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What changed in WEBSTER FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WEBSTER FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+434 added−362 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-10)

Top changes in WEBSTER FINANCIAL CORP's 2023 10-K

434 paragraphs added · 362 removed · 254 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

64 edited+34 added−19 removed115 unchanged
Biggest changeComprehensive benefits and wellness resources are provided to employees, including medical, dental, vision, wellness incentives, life insurance, voluntary supplemental life insurance, short-term and long-term disability, as well as a 401(k) retirement savings plan with a Company match, Employee Stock Purchase Plan, Employee Assistance Program, parental leave, and paid time off.
Biggest changeCompetitive benefits packages that reflect the needs of the Company’s workforce are offered to employees, which include medical, dental, and vision plans, prescription benefits, life insurance and disability benefits, HSAs, wellness incentives, health coaching, and telemedicine, as well as paid parental leave, paid time off and paid holidays, matching 401(k) retirement savings plans, Employee Stock Purchase Plan, Employee Assistance Program, back-up child and elder care, Student Loan Repayment Program, pet insurance, and other wellness programs.
In addition, reputational risk arises when the Company associates its brand with solutions and services offered through outsourced arrangements, negative publicity regarding matters such as poor unethical or deceptive business practices, violations of laws or regulations, high profile litigation, poor financial performance, poor execution, or inferior customer service.
In addition, reputational risk arises when the Company associates its brand with solutions and services offered through outsourced arrangements, negative publicity regarding matters such as unethical or deceptive business practices, violations of laws or regulations, high profile litigation, poor financial performance, poor execution, or inferior customer service.
Treasury risk includes the risk (i) of capital levels falling below supervisory expectations or being incommensurate with the level of risk; (ii) that a value of a security or investment will decrease; (iii) changes in interest rates could contribute to a reduction in earnings and net worth; and (iv) from decreases or changes in funding sources.
Treasury risk includes the risk (i) of capital levels falling below supervisory expectations or being incommensurate with the level of risk; (ii) that the value of a security or investment will decrease; (iii) changes in interest rates could contribute to a reduction in earnings and net worth; and (iv) from decreases or changes in funding sources.
As a large bank, or generally one with $10 billion or more in assets, Webster Bank is assigned an individual rate based on a scorecard, which combines CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure, to produce a score that is then converted to an assessment rate.
As a large bank, or generally one with $10 billion or more in assets, the Bank is assigned an individual rate based on a scorecard, which combines CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure, to produce a score that is then converted to an assessment rate.
The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with the relevant laws and regulations, could have serious legal and reputational consequences for the financial institutions, including causing the applicable bank regulatory authorities to not approve merger or acquisition transactions or to prohibit such transactions even if prior approval is not required.
The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with the relevant laws and regulations, could have serious legal and reputational consequences for the financial institution, including causing the applicable bank regulatory authorities to not approve merger or acquisition transactions or to prohibit such transactions even if prior approval is not required.
The Federal Reserve System had granted the Company an extension until July 21, 2022 to bring its holdings into compliance with the Volcker Rule. The Company dissolved its remaining holdings in illiquid covered funds during 2021, and believes its holdings to be fully compliant with the Volcker Rule as of December 31, 2022.
The Federal Reserve System had granted the Company an extension until July 21, 2022 to bring its holdings into compliance with the Volcker Rule. The Company dissolved its remaining holdings in illiquid covered funds during 2021, and believes its holdings to be fully compliant with the Volcker Rule as of December 31, 2023.
The impact of a strategy on the Company's risk appetite and risk profile is evaluated as part of the strategic planning process. The long-range strategic planning process is managed by the Corporate Strategy Officer. The ERMC and Risk Committee provide primary oversight to Strategic risk.
The impact of a strategic plan on the Company's risk appetite and risk profile is evaluated as part of the strategic planning process. The long-range strategic planning process is managed by the Corporate Strategy Officer. The ERMC and Risk Committee provide primary oversight to Strategic risk.
The Company maintains a standing Risk Committee of the Board of Directors that oversees its risk management program. 6 Table of Contents Volcker Rule The Volcker Rule prohibits banking entities, such as the Holding Company and the Bank, from (i) engaging in short-term proprietary trading of certain securities, derivatives, commodity futures, and options on these investments for their own account, and (ii) imposes limits on investments in, and other relationships with hedge funds or private equity funds.
The Company maintains a standing Risk Committee of the Board of Directors that oversees its risk management program. 6 Table of Contents Volcker Rule The Volcker Rule prohibits banking entities, such as the Holding Company and the Bank, from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures, and options on these investments for their own account, and imposes limits on investments in, and other relationships with hedge funds or private equity funds.
Bank holding companies that qualify and elect to become financial holding companies, such as Webster Financial Corporation, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Board of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Board of Governors of the Federal Reserve System).
Bank holding companies that qualify and elect to become financial holding companies, such as Webster Financial Corporation, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either financial in nature or incidental to such financial activity (as determined by the Board of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury), or complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Board of Governors of the Federal Reserve System).
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 deposits provide long-duration, low cost funding that is used to minimize the Bank's use of wholesale funding in support of its loan growth. Non-interest revenue is generated predominantly through service fees and interchange income.
HSAs are distributed nationwide through employers for and to individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors. HSA deposits provide long-duration, low-cost funding that is used to minimize the Bank's use of wholesale funding in support of its loan growth. Non-interest revenue is generated predominantly through service fees and interchange income.
The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the FDIF reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028.
The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the FDIF reaches the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
The following table summarizes the ratio thresholds applicable to the Company pursuant to the Basel III Capital Rules as of December 31, 2022: Adequately Capitalized Well Capitalized CET1 risk-based capital 4.5% 6.5% Total risk-based capital 8.0 10.0 Tier 1 risk-based capital 6.0 8.0 Tier 1 leverage capital 4.0 5.0 In addition, the Basel III Capital Rules mandate that most deductions from or adjustments to regulatory capital be made to CET1 capital, not to the other components.
The following table summarizes the ratio thresholds applicable to the Company pursuant to the Basel III Capital Rules as of December 31, 2023: Adequately Capitalized Well Capitalized CET1 Risk-Based Capital 4.5 % 6.5 % Tier 1 Risk-Based Capital 6.0 8.0 Total Risk-Based Capital 8.0 10.0 Tier 1 Leverage Capital 4.0 5.0 In addition, the Basel III Capital Rules mandate that most deductions from or adjustments to regulatory capital be made to CET1 capital, not to the other components.
If a financial holding company or its bank ceases to be well capitalized or well managed, the Board of Governors of the Federal Reserve System may impose corrective capital and managerial requirements and activity restrictions. 4 Table of Contents Mergers and Acquisitions Under the BHC Act, prior approval from the Board of Governors of the Federal Reserve System is required in order for any bank holding company to (i) acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, (ii) acquire all or substantially all of the assets of a bank, or (iii) merge or consolidate with any other bank holding company.
If a financial holding company or its bank ceases to be well capitalized or well managed, the Board of Governors of the Federal Reserve System may impose corrective capital and managerial requirements and activity restrictions. 4 Table of Contents Mergers and Acquisitions Under the BHC Act, prior approval from the Board of Governors of the Federal Reserve System is required in order for any bank holding company to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, acquire all or substantially all of the assets of a bank, or merge or consolidate with any other bank holding company.
If the assessment is not paid within three months after receiving notice thereof, the OCC could order a sale of the Bank stock held to cover any deficiency. 7 Table of Contents Safety and Soundness Standards The federal banking agencies have adopted the rules and regulations under the Interagency Guidelines Establishing Standards for Safety and Soundness, which are applicable to all insured depository institutions.
If the assessment is not paid within three months after receiving notice thereof, the OCC could order a sale of the Bank stock held to cover any deficiency. Safety and Soundness Standards The federal banking agencies have adopted the rules and regulations under the Interagency Guidelines Establishing Standards for Safety and Soundness, which are applicable to all insured depository institutions.
Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management business units. • Commercial Real Estate offers financing alternatives for the purpose of acquiring, developing, constructing, improving, or refinancing commercial real estate, in which loans are typically secured by institutional-quality real estate, including apartments, anchored retail, industrial, office, and student and affordable housing properties, and where the income generated from the secured property is the primary repayment source. • Equipment Finance offers small to mid-ticket equipment leasing solutions for critical equipment, new or used, across the manufacturing, construction and transportation, and environmental sectors. • Middle Market offers a broad range of financial services to a diversified group of companies delivering competitive products and solutions that meet their specific middle market needs. • Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms. • Asset-Based Lending, which is a top U.S. asset-based lender, offers asset-based loans and revolving credit facilities by financing core working capital with advance rates against inventory, accounts receivable, equipment, or other property owned by the borrower. • Commercial Services offers accounts receivable factoring and trade financing, and payroll funding and business process outsourcing to temporary staffing agencies nationwide, including full back-office, technology, and tax accounting services. • Public Sector Finance offers financing solutions exclusively to state, municipal, and local government entities. 1 Table of Contents • Mortgage Warehouse offers warehouse financing facilities consisting of temporary lines of credit, and which are secured by 1-4 family residential mortgages, to independent mortgage origination companies. • Sponsor and Specialty Finance offers senior debt capital to companies across the U.S. that are backed by private equity sponsors and/or privately owned in one of our specialty industries: technology and infrastructure, healthcare, environmental services, business and information services, lender finance, and fund banking. • Verticals and Support offers credit, deposit, and cash flow management to businesses and professional service firms in the legal, not-for-profit, and property management sectors, as well as to local and state governments. • Private Banking offers an array of wealth management solutions to business owners and operators, including trust, asset management, financial planning, insurance, retirement, and investment products. • Treasury Management offers derivative, treasury, accounts payable, accounts receivable, and trade products and services, through a dedicated team of treasury professionals and local commercial bankers, to help its business and institutional customers enhance liquidity, improve operations, and reduce risk.
As of December 31, 2023, the Company's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. 1 Table of Contents Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management business units. • Commercial Real Estate offers financing alternatives for the purpose of acquiring, developing, constructing, improving, or refinancing commercial real estate, in which loans are typically secured by institutional-quality real estate, including apartments, anchored retail, industrial, office, and student and affordable housing properties, and where the income generated from the secured property is the primary repayment source. • Equipment Finance offers small to mid-ticket equipment leasing solutions for critical equipment, new or used, across the manufacturing, construction and transportation, and environmental sectors. • Middle Market offers a broad range of financial services to a diversified group of companies delivering competitive products and solutions that meet their specific middle market needs. • Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms. • Asset-Based Lending, which is a top U.S. asset-based lender, offers asset-based loans and revolving credit facilities by financing core working capital with advance rates against inventory, accounts receivable, equipment, or other property owned by the borrower. • Commercial Services offers accounts receivable factoring and trade financing, and payroll funding and business process outsourcing to temporary staffing agencies nationwide, including full back-office, technology, and tax accounting services. • Public Sector Finance offers financing solutions exclusively to state, municipal, and local government entities. • Mortgage Warehouse offers warehouse financing facilities consisting of temporary lines of credit, and which are secured by 1-4 family residential mortgages, to independent mortgage origination companies. • Sponsor and Specialty Finance offers senior debt capital to companies across the U.S. that are backed by private equity sponsors and/or privately owned in one of our specialty industries: technology and infrastructure, healthcare, environmental services, business and information services, lender finance, and fund banking. • Verticals and Support offers credit, deposit, and cash flow management to businesses and professional service firms in the legal, not-for-profit, and property management sectors, as well as to local and state governments. • Private Banking offers an array of wealth management solutions to business owners and operators, including trust, asset management, financial planning, insurance, retirement, and investment products. • Treasury Management offers derivative, treasury, accounts payable, accounts receivable, and trade products and services, through a dedicated team of treasury professionals and local commercial bankers, to help its business and institutional customers enhance liquidity, improve operations, and reduce risk.
The final rule, which became effective on October 1, 2020, modified three areas of the Volcker Rule by (i) streamlining the covered funds portion of the rule, (ii) addressing the extraterritorial treatment of certain foreign funds, and (iii) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.
The final rule, which became effective on October 1, 2020, modified three areas of the Volcker Rule by streamlining the covered funds portion of the rule, addressing the extraterritorial treatment of certain foreign funds, and permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.
Operational risk encompasses the following risks: Fraud, Third Parties, Human Capital, Business Operations, Model, Legal, and Physical Security. The Company mitigates Operational risk through the establishment of an Operational Risk Management Program, which provides for a set of tools to identify, assess, monitor, and report operational risk activities.
Operational risk encompasses the following risks: Fraud, Third Parties, Human Capital, Business Operations, Model, Legal, and Physical Security. 12 Table of Contents The Company mitigates Operational risk through the establishment of an Operational Risk Management Program, which provides for a set of tools to identify, assess, monitor, and report operational risk activities.
The following table summarizes the prompt corrective action categories: Well Adequately Under Significantly Capitalized Capitalized Capitalized Under Capitalized CET1 risk-based capital 6.5 % 4.5 % Total risk-based capital 10.0 8.0 Tier 1 risk-based capital 8.0 6.0 Tier 1 leverage capital 5.0 4.0 Each of the Bank's capital ratios exceeded those required for a insured depository institution to be considered well capitalized at December 31, 2022.
The following table summarizes the prompt corrective action categories: Well Adequately Under Significantly Capitalized Capitalized Capitalized Under Capitalized CET1 Risk-Based Capital 6.5 % 4.5 % Tier 1 Risk-Based Capital 8.0 6.0 Total Risk-Based Capital 10.0 8.0 Tier 1 Leverage Capital 5.0 4.0 Each of the Bank's capital ratios exceeded those required for an insured depository institution to be considered well capitalized at December 31, 2023.
Additional information regarding risks and uncertainties, and relevant risk factors that could impact the Company's business, results of operations, or financial condition can be found in Part I - Item 1A. Risk Factors and throughout Part II of this report.
Additional information regarding risks and uncertainties, and relevant risk factors that could impact the Company's business, results of operations, or financial condition can be found in Part I - Item 1A. Risk Factors and throughout Part II of this report. 14 Table of Contents
Strategic risk underscores the need for balance between risk and return, evaluating opportunity against the risk of loss of value. The long-range strategic planning process ensures that strategic choices and initiatives are viewed with the overarching goal of allocating capital and resources to support strategies that create value for customers and sustainably grow economic profit over time.
Strategic risk underscores the need for balance between risk and return, evaluating opportunity against the risk of loss of value. 13 Table of Contents The long-range strategic planning process ensures that strategic choices and initiatives are viewed with the overarching goal of allocating capital and resources to support strategies that create value for customers and stockholders and sustainably grow economic profit over time.
In more serious instances, enforcement actions may include (i) the issuance of directives to increase capital, the issuance of formal and informal agreements, (ii) the imposition of civil monetary penalties, (iii) the issuance of a cease and desist order that can be judicially enforced, (iv) the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties, (v) the termination of the insured depository institution’s deposit insurance, (vi) the appointment of a conservator or receiver for the insured depository institution, and (vii) injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
In more serious instances, enforcement actions may include the issuance of directives to increase capital, the issuance of formal and informal agreements, the imposition of civil monetary penalties, the issuance of a cease and desist order that can be judicially enforced, the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties, the termination of the insured depository institution’s deposit insurance, the appointment of a conservator or receiver for the insured depository institution, and injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
To support the ERMC in its oversight responsibilities, it has seven subcommittees: (i) Information Risk Committee, (ii) Operational Risk Management Committee, (iii) Litigation Risk Management Committee (iv) Credit Risk Management Committee, (v) Regulatory Compliance Committee, (vi) Bank Secrecy Act and Fraud Oversight Committee, and (vii) Asset Liability Committee. 12 Table of Contents Information Risk Information risk encompasses Information Technology and Information Security risks.
To support the ERMC in its oversight responsibilities, it has seven subcommittees: (i) Information Risk Committee, (ii) Operational Risk Management Committee, (iii) Litigation Risk Management Committee (iv) Credit Risk Management Committee, (v) Regulatory Compliance Committee, (vi) Bank Secrecy Act and Fraud Oversight Committee, and (vii) Asset Liability Committee. Information Risk Information risk encompasses Information Technology and Information Security risks.
HSA Bank , serviced through Webster Servicing LLC, offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws.
HSA Bank , serviced through Webster Servicing LLC, offers a comprehensive consumer-directed employee benefit and healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings.
Risk-weighted assets serve as the base against which regulatory capital is measured, and are used to calculate the Holding Company's and the Banks' minimum capital ratios of CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), as defined in the regulations, which the Company is required to maintain.
Risk-weighted assets serve as the base against which regulatory capital is measured, and are used to calculate the Holding Company's and the Bank's minimum capital ratios of CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, Total Risk-Based Capital, and Tier 1 Leverage Capital, as defined in the regulations, which the Company is required to maintain.
Consumer Banking operates a distribution network, primarily throughout southern New England and the New York Metro and Suburban markets, that comprises 201 banking centers and 352 ATMs, a customer care center, and a full range of web and mobile-based banking services.
Consumer Banking operates a distribution network, primarily throughout southern New England and the New York metro and suburban markets, that comprises 198 banking centers and 349 ATMs, a customer care center, and a full range of web and mobile-based banking services.
On June 25, 2020, the Federal Reserve System, Commodity Futures Trading Commission, FDIC, OCC, and SEC issued a final rule that modified the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, known as covered funds.
The Volcker Rule does not have a material impact on the Company. On June 25, 2020, the Federal Reserve System, Commodity Futures Trading Commission, FDIC, OCC, and SEC issued a final rule that modified the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, known as covered funds.
The Company's Treasury and Accounting Risk Programs are respectively managed by the Treasurer and Chief Accounting Officer. The Asset Liability Committee provides primary oversight of Treasury risk. The Disclosure and SOX Committees, both of which are subcommittees of the Audit Committee, provide primary oversight of Accounting risk.
The Company's Treasury and Accounting Risk Programs are respectively managed by the Treasurer and Chief Accounting Officer. The Asset Liability Committee provides primary oversight of Treasury risk. The Disclosure and SOX Committees provide primary oversight of Accounting risk.
The Bank was in compliance with these requirements at December 31, 2022, and held a FHLB stock investment of $221.4 million. Source of Strength Doctrine Bank holding companies are required to serve as a source of financial strength to their subsidiary banks and commit resources to support each of their subsidiary banks.
The Bank was in compliance with these requirements at December 31, 2023, and held a FHLB stock investment of $99.0 million. Source of Strength Doctrine Bank holding companies are required to serve as a source of financial strength to their subsidiary banks and commit resources to support each of their subsidiary banks.
Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign shell banks and persons from jurisdictions of particular concern.
Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign shell banks and persons from jurisdictions of particular concern. 10 Table of Contents Financial institutions also are required to establish internal anti-money laundering programs.
The Bank's significant wholly-owned subsidiaries include: Webster Servicing LLC, Webster Public Finance Corporation, Sterling National Funding Corporation, Webster Mortgage Investment Corporation, Sterling Business Credit LLC, Webster Wealth Advisors, Inc., Webster Licensing, LLC, Bend Financial, Inc., Interlink Insured Sweep LLC, Webster Investment Services, Inc., Webster Preferred Capital Corporation, and Webster Community Development Corporation.
As of December 31, 2023, the Bank's significant wholly-owned subsidiaries included: Webster Servicing LLC, Webster Public Finance Corporation, Sterling National Funding Corporation, Webster Mortgage Investment Corporation, Sterling Business Credit LLC, Webster Wealth Advisors, Inc., Webster Licensing, LLC, Bend Financial, Inc., Interlink Insured Sweep LLC, Webster Investment Services, Inc., Webster Preferred Capital Corporation, and Webster Community Development Corporation.
Executive management sets the tone at the top and reinforces risk culture through strategy setting, formulating objectives, approving resource allocations, and establishing and maintaining effective systems of internal controls. A strong risk culture is the foundation of effective risk management because it influences the decisions of management and employees when weighing risks and benefits.
The Chief Executive Officer and Executive management set the tone at the top and reinforce risk culture through strategy setting, formulating objectives, approving resource allocations, and establishing and maintaining effective systems of internal control. A strong risk culture is the foundation of effective risk management because it influences the decisions of management and employees when weighing risks and benefits.
Available Information The Company files reports with the SEC, and makes available, free of charge, within the investor relations section of its internet website (http://investors.websterbank.com) its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
Available Information The Company files reports with the SEC, and makes available, free of charge, within the investor relations section of its internet website (http://investors.websterbank.com), its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
The Company's loan portfolio is balanced to include both commercial and consumer lending activity, while avoiding significant concentrations in borrowers, counterparties, industries, and solutions that could create excessive correlated risk. Diversification of the loan portfolio across commercial and industrial, specialty finance, and real estate lending is important in managing credit risk.
The Company's loan portfolio, which includes both commercial and consumer lending activity, is actively managed to avoid significant concentrations in borrowers, counterparties, industries, and solutions that could create excessive correlated risk. Diversification of the loan portfolio across commercial and industrial, specialty finance, and real estate lending is important in managing credit risk.
At December 31, 2022, the Bank held a FRB of New York stock investment of $224.5 million. Federal Home Loan Bank System The FHLB System provides a central credit facility for its member institutions.
At December 31, 2023, the Bank held an FRB of New York stock investment of $227.9 million. Federal Home Loan Bank System The FHLB System provides a central credit facility for its member institutions.
Further, loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive prior approval from the Company's Board of Directors.
Further, loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive prior approval from the Company's Board of Directors. Section 22(g) of the FRA places additional limitations on loans to executive officers.
Failure to comply with these sanctions could have serious legal and reputational consequences. 10 Table of Contents Debit Card Interchange Fees The Board of Governors of the Federal Reserve System requires that the amount of any interchange transaction fee that a debit card issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the debit card issuer with respect to the transaction, and imposes requirements regarding routing and exclusivity of electronic debit transactions and the usability of debit cards across networks.
Debit Card Interchange Fees The Board of Governors of the Federal Reserve System requires that the amount of any interchange transaction fee that a debit card issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the debit card issuer with respect to the transaction, and imposes requirements regarding routing and exclusivity of electronic debit transactions and the usability of debit cards across networks.
During the year ended December 31, 2022, the Bank declared and paid $475.0 million in dividends to the Holding Company and had $701.4 million of undistributed net income available for the declaration and payment of dividends at December 31, 2022.
During the year ended December 31, 2023, the Bank declared and paid $600.0 million in dividends to the Holding Company and had $788.7 million of undistributed net income available for the declaration and payment of dividends at December 31, 2023.
The regulation also allows covered debit card issuers to receive 1 cent per transaction for fraud-prevention costs, provided that the debit card issuer meets the fraud-prevention standards established by the FRB.
The regulation also allows covered debit card issuers to receive 1 cent per transaction for fraud-prevention costs, provided that the debit card issuer meets the fraud-prevention standards established by the FRB. HSA Bank's interchange revenue is not subject to these rules.
Webster Bank, as a member of the FHLB, is required to purchase and hold shares of FHLB capital stock for its membership and other activities in an amount equal to 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, up to a maximum of $5 million, plus an amount that varies from 3.0% to 4.0% depending on the maturities of its FHLB advances, of which there were $5.5 billion outstanding at December 31, 2022.
The Bank, as a member of the FHLB, is required to purchase and hold shares of FHLB capital stock for its membership and other activities in an amount equal to 0.05% of total assets as of December 31, 2022, up to a maximum of $5 million, plus an amount that varies from 3.0% to 4.0% depending on the maturities of its FHLB advances, of which there were $2.4 billion outstanding at December 31, 2023.
The term covered transaction includes the making of loans, purchase of assets, the issuance of a guarantee, and similar types of transactions. Certain covered transactions must be collateralized according to a schedule set forth in the statue. In addition, Section 22(h) of the FRA and Federal Reserve Regulation O restricts loans to directors, executive officers, and principal stockholders or insiders.
Certain covered transactions must be collateralized according to a schedule set forth in the statue. 8 Table of Contents In addition, Section 22(h) of the FRA and Federal Reserve Regulation O restricts loans to directors, executive officers, and principal stockholders or insiders.
The final rule became effective April 1, 2022, and compliance with the final rule was required by May 1, 2022. Community Reinvestment Act and Fair Lending Laws The Bank has a responsibility under the CRA to help meet the credit needs of its communities, including low and moderate-income neighborhoods.
Community Reinvestment Act and Fair Lending Laws The Bank has a responsibility under the CRA to help meet the credit needs of its communities, including low and moderate-income neighborhoods.
The Company has established and maintains a Risk Appetite Statement which provides guidance to management regarding the nature and level of residual risk that it is willing to take in pursuit of its objectives.
Risk assessments evaluate inherent risk (likelihood and impact) and existing controls (control environment) to arrive at residual risk. 11 Table of Contents The Company has established and maintains a Risk Appetite Statement which provides guidance to management regarding the nature and level of residual risk that it is willing to take in pursuit of its objectives.
It is not only key to long-term growth, but also having a workforce comprised of diverse identities, backgrounds, and experiences better helps the clients and communities that the Company serves to achieve their financial goals.
Meeting the increasingly diverse needs of clients is a key to the Company’s long-term success, and having a workforce with diverse backgrounds and experiences better helps the clients and communities that the Company serves to achieve their financial goals.
The Company maintains a structured risk management framework that provides an integrated, forward-looking approach to identifying, prioritizing, and managing all risk categories across the organization: Information, Reputational, Operational, Credit, Compliance, Financial, and Strategic.
Risk Management Framework The Company defines risk as the potential that events, expected or unexpected, may have an adverse effect on its earnings, capital, or franchise/enterprise value. The Company maintains a structured risk management framework that provides an integrated, forward-looking approach to identifying, prioritizing, and managing all risk categories across the organization: Information, Reputational, Operational, Credit, Compliance, Financial, and Strategic.
Further, on November 18, 2021, the Board of Governors of the Federal Reserve System, the OCC, and the FDIC issued a final rule that requires a banking organization to notify its primary regulator of certain types of computer security incidents that result in harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits, as soon as possible and no later than 36 hours after the banking organization determines that a notification incident has occurred.
Financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic personal information and its primary regulator of certain types of computer security incidents that result in harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits, as soon as possible and no later than 36 hours after the banking organization determines that a notification incident has occurred.
As an insured depository institution with more than $10 billion in total assets, the Bank is subject to supervision by the CFPB.
Consumer Protection and Consumer Financial Protection Bureau Supervision The CFPB is responsible for implementing, enforcing, and examining compliance with federal consumer financial protection laws. As an insured depository institution with more than $10 billion in total assets, the Bank is subject to supervision by the CFPB.
Management also encourages and supports risk self-identification and timely escalation throughout the organization.
The Chief Executive Officer and Executive management also encourage and support risk self-identification and timely escalation throughout the organization.
The Company's commitment to DEIB starts with the senior leadership team, who continuously works to ensure that DEIB is embedded into the way the Company does business. The Company has established a DEIB Council, which serves as a platform where senior leaders, partners, and representatives of various internal business resource groups shape the strategy and actions of our DEIB efforts.
The Company has established a DEIB Council, which serves as a platform where senior leaders and representatives of various internal business resource groups meet quarterly to shape the strategy and actions of the Company’s DEIB efforts.
Blocked assets (i.e., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the OFAC.
The OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring, or engaging in terrorist acts, known as Specially Designated Nationals and Block Persons. Blocked assets (i.e., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the OFAC.
These guidelines prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits, asset quality, earnings, and stock valuation, as determined to be appropriate.
These guidelines prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits, asset quality, earnings, and stock valuation, as determined to be appropriate. 7 Table of Contents The OCC also has guidelines establishing heightened standards for large national banks, which establish minimum standards for the design and implementation of a risk governance framework.
Webster Bank, along with its HSA Bank Division, is a leading commercial bank in the Northeast that delivers a wide range of digital and traditional financial solutions to businesses, individuals, families, and partners across its three differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking.
Webster Bank, and its HSA Bank Division, is a leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three differentiated lines of business: Commercial Banking, HSA Bank, and Consumer Banking. While its core footprint spans the northeastern U.S. from New York to Massachusetts, certain businesses operate in extended geographies.
The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and hours, mobile banking, and other automated services. Competition for deposits comes from other commercial banks, thrifts, credit unions, non-bank health savings account trustees, money market mutual funds, financial technology companies, and other non-bank financial services companies.
The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and hours, mobile banking, and other automated services.
Accordingly, management aims to actively measure and management concentrations by portfolio, industry sector and specific sub-sectors, geography, single obligor, and other guidelines. The Company is primarily a relationship lender.
Accordingly, management aims to actively measure and management concentrations by portfolio, industry sector and specific sub-sectors, geography, single obligor, and other guidelines. The Company is primarily a relationship lender. In addition, the Company will only assume credit risk when it can effectively manage from an infrastructure or operational perspective, and it has industry, product, and market expertise.
The OCC also has guidelines establishing heightened standards for large national banks, which establish minimum standards for the design and implementation of a risk governance framework. A large bank is defined as a bank with more than $50 billion in average total consolidated assets from its four most recently filed quarterly Call Reports.
A large bank is defined as a bank with more than $50 billion in average total consolidated assets from its four most recently filed quarterly Call Reports.
The Company has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons. The Company also complies with the sanctions administered by the OFAC of the U.S.
The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted under the Bank Merger Act. The Company has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.
Employees have access to more than 400 courses offered through Webster Bank University, the Company's internal learning resource that offers on-demand webinars, e-learning modules, and in-person learning programs.
Employees have access to more than 490 courses offered through Webster Bank University, the Company's internal learning resource that offers on-demand webinars, e-learning, and in-person learning programs. The Company also provides unlimited access to self-directed e-learning courses taught by industry experts with curated learning paths that are designed specifically for their professional interests through the Company's LinkedIn partnership.
Merger with Sterling Bancorp On January 31, 2022, Webster completed its merger with Sterling pursuant to an Agreement and Plan of Merger dated as of April 18, 2021. Pursuant to the merger agreement, Sterling Bancorp merged with and into the Holding Company, with the Holding Company continuing as the surviving corporation.
Pursuant to the merger agreement, Sterling Bancorp merged with and into the Holding Company, with the Holding Company continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling Bancorp, merged with and into the Bank, with the Bank continuing as the surviving bank.
The Council currently comprises 39 employee members across the organization and is co-chaired by the Chief Executive Officer and Executive Vice President of Business Banking, both of whom make recommendations on ways to integrate DEIB in the areas of education and awareness, talent recruitment and development, and employee, client, and community engagement.
The DEIB Council is comprised of 39 employee members across the organization and is co-chaired by the Chief Executive Officer and Executive Vice President of Business Banking.
Department of the Treasury, which is responsible for administering economic sanctions that affect transactions with designated foreign countries, nations, and others. The OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring, or engaging in terrorist acts, known as Specially Designated Nationals and Block Persons.
The Company also complies with the sanctions administered by the OFAC of the U.S. Department of the Treasury, which is responsible for administering economic sanctions that affect transactions with designated foreign countries, nations, and others.
The SEC also maintains an internet website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information contained on the Company's website is not incorporated by reference into this report.
The SEC website (http://www.sec.gov) makes reports, proxy and information statements, and other information filed electronically with the SEC available to the public free of charge. Information contained on the Company's website is not incorporated by reference into this Annual Report on Form 10-K. Mergers and Acquisitions On January 31, 2022, the Company completed its merger with Sterling.
Financial Statements and Supplementary Data. 2 Table of Contents Human Capital Resources As a values-driven organization, the Company's employees are the cornerstone of its success. At December 31, 2022, the Company had 4,065 full-time employees and 128 part-time employees, which comprised 63% female and 37% male, along with 553 temporary workers.
Financial Statements and Supplementary Data. 2 Table of Contents Human Capital Resources At December 31, 2023, the Company had 4,131 full-time employees and 130 part-time employees, comprised of 61% female and 39% male employees. The average full-time and part-time employee tenure at the Company is approximately 9.0 years.
The Company also provides unlimited access to self-directed online courses taught by industry experts with curated learning paths that are designed specifically for their professional interests. 3 Table of Contents Competition The Company is subject to strong competition from banks, thrifts, credit unions, non-bank health savings account trustees, consumer finance companies, investment companies, insurance companies, and online lending and savings institutions.
This hybrid program gives participants a chance to learn with peers from across the Bank with three days in the classroom and the balance through virtual instructor led training. 3 Table of Contents Competition The Company is subject to strong competition from other commercial banks, savings banks, credit unions, non-bank health savings account trustees, consumer finance companies, investment companies, insurance companies, online lending and savings institutions, and other non-bank financial services companies.
The Company believes that its current benefits practices play a key role in employee retention. The average full-time and part-time employee tenure at the Company was approximately 9.1 years at December 31, 2022. Learning and Development The Company is focused on investing in its current and future talent by actively supporting the success, growth, and career progression of its employees.
Benefit plans are continually reviewed and evolved as necessary to remain competitive and meet the needs of the Company’s workforce. Learning and Development The Company is focused on investing in its current and future talent by actively supporting the success, growth, and career progression of its employees.
While its core footprint spans from New York to Rhode Island and Massachusetts, certain businesses operate in extended geographies. HSA Bank is one of the largest providers of employee benefits solutions in the United States.
HSA Bank is one of the largest providers of employee benefits solutions in the U.S.
Removed
Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling Bancorp, merged with and into the Bank, with the Bank continuing as the surviving bank. Additional information regarding the merger with Sterling, along with other completed and announced acquisitions, can be found in Part II under the section captioned "Recent Developments" contained in Item 7.
Added
Sterling was a full-service regional bank headquartered in Pearl River, New York, that primarily served the Greater New York metropolitan area. The merger expanded the Company's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeastern U.S. On February 18, 2022, the Bank acquired Bend, a cloud-based platform solution provider for HSAs.
Removed
The Company's operations are organized into three reportable segments, which represent its primary businesses.
Added
The acquisition accelerated the Company's efforts underway to deliver enhanced user experiences at HSA Bank. On January 11, 2023, the Bank acquired interLINK, a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms.
Removed
None of the Company's employees were represented by a collective bargaining agreement. Diversity, Equity, Inclusion and Belonging The Company believes that its focus on DEIB is a critical component of how it supports the increasingly different perspectives of its employees, clients, and communities.
Added
The acquisition provided the Company with access to a unique source of core deposit funding and scalable liquidity and added another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities.
Removed
The Company's Managing Director of DEIB works to expand DEIB initiatives and programs, as well as grow partnerships within local communities, while promoting a diverse, equitable workforce in an open, inclusive environment. Compensation and Benefits The Company's compensation program aims to attract, retain, and reward high-performing talent at all levels of the organization through a pay-for-performance philosophy.
Added
On January 24, 2024, the Bank acquired Ametros, a custodian and administrator of medical funds from insurance claims settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology platform.
Removed
Variable payment opportunities are available to all employees, including corporate incentive plans, sales/service commission or incentive plans, and equity plans for senior-level executives.
Added
The Company believes that the acquisition will provide a fast-growing source of low-cost and long-duration deposits, new sources of non-interest income, and enhance its employee benefit and healthcare financial services expertise. Additional information regarding the Company's mergers and acquisitions can be found in Part II under the section captioned "Recent Developments" contained in Item 7.
Removed
The Company shares in the costs of benefits with its employees by paying approximately 80% of all insurance costs. In addition, it contributes to participating employees’ HSAs through earned incentives for completing activities such as biometric screenings, wellness physicals, and dental exams. Benefit trends are reviewed regularly and plans are adjusted accordingly to remain competitive.
Added
Diversity, Equity, Inclusion and Belonging The Company believes DEIB is critical to its growth and success as a leading commercial bank. The Company's commitment to DEIB starts with the senior leadership team, who works to ensure that DEIB is integrated into the way the Company does business.
Removed
The Volcker Rule provides exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity funds. The Volcker rule also clarifies that certain activities are not prohibited, including acting as agent, broker, or custodian.
Added
The DEIB Council makes recommendations on ways to integrate DEIB in the areas of education and awareness, talent development, employee engagement, and client and community service, and reports quarterly to the Company’s Corporate Responsibility Committee.
Removed
Banking entities with significant trading operations (those with $20 billion or more in average trading assets and liabilities) are required to establish a detailed compliance program to which their Chief Executive Officers are required to attest that the program is reasonably designed to achieve compliance with the Volcker Rule.
Added
The Company's Senior Managing Director of DEIB is responsible for strengthening DEIB efforts with employees, clients, and community partners, and promoting a diverse workforce in an open, inclusive environment. In 2022, the Company developed diversity scorecards to measure the recruitment, retention, and promotion of underrepresented groups, reinforcing that DEIB is a driver of performance.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough we have business continuity plans and robust information security procedures and controls in place, disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers or cyber-attacks or security breaches of the networks, systems, or devices on which customers’ personal information is stored and that they use to access our products and services, could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, which could have a materially adverse effect on our results of operations and financial condition.
Biggest changeAlthough we have business continuity plans and information security and technology processes and controls in place, we are at risk of cybersecurity threats due to disruptions or failures in the operational systems or technology infrastructures that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems, or devices on which information assets are stored or are used by customers to access our products and services.
Our business, financial, accounting, data processing systems, or other operating systems and facilities, including mobile banking and other recently developed technologies, may stop operating properly or become disabled or compromised as a result of a number of factors that may be beyond our control.
Our business, financial, accounting, data processing, or other operating systems and facilities, including mobile banking and other recently developed technologies, may stop operating properly or become disabled or compromised as a result of a number of factors that may be beyond our control.
In recent years, information security risks for financial institutions have risen due to the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, client or customer information or the destruction or theft of corporate data.
In recent years, information security risks for financial institutions have risen due to the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, customer information or the destruction or theft of corporate data.
Any such losses could materially or adversely affect our business, financial condition, or results of operations. We are subject to the risk of default by our counterparties and clients, particularly with respect to certain types of loans. Many of our routine transactions expose us to credit risk in the event of default of our counterparties or clients.
Any such losses could materially or adversely affect our business, financial condition, or results of operations. We are subject to the risk of default by our counterparties and clients, particularly with respect to certain types of commercial loans. Many of our routine transactions expose us to credit risk in the event of default of our counterparties or clients.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in results of operations; • recommendations or projections by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns, and other issues in the financial services and healthcare industries; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • changes in dividends and capital returns; • issuance of additional shares of Webster common stock; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts, including any military conflict between Russia and Ukraine.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in results of operations; • recommendations or projections by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns, and other issues in the financial services and healthcare industries; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • changes in dividends and capital returns; • issuance of additional shares of Webster common stock; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts, including any military conflict between Russia and Ukraine, or actions between Israel and its neighbors.
We maintain an ACL on loans and leases, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of probable credit losses over the life of the loan or lease within our existing portfolio.
We maintain an ACL on loans and leases, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of expected credit losses over the life of the loan or lease within our existing portfolio.
The Holding Company is a separate and distinct legal entity from our banking and non-banking subsidiaries. A substantial portion of the Holding Company’s revenues comes from dividends paid by the Bank. These dividends are the principal source of funds to pay dividends to common and preferred stockholders.
The Holding Company is a separate and distinct legal entity from the Bank and its non-banking subsidiaries. A substantial portion of the Holding Company’s revenues comes from dividends paid by the Bank. These dividends are the principal source of funds to pay dividends to common and preferred stockholders.
The U.S. economy and financial markets have experienced volatility in recent years and may continue to do so in the foreseeable future. Robust demand, labor shortages and supply chain constraints had led to persistent inflationary pressures throughout the economy.
The U.S. economy and financial markets have experienced volatility in recent years and may continue to do so in the foreseeable future. Robust demand, labor shortages and supply chain constraints has led to persistent inflationary pressures throughout the economy.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our financial markets, many of which are larger and may have more financial resources than we do. Such traditional competitors primarily include national, regional, community, and internet banks within the various markets in which we operate.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our financial markets, many of which are larger and may have more financial resources than we do. Such traditional competitors primarily include national, regional, community, and internet banks within the various markets in which we operate, including the HSA market.
As cyber threats and related regulations continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.
As cybersecurity threats and related regulations continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our stock. We are subject to financial and reputational risks from potential liability arising from lawsuits.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our stock. 15 Table of Contents We are subject to financial and reputational risks from potential liability arising from lawsuits.
Under these circumstances, we are further subject to reinvestment risk to the extent that we cannot reinvest the cash received from such prepayments with interest rates comparable to pre-existing loans and securities. 20 Table of Contents In a rising interest rate environment, which has occurred recently, competition for cost-effective deposits increases, making it more costly for the Bank to fund loan growth.
Under these circumstances, we are further subject to reinvestment risk to the extent that we cannot reinvest the cash received from such prepayments with interest rates comparable to pre-existing loans and securities. In a rising interest rate environment, which has occurred recently, competition for cost-effective deposits increases, making it more costly for the Bank to fund loan growth.
In addition, our results of operations, financial position, and cash flows could be materially adversely affected by such changes. 19 Table of Contents Financial Risk Difficult conditions or volatility in the U.S. economy and financial markets may have a materially adverse effect on our business, financial condition, and results of operations.
In addition, our results of operations, financial position, and cash flows could be materially adversely affected by such changes. Financial Risk Difficult conditions or volatility in the U.S. economy and financial markets may have a materially adverse effect on our business, financial condition, and results of operations.
Such impairment loss may be significant and have a material adverse effect on our financial condition and results of operations. 22 Table of Contents Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all, and may have an adverse impact on our results of operations.
Such an impairment loss may be significant and have a material adverse effect on our financial condition and results of operations. Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all, and may have an adverse impact on our results of operations.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. These new technologies may be superior to, or render obsolete, the technologies currently used in our products and services.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services and the use of artificial intelligence. These new technologies may be superior to, or render obsolete, the technologies currently used in our products and services.
However, because the timing and impact of climate change have limited predictability, our risk management strategies may not be effective in mitigating climate risk exposure. 17 Table of Contents Credit Risk Our allowance for credit losses on loans and leases may be insufficient.
However, because the timing and impact of climate change have limited predictability, our risk management strategies may not be effective in mitigating climate risk exposure. Credit Risk Our allowance for credit losses on loans and leases may be insufficient.
We are subject to extensive federal and applicable state regulation and supervision, primarily through Webster Bank and certain non-bank subsidiaries. Banking regulations are primarily intended to protect depositors, the Federal Deposit Insurance Fund, and the safety and soundness of the U.S banking system as a whole, not stockholders.
We are subject to extensive federal and applicable state regulation and supervision, primarily through Webster Bank and certain non-bank subsidiaries. Banking regulations are primarily intended to protect depositors, the FDIF, and the safety and soundness of the U.S banking system as a whole, not stockholders.
Failure to successfully keep pace with and adapt to technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. 24 Table of Contents The loss of key partnerships could adversely affect our HSA Bank division.
Failure to successfully keep pace with and adapt to technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. The loss of key partnerships could adversely affect our HSA Bank division and deposit administration activities.
Additionally, third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems, capacity constraints, and cyber-attacks.
Additionally, third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational risk and information security risk, including breakdowns or failures of their own systems, capacity constraints, and cyber-attacks, each of which could pose a cybersecurity risk.
Our inherent risk and exposure to these matters remains heightened, and as a result, the continued development and enhancement of our controls, processes, and practices designed to protect and facilitate the recovery of our systems, computers, software, data, and networks from attack, damage, or unauthorized access remains a high priority for us.
Our inherent risk and exposure to information security matters remains heightened, and as a result, the continued development and enhancement of our controls, processes, and practices designed to protect operational systems, computers, software, data, and networks from attack, damage, or unauthorized access remains a high priority for us.
In addition, changes in key personnel at the regulatory agencies, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines, including more stringent enforcement and more severe penalties than previously.
In addition, changes in key personnel at the regulatory agencies, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines, including more stringent enforcement and more severe penalties than previously. Disagreements between, or in, the U.S.
If financial markets remain volatile or if the aforementioned conditions result in further economic stress or recession, the performance of various segments of our business, including the value of our investment securities portfolio, could be significantly impacted. Inflation rose sharply throughout 2022 at levels not seen for over 40 years.
If financial markets remain volatile or if the aforementioned conditions result in further economic stress or recession, the performance of various segments of our business, including the value of our investment securities portfolio, could be significantly impacted. Inflation rose sharply throughout 2022, and continued to rise through the third quarter of 2023, at levels not seen for over 40 years.
Our profitability depends significantly on local economic conditions in the states in which we conduct business. The success of our business also depends on the general economic conditions of the significant markets in which we operate, particularly Connecticut, Massachusetts, Rhode Island, New York, and New Jersey.
The success of our business also depends on the general economic conditions of the significant markets in which we operate, particularly Connecticut, Massachusetts, Rhode Island, New York, and New Jersey.
For example, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, natural disasters, pandemics, events arising from political or social matters, including terrorist acts, and cyber-attacks.
For example, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, natural disasters, pandemics, events arising from political or social matters, including terrorist acts and cyber-attacks, all of which may contribute to a cybersecurity threat.
Material estimates subject to change include, among other items, the allowance for credit losses, the carrying value of goodwill or other intangible assets, the fair value estimates of certain assets and liabilities, and the realization of deferred tax assets and liabilities. A significant merger or acquisition requires us to make estimates, including the fair values of acquired assets and liabilities.
Material estimates subject to change include, among other items, the allowance for credit losses, the carrying value of goodwill or other intangible assets, the fair value estimates of certain assets and liabilities, and the realization of deferred tax assets and liabilities.
GAAP requires us to record the assets and liabilities of an acquired business to their fair values at the time of the acquisition. With larger transactions, such as our recent merger with Sterling, fair value and other estimations can take up to four quarters to finalize.
A significant merger or acquisition requires us to make estimates, including the fair values of assets acquired and liabilities assumed. GAAP requires us to record the assets and liabilities of an acquired business to their fair values at the time of the acquisition. With larger transactions, fair value and other estimations can take up to four quarters to finalize.
Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; • the ability to expand our market position; • the scope, relevance, and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service and products; and • industry and general economic trends.
Among other things, technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction. 23 Table of Contents Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound financial position; • the ability to expand our market position; • the scope, relevance, and pricing of products and services offered to meet customer needs and demands, including within the HSA market; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service and products; and • industry and general economic trends.
Further, if we are the owner or former owner of a contaminated site, we may be subject to common law claims based on damages and costs incurred by others due to environmental contamination emanating from the property. These remediation costs and liabilities could have a material adverse effect on our financial condition and results of operations.
Further, if we are the owner or former owner of a contaminated site, we may be subject to common law claims based on damages and costs incurred by others due to environmental contamination emanating from the property.
In addition, a prolonged period of inflation could cause an increase in wages and other costs to the Company. These inflationary pressures could result in missed earnings and budgetary projections causing our stock price to suffer. We continue to closely monitor the pace of inflation and the impacts of inflation on the larger market, including labor and supply chain impacts.
In addition, a prolonged period of inflation could cause an increase in wages and other costs to the Company. These inflationary pressures could result in missed earnings and budgetary projections causing our stock price to suffer.
These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continuously review banking laws, regulations, and policies for possible changes, and proposed changes are to be expected from the current presidential administration.
These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continuously review banking laws, regulations, and policies for possible changes, and proposed changes are to be expected if there is a change in the office of the President of the U.S.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights.
Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights.
Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements because of their larger size and available capital.
Our future success depends, in part, upon our ability to address the needs of our customers by using technology and information to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
Information Risk A failure or breach of our information systems, or those of our third-party vendors and service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the misuse of confidential or proprietary information, damage our reputation, and cause losses. 14 Table of Contents As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions.
Information Risk A failure or breach of our information systems, or those of our third-party vendors and service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the misuse of confidential or proprietary information, damage our reputation, and cause losses.
The failure to attract or retain talented executives, managers, and employees with diverse backgrounds and experiences, or the loss of certain executives, managers, and key employees, could have a material adverse impact on our business.
The failure to attract or retain talented executives, managers, and employees with diverse backgrounds and experiences, or the loss of certain executives, managers, and key employees, could have a material adverse impact on our business. These risks may be heightened when U.S. labor markets, or segments of those markets, are especially competitive.
A project’s failure to realize these tax credits and other tax benefits may have a negative impact on our investment, and as a result, on our financial condition and results of operations.
A project’s failure to realize these tax credits and other tax benefits may have a negative impact on our investment, and as a result, on our financial condition and results of operations. 22 Table of Contents Strategic Risk New lines of business or new products and services may subject us to additional risk.
Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers. There is an increasing concern over the risks of climate change and related environmental sustainability matters.
These remediation costs and liabilities could have a material adverse effect on our financial condition and results of operations. 16 Table of Contents Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers. There is an increasing concern over the risks of climate change and related environmental sustainability matters.
The inaccuracy of that information or those representations affects our ability to evaluate the default risk of a counterparty or client accurately and could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.
The inaccuracy of that information or those representations affects our ability to evaluate the default risk of a counterparty or client accurately and could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations. 17 Table of Contents In addition, we consider our commercial real estate loans and commercial and industrial loans to be higher risk categories in our loan portfolio because these loans are particularly sensitive to economic conditions.
These risks may be heightened when U.S. labor markets, or segments of those markets, are especially competitive. 23 Table of Contents Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire sufficiently skilled people or retain them.
Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire sufficiently skilled people or retain them.
The financial services industry also faces increasing competitive pressure from the introduction of disruptive new technologies, such as blockchain and digital payments, often by non-traditional competitors and financial technology companies. Among other things, technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction.
The financial services industry also faces increasing competitive pressure from the introduction of disruptive new technologies, such as blockchain and digital payments, often by non-traditional competitors and financial technology companies.
If these health plan partners or other partners choose to align with our competitors or develop their own solutions, our business, financial condition, and results of operations could be adversely affected. ITEM 1B. UNRESOLVED STAFF COMMENTS None
In particular, health plan partners who provide high deductible health plan options are a significant source of new and existing HSA holders. If these health plan partners or other partners choose to align with our competitors or develop their own solutions, our business, financial condition, and results of operations could be adversely affected.
General market fluctuations, including real or anticipated changes in the strength of the economy, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends, among other factors, could also cause our stock price to decrease regardless of operating results. 21 Table of Contents The COVID-19 pandemic, or other pandemics in the future, could have a significant negative impact on our business, liquidity, capital, financial condition, and results of operations.
General market fluctuations, including real or anticipated changes in the strength of the economy, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends, among other factors, could also cause our stock price to decrease regardless of operating results. 21 Table of Contents The Holding Company may not pay dividends to stockholders if it is not able to receive dividends from its subsidiary, Webster Bank.
While we make significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market-related, geopolitical, or other events could impact the liquidity derived from deposits. We may be subject to more stringent capital and liquidity requirements, which could limit our business activities.
While we make significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market-related, geopolitical, or other events could impact the liquidity derived from deposits. Unrealized losses in our available-for-sale securities portfolio could negatively impact our business. As market interest rates have increased, we have experienced significant unrealized losses on our available-for-sale securities portfolio.
We are subject to changes in tax laws that could increase our effective tax rates or cause an increase or decrease in our income tax liabilities. These law changes may be retroactive to previous periods and as a result, could negatively impact our current and future financial performance.
We are subject to changes in tax laws that could increase our effective tax rates or cause an increase or decrease in our income tax liabilities.
Developing or acquiring new technologies and incorporating them into our products and services may require significant investment, take considerable time, and ultimately may not be successful. We cannot predict which technological developments or innovations will become widely adopted or how those technologies may be regulated.
We cannot predict which technological developments or innovations will become widely adopted or how those technologies may be regulated. We also may not be able to effectively market new technology-driven products and services to our customers.
Additionally, a return of recessionary conditions may create the potential for increased regulation, new federal or state laws and regulations regarding lending and funding practices and liquidity standards that could negatively impact Webster Bank’s business operations, increase the cost of compliance, and adversely affect profitability. Changes in federal, state, or local tax laws may negatively impact our financial performance.
Congress on the federal budget and debt ceiling may lead to total or partial government shutdowns, which can create economic instability and negatively affect our business and financial performance. New federal or state laws and regulations regarding lending and funding practices and liquidity standards could negatively impact the Bank’s business operations, increase the cost of compliance, and adversely affect profitability.
Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns.
As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions. Accordingly, our operational systems and technology infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns.
We are subject to examinations and challenges by taxing authorities. We are subject to federal and applicable state and local income tax regulations. Income tax regulations are often complex and require interpretation.
These law changes may be retroactive to previous periods and as a result, could negatively impact our current and future financial performance. 18 Table of Contents We are subject to examinations and challenges by taxing authorities. We are subject to federal and applicable state and local income tax regulations. Income tax regulations are often complex and require interpretation.
We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities.
We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. As a result of the bank failures in 2023, it is expected that the banking sector will be subject to more extensive legal and regulatory requirements within the next few years.
However, the actual cost of an outstanding legal proceeding or threatened claim and assessment may be substantially higher than the amount accrued by management. Operational Risk The replacement of LIBOR could adversely affect our business and financial condition. LIBOR and certain other interest rate benchmarks are the subject of recent national, international, and other regulatory guidance and reform.
However, the actual cost of an outstanding legal proceeding or threatened claim and assessment may be substantially higher than the amount accrued by management. Operational Risk We rely on third parties to perform significant operational services for us. Third parties perform significant operational services on our behalf.
The risks associated with these types of loans could have a significant negative affect on our earnings in any quarter. 18 Table of Contents Compliance Risk We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business operations.
Additional information regarding our commercial lending business can be found in Part II under the section captioned "Loans and Leases" contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Compliance Risk We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business operations.
Removed
In addition, as a result of the increase in remote working by our personnel and the personnel of other companies, the risk of cyber-attacks, breaches or similar events, whether through our systems or those of third parties on which we rely, has increased.
Added
Any of these incidents could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement, or other compensation costs, which could have a material adverse effect on our business strategy, results of operations, or financial condition.
Removed
Although Webster has not experienced any material losses relating to cyber-attacks or other information security breaches, it is possible that we could suffer such losses in the future.
Added
Reputational Risk Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure.
Removed
In conjunction with our Third Party Risk Management Program, Webster assesses and monitors third party risks to protect those information assets shared with external parties.
Added
The risks associated with these types of loans could have a significant negative affect on our earnings in any quarter. In 2023, higher interest rates and inflation affected the profitability of new commercial real estate developments, the feasibility of some projects, and the volume of commercial real estate investments.
Removed
We identified material weaknesses in our internal control related to ineffective ITGCs, which, if not remediated appropriately or timely, could result in a loss of investor confidence and adversely impact our stock price. Internal controls related to the operation of technology systems are critical to maintaining adequate internal control over financial reporting. As disclosed in Part II - Item 9A.
Added
The commercial real estate market has experienced increased property vacancies and declining rent growth. We are subject to commercial lending concentration risks.
Removed
Controls and Procedures, management has identified material weaknesses in internal controls due to ineffective ITGCs. As a result, management concluded that our internal control over financial reporting was not effective as of December 31, 2022.
Added
At December 31, 2023, approximately 75% of our loan and lease portfolio consisted of commercial non-mortgage, commercial real estate, and multi-family loans, and a large portion of the borrowers or properties associated with these loans are geographically concentrated in New York City and proximate areas.
Removed
Although management currently expects that the remediation of these material weaknesses will be completed prior to the end of 2023, our efforts may not be successful by such date, if at all. In addition, these remediation efforts will place a burden on management and result in additional technology and other expenses.
Added
We continue to monitor risks associated with office space, anchor tenants, and the general economic and physical risks (such as severe weather, public health, and personal safety risks), affecting commercial properties and borrowers in the Greater New York City area.
Removed
If we are unable to remediate these material weaknesses, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in the accuracy and completeness of our financial statements, and adversely impact our stock price. 15 Table of Contents Reputational Risk Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks.
Added
The failure of banks to follow existing laws and regulations contributes to bank failures, which also adversely affects the banking industry and can lead to special FDIC assessments, such as what we will be paying in 2024. Changes in federal, state, or local tax laws may negatively impact our financial performance.
Removed
The publication of the 1-week and 2-month USD LIBOR settings ceased as of December 31, 2021, while the 1-month, 3-month, 6-month, and 12-month USD LIBOR settings will continue to be published until June 30, 2023. Accordingly, all existing LIBOR obligations have or will transition to another benchmark after December 31, 2021, June 30, 2023, or earlier.
Added
We continue to closely monitor the pace of inflation and the impacts of inflation on the larger market, including labor and supply chain impacts. 19 Table of Contents Our profitability depends significantly on local economic conditions in the states in which we conduct business.
Removed
The U.S. federal banking agencies issued a statement in November 2020 encouraging banks to transition from USD LIBOR as soon as practicable and stop entering into new contracts that use USD LIBOR by December 31, 2021.
Added
Unrealized losses related to available-for-sale securities are reflected in (AOCL) in our Consolidated Balance Sheets and reduce the level of our tangible common equity. Such unrealized losses do not affect our regulatory capital ratios.
Removed
Central banks and regulators in major jurisdictions, including the United States, have convened working groups to find, and implement the transition to suitable replacements for interbank offered rates. To identify a successor rate for USD LIBOR, the Board of Governors of the Federal Reserve Board and the FRB of New York formed the ARRC.
Added
We actively monitor our available-for-sale securities portfolio and believe that it is not more likely than not that the Company will be required to sell securities before the recovery of the amortized cost basis. Nonetheless, our access to liquidity sources, financial condition, and results of operations, could be affected by unrealized losses if securities must be sold at a loss.
Removed
On July 29, 2021, the ARRC formally recommended SOFR as its preferred alternative replacement rate for LIBOR. Webster has adopted SOFR as the LIBOR replacement rate and began offering SOFR-based lending solutions and derivative contracts to our customers in October 2021. Effective January 1, 2022, Webster stopped originating new contracts using any LIBOR index, as defined by regulatory guidance.
Added
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and result in an increase in withdrawals, particularly among those with uninsured deposits. 20 Table of Contents The proportion of our deposit account balances that exceed the FDIC insurance limits may expose the Bank to enhanced liquidity risk in times of financial distress.
Removed
The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on our business, financial condition, and results of operations.
Added
In its assessment of the failures of Silicon Valley Bank and Signature Bank in the first quarter of 2023, the FDIC concluded that a significant contributing factor to the failures of these institutions was the proportion of deposits held by each institution that exceeded FDIC insurance limits.
Removed
In particular, the transition could: • adversely affect the interest rates received or paid on the revenues and expenses associated with or the value of our LIBOR-based assets and liabilities, or the value of other securities or financial arrangements, given LIBOR's role in determining market interest rates globally; • prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with SOFR as the alternative reference rate; and • result in disputes, litigation or other actions with borrowers or counterparties about the interpretation and enforceability of certain fallback language in LIBOR-based contracts and securities.
Added
The FDIC similarly concluded that an overreliance on uninsured deposits contributed to the subsequent failure of First Republic Bank in the second quarter of 2023.
Removed
The transition from LIBOR to SOFR requires the transition to or development of appropriate systems, models, and analytics to effectively transition our risk management and other processes from LIBOR-based products to those based on SOFR.
Added
In response to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, many large depositors across the industry withdrew deposits in excess of the applicable deposit insurance limits and deposited these funds in other financial institutions.
Removed
Webster has developed a Working Group, Steering Committee, and LIBOR transition plan aligned with regulatory guidance and ARRC best practices and is actively working to develop processes, systems, and personnel to support this transition. Timelines and priorities include assessing the impact on our customers and assessing system requirements for operational processes.
Added
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeConsumer Banking operates a distribution network that consists of 201 banking centers: Location Leased Owned Total Connecticut 62 34 96 Massachusetts 9 9 18 Rhode Island 5 3 8 New York 39 40 79 Total 115 86 201 Additional information regarding the Company's owned facilities and leased locations can be found within Note 6: Premises and Equipment and Note 7: Leasing, respectively, in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Biggest changeConsumer Banking operates a distribution network that consists of 198 banking centers: Location Leased Owned Total Connecticut 61 34 95 Massachusetts 9 9 18 Rhode Island 4 3 7 New York 38 40 78 Total 112 86 198 Additional information regarding the Company's owned facilities and leased locations can be found within Note 6: Premises and Equipment and Note 7: Leasing, respectively, in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Additional corporate functions are housed in an owned facility in Waterbury, Connecticut, and in leased facilities in Southington, Hartford, and New Haven, Connecticut; Providence, Rhode Island; Boston, Massachusetts; Jericho, White Plains, and New York, New York; and Paramus, New Jersey. The Company considers its properties to be suitable and adequate for its current business needs.
Additional corporate functions are housed in owned facilities in Waterbury, Connecticut, and in leased facilities in Southington, Hartford, and New Haven, Connecticut; Providence, Rhode Island; Boston, Massachusetts; Jericho, White Plains, and New York, New York; and Paramus, New Jersey. The Company considers its properties to be suitable and adequate for its current business needs.
Commercial Banking maintains offices across a geographic footprint that ranges from Massachusetts to California. Premises are located in Boston, Massachusetts; Westerly, Rhode Island; Conshohocken, and Radnor, Pennsylvania; Baltimore, and Columbia, Maryland; Chicago, Illinois; Atlanta, Georgia; Dallas, Texas; and Laguna Niguel, and Ladera Ranch, California. HSA Bank is headquartered in Milwaukee, Wisconsin, with a leased office in Sheboygan, Wisconsin.
Commercial Banking maintains offices across a geographic footprint that ranges from Massachusetts to California. Premises are located in Boston, Massachusetts; Westerly, Rhode Island; Conshohocken, and Radnor, Pennsylvania; Baltimore, and Columbia, Maryland; Atlanta, Georgia; Dallas, Texas; and Laguna Niguel, and Ladera Ranch, California. HSA Bank is headquartered in Milwaukee, Wisconsin, with an additional leased office in Sheboygan, Wisconsin.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found within Note 23: Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference.
Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found within Note 23: Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 27 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table provides information with respect to any purchase of equity securities for the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended December 31, 2022: Period Total Number of Shares Purchased (1) Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount Available for Purchase Under the Plans or Programs (3) October 1, 2022 - October 31, 2022 75,610 $ 46.20 62,546 $ 401,340,164 November 1, 2022 - November 30, 2022 770 53.28 — 401,340,164 December 1, 2022 - December 31, 2022 633 46.80 — 401,340,164 Total 77,013 46.27 62,546 401,340,164 (1) Out of the total shares purchased during the three months ended December 31, 2022, 14,467 shares were acquired at market prices outside of the Company's common stock repurchase program and related to employee share-based compensation plan activity.
Biggest changeIssuer Purchases of Equity Securities The following table provides information with respect to any purchase of equity securities for the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended December 31, 2023: Period Total Number of Shares Purchased (1) Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount Available for Purchase Under the Plans or Programs (3) October 1, 2023 - October 31, 2023 11,505 $ 38.25 — $ 293,356,942 November 1, 2023 - November 30, 2023 537 42.21 — 293,356,942 December 1, 2023 - December 31, 2023 1,058 47.78 — 293,356,942 Total 13,100 39.18 — 293,356,942 (1) All 13,100 of the shares purchased during the three months ended December 31, 2023, were acquired outside of the Company's common stock repurchase program at market prices and related to employee share-based compensation plan activity.
This existing repurchase program will remain in effect until fully utilized or until modified, superseded, or terminated. 26 Table of Contents Performance Graph The performance graph compares the yearly percentage change in the Company's cumulative total stockholder return on its common stock over the last five years to the cumulative total return of (i) the Standard & Poor’s 500 Index (S&P 500 Index) and (ii) the Keefe, Bruyette & Woods Regional Banking Index (KRX Index), assuming the reinvestment of dividends and an initial investment of $100 on December 31, 2017.
This existing repurchase program will remain in effect until fully utilized or until modified, superseded, or terminated. 28 Table of Contents Performance Graph The performance graph compares the yearly percentage change in the Company's cumulative total stockholder return on its common stock over the last five years to the cumulative total return of (i) the Standard & Poor’s 500 Index (S&P 500 Index) and (ii) the Keefe, Bruyette & Woods Regional Banking Index (KRX Index), assuming the reinvestment of dividends and an initial investment of $100 on December 31, 2018.
Recent Sales of Unregistered Securities There were no unregistered securities sold by the Company during the three year period ended December 31, 2022.
Recent Sales of Unregistered Securities There were no unregistered securities sold by the Company during the three year period ended December 31, 2023.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company's common stock is traded on the NYSE under the symbol WBS. At February 28, 2023, there were 8,217 holders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., the Company's transfer agent.
ITEM 5. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company's common stock is traded on the NYSE under the symbol WBS. At February 23, 2024, there were 8,352 holders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., the Company's transfer agent.
Period Ending December 31, 2017 2018 2019 2020 2021 2022 Webster Financial Corporation $ 100 $ 90 $ 100 $ 83 $ 113 $ 99 S&P 500 Index $ 100 $ 96 $ 126 $ 149 $ 192 $ 157 KRX Index $ 100 $ 83 $ 102 $ 93 $ 128 $ 119
Period Ending December 31, 2018 2019 2020 2021 2022 2023 Webster Financial Corporation $ 100 $ 112 $ 93 $ 126 $ 111 $ 123 S&P 500 Index $ 100 $ 131 $ 156 $ 200 $ 164 $ 207 KRX Index $ 100 $ 124 $ 113 $ 155 $ 144 $ 143

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

130 edited+121 added−50 removed81 unchanged
Biggest changeOther income increased $12.1 million, or 19.0%, from $63.8 million for the year ended December 31, 2021, to $75.9 million for the year ended December 31, 2022, primarily due to an increase in other income earned due to the impact of the merger with Sterling, higher income from client interest rate derivative activities, and a net $2.5 million gain on extinguishment of borrowings, partially offset by a decrease in direct investment income. 36 Table of Contents Non-Interest Expense Years ended December 31, (In thousands) 2022 2021 2020 Compensation and benefits $ 723,620 $ 419,989 $ 428,391 Occupancy 113,899 55,346 71,029 Technology and equipment 186,384 112,831 112,273 Intangible assets amortization 31,940 4,513 4,160 Marketing 16,438 12,051 14,125 Professional and outside services 117,530 47,235 32,424 Deposit insurance 26,574 15,794 18,316 Other expense 180,088 77,341 78,228 Total non-interest expense $ 1,396,473 $ 745,100 $ 758,946 Total non-interest expense increased $651.4 million, or 87.4%, from $745.1 million for the year ended December 31, 2021, to $1.4 billion for the year ended December 31, 2022, primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, professional and outside services, deposit insurance, and other expense, all of which were primarily driven by the merger with Sterling.
Biggest changeDuring the year ended December 31, 2022, the Company sold $179.7 million of Municipal bonds and notes classified as available-for-sale for proceeds of $172.9 million, which resulted in $6.8 million of gross realized losses. 38 Table of Contents Non-Interest Expense Years ended December 31, (In thousands) 2023 2022 2021 Compensation and benefits $ 711,752 $ 723,620 $ 419,989 Occupancy 77,520 113,899 55,346 Technology and equipment 197,928 186,384 112,831 Intangible assets amortization 36,207 31,940 4,513 Marketing 18,622 16,438 12,051 Professional and outside services 107,497 117,530 47,235 Deposit insurance 98,081 26,574 15,794 Other expense 168,748 180,088 77,341 Total non-interest expense $ 1,416,355 $ 1,396,473 $ 745,100 Total non-interest expense remained relatively flat at approximately $1.4 billion for both the years ended December 31, 2023 and 2022.
For portfolios using the PD/LGD/EAD framework, credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio.
For portfolios using the PD, LGD, and EAD framework, expected credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio.
The Company maintains a common stock repurchase program, which was approved by the Board of Directors, that authorizes management to purchase shares of its common stock in open market or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions.
The Holding Company maintains a common stock repurchase program, which was approved by the Board of Directors, that authorizes management to purchase shares of its common stock in open market or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions.
It is a measure of the long-term interest rate risk to future earnings streams embedded in the current balance sheet. Asset sensitivity is defined as earnings or net economic value increasing when interest rates rise and decreasing when interest rates fall, as compared to a base scenario.
It is a measure of the long-term interest rate risk to future earnings' streams embedded in the current balance sheet. Asset sensitivity is defined as earnings or net economic value increasing when interest rates rise and decreasing when interest rates fall, as compared to a base scenario.
While scheduled loan and securities repayments are a relatively stable source of funds, prepayments and other deposit inflows are influenced by economic conditions and prevailing interest rates, the timing of which is inherently uncertain.
While scheduled loan and securities repayments are a relatively stable source of funds, prepayments and other deposit inflows are influenced by economic conditions and prevailing interest rates, the timing of which are inherently uncertain.
Management continues to monitor interest rates and other relevant factors given recent market volatility and is prepared to take additional action, as necessary. 58 Table of Contents Critical Accounting Estimates The preparation of the Company's Consolidated Financial Statements, and accompanying notes thereto, in accordance with GAAP and practices generally applicable to the financial services industry, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities.
Management continues to monitor interest rates and other relevant factors given recent market volatility and is prepared to take additional action, as necessary. 61 Table of Contents Critical Accounting Estimates The preparation of the Company's Consolidated Financial Statements, and accompanying notes thereto, in accordance with GAAP and practices generally applicable to the financial services industry, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities.
Changes in economic conditions affecting borrowers and macroeconomic variables that the Company is more susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans, identification of additional problems loans, the fair value of underlying collateral, and other factors, both within and outside the Company's control, may indicate the need for an increase or decrease in the ACL on loans and leases.
Changes in economic conditions affecting borrowers and macroeconomic variables that the Company is more susceptible to, unforeseen events such as natural disasters and pandemics, along with new information regarding existing loans, identification of additional problem loans, the fair value of underlying collateral, and other factors, both within and outside the Company's control, may indicate the need for an increase or decrease in the ACL on loans and leases.
The Company is committed to maintaining a strong base of core deposits, which consists of demand, interest-bearing checking, savings, health savings, and money market accounts, to support growth in its loan portfolios. Management actively monitors the interest rate environment and makes adjustments to its deposit strategy in response to evolving market conditions, bank funding needs, and client relationship dynamics.
The Company is committed to maintaining a strong base of core deposits, which consist of demand, interest-bearing checking, savings, health savings, and money market accounts, to support growth in its loan portfolios. Management actively monitors the interest rate environment and makes adjustments to its deposit strategy in response to evolving market conditions, bank funding needs, and client relationship dynamics.
Financial Statements and Supplementary Data. 38 Table of Contents Segment Reporting The Company's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided.
Financial Statements and Supplementary Data. 40 Table of Contents Segment Reporting The Company's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided.
The Company enters into various contractual obligations in the normal course of business that require future cash payments and could impact its short-term and long-term liquidity and capital resource needs. The following table summarizes significant fixed and determinable contractual obligations at December 31, 2022. The actual timing and amounts of future cash payments may differ from the amounts presented.
The Company enters into various contractual obligations in the normal course of business that require future cash payments and that could impact its short-term and long-term liquidity and capital resource needs. The following table summarizes significant fixed and determinable contractual obligations at December 31, 2023. The actual timing and amounts of future cash payments may differ from the amounts presented.
The base case rate scenario, against which all others are compared, currently uses the month-end LIBOR/swap yield curve as a starting point to derive forward rates for future months. Using interest rate swap option volatilities as inputs, the model creates multiple rate paths for this scenario with forward rates as the mean.
The base case rate scenario, against which all others are compared, currently uses the month-end SOFR/swap yield curve as a starting point to derive forward rates for future months. Using interest rate swap option volatilities as inputs, the model creates multiple rate paths for this scenario with forward rates as the mean.
Although the Bank held the entirety of the Company's investment securities portfolio at both December 31, 2022, and 2021, the Holding Company may also directly hold investments. The following table summarizes the balances and percentage composition of the Company's investment securities: At December 31, 2022 2021 (In thousands) Amount % Amount % Available-for-sale: U.S.
Although the Bank held the entirety of the Company's investment securities portfolio at both December 31, 2023, and 2022, the Holding Company may also directly hold investments. The following table summarizes the balances and percentage composition of the Company's investment securities: At December 31, 2023 2022 (In thousands) Amount % Amount % Available-for-sale: U.S.
The adequacy of liquidity, as assessed by the OCC, depends on factors such as overall asset and liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. At December 31, 2022, the Bank exceeded all regulatory liquidity requirements.
The adequacy of liquidity, as assessed by the OCC, depends on factors such as overall asset and liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. At December 31, 2023, the Bank exceeded all regulatory liquidity requirements.
Financial Statements and Supplementary Data. 55 Table of Contents Asset/Liability Management and Market Risk An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest rate risk when determining the Company's strategy and action.
Financial Statements and Supplementary Data. 58 Table of Contents Asset/Liability Management and Market Risk An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest rate risk when determining the Company's strategy and action.
The calculation of expected credit losses is determined using predictive methods and models that follow a PD/LGD/EAD, loss rate, or discounted cash flow framework, and include consideration of past events, current conditions, macroeconomic variables (i.e., unemployment, gross domestic product, property values, and interest rate spreads), and reasonable and supportable economic forecasts that affect the collectability of the reported amounts.
The calculation of expected credit losses is determined using predictive methods and models that follow a PD, LGD, EAD, or loss rate framework, and include consideration of past events, current conditions, macroeconomic variables (i.e., unemployment, gross domestic product, property values, and interest rate spreads), and reasonable and supportable economic forecasts that affect the collectability of the reported amounts.
As market rates rise, however, the interest rate paid on these loans does not rise until the fully indexed rate rises through the contractual floor. 56 Table of Contents On the liability side, there is a large concentration of customers with indeterminate maturity deposits who have options to add or withdraw funds from their accounts at any time.
As market rates rise, however, the interest rate paid on these loans does not rise until the fully indexed rate rises through the contractual floor. On the liability side, there is a large concentration of customers with indeterminate maturity deposits who have options to add or withdraw funds from their accounts at any time.
Additional information regarding credit-related financial instruments, alternative investments, defined benefit pension and other postretirement benefit plans, and income taxes can be found within Note 23: Commitments and Contingencies, Note 15: Variable Interest Entities, Note 19: Retirement Benefit Plans, and Note 9: Income Taxes, respectively, in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Additional information regarding credit-related financial instruments and the FDIC special assessment, alternative investments, defined benefit pension and other postretirement benefit plans, and income taxes can be found within Note 23: Commitments and Contingencies, Note 15: Variable Interest Entities, Note 19: Retirement Benefit Plans, and Note 9: Income Taxes, respectively, in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Management's PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, loan-level risk attributes, and credit quality indicators.
The Company's PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, loan-level risk attributes, and credit quality indicators.
Financial Statements and Supplementary Data. 49 Table of Contents Asset Quality Ratios The Company manages asset quality using risk tolerance levels established through the Company's underwriting standards, servicing, and management of its loan and lease portfolio.
Financial Statements and Supplementary Data. 51 Table of Contents Asset Quality Ratios The Company manages asset quality using risk tolerance levels established through the Company's underwriting standards, servicing, and management of its loan and lease portfolio.
Additional information regarding the required capital levels and ratios applicable to the Company and the Bank can be found within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data. 52 Table of Contents Sources and Uses of Funds Sources of Funds.
Additional information regarding the required regulatory capital levels and ratios applicable to the Holding Company and the Bank can be found within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data. 54 Table of Contents Sources and Uses of Funds Sources of Funds.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates of up and down 50 and 100 basis points might have on the Company's net interest income for the subsequent twelve-month period starting at December 31, 2022, and 2021: Short End of the Yield Curve Long End of the Yield Curve -100bp -50bp +50bp +100bp -100bp -50bp +50bp +100bp December 31, 2022 (4.2)% (2.0)% 1.7% 3.3% (2.4)% (1.2)% 1.3% 2.6% December 31, 2021 n/a n/a 3.2% 7.3% (3.1)% (1.4)% 1.3% 2.6% These non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates of up and down 50 and 100 basis points might have on the Company's net interest income for the subsequent twelve-month period starting at December 31, 2023, and 2022: Short End of the Yield Curve Long End of the Yield Curve -100bp -50bp +50bp +100bp -100bp -50bp +50bp +100bp December 31, 2023 (1.8)% (0.8)% 0.4% 0.7% (2.3)% (1.1)% 1.1% 2.2% December 31, 2022 (4.2)% (2.0)% 1.7% 3.3% (2.4)% (1.2)% 1.3% 2.6% These non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa.
A duration gap at or near zero would imply that the balance sheet is matched, and therefore, would exhibit no change in estimated economic value for changes in interest rates. At December 31, 2022, and 2021, the Company's duration gap was negative 1.4 years and negative 1.8 years, respectively.
A duration gap at or near zero would imply that the balance sheet is matched, and therefore, would exhibit no change in estimated economic value for changes in interest rates. At December 31, 2023, and 2022, the Company's duration gap was negative 1.1 years and negative 1.4 years, respectively.
Based on its estimates, management believes it is more likely than not that the Company will realize its DTAs, net of the valuation allowance, at December 31, 2022.
Based on its estimates, management believes it is more likely than not that the Company will realize its DTAs, net of the valuation allowance, at December 31, 2023.
The following is a description of the Company’s three reportable segments and their primary services: Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management business units.
The following is a description of the Company’s three reportable segments and their primary services at December 31, 2023: Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management business units.
Under the loss rate method, expected credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date.
Under the loss rate framework, expected credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date.
Securities sold under agreements to repurchase are generally a form of short-term funding for the Bank in which it sells securities to counterparties with an agreement to buy them back in the future at a fixed price. Securities sold under agreements to repurchase totaled $0.3 billion and $0.7 billion at December 31, 2022, and 2021, respectively.
Securities sold under agreements to repurchase are generally a form of short-term funding for the Bank in which it sells securities to counterparties with an agreement to buy them back in the future at a fixed price. Securities sold under agreements to repurchase totaled $0.4 billion and $0.3 billion at December 31, 2023, and 2022, respectively.
Management believes that the Company's interest rate risk position at December 31, 2022, represents a reasonable level of risk given the current interest rate outlook.
Management believes that the Company's interest rate risk position at December 31, 2023, represents a reasonable level of risk given the current interest rate outlook.
There are certain restrictions on the Bank's payment of dividends to the Holding Company, which are described within the section captioned "Supervision and Regulation" in Part I - Item 1. Business, and within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
There are certain restrictions on the Bank's payment of dividends to the Holding Company, which can be found within the section captioned "Supervision and Regulation" in Part I - Item 1. Business, and within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.
Macroeconomic variables are selected for each class of financing receivable based on relevant factors, such as asset type and the correlation of the variables to credit losses, among others. Data from the forecast scenario of these variables is used as an input to the modeled loss calculation.
Macroeconomic variables are selected for each class of financing receivable based on relevant factors, such as asset type and the correlation of the variables to credit losses, among others. Data from the forecast scenario of these macroeconomic variables are used as inputs to the modeled loss calculation.
Additional information regarding the Company's AFS and HTM investment securities' portfolios can be found within Note 3: Investment Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Additional information regarding the Company's investment securities' portfolios can be found within Note 3: Investment Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
Consumer Banking operates a distribution network consisting of 201 banking centers and 352 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and the New York Metro and Suburban markets.
Consumer Banking operates a distribution network consisting of 198 banking centers and 349 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and the New York Metro and Suburban markets.
These transactions include commitments to extend credit, and commercial and standby letters of credit, which involve to a varying degree, elements of credit risk. Since many of these commitments are expected to expire unused or be only partially funded, the total commitment amount of $11.7 billion at December 31, 2022, does not necessarily reflect future cash payments.
These transactions include commitments to extend credit and commercial and standby letters of credit, which involve, to a varying degree, elements of credit risk. Since many of these commitments are expected to expire unused or be only partially funded, the total commitment amount of $12.6 billion at December 31, 2023, does not necessarily reflect future cash payments.
Segments are evaluated using 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.
Segments are evaluated using PPNR. Certain Treasury activities, including the operations of interLINK, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category.
Both the Company's and the Bank's ratios remain in excess of being well-capitalized, even without the benefit of the delayed CECL adoption impact.
Both the Holding Company's and the Bank's regulatory ratios remain in excess of being well-capitalized, even without the regulatory capital benefit of the delayed CECL adoption impact.
Similar to FHLB stock, the FRB capital stock investment is restricted as there is no market for it, and it can only be redeemed by the FRB. The Bank held FRB capital stock of $224.5 million and $60.5 million at December 31, 2022, and 2021, respectively.
Similar to FHLB stock, the FRB capital stock investment is restricted as there is no market for it, and it can only be redeemed by the FRB. The Bank held FRB capital stock of $227.9 million and $224.5 million at December 31, 2023, and 2022, respectively.
Financial Statements and Supplementary Data. Federal Home Loan Bank and Federal Reserve Bank Stock. The Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks, each of which is subject to the supervision and regulation of the Federal Housing Finance Agency.
Financial Statements and Supplementary Data. 56 Table of Contents Federal Home Loan Bank and Federal Reserve Bank Stock. The Bank is a member of the FHLB System, which consists of eleven district FHLBs, each of which is subject to the supervision and regulation of the Federal Housing Finance Agency.
To facilitate this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO, whose primary goal is to manage interest rate risk and maximize net income and net economic value over time in changing interest rate environments, subject to limits approved by the Board of Directors.
To facilitate this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO, whose primary goal is to manage interest rate risk and maximize net income and net economic value over time in changing interest rate environments.
At December 31, 2022, and 2021, the flat rate base scenario assumed a federal funds rate of 4.50% and 0.25%, respectively. The federal funds rate target range was 4.25-4.50% at December 31, 2022, and 0-0.25% at December 31, 2021.
At December 31, 2023, and 2022, the flat rate base scenario assumed a federal funds rate of 5.50% and 4.50%, respectively. The federal funds rate target range was 5.25-5.50% at December 31, 2023, and 4.25-4.50% at December 31, 2022.
Financial Statements and Supplementary Data. 53 Table of Contents Borrowings. The Bank's primary borrowing sources include securities sold under agreements to repurchase, federal funds purchased, FHLB advances, and long-term debt. Total borrowed funds were $7.7 billion and $1.2 billion at December 31, 2022, and 2021, respectively, and represented 10.8% and 3.6% of total assets, respectively.
Financial Statements and Supplementary Data. Borrowings. The Bank's primary borrowing sources include securities sold under agreements to repurchase, federal funds purchased, FHLB advances, and long-term debt. Total borrowed funds were $3.9 billion and $7.7 billion at December 31, 2023, and 2022, respectively, and represented 5.2% and 10.8% of total assets, respectively.
The Company's investment securities are classified into two major categories: AFS and HTM. The ALCO manages the Company's securities in accordance with regulatory guidelines and corporate policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security.
The Company's investment securities are classified into two major categories: available-for-sale and held-to-maturity. The ALCO manages the Company's investment securities in accordance with regulatory guidelines and corporate policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security.
Certain models use output reversion and revert to mean historical portfolio loss rates on a straight-line basis in the third year of the forecast. Other models use input reversion and revert to the mean of macroeconomic variables in reasonable and supportable forecasts. The Company incorporates forecasts of macroeconomic variables in the determination of expected credit losses.
Certain models use output reversion and revert to mean historical portfolio loss rates on a straight-line basis in the third year of the forecast. Other models incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the Company's assets. The Company incorporates forecasts of macroeconomic variables in the determination of expected credit losses.
The primary source of cash flows for the Bank’s use in its lending activities and general operational needs is deposits. Loan and securities repayments, proceeds from loans and securities held for sale, and maturities also provide cash flows.
Deposits are the primary source of cash flows for the Bank’s lending activities and general operational needs. Loan and securities repayments, proceeds from sales of loans and securities held for sale, and maturities also provide cash flows.
Individually Assessed Loans and Leases . If the risk characteristics of a loan or lease change such that it no longer matches the risk characteristics of the collectively assessed pool, it is removed from the population and individually assessed for credit losses.
Individually Assessed Loans and Leases . If the risk characteristics of a loan or lease change such that it no longer matches the risk characteristics of the collectively assessed pool, it is removed from the population and individually assessed for credit losses. Generally, all non-accrual loans and loans with a charge-off are individually assessed.
Methodology The Company's ACL on loans and leases is considered to be a critical accounting policy. The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases for the credit losses that are expected to occur over the life of the asset.
The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases for the credit losses that are expected to occur over the life of the asset.
Loans at floors have decreased $4.1 billion, from $4.5 billion at December 31, 2021, to $0.4 billion at December 31, 2022. While loans with floors, which are considered “in the money”, have the impact of reducing overall asset sensitivity, as interest rates rise, these loans will move through their floors and reprice accordingly.
Loans at floors were $0.3 billion and $0.4 billion at December 31, 2023, and 2022, respectively. While loans with floors, which are considered “in the money”, have the impact of reducing overall asset sensitivity, as interest rates continue to rise, these loans will move through their floors and reprice accordingly.
The Bank held FHLB capital stock of $221.4 million and $11.3 million at December 31, 2022, and 2021, respectively. During the year ended December 31, 2022, the Bank received $1.9 million in dividends from the FHLB. The most recent FHLB quarterly cash dividend was paid on March 2, 2023, in an amount equal to an annual yield of 6.67%.
The Bank held FHLB capital stock of $99.0 million and $221.4 million at December 31, 2023, and 2022, respectively. During the year ended December 31, 2023, the Bank received $15.6 million in dividends from the FHLB. The most recent FHLB quarterly cash dividend was paid on November 2, 2023, in an amount equal to an annual yield of 8.31%.
The Company was not required to contribute to the defined benefit pension plan in 2022, nor does it currently anticipate that it will be required to make a contribution in 2023. The Company's non-qualified supplemental executive retirement plans and other post employment benefit plans, including those acquired from Sterling in the merger, are unfunded.
The Company was not required to contribute to the defined benefit pension plan in 2023, nor does it currently anticipate that it will be required to contribute in 2024. The Company's non-qualified supplemental executive retirement plans and other post-employment benefit plans are unfunded.
At December 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity position, capital resources, or operating activities. Further, management is not aware of any regulatory recommendations regarding liquidity, that if implemented, would have a material adverse effect on the Company.
At December 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity position, capital resources, or operating activities.
During this time, the Bank is subject to the risk that market interest rates may change, which could impact pricing on loan sales. In an effort to mitigate this risk, the Bank establishes forward delivery sales commitments, thereby setting the sales price.
Generally, prior to closing and funds disbursement, an interest-rate lock commitment is extended to the borrower. During this time, the Bank is subject to the risk that market interest rates may change, which could impact pricing on loan sales. In an effort to mitigate this risk, the Bank establishes forward delivery sales commitments, thereby setting the sales price.
The Company also enters into commitments to invest in venture capital and private equity funds, as well as LIHTC investments to assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for these alternative investments was $435.0 million at December 31, 2022.
The Company also enters into commitments to invest in venture capital and private equity funds and tax credit structures to assist the Bank in meeting its responsibilities under the CRA. The total unfunded commitment for these alternative investments was $0.7 billion at December 31, 2023.
At December 31, 2022, the benefit allowed from the delayed CECL adoption resulted in a 9, 9, and 6 basis point increase to the Company's and the Bank's CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), respectively, and a 2 basis point decrease to Total capital to total risk-weighted assets (Total risk-based capital).
At December 31, 2023, the regulatory capital benefit allowed from the delayed CECL adoption resulted in a 6, 6, and 4 basis point increase to the Holding Company's and the Bank's CET1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Tier 1 Leverage Capital, respectively, and a 1 basis point decrease to Total Risk-Based Capital.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon: Years ended December 31, 2022 2021 2020 (In thousands) Average Balance Average Rate Average Balance Average Rate Average Balance Average Rate Securities sold under agreements to repurchase $ 466,282 0.78 % $ 527,250 0.57 % $ 467,431 0.48 % Federal funds purchased 598,269 2.58 16,036 0.08 720,995 0.46 Other borrowings — — — — 104,145 0.35 FHLB advances 1,965,577 2.98 108,216 1.58 730,125 2.57 Long-term debt 1,031,446 3.44 565,271 3.22 564,919 3.45 Total average borrowings $ 4,061,574 2.78 % $ 1,216,773 1.84 % $ 2,587,615 1.68 % Additional information regarding period-end borrowings balances and rates can be found within Note 11: Borrowings in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
The following table summarizes daily average balances of borrowings by type and the weighted-average rates paid thereon: Years ended December 31, 2023 2022 2021 (In thousands) Average Balance Average Rate Average Balance Average Rate Average Balance Average Rate Securities sold under agreements to repurchase $ 210,676 0.58 % $ 466,282 0.78 % $ 527,250 0.57 % Federal funds purchased 167,495 4.70 598,269 2.58 16,036 0.08 FHLB advances 4,275,394 5.21 1,965,577 2.98 108,216 1.58 Long-term debt 1,058,621 3.69 1,031,446 3.44 565,271 3.22 Total average borrowings $ 5,712,186 4.74 % $ 4,061,574 2.78 % $ 1,216,773 1.84 % Additional information regarding period-end borrowings balances and rates can be found within Note 11: Borrowings in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
During the year ended December 31, 2022, the Bank received $4.6 million in dividends from the FRB. The most recent FRB semi-annual cash dividend was paid on December 31, 2022, in an amount equal to an annual yield of 3.63%.
During the year ended December 31, 2023, the Bank received $9.2 million in dividends from the FRB. The most recent FRB semi-annual cash dividend was paid on December 29, 2023, in an amount equal to an annual yield of 4.30%. Uses of Funds.
At December 31, 2022, and 2021, the Company's gross DTAs included $66.9 million and $64.4 million, respectively, applicable to SALT net operating loss and credit carryforwards that are available to offset future taxable income, generally through 2032. The $66.9 million at December 31, 2022, includes $5.6 million related to the Sterling merger and $1.1 million related to the Bend acquisition.
At December 31, 2023, and 2022, the Company's gross DTAs included $64.2 million and $66.9 million, respectively, applicable to SALT net operating loss and credit carryforwards that are available to offset future taxable income, generally through 2032.
The following table summarizes the portion of U.S. time deposits in excess of the FDIC insurance limit and time deposits otherwise uninsured by contractual maturity: (In thousands) December 31, 2022 Portion of U.S. time deposits in excess of insurance limit $ 1,629,950 Time deposits otherwise uninsured with a maturity of: 3 months or less $ 1,464,268 Over 3 months through 6 months 76,549 Over 6 months through 12 months 55,307 Over 12 months 33,826 Additional information regarding period-end deposit balances and rates can be found within Note 10: Deposits in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
The following table summarizes the portion of U.S. time deposits in excess of the FDIC insurance limit and time deposits otherwise uninsured by contractual maturity: (In thousands) At December 31, 2023 Portion of U.S. time deposits in excess of insurance limit $ 463,387 Time deposits otherwise uninsured with a maturity of: 3 months or less $ 172,427 Over 3 months through 6 months 178,642 Over 6 months through 12 months 105,791 Over 12 months 6,527 Additional information regarding period-end deposit balances and rates can be found within Note 10: Deposits in the Notes to Consolidated Financial Statements contained in Part II - Item 8.
The Company has designed a detailed contingency plan in order to respond to any liquidity concerns in a prompt and comprehensive manner, including early detection of potential problems and corrective action to address liquidity stress scenarios. Capital Requirements. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
The Company has designed a detailed contingency plan in order to respond to any liquidity concerns in a prompt and comprehensive manner, including early detection of potential problems and corrective action to address liquidity stress scenarios. 53 Table of Contents Capital Requirements.
Earnings would also generally be expected to increase when interest rates rise, and decrease when interest rates fall over the long term, absent the effects of any new business booked in the future. At December 31, 2022, long-term rates have risen by 226 basis points as compared to December 31, 2021.
Earnings would also generally be expected to increase when interest rates rise, and decrease when interest rates fall over the long term, absent the effects of any new business booked in the future.
The following table summarizes key asset quality ratios and their underlying components: At or for the years ended December 31, (In thousands) 2022 2021 2020 Non-performing loans and leases (1) $ 203,791 $ 109,778 $ 168,005 Total loans and leases 49,764,426 22,271,729 21,641,215 Non-performing loans and leases as a percentage of loans and leases 0.41 % 0.49 % 0.78 % Non-performing assets (1) $ 206,136 $ 112,590 $ 170,314 Total loans and leases $ 49,764,426 $ 22,271,729 $ 21,641,215 Add: OREO 2,345 2,812 2,309 Total loans and leases plus OREO $ 49,766,771 $ 22,274,541 $ 21,643,524 Non-performing assets as a percentage of loans and leases plus OREO 0.41 % 0.51 % 0.79 % Non-performing assets (1) $ 206,136 $ 112,590 $ 170,314 Total assets 71,277,521 34,915,599 32,590,690 Non-performing assets as a percentage of total assets 0.29 % 0.32 % 0.52 % ACL on loans and leases $ 594,741 $ 301,187 $ 359,431 Non-performing loans and leases (1) 203,791 109,778 168,005 ACL on loans and leases as a percentage of non-performing loans and leases 291.84 % 274.36 % 213.94 % ACL on loans and leases $ 594,741 $ 301,187 $ 359,431 Total loans and leases 49,764,426 22,271,729 21,641,215 ACL on loans and leases as a percentage of loans and leases 1.20 % 1.35 % 1.66 % ACL on loans and leases $ 594,741 $ 301,187 $ 359,431 Net charge-offs 67,288 3,829 45,081 Ratio of ACL on loans and leases to net charge-offs 8.84x 78.66x 7.97x (1) Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs on loans and leases.
The following table summarizes key asset quality ratios and their underlying components: At or for the years ended December 31, (In thousands) 2023 2022 2021 Non-performing loans and leases (1) $ 209,544 $ 203,791 $ 109,778 Total loans and leases 50,726,052 49,764,426 22,271,729 Non-performing loans and leases as a percentage of loans and leases 0.41 % 0.41 % 0.49 % Non-performing assets (1) $ 218,600 $ 206,136 $ 112,590 Total loans and leases $ 50,726,052 $ 49,764,426 $ 22,271,729 Add: OREO and repossessed assets 9,056 2,345 2,812 Total loans and leases plus OREO and repossessed assets $ 50,735,108 $ 49,766,771 $ 22,274,541 Non-performing assets as a percentage of loans and leases plus OREO and repossessed assets 0.43 % 0.41 % 0.51 % Non-performing assets (1) $ 218,600 $ 206,136 $ 112,590 Total assets 74,945,249 71,277,521 34,915,599 Non-performing assets as a percentage of total assets 0.29 % 0.29 % 0.32 % ACL on loans and leases $ 635,737 $ 594,741 $ 301,187 Non-performing loans and leases (1) 209,544 203,791 109,778 ACL on loans and leases as a percentage of non-performing loans and leases 303.39 % 291.84 % 274.36 % ACL on loans and leases $ 635,737 $ 594,741 $ 301,187 Total loans and leases 50,726,052 49,764,426 22,271,729 ACL on loans and leases as a percentage of loans and leases 1.25 % 1.20 % 1.35 % ACL on loans and leases $ 635,737 $ 594,741 $ 301,187 Net charge-offs (2) 108,086 67,288 3,829 Ratio of ACL on loans and leases to net charge-offs 5.88x 8.84x 78.66x (1) Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs on loans and leases.
Underwriting factors for residential mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s debt-to-income level.
Underwriting factors for residential mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s debt-to-income level. The Bank originates both qualified mortgage and non-qualified mortgage loans, as defined by applicable CFPB rules.
This higher starting point extends financial asset duration by decreasing residential mortgage loans and mortgage-backed securities prepayment speeds. These earnings and net economic value estimates are subject to factors that could cause actual results to differ, and also assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates.
These earnings and net economic value estimates are subject to factors that could cause actual results to differ, and also assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates.
The Company's remaining purchase authority at December 31, 2022, was $401.3 million. In addition, the Company will periodically acquire common shares outside of the repurchase program related to employee stock compensation plan activity. During the year ended December 31, 2022, the Company repurchased 415,629 shares at a weighted-average price of $56.90 per share, totaling $23.6 million for this purpose.
In addition, the Company will periodically acquire common shares outside of the repurchase program related to employee stock compensation plan activity. During the year ended December 31, 2023, the Company repurchased 315,729 shares at a weighted-average price of $51.48 per share, totaling $16.3 million, for this purpose.
The $761.1 million increase in net interest income is primarily attributed to the loan and deposit balances acquired from Sterling, organic loan growth, and the impact of the higher interest rate environment.
The $77.7 million increase in net interest income is primarily due to organic loan and deposit growth, and the impact of the higher interest rate environment.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories: At December 31, 2022 2021 (In thousands) Amount % (1) Amount % (1) Commercial non-mortgage $ 197,950 33.3 % $ 111,351 37.0 % Asset-based 16,094 2.7 6,481 2.2 Commercial real estate 214,771 36.1 114,493 38.0 Multi-family 80,652 13.6 19,414 6.4 Equipment financing 23,081 3.9 6,138 2.0 Warehouse lending 577 0.1 — — Residential 26,907 4.5 15,628 5.2 Home equity 32,296 5.4 23,523 7.8 Other consumer 2,413 0.4 4,159 1.4 Total ACL on loans and leases $ 594,741 100.0 % $ 301,187 100.0 % (1) The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories.
The following table summarizes the percentage allocation of the ACL across the loans and leases categories: At December 31, 2023 2022 (In thousands) Amount % (1) Amount % (1) Commercial non-mortgage $ 211,699 33.3 % $ 197,950 33.3 % Asset-based 15,828 2.5 16,094 2.7 Commercial real estate 248,921 39.2 214,771 36.1 Multi-family 80,582 12.7 80,652 13.6 Equipment financing 20,633 3.2 23,081 3.9 Warehouse lending — — 577 0.1 Residential 29,739 4.7 26,907 4.5 Home equity 26,154 4.1 32,296 5.4 Other consumer 2,181 0.3 2,413 0.4 Total ACL on loans and leases $ 635,737 100.0 % $ 594,741 100.0 % (1) The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories. 50 Table of Contents Methodology The Company's ACL on loans and leases is considered to be a critical accounting policy.
Unpledged investment securities of $7.8 billion at December 31, 2022, could have been used for collateral on borrowings or to increase borrowing capacity by either $7.1 billion with the FHLB or $7.5 billion with the FRB.
The Bank also had additional borrowing capacity from the FRB of $6.6 billion and $1.2 billion at December 31, 2023, and 2022, respectively. Unencumbered investment securities of $1.2 billion at December 31, 2023, could have been used for collateral on borrowings or to increase borrowing capacity by either $0.8 billion with the FHLB or $1.0 billion with the FRB.
Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that could have a direct material effect on the Company’s financial statements.
The Holding Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that could have a direct material effect on the Company’s Consolidated Financial Statements.
For each loan segment identified above, management applies an expected historical loss trend based on third-party loss estimates, correlate them to observed economic metrics, and reasonable and supportable forecasts of economic conditions.
For each loan segment identified, management applies an expected historical loss trend based on third-party loss estimates, and correlates them to observed economic metrics, and reasonable and supportable forecasts of economic conditions. The Company's models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period.
The notional amount of the derivative instrument, or the amount from which interest and other payments are derived, is not exchanged, and therefore, should not be used as a measure of credit risk.
The notional amount of the derivative instrument, or the amount from which interest and other payments are derived, is not exchanged, and therefore, should not be used as a measure of credit risk. In addition, certain derivative instruments are used by the Bank to manage the risk of loss associated with its mortgage banking activities.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant to regulatory directives. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Under capital adequacy guidelines and/or the the regulatory framework for prompt corrective action (applies to the Bank only), both the Holding Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant to regulatory directives.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of up and down 100 and 200 basis points might have on the Company’s net interest income over a twelve-month period starting at December 31, 2022, and 2021, as compared to actual net interest income and assuming no changes in interest rates: -200bp -100bp +100bp +200bp December 31, 2022 (6.9)% (3.3)% 3.2% 6.5% December 31, 2021 n/a n/a 4.9% 10.7% Asset sensitivity in terms of net interest income decreased at December 31, 2022, as compared to at December 31, 2021, primarily due to changes in the overall composition and size of the balance sheet on a combined basis post-merger with Sterling and the relative size and duration of the securities portfolio.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of up and down 100, 200, and 300 basis points might have on the Company’s net interest income over a twelve-month period starting at December 31, 2023, and 2022, as compared to actual net interest income and assuming no changes in interest rates: -300bp -200bp -100bp +100bp +200bp +300bp December 31, 2023 (7.2)% (4.5)% (2.0)% 1.7% 3.3% 5.4% December 31, 2022 n/a (6.9)% (3.3)% 3.2% 6.5% n/a Asset sensitivity in terms of net interest income decreased at December 31, 2023, as compared to at December 31, 2022, primarily due to changes in the overall balance sheet composition, which included the addition of $5.7 billion in price-sensitive deposits from interLINK, an increase in interest paid on deposits, and the implementation of incremental asset sensitivity measures, such as hedges and the investment of fixed-rate debt securities to extend duration.
Financial Statements and Supplementary Data. 45 Table of Contents Loans and Leases The following table summarizes the amortized cost and percentage composition of the Company's loans and leases: At December 31, 2022 2021 (In thousands) Amount % Amount % Commercial non-mortgage $ 16,392,795 32.9 % $ 6,882,480 30.9 % Asset-based 1,821,642 3.7 1,067,248 4.8 Commercial real estate 12,997,163 26.1 5,463,321 24.5 Multi-family 6,621,982 13.3 1,139,859 5.1 Equipment financing 1,628,393 3.3 627,058 2.8 Warehouse lending 641,976 1.3 — — Residential 7,963,420 16.0 5,412,905 24.3 Home equity 1,633,107 3.3 1,593,559 7.2 Other consumer 63,948 0.1 85,299 0.4 Total loans and leases (1) $ 49,764,426 100.0 % $ 22,271,729 100.0 % (1) The amortized cost balances at December 31, 2022, and 2021, exclude the ACL recorded on loans and leases of $594.7 million and $301.2 million, respectively.
Financial Statements and Supplementary Data. 47 Table of Contents Loans and Leases The following table summarizes the amortized cost and percentage composition of the Company's loans and leases: At December 31, 2023 2022 (In thousands) Amount % Amount % Commercial non-mortgage $ 16,885,475 33.3 % $ 16,392,795 32.9 % Asset-based 1,557,841 3.1 1,821,642 3.7 Commercial real estate 13,569,762 26.7 12,997,163 26.1 Multi-family 7,587,970 15.0 6,621,982 13.3 Equipment financing 1,328,786 2.6 1,628,393 3.3 Warehouse lending — — 641,976 1.3 Residential 8,227,923 16.2 7,963,420 16.0 Home equity 1,516,955 3.0 1,633,107 3.3 Other consumer 51,340 0.1 63,948 0.1 Total loans and leases (1) $ 50,726,052 100.0 % $ 49,764,426 100.0 % (1) The amortized cost balances at December 31, 2023, and 2022, exclude the ACL recorded on loans and leases of $635.7 million and $594.7 million, respectively.
Total portfolio originations for the years ended December 31, 2022, and 2021, were $14.7 billion and $5.7 billion, respectively. The $9.0 billion increase was primarily attributed to the merger with Sterling, along with increased commercial non-mortgage and commercial real estate originations.
Total portfolio originations for the years ended December 31, 2023, and 2022, were $9.2 billion and $14.7 billion, respectively. The $5.5 billion decrease was primarily due to a decrease in commercial real estate and commercial non-mortgage originations.
Selected Balance Sheet and Off-Balance Sheet Information: At December 31, (In thousands) 2022 2021 Deposits $ 7,944,919 $ 7,397,997 Assets under administration, through linked brokerage accounts (off-balance sheet) 3,393,832 3,718,610 Deposits increased $546.9 million, or 7.4%, at December 31, 2022, as compared to at December 31, 2021, primarily due to an increase in the number of account holders and organic deposit growth, which was partially offset by a decrease in third party administrator deposits.
Selected Balance Sheet and Off-Balance Sheet Information: At December 31, (In thousands) 2023 2022 Deposits $ 8,287,705 $ 7,944,919 Assets under administration, through linked brokerage accounts (off-balance sheet) 4,641,830 3,393,832 Deposits increased $0.3 billion, or 4.3%, at December 31, 2023, as compared to at December 31, 2022, primarily due to an increase in the number of account holders and organic deposit growth.
Collectively Assessed Loans and Leases . Collectively assessed loans and leases are segmented based on product type, credit quality, risk ratings, and/or collateral types within its commercial and consumer portfolios, and expected losses are determined using a PD, LGD, and EAD, loss rate, or discounted cash flow framework.
Collectively Assessed Loans and Leases . Collectively assessed loans and leases are segmented based on product type and credit quality, and expected losses are determined using models that follow a PD, LGD, EAD, or loss rate framework.
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 Bank also has the option to change the interest rate paid on these deposits at any time. 59 Table of Contents 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.
Management's Discussion and Analysis of Financial Condition and Results of Operations. 35 Table of Contents Non-Interest Income Years ended December 31, (In thousands) 2022 2021 2020 Deposit service fees $ 198,472 $ 162,710 $ 156,032 Loan and lease related fees 102,987 36,658 29,127 Wealth and investment services 40,277 39,586 32,916 Mortgage banking activities 705 6,219 18,295 Increase in cash surrender value of life insurance policies 29,237 14,429 14,561 (Loss) gain on sale of investment securities, net (6,751) — 8 Other income 75,856 63,770 34,338 Total non-interest income $ 440,783 $ 323,372 $ 285,277 Total non-interest income increased $117.4 million, or 36.3%, from $323.4 million for the year ended December 31, 2021, to $440.8 million for the year ended December 31, 2022, primarily due to increases in deposit service fees, loan and lease related fees, the cash surrender value of life insurance policies, and other income, the majority of which were primarily driven by the merger with Sterling, partially offset by a decrease in mortgage banking activities and a net loss on sale of investment securities.
Management's Discussion and Analysis of Financial Condition and Results of Operations. 37 Table of Contents Non-Interest Income Years ended December 31, (In thousands) 2023 2022 2021 Deposit service fees $ 169,318 $ 198,472 $ 162,710 Loan and lease related fees 84,861 102,987 36,658 Wealth and investment services 28,999 40,277 39,586 Mortgage banking activities 1,240 705 6,219 Cash surrender value of life insurance policies 26,228 29,237 14,429 (Loss) on sale of investment securities (33,620) (6,751) — Other income 37,311 75,856 63,770 Total non-interest income $ 314,337 $ 440,783 $ 323,372 Total non-interest income decreased $126.5 million, or 28.7%, from $440.8 million for the year ended December 31, 2022, to $314.3 million for the year ended December 31, 2023, primarily due to decreases in Other income, Deposit service fees, Loan and lease related fees, and Wealth and investment services, and an increase in (Loss) on sale of investment securities.
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category: At or for the years ended December 31, 2022 2021 2020 (In thousands) Net Charge-offs (Recoveries) Average Balance % Net Charge-offs (Recoveries) Average Balance % Net Charge-offs (Recoveries) Average Balance % Commercial non-mortgage $ 44,250 $ 13,625,382 0.32 % $ 2,305 $ 6,829,799 0.03 % $ 37,040 $ 6,598,149 0.56 % Asset-based 4,473 1,746,888 0.26 (1,447) 950,602 (0.15) (36) 977,920 — Commercial real estate 20,471 11,299,259 0.18 4,483 5,324,853 0.08 2,061 5,143,637 0.04 Multi-family 1,298 6,025,702 0.02 — 1,114,977 — — 1,046,211 — Equipment financing 931 1,660,935 0.06 375 614,055 0.06 720 572,369 0.13 Warehouse lending — 537,430 — — — — — — — Residential (1,377) 7,112,890 (0.02) (1,149) 4,953,100 (0.02) 1,327 4,923,743 0.03 Home equity (4,201) 1,663,198 (0.25) (4,289) 1,681,921 (0.26) (1,910) 1,924,623 (0.10) Other consumer 1,443 79,428 1.82 3,551 115,565 3.07 5,879 199,050 2.95 Total $ 67,288 $ 43,751,112 0.15 % $ 3,829 $ 21,584,872 0.02 % $ 45,081 $ 21,385,702 0.21 % Net charge-offs as a percentage of average loans and leases were 0.15%, 0.02%, and 0.21% for the years ended December 31, 2022, 2021, and 2020, respectively.
The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category: At or for the years ended December 31, 2023 2022 2021 (In thousands) Net Charge-offs (Recoveries) Average Balance % Net Charge-offs (Recoveries) Average Balance % Net Charge-offs (Recoveries) Average Balance % Commercial non-mortgage $ 13,531 $ 16,900,423 0.08 % $ 44,250 $ 13,625,382 0.32 % $ 2,305 $ 6,829,799 0.03 % Asset-based 17,088 1,699,064 1.01 4,473 1,746,888 0.26 (1,447) 950,602 (0.15) Commercial real estate 62,208 13,397,036 0.46 20,471 11,299,259 0.18 4,483 5,324,853 0.08 Multi-family 3,447 7,072,507 0.05 1,298 6,025,702 0.02 — 1,114,977 — Equipment financing 4,949 1,509,948 0.33 931 1,660,935 0.06 375 614,055 0.06 Warehouse lending — 316,729 — — 537,430 — — — — Residential 3,601 8,126,878 0.04 (1,377) 7,112,890 (0.02) (1,149) 4,953,100 (0.02) Home equity (123) 1,560,707 (0.01) (4,201) 1,663,198 (0.25) (4,289) 1,681,921 (0.26) Other consumer 3,385 54,277 6.24 1,443 79,428 1.82 3,551 115,565 3.07 Total $ 108,086 $ 50,637,569 0.21 % $ 67,288 $ 43,751,112 0.15 % $ 3,829 $ 21,584,872 0.02 % 52 Table of Contents Liquidity and Capital Resources The Company manages its cash flow requirements through proactive liquidity measures at both the Holding Company and the Bank.
Assets under administration, through linked brokerage accounts, decreased $324.8 million, or 8.7%, at December 31, 2022, as compared to at December 31, 2021, primarily due to lower valuations in the equity markets during 2022, which was partially offset by additional account holders and balances from the acquisition of Bend. 41 Table of Contents Consumer Banking Operating Results: Years ended December 31, (In thousands) 2022 2021 2020 Net interest income $ 720,789 $ 375,318 $ 334,157 Non-interest income 119,691 95,887 97,778 Non-interest expense 426,133 297,217 334,008 Pre-tax, pre-provision net revenue $ 414,347 $ 173,988 $ 97,927 Consumer Banking's PPNR increased $240.4 million, or 138.1%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling.
Assets under administration, through linked brokerage accounts, increased $1.2 billion, or 36.8%, at December 31, 2023, as compared to at December 31, 2022, primarily due to additional account holders and higher valuations in the equity markets during 2023. 43 Table of Contents Consumer Banking Operating Results: Years ended December 31, (In thousands) 2023 2022 2021 Net interest income $ 798,483 $ 720,789 $ 375,318 Non-interest income 107,456 119,691 95,887 Non-interest expense 425,281 426,133 297,217 Pre-tax, pre-provision net revenue $ 480,658 $ 414,347 $ 173,988 Consumer Banking's PPNR increased $66.3 million, or 16.0%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to an increase in net interest income, partially offset by a decrease in non-interest income and an increase in non-interest expense.
For 2022, 2023, and 2024, the Company is allowed 75%, 50%, and 25% of the regulatory capital benefit as of December 31, 2021, respectively, with full absorption occurring in 2025.
During the three-year transition period, capital ratios will phase out the aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption in the initial two years. For 2022, 2023, and 2024, the Company is allowed 75%, 50%, and 25%, respectively, of the regulatory capital benefit as of December 31, 2021, with full absorption occurring in 2025.
The combined decrease of $0.6 billion, or 21.3%, was primarily due to lower valuations in the equity markets and client investment outflows during 2022. 40 Table of Contents HSA Bank Operating Results: Years ended December 31, (In thousands) 2022 2021 2020 Net interest income $ 218,149 $ 168,595 $ 162,363 Non-interest income 104,586 102,814 100,826 Non-interest expense 151,329 134,258 133,919 Pre-tax net revenue $ 171,406 $ 137,151 $ 129,270 HSA Bank's pre-tax net revenue increased $34.3 million, or 25.0%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense.
Treasury securities with government-backing, and higher valuations in the equity markets during 2023. 42 Table of Contents HSA Bank Operating Results: Years ended December 31, (In thousands) 2023 2022 2021 Net interest income $ 302,856 $ 218,149 $ 168,595 Non-interest income 88,113 104,586 102,814 Non-interest expense 168,160 151,329 134,258 Pre-tax net revenue $ 222,809 $ 171,406 $ 137,151 HSA Bank's pre-tax net revenue increased $51.4 million, or 30.0%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to an increase in net interest income, partially offset by a decrease in non-interest income and an increase in non-interest expense.
The $6.5 billion increase from December 31, 2021, to December 31, 2022, is primarily attributed to increases of $5.5 billion, $0.9 billion, and $0.5 billion in FHLB advances, federal funds purchased, and long-term debt, respectively, partially offset by a $0.4 billion decrease in securities sold under agreements to repurchase.
The $3.8 billion decrease is primarily due to decreases of $3.1 billion and $0.8 billion in FHLB advances and federal funds purchased, respectively, partially offset by an increase of $0.1 billion in securities sold under agreements to repurchase. The Bank had additional borrowing capacity from the FHLB of $12.5 billion and $4.3 billion at December 31, 2023, and 2022, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations, and within Note 17: Derivative Financial Instruments in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data, which are incorporated herein by reference. 59 Table of Contents
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations, and within Note 17: Derivative Financial Instruments in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data, which are incorporated herein by reference. 62 Table of Contents

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