows. 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 are 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 and FRB.
Deposits. The 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. The Bank’s Consumer and Digital Pricing Committee and its Commercial and Institutional
Liability and Loan Pricing Committee both meet regularly to determine pricing and marketing initiatives.
With the acquisition of interLINK during the first quarter of 2023, the Bank received $5.7 billion of money market deposits at
December 31, 2023, which added a unique source of core deposit funding and scalable liquidity to the Company's already
differentiated, omnichannel deposit gathering capabilities.
Total deposits were $60.8 billion and $54.0 billion at December 31, 2023, and 2022, respectively. The $6.8 billion increase was
primarily due to the interLINK money market deposits, as well as time deposit and HSA deposit growth, partially offset by
decreases in non-interest-bearing and savings deposits. Throughout 2023, customer preferences have shifted from checking and
savings account products to certificates of deposit and money market products, which are currently more attractive in the higher
interest rate environment.
The following table summarizes daily average balances of deposits by type and the weighted-average rates paid thereon:
(In thousands)
Non-interest-bearing:
Demand
Interest-bearing:
Checking
Health savings accounts
Money market
Savings
Time deposits
Total interest-bearing
2023
Years ended December 31,
2022
2021
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$
11,596,949
— % $
12,912,894
— % $
6,897,464
— %
8,845,284
8,249,332
15,769,533
7,259,640
6,531,610
46,655,399
58,252,348
1.48
0.15
3.61
0.78
3.87
2.19
1.75 % $
8,842,792
7,826,576
10,797,645
8,625,691
2,838,502
38,931,206
51,844,100
0.34
0.08
0.66
0.16
0.60
0.36
0.27 % $
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 %
Total average deposits
$
Uninsured deposits represent the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar
state deposit insurance regime and amounts in any other uninsured investment or deposit accounts that are classified as deposits
and not subject to any federal or state deposit insurance regimes. The Company calculates its uninsured deposit balances based
on the methodologies and assumptions used for regulatory reporting requirements, which includes an estimated portion and
affiliate deposits. At December 31, 2023, and 2022, total uninsured deposits as per regulatory reporting requirements and
reported on Schedule RC-O of the Bank's Call Report were $21.0 billion and $22.5 billion, respectively.
The following table summarizes additional uninsured deposits information after certain exclusions:
(In thousands)
Uninsured deposits, per regulatory reporting requirements
Less: Affiliate deposits
Collateralized deposits
Uninsured deposits, after exclusions
Immediately available liquidity (1)
Uninsured deposits coverage
At December 31, 2023
20,956,950
$
(4,414,203)
(2,737,575)
13,805,172
$
$
20,426,445
148.0 %
(1) Reflects $12.5 billion and $6.6 billion of additional borrowing capacity from the FHLB and the FRB, respectively, and $1.3 billion
of interest-bearing deposits held at the FRB.
55
Uninsured deposits, after adjusting for affiliate deposits and collateralized deposits, represented 22.7% of total deposits at
December 31, 2023. Management believes that this presentation provides a more accurate view of deposits at risk given that
affiliate deposits are not customer facing, and therefore are eliminated upon consolidation, and collateralized deposits are
secured by other means. As of the date of this Annual Report on Form 10-K, the Company's uninsured deposits as a percentage
of total deposits, adjusted for affiliate deposits and collateralized deposits, is consistent with the percentage reported at
December 31, 2023.
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:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
At December 31, 2023
$
463,387
$
172,427
178,642
105,791
6,527
Additional information regarding period-end deposit balances and rates can be found within Note 10: Deposits in the Notes to
Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Borrowings. The Bank's primary borrowing sources include securities sold under agreements to repurchase, federal funds
purchased, FHLB advances, and long-term debt. Total borrowed funds were $3.9 billion and $7.7 billion at December 31, 2023,
and 2022, respectively, and represented 5.2% and 10.8% of total assets, respectively. The $3.8 billion decrease is primarily due
to decreases of $3.1 billion and $0.8 billion in FHLB advances and federal funds purchased, respectively, partially offset by an
increase of $0.1 billion in securities sold under agreements to repurchase.
The Bank had additional borrowing capacity from the FHLB of $12.5 billion and $4.3 billion at December 31, 2023, and 2022,
respectively. The Bank also had additional borrowing capacity from the FRB of $6.6 billion and $1.2 billion at December 31,
2023, and 2022, respectively. Unencumbered investment securities of $1.2 billion at December 31, 2023, could have been used
for collateral on borrowings or to increase borrowing capacity by either $0.8 billion with the FHLB or $1.0 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 $0.4 billion and $0.3 billion at December 31, 2023, and 2022, respectively. The $0.1 billion increase is
primarily due to short-term funding needs.
The Bank may also purchase term and overnight federal funds to meet its short-term liquidity needs. Federal funds purchased
totaled $0.1 billion and $0.9 billion at December 31, 2023, and 2022, respectively. The $0.8 billion decrease is primarily due to
the additional liquidity generated from the interLINK deposit sweep program, which allowed for the Company to reduce its
federal funds purchase volume in 2023.
FHLB advances are not only utilized as a source of funding, but also for interest rate risk management purposes. FHLB
advances totaled $2.4 billion and $5.5 billion at December 31, 2023, and 2022, respectively. The $3.1 billion decrease is also
primarily due to the additional liquidity generated from the interLINK deposit sweep program, which allowed for the Company
to reduce its FHLB advances in 2023.
Long-term debt consists of senior fixed-rate notes maturing in 2024 and 2029, subordinated fixed-to-floating-rate notes
maturing in 2029 and 2030, and floating-rate junior subordinated notes maturing in 2033. Long-term debt remained relatively
flat on a comparative basis, totaling approximately $1.1 billion at both December 31, 2023, and 2022.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon:
(In thousands)
Securities sold under agreements to repurchase
Federal funds purchased
FHLB advances
Long-term debt
Total average borrowings
2023
Average
Balance
210,676
167,495
4,275,394
1,058,621
5,712,186
$
$
Years ended December 31,
2022
Average
Rate
0.58 % $
4.70
5.21
3.69
4.74 % $
Average
Balance
466,282
598,269
1,965,577
1,031,446
4,061,574
Average
Rate
0.78 % $
2.58
2.98
3.44
2.78 % $
2021
Average
Balance
527,250
16,036
108,216
565,271
1,216,773
Average
Rate
0.57 %
0.08
1.58
3.22
1.84 %
Additional information regarding period-end borrowings balances and rates can be found within Note 11: Borrowings in the
Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
56
Federal Home Loan Bank and Federal Reserve Bank Stock. The Bank is a member of the FHLB System, which consists of
eleven district FHLBs, 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 the Bank to maintain its membership and access to
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. The Bank held FHLB capital stock of
$99.0 million and $221.4 million at December 31, 2023, and 2022, respectively. During the year ended December 31, 2023, the
Bank received $15.6 million in dividends from the FHLB. The most recent FHLB quarterly cash dividend was paid on
November 2, 2023, in an amount equal to an annual yield of 8.31%.
The 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. The Bank held FRB capital stock
of $227.9 million and $224.5 million at December 31, 2023, and 2022, respectively. During the year ended December 31, 2023,
the Bank received $9.2 million in dividends from the FRB. The most recent FRB semi-annual cash dividend was paid on
December 29, 2023, in an amount equal to an annual yield of 4.30%.
Uses of Funds. The Company enters into various contractual obligations in the normal course of business that require future
cash payments and that could impact its short-term and long-term liquidity and capital resource needs. The following table
summarizes significant fixed and determinable contractual obligations at December 31, 2023. The actual timing and amounts of
future cash payments may differ from the amounts presented. Based on the Company's current liquidity position, it is expected
that our sources of funds will be sufficient to fulfill these obligations when they come due.
2024
2025
2026
2027
2028
Thereafter
Total
Payments Due by Period (1)
(In thousands)
Senior notes
Subordinated notes
Junior subordinated debt
FHLB advances
Securities sold under agreements to repurchase
Federal funds purchased
Time deposits
Operating lease liabilities
Contingent consideration
Royalty liabilities
Purchase obligations (2)
Total contractual obligations
$ 132,550 $
—
—
2,350,000
358,387
100,000
8,217,683
38,575
12,500
9,482
79,644
— $
—
—
—
—
—
53,807
35,665
—
—
17,485
$ 11,298,821 $ 218,898 $ 106,957 $
— $
—
—
—
—
—
138,769
39,449
4,826
1,560
34,294
— $
—
—
235
—
—
32,865
31,128
—
—
12,583
76,811 $
— $ 300,000 $ 432,550
499,000
499,000
—
77,320
77,320
—
9,555 2,360,018
228
358,387
—
—
—
100,000
—
— 8,464,459
21,335
81,918
253,734
26,999
—
17,326
—
11,042
—
—
162,626
14,287
4,333
52,895 $ 982,080 $ 12,736,462
(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, the Company 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 $12.6 billion at December 31, 2023, does not necessarily
reflect future cash payments.
The Company also enters into commitments to invest in venture capital and private equity funds and tax credit structures to
assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for these alternative investments
was $0.7 billion at December 31, 2023. 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 the Company may not be called.
Pension obligations are funded by the Company, as needed, to provide for participant benefit payments as it relates to the
Company'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.
The Company was not required to contribute to the defined benefit pension plan in 2023, nor does it currently anticipate that it
will be required to contribute in 2024. The Company's non-qualified supplemental executive retirement plans and other post-
employment benefit plans are unfunded. Expected future net benefit payments related to the Company's defined benefit pension
and other postretirement benefit plans include $14.0 million in less than one year, $28.7 million in one to three years,
$29.4 million in three to five years, and $73.2 million after five years.
57
At December 31, 2023, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of
$13.8 million and $3.8 million of accrued interest and penalties, respectively. The ultimate timing and amount of any related
future cash settlements cannot be predicted with reasonable certainty.
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses
incurred by protecting uninsured depositors of Silicon Valley Bank and Signature Bank upon their failure in March 2023. The
final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits
balance reported as of December 31, 2022. The special assessment is to be collected for an anticipated total of eight quarterly
assessment periods beginning with the first quarter of 2024, which has a payment date of June 28, 2024. Based on the final rule,
the Company estimates that its special assessment charge is approximately $47.2 million. However, the FDIC retains the right
to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment if
actual losses exceed the amounts collected.
On February 23, 2024, the Company received notification from the FDIC that the estimated loss attributable to the protection of
uninsured depositors at Silicon Valley Bank and Signature Bank is $20.4 billion, an increase of approximately $4.1 billion from
the estimate of $16.3 billion described in the final rule. The FDIC plans to provide institutions subject to the special assessment
with an updated estimate of each institution's quarterly and total special assessment expense with its first quarter 2024 special
assessment invoice, to be released in June 2024. The Company will continue to evaluate new information as it becomes
available.
Additional information regarding credit-related financial instruments and the FDIC special assessment, alternative investments,
defined benefit pension and other postretirement benefit plans, and income taxes can be found within Note 23: Commitments
and Contingencies, Note 15: Variable Interest Entities, Note 19: Retirement Benefit Plans, and Note 9: Income Taxes,
respectively, in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and
Supplementary Data.
58
Asset/Liability Management and Market Risk
An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest
rate risk when determining the Company's strategy and action. To facilitate this process, interest rate sensitivity is monitored on
an ongoing basis by the Company's ALCO, whose primary goal is to manage interest rate risk and maximize net income and net
economic value over time in changing interest rate environments. Limits for earnings at risk are set for parallel ramps in interest
rates over a twelve-month period of up and down 100, 200, and 300 basis points, and for interest rate curve twist shocks of up
and down 50 and 100 basis points. Limits for net economic value, referred to as equity at risk, are set for parallel shocks in
interest rates of up and down 100, 200, and 300 basis points. The ALCO also regularly reviews earnings at risk scenarios for
non-parallel changes in interest rates, as well as longer-term earnings at risk for up to four years in the future.
Management measures interest rate risk using simulation analysis and asset/liability modeling software to calculate the
Company's earnings at risk and equity at risk. Key assumptions relate to the behavior of interest rates and spreads, prepayment
speeds, and the run-off of deposits. From these simulations, interest rate risk is quantified, and appropriate strategies are
formulated and implemented.
Earnings at risk is defined as the change in net interest income due to changes in interest rates. Essentially, interest rates are
assumed to change up or down in a parallel fashion, and the net interest income results in each scenario are compared to a flat
rate base scenario. The flat rate base scenario holds the end of period yield curve constant over a twelve-month forecast
horizon. The earnings at risk simulation analysis incorporates assumptions about balance sheet changes (i.e., product mix,
growth, and loan and deposit pricing). Overall, it is a measure of short-term interest rate risk.
At December 31, 2023, and 2022, the flat rate base scenario assumed a federal funds rate of 5.50% and 4.50%, respectively.
The federal funds rate target range was 5.25-5.50% at December 31, 2023, and 4.25-4.50% at December 31, 2022. Since
interest rates rose sharply throughout 2022, and continued to rise into the third quarter of 2023, management has incorporated
the up and down 300 basis point rate scenarios back into its assessment of 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 the 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, currently uses the month-end SOFR/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 (i.e., caps, floors, puts, and calls) and implicit options (i.e., prepayment and early
withdrawal abilities) require such modeling approach to quantify value and risk more accurately.
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. The Bank
also has the option to change the interest rate paid on these deposits at any time.
59
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.
The ALCO meets frequently to make decisions on the investment and funding portfolios based on the economic outlook, its
interest rate expectations, the risk position, and other factors. The 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 are used by the 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, the 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, the Bank establishes forward delivery sales commitments, thereby setting the sales price.
The Company will also hold futures, options, and forward foreign currency exchange 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 up and down 100, 200,
and 300 basis points might have on the Company’s net interest income over a twelve-month period starting at December 31,
2023, and 2022, as compared to actual net interest income and assuming no changes in interest rates:
December 31, 2023
December 31, 2022
-300bp
(7.2)%
n/a
-200bp
(4.5)%
(6.9)%
-100bp
(2.0)%
(3.3)%
+100bp
1.7%
3.2%
+200bp
3.3%
6.5%
+300bp
5.4%
n/a
Asset sensitivity in terms of net interest income decreased at December 31, 2023, as compared to at December 31, 2022,
primarily due to changes in the overall balance sheet composition, which included the addition of $5.7 billion in price-sensitive
deposits from interLINK, an increase in interest paid on deposits, and the implementation of incremental asset sensitivity
measures, such as hedges and the investment of fixed-rate debt securities to extend duration. Loans at floors were $0.3 billion
and $0.4 billion at December 31, 2023, and 2022, respectively. While loans with floors, which are considered “in the money”,
have the impact of reducing overall asset sensitivity, as interest rates continue to rise, these loans will move through their floors
and reprice accordingly.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates
of up and down 50 and 100 basis points might have on the Company's net interest income for the subsequent twelve-month
period starting at December 31, 2023, and 2022:
December 31, 2023
December 31, 2022
Short End of the Yield Curve
Long End of the Yield Curve
-100bp
(1.8)%
(4.2)%
-50bp
(0.8)%
(2.0)%
+50bp
0.4%
1.7%
+100bp
0.7%
3.3%
-100bp
(2.3)%
(2.4)%
-50bp
(1.1)%
(1.2)%
+50bp
1.1%
1.3%
+100bp
2.2%
2.6%
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
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 both the short end and long end of the yield curve for net interest income decreased at December 31, 2023, as
compared to December 31, 2022, primarily due to changes in the overall balance sheet composition.
60
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, 2023, and 2022:
(In thousands)
At December 31, 2023
Assets
Liabilities
Net
Net change as % base net economic value
At December 31, 2022
Assets
Liabilities
Net
Net change as % base net economic value
Book
Value
Estimated
Economic
Value
Estimated Economic Value Change
-100bp
+100bp
74,945,249 $
66,255,253
8,689,996 $
70,356,779 $
61,722,480
8,634,299 $
$
1,297,870
1,960,088
(662,218) $
(7.7) %
(1,350,496)
(1,786,228)
435,732
5.0 %
71,277,521 $
63,221,335
8,056,186 $
67,920,989 $
55,951,495
11,969,494 $
1,161,794 $
1,959,399
(797,605) $
(6.7) %
(1,247,083)
(1,716,697)
469,614
3.9 %
$
$
$
$
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 the
Company. 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, 2023, and 2022, the Company's duration gap was negative 1.1 years and negative
1.4 years, respectively. A negative duration gap implies that the duration of financial liabilities is longer than the duration of
financial assets, and therefore, liabilities have more price sensitivity than assets and will reset their interest rates at a slower
pace. Consequently, the Company'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.
These earnings and net economic value 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, 2023, represents a reasonable level of risk
given the current interest rate outlook. Management continues to monitor interest rates and other relevant factors given recent
market volatility and is prepared to take additional action, as necessary.
61
Critical Accounting Estimates
The preparation of the Company'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, current available 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 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 the Company's financial
condition or results of operations. Management has identified that the Company's most critical accounting estimates are those
related to the ACL on loans and leases and business combinations accounting policies. These accounting policies and their
underlying estimates are 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 the Company'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, LGD, EAD, or loss rate framework, and include consideration of past events, current conditions, macroeconomic variables
(i.e., unemployment, gross domestic product, property values, 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 the Company to make significant estimates of current credit risks and trends using existing qualitative and quantitative
information, and reasonable and 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 the Company is more
susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans,
identification of additional problem 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 the Company's valuation
methodology, can be found in Part II under the section captioned "Allowance for Credit Losses on Loans and Leases" contained
elsewhere in this 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.
Business Combinations
The acquisition method of accounting generally requires that the identifiable assets acquired and liabilities assumed in business
combinations are recorded at fair value as of the acquisition date. The determination of fair value often involves the use of
internal or third-party valuation techniques, such as discounted cash flow analyses or appraisals. Particularly, the valuation
techniques used to estimate the fair value of loans and leases and the core deposit intangible asset acquired in the Sterling
merger include estimates related to discount rates, credit risk, and other relevant factors, which are inherently subjective. A
description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities
assumed from the Sterling merger can be found within Note 2: Mergers and Acquisitions in the Notes to Consolidated Financial
Statements contained in Part II - 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
Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data, which are incorporated
herein by reference.
62
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 Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page No.
64
66
67
68
69
70
72
63
Report of Independent Registered Public Accounting Firm
To the Stockholders and the 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, 2023 and 2022, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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 27, 2024 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
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 certain commercial and consumer loans and leases evaluated on a
collective basis
As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s total allowance for credit losses
as of December 31, 2023 was $635.7 million, a portion of which related to the allowance for credit losses for certain
commercial and consumer loans and leases evaluated on a collective basis (the Collective Allowance). The Collective
Allowance includes the measure of expected credit losses on a collective (pooled) basis for those loans and leases with
similar risk characteristics. The Company’s collectively assessed loans and leases are segmented based on product type
and credit quality and expected losses are determined using models that follow a probability of default (PD), loss given
default (LGD), exposure at default (EAD), or loss rate framework. The expected credit losses are calculated as the
product of the Company’s estimate of PD, LGD, and individual loan level EAD. The Company’s PD and LGD
calculations use predictive models that measure the current risk profile of the loan pools using forecasts of future
macroeconomic conditions, historical loss information, loan-level risk attributes and credit quality indicators. The
Company’s models incorporate a single economic forecast scenario and macroeconomic variables over a reasonable
and supportable forecast period. The development of the reasonable and supportable forecast assumes each
64
macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific
economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from
the forecast start date and is complete within three to five years. Certain models use output reversion and revert to
mean historical portfolio loss rates on a straight-line basis in the third year of the forecast. Other models incorporate a
reasonable and supportable forecast of various macroeconomic variables over the remaining life of the Company’s
assets. A portion of the Collective Allowance 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 expected credit losses.
We identified the assessment of the Collective Allowance 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 Allowance methodology, including the methods and models used to estimate (1) the PD, LGD, EAD, and
loss rate and their significant assumptions, including the single economic forecast scenario and macroeconomic
variables and (2) qualitative adjustments and their significant assumptions not reflected in the PD, LGD, and loss rate
models and EAD method. The assessment also included an evaluation of the conceptual soundness and performance of
the PD, LGD, and loss rate 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 Allowance estimate, including controls over the:
•
•
•
•
•
•
evaluation of the Collective Allowance methodology;
continued use and appropriateness of changes made to certain PD, LGD, and loss rate models and EAD
method;
identification and determination of the significant assumptions used in the PD, LGD, and loss rate models and
EAD method;
performance monitoring of certain PD, LGD, and loss rate models and EAD method;
evaluation of qualitative adjustments, including the significant assumptions; and
analysis of the Collective Allowance results, trends, and ratios.
We evaluated the Company’s process to develop the Collective Allowance estimate 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 Allowance methodology for compliance with U.S. generally accepted
accounting principles;
evaluating judgments made by the Company relative to the assessment and performance testing of the PD,
LGD, and loss rate models and EAD method by comparing them to relevant Company-specific metrics and
trends and the applicable industry practices;
evaluating the selection of the economic forecast scenario and underlying macroeconomic variables by
comparing them to the Company’s business environment and relevant industry practices; and
evaluating the methodology and assumptions used to develop the qualitative factors and the effect of those
factors on the Collective Allowance 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 Collective Allowance estimate by
evaluating the cumulative results of the audit procedures and potential bias in the accounting estimate.
We have served as the Company's auditor since 2013.
New York, New York
February 27, 2024
65
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2023
2022
$
429,323 $
1,286,472
8,959,729
7,074,588
326,882
6,541
50,726,052
(635,737)
50,090,315
369,212
429,561
2,631,465
203,135
1,247,938
1,890,088
74,945,249 $
264,118
575,825
7,892,697
6,564,697
445,900
1,991
49,764,426
(594,741)
49,169,685
371,634
430,184
2,514,104
199,342
1,229,169
1,618,175
71,277,521
10,732,516 $
50,051,768
60,784,284
458,387
2,360,018
1,048,820
1,603,744
66,255,253
12,974,975
41,079,365
54,054,340
1,151,830
5,460,552
1,073,128
1,481,485
63,221,335
145,037
138,942
145,037
138,942
1,828
6,179,753
3,282,530
(507,523)
(550,571)
8,689,996
74,945,249 $
1,828
6,173,240
2,713,861
(431,762)
(684,960)
8,056,186
71,277,521
$
$
$
(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 $209 and $182
Federal Home Loan Bank and Federal Reserve Bank stock
Loans held for sale ($2,610 and $1,991 valued under fair value option)
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 stockholders' equity:
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Securities sold under agreements to repurchase and other borrowings
Federal Home Loan Bank advances
Long-term debt
Accrued expenses and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized—3,000,000 shares;
Series F issued and outstanding—6,000 shares
Series G issued and outstanding—135,000 shares
Common stock, $0.01 par value: Authorized—400,000,000 shares;
Issued—182,778,045 shares
Paid-in capital
Retained earnings
Treasury stock, at cost—10,756,089 and 8,770,472 shares
Accumulated other comprehensive (loss), net of tax
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying Notes to Consolidated Financial Statements.
66
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
2022
2021
2023
$
3,071,378 $
396,681
54,207
734
105,260
3,628,260
1,946,558 $
269,233
50,442
78
18,426
2,284,737
762,713
155,902
20,884
246
3,099
942,844
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
1,021,418
9,102
222,537
37,934
1,290,991
2,337,269
150,747
2,186,522
169,318
84,861
28,999
1,240
26,228
(33,620)
37,311
314,337
138,552
19,059
58,557
34,283
250,451
2,034,286
280,619
1,753,667
198,472
102,987
40,277
705
29,237
(6,751)
75,856
440,783
711,752
77,520
197,928
36,207
18,622
107,497
98,081
168,748
1,416,355
1,084,504
216,664
867,840
(16,650)
851,190 $
723,620
113,899
186,384
31,940
16,438
117,530
26,574
180,088
1,396,473
797,977
153,694
644,283
(15,919)
628,364 $
4.91 $
4.91
3.72 $
3.72
4.43
4.42
(In thousands, except per share data)
Interest income:
Interest and fees on loans and leases
Taxable interest on investment securities
Non-taxable interest on investment securities
Loans held for sale
Other interest and dividends
Total interest income
Interest expense:
Deposits
Securities sold under agreements to repurchase and other borrowings
Federal Home Loan Bank advances
Long-term debt
Total interest expense
Net interest income
Provision (benefit) for credit losses
Net interest income after provision (benefit) for credit losses
Non-interest income:
Deposit service fees
Loan and lease related fees
Wealth and investment services
Mortgage banking activities
Cash surrender value of life insurance policies
(Loss) on sale of investment securities
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 stockholders
Earnings per common share:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
$
$
67
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale
Derivative instruments
Defined benefit pension and postretirement benefit plans
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2022
2021
2023
$
867,840 $
644,283 $
408,864
113,710
6,005
14,674
134,389
1,002,229 $
(635,696)
(14,944)
(11,740)
(662,380)
(18,097) $
$
(62,888)
(13,848)
11,900
(64,836)
344,028
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I
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:
Provision (benefit) for credit losses
Deferred income tax (benefit)
Stock-based compensation
Common stock contribution to charitable foundation
Depreciation and amortization of property and equipment and intangible assets
Net (accretion) and amortization of interest-earning assets and borrowings
Amortization of low-income housing tax credit investments
Amortization of mortgage servicing rights
Reduction of right-of-use lease assets
Net (gain) on sale, net of write-downs, of foreclosed properties and repossessed assets
Net loss (gain) on sale, net of write-downs, of property and equipment
Loss 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 (increase) decrease in derivative contract assets and liabilities
Net (increase) in accrued interest receivable and other assets
Net (decrease) increase 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 (increase) 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 paid for acquisition of interLINK
Net cash paid for acquisition of Bend
Net cash received in merger with Sterling
Net cash (used for) investing activities
See accompanying Notes to Consolidated Financial Statements.
Years ended December 31,
2022
2021
2023
$
867,840 $
644,283 $
408,864
150,747
(53,634)
54,087
—
76,490
(23,267)
71,775
1,063
30,616
(337)
4,020
33,620
(13,319)
13,882
(1,126)
(860)
(26,228)
(3,566)
(73,295)
(13,774)
(116,085)
978,649
(2,372,249)
591,207
789,603
(891,761)
390,073
119,018
(27,430)
(1,653,257)
625,968
4,033
6,894
(40,303)
20,098
(157,646)
—
—
(2,595,752)
280,619
(69,664)
54,099
10,500
81,800
(26,215)
44,208
870
56,783
(1,130)
8,293
6,751
(33,107)
36,335
(580)
(3,322)
(29,237)
(6,311)
536,820
(106,740)
(149,103)
1,335,952
(1,099,810)
754,545
172,947
(1,150,023)
750,752
(223,562)
(24,887)
(7,501,545)
679,693
2,568
300
(28,762)
21,893
—
(54,407)
513,960
(7,186,338)
(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)
70
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
Financing Activities:
Net increase in deposits
Net (decrease) increase in Federal Home Loan Bank advances
Proceeds from extinguishment of borrowings
Net increase (decrease) in securities sold under agreements to repurchase
and other borrowings
Repayment of long-term debt
Dividends paid to common stockholders
Dividends paid to preferred stockholders
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 in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
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 returned finance lease equipment to assets held for sale
Transfer of loans to loans held for sale
Deposits assumed
Merger with Sterling: (1)
Tangible assets acquired
Goodwill and other intangible assets
Liabilities assumed
Common stock issued
Preferred stock exchanged
Acquisition of Bend: (1)
Tangible assets acquired
Goodwill and other intangible assets
Liabilities assumed
Acquisition of interLINK:
Tangible assets acquired
Goodwill and other intangible assets
Liabilities assumed
Contingent consideration
Years ended December 31,
2022
2021
2023
6,721,028
(3,100,534)
—
936,001
5,449,555
2,548
(693,443)
(16,752)
(278,155)
(16,650)
1,723
(107,984)
(16,278)
2,492,955
875,852
839,943
1,715,795 $
447,202
—
(247,767)
(13,725)
703
(322,103)
(23,655)
6,228,759
378,373
461,570
839,943 $
2,511,163
(122,167)
—
(320,459)
—
(144,807)
(7,875)
3,492
—
(4,384)
1,914,963
198,466
263,104
461,570
1,248,620 $
268,598
240,851 $
193,544
42,151
112,587
10,485 $
5,139
629,172
—
774 $
—
652,855
313
1,757
—
78,316
—
$
$
$
17,607
(25,561)
(7,954)
—
—
294
(294)
—
6,417
183,216
15,948
16,039
26,922,010
2,149,865
24,405,711
5,041,182
138,942
15,731
38,966
290
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) The non-cash merger and acquisition activities presented for 2023 reflect adjustments recorded within the one-year measurement
period, which were identified as a result of extended information gathering and new information that arose from integration
activities during the first quarter of 2023. Additional information regarding these amounts can be found within Note 2: Mergers
and Acquisitions and Note 8: Goodwill and Other Intangible Assets.
See accompanying Notes to Consolidated Financial Statements.
71
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, and its HSA Bank Division, is
a leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three
differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking. While its core footprint spans the
northeastern U.S. from New York to Massachusetts, certain businesses operate in extended geographies. HSA Bank is one of
the largest providers of employee benefits solutions in the U.S.
Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with GAAP, and include the accounts of the
Company and all other entities in which the Company has a controlling financial interest. Intercompany transactions and
balances have been eliminated in consolidation. Assets under administration or assets under management that the Company
holds or manages in a fiduciary or agency capacity for customers 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 VOE in which the Company has a
controlling financial interest and any 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 if the non-controlling stockholders 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 non-consolidated VIEs can be found within Note 15: 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 the 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.
Business Combinations
Business combinations are accounted for under the acquisition method, in which the identifiable assets acquired and liabilities
assumed are generally measured and recognized at fair value as of the acquisition date, with the excess of the purchase price
over the fair value of the net assets acquired recognized as goodwill. Items such as acquired ROU lease assets and operating
lease liabilities as lessee, employee benefit plans, and income-tax related balances are recognized in accordance with other
applicable GAAP, which may result in measurements that differ from fair value. After the adoption of ASU No. 2021-08—
Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,
contract assets and contract liabilities from contracts with customers discussed below, may result in measurements that differ
from fair value as well.
Business combinations are included in the Consolidated Financial Statements from the respective dates of acquisition.
Historical reporting periods reflect only the results of legacy Webster operations. Merger-related costs are expensed in the
period incurred and presented within the applicable non-interest expense category. Additional information regarding the
Company's mergers and acquisitions can be found within Note 2: Mergers and Acquisitions.
72
Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash and due from banks and interest-bearing deposits. Cash equivalents have an
original maturity of three months or less.
Cash and due from banks includes cash on hand, certain deposits at the FRB, and cash due from banks. Restricted cash related
to Federal Reserve System requirements and cash collateral received on derivative positions are also included in Cash and due
from banks.
Interest-bearing deposits includes deposits at the FRB in excess of reserve requirements, if any, and federal funds sold to other
financial institutions.
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 (AOCL). 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 (AOCL) 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 (AOCL) balance associated with the securities sold.
Debt securities classified as held-to-maturity are those in which the Company 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 3: Investment Securities.
Investments in Equity Securities
The Company’s accounting treatment for non-consolidated 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 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.
73
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
The 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.
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 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 on the accompanying Consolidated Statements of Income. Cash flows from the sale of loans that were
originated for sale are presented within Operating activities on the accompanying Consolidated Statements of Cash Flows,
whereas cash flows from the sale of loans that were originated for investment and then subsequently transferred to held for sale
are presented within Investing activities. Additional information regarding mortgage banking activities and loans sold can be
found within Note 5: 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
to government-sponsored enterprises through established programs, as well as commercial loan sales through participation
agreements, and other individual or portfolio loan and securities sales. In accordance with the 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 that were 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 5: Transfers and Servicing of Financial Assets.
Loans and Leases
Loans and leases are stated at the principal amount outstanding, net of amounts charged-off, unamortized premiums and
discounts, and deferred loan and lease fees or costs, which are recognized as yield adjustments in interest income using the
effective 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. Amounts of cash receipts and cash payments for loans and leases are
presented net within Investing activities on the Consolidated Statements of Cash Flows.
Non-accrual Loans
Loans are placed on non-accrual status when full collection of principal and interest in accordance with contractual terms is not
expected based on available information, which generally occurs when principal or interest payments become 90 days
delinquent unless the loan 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. The Company considers a loan to be “well-secured” when it
is secured by collateral in the form of liens on or pledges of real or personal property that have a realizable value sufficient to
discharge the debt in full, or when it is secured by a contractual guarantee of a financially responsible party. The Company
considers a loan “in the process of collection” if collection of the debt is proceeding in due course either through legal action or
through collection efforts not involving legal action that are reasonably expected to result in repayment of the debt or in its
restoration to a current status in the near future.
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When loans and leases are placed on non-accrual status, the accrual of interest income and the amortization or accretion of
premiums, discounts, and deferred fees and costs is discontinued, and any previously accrued interest is reversed as a reduction
of interest income. For commercial loans and leases, if the Company determines that repayment of non-accrual loans and leases
is not expected, any payment received is applied to principal until the unpaid balance has been fully recovered. Any excess is
then credited to interest income. For consumer loans, if the Company determines that principal can be repaid, interest payments
are taken into income as received on a cash basis.
Loans are generally removed from non-accrual status when they become current as to principal and interest or demonstrate a
period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and
interest. For commercial loans, a sustained period of repayment performance is generally required. Pursuant to regulatory
guidance, a loan discharged under Chapter 7 of the U.S. bankruptcy code is removed from non-accrual status when full
repayment of the remaining pre-discharged contractual principal and interest is expected, and there have been at least six
consecutive months of current payments. Additional information regarding non-accrual loans and leases can be found within
Note 4: Loans and Leases.
Allowance for Credit Losses on Loans and Leases
The ACL on loans and leases, which is established through a provision charged to expense, 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 Company has elected to present accrued
interest receivable separately from the amortized cost basis of Loans and leases on the accompanying Consolidated Balance
Sheets. An ACL on accrued interest for a loan is not measured as accrued interest income is reversed against interest income for
non-accrual loans immediately after their non-accrual classification.
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 and credit
quality, and expected losses are determined using a PD, LGD, EAD, or loss rate framework. For portfolios using the PD, LGD,
and 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, loan-level risk attributes, and credit quality indicators. 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, the loan's
amortization schedule, and prepayment rates. Under the loss rate framework, expected credit losses are estimated using a loss
rate that is multiplied by the amortized cost of the asset at the balance sheet date. For each loan segment identified, management
applies an expected historical loss trend based on third-party loss estimates, and correlates them to observed economic metrics,
and reasonable and supportable forecasts of economic conditions.
The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and
supportable forecast period. The development of the reasonable and supportable forecast period assumes that each
macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific economic
indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start
date and is complete within three to five years. Certain models use output reversion and revert to mean historical loss rates on a
straight-line basis in the third year of the forecast. Other models incorporate a reasonable and supportable forecast of various
macroeconomic variables over the remaining life of the Company's assets. Historical loss rates are based on approximately 10
years of recently available data and are updated annually.
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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 models use unemployment, gross domestic
product, commercial real estate price indices, 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. 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.
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. Qualitative factors are based on
management's judgement of the Company, market, industry, or business specific data including loan trends, portfolio segment
composition, and loan rating or credit scores. 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.
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.
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 and loans with a charge-off are individually assessed.
Individual assessment for commercial loans that are considered to be collateral dependent 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, the Company'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 4: Loans and Leases.
Charge-off of Uncollectible Loans
If all or a portion of a loan is deemed to be no longer collectible upon the occurrence of a loss-confirming event, a charge-off
may be recognized. Charge-offs reduce the amortized cost basis of the loan with a corresponding reduction to the ACL. For
commercial loans, loss confirming events usually involve the receipt of specific adverse information about the borrower. The
Company will generally recognize charge-offs for commercial loans on a case-by-case basis based on the review of the entire
credit relationship and financial condition of the borrower. Loss-confirming events for consumer loans, such as bankruptcy or
protracted delinquency, are typically based on established thresholds rather than by specific adverse information about the
borrower.
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PCD Loans and Leases
PCD loans and leases are defined as those that have experienced a more-than-insignificant deterioration in credit quality since
origination. The Company considers a variety of factors to evaluate and identify whether acquired loans are PCD, including but
not limited to, nonaccrual status, delinquency, whether the borrower is experiencing financial difficulty, partial charge-offs,
decreases in FICO scores, risk rating downgrades, and other factors. Upon acquisition, expected credit losses are added to the
fair value of individual PCD loans and leases to determine the amortized cost basis. After initial recognition, any changes to the
estimate of expected credit losses, favorable or unfavorable, are recorded as a provision for credit loss during the period of
change.
PCD accounting is also applied to loans and leases previously charged-off by the acquiree if the Company has contractual rights
to the cash flows at the acquisition date. The Company recognizes an additional ACL for amounts previously charged-off by the
acquiree with a corresponding increase to the amortized costs basis of the acquired asset. Balances deemed to be uncollectible
are immediately charged-off in accordance with the Company’s charge-off policies, resulting in the establishment of the initial
ACL for PCD loans and leases to be recorded net of these uncollectible balances.
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. Additional information regarding the ACL on unfunded loan commitments can be found within
Note 23: Commitments and Contingencies.
Troubled Debt Restructurings
Prior to the adoption of ASU No. 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings
and Vintage Disclosures, a modified loan was considered a TDR when the following two conditions were met: (i) the borrower
was experiencing financial difficulty, and (ii) the modification constituted a concession (i.e., the modified terms of the loan
were more attractive to the borrower than standard market terms). The Company's most common types of TDRs included
covenant modifications and forbearance.
The Company’s policy was to place consumer loan TDRs, except those that were performing prior to TDR classification, on
non-accrual status for a minimum period of six months. Commercial loan TDRs were evaluated on a case-by-case basis when
determining whether or not to place them on non-accrual status. Loans qualified for return-to-accrual status when the borrower
had demonstrated performance with the restructured terms of the loan agreement for a minimum period of six months. TDRs
were also to be reported as such for the remaining life of the loan and individually assessed for expected credit losses under the
Company’s ACL methodology.
Upon adoption of ASU No. 2022-02 on January 1, 2023, the existing measurement and disclosure requirements for TDRs by
creditors were eliminated and disclosure requirements for certain loan refinancings and restructurings by creditors when a
borrower is experiencing financial difficulty were enhanced. Additional information regarding modifications to borrowers
experiencing financial difficulty can be found under the section captioned “Accounting Standards Adopted During the Current
Year” and within Note 4: 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 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
Other expense on the accompanying Consolidated Statements of Income.
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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
Furniture, fixtures, and equipment
Data processing equipment 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 Other income or Other expense, respectively, on the accompanying Consolidated
Statements of Income. Additional information regarding property and equipment can be found within Note 6: Premises and
Equipment.
Operating Leases
As lessee, ROU lease assets and their corresponding lease liabilities are recognized on the lease commencement date. A ROU
asset is measured based on 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 measured based on 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 either an index or rate
are initially measured using the index or rate at the commencement date and included in the measurement of the lease liability.
Renewal options are not included as part of the ROU asset or lease liability unless the renewal option is deemed reasonably
certain to exercise. ROU lease assets and operating lease liabilities are included in Premises and equipment and Accrued
expenses and other liabilities, respectively, on the accompanying Consolidated Balance Sheets.
For real estate leases, lease components and non-lease components are accounted for as a single lease component if the
non-lease components are fixed and separately if they are variable. For equipment leases, lease components and non-lease
components are accounted for separately. Operating lease expense, which is comprised of operating lease costs and variable
lease costs, net of sublease income, is amortized on a straight-line basis and reflected as a part of Occupancy expense on the
accompanying Consolidated Statements of Income. Additional information regarding the Company's lessee arrangements can
be found within Note 7: 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.
Goodwill may be evaluated for impairment by first 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 to be 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 Other expense on the
accompanying Consolidated Statements of Income.
The Company completed a quantitative 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 8: Goodwill and Other Intangible Assets.
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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 that the carrying amount of the asset may not be recoverable. Additional
information regarding other intangible assets can be found within Note 8: 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 and Sterling. 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 the Company 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 dispose of such securities to
other parties in the normal course of their operations and agree to resell to the Company the same securities at the maturity date
of the agreements. The Company 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 11:
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 non-significant portions of Loan and lease related fees and Other 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.
Share-Based Compensation
The Company maintains a stock compensation plan that provides for the grant of stock options, stock appreciation rights,
restricted stock, performance-based stock, and stock units 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, and is included within Compensation and benefits expense on the accompanying Consolidated Statements
of Income. For time-based restricted stock awards and average return on equity performance-based restricted stock awards, fair
value is measured using the closing price of Webster common stock at the grant date. For total stockholder return performance-
based restricted stock awards, fair value is measured using the Monte Carlo simulation model. Performance-based restricted
stock awards ultimately vest in a range from 0% to 150% of the target number of shares under the grant. Compensation expense
may be subject to adjustment based on management's assessment of the Company's average 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 result 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 are 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.
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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, while the deferred component represents the tax
effects of temporary differences between amounts recognized for financial accounting and tax purposes. DTAs and 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. The Company recognizes interest and penalties on uncertain tax positions and interest on refundable
income taxes as a component of Income tax expense and Other income, respectively, on the accompanying Consolidated
Statements of Income. Additional information regarding income taxes can be found within Note 9: 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 stockholders 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 equity during the period, except those resulting from transactions with
stockholders. Comprehensive income (loss) comprises net income and the after-tax effect changes in the following items: net
unrealized gain (loss) on available-for-sale securities, net unrealized gain (loss) on derivative instruments, and net actuarial gain
(loss) related to defined benefit pension and other postretirement benefit plans. Comprehensive income (loss) is reported on the
accompanying Consolidated Statements of Stockholders' Equity and the accompanying Consolidated Statements of
Comprehensive Income. Additional information regarding comprehensive income (loss) can be found within Note 13:
Accumulated Other Comprehensive (Loss) Income, Net of Tax.
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. Net cash flows from derivative contract assets and liabilities are presented within 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 either as fair value or cash flow hedges for accounting purposes. Derivative
financial instruments receive hedge accounting treatment if they are qualified and are 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 (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.
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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 income on the accompanying Consolidated Statements of Income.
Offsetting Assets and Liabilities. Derivative assets and derivative liabilities with the same counterparty are presented on a net
basis in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets when master netting
agreements are in place. Cash collateral paid or received for non-exchange cleared transactions are presented net with the
associated derivative assets and derivative liabilities. Securities collateral is not offset. Amounts paid to dealers for initial
margin are also included in Accrued interest receivable and other assets. 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 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 methodologies used to measure fair
value can be found within Note 18: Fair Value Measurements.
Employee Retirement Benefit Plans
The Company sponsors defined contribution postretirement benefit plans that are established under Section 401(k) of the
Internal Revenue Code. Expenses to maintain the plans, as well as employer contributions, are charged to Compensation and
benefits expense on the accompanying Consolidated Statements of Income.
The Bank had offered a qualified noncontributory defined benefit pension plan and a non-qualified SERP to eligible employees
and key executives who met certain age and service requirements, both of which were frozen effective December 31, 2007. The
Bank also provides for OPEB to certain retired employees. In connection with the merger with Sterling, the Company also
assumed the benefit obligations of Sterling's non-qualified SERP and OPEB plans.
Pension contributions are funded in accordance with the requirements of the Employee Retirement Income Security Act. Net
periodic benefit cost (income), which is based upon actuarial computations of current and future benefits for eligible employees,
are charged to Other 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.
Accounting Standards Adopted During the Current Year
ASU No. 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures
In March 2022, the FASB issued ASU No. 2022-02, which eliminates the accounting guidance for TDRs by creditors in
Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for
certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically,
rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and
restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a
continuation of an existing loan. In addition, the Update requires that an entity disclose current-period gross write-offs by year
of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial
Instruments—Credit Losses—Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6.
Modifications to borrowers experiencing financial difficulty include principal forgiveness, interest rate reductions, payment
delays, term extensions, or combinations thereof. Expected losses or recoveries on loans where modifications have been granted
to borrowers experiencing financial difficulty have been factored into the ACL on loans and leases. Upon adoption of ASU
2022-02, the Company is no longer required to use a discounted cash flow (or reconcilable) method to measure the ACL
resulting from a modification with a borrower experiencing financial difficulty. Accordingly, the Company now applies the
same credit loss methodology it uses for similar loans that were not modified.
The Company adopted the Update on January 1, 2023. The Company elected the option to apply the modified retrospective
transition method related to the recognition and measurement of TDRs, which resulted in a $5.9 million increase to the
Allowance for credit losses on loans and leases and a $1.6 million increase to DTAs, net, with a corresponding $4.3 million
cumulative-effect adjustment to retained earnings as of the adoption date. The enhanced disclosure requirements provided for
by the Update were adopted on a prospective basis. Reporting periods prior to the adoption of the Update are accounted for and
presented in accordance with the applicable GAAP.
81
Additional information regarding modifications granted to borrowers experiencing financial difficulty can be found within
Note 4: Loans and Leases.
ASU No. 2022-01—Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method
In March 2022, the FASB issued ASU No. 2022-01—Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio
Layer Method, which expands the current last-of-layer method of hedge accounting that permits only one hedged layer to allow
multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio
layer method. Additionally, the amendments in this Update: (i) expand the scope of the portfolio layer method to include non-
prepayable assets; (ii) specify eligible hedging instruments in a single-layer hedge; (iii) provide additional guidance on the
accounting for and disclosure of hedge basis adjustments; and (iv) specify how hedge basis adjustments should be considered
when determining credit losses for the assets included in the closed portfolio. An entity may also reclassify debt securities
classified in the held-to-maturity category at the date of adoption to the available-for-sale category only if the entity applies
portfolio layer method hedging to one or more closed portfolios that include those debt securities within a 30-day period.
The Company adopted the Update on January 1, 2023 on a prospective basis. The adoption of this guidance did not have a
material impact on the Company's Consolidated Financial Statements. The Company did not reclassify any debt securities from
the held-to-maturity category to the available-for-sale category as permitted upon adoption.
ASU No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers
In October 2021, the FASB issued ASU No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets
and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets
and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with
Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606
as if it had originated the contracts. The Company adopted the Update on January 1, 2023 on a prospective basis. The adoption
of this guidance did not have a material impact on the Company's Consolidated Financial Statements.
Relevant Accounting Standards Issued But Not Yet Adopted
ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax
Disclosures, to provide more transparency about income tax information through improvements to income tax disclosures,
primarily related to the rate reconciliation and income taxes paid information. Specifically, the amendments in this Update
require disclosure of: (i) a tabular reconciliation, using both percentages and reporting currency amounts, with prescribed
categories that are required to be disclosed, and the separate disclosure and disaggregation of prescribed reconciling items with
an effect equal to 5% or more of the amount determined by multiplying pretax income from continuing operations by the
application statutory rate; (ii) a qualitative description of the states and local jurisdictions that make up the majority (greater
than 50%) of the effect of the state and local income taxes; and (iii) amount of income taxes paid, net of refunds received,
disaggregated by federal, state, and foreign taxes and by individual jurisdictions that comprise 5% or more of total income taxes
paid, net of refunds received. The amendments in this Update also include certain other amendments to improve the
effectiveness of income tax disclosures.
The Update is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments
should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating
this guidance to determine the impact on its income tax disclosures.
ASU No. 2023-07—Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU No. 2023-07—Segment Reporting (Topic 280)—Improvements to Reportable
Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about
significant segment expenses. Specifically, the amendments in this Update require disclosure of: (i) significant segment
expenses that are regularly provided to the chief operating decision maker and included within each reported measure of
segment profit or loss; (ii) an amount for other segment items by reportable segment and a description of its composition; and
(iii) the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker
uses each reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources.
In addition, all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280, will be
required in interim periods. Overall, the Update does not change how a public entity identifies its operating segments,
aggregates those operating segments, or determines its reportable segments, or applies the quantitative thresholds to determine
its reportable segments.
82
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods
presented in the financial statements, in which, upon transition, the segment expense categories and amounts disclosed in the
prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.
The Company is currently evaluating this guidance to determine the impact on its segment reporting disclosures.
ASU No. 2023-02—Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit
Structures Using the Proportional Amortization Method (a consensus of the Emerging Issue Task Force)
In March 2023, the FASB issued ASU No. 2023-02—Investments—Equity Method and Joint Ventures (Topic 323):
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the
Emerging Issues Task Force), which permits reporting entities to elect to account for their tax equity investments, regardless of
the program from which the income tax credits are received, using the proportional amortization method if certain conditions
are met. A reporting entity may make an accounting policy election to apply the proportional amortization method in
accordance with paragraph 323-740-25-4 on a tax-credit-program by tax-credit-program basis rather than electing to apply the
proportional amortization method at the reporting entity level or to individual investments.
A reporting entity that applies the proportional amortization method to qualifying tax equity investments must account for the
receipt of the investment tax credits using the flow-through method under Topic 740, Income Taxes, even if the entity applies
the deferral method for other investment tax credit received. The amendments also remove certain guidance for Qualified
Affordable Housing Project Investments, require the application of the delayed equity contribution guidance to all tax equity
investments, and require specific disclosures that must be applied to all investments that generate income tax credits and other
income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method in
accordance with Subtopic 323-740.
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with
early adoption permitted. The amendments generally must be applied on either a modified retrospective or retrospective basis
with a cumulative-effect adjustment to retained earnings reflecting the difference between the previous method used to account
for the tax equity investment and the application of the proportional amortization method since the investment was entered into.
The Company will adopt the Update on January 1, 2024. The adoption of this guidance will not have a material impact on the
Company's Consolidated Financial Statements and disclosures as its investments in tax credit structures are currently limited to
LIHTC investments, which are already being accounted for using the proportional amortization method.
ASU No. 2023-01—Leases (Topic 842): Common Control Arrangements
In March 2023, the FASB issued ASU No. 2023-01—Leases (Topic 842): Common Control Arrangements, which requires that
leasehold improvements associated with leases between entities under common control be: (i) amortized by the lessee over the
useful lives of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee
controls the use of the underlying asset (the leased asset) through a lease; however, if the lessor obtained the right to control the
use of the underlying asset through a lease with another entity not within the same common control group, the amortization
period may not exceed the amortization period of the common control group; and (ii) accounted for as a transfer between
entities under common control through an adjustment to equity, if, and when, the lessee no longer controls the use of the
underlying asset. Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property,
Plant, and Equipment.
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with
early adoption permitted. The amendments either may be applied prospectively to all new and existing leasehold improvements
recognized on or after the adoption date with any remaining unamortized balance of existing leasehold improvements amortized
over their remaining useful life to the common control group determined at that date; or retrospectively to the beginning of the
period in which the entity first applied Topic 842, with any leasehold improvements that otherwise would not have been
amortized or impaired recognized through a cumulative-effect adjustment to the opening balance of retained earnings at the
beginning of the earliest period presented in accordance with Topic 842.
The Company will adopt the Update on January 1, 2024. The adoption of this guidance will not have a material impact on the
Company's Consolidated Financial Statements and disclosures as its operating lease arrangements in which it is lessee are
currently not between entities under common control.
83
ASU No. 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restriction
In June 2022, the FASB issued ASU No. 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security
is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair value. The
amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale
restriction, and requires the following disclosures for equity securities subject to contractual sale restrictions: (i) the fair value of
equity securities subject to contractual sale restrictions reflected on the balance sheet; (ii) the nature and remaining duration of
the restriction(s); and (iii) the circumstances that could cause a lapse in the restriction(s).
The Update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with
early adoption permitted. For all entities except investment companies, the amendments should be applied prospectively with
any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.
The Company will adopt the Update on January 1, 2024. The adoption of this guidance will not have a material impact on the
Company's Consolidated Financial Statements and disclosures. The Company does not currently consider contractual
restrictions on the sale of an equity security in measuring fair value.
84
Note 2: Mergers and Acquisitions
Merger with Sterling
On January 31, 2022, the Company completed its merger with Sterling pursuant to an Agreement and Plan of Merger dated as
of April 18, 2021. Pursuant to the merger agreement, Sterling Bancorp merged with and into the Holding Company, with the
Holding Company continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank,
a wholly-owned subsidiary of Sterling Bancorp, merged with and into the Bank, with the 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 the Company's geographic footprint and combined two complementary
organizations to create one of the largest commercial banks in the northeastern U.S.
Pursuant to the merger agreement, each share of Sterling common stock issued and outstanding immediately prior to the
merger, other than certain shares held by the Company and Sterling, was converted into the right to receive a fixed 0.4630 share
of Webster common stock. Furthermore, 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. Cash was also
paid to Sterling common stockholders in lieu of fractional shares, as applicable.
In addition, each share of Sterling 6.50% Series A Non-Cumulative Perpetual Preferred Stock issued and outstanding
immediately prior to the merger 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.
The following table summarizes the determination of the purchase price consideration:
(In thousands, except share and per share data)
Webster common stock issued
Price per share of Webster common stock on January 31, 2022
Consideration for outstanding common stock
Consideration for preferred stock exchanged
Consideration for replacement equity awards (1)
Cash in lieu of fractional shares
Total purchase price consideration
87,965,239
56.81
4,997,305
138,942
43,877
176
5,180,300
$
$
(1) The fair value of the replacement equity awards issued by the Company and included in the consideration transferred pertains to
services performed prior to the merger effective date. The fair value attributed to services performed after the merger effective date
is being recognized over the required service vesting period for each award and recorded as Compensation and benefits expense on
the accompanying Consolidated Statements of Income. During the years ended December 31, 2023, and 2022, the Company
recognized an increase of $22.8 million and $18.8 million in stock compensation expense related to the replacement equity awards.
The merger was accounted for as a business combination. Accordingly, the purchase price was 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. Fair value estimates of the assets acquired and liabilities assumed were
subject to adjustment during the one-year measurement period following the closing date of the merger if new information was
obtained about facts and circumstances that existed as of the merger effective date that, if known, would have affected the
measurement of the amounts recognized as of that date.
Measurement period adjustments pertaining to other assets and other liabilities and their deferred tax impact were made during
the first quarter of 2023, totaling a net $25.6 million. The Company's valuations of the assets acquired and liabilities assumed in
the merger with Sterling were considered final as of March 31, 2023.
85
The following table summarizes the final allocation of the purchase price to the fair value of the identifiable assets acquired and
liabilities assumed from Sterling:
(In thousands)
Purchase price consideration
Assets:
Cash and due from banks
Interest-bearing deposits
Investment securities available-for-sale
Federal Home Loan Bank and Federal Reserve Bank Stock
Loans held for sale
Loans and leases:
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Equipment financing
Warehouse lending
Residential
Home equity
Other consumer
Total loans and leases
Deferred tax assets, net
Premises and equipment (1)
Other intangible assets
Bank-owned life insurance policies
Accrued interest receivable and other assets
Total assets acquired
Liabilities:
Non-interest-bearing deposits
Interest-bearing deposits
Securities sold under agreements to repurchase and other borrowings
Long-term debt
Accrued expenses and other liabilities (1)
Total liabilities assumed
Net assets acquired
Goodwill
Unpaid Principal
Balance
Fair Value
$
5,180,300
$
$
5,570,782
694,137
6,790,600
4,303,381
1,350,579
647,767
1,313,785
132,758
12,559
20,816,348
510,929
3,207
4,429,948
150,502
23,517
5,527,657
683,958
6,656,405
4,255,906
1,314,311
643,754
1,281,637
122,553
12,525
20,498,706
(59,716)
264,421
210,100
645,510
986,729
27,663,853
6,620,248
16,643,755
27,184
516,881
589,689
24,397,757
3,266,096
1,914,204
$
$
$
$
(1)
Includes $100.0 million of ROU lease assets and $106.9 million of operating lease liabilities reported within Premises and
equipment and Accrued expenses and other liabilities, respectively, which were measured based upon the estimated present value of
the remaining lease payments. In addition, ROU lease assets were adjusted for favorable and unfavorable terms of the lease when
compared to market terms, as applicable.
In connection with the merger with Sterling, the Company recorded $1.9 billion of goodwill, which represents the excess of the
purchase price over the fair value of the net assets acquired. Information regarding the allocation of goodwill to the Company's
reportable segments, as well as the carrying amounts and amortization of the core deposit intangible asset and customer
relationship intangible assets, can be found within Note 21: Segment Reporting and Note 8: Goodwill and Other Intangible
Assets, respectively.
86
The following is a description of the valuation methodologies used to estimate the fair values of the significant assets acquired
and liabilities assumed:
Cash and due from banks and Interest-bearing deposits. The carrying amount of these assets is a reasonable estimate of fair
value based on the short-term nature of these assets.
Investment securities available-for-sale. The fair values for investment securities available-for-sale were based on quoted
market prices, where available. If quoted market prices were not available, fair value estimates were based on observable
inputs, including quoted market prices for similar instruments. Investment securities held-to-maturity were classified as
investment securities available-for-sale based on the Company's intent at closing.
Loans and leases. The fair values for loans and leases were estimated using a discounted cash flow methodology that
considered factors including the type of loan or lease and the related collateral, classification status, fixed or variable interest
rate, remaining term, amortization status, and current discount rates. In addition, the PD, LGD, and prepayment assumptions
that were derived based on loan and lease characteristics, historical loss experience, comparable market data, and current and
forecasted economic conditions were used to estimate expected credit losses. Loans and leases generally were valued
individually. The discount rates used for loans and leases were based on current market rates for new originations or
comparable loans and leases and include adjustments for liquidity. The discount rate did not include credit losses as that was
included as a reduction to the estimated cash flows.
Premises and equipment. The fair values for land and buildings were based on appraised values using the cost approach, which
estimates the price a buyer would pay if they were to rebuild or reconstruct a similar property on a comparable piece of land.
Intangible assets. A core deposit intangible asset represents the value of relationships with deposit clients. The fair value of the
core deposit intangible asset was estimated using a net cost savings method, a form of discounted cash flow methodology that
gave appropriate consideration to expected client attrition rates and other applicable adjustments to the projected deposit
balance, the interest cost and net maintenance cost associated with the client deposit base, alternative cost of funds, and a
discount rate used to discount the future economic benefits of the core deposit intangible asset to present value. The core
deposit intangible asset is being amortized on an accelerated basis over 10 years based upon the period over which the
estimated economic benefits are estimated to be received. Customer relationship intangible assets for payroll finance, factoring
receivables finance, and wealth businesses were estimated using a discounted cash flow methodology that reflects the estimated
value of the future net earnings for each relationship with adjustments for attrition. The customer relationship intangible assets
are being amortized on an accelerated basis over their estimated useful life of 10 years.
Bank-owned life insurance policies. The cash surrender value of these insurance policies is a reasonable estimate of fair value
since it reflects the amount that would be realized by the contract owner upon discontinuance or surrender.
Deposits. The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the
merger date. The fair values for time deposits were estimated using a discounted cash flow methodology that applies interest
rates currently being offered to the contractual interest rates on such time deposits.
Securities sold under agreements to repurchase and other borrowings. The carrying amount of these liabilities is a reasonable
estimate of fair value based on the short-term nature of these liabilities.
Long-term debt. The fair values of long-term debt instruments were estimated based on quoted market prices for the
instrument, if available, or for similar instruments, if not available, or by using a discounted cash flow methodology based on
current incremental borrowing rates for similar types of instruments.
PCD Loans and Leases
Purchased loans and leases that have experienced more-than-insignificant deterioration in credit quality since origination are
considered PCD. For PCD loans and leases, the initial estimate of expected credit losses was recognized as an adjustment to the
unpaid principal balance and non-credit discount at acquisition. Subsequent to the merger effective date, the Company recorded
an ACL for non-PCD loans and leases of $175.1 million through an increase to the Provision for credit losses. There was no
carryover of Sterling's previously recorded ACL on loans and leases.
The following table reconciles the unpaid principal balance to the fair value of PCD loans and leases by portfolio segment:
(In thousands)
Unpaid principal balance
ACL at acquisition
Non-credit (discount)
Fair value
Commercial
Consumer
Total
$
$
3,394,963
(115,464)
(40,947)
3,238,552
$
$
541,471
(20,852)
(2,784)
517,835
$
$
3,936,434
(136,316)
(43,731)
3,756,387
87
Supplemental Pro Forma Financial Information (Unaudited)
The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been
completed on January 1, 2021:
(In thousands)
Net interest income
Non-interest income
Net income
Years ended December 31,
2022
2021
$
$
1,961,005
440,783
869,639
1,802,862
487,301
574,927
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have
occurred had the Company merged with Sterling on January 1, 2021. The supplemental pro forma financial information
includes the impact of (i) accreting and amortizing the discounts and premiums associated with the estimated fair value
adjustments to acquired loans and leases, investment securities, deposits, and long-term debt, (ii) the amortization of recognized
intangible assets, (iii) the elimination of Sterling's historical accretion and amortization of discounts and premiums and deferred
origination fees and costs on loans and leases, (iv) the elimination of Sterling's historical accretion and amortization of
discounts and premiums on investment securities, and (v) the related estimated income tax effects. Cost savings and other
business synergies related to the merger are not included in the supplemental pro forma financial information.
In addition, the supplemental pro forma financial information was adjusted for merger-related expenses, as follows:
(In thousands)
Compensation and benefits (1)
Occupancy (2)
Technology and equipment (3)
Marketing
Professional and outside services (4)
Other expense (5)
Total merger-related expenses
Years ended December 31,
2022
2021
$
$
79,001 $
36,586
24,688
416
73,070
32,700
246,461 $
13,987
256
290
—
22,273
648
37,454
(1) Comprised primarily of employee severance and retention costs, and executive restricted stock awards.
(2) Comprised primarily of charges associated with the Company’s 2022 corporate real estate consolidation plan.
(3) Comprised primarily of technology contract termination costs.
(4) Comprised primarily of advisory, legal, accounting, and other professional fees.
(5) Comprised primarily of disposals on property and equipment, contract termination costs, and other miscellaneous expenses.
The Company's operating results for the years ended December 31, 2023, and 2022, include the operating results of acquired
assets and assumed liabilities of Sterling subsequent to the merger on January 31, 2022. Due to the various conversions of
Sterling systems during the years ended December 31, 2023, and 2022, as well as other streamlining and integration of
operating activities into those of the Company, historical reporting for the former Sterling operations after January 31, 2022, is
impracticable, and thus disclosures of Sterling's revenue and earnings since the merger effective date that are included in the
accompanying Consolidated Statements of Income for the reporting period is impracticable.
Bend Acquisition
On February 18, 2022, the Company acquired 100% of the equity interests of Bend, a cloud-based platform solution provider
for HSAs, in exchange for cash of $55.3 million. The acquisition accelerated the Company's efforts underway to deliver
enhanced user experiences at HSA Bank. The transaction was accounted for as a business combination, and resulted in the
addition of $19.6 million in net assets, which primarily comprised $15.9 million of internal use software and a $3.0 million
customer relationship intangible asset. The Company's valuations of the assets acquired and liabilities assumed in the Bend
acquisition were considered final as of March 31, 2023.
Inland Bank and Trust HSA Portfolio Acquisition
On November 7, 2022, the Company acquired a portfolio of HSAs from Inland Bank and Trust. The transaction was accounted
for as an asset acquisition, and the Company received $15.6 million in both cash and deposits on the acquisition date. The
Company also paid a 2.00% deposit premium based on the final settlement of deposits, which resulted in the recognition of a
$0.3 million core deposit intangible asset. The accounts and associated deposits obtained from this transaction provided stable
funding for future loan growth and increased the Company's revenues.
88
interLINK Acquisition
On January 11, 2023, the Company acquired 100% ownership of interLINK from StoneCastle Partners LLC. interLINK is a
technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep
programs between banks and broker/dealers and clearing firms. The acquisition provided the Company with access to a unique
source of core deposit funding and scalable liquidity and added another technology-enabled channel to its already differentiated,
omnichannel deposit gathering capabilities.
The total purchase price of the acquisition was $174.6 million, which included cash paid of $158.6 million and $16.0 million of
contingent consideration measured at fair value. The contingent consideration is payable in cash upon the achievement of
discrete customer and deposit growth events within three years of the acquisition date. Additional information regarding the
determination of fair value for contingent consideration liabilities can be found within Note 18: Fair Value Measurements.
The transaction was accounted for as a business combination, and resulted in the addition of $31.4 million in net assets
measured at fair value, which primarily comprised $36.0 million of broker dealer relationship intangible assets, $6.0 million of
developed technology, a $4.0 million non-competition agreement intangible asset, and $15.9 million of royalty liabilities. The
$143.2 million of goodwill recognized is deductible for tax purposes. The Company's valuations of the assets acquired and
liabilities assumed in the interLINK acquisition were considered final as of June 30, 2023.
Exit Activities
The following table summarizes the change in Accrued expenses and other liabilities as it relates to severance and contract
termination costs, which were primarily incurred in connection with the Sterling merger:
(In thousands)
Balance, beginning of period
Additions charged to expense
Cash payments
Other
Balance, end of period
Years ended December 31,
2023
Contract
Termination (1)
Severance
Total
Severance (2)
2022
Contract
Termination
$
$
7,583 $
18,069
(14,247)
(1,300)
10,105 $
30,362 $
14,000
(30,551)
(6,587)
7,224 $
37,945 $
32,069
(44,798)
(7,887)
17,329 $
10,835 $
36,092
(35,014)
(4,330)
7,583 $
— $
34,152
(3,790)
—
30,362 $
Total
10,835
70,244
(38,804)
(4,330)
37,945
(1) Other contract termination includes (i) a reduction of $4.8 million to a previously recorded technology-related contract termination
charge recorded in Technology and equipment expense due to a change in the expected use of certain services after core conversion
in 2023, and (ii) a reduction of $1.7 million to a previously recorded contract termination charge recorded in Other expense due to a
decrease in volume usage in 2023.
(2) Other severance reflects the release of $4.1 million from the Company's severance accrual in 2022, as the Company re-evaluated its
strategic priorities as a combined organization in connection with the Sterling merger, which resulted in modifications to the
Company's strategic initiatives that were announced in December 2020.
89
Note 3: Investment Securities
Available-for-Sale
The following table summarizes the amortized cost and fair value of available-for-sale securities by major type:
(In thousands)
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
Corporate debt
Private label MBS
Other
Total available-for-sale
(In thousands)
U.S. Treasury notes
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Private label MBS
Other
Total available-for-sale
At December 31, 2023
Amortized
Cost (1)
Unrealized
Gains
Unrealized
Losses
Fair Value
302,212 $
1,626,126
52,994
3,568,140
2,569,438
788,478
704,569
46,635
9,830
9,668,422 $
— $
8
—
32,461
18,204
—
—
—
—
50,673 $
(37,579) $
(52,901)
(4,053)
(253,503)
(299,571)
(24,729)
(82,414)
(3,827)
(789)
(759,366) $
264,633
1,573,233
48,941
3,347,098
2,288,071
763,749
622,155
42,808
9,041
8,959,729
At December 31, 2022
Amortized
Cost (1)
Unrealized
Gains
Unrealized
Losses
Fair Value
755,968 $
302,018
1,719,110
64,984
2,461,337
1,664,600
929,588
2,108
795,999
48,895
12,548
8,757,155 $
— $
—
5
—
26
—
—
—
—
—
—
31 $
(38,928) $
(43,644)
(85,913)
(5,019)
(303,339)
(258,114)
(32,948)
(1)
(91,587)
(4,646)
(350)
(864,489) $
717,040
258,374
1,633,202
59,965
2,158,024
1,406,486
896,640
2,107
704,412
44,249
12,198
7,892,697
$
$
$
$
(1) Accrued interest receivable on available-for-sale securities of $42.5 million and $36.9 million at December 31, 2023, and 2022,
respectively, is excluded from amortized cost and is included in Accrued interest receivable and other assets on the
accompanying Consolidated Balance Sheets.
Unrealized Losses
The following tables summarize the gross unrealized losses and fair value of available-for-sale securities by length of time
each major security type has been in a continuous unrealized loss position:
(Dollars in thousands)
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
Corporate debt
Private label MBS
Other
Total
Less Than 12 Months
12 Months or More
At December 31, 2023
Fair
Value
Unrealized
Losses
$
— $
18,066
—
71,187
430,070
43,844
4,278
—
—
Fair
Value
— $ 264,633 $
1,536,656
48,941
1,945,221
1,314,681
719,905
617,877
42,808
9,041
(124)
—
(272)
(16,137)
(856)
(27)
—
—
Unrealized
Losses
(37,579)
(52,777)
(4,053)
(253,231)
(283,434)
(23,873)
(82,387)
(3,827)
(789)
Number of
Holdings
19
386
36
457
145
42
91
3
2
Total
Fair
Value
Unrealized
Losses
(37,579)
(52,901)
(4,053)
(253,503)
(299,571)
(24,729)
(82,414)
(3,827)
(789)
$ 264,633 $
1,554,722
48,941
2,016,408
1,744,751
763,749
622,155
42,808
9,041
$ 567,445 $
(17,416) $ 6,499,763 $ (741,950)
1,181
$ 7,067,208 $ (759,366)
90
(Dollars in thousands)
U.S. Treasury notes
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Private label MBS
Other
Total
Less Than 12 Months
12 Months or More
At December 31, 2022
Fair
Value
Fair
Value
Unrealized
Losses
(19,167) $ 379,477 $
—
(43,644)
(85,913)
—
4,272
(4,640)
515,206
(206,412)
921,153
(68,674)
598,490
(8,982)
2,107
—
8,421
(89,692)
—
(4,646)
—
(350)
Unrealized
Losses
(19,761)
—
—
(379)
(96,927)
(189,440)
(23,966)
(1)
(1,895)
—
—
$ 337,563 $
258,374
1,616,771
55,693
1,641,544
485,333
273,150
—
692,990
44,249
12,198
Number of
Holdings
23
19
444
39
460
132
52
1
105
3
4
Total
Fair
Value
Unrealized
Losses
(38,928)
(43,644)
(85,913)
(5,019)
(303,339)
(258,114)
(32,948)
(1)
(91,587)
(4,646)
(350)
$ 717,040 $
258,374
1,616,771
59,965
2,156,750
1,406,486
871,640
2,107
701,411
44,249
12,198
$ 5,417,865 $ (532,120) $ 2,429,126 $ (332,369)
1,282
$ 7,846,991 $ (864,489)
The $105.1 million decrease in gross unrealized losses from December 31, 2022, to December 31, 2023, is primarily due to
lower long-term market rates. The Company assesses each available-for-sale security that is in an unrealized loss position to
determine whether the decline in fair value below the amortized cost basis is a result from a credit loss or other factors. At
both December 31, 2023, and 2022, no ACL was recorded on available-for-sale securities as each of the securities in the
Company's portfolio are investment grade, current as to principal and interest, and their price changes are consistent with
interest and credit spreads when adjusting for convexity, rating, and industry differences.
As of December 31, 2023, based on current market conditions and the Company's targeted balance sheet composition
strategy, the Company intends to hold its available-for-sale securities with unrealized loss positions through the anticipated
recovery period. The issuers of these available-for-sale securities have not, to the Company’s knowledge, established any
cause for default. Market prices are expected to approach par as the securities approach maturity.
Contractual Maturities
The following table summarizes the amortized cost and fair value of available-for-sale 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
Total available-for-sale
At December 31, 2023
Amortized Cost
Fair Value
$
$
37,908
644,959
1,363,257
7,622,298
9,668,422
$
$
36,958
616,176
1,263,900
7,042,695
8,959,729
Available-for-sale 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 Securities
During the year ended December 31, 2023, the Company sold U.S. Treasury notes, Corporate debt securities, and Municipal
bonds and notes classified as available-for-sale for proceeds of $789.6 million, which resulted in gross realized losses of
$37.4 million. Because $3.8 million of the total loss recognized for the year ended December 31, 2023, was attributed to a
decline in credit quality, this portion of the charge has been included in the Provision for credit losses on the accompanying
Consolidated Statements of Income.
During the year ended December 31, 2022, the Company sold Municipal bonds and notes classified as available-for-sale for
proceeds of $172.9 million, which resulted in gross realized losses of $6.8 million.
There were no sales of available-for-sales securities during the year ended December 31, 2021.
91
Other Information
The following table summarizes the carrying value of available-for-sale securities pledged for deposits, borrowings, and other
purposes:
(In thousands)
Pledged for deposits
Pledged for borrowings and other
Total available-for-sale securities pledged
At December 31,
2023
2022
$
$
2,102,115
6,111,430
8,213,545
$
$
2,573,072
1,195,101
3,768,173
At December 31, 2023, the Company had callable available-for-sale securities with an aggregate carrying value of $3.0 billion.
Held-to-Maturity
The following table summarizes the amortized cost, fair value, and ACL on held-to-maturity securities by major type:
(In thousands)
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Total held-to-maturity
(In thousands)
Agency CMO
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Total held-to-maturity
At December 31, 2023
Amortized
Cost (1)
Unrealized
Gains
Unrealized
Losses
Fair Value
Allowance
Net Carrying
Value
23,470 $
2,409,521
3,625,627
916,104
100,075
7,074,797 $
— $
1,141
18,586
2,440
—
22,167 $
(1,728) $
(284,776)
(514,534)
(24,877)
(6,426)
(832,341) $
21,742
2,125,886
3,129,679
893,667
93,649
6,264,623
$
$
— $
—
—
209
—
209 $
23,470
2,409,521
3,625,627
915,895
100,075
7,074,588
At December 31, 2022
Amortized
Cost (1)
Unrealized
Gains
Unrealized
Losses
Fair Value
Allowance
Net Carrying
Value
28,358 $
2,626,114
2,831,949
928,845
149,613
6,564,879 $
— $
827
845
1,098
—
2,770 $
(2,060) $
(339,592)
(407,648)
(47,183)
(9,713)
(806,196) $
26,298
2,287,349
2,425,146
882,760
139,900
5,761,453
$
$
— $
—
—
182
—
182 $
28,358
2,626,114
2,831,949
928,663
149,613
6,564,697
$
$
$
$
(1) Accrued interest receivable on held-to-maturity securities of $24.9 million and $24.2 million at December 31, 2023, and 2022,
respectively, is excluded from amortized cost and is included in Accrued interest receivable and other assets on the
accompanying Consolidated Balance Sheets.
An ACL on held-to-maturity 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 securities with
gross unrealized losses and no ACL are considered to be high credit quality, and therefore, zero credit loss has been recorded.
The following table summarizes the activity in the ACL on held-to-maturity securities:
(In thousands)
Balance, beginning of period
Provision (benefit) for credit losses
Balance, end of period
Contractual Maturities
Years ended December 31,
2023
2022
2021
$
$
182
27
209
$
$
214
(32)
182
$
$
299
(85)
214
The following table summarizes the amortized cost and fair value of held-to-maturity 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
Total held-to-maturity
At December 31, 2023
Amortized Cost
Fair Value
$
$
8,122
59,932
363,498
6,643,245
7,074,797
$
$
8,136
60,434
349,083
5,846,970
6,264,623
92
Held-to-maturity 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.
Credit Quality Information
The Company monitors the credit quality of held-to-maturity securities through credit ratings provided by Standard & Poor's
Rating Services, Moody's, Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about
the credit quality of a security and are updated at each quarter end. Investment grade 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, 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 securities. There were no speculative grade held-to-
maturity securities at December 31, 2023, or December 31, 2022. Held-to-maturity securities that are not rated are collateralized
with U.S. Treasury obligations.
The following tables summarize the amortized cost of held-to-maturity securities based on their lowest publicly available credit
rating:
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
At December 31, 2023
Investment Grade
(In thousands)
Agency CMOs
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
$
— $
23,470 $
— 2,409,521
— 3,625,627
162,615
—
333,479
100,075
— $
—
—
253,671
—
— $
—
—
115,404
—
— $
—
—
32,732
—
Not Rated
$
—
—
—
14,038
—
—
—
—
4,165
—
— $
—
—
—
—
— $
Total held-to-maturity
$
433,554 $ 6,221,233 $ 253,671 $ 115,404 $
32,732 $
4,165
$
14,038
At December 31, 2022
Investment Grade
(In thousands)
Agency CMOs
Agency MBS
Agency CMBS
Municipal bonds and notes
CMBS
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
$
— $
28,358 $
— 2,626,114
— 2,831,949
163,312
—
336,035
149,613
— $
—
—
255,235
—
— $
—
—
116,870
—
— $
—
—
38,177
—
— $
—
—
4,165
—
Total held-to-maturity
$
485,648 $ 5,649,733 $ 255,235 $ 116,870 $
38,177 $
4,165 $
Not Rated
$
—
—
—
15,051
—
$
15,051
—
—
—
—
—
—
At December 31, 2023, and 2022, there were no held-to-maturity debt securities past due under the terms of their agreements or
in non-accrual status.
Other Information
The following table summarizes the carrying value of held-to-maturity securities pledged for deposits, borrowings, and other
purposes:
(In thousands)
Pledged for deposits
Pledged for borrowings and other
Total held-to-maturity securities pledged
At December 31,
2023
2022
$
$
1,212,824
5,582,379
6,795,203
$
$
1,596,777
260,735
1,857,512
At December 31, 2023, the Company had callable held-to-maturity securities with an aggregate carrying value of $0.9 billion.
93
Note 4: 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
Multi-family
Equipment financing
Warehouse lending
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Loans and leases
At December 31,
2023
16,885,475 $
1,557,841
13,569,762
7,587,970
1,328,786
—
40,929,834
8,227,923
1,516,955
51,340
9,796,218
50,726,052 $
2022
16,392,795
1,821,642
12,997,163
6,621,982
1,628,393
641,976
40,103,951
7,963,420
1,633,107
63,948
9,660,475
49,764,426
$
$
The carrying amount of loans and leases at December 31, 2023, and 2022, includes net unamortized (discounts)/premiums and
net unamortized deferred (fees)/costs totaling $(33.8) million and $(68.7) million, respectively. Accrued interest receivable of
$270.4 million and $226.3 million at December 31, 2023, and 2022, respectively, is excluded from the carrying amount of loans
and leases and is included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets.
At December 31, 2023, the Company had pledged $16.6 billion of eligible loans as collateral to support borrowing capacity at
the FHLB.
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
Multi-family
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, 2023
$
$
2,270 $
—
1,459
5,198
3,966
12,893
14,894
5,676
410
20,980
33,873 $
890 $
—
—
2,340
8
3,238
6,218
3,285
94
9,597
12,835 $
94 $
—
184
—
—
278
—
—
—
—
278 $
122,855 $
35,068
11,383
—
9,828
179,134
5,704
23,545
142
29,391
208,525 $
126,109 $ 16,759,366 $ 16,885,475
35,068
1,557,841
1,522,773
13,026 13,556,736 13,569,762
7,587,970
7,580,432
7,538
13,802
1,328,786
1,314,984
195,543 40,734,291 40,929,834
8,227,923
8,201,107
26,816
1,516,955
1,484,449
32,506
51,340
50,694
646
59,968
9,796,218
9,736,250
255,511 $ 50,470,541 $ 50,726,052
94
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Equipment financing
Warehouse Lending
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 (1)
Total Loans
and Leases
At December 31, 2022
$
$
8,434 $
5,921
1,494
1,157
806
—
17,812
8,246
5,293
1,028
14,567
32,379 $
821 $
—
23,492
—
9,988
—
34,301
3,083
2,820
85
5,988
40,289 $
645 $
—
68
—
—
—
713
—
—
13
13
726 $
71,884 $
20,024
39,057
636
12,344
—
143,945
25,424
27,924
148
53,496
197,441 $
81,784 $ 16,311,011 $ 16,392,795
25,945
1,821,642
1,795,697
64,111 12,933,052 12,997,163
6,621,982
6,620,189
1,793
1,628,393
1,605,255
23,138
641,976
641,976
—
196,771 39,907,180 40,103,951
7,963,420
7,926,667
36,753
1,633,107
1,597,070
36,037
63,948
62,674
1,274
74,064
9,660,475
9,586,411
270,835 $ 49,493,591 $ 49,764,426
(1) At December 31, 2022, there were $28.5 million of commercial loans that had reached their contractual maturity but were actively
in the process of being refinanced with the Company. Due to the status of the refinancing, these commercial loans have been
reported as current in the table above.
The following table provides additional information on non-accrual loans and leases:
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Multi-family
Equipment financing
Commercial portfolio
Residential
Home equity
Other consumer
Consumer portfolio
Total
At December 31,
2023
2022
Non-accrual
Non-accrual With
No Allowance
Non-accrual
Non-accrual With
No Allowance
$
$
122,855 $
35,068
11,383
—
9,828
179,134
5,704
23,545
142
29,391
208,525 $
20,066
1,330
2,681
—
1,584
25,661
856
12,471
49
13,376
39,037
$
$
71,884 $
20,024
39,057
636
12,344
143,945
25,424
27,924
148
53,496
197,441 $
12,598
1,491
90
—
2,240
16,419
10,442
15,193
5
25,640
42,059
Interest income on non-accrual loans and leases that would have been recognized had the loans and leases been current in
accordance with their contractual terms totaled $22.9 million, $16.9 million, and $11.0 million for the years ended December
31, 2023, 2022, and 2021, 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:
Commercial
Portfolio
2023
Consumer
Portfolio
Total
Commercial
Portfolio
2022
Consumer
Portfolio
Total
Commercial
Portfolio
2021
Consumer
Portfolio
Total
At or for the Years ended December 31,
Balance, beginning of period
$ 533,125 $
61,616 $ 594,741 $ 257,877 $
43,310 $ 301,187 $ 312,244 $
47,187 $ 359,431
Adoption of ASU No. 2022-02
7,704
(1,831)
5,873
—
—
—
Initial allowance for PCD loans
and leases (1)
—
—
—
78,376
Provision (benefit)
138,057
5,152
143,209
268,295
9,669
4,502
88,045
272,797
—
—
—
—
—
—
(48,651)
(5,764)
(54,415)
Charge-offs
Recoveries
(104,509)
(12,703)
(117,212)
(82,860)
(4,662)
(87,522)
(9,437)
(9,217)
(18,654)
3,286
5,840
9,126
11,437
8,797
20,234
3,721
11,104
14,825
Balance, end of period
Individually evaluated for credit losses
Collectively evaluated for credit losses $ 534,104 $
$ 577,663 $
43,559
58,074 $ 635,737 $ 533,125 $
61,616 $ 594,741 $ 257,877 $
43,310 $ 301,187
4,635
48,194
34,793
12,441
47,234
16,965
4,108
21,073
53,439 $ 587,543 $ 498,332 $
49,175 $ 547,507 $ 240,912 $
39,202 $ 280,114
(1) Represents the establishment of the initial reserve for PCD loans and leases, which is reported net of $48.3 million of day one
charge-offs recognized at the date of acquisition in accordance with GAAP.
95
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. An
(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.
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 factors such as past due
status, employment status, collateral, geography, loans discharged in bankruptcy, and the status of first lien position loans on
second lien position loans, are also considered to be consumer portfolio 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.
96
The following tables summarize the amortized cost basis of commercial loans and leases by Composite Credit Risk Profile
grade and origination year:
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
At December 31, 2023
$ 2,602,444 $ 4,089,327 $ 1,371,139 $
15,184
48,849
—
2,666,477
325
60,240
104,087
8
4,253,662
7,637
61,235
23,258
—
1,455,632
1,775
711,362 $
33,111
28,222
—
772,695
512
610,199 $
—
44,612
3
654,814
969
952,097 $ 5,970,588 $ 16,307,156
219,051
48,561
359,232
79,778
36
—
16,885,475
6,098,927
15,609
—
720
30,426
25
983,268
4,391
23,007
651
—
23,658
—
—
763
—
763
—
—
—
—
—
—
—
—
—
—
—
3,280
3,676
1,330
8,286
13,189
34,999
—
—
34,999
3,900
1,333,271
29,610
127,254
1,490,135
—
1,394,557
34,700
128,584
1,557,841
17,089
2,265,428
850
25,802
2,292,080
4,632
3,502,425
4,675
16,179
3,523,279
—
1,831,005
14,463
9,545
1,855,013
12,617
1,195,732
31,405
15,418
1,242,555
3,813
1,193,642
23,443
58,602
1,275,687
2,754
3,112,770
37,688
52,812
3,203,270
38,569
176,668
1,210
—
177,878
—
13,277,670
113,734
178,358
13,569,762
62,385
(In thousands)
Commercial non-mortgage:
Risk rating:
Pass
Special mention
Substandard
Doubtful
Total commercial non-mortgage
Current period gross write-offs
Asset-based:
Risk rating:
Pass
Special mention
Substandard
Total asset-based
Current period gross write-offs
Commercial real estate:
Risk rating:
Pass
Special mention
Substandard
Total commercial real estate
Current period gross write-offs
Multi-family:
Risk rating:
Pass
Special mention
Substandard
Total multi-family
Current period gross write-offs
1,597,599
—
—
1,597,599
—
1,934,100
—
—
1,934,100
—
1,041,416
—
—
1,041,416
—
442,888
—
364
443,252
—
595,676
260
11,563
607,499
—
1,920,618
35,942
7,544
1,964,104
3,447
—
—
—
—
—
7,532,297
36,202
19,471
7,587,970
3,447
Equipment financing:
Risk rating:
Pass
Special mention
Substandard
Total equipment financing
Current period gross write-offs
Total commercial portfolio
Current period gross write-offs
335,874
—
—
335,874
—
297,186
—
9,144
306,330
—
1,295,031
206
33,549
1,328,786
5,979
$ 6,915,688 $ 10,018,134 $ 4,592,545 $ 2,641,163 $ 2,734,340 $ 6,261,024 $ 7,766,940 $ 40,929,834
104,509
$
232,304
116
8,064
240,484
—
183,679
90
4,285
188,054
3,304
176,061
—
6,600
182,661
2,633
69,927
—
5,456
75,383
42
—
—
—
—
—
20,216 $
50,349 $
14,392 $
7,637 $
6,958 $
4,957 $
— $
97
(In thousands)
Commercial non-mortgage:
Pass
Special mention
Substandard
Doubtful
Total commercial non-mortgage
Asset-based:
Pass
Special mention
Substandard
Total asset-based
Commercial real estate:
Pass
Special mention
Substandard
Doubtful
Total commercial real estate
Multi-family:
Pass
Special mention
Substandard
Total multi-family
Equipment financing:
Pass
Special mention
Substandard
Total equipment financing
Warehouse lending:
Pass
Total warehouse lending
Total commercial portfolio
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
At December 31, 2022
$ 5,154,781 $ 1,952,158 $
104,277
28,203
—
5,287,261
15,598
11,704
—
1,979,460
965,975 $
21,168
69,954
—
1,057,097
792,977 $
263
36,604
1
829,845
593,460 $
14,370
70,634
—
678,464
780,200 $ 5,670,532 $ 15,910,083
203,588
40,142
275,868
41,917
3,256
3,255
16,392,795
5,755,846
7,770
16,852
—
804,822
19,659
—
—
19,659
3,901
—
—
3,901
9,424
—
—
9,424
14,413
—
1,491
15,904
5,163
—
—
5,163
55,553
—
—
55,553
1,551,250
80,476
80,312
1,712,038
3,420,635
21,878
519
—
3,443,032
2,246,672
8,995
2,459
—
2,258,126
1,556,185
7,264
216
—
1,563,665
1,605,869
37,570
31,163
1
1,674,603
1,058,730
47,419
47,021
—
1,153,170
2,681,052
66,652
57,997
34
2,805,735
1,992,980
37,677
—
2,030,657
1,057,705
—
—
1,057,705
388,641
—
314
388,955
345,792
185
16,711
362,688
507,065
—
382
507,447
331,419
—
18,436
349,855
694,066
95
—
694,161
308,441
11,965
5,016
325,422
444,564
40,307
12,681
497,552
1,748,337
726
24,904
1,773,967
98,874
6,775
5,307
110,956
83,264
25
7,228
90,517
97,832
1,000
—
—
98,832
51,655
8,838
—
60,493
—
—
—
—
1,659,363
80,476
81,803
1,821,642
12,666,975
190,778
139,375
35
12,997,163
6,496,372
87,643
37,967
6,621,982
1,556,431
18,950
53,012
1,628,393
—
—
641,976
641,976
$ 11,169,564 $ 5,661,880 $ 3,487,488 $ 3,539,935 $ 2,445,305 $ 5,530,594 $ 8,269,185 $ 40,103,951
641,976
641,976
—
—
—
—
—
—
—
—
—
—
98
The following tables summarize the amortized cost basis of consumer loans by FICO score and origination year:
At December 31, 2023
(In thousands)
Residential:
Risk rating:
800+
740-799
670-739
580-669
579 and below
Total residential
Current period gross write-offs
Home equity:
Risk rating:
800+
740-799
670-739
580-669
579 and below
Total home equity
Current period gross write-offs
Other consumer:
Risk rating:
800+
740-799
670-739
580-669
579 and below
Total other consumer
Current period gross write-offs
Total consumer portfolio
Current period gross write-offs
(In thousands)
Residential:
800+
740-799
670-739
580-669
579 and below
Total residential
Home equity:
800+
740-799
670-739
580-669
579 and below
Total home equity
Other consumer:
800+
740-799
670-739
580-669
579 and below
Total other consumer
Total consumer portfolio
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$
214,446 $
363,696
137,460
20,208
6,909
742,719
—
847,009 $ 1,096,109 $
703,568
293,699
52,962
52,690
1,949,928
—
755,750
292,255
45,770
11,749
2,201,633
387
451,307 $
279,946
95,838
14,840
1,345
843,276
—
141,919 $
112,303
48,412
10,492
128,714
441,840
153
910,117 $
633,578
346,663
106,497
51,672
2,048,527
4,630
— $
—
—
—
—
—
—
3,660,907
2,848,841
1,214,327
250,769
253,079
8,227,923
5,170
27,047
24,772
15,857
3,080
696
71,452
—
27,439
20,069
15,655
3,786
1,109
68,058
4
35,927
27,147
15,389
1,991
1,079
81,533
81
432
1,318
526
69
125
2,470
3,263
816,641
356
586
570
169
97
1,778
7
2,019,764
1,913
486
358
129
61
2,947
2
2,286,113
25,586
13,888
5,992
1,658
576
47,700
—
189
730
981
153
11
2,064
218
893,040
8,110
5,158
3,189
1,115
552
18,124
104
56,062
34,190
29,454
9,988
6,319
136,013
3,114
255
690
1,210
303
28
2,486
377
462,450
77
381
79
56
1
594
363
2,185,134
391,616
355,926
242,189
70,102
34,242
1,094,075
—
25,699
7,180
3,549
1,983
590
39,001
—
1,133,076
$
3,263 $
11 $
470 $
218 $
634 $
8,107 $
— $
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
At December 31, 2022
$
527,408 $
963,026
381,515
40,959
52,464
1,965,372
954,568 $
946,339
350,671
49,648
3,693
2,304,919
469,518 $
311,295
103,999
14,484
2,057
901,353
160,596 $
111,913
62,365
5,836
84,032
424,742
28,361 $
43,684
18,451
2,357
1,299
94,152
997,409 $
689,771
384,687
138,107
62,908
2,272,882
— $
—
—
—
—
—
25,475
26,743
18,396
2,848
426
73,888
35,129
35,178
16,679
3,068
386
90,440
495
888
977
211
169
2,740
2,042,000
218
2,624
603
117
101
3,663
2,399,022
25,612
17,621
8,175
1,520
651
53,579
544
1,959
2,480
337
29
5,349
960,281
99
7,578
8,111
3,635
1,456
661
21,441
1,045
2,494
4,238
801
116
8,694
454,877
12,545
7,765
7,614
1,163
563
29,650
55,352
32,270
30,060
13,607
4,736
136,025
247
941
1,041
173
36
2,438
126,240
56
364
118
54
21
613
2,409,520
465,318
398,692
259,646
76,614
27,814
1,228,084
19,196
12,218
6,107
2,223
707
40,451
1,268,535
571,787
481,150
327,725
91,720
44,573
1,516,955
3,303
28,921
11,371
7,273
2,862
913
51,340
4,230
9,796,218
12,703
Total
3,137,860
3,066,028
1,301,688
251,391
206,453
7,963,420
627,009
526,380
344,205
100,276
35,237
1,633,107
21,801
21,488
15,564
3,916
1,179
63,948
9,660,475
Collateral Dependent Loans and Leases
A non-accrual loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and when
repayment is substantially expected to be provided through the operation or sale of collateral. Commercial non-mortgage loans,
asset-based loans, and equipment financing loans and leases are generally secured by machinery and equipment, inventory,
receivables, or other non-real estate assets, whereas commercial real estate, multi-family, residential, home equity, and other
consumer loans are secured by real estate.
At December 31, 2023, and 2022, the carrying amount of collateral dependent loans was $66.1 million and $43.8 million,
respectively, for commercial loans and leases, and $22.7 million and $45.2 million, respectively, for consumer loans. 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, 2023, and 2022, the collateral value associated with collateral dependent loans and leases was
$93.7 million and $108.0 million, respectively.
Modifications to Borrowers Experiencing Financial Difficulty
On January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and enhanced
the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. For a
description of the Company's accounting policies related to the accounting and reporting of TDRs, for which comparative
period information is presented, refer to Note 1: Summary of Significant Accounting Policies.
In certain circumstances, the Company enters into agreements to modify the terms of loans to borrowers experiencing financial
difficulty. A variety of solutions are offered to borrowers experiencing financial difficulty, including loan modifications that
may result in principal forgiveness, interest rate reductions, payment delays, term extension, or a combination thereof. The
following is a description of each of these types of modifications:
•
•
•
•
•
Principal forgiveness – The outstanding principal balance of a loan may be reduced by a specified amount. Principal
forgiveness may occur voluntarily as part of a negotiated agreement with a borrower, or involuntarily through a
bankruptcy proceeding.
Interest rate reductions – Includes modifications where the contractual interest rate of the loan has been reduced.
Payment delays – Deferral arrangements that allow borrowers to delay a scheduled loan payment to a later date.
Deferred loan payments do not affect the original contracted maturity terms of the loan. Modifications that result in
only an insignificant payment delay are not disclosed. The Company generally considers a payment delay of three
months or less to be insignificant.
Term extensions – Extensions of the original contractual maturity date of the loan.
Combination – Combination includes loans that have undergone more than one of the above loan modification types.
Significant judgment is required to determine if a borrower is experiencing financial difficulty. These considerations vary by
portfolio class. The Company has identified modifications to borrowers experiencing financial difficulty that are included in its
disclosures as follows:
•
•
Commercial: The Company evaluates modifications of loans to commercial borrowers that are rated substandard or
worse, and includes the modification in its disclosures to the extent that the modification is considered
other-than-insignificant.
Consumer: The Company generally evaluates all modifications of loans to consumer borrowers subject to its loss
mitigation program and includes them in its disclosures to the extent that the modification is considered other-than-
insignificant.
100
The following table summarizes the amortized cost basis at December 31, 2023, of loans modified to borrowers experiencing
financial difficulty, disaggregated by class and type of concession granted:
(In thousands)
Interest
Rate
Reduction
Term
Extension
Payment
Delay
For the year ended December 31, 2023
Combination
Term
Extension &
Interest Rate
Reduction
Combination
Term
Extension &
Payment
Delay
Combination
Interest Rate
Reduction &
Payment
Delay
Combination
Term
Extension,
Interest Rate
Reduction, &
Payment
Delay
% of
Total
Class (2)
Total
Commercial non-mortgage
$
— $ 96,895 $
5,858 $
1,062 $
28,860 $
35 $
425 $ 133,135
0.8 %
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Total (1)
—
—
—
—
62
45,042
3,090
357
186
76
—
174
1,284
804
—
—
17,107
—
136
513
—
511
—
—
—
—
—
—
—
—
—
—
—
—
—
45,042
20,882
1,641
1,126
651
2.9
0.2
0.1
—
—
$
62 $ 145,646 $
8,120 $
18,818 $
29,371 $
35 $
425 $ 202,477
0.4 %
(1) The total amortized cost excludes accrued interest receivable of $0.7 million for the year ended December 31, 2023.
(2) Represents the total amortized cost of the loans modified as a percentage of the total period end loan balance by class.
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:
For the year ended December 31, 2023
Financial Effect
Interest Rate Reduction:
Home equity
Term Extension:
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Payment Delay:
Commercial non-mortgage
Commercial real estate
Equipment financing
Residential
Reduced weighted average interest rate by 0.5%
Extended term by a weighted average of 1.3 years
Extended term by a weighted average of 0.7 years
Extended term by a weighted average of 2.2 years
Extended term by a weighted average of 4.5 years
Extended term by a weighted average of 2.8 years
Extended term by a weighted average of 10.1 years
Provided partial payment deferrals for a weighted average of 0.5 years
Provided payment deferrals for a weighted average of 0.3 years to be received at contractual maturity
Provided partial payment deferrals for a weighted average of 0.5 years
Provided payment deferrals for a weighted average of 1.0 year
Combination Term Extension & Interest Rate Reduction:
Commercial non-mortgage
Commercial real estate
Residential
Home equity
Extended term by a weighted average of 1.4 years and reduced weighted average interest rate by 1.8%
Extended term by a weighted average of 3.0 years and reduced weighted average interest rate by 2.4%
Extended term by a weighted average of 17.9 years and reduced weighted average interest rate by 0.3%
Extended term by a weighted average of 16.8 years and reduced weighted average interest rate by 2.1%
Combination Term Extension & Payment Delay:
Commercial non-mortgage
Extended term by a weighted average of 1.1 years and provided partial payment deferrals for a weighted
average of 1.0 year
Extended term by a weighted average of 0.5 years and provided payment deferrals for a weighted
average of 0.5 years
Combination Interest Rate Reduction & Payment Delay:
Commercial real estate
Commercial non-mortgage
Reduced weighted average interest rate by 2.0% and provided payment deferrals for a weighted average
of 0.5 years
Combination Term Extension, Interest Rate Reduction, & Payment Delay:
Commercial non-mortgage
Extended term by a weighted average of 0.5 years, reduced weighted average interest rate by 2.0%, and
provided payment deferrals for a weighted average of 0.5 years
101
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to
understand the effectiveness of its modification efforts. The following table summarizes the aging of loans that have been
modified in the year ended December 31, 2023:
At December 31, 2023
(In thousands)
Commercial non-mortgage
Asset-based
Commercial real estate
Equipment financing
Residential
Home equity
Total
Current
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
Non-Accrual
Total
$
$
107,852
45,042
20,708
1,284
990
547
176,423
$
$
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
$
$
25,283
—
174
357
136
104
26,054
$
$
133,135
45,042
20,882
1,641
1,126
651
202,477
Loans made to borrowers experiencing financial difficulty that were modified during the year ended December 31, 2023, and
that subsequently defaulted were not significant. For the purposes of this disclosure, a payment default is defined as 90 or
more days past due and still accruing. Non-accrual loans that are modified to borrowers experiencing financial difficulty
remain on non-accrual status until the borrower has demonstrated performance under the modified terms. Commitments to
lend additional funds to borrowers experiencing financial difficulty whose loans had been modified were not significant.
Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02
The following table summarizes information related to TDRs:
(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,
2022
$
$
$
$
110,868
83,954
194,822
1,724
14,578
3,559
102
The following table summarizes loans and leases modified as TDRs by class and modification type:
(Dollars in thousands)
Commercial non-mortgage:
Extended maturity
Maturity / rate combined
Other (2)
Asset-based:
Other (2)
Commercial real estate:
Extended maturity
Other (2)
Equipment financing:
Other (2)
Residential:
Extended maturity
Maturity / rate combined
Other (2)
Home equity:
Extended maturity
Adjusted interest rate
Maturity / rate combined
Other (2)
Total TDRs
Years ended December 31,
2022
2021
Number of
Contracts
Recorded
Investment (1)
Number of
Contracts
Recorded
Investment (1)
5 $
8
19
1
—
—
3
2
2
8
—
1
21
37
107 $
291
765
52,070
23,298
—
—
1,692
1,185
133
3,158
—
74
2,623
2,134
87,423
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
(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, 2022, and 2021, the portion of TDRs deemed to be uncollectible and charged-off were $14.7
million and $3.0 million for the commercial portfolio, respectively, and $0.3 million and $0.4 million for the consumer
portfolio, respectively.
For the year ended December 31, 2022, there were three commercial non-mortgage, two residential, and two other consumer
loans with an aggregate amortized cost of $3.6 million, $0.6 million, and $0.3 million, respectively, that were modified as
TDRs within the previous twelve months and for which there was a payment default. For the year ended December 31, 2021,
there were no significant loans and leases modified as TDRs within the previous twelve months and for which there was a
payment default.
103
Note 5: Transfers and Servicing of Financial Assets
The Company 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 residential mortgage loans sold are included in Mortgage banking
activities on the accompanying Consolidated Statements of Income.
The following table summarizes information related to mortgage banking activities:
(In thousands)
Net gain on sale
Origination fees
Fair value adjustments
Mortgage banking activities
Proceeds from sale
Loans sold with servicing rights retained
Years ended December 31,
2022
2021
2023
1,126 $
68
46
1,240 $
580 $
219
(94)
705 $
5,192
1,440
(413)
6,219
13,882 $
6,499
36,335 $
32,056
247,634
237,834
$
$
$
Under certain circumstances, the Company may decide to sell loans that were not originated or otherwise acquired with the
intent to sell. During the years ended December 31, 2023, 2022, and 2021, the Company sold loans not originated for sale for
proceeds of $626.0 million, $679.7 million, and $82.2 million, respectively, which resulted in net gains on sale of $0.9 million,
$3.3 million, and $3.9 million, respectively.
At December 31, 2023, and 2022, the aggregate principal balance of residential mortgage loans serviced for others was
$1.8 billion and $2.0 billion, respectively.
The Company may retain servicing rights on its residential mortgage loans sold in the normal course of business. Mortgage
servicing rights 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 rights 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 rights:
(In thousands)
Balance, beginning of period
Acquired from Sterling
Additions
Amortization (1)
Adjustment to valuation allowance
Balance, end of period
Years ended December 31,
2023
2022
2021
$
$
9,515 $
—
71
(1,063)
—
8,523 $
9,237 $
859
289
(870)
—
9,515 $
13,422
—
2,053
(5,593)
(645)
9,237
(1) The Company implemented a change in the method of amortization applied to its mortgage servicing rights during the year ended
December 31, 2022, to better reflect the pattern of consumption, where estimated future cash flows are now assessed at the
individual loan level as opposed to on a pooled basis.
During the fourth quarter of 2023, the Company committed to and initiated a plan to actively market and sell the majority of its
mortgage servicing portfolio (over nine thousand individual mortgage loans with an aggregate unpaid principal balance of
approximately $1.4 billion). The Company treated the related mortgage servicing rights as assets held for disposition and
ceased recognizing amortization expense on these assets. At December 31, 2023, the carrying amount of mortgage servicing
rights held for disposition was $8.3 million. The Company expects the sale to close in the first quarter of 2024.
Loan servicing fees, net of mortgage servicing rights amortization, for the years ended December 31, 2023, 2022, and 2021,
totaled $4.0 million, $5.9 million, and $1.7 million, 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 rights can be found within Note 18: Fair Value Measurements.
104
Note 6: Premises and Equipment
The following table summarizes the components of premises and equipment:
(In thousands)
Land
Buildings and improvements
Leasehold improvements
Furniture, fixtures, and equipment
Data processing equipment 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,
2023
2022
73,916 $
107,794
88,065
68,680
94,030
432,485
(186,365)
246,120
183,441
429,561 $
73,916
106,180
84,477
71,542
128,153
464,268
(225,152)
239,116
191,068
430,184
$
$
Depreciation and amortization of property and equipment was $34.7 million, $41.7 million, and $31.4 million for the years
ended December 31, 2023, 2022, and 2021, respectively, and is included in both Occupancy and Technology and equipment
expense on the accompanying Consolidated Statements of Income.
The Company recognized $4.6 million and $6.3 million in losses on disposals of property and equipment for the years ended
December 31, 2023, and 2022, respectively, which primarily pertained to retired internal use software and construction in
progress due to the Company's decision to stop further project development. Losses on disposal of property and equipment for
the year ended December 31, 2021, were not significant.
Additional information regarding ROU lease assets can be found within Note 7: Leasing.
Property Held for Sale
Assets held for disposition are included in Accrued interest receivable and other assets on the accompanying Consolidated
Balance Sheets.
During the year ended December 31, 2022, the Company launched and completed a corporate real estate consolidation strategy
in which the Company closed 14 locations in order to reduce its corporate real estate facility square footage by approximately
45%. In connection with this corporate real estate consolidation plan, in the third quarter of 2022, the Company had arranged to
sell its New Britain, Connecticut facility, which comprised of land, buildings, and improvements, within the next twelve
months. This resulted in a $1.8 million write-down to the fair market value of the property and the subsequent transfer of the
property, which was valued at $4.8 million, to assets held for disposition.
The sale of the New Britain property closed during the third quarter of 2023. The Company received cash proceeds of
$4.1 million and recognized a loss on sale of $0.7 million.
105
Note 7: Leasing
Lessor Arrangements
The Company leases certain types of machinery and equipment to its customers through sales-type and direct financing leases
as part of its equipment financing portfolio. These leases generally have remaining lease terms of one to ten years, some of
which include renewal options and/or options for the lessee to purchase the lease near or at the end of the lease term. The
Company recognized interest income from its sales-type and direct financing lessor activities of $18.7 million, $15.4 million,
and $7.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. The Company does not have any
significant operating leases in which it is the lessor. Additional information regarding the Company's equipment financing
portfolio can be found within Note 4: Loans and Leases.
The following table summarizes the components of the Company's net investment in its sales-type and direct financing leases:
(In thousands)
Lease receivables
Unguaranteed residual values
Total net investment
At December 31,
2023
2022
$
$
347,827 $
60,747
408,574 $
330,690
100,368
431,058
The following table reconciles undiscounted future lease payments to the total sales-type and direct financing leases' net
investment:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
Total lease payments receivable
Present value adjustment
Total net investment
Lessee Arrangements
At December 31,
2023
$
$
116,506
107,211
98,157
51,058
31,179
44,911
449,022
(40,448)
408,574
The Company 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. The Company does not
have any finance leases in which it is the lessee, nor any significant sub-lease arrangements.
The following table summarizes the Company'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
Accrued expenses and other liabilities
$
At December 31,
2023
183,441
222,439
$
2022
191,068
239,281
ROU lease asset impairment charges were zero, $23.1 million and $1.2 million for the years ended December 31, 2023, 2022,
and 2021, respectively, and are included in Occupancy on the accompanying Consolidated Statements of Income. The ROU
lease asset impairment charge recognized for the year ended December 31, 2022, pertained to the Company's corporate real
estate consolidation plan, discussed previously in Note 6: Premises and Equipment, and was calculated as the difference
between the estimated fair value of the assets determined using a discounted cash flow technique, relative to their book value.
106
The following table summarizes the components of operating lease expense and other relevant information:
(In thousands)
Lease Cost:
Operating and 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 (1)
Weighted-average remaining lease term (in years)
Weighted-average discount rate
At or for the Years ended December 31,
2022
2021
2023
$
$
$
38,497 $
(223)
38,274 $
37,615 $
22,989
7.46
2.96 %
44,654 $
(1,383)
43,271 $
44,767 $
27,897
7.72
2.65 %
30,936
(554)
30,382
30,487
15,226
7.50
3.04 %
(1) The amount for the year ended December 31, 2022, excludes ROU lease assets acquired from Sterling in the merger.
The following table reconciles undiscounted future lease payments to total operating lease liabilities:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
Total operating lease payments
Present value adjustment
Total operating lease liabilities
At December 31,
2023
$
$
38,575
39,449
35,665
31,128
26,999
81,918
253,734
(31,295)
222,439
107
Note 8: Goodwill and Other Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill:
(In thousands)
Balance, beginning of period
interLINK acquisition
Sterling merger (1)
Bend acquisition (1)
Balance, end of period
At December 31,
2023
2,514,104
143,216
(25,561)
(294)
2,631,465
$
$
2022
538,373
—
1,939,765
35,966
2,514,104
$
$
(1) The 2023 changes reflect adjustments recorded within the one-year measurement period, which were identified in the first quarter
as a result of extended information gathering and new information that arose from integration activities. The allocation of the
purchase price and goodwill calculations for both the Sterling merger and Bend acquisition were final as of March 31, 2023.
Information regarding goodwill by reportable segment can be found within Note 21: Segment Reporting.
Other Intangible Assets
The following table summarizes other intangible assets:
(In thousands)
Core deposits
Customer relationships (1)
Non-competition agreement (1)
Other intangible assets
At December 31,
Gross Carrying
Amount (1)
2023
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
2022
Accumulated
Amortization
Net Carrying
Amount
$
$
146,037 $
151,000
4,000
301,037 $
53,986 $
43,116
800
97,902 $
92,051 $
107,884
3,200
203,135 $
146,037 $
115,000
—
261,037 $
36,710 $
24,985
—
61,695 $
109,327
90,015
—
199,342
(1) The increase in the gross carrying amount is attributed to the acquisition of interLINK during the first quarter of 2023, in which the
Company identified and recorded a $36.0 million intangible asset for broker dealer relationships, which is being amortized on an
accelerated basis over an estimated useful life of 10 years, and a $4.0 million non-competition agreement, which is being amortized
on a straight-line basis over an estimated useful life of 5 years.
The remaining estimated aggregate future amortization expense for other intangible assets is as follows:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
At December 31,
2023
$
29,618
25,956
25,565
25,565
23,216
73,215
108
Note 9: 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,
2022
2021
2023
$
$
219,548 $
50,750
270,298
170,779 $
52,579
223,358
109,621
20,374
129,995
(43,615)
(10,019)
(53,634)
(45,421)
(24,243)
(69,664)
(9,844)
4,846
(4,998)
175,933
40,731
216,664 $
125,358
28,336
153,694 $
99,777
25,220
124,997
Included in the Company's income tax expense for the years ended December 31, 2023, 2022, and 2021, are net tax credits of
approximately $11.9 million, $14.0 million, and $2.6 million, respectively. These amounts relate primarily to LIHTC
investments and include associated SALT credits and benefits.
Also included in the Company's income tax expense for the years ended December 31, 2023, 2022, and 2021 are benefits from
operating loss carryforwards of $0.2 million, $10.3 million, and $0.4 million, respectively. The 2022 amount includes a
$9.9 million benefit related to a reduction in the Company's beginning-of-year valuation allowance for its SALT DTAs.
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%:
(In thousands)
Income tax expense at federal statutory rate
Reconciliation to reported income tax expense:
2023
Years ended December 31,
2022
2021
Amount
Percent
Amount
Percent
Amount
Percent
$
227,746
21.0 % $
167,575
21.0 % $
112,111
21.0 %
SALT expense, net of federal
Tax-exempt interest income, net
Increase in cash surrender value of life insurance
Non-deductible FDIC deposit insurance premiums
Low income housing tax credits and other benefits, net
Non-deductible compensation expense
Non-deductible merger-related expenses, excluding
compensation
DTA valuation allowance adjustment, net
Other, net
Income tax expense and effective tax rate
$
32,177
(44,473)
(5,469)
10,693
(3,866)
4,167
45
(368)
(3,988)
216,664
3.0
(4.1)
(0.5)
1.0
(0.4)
0.4
32,259
(35,371)
(6,122)
5,581
(7,627)
7,948
4.1
(4.4)
(0.8)
0.7
(1.0)
1.0
19,924
(6,814)
(3,030)
2,064
(615)
786
—
—
(0.4)
20.0 % $
2,717
(9,874)
(3,392)
153,694
0.3
(1.2)
(0.4)
19.3 % $
3,451
—
(2,880)
124,997
3.7
(1.3)
(0.6)
0.4
(0.1)
0.1
0.7
—
(0.5)
23.4 %
109
The following table reflects the significant components of DTAs, net:
(In thousands)
Deferred tax assets:
ACL on loans and leases
Net operating loss and credit carry forwards
Compensation and employee benefit plans
Lease liabilities under operating leases
Net unrealized loss on available-for-sale securities
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
ROU assets under operating leases
Equipment financing leases
Goodwill and other intangible assets
Purchase accounting and fair value adjustments
Other
Gross deferred tax liabilities
Deferred tax assets, net
At December 31,
2023
2022
171,870
68,103
46,670
60,331
191,922
72,546
611,442
(28,746)
582,696
49,754
54,300
59,817
15,527
34,086
213,484
369,212
$
$
$
$
161,932
72,035
55,093
64,899
233,978
38,314
626,251
(29,176)
597,075
51,822
74,295
56,223
11,529
31,572
225,441
371,634
$
$
$
$
The Company's net DTAs decreased by $2.4 million during 2023, reflecting a $49.7 million expense allocated directly to
(AOCL) and a $7.9 million net DTL recognized as part of purchase accounting adjustments related to the merger with Sterling
and acquisition of Bend, partially offset by the $53.6 million deferred tax benefit and a $1.6 million benefit recorded to equity
upon the adoption of ASU 2022-02 .
The valuation allowance of $28.7 million at December 31, 2023, is primarily attributable to SALT net operating loss
carryforwards, as compared to $29.2 million at December 31, 2022, consisting of approximately $28.6 million attributable to
SALT net operating loss carryforwards and $0.6 million of federal credit carryforwards. The net decrease in the valuation
allowance during 2023 primarily reflects a reduction in the beginning-of-year valuation allowance related to a change in
management's estimate about the realizability of the Company's federal credits.
SALT net operating loss carryforwards approximated $1.1 billion at December 31, 2023, including those related to the Sterling
merger and Bend acquisition, and are generally scheduled to expire in varying amounts during tax years 2024 through 2032.
Federal net operating loss carryforwards of approximately $16.8 million and federal credit carryforwards of $0.4 million at
December 31, 2023, related to the Bend acquisition are subject to annual limitations on utilization, with the net operating losses
able to be carried forward indefinitely and the credits scheduled to expire in varying amounts between 2038 and 2042. The
valuation allowance reflects approximately $486.6 million of those SALT net operating loss carryforwards that are 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 years 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.
DTLs of $63.2 million at both December 31, 2023, and 2022, have not been recognized for certain thrift bad-debt reserves,
established before 1988, that would become taxable upon the occurrence of certain events: distributions by the Bank in excess
of certain earnings and profits; the redemption of the Bank’s stock; or liquidation. The Company does not expect any of those
events to occur. At both December 31, 2023, and 2022, the cumulative taxable temporary differences applicable to those
reserves approximated $233.1 million.
110
The following table reflects a reconciliation of the beginning and ending balances of 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,
2023
2022
2021
$
$
9,875 $
359
4,255
—
—
(653)
13,836 $
4,249 $
223
8,807
(503)
(2,110)
(791)
9,875 $
4,252
294
434
(186)
(267)
(278)
4,249
At December 31, 2023, 2022, and 2021, there were $12.4 million, $9.1 million, and $3.5 million, respectively, of UTBs that if
recognized would affect the effective tax rate.
The Company recognizes interest and penalties related to UTBs, where applicable, in income tax expense. The Company
recognized expense of $1.8 million, $0.1 million, and $0.3 million during the years ended December 31, 2023, 2022, and 2021,
respectively. At December 31, 2023 and 2022, the Company had accrued interest and penalties related to UTBs of $3.8 million
and $2.0 million respectively.
The Company has determined it is reasonably possible that its total UTBs could decrease by between $0.4 million and
$9.3 million by the end of 2024 as a result of potential lapses in statute-of-limitation periods and/or potential settlements with
taxing authorities, primarily concerning various depreciation and state and local apportionment and tax-base determinations.
The Company's federal tax returns for all years subsequent to 2018 remain open to examination, including the carryback of a
Sterling 2019 net operating loss under the CARES Act in 2020 to tax years 2014 and 2016, currently under audit by the Internal
Revenue Service. The Company's tax returns filed in its other principal tax jurisdictions of Connecticut, New York State, New
York City, Massachusetts and New Jersey for years subsequent to 2014 are either under or remain open to examination.
111
At December 31,
2023
2022
$
10,732,516 $
12,974,975
8,287,889
8,994,095
17,662,826
6,642,499
8,464,459
50,051,768
60,784,284 $
7,944,892
9,237,529
11,062,652
8,673,343
4,160,949
41,079,365
54,054,340
3,673,733 $
1,221,887
10,432
1,964,873
1,894,950
8,721
$
$
$
At December 31,
2023
8,217,683
138,769
53,807
32,865
21,335
8,464,459
$
Note 10: 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, money market, and interest-bearing checking obtained through brokers (1)
Aggregate amount of time deposit accounts that exceeded the FDIC limit
Demand deposit overdrafts reclassified as loan balances
(1) Excludes $5.7 billion of interLINK money market sweep deposits at December 31, 2023.
The following table summarizes the scheduled maturities of time deposits:
(In thousands)
2024
2025
2026
2027
2028
Total time deposits
112
Note 11: Borrowings
The following table summarizes securities sold under agreements to repurchase and other borrowings:
(In thousands)
Securities sold under agreements to repurchase (1)
Federal funds purchased
Securities sold under agreements to repurchase and other borrowings
2023
Total
Outstanding
$
$
358,387
100,000
458,387
At December 31,
2022
Total
Outstanding
282,005
869,825
1,151,830
Rate
3.43 % $
5.48
3.88 % $
Rate
0.11 %
4.44
3.38 %
(1) The Company 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, all of which have an original maturity of one year or less for the periods
presented, are used as a source of borrowed funds and are collateralized by Agency MBS and Corporate debt. The Company's
repurchase agreement counterparties are limited to primary dealers in government securities, and commercial and municipal
customers through the Corporate Treasury function. The Company may also purchase unsecured term and overnight federal
funds to satisfy its short-term liquidity needs.
The following table summarizes information for FHLB advances:
(In thousands)
Maturing within 1 year
After 1 but within 2 years
After 2 but within 3 years
After 3 but within 4 years
After 4 but within 5 years
After 5 years
FHLB advances
Aggregate market value of assets pledged as collateral
Remaining borrowing capacity at FHLB
At December 31,
2023
2022
Total
Outstanding
Weighted-Average
Contractual
Coupon Rate
Total
Outstanding
Weighted-Average
Contractual
Coupon Rate
$
$
$
2,350,000
—
—
235
228
9,555
2,360,018
20,734,035
12,535,423
5.53 % $
—
—
—
2.75
2.07
5.52 % $
5,450,187
—
—
—
252
10,113
5,460,552
$
13,692,379
4,291,326
4.40 %
—
—
—
—
2.09
4.39 %
The Bank may borrow up to the amount of eligible mortgages and securities that have been pledged as collateral to secure
FHLB advances, which includes certain residential and commercial real estate loans, home equity lines of credit, CMBS,
Agency MBS, Agency CMO, and U.S. Treasury notes. The Bank was in compliance with its FHLB collateral requirements at
both December 31, 2023, and 2022.
113
The following table summarizes long-term debt:
(In thousands)
4.375% Senior fixed-rate notes due February 15, 2024 (2)
4.100 % Senior fixed-rate notes due March 25, 2029 (3)
4.000% Subordinated fixed-to-floating rate notes due December 30, 2029
3.875 % Subordinated fixed-to-floating rate notes due November 1, 2030
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (4)
Total senior and subordinated debt
Discount on senior fixed-rate notes
Debt issuance cost on senior fixed-rate notes
Premium on subordinated fixed-to-floating rate notes
Long-term debt (1)
At December 31,
2023
2022
$
$
132,550 $
328,104
274,000
225,000
77,320
1,036,974
(537)
(1,419)
13,802
1,048,820 $
150,000
333,458
274,000
225,000
77,320
1,059,778
(756)
(1,824)
15,930
1,073,128
(1) The classification of debt as long-term is based on the initial terms of greater than one year as of the date of issuance.
(2)
The Company repurchased and retired $17.5 million of these senior notes at 96 cents on the dollar in May 2023. The resulting
$0.7 million gain recognized on extinguishment is included in Other income on the accompanying Consolidated Statements of
Income for the year ended December 31, 2023.
(3) The Company de-designated its fair value hedging relationship on these senior notes in 2020. A basis adjustment of $28.1 million
and $33.5 million at December 31, 2023, and 2022, respectively, is included in the carrying value and is being amortized over the
remaining life of the senior notes.
(4) The interest rate on the Webster Statutory Trust I floating-rate notes varies quarterly based on 3-month SOFR plus a credit spread
adjustment plus a market spread of 2.95%. Prior to LIBOR cessation on July 1, 2023, the notes varied quarterly based on 3-month
LIBOR plus a market spread of 2.95%. The interest rates yielded 8.59% and 7.69% at December 31, 2023, and 2022, respectively.
The Company assumed $274.0 million in aggregate principal amount of 4.00% fixed-to-floating rate subordinated notes due on
December 30, 2029 (the 2029 subordinated notes), in connection with the Sterling merger. The 2029 subordinated notes were
issued by Sterling on December 16, 2019, through a public offering, and are redeemable at a price equal to the total principal
amount plus any accrued and unpaid interest thereon, in whole or in part by the Company on December 30, 2024, or any
interest payment date thereafter, upon the occurrence of certain specified events. Until December 30, 2024, the interest rate is
fixed at 4.00% and payable semi-annually in arrears on each June 30 and December 30. From and including December 30,
2024, through the earlier of maturity or redemption, the 2029 subordinated notes will bear interest at a floating rate per annum
equal to three-month term SOFR plus 253 basis points, payable quarterly in arrears on March 30, June 30, September 30, and
December 30 of each year, commencing on March 30, 2025.
The Company also assumed $225.0 million in aggregate principal amount of 3.875% fixed-to-floating rate subordinated notes
due on November 1, 2030 (the 2030 subordinated notes), in connection with the Sterling merger. The 2030 subordinated notes
were issued by Sterling on October 30, 2020, through a public offering, and are redeemable at a price equal to the total principal
amount plus any accrued and unpaid interest thereon, in whole or in part by the Company on November 1, 2025, or any interest
payment date thereafter, upon the occurrence of certain specified events. Until November 1, 2025, the interest rate is fixed at
3.875% and payable semi-annually in arrears on each May 1 and November 1. From and including November 1, 2025, through
the earlier of maturity or redemption, the 2030 subordinated notes will bear interest at a floating rate per annum equal to three-
month term SOFR plus 369 basis points, payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each
year, commencing on February 1, 2026.
The Company recorded the 2029 and 2030 subordinated notes at their estimated fair value of $281.0 million and $235.9
million, respectively, on January 31, 2022. The corresponding purchase premiums are being amortized into interest expense
over the remaining lives of the subordinated notes.
114
Note 12: Stockholders' Equity
The following table summarizes the changes in shares of preferred and common stock issued and common stock held as
treasury shares for the year ended December 31, 2023:
Balance, beginning of period
Restricted stock compensation plan activity
Stock options exercised
Common stock repurchase program
Balance, end of period
Repurchases of Common Stock
Preferred Stock
Series F Issued
Preferred Stock
Series G Issued
6,000
—
—
—
6,000
135,000
—
—
135,000
Common Stock
Issued
182,778,045
—
—
—
182,778,045
Treasury Stock
Held
8,770,472
(605,684)
(75,848)
2,667,149
10,756,089
Common Stock
Outstanding
174,007,573
605,684
75,848
(2,667,149)
172,021,956
The Company maintains a common stock repurchase program, which was approved by the Board of Directors on
October 24, 2017, that authorizes management to purchase shares of Webster common stock in open market or privately
negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan subject to the availability
and trading price of stock, general market conditions, alternative uses for capital, regulatory considerations, and the Company's
financial performance. On April 27, 2022, the Board of Directors increased the Company's authority to repurchase shares of
Webster common stock under the repurchase program by $600.0 million in shares. During the year ended December 31, 2023,
the Company repurchased 2,667,149 shares under the repurchase program at a weighted-average price of $40.49 per share,
totaling $108.0 million. At December 31, 2023, the Company's remaining purchase authority was $293.4 million.
In addition, the Company will periodically acquire Webster common stock outside of the repurchase program related to
employee stock compensation plan activity. During the year ended December 31, 2023, the Company repurchased 315,729
shares at a weighted-average price of $51.48 per share, totaling $16.3 million for this purpose.
Contribution to Charitable Foundation
On July 8, 2022, the Company made an unrestricted and unconditional contribution of Webster common shares to the Webster
Bank Charitable Foundation, a nonprofit charitable organization with a focus on education and community development that
serves communities in the Greater New York City, Lower Hudson Valley, Long Island, and New Jersey areas. The fair value of
these shares based on their closing price on the contribution date was $10.5 million.
Change in Common Shares Authorized
The number of authorized shares of Webster common stock was increased from 200.0 million shares to 400.0 million shares on
January 31, 2022, in connection with the completion of the merger with Sterling and in accordance with the merger agreement.
Series F Preferred Stock
On December 12, 2017, the Company closed on a public offering of 6,000,000 depositary shares, each representing 1/1000th
ownership interest in a share of 5.25% Series F Non-Cumulative Preferred Perpetual Stock, par value $0.01 per share, with a
liquidation preference equal to $25,000 per share (the 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, the Company will pay 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 a dividend
on the Series F Preferred Stock is not declared in respect of a dividend period, a dividend will not accrue and the Company 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 G Preferred Stock or any other series of Webster preferred stock. The terms of the Series F Preferred Stock prohibit the
Company from declaring or paying any cash dividends on Webster 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. Except with respect to certain non-payment events and certain changes to the terms of the
Series F Preferred Stock, holders 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.
115
Series G Preferred Stock
On January 31, 2022, in connection with the Sterling merger, the Company registered and issued 5,400,000 depositary shares,
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 (the Series G Preferred Stock). The Series G Preferred Stock
ranks on parity with the 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 the Company.
Dividends on the Series G Preferred Stock are non-cumulative and are not mandatory. If declared by the Board of Directors, or
a duly authorized committee thereof, the Company will pay dividends quarterly in arrears on the fifteenth day of each
January, April, July, and October, at a rate equal to 6.50% of the $1,000 per share liquidation amount per annum. If a dividend
on the Series F Preferred Stock is not declared in respect of a dividend period, a dividend will not accrue and the Company 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 G Preferred Stock or any other series of Webster preferred stock. The terms of the Series G Preferred Stock prohibit the
Company from declaring or paying any cash dividends on Webster 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 G Preferred Stock for the most recent dividend period.
The Series G Preferred Stock is perpetual and has no maturity date, and is not subject to any mandatory redemption, sinking
fund, or other similar provisions. Except with respect to certain non-payment events and certain changes to the terms of the
Series G Preferred Stock, holders have no voting rights, nor preemptive or conversion rights. The Series G Preferred Stock is
not convertible or exchangeable for shares of any other class of Webster stock.
Preferred Stock Redemptions
The Company may redeem either the Series F Preferred Stock or the Series G Preferred Stock at its option, in whole or in part,
subject to the approval of Federal Reserve Board, on any dividend payment date, or in whole but not in part, upon the
occurrence of a regulatory capital treatment event, at a redemption price equal to the liquidation preference plus any declared
and unpaid dividends, without accumulation of any undeclared dividends. The Company has no plans to redeem either its Series
F Preferred Stock or its Series G Preferred stock, in whole or in part, as of the date of this Annual Report on Form 10-K.
116
Note 13: 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, 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
Other comprehensive (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Other comprehensive (loss), net of tax
Balance at December 31, 2022
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss)
Other comprehensive income, net of tax
Balance at December 31, 2023
Investment
Securities
Available-
For-Sale
Derivative
Instruments
Defined Benefit
Pension and
Other
Postretirement
Benefit Plans
$
67,424 $
(62,888)
19,918 $
(17,109)
(45,086) $
8,876
—
(62,888)
4,536
(640,656)
4,960
(635,696)
(631,160)
86,391
3,261
(13,848)
6,070
(17,810)
2,866
(14,944)
(8,874)
4,066
3,024
11,900
(33,186)
(13,350)
1,610
(11,740)
(44,926)
11,794
27,319
113,710
(517,450) $
$
1,939
6,005
(2,869) $
2,880
14,674
(30,252) $
Total
42,256
(71,121)
6,285
(64,836)
(22,580)
(671,816)
9,436
(662,380)
(684,960)
102,251
32,138
134,389
(550,571)
The following table further summarizes the amounts reclassified from accumulated other comprehensive (loss) income:
Accumulated Other Comprehensive (Loss)
Income Components
(In thousands)
Investment securities available-for-sale:
Net unrealized holding (losses)
Tax benefit
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
Other
Tax benefit
Net of tax
Years ended December 31,
2023
2022
2021
Associated Line Item in the Consolidated
Statement Of Income
$
$
$
$
$
$
(37,356) $
10,037
(27,319) $
(310) $
(2,349)
720
(1,939) $
(2,083) $
(1,869)
1,072
(2,880) $
(6,751) $
1,791
(4,960) $
(306) $
(3,626)
1,066
(2,866) $
(2,210) $
—
600
(1,610) $
— (Loss) on sale of investment securities (1)
— Income tax expense
—
(306) Interest expense
(4,109) Interest income
1,154 Income tax expense
(3,261)
(4,102) Other expense
— Other expense
1,078 Income tax expense
(3,024)
(1) Losses recognized on the sale of investment securities are generally included as a component of non-interest income, unless any
portion or all of the loss is attributed to a decline in credit quality, in which the amount recognized is then included in the Provision
for credit losses. During the years ended December 31, 2023, and 2022, $3.8 million and zero of the total loss recognized on the
sale of investment securities was included in the Provision for credit losses, respectively.
117
The following tables summarize each component of other comprehensive income (loss) and the related tax effects:
(In thousands)
Investment securities available-for-sale:
Net unrealized holding gains arising during the year
Reclassification adjustment for net realized losses included in net income
Total investment 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 gain arising during the year
Reclassification adjustment for actuarial net loss amortization and other
included in net income
Total defined benefit pension and postretirement benefit plans
Other comprehensive income, net of tax
(In thousands)
Investment securities available-for-sale:
Net unrealized holding (losses) arising during the year
Reclassification adjustment for net realized losses included in net income
Total investment 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 (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 (loss), net of tax
(In thousands)
Investment securities available-for-sale:
Net unrealized holding (losses) arising during the year
Total investment 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
Year ended December 31, 2023
Amount
Before Tax
Tax Benefit
(Expense)
Amount
Net of Tax
$
118,410 $
37,356
155,766
(32,019) $
(10,037)
(42,056)
86,391
27,319
113,710
5,578
2,659
8,237
(1,512)
(720)
(2,232)
4,066
1,939
6,005
16,183
(4,389)
11,794
3,952
20,135
184,138 $
(1,072)
(5,461)
(49,749) $
2,880
14,674
134,389
Year ended December 31, 2022
Amount
Before Tax
Tax Benefit
(Expense)
Amount
Net of Tax
(878,366) $
6,751
(871,615)
237,710 $
(1,791)
235,919
(640,656)
4,960
(635,696)
(24,440)
3,932
(20,508)
6,630
(1,066)
5,564
(18,319)
2,210
(16,109)
(908,232) $
4,969
(600)
4,369
245,852 $
(17,810)
2,866
(14,944)
(13,350)
1,610
(11,740)
(662,380)
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)
$
$
$
$
$
118
Note 14: Regulatory Capital and Restrictions
Capital Requirements
The Holding Company and the 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/or the regulatory
framework for prompt corrective action (applies to the Bank only), both the Holding Company and the 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 Basel III to ensure capital adequacy require the Holding Company and the Bank to
maintain minimum ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1
Leverage Capital, as defined in the regulations. CET1 capital consists of common stockholders’ 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, the Company had elected to opt-out of the requirement to include certain components of 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 qualifying subordinated debt and the permissible portion of the ACL.
At December 31, 2023, and 2022, both the Holding Company and the 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 regulatory capital ratios for the Holding Company and the Bank:
(In thousands)
Webster Financial Corporation
CET1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
Webster Bank
CET1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
(In thousands)
Webster Financial Corporation
CET1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
Webster Bank
CET1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Tier 1 Leverage Capital
Actual (1)
Amount
Ratio
At December 31, 2023
Minimum Requirement
Ratio
Amount
Well Capitalized
Amount
Ratio
6,188,433
6,472,412
7,643,423
6,472,412
6,913,443
6,913,443
7,494,332
6,913,443
11.11 % $
11.62
13.72
9.06
2,507,190
3,342,920
4,457,227
2,857,890
12.43 % $
12.43
13.47
9.69
2,502,835
3,337,113
4,449,484
2,855,212
4.5 % $
6.0
8.0
4.0
4.5 % $
6.0
8.0
4.0
3,621,497
4,457,227
5,571,534
3,572,362
3,615,206
4,449,484
5,561,855
3,569,015
6.5 %
8.0
10.0
5.0
6.5 %
8.0
10.0
5.0
Actual (1)
Amount
Ratio
At December 31, 2022
Minimum Requirement
Ratio
Amount
Well Capitalized
Amount
Ratio
5,822,369
6,106,348
7,203,029
6,106,348
6,661,504
6,661,504
7,165,935
6,661,504
10.71 % $
11.23
13.25
8.95
2,446,344
3,261,792
4,349,056
2,730,212
12.28 % $
12.28
13.20
9.77
2,442,058
3,256,078
4,341,437
2,727,476
4.5 % $
6.0
8.0
4.0
4.5 % $
6.0
8.0
4.0
3,533,608
4,349,056
5,436,320
3,412,765
3,527,417
4,341,437
5,426,796
3,409,345
6.5 %
8.0
10.0
5.0
6.5 %
8.0
10.0
5.0
$
$
$
$
(1)
In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of the adoption of CECL
on its regulatory capital over a two-year deferral period, which ended on January 1, 2022, and a subsequent three-year transition
period ending on December 31, 2024. During the three-year transition period, regulatory capital ratios will phase out the aggregate
amount of the regulatory capital benefit provided from the delayed CECL adoption in the initial two years. For 2022, 2023, and
2024, the Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, with
full absorption occurring in 2025.
119
Dividend Restrictions
The Holding Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to
stockholders and 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 net income for that year combined with
undistributed net income for the preceding two years.
The Bank paid the Holding Company $600.0 million and $475.0 million in dividends during the years ended December 31,
2023, and 2022, respectively, for which no express approval from the OCC was required.
Cash Restrictions
The Bank is required under Federal Reserve regulations to maintain cash reserve balances in the form of vault cash or deposits
held at a FRB 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 has not been required to hold cash
reserve balances since that date.
120
Note 15: Variable Interest Entities
The Company has an investment interest in the following entities that each meet the definition of a variable interest entity.
Information regarding the Company's consolidation of variable interest entities can be found within Note 1: Summary of
Significant Accounting Policies.
Consolidated
Rabbi Trusts. The Company established a Rabbi Trust to meet its obligations due under the Webster Bank Deferred
Compensation Plan for Directors and Officers and to mitigate expense volatility. The funding of the Rabbi Trust and the
discontinuation of the Webster Bank Deferred Compensation Plan for Directors and Officers occurred during 2012. In
connection with the Sterling merger in 2022, the Company acquired assets held in a separate Rabbi Trust that had been
previously established to fund obligations due under the Greater New York Savings Bank Directors' Retirement Plan.
Investments held in the Rabbi Trusts consist primarily of mutual funds that invest in equity and fixed income securities. The
Company is considered the primary beneficiary of these Rabbi Trusts as it has the power to direct the activities of the Rabbi
Trusts that most significantly impact its economic performance and it has the obligation to absorb losses and/or the right to
receive benefits of the Rabbi Trusts that could potentially be significant.
The Rabbi Trusts' assets are included in Accrued interest receivable and other assets on the accompanying Consolidated
Balance Sheets. Investment earnings and any changes in fair value are included in Other income on the accompanying
Consolidated Statements of Income. Additional information regarding the Rabbi Trusts' investments can be found within Note
18: Fair Value Measurements.
Non-Consolidated
Low Income Housing Tax Credit Investments. The Company makes non-marketable equity investments in entities that
sponsor affordable housing and other community development projects that qualify for the LIHTC 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 the Company'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. 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. The Company applies the proportional amortization method to subsequently
measure its investments in qualified affordable housing projects.
The following table summarizes the Company's LIHTC investments and related unfunded commitments:
(In thousands)
Gross investment in LIHTC investments
Accumulated amortization
Net investment in LIHTC investments
Unfunded commitments for LIHTC investments
At December 31,
2023
1,135,192
(141,199)
993,993
$
$
2022
797,453
(69,424)
728,029
549,258
$
335,959
$
$
$
The aggregate carrying value of the Company's LIHTC investments is included in Accrued interest receivable and other assets
on the accompanying Consolidated Balance Sheets and represents the Company's maximum exposure to loss. The related
unfunded commitments are included in Accrued expenses and other liabilities on the accompanying Consolidated Balance
Sheets. There were $334.9 million and $211.8 million of net commitments approved to fund LIHTC investments during the
years ended December 31, 2023, and 2022.
Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle
that has issued, and in the future may issue, trust preferred securities. The Company is not the primary beneficiary of Webster
Statutory Trust. Webster Statutory Trust's only assets are junior subordinated debentures that 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 included in Long-term debt on the accompanying Consolidated Statements of Income. Additional information regarding these
junior subordinated debentures can be found within Note 11: Borrowings.
121
Other Non-Marketable Investments. The Company 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. The aggregate carrying value of the Company's other
non-marketable investments was $190.1 million and $144.9 million at December 31, 2023, and 2022, respectively, which is
included in Accrued interest receivable and other assets on the accompanying Consolidated Balance Sheets, and its maximum
exposure to loss, including unfunded commitments, was $307.2 million and $243.9 million, respectively. Additional
information regarding other non-marketable investments can be found within Note 18: Fair Value Measurements.
122
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)
Net income
Less: Preferred stock dividends
Net income available to common stockholders
Less: Earnings allocated to participating securities
Earnings applicable to common stockholders
Weighted-average common shares outstanding - basic
Add: Effect of dilutive stock options and restricted stock
Weighted-average common shares outstanding - diluted
Basic earnings per common share
Diluted earnings per common share
Years ended December 31,
2022
2021
2023
867,840 $
16,650
851,190
7,922
843,268 $
644,283 $
15,919
628,364
5,672
622,692 $
171,775
108
171,883
167,452
95
167,547
4.91 $
4.91
3.72 $
3.72
408,864
7,875
400,989
2,302
398,687
89,983
223
90,206
4.43
4.42
$
$
$
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. The Company 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 that were not included in the computation of dilutive
earnings per common share, because they were anti-dilutive under the treasury stock method, were 204,945, 176,177, and
56,829 for the years ended December 31, 2023, 2022, and 2021, respectively. Additional information regarding stock options
and restricted stock awards can be found within Note 20: Share-Based Plans.
123
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, whereas 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 also designated as cash flow hedges. Purchased options allow the Company to
limit the potential adverse impact of variable interest rates by establishing a cap rate 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. In addition, 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 received/paid
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 received/paid
Total derivative instruments, after netting
At December 31, 2023
Asset Derivatives
Liability Derivatives
Notional Amounts
Fair Value
Notional Amounts
Fair Value
$
2,750,000 $
11,140
$
2,700,000 $
13,679
8,284,356
2,798
340,553
8,627,707
11,377,707
$
$
319,122
37
337
319,496
330,636
55,949
232,190
42,497
8,272,197
—
731,055
9,003,252
11,703,252
$
$
321,064
—
1,067
322,131
335,810
55,949
—
279,861
At December 31, 2022
Asset Derivatives
Liability Derivatives
Notional Amounts
Fair Value
Notional Amounts
Fair Value
$
1,350,000 $
1,515
$
1,750,000 $
9,632
7,024,507
3,283
161,934
7,189,724
8,539,724
$
$
221,225
32
134
221,391
222,906
16,129
184,095
22,682
$
7,022,844
—
606,478
7,629,322
9,379,322
$
403,952
—
915
404,867
414,499
16,129
—
398,370
(1) Balances related to clearing houses are presented as a single unit of account. In accordance with their rule books, clearing houses
legally characterize variation margin payments as settlement of derivatives rather than collateral against derivative positions.
Notional amounts of interest rate swaps cleared through clearing houses included $0.1 billion and $2.7 billion for asset derivatives
at December 31, 2023, and 2022, respectively. The related fair values approximate zero. For liability derivatives, there were
no interest rate swaps cleared through clearing houses at both December 31, 2023, and 2022.
(2) Notional amounts related to residential loans exclude approved floating rate commitments of $1.0 million and $2.4 million at
December 31, 2023, and 2022, respectively.
(3) Other derivatives include foreign currency forward contracts related to lending arrangements, a Visa equity swap transaction, and
risk participation agreements. Notional amounts of risk participation agreements include $299.2 million and $125.6 million for asset
derivatives and $682.9 million and $559.2 million for liability derivatives at December 31, 2023, and 2022, respectively, which
have insignificant related fair values.
124
The following tables represent the off-setting of derivative financial instruments that are subject to master netting agreements:
(In thousands)
Asset derivatives
Liability derivatives
(In thousands)
Asset derivatives
Liability derivatives
Derivative Activity
At December 31, 2023
Gross Amount
Recognized
Derivative Offset
Amount
Cash Collateral
Received/Paid
Net Amount
Presented
289,778 $
55,949
55,949 $
55,949
232,190 $
—
1,639
—
At December 31, 2022
Gross Amount
Recognized
Derivative Offset
Amount
Cash Collateral
Received/Paid
Net Amount
Presented
217,246 $
16,129
16,129 $
16,129
184,095 $
—
17,022
—
$
$
The following table summarizes the income statement effect of derivatives designated as hedging instruments:
(In thousands)
Fair value hedges:
Interest rate derivatives
Hedged item
Net recognized on fair value hedges
Cash flow hedges:
Interest rate derivatives
Interest rate derivatives
Net recognized on cash flow hedges
Recognized In
Net Interest Income
Years ended December 31,
2022
2021
2023
Deposits interest expense
Deposits interest expense
Long-term debt interest expense
Interest and fees on loans and leases
$
$
$
$
$
3,194
(15)
(3,179) $
$
310
(14,628)
(14,938) $
—
—
—
306
1,935
1,629
$
$
$
$
—
—
—
411
10,676
10,265
The following table summarizes information related to fair value hedging adjustments:
Consolidated Balance Sheet Line
Item in Which Previously Hedged
Item is Located
(In thousands)
Deposits
Long-term debt
Notional Amount of Previously
Hedged Item
At December 31,
Carrying Amount of Previously
Hedged Item
At December 31,
Cumulative Amount of Fair Value
Hedging Adjustment Included in
Carrying Amount (1)
At December 31,
2023
2022
2023
2022
2023
2022
$
400,000 $
300,000
— $
300,000
401,320 $
328,104
— $
333,458
1,320 $
28,104
—
33,458
(1) The Company de-designated its fair value hedging relationships on its deposits and long-term debt in 2023 and 2020, respectively.
The basis adjustment included in each of the carrying amounts is being amortized into interest expense over the remaining life of
the deposits and long-term debt.
Time-value premiums, which are amortized on a straight-line basis, are excluded from the assessment of hedge effectiveness
for purchased options designated as cash flow hedges. The remaining unamortized balance of time-value premiums at
December 31, 2023, was $0.5 million. Over the next twelve months, an estimated $21.9 million decrease to interest income
will be reclassified from (AOCL) relating to cash flow hedge gain/loss. The maximum length of time over which forecasted
transactions are hedged is 3.3 years. Additional information regarding cash flow hedge activity impacting (AOCL) and the
related amounts reclassified to net income can be found within Note 13: Accumulated Other Comprehensive (Loss) Income,
Net of Tax.
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,
2022
2021
2023
$
$
(6,159) $
5
(2,476)
(8,630) $
25,092
(48)
3,249
28,293
$
$
10,369
(776)
878
10,471
125
Derivative Exposure. At December 31, 2023, the Company had $3.0 million in initial margin posted at clearing houses. In
addition, $232.7 million of cash collateral received is included in Cash and due from banks on the accompanying Consolidated
Balance Sheets. The Company 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 derivatives with the Bank's customers was $40.8 million at December 31, 2023. In addition, the Company
monitors potential future exposure, representing its best estimate of exposure to remaining contractual maturity. The potential
future exposure relating to derivatives with the Bank's customers totaled $109.8 million at December 31, 2023. The Company
has incorporated a credit valuation adjustment (contra-liability) to reflect non-performance risk in the fair value measurement of
its derivatives, which totaled $6.2 million and $8.4 million at December 31, 2023, and 2022, respectively. Various factors
impact changes in the valuation adjustment over time, such as changes in the credit spreads of the contracted parties, and
changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
126
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 the Company 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 (i.e., interest rates, rate volatility, prepayment speeds, and credit ratings), or inputs
that are derived principally from or corroborated by market data, 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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Securities. When unadjusted quoted prices are available in an active market, the Company classifies its
available-for-sale investment securities within Level 1 of the fair value 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, the Company 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. Government agency debentures, Municipal bonds
and notes, Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, Corporate debt, Private label MBS, and Other
available-for-sale securities 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 dealer counterparties. These derivative instruments are
classified within Level 2 of the fair value hierarchy.
Mortgage Banking Derivatives. The Company 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, the Company 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 the Company
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.
127
Originated Loans Held For Sale. The Company has elected to measure originated loans held for sale at fair value under the fair
value option per ASC Topic 825, Financial Instruments. Electing to measure originated loans held for sale at fair value reduces
certain timing differences and better reflects the price the Company would expect to receive from the sale of these loans. The
fair value of originated loans held for sale is based on quoted market prices of similar loans sold in conjunction with
securitization transactions. Accordingly, originated loans held for sale are classified within Level 2 of the fair value hierarchy.
The following table compares the fair value to the unpaid principal balance of originated loans held for sale:
(In thousands)
Originated loans held for sale
2023
Unpaid
Principal
Balance
Fair Value
At December 31,
Difference
Fair Value
2022
Unpaid
Principal
Balance
Difference
$
2,610
$
2,658
$
(48) $
1,991
$
1,631
$
360
Rabbi Trust Investments. Investments held in each of the Company's Rabbi Trusts 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 represents quoted prices in active markets. Accordingly, the Rabbi Trusts' investments are classified within
Level 1 of the fair value hierarchy. At December 31, 2023, and 2022, the total cost basis of the investments held in the Rabbi
Trusts was $9.2 million and $10.0 million, respectively.
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, 2023, and 2022, equity investments with a readily determinable fair value had a total carrying
amount of $0.9 million and $0.4 million, respectively, with no remaining unfunded commitment. During the year ended
December 31, 2023, there were total write-ups 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. The Company'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, 2023, and 2022, these alternative
investments had a total carrying amount of $35.9 million and $89.2 million, respectively, and a remaining unfunded
commitment of $29.8 million and $82.7 million, respectively.
Contingent Consideration. The Company recorded $16.0 million of contingent consideration at fair value related to two earn-
out agreements associated with the acquisition of interLINK on January 11, 2023. The terms of the purchase agreement
specified that the seller would receive earn-outs based on the ability of the Company to: (i) re-sign the existing broker dealers
under contract, and (ii) generate $2.5 billion in new broker dealer deposit programs within three years of the acquisition date.
The estimated fair values of the contingent consideration liabilities are measured on a recurring basis and determined using an
income approach considering management’s evaluation of the probability of achievement, forecasted achievement date
(payment term), and a discount rate equivalent to the counterparty cost of debt. These significant inputs, which are the
responsibility of management and calculated with the assistance of a third-party valuation specialist, are not observable, and
accordingly, are classified within Level 3 of the fair value hierarchy.
The following table summarizes the unobservable inputs used to derive the estimated fair value of the Company’s contingent
consideration liabilities at December 31, 2023 (dollars in thousands):
Agreement
(i) Re-sign broker dealers
(ii) Deposit program growth
Maximum
Amount
Probability of
Achievement
Payment Term
(in years)
Discount Rate
Fair Value
$
$
4,826
12,500
99.0 %
100.0 %
1.88
1.00
6.40 % $
6.40 % $
4,232
11,568
Contingent consideration liabilities are included within Accrued expenses and other liabilities on the accompanying
Consolidated Balance Sheets. Any fair value adjustments to contingent consideration liabilities are included in Other expense
on the accompanying Consolidated Statements of Income.
128
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 securities:
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
Corporate debt
Private label MBS
Other
Total available-for-sale securities
Gross derivative instruments, before netting (1)
Originated loans held for sale
Investments held in Rabbi Trusts
Alternative investments
Alternative investments measured at NAV (2)
Total financial assets
Financial Liabilities:
Gross derivative instruments, before netting (1)
Contingent consideration
Total financial liabilities
(In thousands)
Financial Assets:
Available-for-sale investment securities:
U.S. Treasury notes
Government agency debentures
Municipal bonds and notes
Agency CMO
Agency MBS
Agency CMBS
CMBS
CLO
Corporate debt
Private label MBS
Other
Total available-for-sale securities
Gross derivative instruments, before netting (1)
Originated loans held for sale
Investments held in Rabbi Trust
Alternative investments
Alternative investments measured at NAV (2)
Total financial assets
Financial Liabilities:
Gross derivative instruments, before netting (1)
At December 31, 2023
Level 1
Level 2
Level 3
Total
— $
—
—
—
—
—
—
—
—
—
217
—
11,900
959
—
13,076 $
264,633 $
1,573,233
48,941
3,347,098
2,288,071
763,749
622,155
42,808
9,041
8,959,729
330,419
2,610
—
—
—
9,292,758 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
264,633
1,573,233
48,941
3,347,098
2,288,071
763,749
622,155
42,808
9,041
8,959,729
330,636
2,610
11,900
959
35,888
9,341,722
970 $
—
970 $
334,840 $
—
334,840 $
— $
15,800
15,800 $
335,810
15,800
351,610
At December 31, 2022
Level 1
Level 2
Level 3
Total
717,040 $
—
—
—
—
—
—
—
—
—
—
717,040
79
—
12,103
430
—
729,652 $
— $
258,374
1,633,202
59,965
2,158,024
1,406,486
896,640
2,107
704,412
44,249
12,198
7,175,657
222,827
1,991
—
—
—
7,400,475 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
717,040
258,374
1,633,202
59,965
2,158,024
1,406,486
896,640
2,107
704,412
44,249
12,198
7,892,697
222,906
1,991
12,103
430
89,248
8,219,375
843 $
413,656 $
— $
414,499
$
$
$
$
$
$
$
(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 within 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.
129
Assets Measured at Fair Value on a Non-Recurring Basis
The Company 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, 2023, and 2022, the carrying amount of these alternative
investments was $53.1 million and $42.8 million, respectively, of which $7.9 million and $5.9 million, respectively, were
considered to be measured at fair value. During the year ended December 31, 2023, there were $1.8 million of total net write-
ups due to observable price changes and $1.0 million of total write-downs due to impairment.
Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale,
these loans are transferred into the held for sale category and carried at the lower of cost or fair value, less estimated costs to
sell. At the time of transfer into held for sale classification, any amount by which cost exceeds fair value is accounted for as a
valuation allowance. This activity generally pertains to loans with observable inputs, and therefore, are classified within Level 2
of the fair value hierarchy. However, should these loans include adjustments for changes in loan characteristics based on
unobservable inputs, the loans would then be classified within Level 3 of the fair value hierarchy. At December 31, 2023, and
2022, there were $3.9 million and zero loans transferred to held for sale on the accompanying Consolidated Balance Sheets,
respectively.
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, 2023, and 2022, the total carrying value of OREO and repossessed assets was $9.1 million and
$2.3 million, respectively. In addition, the amortized cost of consumer loans secured by residential real estate property that are
in the process of foreclosure at December 31, 2023, was $8.7 million.
Estimated Fair Values of Financial Instruments and Mortgage Servicing Assets
The Company is required to disclose the estimated fair values of certain financial instruments and mortgage servicing rights.
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.
Held-to-Maturity Securities. When quoted market prices are not available, the Company 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. Held-to-
maturity securities, which include Agency CMO, Agency MBS, Agency CMBS, Municipal bonds and notes, and CMBS, 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 discount 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.
130
Mortgage Servicing Rights. Mortgage servicing rights are initially measured at fair value and subsequently measured using the
amortization method. The Company assesses mortgage servicing rights 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 rights is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing rights 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 rights:
(In thousands)
Assets:
Level 1
Cash and cash equivalents
Level 2
At December 31,
2023
2022
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
1,715,795 $
1,715,795 $
839,943 $
839,943
Held-to-maturity investment securities
7,074,588
6,264,623
6,564,697
5,761,453
Level 3
Loans and leases, net
Mortgage servicing rights
Liabilities:
Level 2
Deposit liabilities
Time deposits
Securities sold under agreements to repurchase and other borrowings
FHLB advances
Long-term debt (1)
50,090,315
8,523
48,048,106
24,495
49,169,685
9,515
47,604,463
27,043
$ 52,319,825 $ 52,319,825 $ 49,893,391 $ 49,893,391
4,091,979
1,151,797
5,459,218
1,001,779
4,160,949
1,151,830
5,460,552
1,073,128
8,426,708
458,380
2,358,381
999,918
8,464,459
458,387
2,360,018
1,048,820
(1) Any unamortized premiums/discounts, debt issuance costs, or basis adjustments to long-term debt, as applicable, are excluded from
the determination of fair value.
131
Note 19: Retirement Benefit Plans
Defined Benefit Pension and Postretirement Benefit Plans
The Bank had offered a qualified noncontributory defined benefit Pension Plan and a non-qualified SERP to eligible employees
and key executives who met certain age and service requirements, both of which 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. The Bank also provides for OPEB to certain retired employees.
In connection with the merger with Sterling, on January 31, 2022, the Company assumed the benefit obligations of Sterling's
non-qualified SERP and OPEB plans, which included the Astoria Bank Excess Benefit and Supplemental Benefit Plans, Astoria
Bank Directors' Retirement Plan, Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors,
Supplemental Executive Retirement Plan of Provident Bank, Supplemental Executive Retirement Plan of Provident Bank -
Other, Sterling Bancorp Supplemental Postretirement Life Insurance Plan, Astoria Bank Postretirement Welfare Benefit Plans,
and a Split Dollar Life Insurance Arrangement.
Each of the plan's measurement dates, including the plans assumed from Sterling in the merger, coincides with the Company's
December 31 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
Benefit obligation assumed from Sterling
Service cost
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
SERP
OPEB
2023
2022
2023
2022
2023
2022
$
$
187,836 $
—
—
8,782
3,333
(9,965)
189,986
201,382
25,750
—
(9,965)
217,167
27,181 $
250,263 $
—
—
5,565
(57,751)
(10,241)
187,836
271,846
(60,223)
—
(10,241)
201,382
13,546 $
4,245 $
—
—
191
183
(480)
4,139
—
—
480
(480)
—
(4,139) $
1,873 $
4,517
—
107
(581)
(1,671)
4,245
—
—
1,671
(1,671)
—
(4,245) $
22,822 $
—
27
1,042
(382)
(840)
22,669
—
—
840
(840)
—
(22,669) $
1,904
26,030
34
652
(4,992)
(806)
22,822
—
—
806
(806)
—
(22,822)
(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:
Pension:
Webster Bank Pension Plan
SERP:
Webster Bank Supplemental Defined Benefit Plan for Executive Officers
Astoria Bank Excess Benefit and Supplemental Benefit Plans
Astoria Bank Directors' Retirement Plan
Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors
Supplemental Executive Retirement Plan of Provident Bank
Supplemental Executive Retirement Plan of Provident Bank - Other
OPEB:
Webster Bank Postretirement Medical Benefit Plan
Sterling Bancorp Supplemental Postretirement Life Insurance Plan
Astoria Bank Postretirement Welfare Benefit Plans
Split Dollar Life Insurance Arrangement
132
Discount Rate
2023
2022
4.76 %
4.96 %
4.68 %
4.56
4.50
4.50
4.83
4.71
4.54 %
4.51
4.74
4.45
4.88 %
4.77
4.70
4.70
5.04
4.90
4.72 %
4.70
4.94
4.63
The following table summarizes the amounts recorded in accumulated other comprehensive (loss) income that have not yet
been recognized in net periodic benefit cost (income) at December 31:
(In thousands)
Net actuarial loss (gain)
Deferred tax (benefit) expense
Net amount recorded in (AOCL)
Pension
SERP
OPEB
2023
2022
2023
2022
2023
2022
$
$
41,296 $
(11,201)
30,095 $
56,717 $
(15,383)
41,334 $
312 $
(85)
227 $
50 $
(14)
36 $
(3,231) $
876
(2,355) $
(5,573)
1,512
(4,061)
The following table summarizes the components of net periodic benefit cost (income) for the years ended December 31:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss (gain)
Net periodic benefit cost (income) (1)
Pension
2023
2022
2021
2023
SERP
2022
2021
2023
OPEB
2022
2021
$
— $
8,782
— $
5,565
4,663
(11,778) (14,675) (14,385)
— $
4,781
2,224
$ 1,785 $ (6,886) $ (5,620) $
4,102
— $
191
—
6
197 $
— $
107
—
26
133 $
— $
30
—
27 $
1,042
—
38
(2,704)
68 $ (1,635) $
34 $
652
—
(40)
646 $
—
19
—
(38)
(19)
(1) Net periodic benefit cost (income) is included in Other expense on the accompanying Consolidated Statements of Income.
The following table summarizes the weighted-average assumptions used to determine net periodic benefit cost (income) for the
years ended December 31:
Pension:
Webster Bank Pension Plan
SERP:
Webster Bank Supplemental Defined Benefit Plan for Executive Officers
Astoria Bank Excess Benefit and Supplemental Benefit Plans
Astoria Bank Directors' Retirement Plan
Retirement Plan of the Greater New York Savings Bank for Non-Employee Directors
Supplemental Executive Retirement Plan of Provident Bank
Supplemental Executive Retirement Plan of Provident Bank - Other
OPEB:
Webster Bank Postretirement Medical Benefit Plan
Sterling Bancorp Supplemental Postretirement Life Insurance Plan
Astoria Bank Postretirement Welfare Benefit Plans
Split Dollar Life Insurance Arrangement
2023
Discount Rate
2022
2021
4.96 %
2.65 %
2.29 %
4.88 %
4.77
4.70
4.70
5.04
4.90
4.72 %
4.70
4.94
4.63
2.45 %
2.58
2.23
2.37
2.76
2.38
1.99 %
2.35
2.93
2.20
1.91 %
n/a
n/a
n/a
n/a
n/a
1.40 %
n/a
n/a
n/a
Expected Long-Term Rate of Return on Plan Assets
2022
2023
2021
Pension:
Webster Bank Pension Plan
OPEB:
Webster Bank Postretirement Medical Benefit Plan
Astoria Bank Postretirement Welfare Benefit Plans
6.00 %
5.50 %
5.50 %
Assumed Health Care Cost Trend Rate (1)
2021
2022
2023
6.50 %
6.40
6.25 %
6.60
6.50 %
n/a
(1) The rates to which the healthcare cost trend rates are assumed to decline (ultimate trend rates) along with the year that the ultimate
trend rates will be reached for the Webster Bank Postretirement Medical Benefit Plan and the Astoria Bank Postretirement Welfare
Benefit Plans are 4.40% in 2032, and 4.50% in 2033, respectively.
The discount rates used to determine the benefit obligation and net periodic benefit cost (income) for the Company's defined
benefit pension and postretirement benefit plans were generally 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.
133
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)
Total (gain) loss recognized in
OCI (OCL)
Pension
2023
2022
2021
2023
SERP
2022
2021
2023
OPEB
2022
2021
$ (10,639) $ 17,148 $ (12,008) $
183 $
(581) $
(77) $
(382) $ (4,992) $
(4,781)
(2,224)
(4,102)
(6)
(26)
(38)
2,704
40
$ (15,420) $ 14,924 $ (16,110) $
177 $
(607) $
(115) $ 2,322 $ (4,952) $
33
38
71
At December 31, 2023, the expected future benefit payments for the Company's defined benefit pension and postretirement
benefits plans are as follows:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
Asset Management
$
Pension
SERP
OPEB
10,634 $
11,038
11,429
11,864
12,246
64,148
489 $
473
455
433
409
1,646
2,926
2,789
2,552
2,339
2,083
7,393
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, 2023, were 64.5%
fixed-income investments and 35.5% equity investments. The actual asset allocation percentages for the year ended
December 31, 2023, were 64.2% fixed-income investments, 35.2% equity investments, and 0.6% 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 6.00%. 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 generally established as of the beginning of the year based
upon historical and projected returns for each asset category, with subsequent remeasurements occurring in interim periods, as
appropriate. Depending on market conditions, the expected long-term rate of return on plan assets may exceed or fall short of
the targeted percentage.
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.
134
The following table sets forth by level within the fair value hierarchy the Pension Plan's assets at fair value:
At December 31,
2023
(In thousands)
Common collective trusts
$
Registered investment companies
Cash and cash equivalents
Total pension plan assets
$
Level 1
Level 2
— $ 195,004 $
—
20,965
1,198
—
22,163 $ 195,004 $
Level 3
Total
— $ 195,004
20,965
—
—
1,198
— $ 217,167
2022
Level 1
Level 2
— $ 172,941 $
—
26,923
1,518
—
28,441 $ 172,941 $
$
$
Level 3
Total
— $ 172,941
26,923
—
—
1,518
— $ 201,382
Multiple-Employer Defined Benefit Pension Plan
The 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 15-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 the Bank's participation in the multi-employer plan:
(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
2023
2022
2021
13-5645888
333
No
$448
$448
$692
2023
At least 80
percent
2022
At least 80
percent
The Bank's contributions to the multi-employer plan for the years ended December 31, 2023, 2022, and 2021, did not exceed
more than 5% of total plan contributions for the plan years ended June 30, 2022, 2021, and 2020. The plan's Form 5500 was not
available for the plan year ended June 30, 2023, as of the date the Company's Consolidated Financial Statements were issued.
As of July 1, 2023, the date of the most recent actuarial valuation, the plan administrator confirmed that the Bank’s portion of
the multi-employer plan was $3.1 million underfunded.
Defined Contribution Postretirement Benefit Plans
The Bank also sponsors defined contribution postretirement benefit plans established under Section 401(k) of the Internal
Revenue Code:
Webster Bank Retirement Savings Plan. 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. The 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. As of December 31, 2023, individuals who became employees of the Company
as a result of the merger with Sterling were not eligible to participate in the plan.
Sterling National Bank 401k and Profit Sharing Plan. Eligible legacy Sterling employees as January 31, 2022, who are now
employees of the Company may elect to contribute up to 50% of their eligible compensation on either a pre-tax or post-tax
basis. The Bank makes matching contributions equal to 50% of employee contributions up to 4% of eligible compensation, for
a maximum match of 2%, and a profit sharing contribution equal to 3% of eligible compensation for all eligible legacy Sterling
employees, regardless of whether they had contributed to the plan in the current year. The plan also includes an automatic
employee deferral increase provision, whereby deferral contributions for participants who had been automatically enrolled in
the plan will increase by 1% every January 1 up to 10%.
Compensation and benefits expense included total employer contributions under the plans of $20.3 million, $18.2 million, and
$13.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
135
Note 20: Share-Based Plans
The Company maintains a stock compensation plan that provides for the grant of stock options, stock appreciation rights,
restricted stock, performance-based stock, and stock units to better align the interests of its employees and directors with those
of its stockholders. The total number of shares of Webster common stock authorized for issuance under the plan is 21.4 million
shares. At December 31, 2023, there were 4.5 million shares available to be granted. Stock compensation expense is recognized
over the required service vesting period for each award based on the grant-date fair value and is included in 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, 2023:
Non-Vested Restricted Stock Awards Outstanding
Time-Based
Performance-Based
Stock Options Outstanding
Number of
Shares
1,479,742 $
937,735
(740,748)
(77,310)
—
1,599,419
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
Weighted-
Average
Exercise Price
50.47
51.35
48.88
51.62
—
52.72
310,374 $
286,161
(60,988)
(15,544)
—
520,003
57.65
48.86
60.24
55.54
—
52.58
88,229 $
—
—
—
(77,257)
10,972
23.76
—
—
—
23.00
29.14
Balance, beginning of period
Granted
Vested
Forfeited
Exercised
Balance, end of period
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
300,000 shares. The fair value of time-based restricted stock awards used to determine compensation expense is measured using
the closing price of Webster common stock at the grant date.
Performance-based restricted stock awards generally vest after a three year performance period, with the total share quantity
dependent on the Company meeting certain target performance conditions throughout the vesting period, ranging from 0% to
150%. Under the plan, 50% of the share quantity is determined based on total stockholder return as compared to the Company's
compensation peer group, while the other 50% is based on the Company's average return on equity. The fair value of
performance-based restricted stock awards used to determine compensation expense is calculated using the Monte-Carlo
simulation model for total stockholder return awards and the closing price of Webster common stock at the grant date for
average return on equity awards. Compensation expense may be subject to adjustment based on management's assessment of
the Company's average return on equity performance relative to the target number of shares condition.
For the years ended December 31, 2023, 2022, and 2021, the Company recognized restricted stock compensation expense
totaling $54.5 million, $55.1 million, and $13.7 million, respectively. The corresponding income tax benefit recognized was
$13.9 million, $12.0 million, and $5.4 million, respectively. The fair value of restricted stock awards that had vested during the
years ended December 31, 2023, 2022, and 2021, was $39.9 million, $51.7 million, and $12.5 million, respectively. At
December 31, 2023, there was $40.0 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 1.7 years.
Stock Options
Stock options are granted at an exercise price equal to the market value of Webster 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 ten years. The
Company has not granted stock options since 2013. At December 31, 2023, there were 10,278 and 694 incentive and
non-qualified stock options outstanding, respectively, which have a weighted-average remaining contractual life of 1.1 years,
and all of which have vested and are exercisable.
Total pre-tax intrinsic value, or the difference between the Webster common stock closing 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 options been exercised on December 31, 2023. At
December 31, 2023, the total pre-tax intrinsic value was $0.2 million. For the years ended December 31, 2023, 2022, and 2021,
the total intrinsic value of the options exercised was $2.2 million, $1.0 million, and $9.0 million, respectively. The amount of
cash received from the exercise of stock options during the years ended December 31, 2023, 2022, and 2021, was $1.8 million,
$0.7 million, and $7.1 million, respectively.
136
Note 21: Segment Reporting
The Company’s operations are organized into three reportable segments that represent its primary businesses: Commercial
Banking, HSA Bank, and Consumer 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, including the operations of interLINK, along with the amounts required to reconcile profitability
metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category.
In connection with the acquisition of interLINK on January 11, 2023, the $143.2 million of goodwill recorded was allocated
entirely to Commercial Banking. In addition, as previously discussed in Note 2: Mergers and Acquisitions and Note 8:
Goodwill and Other Intangible Assets, the allocation of the purchase price for both the Sterling merger and Bend acquisition
was final as of March 31, 2023. As a result, of the total $1.9 billion in goodwill recorded in connection with the Sterling
merger, $1.7 billion and $0.2 billion was allocated to Commercial Banking and Consumer Banking, respectively. The
$35.7 million of goodwill recorded in connection with the Bend acquisition was allocated entirely to HSA Bank.
Segment Reporting Methodology
The Company uses an internal profitability reporting system to generate information by reportable segment, which is based on a
series of management estimates for FTP, 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 the Company 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.
The Company allocates interest income and interest expense to each business through an internal matched maturity 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.
The Company allocates a majority of non-interest expense to each reportable segment using an activity and driver-based costing
process. Costs, including shared services and back-office support areas, are analyzed, pooled by process, and assigned to the
appropriate reportable segment. The combination of direct revenue, direct expenses, FTP, and allocations of non-interest
expense produces PPNR, which is the basis the segments are reviewed by executive management. The Company also allocates
the provision for credit losses to each reportable segment based on management's estimate of the expected 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 the Company's reportable
segments and the Corporate and Reconciling category:
(In thousands)
Goodwill
Total assets
(In thousands)
Goodwill
Total assets
At December 31, 2023
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
2,029,204 $
43,381,361
57,485 $
122,421
544,776
10,789,339
$
— $
20,652,128
2,631,465
74,945,249
At December 31, 2022
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
1,904,291 $
44,380,582
57,779 $
122,729
552,034
10,625,334
$
— $
16,148,876
2,514,104
71,277,521
$
$
137
The following tables present operating results, including the appropriate allocations, for the Company’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
Provision for credit losses
Income before income taxes
Income tax expense
Net income
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
Provision (benefit) for credit losses
Income before income taxes
Income tax expense
Net income
(In thousands)
Net interest income
Non-interest income
Non-interest expense
Pre-tax, pre-provision net revenue
(Benefit) for credit losses
Income before income taxes
Income tax expense
Net income
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Year ended December 31, 2023
1,537,031 $
132,660
439,290
1,230,401
131,237
1,099,164
246,212
852,952 $
302,856 $
88,113
168,160
222,809
—
222,809
58,822
163,987 $
798,483
107,456
425,281
480,658
11,972
468,686
118,108
350,578
$
$
(301,101) $
(13,892)
383,624
(698,617)
7,538
(706,155)
(206,478)
(499,677) $
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Year ended December 31, 2022
1,346,384 $
171,437
398,100
1,119,721
276,550
843,171
207,188
635,983 $
218,149 $
104,586
151,329
171,406
—
171,406
45,937
125,469 $
720,789
119,691
426,133
414,347
(3,754)
418,101
108,657
309,444
$
$
(251,036) $
45,069
420,911
(626,878)
7,823
(634,701)
(208,088)
(426,613) $
Consolidated
Total
2,337,269
314,337
1,416,355
1,235,251
150,747
1,084,504
216,664
867,840
Consolidated
Total
2,034,286
440,783
1,396,473
1,078,596
280,619
797,977
153,694
644,283
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2021
585,297 $
83,538
192,977
475,858
(51,348)
527,206
134,965
392,241 $
168,595 $
102,814
134,258
137,151
—
137,151
36,619
100,532 $
375,318
95,887
297,217
173,988
(3,068)
177,056
42,139
134,917
$
$
(228,121) $
41,133
120,648
(307,636)
(84)
(307,552)
(88,726)
(218,826) $
901,089
323,372
745,100
479,361
(54,500)
533,861
124,997
408,864
$
$
$
$
$
$
138
Note 22: Revenue from Contracts with Customers
The following tables summarize revenues recognized in accordance with ASC Topic 606, Revenue from Contracts with
Customers. These disaggregated amounts, together with sources of other non-interest income that are subject to other GAAP
topics, have been reconciled to non-interest income by reportable segment as presented within Note 21: Segment Reporting.
(In thousands)
Non-interest Income:
Deposit service fees
Loan and lease related fees (1)
Wealth and investment services (2)
Other
Revenue from contracts with customers
Other sources of non-interest income
Total non-interest income
(In thousands)
Non-interest Income:
Deposit service fees
Loan and lease related fees (1)
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
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2023
20,527 $
17,633
11,543
—
49,703
82,957
132,660 $
81,051 $
—
—
7,062
88,113
—
88,113 $
66,999
—
17,478
6,199
90,676
16,780
107,456
$
$
741 $
—
(22)
4,193
4,912
(18,804)
(13,892) $
169,318
17,633
28,999
17,454
233,404
80,933
314,337
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2022
27,663 $
21,498
11,350
—
60,511
110,926
171,437 $
97,654 $
—
—
6,932
104,586
—
104,586 $
71,353
—
28,957
1,493
101,803
17,888
119,691
$
$
1,802 $
—
(30)
—
1,772
43,297
45,069 $
198,472
21,498
40,277
8,425
268,672
172,111
440,783
Commercial
Banking
HSA
Bank
Consumer
Banking
Corporate and
Reconciling
Consolidated
Total
Year ended December 31, 2021
16,933 $
12,152
—
29,085
54,453
83,538 $
94,844 $
—
7,970
102,814
—
102,814 $
50,561
27,471
2,140
80,172
15,715
95,887
$
$
372 $
(37)
—
335
40,798
41,133 $
162,710
39,586
10,110
212,406
110,966
323,372
$
$
$
$
$
$
(1) A portion of loan and lease related fees comprises income generated from factored receivables and payroll financing activities that
is within the scope of ASC Topic 606. These Commercial Banking revenue streams were new to the Company in 2022 due to the
businesses acquired in connection with the Sterling merger.
(2) Effective as of the fourth quarter of 2022, the wealth and investment services revenue stream for Consumer Banking was impacted
by the restructuring of a process in which the Company offers brokerage, investment advisory, and certain insurance-related
services to customers. The staff providing these services, who had previously been employees of the Bank, are now employees of a
third-party service provider. As a result, the Company now recognizes income from this program on a net basis, which thereby
reduces gross reported wealth and investment services non-interest income and the related compensation and benefits non-interest
expense on the accompanying Consolidated Statements of Income.
Contracts with customers did not generate significant contract assets and liabilities at December 31, 2023, or 2022.
139
Major Revenue Streams
Deposit service fees consist of fees earned from commercial and consumer customer deposit accounts, such as account
maintenance and cash management/analysis fees, as well as other transactional service charges (i.e., insufficient funds, wire
transfers, stop payment fees, etc.). Performance obligations for account maintenance services and cash management/analysis
fees are satisfied on a monthly basis at a fixed transaction price, whereas performance obligations for other deposit service
charges that result 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. Certain commercial customer contracts include credit clauses, whereby the Company will grant credit
upon the customer meeting pre-determined conditions, which can be used to offset fees. On occasion, the Company may also
waive certain fees. Fee waivers are recognized as a reduction to revenue in the period the waiver is granted to the customer.
The deposit service fees revenue stream also includes interchange fees earned from debit and credit 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.
Factored receivables non-interest income consists of fees earned from accounts receivable management services. The Company
factors accounts receivable, with and without recourse, for customers whereby the Company purchases their accounts
receivable at a discount and assumes the risk, as applicable, and ownership of the assets through direct cash receipt from the end
consumer. Factoring services are performed in exchange for a non-refundable fee at a transaction price based on a percentage of
the gross invoice amount of each receivable purchased, subject to a minimum required amount. The performance obligation for
factoring services is generally satisfied at a point-in-time when the receivable is assigned to the Company. However, should the
commission earned not meet or exceed the minimum required annual amount, the difference between that and the actual amount
is recognized at the end of the contract term. Other fees associated with factoring receivables may include wire transfer and
technology fees, field examination fees, and Uniform Commercial Code fees, where the performance obligations are satisfied at
a point-in-time when the services are rendered. Payment from the customer for factoring services is generally received
immediately or within the following month.
Payroll finance non-interest income consists of fees earned from performing payroll financing and business process outsourcing
services, including full back-office technology and tax accounting services, along with payroll preparation, making payroll tax
payments, invoice billings, and collections for independently-owned temporary staffing companies nationwide. Performance
obligations for payroll finance and business processing activities are either satisfied upon completion of the support services or
as payroll remittances are made on behalf of customers to fund their employee payroll, which generally occurs on a weekly
basis. The agreed-upon transaction price is based on a fixed-percentage per the terms of the contract, which could be subject to
a hold-back reserve to provide for any balances that are assessed to be at risk of collection. When the Company collects on
amounts due from end consumers on behalf of its customers and at the time of financing payroll, the Company retains the
agreed-upon transaction price payable for the performance of its services and remits an amount to the customer net of any
advances and payroll tax withholdings, as applicable.
Wealth and investment services consist of fees earned from asset management, trust administration, and investment advisory
services, and through facilitating securities transactions. Performance obligations for asset management and trust administration
services are satisfied on a monthly or quarterly basis at a transaction price based on a percentage of the period-end market value
of the assets under administration. Payment for asset management and trust administration services is generally received a few
days after period-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 a 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
period, in arrears.
140
Note 23: Commitments and Contingencies
Credit-Related Financial Instruments
In the normal course of business, the Company 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,
2023
12,026,597
482,462
54,382
12,563,441
$
$
2022
11,237,496
380,655
53,512
11,671,663
$
$
The Company enters into contractual commitments to extend credit to its customers (i.e., 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 the Company'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, the
Company 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 the
Company's standby letters of credit expire without being funded. However, if the commitment were funded, the Company has
recourse against the customer. The Company'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,
the Company's commercial letter of credit agreements are often secured by the underlying goods subject to trade.
Allowance for Credit Losses on Unfunded Loan Commitments
An ACL is recorded under the CECL methodology and included in 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 the Company. At December 31, 2023, and 2022, the ACL on unfunded loan commitments totaled $24.7 million and
$27.7 million, respectively.
Litigation
The Company 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 the Company 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. The Company will consider settlement of cases when it is in the best interests of the
Company and its stakeholders. The Company 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 the Company or
its consolidated financial position.
Federal Deposit Insurance Corporation Special Assessment
On November 29, 2023, the FDIC published a final rule implementing a special assessment for certain banks to recover losses
incurred by protecting uninsured depositors of Silicon Valley Bank and Signature Bank upon their failure in March 2023. The
final rule levies a special assessment to certain banks at a quarterly rate of 3.36 basis points based on their uninsured deposits
balance reported as of December 31, 2022. The special assessment is to be collected for an anticipated total of eight quarterly
assessment periods beginning with the first quarter of 2024, which has a payment date of June 28, 2024. Based on the final rule,
the Company estimates that its special assessment charge is approximately $47.2 million. However, the FDIC retains the right
to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment if
actual losses exceed the amounts collected.
141
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 stockholders’ equity:
Senior notes
Subordinated notes
Junior subordinated debt
Accrued interest payable
Due to subsidiaries
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2023
2022
406,754 $
150,000
9,131,026
59,015
13,314
9,760,109 $
458,698 $
512,802
77,320
12,693
477
8,123
1,070,113
8,689,996
9,760,109 $
305,331
150,000
8,631,202
46,349
13,358
9,146,240
480,878
514,930
77,320
7,457
3,858
5,611
1,090,054
8,056,186
9,146,240
$
$
$
$
CONDENSED STATEMENTS OF INCOME
(In thousands)
Income:
Dividend income from bank subsidiary
Interest income on securities and interest-bearing deposits
Alternative investments income
Other non-interest income
Total income
Expense:
Interest expense on borrowings
Merger-related expenses
Other non-interest expense
Total expense
Income before income taxes and equity in undistributed earnings of subsidiaries
Income tax benefit
Equity in undistributed earnings of subsidiaries
Net income
Years ended December 31,
2023
2022
2021
$
$
600,000 $
11,259
1,272
908
613,439
37,933
2,111
31,600
71,644
541,795
15,106
310,939
867,840 $
475,000 $
5,955
6,416
112
487,483
34,284
40,314
22,592
97,190
390,293
20,799
233,191
644,283 $
200,000
3,444
13,033
75
216,552
16,876
16,266
15,921
49,063
167,489
3,121
238,254
408,864
142
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Derivative instruments
Other comprehensive income (loss) of subsidiaries
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Years ended December 31,
2023
2022
2021
$
867,840 $
644,283 $
408,864
229
134,160
134,389
1,002,229 $
226
(662,606)
(662,380)
(18,097) $
$
226
(65,062)
(64,836)
344,028
Years ended December 31,
2023
2022
2021
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
867,840 $
644,283 $
408,864
Equity in undistributed earnings of subsidiaries
Common stock contribution to charitable foundation
Other, net
Net cash provided by operating activities
Investing activities:
Alternative investments (capital call), net of distributions
Net cash received in business combination
Net cash (used in) provided by investing activities
Financing activities:
Repayment of long-term debt
Dividends paid to common stockholders
Dividends paid to preferred stockholders
Exercise of stock options
Common stock repurchase program
Common shares acquired related to stock compensation plan activity
Net cash (used in) financing activities
(310,939)
—
(8,312)
548,589
(13,070)
—
(13,070)
(16,752)
(278,155)
(16,650)
1,723
(107,984)
(16,278)
(434,096)
(233,191)
10,500
(2,853)
418,739
(16,292)
193,238
176,946
—
(247,767)
(13,725)
703
(322,103)
(23,655)
(606,547)
(238,254)
—
3,562
174,172
(6,304)
—
(6,304)
—
(145,223)
(7,875)
3,492
—
(4,384)
(153,990)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, at end of period
101,423
305,331
406,754 $
(10,862)
316,193
305,331 $
13,878
302,315
316,193
$
143
Note 25: Subsequent Events
On January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims
settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology
platform, for $350 million in cash, subject to customary adjustments. The Company believes that the acquisition will provide a
fast-growing source of low-cost and long-duration deposits, new sources of non-interest income, and enhance its employee
benefit and healthcare financial services expertise.
The transaction will be accounted for as a business combination, and the assets acquired and liabilities assumed from Ametros
will be recorded at fair value as of the acquisition date. Given the proximity between the transaction close date and the
Company's Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been completed. Management
expects to complete the purchase price allocation later on in the first quarter of 2024.
On February 12, 2024, the Bank closed on the sale of its mortgage servicing portfolio, as previously discussed in Note 5:
Transfers and Servicing of Financial Assets. The Company received cash proceeds of $18.6 million and recognized a gain on
sale of $11.9 million in non-interest income.
On February 15, 2024, the Company repaid the $132.6 million principal balance due on its 4.375% senior fixed-rate notes.
In the first quarter of 2024, through the date of issuance of this Annual Report on Form 10-K, the Company sold Municipal
bonds and notes classified as available-for-sale for proceeds of $281.3 million, resulting in net realized losses of $11.3 million.
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, other than the above, there were no other significant events
identified requiring recognition or disclosure.
144
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
Our management, under the supervision and with the participation of the Chief Executive Officer (who is our principal
executive officer) and Chief Financial Officer (who is our principal financial officer), evaluated the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as of December 31, 2023. The term "disclosure controls and procedures" means controls and
other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2023, our
disclosure controls and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or
under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar
functions, and effected by a company’s Board of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with GAAP. It includes those policies and procedures that:
1.
2.
3.
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of a company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with
authorizations of management and directors of the company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of a company's assets that could have a material effect on the financial statements.
Our management conducted an assessment, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer under the oversight of our Board of Directors, of the effectiveness of our internal control over financial
reporting as of December 31, 2023, 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 evaluation, our management
concluded that our internal control over financial reporting was effective at December 31, 2023.
Remediation
As disclosed in Part II - Item 9A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2022,
management identified material weaknesses in internal control over financial reporting related to certain general information
technology controls specific to logical access during the fourth quarter of 2022.
Throughout the year ended December 31, 2023, our management executed upon its previously disclosed remediation plan,
which included: (i) designing and implementing controls related to deprovisioning, privileged access, and user access reviews,
(ii) developing an enhanced risk assessment process to evaluate logical access, and (iii) improving the existing training program
associated with control design and implementation.
Our management completed testing of the implemented controls during the quarter ended December 31, 2023, and found them
to be operating effectively. As a result, management has concluded that the material weaknesses in internal control over
financial reporting have been remediated as of December 31, 2023.
145
Changes in Internal Control Over Financial Reporting
Other than the remediation of the material weaknesses described above, there were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Limitations on Effectiveness of Controls and Procedures
Because of its inherent limitations, management does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be
met. 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.
Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the Company have been detected.
Attestation Report of Independent Registered Public Accounting Firm
The Company's independent registered public accounting firm, KPMG LLP, has issued an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting as of December 31, 2023, which appears below under
the heading "Report of Independent Registered Public Accounting Firm."
146
Report of Independent Registered Public Accounting Firm
To the Stockholders and the 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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated
statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report
dated February 27, 2024 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.
New York, New York
February 27, 2024
147
ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1
trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408 of Regulation S-K.
Jack Kopnisky, our former Executive Chairman, who retired on January 31, 2024, entered into a 10b5-1 trading arrangement
with a brokerage firm, intended to satisfy the affirmative defense of Rule 10b5-1(c), on May 2, 2023 for trades over a period of
time from August 1, 2023 until July 31, 2024, or when 120,000 shares of Webster common stock are sold.
Following the end of our most recent fiscal quarter, John Ciulla, our Chairman and Chief Executive Officer, entered into a
10b5-1 trading arrangement with a brokerage firm, intended to satisfy the affirmative defense of Rule 10b5-1(c), on February
13, 2024 for trades over a period of time from May 20, 2024 until May 20, 2025, or such earlier time as when 32,000 shares of
Webster common stock are sold.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company has adopted a Code of Conduct and Ethics Policy that applies to all directors, officers, and employees, including
its principal executive officer, principal financial officer, and principal accounting officer. The Company has also adopted a
Corporate Governance Policy and a charter for each of the Board of Directors' standing committees, which includes an Audit
Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Company's Code of
Conduct and Ethics Policy, Corporate Governance Policy, and the charters for the Audit, Compensation, and Nominating and
Corporate Governance Committees can be found within the investor relations section of its internet website
(http://investors.websterbank.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 set
forth in the Proxy Statement, including under the sections captioned "Election of Directors," "Board Meetings, Committees of
the Board and Related Matters," "Executive Officers," and "Delinquent Section 16(a) Reports" (if required to be included),
which are 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 year ended December 31, 2023.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the Proxy Statement, including under the sections captioned
"Compensation of Directors," "Executive Officers," "Compensation of Named Executive Officers," and "Compensation
Discussion and Analysis," which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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 set forth in the Proxy Statement, including under the
section captioned "Security Ownership of Certain Beneficial Owners and Management," which is incorporated herein by
reference.
148
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director independence will be set forth in the Proxy
Statement, including under the sections captioned "Compensation Committee Interlocks and Insider Participation,"
"Transactions with Related Persons," "Policies and Procedures Regarding Transactions with Related Persons," "Director
Independence," and "Current Board Composition, Diversity and Refreshment," and "Committees of the Board," which are
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services will be set forth in the Proxy Statement, including under the
section captioned "Auditor Ratification," which is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
PART IV
The Company’s Consolidated Financial Statements, and the accompanying Notes thereto, and the Report of 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, and the
accompanying 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.
149
Exhibit
Number
Exhibit Description
2
3
3.1
3.2.1
3.2.2
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
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 the Fourth Amended and Restated Certificate of
Incorporation of Webster Financial Corporation, effective as of April 28, 2023
Certificate of Amendment to the 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.
Form of Global Receipt (included as Exhibit A of Exhibit 4.5.3)
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
4.10
Senior Debt Indenture, dated March 25, 2019, between Webster Financial Corporation
and The Bank of New York Mellon, as trustee
150
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-K
8-A12B
8-A12B
8-A12B
8-K
8-K
10-K
10-K
10-K
3.1
3.1
3.2
3.1
3.1
3.1
3.2
3.3
3.3
3.4
3.1
3.5
4.1
4.1
8/9/2016
4/28/2023
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
2/25/2022
3/10/2006
10.41
3/27/1997
8-K
4.1
12/12/2017
8-K
4.1
2/1/2022
8-K
4.2
2/1/2022
8-K
4.3
2/1/2022
8-K
8-K
8-K
8-A12B
8-K
4.4
4.1
4.2
4.3
4.1
2/1/2022
2/11/2014
2/11/2014
12/12/2017
3/25/2019
4.11
4.12
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
10.26
10.27
Exhibit
Number
Exhibit Description
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
Material Contracts (1)
Exhibit
Included
Incorporated by Reference
Form
8-K
10-Q
Exhibit
Filing Date
4.2
3/25/2019
4
5/6/2021
Webster Financial Corporation 2021 Stock Incentive Plan, as amended and restated
effective April 26, 2023
X
Webster Bank Deferred Compensation Plan for Directors and Officers, as amended and
restated on October 22, 2007
Amendment No. 1 to the Amended and Restated Webster Bank Deferred Compensation
Plan for Directors and Officers
Sterling National Bank Deferred Director Fee Plan, as amended and restated Effective
January 1, 2016
Amended and Restated Deferred Director Fee Plan, effective January 1, 2023
Supplemental Retirement Plan for Employees of Webster Bank, as amended and
restated on October 22, 2007
Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan for
Employees of Webster Bank
Employee Stock Purchase Plan, as amended and restated effective April 1, 2019
Provident Bank 2005 Supplemental Executive Retirement Plan
Change in Control Agreement, dated as of December 21, 2012, by and between
Webster Financial Corporation and Glenn I. MacInnes
X
Non-Competition Agreement, dated as of February 22, 2017, by and between Webster
Financial Corporation 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, by and
between Webster Financial Corporation and Daniel Bley
Change in Control Agreement, dated as of February 1, 2013, by and between Webster
Financial Corporation and Daniel H. Bley
Change in Control Agreement, dated 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, by and
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, by and
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
Change in Control Agreement, dated as of January 1, 2017, by and between Webster
Financial Corporation and Christopher Motl
Amendment to Change in Control Agreement, dated as of February 1, 2024, by and
between Webster Financial Corporation and Christopher Motl
Amended and Restated Non-Competition Agreement, dated as of April 3, 2017, by and
between Webster Financial Corporation and Christopher Motl
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
Change in Control Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Luis Massiani
Non-Competition Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Luis Massiani
Change in Control Agreement, dated as of September 21, 2023, by and between
Webster Financial Corporation and Kristy Berner
X
X
X
X
X
151
8-K
8-K
10.2
12/21/2007
10.3
12/21/2007
10-K
10.4
3/10/2023
10-K
8-K
10.5
10.1
3/10/2023
10/26/2007
8-K
10.1
12/21/2007
10-Q
10-K
10.1
10.26
5/7/2019
2/25/2022
10-K
10.20
3/1/2017
8-K
10.2
2/1/2022
10-Q
10.1
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
10.2
5/5/2017
8-K
10.1
2/1/2022
10-Q
10.4
5/5/2017
8-K
8-K
10.3
2/1/2022
10.4
2/1/2022
Exhibit
Number
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
21
23
31.1
31.2
32.1
32.2
97
101
104
Exhibit Description
Exhibit
Included
Incorporated by Reference
Form
Exhibit
Filing Date
Non-Solicitation Agreement, dated as of September 21, 2023, by and between Webster
Financial Corporation and Kristy Berner
Change in Control Agreement, dated as of October 12, 2023, by and between Webster
Financial Corporation and Elzbieta Cieslik
Non-Competition Agreement, dated as of October 12, 2023, by and between Webster
Financial Corporation and Elzbieta Cieslik
Change in Control Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Javier Evans
Non-Competition Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Javier Evans
Change in Control Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and James Griffin
Non-Competition Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and James Griffin
Change in Control Agreement, dated as of October 12, 2023, by and between Webster
Financial Corporation and Vikram Nafde
Non-Competition Agreement, dated as of October 12, 2023, by and between Webster
Financial Corporation and Vikram Nafde
Change in Control Agreement, dated as of August 11, 2023, by and between Webster
Financial Corporation and Jason Soto
Non-Competition Agreement, dated as of August 11, 2023, by and between Webster
Financial Corporation and Jason Soto
Change in Control Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Marissa Weidner
Non-Competition Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Marissa Weidner
Change in Control Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Benjamin Krynick
Non-Competition Agreement, dated as of February 1, 2024, by and between Webster
Financial Corporation and Benjamin Krynick
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
Policy for Recoupment of Incentive Compensation
The following financial information from the Company's Annual Report on Form 10-K
for the year ended December 31, 2023 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 Stockholders' 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)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X (2)
X (2)
X
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.
152
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 27, 2024.
SIGNATURES
WEBSTER FINANCIAL CORPORATION
By /s/ John R. Ciulla
John R. Ciulla
Chief Executive Officer, Chairman, 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 27, 2024.
Signature:
Title:
/s/ John R. Ciulla
John R. Ciulla
/s/ Glenn I. MacInnes
Glenn I. MacInnes
/s/ Albert J. Wang
Albert J. Wang
/s/ Richard O'Toole
Richard O'Toole
/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 J. Landy
James J. Landy
/s/ Maureen B. Mitchell
Maureen B. Mitchell
Chief Executive Officer, Chairman, 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)
Lead Director
Director
Director
Director
Director
Director
Director
Director
153
/s/ Laurence C. Morse
Laurence C. Morse
/s/ Karen R. Osar
Karen R. Osar
/s/ Mark Pettie
Mark Pettie
/s/ Lauren C. States
Lauren C. States
/s/ William E. Whiston
William E. Whiston
Director
Director
Director
Director
Director
154
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