|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
Average
Balance
|
Interest
|
Yield/ Rate
|
|
Average
Balance
|
Interest
|
Yield/ Rate
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
21,447,192
|
|
$
|
377,969
|
|
3.51
|
%
|
|
$
|
20,966,857
|
|
$
|
414,235
|
|
3.93
|
%
|
Investment securities (1)
|
8,862,314
|
|
92,859
|
|
2.13
|
|
|
8,449,480
|
|
114,873
|
|
2.77
|
|
FHLB and FRB stock
|
77,461
|
|
619
|
|
1.61
|
|
|
117,663
|
|
2,116
|
|
3.62
|
|
Interest-bearing deposits (2)
|
976,873
|
|
523
|
|
0.11
|
|
|
83,887
|
|
196
|
|
0.46
|
|
Securities
|
9,916,648
|
|
94,001
|
|
1.92
|
|
|
8,651,030
|
|
117,185
|
|
2.76
|
|
Loans held for sale
|
11,610
|
|
144
|
|
2.48
|
|
|
23,281
|
|
359
|
|
3.08
|
|
Total interest-earning assets
|
31,375,450
|
|
$
|
472,114
|
|
3.01
|
%
|
|
29,641,168
|
|
$
|
531,779
|
|
3.59
|
%
|
Non-interest-earning assets
|
1,941,640
|
|
|
|
|
1,996,765
|
|
|
|
Total assets
|
$
|
33,317,090
|
|
|
|
|
$
|
31,637,933
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
Demand deposits
|
$
|
6,606,464
|
|
$
|
—
|
|
—
|
%
|
|
$
|
5,170,280
|
|
$
|
—
|
|
—
|
%
|
Health savings accounts
|
7,448,943
|
|
3,257
|
|
0.09
|
|
|
6,803,784
|
|
5,900
|
|
0.17
|
|
Interest-bearing checking, money market and savings
|
12,181,295
|
|
3,323
|
|
0.06
|
|
|
10,053,559
|
|
18,865
|
|
0.38
|
|
Time deposits
|
2,242,250
|
|
4,953
|
|
0.45
|
|
|
2,968,514
|
|
21,883
|
|
1.48
|
|
Total deposits
|
28,478,952
|
|
11,533
|
|
0.08
|
|
|
24,996,137
|
|
46,648
|
|
0.38
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase and other borrowings
|
511,622
|
|
1,495
|
|
0.58
|
|
|
1,437,403
|
|
4,710
|
|
0.65
|
|
FHLB advances
|
137,143
|
|
1,047
|
|
1.52
|
|
|
1,082,865
|
|
10,617
|
|
1.94
|
|
Long-term debt (1)
|
566,462
|
|
8,441
|
|
3.22
|
|
|
560,964
|
|
9,562
|
|
3.66
|
|
Total borrowings
|
1,215,227
|
|
10,983
|
|
1.87
|
|
|
3,081,232
|
|
24,889
|
|
1.62
|
|
Total interest-bearing liabilities
|
29,694,179
|
|
$
|
22,516
|
|
0.15
|
%
|
|
28,077,369
|
|
$
|
71,537
|
|
0.51
|
%
|
Non-interest-bearing liabilities
|
339,949
|
|
|
|
|
386,118
|
|
|
|
Total liabilities
|
30,034,128
|
|
|
|
|
28,463,487
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
145,037
|
|
|
|
|
145,037
|
|
|
|
Common shareholders' equity
|
3,137,925
|
|
|
|
|
3,029,409
|
|
|
|
Total shareholders' equity
|
3,282,962
|
|
|
|
|
3,174,446
|
|
|
|
Total liabilities and shareholders' equity
|
$
|
33,317,090
|
|
|
|
|
$
|
31,637,933
|
|
|
|
Tax-equivalent net interest income
|
|
$
|
449,598
|
|
|
|
|
$
|
460,242
|
|
|
Less: Tax-equivalent adjustments
|
|
(4,982)
|
|
|
|
|
(5,034)
|
|
|
Net interest income
|
|
$
|
444,616
|
|
|
|
|
$
|
455,208
|
|
|
Net interest margin
|
|
|
2.87
|
%
|
|
|
|
3.11
|
%
|
|
(1)For purposes of our yield/rate computation, unrealized gain (loss) balances on available-for-sale securities and senior fixed-rate notes hedges are excluded.
(2)Interest-bearing deposits is a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows in Item 1. Financial Statements.
Net interest income (NII) and net interest margin are impacted by the level of interest rates, mix of assets earning and liabilities bearing those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These factors are influenced by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing strategies, as well as the extent of interest lost to non-performing assets.
NII is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. NII is the Company's largest source of revenue, representing 74.8% of total revenue for the six months ended June 30, 2021.
Net interest margin is the ratio of tax-equivalent net interest income to average earning assets for the period.
Webster manages the risk of changes in interest rates on net interest income and net interest margin through its Asset/Liability Committee (ALCO) and through related interest rate risk monitoring and management policies. ALCO meets at least monthly to make decisions on the investment securities and funding portfolios based on the economic outlook, its interest rate expectations, the portfolio risk position, and other factors.
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 federal funds rate target range was 0-0.25% at both June 30, 2021 and December 31, 2020, as compared to 1.50-1.75% at December 31, 2019. The benchmark 10-year U.S. Treasury rate increased to 1.45% at June 30, 2021 from 0.93% at December 31, 2020, as compared to 1.92% at December 31, 2019. Refer to the "Asset/Liability Management and Market Risk" section for further discussion of Webster's interest rate risk position.
Net Interest Income
Comparison to Prior Year Quarter
Net interest income decreased $3.6 million, or 1.58%, from $224.4 million for the three months ended June 30, 2020 to $220.9 million for the three months ended June 30, 2021. The quarter-over-quarter decrease in net interest income was also $3.6 million on a fully tax-equivalent basis.
Net interest margin decreased 17 basis points from 2.99% for the three months ended June 30, 2020 to 2.82% for the three months ended June 30, 2021. The decrease was primarily due to lower loan and securities yields, partially offset by deposit and borrowing costs, and Small Business Administration Paycheck Protection Program (PPP) loan fee accretion.
Comparison to Prior Year to Date
Net interest income decreased $10.6 million, or 2.33%, from $455.2 million for the six months ended June 30, 2020 to $444.6 million for the six months ended June 30, 2021. The year-over-year decrease in net interest income was also $10.6 million on a fully tax-equivalent basis.
Net interest margin decreased 24 basis points from 3.11% for the six months ended June 30, 2020 to 2.87% for the six months ended June 30, 2021. The decrease was primarily due to lower loan and securities yields, partially offset by deposit and borrowing costs, PPP loan fee accretion, and commercial portfolio loan growth.
Changes in Net Interest Income
The following table presents the components of the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2021 vs. 2020
Increase (decrease) due to
|
|
2021 vs. 2020
Increase (decrease) due to
|
(In thousands)
|
Rate (1)
|
Volume
|
Total
|
|
Rate (1)
|
Volume
|
Total
|
Interest on interest-earning assets:
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
(8,217)
|
|
$
|
(2,419)
|
|
$
|
(10,636)
|
|
|
$
|
(46,890)
|
|
$
|
10,624
|
|
$
|
(36,266)
|
|
Loans held for sale
|
(10)
|
|
(122)
|
|
(132)
|
|
|
(35)
|
|
(180)
|
|
(215)
|
|
Securities (2)
|
(11,524)
|
|
1,501
|
|
(10,023)
|
|
|
(30,168)
|
|
6,984
|
|
(23,184)
|
|
Total interest income
|
$
|
(19,751)
|
|
$
|
(1,040)
|
|
$
|
(20,791)
|
|
|
$
|
(77,093)
|
|
$
|
17,428
|
|
$
|
(59,665)
|
|
Interest on interest-bearing liabilities:
|
|
|
|
|
|
|
|
Deposits
|
$
|
(12,407)
|
|
$
|
(1,304)
|
|
$
|
(13,711)
|
|
|
$
|
(34,051)
|
|
$
|
(1,064)
|
|
$
|
(35,115)
|
|
Borrowings
|
221
|
|
(3,672)
|
|
(3,451)
|
|
|
(1,589)
|
|
(12,317)
|
|
(13,906)
|
|
Total interest expense
|
$
|
(12,186)
|
|
$
|
(4,976)
|
|
$
|
(17,162)
|
|
|
$
|
(35,640)
|
|
$
|
(13,381)
|
|
$
|
(49,021)
|
|
Net change in net interest income
|
$
|
(7,565)
|
|
$
|
3,936
|
|
$
|
(3,629)
|
|
|
$
|
(41,453)
|
|
$
|
30,809
|
|
$
|
(10,644)
|
|
(1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
(2)Securities include: investment securities, Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, and interest-bearing deposits.
Average loans and leases for the six months ended June 30, 2021 increased $0.5 billion as compared to the average balance for the six months ended June 30, 2020, primarily due to the origination of second round PPP loans. The loan and lease portfolio comprised 68.4% of the average interest-earning assets at June 30, 2021 as compared to 70.7% of the average interest-earning assets at June 30, 2020. The loan and lease portfolio yield decreased 42 basis points from 3.93% for the six months ended June 30, 2020 to 3.51% for the six months ended June 30, 2021. The decrease in the yield is primarily due to decreased prepayments and premium amortization.
Average securities for the six months ended June 30, 2021 increased $1.3 billion as compared to the average balance for the six months ended June 30, 2020. The securities portfolio comprised 31.6% of the average interest-earning assets at June 30, 2021 as compared to 29.2% of the average interest-earning assets at June 30, 2020. The securities portfolio yield decreased 84 basis points from 2.76% for the six months ended June 30, 2020 to 1.92% for the six months ended June 30, 2021. The decrease in yield is primarily due to higher premium amortization and lower yield from newly purchased securities.
Average total deposits for the six months ended June 30, 2021 increased $3.5 billion as compared to the average balance for the six months ended June 30, 2020. The increase was driven by transactional deposit products resulting from fiscal stimulus. The average cost of deposits decreased 30 basis points from 0.38% for the six months ended June 30, 2020 to 0.08% for the six months ended June 30, 2021, primarily due to deposit product mix and the repricing of maturing certificates of deposit. Higher cost time deposits decreased as a percentage of total interest-bearing deposits from 15.0% for the six months ended June 30, 2020 to 10.3% for the six months ended June 30, 2021, primarily due to customer migration for more liquid deposit products.
Average total borrowings for the six months ended June 30, 2021 decreased $1.9 billion as compared to the average balance for the six months ended June 30, 2020. Specifically, average securities sold under agreements to repurchase and other borrowings decreased $925.8 million and average FHLB advances decreased $945.7 million. The average cost of borrowings increased 25 basis points from 1.62% for the six months ended June 30, 2020 to 1.87% for the six months ended June 30, 2021. The increase is primarily a result of a change in the mix of borrowings types.
Provision for Credit Losses
Comparison to Prior Year Quarter
The provision for credit losses decreased $61.5 million, reflecting a benefit of $21.5 million for the three months ended June 30, 2021, as compared to an expense of $40.0 million for the three months ended June 30, 2020. The decrease is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. Total net recoveries were $1.2 million for the three months ended June 30, 2021, as compared to net charge-offs of $16.4 million for the three months ended June 30, 2020.
Comparison to Prior Year to Date
The provision for credit losses decreased $163.3 million, reflecting a benefit of $47.3 million for the six months ended June 30, 2021, as compared to an expense of $116.0 million for the six months ended June 30, 2020. The decrease is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. Total net charge-offs were $4.2 million and $24.2 million for the six months ended June 30, 2021 and 2020, respectively.
The allowance for credit losses on loans and leases coverage ratio decreased 23 basis points from 1.66% at December 31, 2020 to 1.43% at June 30, 2021. Refer to the sections captioned "Loans and Leases" through "Troubled Debt Restructurings" contained elsewhere in this report for further details.
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
Increase (decrease)
|
|
|
Increase (decrease)
|
(Dollars in thousands)
|
2021
|
2020
|
|
Amount
|
Percent
|
|
2021
|
2020
|
|
Amount
|
Percent
|
Deposit service fees
|
$
|
41,439
|
|
$
|
35,839
|
|
|
$
|
5,600
|
|
15.6
|
%
|
|
$
|
81,908
|
|
$
|
78,409
|
|
|
$
|
3,499
|
|
4.5
|
%
|
Loan and lease related fees
|
7,862
|
|
6,968
|
|
|
894
|
|
12.8
|
|
|
16,175
|
|
13,464
|
|
|
2,711
|
|
20.1
|
|
Wealth and investment services
|
10,087
|
|
7,102
|
|
|
2,985
|
|
42.0
|
|
|
19,490
|
|
15,841
|
|
|
3,649
|
|
23.0
|
|
Mortgage banking activities
|
1,319
|
|
4,205
|
|
|
(2,886)
|
|
(68.6)
|
|
|
3,961
|
|
7,098
|
|
|
(3,137)
|
|
(44.2)
|
|
Increase in cash surrender value of life insurance policies
|
3,603
|
|
3,624
|
|
|
(21)
|
|
(0.6)
|
|
|
7,136
|
|
7,204
|
|
|
(68)
|
|
(0.9)
|
|
Gain on sale of investment securities, net
|
—
|
|
—
|
|
|
—
|
|
n/m
|
|
—
|
|
8
|
|
|
(8)
|
|
(100.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
8,392
|
|
2,338
|
|
|
6,054
|
|
258.9
|
|
|
20,789
|
|
11,430
|
|
|
9,359
|
|
81.9
|
|
Total non-interest income
|
$
|
72,702
|
|
$
|
60,076
|
|
|
$
|
12,626
|
|
21.0
|
|
|
$
|
149,459
|
|
$
|
133,454
|
|
|
$
|
16,005
|
|
12.0
|
|
Comparison to Prior Year Quarter
Non-interest income increased $12.6 million, or 21.0%, from $60.1 million for the three months ended June 30, 2020 to $72.7 million for the three months ended June 30, 2021.
Deposit service fees totaled $41.4 million for the three months ended June 30, 2021, as compared to $35.8 million for the three months ended June 30, 2020. The increase is primarily due to higher interchange, overdraft, account service, and cash management fees.
Wealth and investment services totaled $10.1 million for the three months ended June 30, 2021, as compared to $7.1 million for the three months ended June 30, 2020. The increase was primarily due to increased customer driven investment services activity.
Mortgage banking activities totaled $1.3 million for the three months ended June 30, 2021, as compared to $4.2 million for the three months ended June 30, 2020. The decrease was primarily due to lower volume and spreads on loans originated for sale.
Other income totaled $8.4 million for the three months ended June 30, 2021, as compared to $2.3 million for the three months ended June 30, 2020. The increase was primarily due to fair value adjustments on customer derivatives and income from direct investments.
Comparison to Prior Year to Date
Non-interest income increased $16.0 million, or 12.0%, from $133.5 million for the six months ended June 30, 2020 to $149.5 million for the six months ended June 30, 2021.
Deposit service fees totaled $81.9 million for the six months ended June 30, 2021, as compared to $78.4 million for the six months ended June 30, 2020. The increase was primarily due to higher interchange and account service fees.
Loan and lease related fees totaled $16.2 million for the six months ended June 30, 2021, as compared to $13.5 million for the six months ended June 30, 2020. The increase was primarily due to mortgage servicing rights amortization and higher line usage fees, partially offset by the change in deferred loan origination fees.
Wealth and investment services totaled $19.5 million for the six months ended June 30, 2021, as compared to $15.8 million for the six months ended June 30, 2020. The increase was primarily due to increased customer driven investment services activity.
Mortgage banking activities totaled $4.0 million for the six months ended June 30, 2021, as compared to $7.1 million for the six months ended June 30, 2020. The decrease was primarily due to lower volume and spreads on loans originated for sale.
Other income totaled $20.8 million for the six months ended June 30, 2021, as compared to $11.4 million for the six months ended June 30, 2020. The increase was primarily due to fair value adjustments, income from direct investments, and higher investment and third-party administrator (TPA) closure fees at the Company's HSA division.
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
Increase (decrease)
|
|
|
Increase (decrease)
|
(Dollars in thousands)
|
2021
|
2020
|
|
Amount
|
Percent
|
|
2021
|
2020
|
|
Amount
|
Percent
|
Compensation and benefits
|
$
|
97,754
|
|
$
|
99,731
|
|
|
$
|
(1,977)
|
|
(2.0)
|
%
|
|
$
|
205,354
|
|
$
|
201,618
|
|
|
$
|
3,736
|
|
1.9
|
%
|
Occupancy
|
14,010
|
|
14,245
|
|
|
(235)
|
|
(1.6)
|
|
|
29,660
|
|
28,730
|
|
|
930
|
|
3.2
|
|
Technology and equipment
|
27,124
|
|
27,468
|
|
|
(344)
|
|
(1.3)
|
|
|
55,640
|
|
55,305
|
|
|
335
|
|
0.6
|
|
Intangible assets amortization
|
1,132
|
|
962
|
|
|
170
|
|
17.7
|
|
|
2,271
|
|
1,924
|
|
|
347
|
|
18.0
|
|
Marketing
|
3,227
|
|
3,286
|
|
|
(59)
|
|
(1.8)
|
|
|
5,731
|
|
6,788
|
|
|
(1,057)
|
|
(15.6)
|
|
Professional and outside services
|
21,025
|
|
6,158
|
|
|
14,867
|
|
241.4
|
|
|
30,801
|
|
11,821
|
|
|
18,980
|
|
160.6
|
|
Deposit insurance
|
3,749
|
|
5,015
|
|
|
(1,266)
|
|
(25.2)
|
|
|
7,705
|
|
9,740
|
|
|
(2,035)
|
|
(20.9)
|
|
Other expense
|
19,007
|
|
19,719
|
|
|
(712)
|
|
(3.6)
|
|
|
37,848
|
|
39,494
|
|
|
(1,646)
|
|
(4.2)
|
|
Total non-interest expense
|
$
|
187,028
|
|
$
|
176,584
|
|
|
$
|
10,444
|
|
5.9
|
|
|
$
|
375,010
|
|
$
|
355,420
|
|
|
$
|
19,590
|
|
5.5
|
|
Comparison to Prior Year Quarter
Non-interest expense increased $10.4 million, or 5.9%, from $176.6 million for the three months ended June 30, 2020 to $187.0 million for the three months ended June 30, 2021.
Compensation and benefits totaled $97.8 million for the three months ended June 30, 2021, as compared to $99.7 million for the three months ended June 30, 2020. The decrease was primarily due to the effects of the Company's strategic initiatives.
Professional and outside services totaled $21.0 million for the three months ended June 30, 2021, as compared to $6.2 million for the three months ended June 30, 2020. The increase was primarily due to merger-related and strategic initiatives charges.
Deposit insurance totaled $3.7 million for the three months ended June 30, 2021, as compared to $5.0 million for the three months ended June 30, 2020. The decrease was primarily due to improvement in the Company's liquidity position.
Comparison to Prior Year to Date
Non-interest expense increased $19.6 million, or 5.5%, from $355.4 million for the six months ended June 30, 2020 to $375.0 million for the six months ended June 30, 2021.
Compensation and benefits totaled $205.4 million for the six months ended June 30, 2021, as compared to $201.6 million for the six months ended June 30, 2020. The increase was primarily due to variable based compensation, partially offset by the effects of the Company's strategic initiatives.
Marketing totaled $5.7 million for the six months ended June 30, 2021, as compared to $6.8 million for the six months ended June 30, 2020. The decrease was primarily due to reductions in ancillary spending, including advertising and promotional fees.
Professional and outside services totaled $30.8 million for the six months ended June 30, 2021, as compared to $11.8 million for the six months ended June 30, 2020. The increase was primarily due to merger-related and strategic initiatives charges.
Deposit insurance totaled $7.7 million for the six months ended June 30, 2021, as compared to $9.7 million for the six months ended June 30, 2020. The decrease was primarily due to improvement in the Company's liquidity position.
Other expense totaled $37.8 million for the six months ended June 30, 2021, as compared to $39.5 million for the six months ended June 30, 2020. The decrease was primarily due to lower pension costs, business travel, and ancillary spending, partially offset by increases in miscellaneous loan-related expenses.
Income Taxes
Comparison to Prior Year Quarter
Webster recognized income tax expense of $34.0 million for the three months ended June 30, 2021 and $14.8 million for the three months ended June 30, 2020, reflecting effective tax rates of 26.6% and 21.8%, respectively.
The increase in income tax expense is due to a higher level of pre-tax income for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase in the effective tax rate for the three months ended June 30, 2021 reflects the effects of an estimated $16.1 million of the $17.1 million merger-related expenses recognized during the period as nondeductible for tax purposes, and a higher level of pre-tax income estimated for 2021 as compared to 2020.
Comparison to Prior Year to Date
Webster recognized income tax expense of $64.2 million for the six months ended June 30, 2021 and $25.9 million for the six months ended June 30, 2020, reflecting effective tax rates of 24.1% and 22.1%, respectively.
The increase in income tax expense is due to a higher level of pre-tax income for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase in the effective tax rate for the six months ended June 30, 2021 reflects the effects of a higher level of pre-tax income estimated for 2021 as compared to 2020, and the $16.1 million of the $17.1 million merger-related expenses recognized during the period as nondeductible for tax purposes. Those effects were partially offset by the recognition of $2.4 million of net tax benefits specific to the six months ended June 30, 2021, which includes $1.8 million of excess tax benefits from stock-based compensation, as compared to $0.2 million of net tax expense specific to the six months ended June 30, 2020, which included tax deficiencies of $0.6 million from stock-based compensation.
For additional information on Webster's income taxes, including its deferred tax assets (DTAs), refer to Note 10: Income Taxes in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Segment Reporting
Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Retail Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Segments are evaluated using pre-tax, pre-provision net revenue (PPNR). Certain Treasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category. For additional information regarding the Company’s reportable segments and its segment reporting methodology, refer to Note 17: Segment Reporting in the Notes to the Condensed Consolidated Financial Statements contained elsewhere in this report.
Effective January 1, 2021, management realigned certain of the Company's business banking and investment services operations to better serve its customers and deliver operational efficiencies. The previously reported Community Banking segment was also renamed as Retail Banking. Under this realignment, $1.9 billion of loans, $2.2 billion of deposits, and $3.9 billion of assets under administration (off-balance sheet) were reassigned from Retail Banking to Commercial Banking. Additionally, $131.0 million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. Prior period amounts have been recasted to reflect the realignment.
The following is a description of Webster’s three reportable segments and their primary services:
Commercial Banking serves businesses that have more than $2 million of revenue through its business banking, middle market, asset-based lending, equipment finance, commercial real estate lending, sponsor finance, and treasury services business units. Additionally, its Wealth group provides wealth management solutions to business owners, operators, and consumers within the Company's targeted markets and retail footprint.
HSA Bank offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws. HSAs are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors. HSA Bank deposits provide long duration, low-cost funding that is used to minimize the Company’s use of wholesale funding in support of its loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income.
Retail Banking serves consumer and small business banking customers by offering consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit card products through its consumer lending and small business banking business units. Retail Banking operates a distribution network consisting of 130 banking centers and 253 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and into Westchester County, New York.
Commercial Banking
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net interest income
|
$
|
141,124
|
|
|
$
|
128,123
|
|
|
$
|
283,162
|
|
|
$
|
245,710
|
|
Non-interest income
|
25,713
|
|
|
21,849
|
|
|
50,890
|
|
|
44,265
|
|
Non-interest expense
|
61,445
|
|
|
61,261
|
|
|
126,281
|
|
|
126,482
|
|
Pre-tax, pre-provision net revenue
|
$
|
105,392
|
|
|
$
|
88,711
|
|
|
$
|
207,771
|
|
|
$
|
163,493
|
|
Comparison to Prior Year Quarter
PPNR increased $16.7 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $13.0 million, primarily driven by PPP loan fee accretion, and growth in loan and deposit balances. Non-interest income increased $3.9 million, driven by higher trust and investment service fees. Non-interest expense increased $0.2 million.
Comparison to Prior Year to Date
PPNR increased $44.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $37.5 million, primarily driven by PPP loan fee accretion, and growth in loan and deposit balances. Non-interest income increased $6.6 million, driven by higher trust and investment service fees and loan related fees. Non-interest expense decreased $0.2 million.
Selected Balance Sheet and Off-Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2021
|
|
At December 31,
2020
|
Loans and leases
|
$
|
14,654,087
|
|
|
$
|
14,573,343
|
|
Deposits
|
8,844,273
|
|
|
8,190,997
|
|
|
|
|
|
Assets under administration/management (off-balance sheet)
|
7,060,851
|
|
|
6,585,795
|
|
Loans and leases increased $80.7 million at June 30, 2021 as compared to December 31, 2020. Loan originations in the six months ended June 30, 2021 and 2020 were $2.6 billion and $2.8 billion, respectively. The increase in loans was primarily related to commercial and commercial real estate originations, partially offset by increased prepayment activity and a decrease in PPP loans. Included in the June 30, 2021 balance was $347.9 million of second round PPP loan originations.
Deposits increased $653.3 million at June 30, 2021 as compared to December 31, 2020. The increase was primarily driven by excess customer liquidity as a result of government stimulus and reduced spending.
Commercial Banking held approximately $5.0 billion and $4.7 billion in assets under administration at June 30, 2021 and December 31, 2020, respectively, and $2.0 billion and $1.9 billion in assets under management at June 30, 2021 and December 31, 2020, respectively. The increase in assets under administration was due to both new business and market appreciation.
HSA Bank
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net interest income
|
$
|
42,193
|
|
|
$
|
39,334
|
|
|
$
|
84,302
|
|
|
$
|
82,007
|
|
Non-interest income
|
26,554
|
|
|
23,103
|
|
|
53,559
|
|
|
49,486
|
|
Non-interest expense
|
32,792
|
|
|
34,020
|
|
|
69,042
|
|
|
71,098
|
|
Pre-tax net revenue
|
$
|
35,955
|
|
|
$
|
28,417
|
|
|
$
|
68,819
|
|
|
$
|
60,395
|
|
Comparison to Prior Year Quarter
Pre-tax net revenue increased $7.5 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $2.9 million, primarily due to growth in deposits. Non-interest income increased $3.5 million, primarily due to increases in interchange, investment, and third-party administrator closure fees. Non-interest expense decreased $1.2 million, primarily due to reduced compensation and benefit expenses and outside service fees.
Comparison to Prior Year to Date
Pre-tax net revenue increased $8.4 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $2.3 million, primarily due to growth in deposits. Non-interest income increased $4.1 million, primarily due to increases in interchange, investment, and third-party administrator closure fees. Non-interest expense decreased $2.1 million, primarily due to reduced outside service fees and travel expenses.
Selected Balance Sheet and Off-Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2021
|
|
At December 31,
2020
|
Deposits
|
$
|
7,323,421
|
|
|
$
|
7,120,017
|
|
|
|
|
|
Assets under administration, through linked brokerage accounts (off-balance sheet)
|
3,383,670
|
|
|
2,852,877
|
|
Total footings
|
$
|
10,707,091
|
|
|
$
|
9,972,894
|
|
Deposits increased $203.4 million at June 30, 2021 as compared to December 31, 2020, primarily due to new accounts, as well as organic growth in existing account balances.
HSA Bank deposits accounted for 25.4% and 26.0% of total deposits at June 30, 2021 and December 31, 2020, respectively.
Assets under administration, through linked brokerage accounts, increased $530.8 million at June 30, 2021 as compared to December 31, 2020, primarily due to an increase in the number of account holders, as well as market appreciation during the six months ended June 30, 2021.
Retail Banking
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net interest income
|
$
|
92,540
|
|
|
$
|
81,609
|
|
|
$
|
181,353
|
|
|
$
|
162,808
|
|
Non-interest income
|
16,763
|
|
|
16,281
|
|
|
32,834
|
|
|
34,724
|
|
Non-interest expense
|
72,346
|
|
|
77,119
|
|
|
148,470
|
|
|
157,409
|
|
Pre-tax, pre-provision net revenue
|
$
|
36,957
|
|
|
$
|
20,771
|
|
|
$
|
65,717
|
|
|
$
|
40,123
|
|
Comparison to Prior Year Quarter
PPNR increased $16.2 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $10.9 million, driven by PPP loan fee accretion and deposit growth, partially offset by lower consumer loan balances. Non-interest income increased $0.5 million, resulting from higher deposit-related service charges and loan servicing fee income, partially offset by lower fee income from mortgage banking activities. Non-interest expense decreased $4.8 million, driven by lower compensation and benefits, pension costs, occupancy, and marketing expenses.
Comparison to Prior Year to Date
PPNR increased $25.6 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $18.5 million, driven by PPP loan fee accretion and deposit growth, partially offset by lower consumer loan balances. Non-interest income decreased $1.9 million, resulting from lower deposit-related service charges and income from mortgage banking activities, partially offset by higher loan servicing fee income. Non-interest expense decreased $8.9 million, driven by lower compensation and benefits, pension costs, occupancy, and marketing expenses.
Selected Balance Sheet and Off-Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2021
|
|
At December 31,
2020
|
Loans
|
$
|
6,820,876
|
|
|
$
|
7,067,818
|
|
Deposits
|
12,680,453
|
|
|
12,023,600
|
|
Loans decreased $246.9 million at June 30, 2021 as compared to December 31, 2020. The decrease is due to lower small business, home equity, and other consumer loan balances, partially offset by higher residential mortgage balances.
Loan originations during the six months ended June 30, 2021 and 2020 were $1.7 billion and $1.4 billion, respectively. The $297.9 million increase resulted from $248.4 million of second round PPP loan originations coupled with increased residential mortgage and home equity originations in the lower interest rate environment.
Deposits increased $656.9 million at June 30, 2021 as compared to December 31, 2020, primarily due to two government stimulus payments to consumers and an additional round of PPP loan fundings, coupled with seasonally higher balances in business and consumer transaction accounts. This also drove balance increases in savings and money market products, partially offset by a decline in certificate of deposit balances.
Financial Condition
Total assets were $33.8 billion at June 30, 2021 as compared to $32.6 billion at December 31, 2020. The $1.2 billion increase was primarily driven by a $1.3 billion increase in interest-bearing deposits, partially offset by a $166.2 million decrease in loans and leases.
Total liabilities were $30.4 billion at June 30, 2021 as compared to $29.4 billion at December 31, 2020. The $1.0 billion increase was primarily driven by a $1.5 billion increase in deposits, specifically increases of $0.6 billion, $0.7 billion, $0.2 billion in demand deposits, interest-bearing deposits, and HSA deposits, respectively, and a $45.6 million increase in accrued expenses and other liabilities, partially offset by a $0.5 billion decrease in securities sold under agreements to repurchase and other borrowings.
Total shareholders' equity was $3.3 billion at June 30, 2021 as compared to $3.2 billion at December 31, 2020. The $95.1 million increase primarily reflects $202.1 million of net income recognized, offset by $36.4 million of other comprehensive loss (OCL), and $72.5 million and $3.9 million in dividends paid to common and preferred shareholders, respectively.
Book value per common share was $35.15 at June 30, 2021, as compared to $34.25 at December 31, 2020. On July 19, 2021, the Board of Directors declared a quarterly cash dividend to shareholders of $0.40 per common share. The Company will continue to monitor its ability to pay dividends at this level. Due to the Company's announcement of its pending merger agreement with Sterling, Webster is restricted from paying quarterly cash dividends in excess of the current level until the transaction is closed.
As of June 30, 2021, both the Company and the Bank were considered well-capitalized, meeting all capital requirements under the Basel III Capital Rules. In accordance with regulatory capital rules, the Company elected the option to delay the impact of the adoption of current expected credit losses (CECL) on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. Therefore, capital ratios and amounts as of June 30, 2021 exclude the impact of the increased allowance for credit losses on loans and leases, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL. This resulted in a 26, 7, 26, and 17 basis point benefit to the Company's CET1 risk based capital, total risk based capital, tier 1 risk based capital, and tier 1 leverage capital, respectively, at June 30, 2021. The Company's capital ratios remain in excess of well capitalized even without the benefit of the CECL impact delay.
Refer to the selected financial highlights under the "Results of Operations" section and Note 12: Regulatory Matters in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for information on regulatory capital levels and ratios.
Investment Securities
Webster Bank's investment securities are managed within regulatory guidelines and corporate policy, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. The Office of the Comptroller of the Currency (OCC) may establish additional individual limits on a certain type of investment if the concentration in such investment presents a safety and soundness concern. In addition to Webster Bank, the Holding Company may also directly hold investment securities. At June 30, 2021, the Company had no holdings in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.
Through its Corporate Treasury function, Webster maintains investment securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest-rate risk. Investment securities are classified into two major categories: available-for-sale, which currently consists of agency collateralized mortgage obligations (Agency CMO); agency mortgage-backed securities (Agency MBS); agency commercial mortgage-backed securities (Agency CMBS); non-agency commercial mortgage-backed securities (CMBS); collateralized loan obligations (CLO); and corporate debt, and held-to-maturity, which currently consists of Agency CMO; Agency MBS; Agency CMBS; municipal bonds and notes; and CMBS. Investment securities had a carrying value and an average risk weighting for regulatory purposes of $8.9 billion and 13%, respectively, at both June 30, 2021 and December 31, 2020.
Available-for-sale investment securities decreased $63.9 million, primarily due to paydowns exceeding purchases and a decline in fair value as a result of lower market rates. The tax-equivalent yield in the portfolio was 1.83% for the six months ended June 30, 2021 as compared to 2.62% for the six months ended June 30, 2020. Available-for-sale investment securities are evaluated for credit losses on a quarterly basis. Unrealized losses on these securities are attributable to factors other than credit loss, and therefore no ACL has been recorded. Further, the Company does not have the intent to sell these investment securities, and it is more likely than not that it will not be required to sell these securities before the recovery of their cost basis. Gross unrealized losses on available-for-sale investment securities were $14.2 million at June 30, 2021.
Held-to-maturity investment securities increased $55.4 million, primarily due to purchases exceeding paydown activity. The tax-equivalent yield in the portfolio was 2.30% for the six months ended June 30, 2021 as compared to 2.85% for the six months ended June 30, 2020. Held-to-maturity investment securities are evaluated for credit losses on a quarterly basis under CECL. The ACL on investment securities held-to-maturity was $0.4 million at June 30, 2021. Gross unrealized losses on held-to-maturity investment securities were $20.3 million at June 30, 2021.
The following table summarizes the amortized cost and fair value of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
(In thousands)
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
115,985
|
|
$
|
4,366
|
|
$
|
(23)
|
|
$
|
120,328
|
|
|
$
|
148,711
|
|
$
|
6,000
|
|
$
|
(98)
|
|
$
|
154,613
|
|
Agency MBS
|
1,339,769
|
|
47,666
|
|
(4,905)
|
|
1,382,530
|
|
|
1,389,100
|
|
68,598
|
|
(289)
|
|
1,457,409
|
|
Agency CMBS
|
939,055
|
|
10,509
|
|
(8,167)
|
|
941,397
|
|
|
1,092,430
|
|
26,317
|
|
(1,514)
|
|
1,117,233
|
|
CMBS
|
754,192
|
|
1,008
|
|
(230)
|
|
754,970
|
|
|
512,759
|
|
1,082
|
|
(5,823)
|
|
508,018
|
|
CLO
|
50,000
|
|
8
|
|
(44)
|
|
49,964
|
|
|
76,693
|
|
—
|
|
(310)
|
|
76,383
|
|
Corporate debt
|
14,569
|
|
11
|
|
(876)
|
|
13,704
|
|
|
14,557
|
|
—
|
|
(1,437)
|
|
13,120
|
|
Available-for-sale
|
$
|
3,213,570
|
|
$
|
63,568
|
|
$
|
(14,245)
|
|
$
|
3,262,893
|
|
|
$
|
3,234,250
|
|
$
|
101,997
|
|
$
|
(9,471)
|
|
$
|
3,326,776
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
Agency CMO
|
$
|
61,080
|
|
$
|
1,425
|
|
$
|
(63)
|
|
$
|
62,442
|
|
|
$
|
91,622
|
|
$
|
1,785
|
|
$
|
(241)
|
|
$
|
93,166
|
|
Agency MBS
|
2,562,863
|
|
96,187
|
|
(3,684)
|
|
2,655,366
|
|
|
2,419,751
|
|
137,863
|
|
(84)
|
|
2,557,530
|
|
Agency CMBS
|
2,105,924
|
|
30,491
|
|
(16,545)
|
|
2,119,870
|
|
|
2,101,227
|
|
60,484
|
|
(2,213)
|
|
2,159,498
|
|
Municipal bonds and notes
|
715,195
|
|
56,218
|
|
—
|
|
771,413
|
|
|
739,507
|
|
60,371
|
|
(3)
|
|
799,875
|
|
CMBS
|
178,563
|
|
6,501
|
|
—
|
|
185,064
|
|
|
216,081
|
|
9,214
|
|
—
|
|
225,295
|
|
Held-to-maturity
|
$
|
5,623,625
|
|
$
|
190,822
|
|
$
|
(20,292)
|
|
$
|
5,794,155
|
|
|
$
|
5,568,188
|
|
$
|
269,717
|
|
$
|
(2,541)
|
|
$
|
5,835,364
|
|
Webster Bank has the ability to use its investment portfolio, as well as interest-rate derivative financial instruments, within internal policy guidelines to hedge and manage interest-rate risk as part of its asset/liability strategy. Refer to Note 14: Derivative Financial Instruments in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.
Loans and Leases
The following table provides the composition of loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
(Dollars in thousands)
|
Amount
|
%
|
|
Amount
|
%
|
Commercial non-mortgage
|
$
|
6,843,415
|
|
31.9
|
|
|
$
|
7,085,076
|
|
32.8
|
|
Asset-based
|
943,961
|
|
4.4
|
|
|
890,598
|
|
4.1
|
|
Commercial real estate
|
6,410,672
|
|
29.9
|
|
|
6,322,637
|
|
29.2
|
|
Equipment financing
|
630,343
|
|
2.9
|
|
|
602,224
|
|
2.8
|
|
Residential
|
4,856,302
|
|
22.6
|
|
|
4,782,016
|
|
22.1
|
|
Home equity
|
1,677,136
|
|
7.8
|
|
|
1,802,865
|
|
8.3
|
|
Other consumer
|
113,172
|
|
0.5
|
|
|
155,799
|
|
0.7
|
|
Total loans and leases
|
$
|
21,475,001
|
|
100.0
|
|
|
$
|
21,641,215
|
|
100.0
|
|
Total commercial non-mortgage and asset-based loans were $7.8 billion at June 30, 2021, reflecting a decrease of $188.3 million from December 31, 2020. The decrease is primarily the result of higher principal paydowns.
Commercial real estate loans were $6.4 billion at June 30, 2021, reflecting an increase of $88.0 million from December 31, 2020. The increase is a result of originations of $642.8 million, partially offset by loan payments.
Equipment financing was $630.3 million at June 30, 2021, reflecting an increase of $28.1 million from December 31, 2020. The increase is a result of originations of $133.4 million, partially offset by loan payments.
Residential loans were $4.9 billion at June 30, 2021, reflecting an increase of $74.3 million from December 31, 2020. The increase is a result of originations of $1.0 billion, partially offset by loan payments.
Total home equity and other consumer loans were $1.8 billion at June 30, 2021, reflecting a decrease of $168.4 million from December 31, 2020. The decrease is primarily due to continued net principal paydowns within the home equity lines.
Credit Policies and Procedures
Webster Bank has credit policies and procedures in place designed to support lending activity within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. Webster has implemented incremental monitoring procedures in connection with COVID-19.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Assessment of management is a critical element of the underwriting process and overall credit decision. Once it is determined that the borrower’s management possesses sound ethics and a solid business acumen, current and projected cash flows are examined to determine the ability of the borrower to repay its agreed upon obligations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. However, the cash flows of borrowers may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate personal guarantees of the principal amounts.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. 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 risk characteristics of the portfolio. Policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized structures spread across many different borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis with policies and procedures modified, or developed, as needed. Underwriting factors for mortgage and home equity loans include the borrower’s Fair Isaac Corporation (FICO) score, the loan amount relative to property value, and the borrower’s debt to income level, and are also influenced by regulatory requirements. Additionally, Webster Bank originates both qualified mortgage and non-qualified mortgage loans as defined by applicable Consumer Financial Protection Bureau (CFPB) rules.
Loan Modifications
Webster works with customers to modify loan agreements when borrowers are experiencing financial difficulties. Webster will modify a loan in order to minimize the risk of loss and achieve the best possible outcome for both the borrower and the Company. Loan modifications can take various forms and include payment deferrals, rate reductions, covenant waivers, term extensions, or other action. Depending on the nature of modification, it may, or may not, be accounted for as a troubled debt restructuring (TDR).
COVID-19 Payment Modification Activities
The Company has accommodated over 2,500 customers impacted by COVID-19 through payment-related deferrals. As of June 30, 2021, loan balances associated with these modifications, in their deferral period, totaled approximately $133.1 million. This balance includes all loans associated with a customer relationship where at least one loan has been modified or is in process of modification. A significant portion of the loan balances associated with these modifications would not be considered a TDR based on the nature of the modification. Certain other modifications that would otherwise be considered a TDR are subject to TDR accounting relief through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Interagency Statement. Included in the $133.1 million are the $120.3 million of loan balances associated with the CARES Act and Interagency Statement, as discussed below. The Company continues to actively monitor customer relationships associated with these modified loans. The impact of these modifications is reflected in our allowance for credit losses on loans and leases.
The CARES Act and Interagency Statement
In response to the COVID-19 pandemic, financial institutions were provided relief from certain TDR accounting and disclosure requirements for qualifying loan modifications. Specifically, Section 4013 of the CARES Act, extended by the Consolidated Appropriations Act, 2021, provided temporary relief from certain GAAP requirements for modifications related to COVID-19. In addition, a group of banking regulatory agencies issued a revised Interagency Statement that offers practical expedients for evaluating whether COVID-19 loan modifications are TDRs.
As of June 30, 2021, loan balances associated with loan modifications designated in connection with these relief provisions in their deferral period totaled approximately $120.3 million. These modifications represent payment deferrals, generally three to six months in length. The $16.7 million decrease from $137.0 million at March 31, 2021 is primarily the result of borrowers exiting their payment deferral period. The Company will continue to evaluate the effectiveness of the loan modification program as the deferral periods end. For additional information on the accounting for loan modifications under Section 4013 of the CARES Act and the Interagency Statement, refer to Note 1 to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.
Troubled Debt Restructurings
A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Common modifications include material changes in covenants, pricing, and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus, at the date of discharge, are charged down to the fair value of collateral less costs to sell.
The Company’s policy is to place consumer loan TDRs on non-accrual status for a minimum period of six months, except for those that were performing prior to TDR status. Commercial TDRs are evaluated on a case-by-case basis for determination of accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. Generally, a TDR is classified and reported as a TDR for the remaining life of the loan. TDR classification may be removed if the loan was restructured under market conditions and the borrower demonstrates compliance with the modified terms for a minimum period of six months. In the limited circumstance that a TDR classification is removed, the loan is returned to the appropriate pool and credit losses are determined through the collective assessment process.
The following tables provide information for loans classified as TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
Beginning balance
|
$
|
235,427
|
|
|
$
|
237,438
|
|
Additions
|
3,820
|
|
|
52,385
|
|
Paydowns, net of draws
|
(52,331)
|
|
|
(23,997)
|
|
Charge-offs
|
(2,248)
|
|
|
(3,084)
|
|
Transfers to OREO
|
(325)
|
|
|
(1,296)
|
|
Ending balance
|
$
|
184,343
|
|
|
$
|
261,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
At June 30,
2021
|
|
At December 31,
2020
|
Accrual status
|
$
|
119,707
|
|
|
$
|
140,089
|
|
Non-accrual status
|
64,636
|
|
|
95,338
|
|
Total TDRs
|
$
|
184,343
|
|
|
$
|
235,427
|
|
|
|
|
|
Specific reserves for TDRs included in the balance of ACL on loans and leases
|
$
|
11,726
|
|
|
$
|
12,728
|
|
Additional funds committed to borrowers in TDR status
|
13,512
|
|
|
12,895
|
|
TDR balances decreased $51.1 million at June 30, 2021 as compared to December 31, 2020, primarily due to increased paydown activity. Specific reserves for TDRs decreased from year end reflective of management’s current assessment of reserve requirements. Qualifying loan modifications in connection with Section 4013 of the CARES Act or Interagency Statement are excluded from TDR identification.
Past Due Loans and Leases
The following table provides information on loans and leases that are accruing income and are past due 30 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
(Dollars in thousands)
|
Amount (1)
|
% (2)
|
|
Amount (1)
|
% (2)
|
Commercial non-mortgage
|
$
|
1,138
|
|
0.02
|
|
|
$
|
1,503
|
|
0.02
|
|
Asset-based lending
|
—
|
|
—
|
|
|
1,175
|
|
0.13
|
|
Commercial real estate
|
1,679
|
|
0.03
|
|
|
3,003
|
|
0.05
|
|
Equipment financing
|
2,016
|
|
0.32
|
|
|
7,415
|
|
1.24
|
|
Residential
|
4,690
|
|
0.10
|
|
|
10,623
|
|
0.22
|
|
Home equity
|
8,016
|
|
0.48
|
|
|
7,246
|
|
0.41
|
|
Other consumer
|
813
|
|
0.72
|
|
|
1,474
|
|
0.95
|
|
Loans and leases past due 30-89 days
|
18,352
|
|
0.09
|
|
|
32,439
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage loans and leases past due 90 days and accruing
|
25
|
|
—
|
|
|
445
|
|
0.01
|
|
Total
|
18,377
|
|
0.09
|
|
|
32,884
|
|
0.15
|
|
Net deferred (fees) costs and net (premiums) discounts
|
40
|
|
|
|
98
|
|
|
Total loans and leases past due 30 days or more and accruing income
|
$
|
18,417
|
|
|
|
$
|
32,982
|
|
|
(1)Past due loans and leases exclude non-accrual loans and leases.
(2)Represents the principal balance of loans and leases that are accruing income and are past due 30 days as a percentage of the outstanding principal balance within the comparable loan and lease category.
Loans and leases that are accruing income and are past due 30 days or more decreased $14.6 million at June 30, 2021 as compared to December 31, 2020. The ratio of loans and leases that are accruing income and are past due 30 days or more as a percentage of total loans and leases decreased to 0.09% at June 30, 2021 as compared to 0.15% at December 31, 2020.
Non-performing Assets
The following table provides information on non-performing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
(Dollars in thousands)
|
Amount
|
% (1)
|
|
Amount
|
% (1)
|
Commercial non-mortgage
|
$
|
49,669
|
|
0.72
|
|
|
$
|
64,200
|
|
0.90
|
|
Asset-based
|
2,403
|
|
0.25
|
|
|
2,622
|
|
0.29
|
|
Commercial real estate
|
12,687
|
|
0.20
|
|
|
21,222
|
|
0.34
|
|
Equipment financing
|
8,162
|
|
1.31
|
|
|
7,299
|
|
1.22
|
|
Residential
|
21,467
|
|
0.45
|
|
|
41,033
|
|
0.86
|
|
Home equity
|
25,942
|
|
1.56
|
|
|
30,980
|
|
1.73
|
|
Other consumer
|
411
|
|
0.36
|
|
|
649
|
|
0.42
|
|
Total non-accrual loans and leases
|
120,741
|
|
0.56
|
|
|
168,005
|
|
0.78
|
|
Net deferred (fees) costs and net (premiums) discounts
|
(137)
|
|
|
|
(45)
|
|
|
Amortized cost of non-accrual loans and leases (2)
|
$
|
120,604
|
|
|
|
$
|
167,960
|
|
|
|
|
|
|
|
|
Total non-accrual loans and leases
|
$
|
120,741
|
|
|
|
$
|
168,005
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
Commercial non-mortgage
|
—
|
|
|
|
175
|
|
|
Residential and consumer
|
2,756
|
|
|
|
2,134
|
|
|
Total foreclosed and repossessed assets
|
2,756
|
|
|
|
2,309
|
|
|
Total non-performing assets
|
$
|
123,497
|
|
|
|
$
|
170,314
|
|
|
(1)Represents the principal balance of non-accrual loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category.
(2)Includes non-accrual TDRs of $64.6 million and $95.3 million at June 30, 2021 and December 31, 2020, respectively.
Non-performing assets decreased $46.8 million at June 30, 2021 as compared to December 31, 2020. Non-performing assets as a percentage of total assets decreased to 0.37% at June 30, 2021 as compared to 0.52% at December 31, 2020.
The following table provides details of non-performing loan and lease activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
Beginning balance
|
$
|
168,005
|
|
|
$
|
150,906
|
|
Additions
|
24,345
|
|
|
62,952
|
|
Paydowns, net of draws
|
(40,284)
|
|
|
(9,874)
|
|
Charge-offs
|
(8,654)
|
|
|
(25,880)
|
|
Other
|
(22,671)
|
|
|
(5,050)
|
|
Ending balance
|
$
|
120,741
|
|
|
$
|
173,054
|
|
(1)Other generally includes loans transferred to OREO, or loans held for sale. The 2021 amount also includes $19.7 million of consumer loans that were sold during the period.
Asset Quality
The Company manages its asset quality leveraging established risk tolerance levels through its underwriting standards, servicing, and portfolio management of loans and leases. Loans and leases, particularly where a heightened risk of loss has been identified, are regularly monitored to mitigate further deterioration that could potentially impact key measures of asset quality in future periods. Management considers past due loans and leases, non-performing assets, and credit loss levels to be key measures of asset quality.
The following table provides key asset quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2021
|
|
At December 31, 2020
|
Non-performing loans and leases as a percentage of loans and leases
|
0.56
|
%
|
|
0.78
|
%
|
Non-performing assets as a percentage of loans and leases plus other real estate owned (OREO)
|
0.57
|
|
|
0.79
|
|
Non-performing assets as a percentage of total assets
|
0.37
|
|
|
0.52
|
|
ACL on loans and leases as a percentage of non-performing loans and leases
|
255.05
|
|
|
213.94
|
|
ACL on loans and leases as a percentage of loans and leases
|
1.43
|
|
|
1.66
|
|
Net charge-offs as a percentage of average loans and leases (1)
|
0.04
|
|
|
0.21
|
|
Ratio of ACL on loans and leases to net charge-offs (1)
|
37.08x
|
|
7.97x
|
(1)Calculated for the June 30, 2021 period based on annualized year-to-date net charge-offs.
These ratio calculations include the impact of PPP loans totaling $846.0 million and $1.3 billion for which there was no allowance for credit losses recorded at June 30, 2021 and December 31, 2020, respectively.
Potential Problem Loans and Leases
Potential problem loans and leases are defined by management as certain loans and leases that, for:
•the commercial portfolio, are performing loans and leases classified as Substandard and have a well-defined weakness that could jeopardize the full repayment of the debt; and
•the consumer portfolio, are performing loans that are accruing income and are 60-89 days past due.
Potential problem loans and leases exclude loans and leases that are accruing income and are past due 90 days or more, non-accrual loans and leases, and TDRs. Certain loans with modifications related to COVID-19 are not reflected as potential problem loans and have not reported as TDRs due to relief provisions of the CARES Act and Interagency Statement, as discussed elsewhere in this section. As uncertainties related to the pandemic still exist, there is a risk that some of these modified loans may become potential problem loans at a later date.
Management monitors potential problem loans and leases due to a higher degree of risk associated with those loans and leases. The current expectation of lifetime losses is included in the ACL on loans and leases, however management cannot predict whether these potential problem loans and leases ultimately will become non-performing or result in a loss. The Company had potential problem loans and leases of $259.1 million at June 30, 2021 as compared to $335.1 million at December 31, 2020.
Allowance for Credit Losses on Loans and Leases
Methodology
The Company's policy for ACL on loans and leases is considered 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 expected to occur over the life of the asset. Executive management reviews and advises on the adequacy of the reserve, which is maintained at a level management deems sufficient to cover expected losses within each of the loan and lease portfolios.
The ACL on loans and leases is determined using the CECL model, which requires recognition of expected lifetime credit losses at the purchase or origination of an asset. Expected losses are determined through a pooled, collective assessment of loans and leases with similar risk characteristics. If the risk characteristics of a loan or lease change and no longer match that of the collective assessment pool, it is removed and individually assessed for credit impairment. Management applies significant judgments and assumptions that influence the loss estimate and ACL on loan and lease balances.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on the commercial and consumer portfolios and expected losses are determined using a Probability of Default/Loss Given Default/Exposure at Default (PD/LGD/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 current exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. The Company’s PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, and credit risk ratings. The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. Macroeconomic variables are selected based on
the correlation of the variables to credit losses for each class of financing receivable. Data from the baseline forecast scenario is used as the input to the model loss calculation. After the reasonable and supportable forecast period, the Company reverts to historical loss rates for the remaining life of the loans and leases on a straight-line basis over a one-year reversion period. The calculation of exposure at default follows an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans of similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses and principal paydown (PPD). PPD is the combination of contractual repayment and prepayment. A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics, which are not reflected or captured in the quantitative models but are likely to impact the measurement of estimated credit losses.
Individually Assessed Loans and Leases. When loans and leases no longer match the risk characteristics of the collective assessment pool, they are removed from the collectively assessed population and individually assessed for credit losses. Generally, all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans when the borrower is experiencing financial difficulty, are individually assessed. Individual assessment calculations are either based on the fair value of the collateral less estimated costs to sell, the present value of the expected cash flows from operation of the collateral, discounted cash flows, or other individual assessment approach, as appropriate.
A fair value shortfall relative to the amortized cost balance is reflected as an impairment reserve 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, additional impairment may be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases. Any individually assessed loan for which no specific valuation allowance was necessary is the result of either sufficient cash flow or sufficient collateral coverage relative to the amortized cost. If the credit quality subsequently improves, the allowance is reversed up to a maximum of the previously recorded credit loss.
The ACL on loans and leases represents the total of estimated losses calculated through collective and individual assessments. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. While actual future conditions and losses realized may vary significantly from present judgments and assumptions, management believes the ACL on loans and leases is adequate as of June 30, 2021. For additional information on the Company's ACL methodology, refer to Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.
Allowance for Credit Losses on Loans and Leases Balances and Ratios
The ACL on loans and leases decreased $51.5 million, or 14.3%, from $359.4 million at December 31, 2020 to $307.9 million at June 30, 2021. The decrease in the allowance is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. The ACL on loans and leases as a percentage of total loans and leases, also known as the reserve coverage ratio, decreased from 1.66% at December 31, 2020 to 1.43% at June 30, 2021. The ACL on loans and leases as a percentage of non-performing loans and leases increased from 213.94% at December 31, 2020 to 255.05% at June 30, 2021, primarily due to the sale of $19.7 million of non-performing consumer and residential loans during the second quarter of 2021 and increased paydown activity.
The following table provides information on the portfolio allocation of the ACL on loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
(Dollars in thousands)
|
Amount
|
% (1)
|
|
Amount
|
% (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial portfolio
|
$
|
263,071
|
|
1.77
|
|
|
$
|
312,244
|
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer portfolio
|
44,874
|
|
0.68
|
|
|
47,187
|
|
0.70
|
|
Total ACL on loans and leases
|
$
|
307,945
|
|
1.43
|
|
|
$
|
359,431
|
|
1.66
|
|
(1)Percentage represents the allocated ACL on loans and leases to total loans and leases within the comparable category. The allocation of a portion of the allowance to one category of loans and leases does not preclude its availability to absorb losses in other categories.
The following table provides details of the activity in the ACL on loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended June 30,
|
|
At or for the six months ended June 30,
|
(In thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Beginning balance
|
$
|
328,351
|
|
|
$
|
334,931
|
|
|
$
|
359,431
|
|
|
$
|
209,096
|
|
Adoption of ASU No. 2016-13 (CECL)
|
—
|
|
|
—
|
|
|
—
|
|
|
57,568
|
|
(Benefit) provision
|
(21,574)
|
|
|
40,003
|
|
|
(47,333)
|
|
|
116,088
|
|
Charge-offs:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
(431)
|
|
|
(14,727)
|
|
|
(1,510)
|
|
|
(20,166)
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
(163)
|
|
|
—
|
|
|
(5,320)
|
|
|
(30)
|
|
Equipment financing
|
—
|
|
|
(567)
|
|
|
(85)
|
|
|
(672)
|
|
Residential
|
(1,105)
|
|
|
(194)
|
|
|
(1,485)
|
|
|
(1,705)
|
|
Home equity
|
(244)
|
|
|
(490)
|
|
|
(938)
|
|
|
(1,351)
|
|
Other consumer
|
(1,459)
|
|
|
(2,096)
|
|
|
(3,359)
|
|
|
(4,311)
|
|
Total charge-offs
|
(3,402)
|
|
|
(18,074)
|
|
|
(12,697)
|
|
|
(28,235)
|
|
Recoveries:
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
824
|
|
|
249
|
|
|
1,033
|
|
|
758
|
|
Asset-based
|
2
|
|
|
10
|
|
|
1,426
|
|
|
13
|
|
Commercial real estate
|
10
|
|
|
2
|
|
|
13
|
|
|
5
|
|
Equipment financing
|
—
|
|
|
22
|
|
|
—
|
|
|
71
|
|
Residential
|
782
|
|
|
83
|
|
|
1,940
|
|
|
318
|
|
Home equity
|
2,448
|
|
|
817
|
|
|
3,172
|
|
|
1,855
|
|
Other consumer
|
504
|
|
|
479
|
|
|
960
|
|
|
985
|
|
Total recoveries
|
4,570
|
|
|
1,662
|
|
|
8,544
|
|
|
4,005
|
|
Net charge-offs
|
1,168
|
|
|
(16,412)
|
|
|
(4,153)
|
|
|
(24,230)
|
|
Ending balance
|
$
|
307,945
|
|
|
$
|
358,522
|
|
|
$
|
307,945
|
|
|
$
|
358,522
|
|
The following table provides a summary of net charge-offs to average loans and leases by portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
Amount
|
% (1)
|
|
Amount
|
% (1)
|
|
Amount
|
% (1)
|
|
Amount
|
% (1)
|
Commercial portfolio
|
$
|
(242)
|
|
(0.01)
|
|
$
|
15,011
|
|
0.41
|
|
$
|
4,443
|
|
0.06
|
|
$
|
20,021
|
|
0.29
|
Consumer portfolio
|
(926)
|
|
(0.06)
|
|
1,401
|
|
0.08
|
|
(290)
|
|
(0.01)
|
|
4,209
|
|
0.12
|
Net (recoveries) charge-offs
|
$
|
(1,168)
|
|
(0.02)
|
|
$
|
16,412
|
|
0.30
|
|
$
|
4,153
|
|
0.04
|
|
$
|
24,230
|
|
0.23
|
(1)Percentage of net charge-offs to average loans and leases was calculated based on annualized period-to-date activity.
Sources of Funds and Liquidity
Sources of Funds. The primary source of Webster Bank’s cash flows for use in lending and meeting its general operational needs is deposits. Operating activities, such as loan and mortgage-backed securities repayments, and other investment securities sale proceeds and maturities, also provide cash flows. While scheduled loan and investment securities repayments are a relatively stable source of funds, loan and investment securities prepayments and deposit inflows are influenced by prevailing interest rates, and local economic conditions and are inherently uncertain. Additional sources of funds are provided by FHLB advances or other borrowings.
Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based capital stock investment in the FHLB of Boston is required in order for Webster Bank to access advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLB. Webster Bank held FHLB Boston capital stock of $16.6 million at June 30, 2021 compared to $17.5 million at December 31, 2020 for its FHLB membership and for outstanding advances and other extensions of credit. The most recent FHLB quarterly cash dividend was paid on May 4, 2021 in an amount equal to an annual yield of 1.54%.
Additionally, Webster Bank is required to hold FRB of Boston 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. The FRB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FRB. Webster Bank held $60.3 million and $60.1 million of FRB capital stock at June 30, 2021 and December 31, 2020, respectively. The most recent FRB semi-annual cash dividend was paid on June 30, 2021 in an amount equal to an annual yield of 1.50%.
Deposits. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use, direct deposit, ACH payments, mobile banking services, internet-based banking, bank by mail, as well as overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and investment needs for both consumer and business customers throughout its primary market area. HSA Bank, a division of Webster Bank, specifically provides deposit products for HSAs, health reimbursement accounts, flexible spending accounts, and commuter benefits. Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with Federal Deposit Insurance Corporation (FDIC) regulations. Webster Bank’s Retail Pricing Committee and its Commercial and Institutional Loan and Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.
Total deposits were $28.8 billion at June 30, 2021 as compared to $27.3 billion at December 31, 2020. The increase is primarily related to a combination of an increase in transactional accounts of $1.8 billion due to customer PPP loan funding pending utilization, other stimulus effects, and lower customer spending. Refer to Note 9: Deposits in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information.
Borrowings. FHLB advances are utilized as a source of funding for liquidity and interest rate risk management purposes. FHLB advances totaled $0.1 billion at both June 30, 2021 and December 31, 2020. Webster Bank had additional borrowing capacity of approximately $4.5 billion and $4.7 billion from the FHLB at June 30, 2021 and December 31, 2020, respectively, and $1.3 billion from the FRB at both June 30, 2021 and December 31, 2020.
Securities sold under agreements to repurchase, whereby securities are delivered to counterparties under an agreement to repurchase such securities at a fixed price in the future, are also utilized as a source of funding. Unpledged investment securities of $4.5 billion at June 30, 2021 could have been used for collateral on borrowings such as repurchase agreements, or to increase borrowing capacity by approximately $4.2 billion or $4.4 billion at the FHLB or FRB, respectively. Additionally, Webster Bank may utilize term and overnight federal funds to meet short-term liquidity needs.
Long-term debt, which consists of senior fixed-rate notes maturing in 2024 and 2029, and junior subordinated notes maturing in 2033, totaled $0.6 billion at both June 30, 2021 and December 31, 2020.
Total borrowed funds were $1.2 billion at June 30, 2021 as compared to $1.7 billion at December 31, 2020, and represented 3.6% and 5.2% of total assets at June 30, 2021 and December 31, 2020, respectively. The decrease is due to deposit growth exceeding loan and securities growth. For additional information, refer to Note 10: Borrowings in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.
Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive liquidity management at both the Holding Company and Webster Bank. Liquidity comes from a variety of cash flow sources, such as operating activities, including principal and interest payments on loans and securities, or financing activities, including unpledged investment securities that can be sold or utilized to secure funding, and new deposits. Webster is committed to maintaining a strong, increasing base of core deposits, consisting of demand, checking, savings, health savings, and money market accounts, to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in order to maintain stable, cost effective funding to promote overall balance sheet strength.
Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from Webster Bank. During the six months ended June 30, 2021, Webster Bank paid $120.0 million in dividends to the Holding Company. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and junior subordinated debt, the payment of dividends to preferred and common shareholders, repurchases of its common stock, and purchases of investment securities. There are certain restrictions on the payment of dividends by Webster Bank to the Holding Company, which are described in the section captioned "Supervision and Regulation" in Item 1 of Webster’s 2020 Form 10-K. At June 30, 2021, there was $379.8 million of retained earnings available for the payment of dividends by Webster Bank to the Holding Company.
The Company has a common stock repurchase program authorized by the Board of Directors with $123.4 million of remaining repurchase authority at June 30, 2021. Due to the Company's announcement of its pending merger agreement with Sterling, Webster may not purchase any shares under this program until the transaction is closed. Additionally, the Company periodically acquires common shares outside of the repurchase program related to stock compensation plan activity. During the six months ended June 30, 2021, a total of 71,903 shares of common stock were repurchased at a market value of approximately $4.0 million.
Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits, which are used to support loan portfolio growth. Including time deposits, Webster Bank had a loan to total deposit ratio of 74.4% and 79.2% at June 30, 2021 and December 31, 2020, respectively.
Webster Bank is required by OCC regulations to maintain liquidity sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on factors such as the overall asset/liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. Webster Bank exceeded all regulatory liquidity requirements as of June 30, 2021. The Company has a detailed liquidity contingency plan designed to respond to liquidity concerns in a prompt and comprehensive manner. The plan is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.
As an OCC regulated commercial institution, Webster Bank is also required to satisfy certain minimum leverage and risk-based capital requirements, as well as minimum tangible capital requirements. As of June 30, 2021, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC requirements for a well-capitalized institution. Refer to Note 12: Regulatory Matters in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a further discussion of regulatory requirements applicable to the Holding Company and Webster Bank.
The liquidity position of the Company is continuously monitored and adjustments are made to balance between sources and uses of funds, as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.
Off-Balance Sheet Arrangements
Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit, interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements or facilitate certain trade arrangements. These transactions give rise to elements of credit, interest rate, and liquidity risk. For additional information, refer to Note 2: Variable Interest Entities and Note 19: Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.
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 risks in determining management's strategy and action. To facilitate and manage this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO. The impact has not been calculated for scenarios that would require negative interest rates.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on NII over a twelve month period, starting at June 30, 2021 and December 31, 2020 for each subsequent twelve month period as compared to NII, assuming no change in interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII
|
-200bp
|
-100bp
|
+100bp
|
+200bp
|
June 30, 2021
|
n/a
|
n/a
|
5.4%
|
11.6%
|
December 31, 2020
|
n/a
|
n/a
|
1.7%
|
4.7%
|
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on PPNR over a twelve month period, starting at June 30, 2021 and December 31, 2020 for each subsequent twelve month period as compared to PPNR, assuming no change in interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPNR
|
-200bp
|
-100bp
|
+100bp
|
+200bp
|
June 30, 2021
|
n/a
|
n/a
|
8.8%
|
19.0%
|
December 31, 2020
|
n/a
|
n/a
|
2.4%
|
7.1%
|
Interest rates are assumed to change up or down in a parallel fashion, and the NII and PPNR results in each scenario are compared to a flat rate based scenario. The flat rate scenario holds the end of period yield curve constant over a twelve month forecasted horizon. Such scenario at both June 30, 2021 and December 31, 2020 assumed a federal funds rate of 0.25%. Asset sensitivity for both NII and PPNR increased at June 30, 2021 as compared to December 31, 2020, primarily due to changes in deposit beta assumptions, which were approved by the Company's ALCO and are reflective of management's current deposit pricing strategy. Loans at floors have increased to approximately $4.0 billion at June 30, 2021, lowering overall asset sensitivity, but is being offset by increased cash levels at the FRB due to elevated deposits. When interest rates start to rise, not all of these loans will immediately lift off of their floors. Due to the lower rate environment at both June 30, 2021 and December 31, 2020, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were previously modeled when market rates were higher.
Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets and liabilities. Changes in the market value of these positions are recognized in earnings.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates might have on NII for the subsequent twelve month period starting at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short End of the Yield Curve
|
|
Long End of the Yield Curve
|
NII
|
-100bp
|
-50bp
|
+50bp
|
+100bp
|
|
-100bp
|
-50bp
|
+50bp
|
+100bp
|
June 30, 2021
|
n/a
|
n/a
|
3.6%
|
7.9%
|
|
(3.1)%
|
(1.5)%
|
1.4%
|
2.8%
|
December 31, 2020
|
n/a
|
n/a
|
0.2%
|
1.5%
|
|
n/a
|
(2.2)%
|
1.0%
|
2.5%
|
The following table summarizes the estimated impact that immediate non-parallel changes in interest rates might have on PPNR for the subsequent twelve month period starting at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short End of the Yield Curve
|
|
Long End of the Yield Curve
|
PPNR
|
-100bp
|
-50bp
|
+50bp
|
+100bp
|
|
-100bp
|
-50bp
|
+50bp
|
+100bp
|
June 30, 2021
|
n/a
|
n/a
|
6.0%
|
13.1%
|
|
(5.1)%
|
(2.6)%
|
2.4%
|
4.6%
|
December 31, 2020
|
n/a
|
n/a
|
(0.3)%
|
1.7%
|
|
n/a
|
(4.0)%
|
1.8%
|
4.4%
|
These non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa. The short end of the yield curve is defined as terms of less than eighteen months, whereas the long end of the yield curve is defined as terms of greater than eighteen months. The results above reflect the annualized impact of immediate rate changes.
Sensitivity to the short end of the yield curve for both NII and PPNR increased at June 30, 2021 as compared to December 31, 2020 due to excess cash at the FRB. As rates rise, this cash can be deployed into higher yielding assets. NII and PPNR were less sensitive to changes in the long end of the yield curve at June 30, 2021 as compared to December 31, 2020, due to slower forecast prepayment speeds resulting from increases in the long end of the yield curve, which shortens asset duration for MBS
and residential mortgages. Due to the lower rate environment at June 30, 2021, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were modeled at December 31, 2020.
The following table summarizes the estimated economic value of assets, liabilities, and off-balance sheet contracts at June 30, 2021 and December 31, 2020, and the projected change to economic values if interest rates were to instantaneously increase or decrease by 100 basis points:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Book
Value
|
Estimated
Economic
Value
|
Estimated Economic Value Change
|
|
-100 bp
|
+100 bp
|
June 30, 2021
|
|
|
|
|
Assets
|
$
|
33,753,752
|
|
$
|
33,481,272
|
|
n/a
|
$
|
(726,608)
|
|
Liabilities
|
30,424,047
|
|
29,437,861
|
|
n/a
|
(1,010,173)
|
|
Net
|
$
|
3,329,705
|
|
$
|
4,043,411
|
|
n/a
|
$
|
283,565
|
|
Net change as % base net economic value
|
|
|
n/a
|
7.0
|
%
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
Assets
|
$
|
32,590,690
|
|
$
|
32,546,388
|
|
n/a
|
$
|
(625,173)
|
|
Liabilities
|
29,356,065
|
|
29,357,878
|
|
n/a
|
(1,058,460)
|
|
Net
|
$
|
3,234,625
|
|
$
|
3,188,510
|
|
n/a
|
$
|
433,287
|
|
Net change as % base net economic value
|
|
|
n/a
|
13.6
|
%
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Changes in economic value can best be described using duration, which is a measure of the price sensitivity of financial instruments for small changes in interest rates. For fixed-rate instruments, it can also be thought of as the weighted-average expected time to receive future cash flows, whereas for floating-rate instruments, it can be thought of as the weighted-average expected time until the next rate reset. The longer the duration, the greater the price sensitivity for given changes in interest rates. Floating-rate instruments may have durations as short as one day, and therefore, may have very little price sensitivity due to changes in interest rates. Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in the value of a liability is a benefit to the Company.
Duration gap is the difference between the duration of assets and the duration of liabilities. A duration gap near zero implies that the balance sheet is matched, and thus would exhibit no change in estimated economic value for a small change in interest rates. Webster's duration gap was negative 2.1 years and negative 1.9 years at June 30, 2021 and December 31, 2020, respectively. A negative duration gap implies that liabilities are longer than assets, and therefore, have more price sensitivity than assets and will reset their interest rates at a slower pace. Consequently, Webster's net estimated economic value would generally be expected to increase when interest rates rise as the benefit of the decreased value of liabilities would more than offset the decreased value of assets. The opposite would generally be expected to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and, in turn, decrease when interest rates fall over the longer term absent the effects of new business booked in the future. At June 30, 2021, long-term rates have risen by 52 basis points as compared to December 31, 2020. This higher starting point lengthens asset duration by decreasing residential loan and MBS prepayment speeds.
These estimates assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates. Both the earnings and economic values estimates are subject to factors that could cause actual results to differ. Management believes that Webster's interest rate risk position at June 30, 2021 represents a reasonable level of risk given the current interest rate outlook. Management is prepared to take additional action in the event that interest rates do change rapidly.
For a detailed description of the Company's asset/liability management process, refer to the section captioned "Asset/Liability Management and Market Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included in its Form 10-K for the year ended December 31, 2020.
Impact of Inflation and Changing Prices
The Condensed Consolidated Financial Statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results principally in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a banking institution are monetary in nature. As a result, interest rates have a more significant impact on Webster's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.
Application of Critical Accounting Policies and Accounting Estimates
The Company’s significant accounting policies are described in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements included in its 2020 Annual Report on Form 10-K. Modifications to significant accounting policies, if made during the year, are described in Note 1: Summary of Significant Accounting Policies to the Condensed Consolidated Financial Statements included in Item 1 of this report. The preparation of the Condensed Consolidated Financial Statements 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, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.
Management has identified that the Company's most critical accounting policy is the allowance for credit losses on loans and leases not only because of its importance to the Company’s financial condition and operating results, but also the fact that it requires management’s subjective and complex judgment surrounding the need to make estimates about the effects of matters that are inherently uncertain.
Accounting policies and estimates, including the nature of the estimates and types of assumptions used, are described throughout Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Webster's 2020 Form 10-K, and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.
Recently Issued Accounting Standards Updates (ASUs)
Refer to Note 1: Summary of Significant Accounting Policies in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a summary of recently issued ASUs and the expected impact on the Company's consolidated financial statements.