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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________________________________________________________________-___________________________________________________________________________________________________
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ending March 31, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number: 001-31486
_______________________________________________________________________________________
WEBSTER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________________
Delaware 06-1187536
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
145 Bank Street, Waterbury, Connecticut 06702
(Address and zip code of principal executive offices)
(203) 578-2202
(Registrant's telephone number, including area code)
______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of Exchange on which registered
Common Stock, par value $0.01 per shareWBSNew York Stock Exchange
Depositary Shares, each representing 1/1000th interest in a shareWBS PrFNew York Stock Exchange
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).   ☐ Yes   ☒ No
The number of shares of common stock, par value $.01 per share, outstanding as of April 30, 2021 was 90,420,187.






INDEX
  Page No.
Forward-Looking Statements
Key to Acronyms and Terms
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Exhibits



i

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates," and similar references to future periods. However, these words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to:
▪projections of revenues, expenses, income or loss, earnings or loss per share, allowance for credit losses (ACL), expense savings, and other financial items;
▪statements of plans, objectives, and expectations of Webster or its management or Board of Directors;
▪statements of future economic performance; and
▪statements of assumptions underlying such statements.
Forward-looking statements are based on Webster’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Webster’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:
▪our ability to successfully execute our business plan and strategic initiatives, and manage our risks;
▪our ability to successfully achieve the anticipated cost reductions and efficiencies from recently announced strategic initiatives, including branch consolidations, process automation, organization simplification, and spending reductions, and avoid any higher than anticipated costs or delays in implementing the strategic plan;
▪our ability to complete the acquisition of Sterling Bancorp (Sterling) and realize the anticipated benefits of the merger;
▪local, regional, national, and international economic conditions, and the impact they may have on us and our customers;
▪volatility and disruption in national and international financial markets;
▪the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic and any governmental or societal responses thereto, including the deployment and efficacy of COVID-19 vaccines, or other unusual and infrequently occurring events;
▪changes in laws and regulations (including those concerning banking, taxes, dividends, securities, insurance, and healthcare) with which we and our subsidiaries must comply, including recent and potential legislative and regulatory changes in response to the COVID-19 pandemic, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the rules and regulations that may be promulgated thereunder;
▪adverse conditions in the securities markets that lead to impairment in the value of our investment securities and goodwill;
▪inflation, changes in interest rates, and monetary fluctuations;
▪the timely development and acceptance of new products and services, and the perceived value of those products and services by customers;
▪changes in deposit flows, consumer spending, borrowings, and savings habits;
▪our ability to implement new technologies and maintain secure and reliable technology systems;
▪the effects of any cyber threats, attacks or events, or fraudulent activity;
▪performance by our counterparties and vendors;
▪our ability to increase market share and control expenses;
▪changes in the competitive environment among banks, financial holding companies, and other financial services providers;
▪changes in the level of non-performing assets and charge-offs;
▪changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
▪the effect of changes in accounting policies and practices applicable to us, including changes in our allowance for loan and lease losses and other impacts of recently adopted accounting guidance regarding the recognition of credit losses;
▪legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; and
▪our ability to appropriately address social, environmental, and sustainability concerns that may arise from our business activities.
Any forward-looking statement in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.
ii

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
KEY TO ACRONYMS AND TERMS
ACLAllowance for credit losses
Agency CMBSAgency commercial mortgage-backed securities
Agency CMO
Agency collateralized mortgage obligations
Agency MBS
Agency mortgage-backed securities
ALCO
Asset/Liability Committee
AOCI (AOCL)
Accumulated other comprehensive income (loss)
ASC
Accounting Standards Codification
ASU or the Update
Accounting Standards Update
Basel III
Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
BHC Act
Bank Holding Company Act of 1956, as amended
CARES ActThe Coronavirus Aid, Relief, and Economic Security Act
CECLCurrent expected credit losses
CET1 capital
Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPBConsumer Financial Protection Bureau
CLO
Collateralized loan obligations
CMBS
Non-agency commercial mortgage-backed securities
CME
Chicago Mercantile Exchange
COVID-19Coronavirus
CVA (DVA)Credit (debit) valuation adjustment
DTADeferred tax asset
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
FHLB
Federal Home Loan Bank
FICO
Fair Isaac Corporation
FRB
Federal Reserve Bank
FTP
Funds Transfer Pricing, a matched maturity funding concept
GAAP
U.S. Generally Accepted Accounting Principles
Holding Company
Webster Financial Corporation
HSAHealth savings account
HSA Bank
HSA Bank, a division of Webster Bank, National Association
LGDLoss given default
NAVNet asset value
NIINet interest income
OCCOffice of the Comptroller of the Currency
OCI (OCL)Other comprehensive income (loss)
OREOOther real estate owned
PDProbability of default
PPNRPretax, pre-provision net revenue
ROURight-of-use
PPPSmall Business Administration Paycheck Protection Program
SECUnited States Securities and Exchange Commission
SERPSupplemental executive defined benefit retirement plan
SterlingSterling Bancorp, collectively with its consolidated subsidiaries
TDRTroubled debt restructuring, defined in ASC 310-40 "Receivables - Troubled Debt Restructurings by Creditors"
VIEVariable interest entity, defined in ASC 810-10 "Consolidation - Overall"
Webster Bank or the BankWebster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the CompanyWebster Financial Corporation, collectively with its consolidated subsidiaries

iii

PART I – FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2020, included in Webster Financial Corporation's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 26, 2021, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Item 1 of this report. Operating results for the three months ended March 31, 2021 are not necessarily indicative of results that may be attained during the full year ending December 31, 2021, or any future period.    
Executive Summary
Nature of Operations
Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended (BHC Act), incorporated under the laws of Delaware in 1986, and headquartered in Waterbury, Connecticut. Webster Bank, National Association (Webster Bank) is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, including its HSA Bank division, deliver a wide range of banking, investment, and financial services to individuals, families, and businesses. Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout southern New England and Westchester County, New York. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions primarily in the eastern U.S. HSA Bank is a leading provider of health savings accounts (HSAs), while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
Pending Merger with Sterling Bancorp
On April 19, 2021, Webster and Sterling announced that their boards of directors approved by unanimous vote a definitive agreement under which the two companies will combine in an all-stock transaction for total consideration of approximately $5.1 billion. Sterling, a full-service regional bank headquartered in Pearl River, New York, primarily serves the Greater New York metropolitan region and reported $29.9 billion in assets, $20.9 billion in loans, and $23.8 billion in deposits at March 31, 2021. Under the terms of the agreement, Sterling will merge into Webster, and Sterling's shareholders will receive a fixed exchange ratio of 0.463 of a Webster common share for each share of Sterling common stock owned. In addition, at the effective time of the merger, each outstanding share of Sterling's Series A non-cumulative perpetual preferred stock will be converted into the right to receive a newly created series of Webster preferred stock having substantially the same terms. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of each company. Following the closing of the transaction, Webster shareholders will own approximately 50.4% of the combined company, and Sterling shareholders will own approximately 49.6%, on a fully diluted basis.
Strategic Initiatives
During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings measures across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions. As of March 31, 2021, several key project milestones have been completed, including the closure of 7 banking centers, with the remainder planned for the second quarter of 2021, and the realignment of certain of the Company's business banking and investment services operations across its reportable segments.
Strategic initiative costs incurred during the three months ended March 31, 2021 included an incremental $2.0 million in severance due to voluntary terminations, $2.6 million in facilities optimization, and $4.8 million in other project costs. Additional costs will be incurred as the Company continues to manage the strategic plan and further realize operational benefits. The Company anticipates it will reach full cost savings realization by the end of the fourth quarter of 2021.
Refer to Note 3: Business Developments and Note 17: Segment Reporting in the Notes to the Condensed Consolidated Financial Statements for additional information related to the financial statement impact of the strategic plan, as well as the "Segment Reporting" section contained elsewhere in this report for further details specific to the Company's segment changes.
1

COVID-19 Update
The COVID-19 pandemic has caused significant disruptions to the United States economy, affecting banking and other financial activities in the areas in which the Company operates. Consistent with Webster's philosophy of supporting its customers, communities, and employees in times of need, the Company is committed to providing assistance to those impacted by COVID-19. Webster continues to manage a remote work environment, and has increased the capacity limit in its buildings from 25% to 50% during the second quarter of 2021 in order to accommodate those who are comfortable returning to the office on a regular basis. Social distancing and safety protocols are in place and will remain in compliance with federal and state guidelines. Information regarding the effects and potential effects of the ongoing COVID-19 pandemic on Webster's business, operating results, and financial condition is further discussed throughout Item 2.
Results of Operations
Selected financial highlights are presented in the following table:
 At or for the three months ended March 31,
(In thousands, except per share and ratio data)20212020
Earnings:
Net interest income$223,764 $230,801 
Provision for credit losses(25,750)76,000 
Non-interest income76,757 73,378 
Non-interest expense187,982 178,836 
Net income108,078 38,199 
Earnings applicable to common shareholders105,530 36,021 
Share Data:
Weighted-average common shares outstanding - diluted90,108 91,206 
Diluted earnings per common share$1.17 $0.39 
Dividends and dividend equivalents declared per common share0.40 0.40 
Dividends declared per Series F preferred share328.13 328.13 
Book value per common share34.60 32.66 
Tangible book value per common share (non-GAAP)
28.41 26.46 
Selected Ratios:
Net interest margin2.92 %3.23 %
Return on average assets (annualized basis)
1.31 0.50 
Return on average common shareholders' equity (annualized basis)
13.65 4.75 
CET1 risk-based capital11.89 10.95 
Tangible common equity ratio (non-GAAP)
7.85 7.67 
Return on average tangible common shareholders' equity (annualized basis) (non-GAAP)
16.79 5.95 
Efficiency ratio (non-GAAP)
58.46 58.03 
The non-GAAP financial measures identified in the preceding table provide both management and investors with information useful in understanding the Company's financial position, operating results, strength of its capital position, and overall business performance. These measures are used by management for internal planning and forecasting purposes, as well as by securities analysts, investors, and other interested parties to assess peer company operating performance. Management believes that this presentation, together with the accompanying reconciliations, provides a complete understanding of the factors and trends affecting the Company's business and allows investors to view its performance in a similar manner.
The tangible common equity ratio represents shareholders’ equity less preferred stock, goodwill, and intangible assets divided by total assets less goodwill and intangible assets, and is used by management to evaluate the strength of the Company's capital position. The return on average tangible common shareholders' equity is calculated using the Company’s net income available to common shareholders, adjusted for the tax-effected amortization of intangible assets, as a percentage of average shareholders’ equity less average preferred stock, average goodwill, and intangible assets. This measure is used by management to assess Webster's performance along with its peer financial institutions. The efficiency ratio, which represents the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items in order to measure how the Company is managing its recurring operating expenses.
These non-GAAP financial measures should not be considered a substitute for GAAP (U.S. Generally Accepted Accounting Principles) basis measures and results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' Non-GAAP financial measures having the same or similar names.
The following tables reconcile non-GAAP financial measures with financial measures defined by GAAP:
2

At March 31,
(Dollars and shares in thousands, except per share data)20212020
Tangible book value per common share (non-GAAP):
Shareholders' equity (GAAP)$3,272,928 $3,090,242 
Less: Preferred stock (GAAP)145,037 145,037 
         Goodwill and other intangible assets (GAAP)559,617 559,328 
Tangible common shareholders' equity (non-GAAP)$2,568,274 $2,385,877 
Common shares outstanding90,410 90,172 
Tangible book value per common share (non-GAAP)$28.41 $26.46 
Tangible common equity ratio (non-GAAP):
Tangible common shareholders' equity (non-GAAP)$2,568,274 $2,385,877 
Total assets (GAAP)$33,259,037 $31,654,874 
Less: Goodwill and other intangible assets (GAAP)559,617 559,328 
Tangible assets (non-GAAP)$32,699,420 $31,095,546 
Tangible common equity ratio (non-GAAP)7.85 %7.67 %

Three months ended March 31,
(Dollars in thousands)20212020
Return on average tangible common shareholders' equity (non-GAAP):
Net income (GAAP)$108,078 $38,199 
Less: Preferred stock dividends (GAAP)1,969 1,969 
Add: Intangible assets amortization, tax-affected (GAAP)900 760 
Income adjusted for preferred stock dividends and intangible assets amortization (non-GAAP)$107,009 $36,990 
Income adjusted for preferred stock dividends and intangible assets amortization (annualized basis) (non-GAAP)$428,036 $147,960 
Average shareholders' equity (non-GAAP)$3,254,203 $3,193,525 
Less: Average preferred stock (non-GAAP)145,037 145,037 
 Average goodwill and other intangible assets (non-GAAP)560,173 559,786 
Average tangible common shareholders' equity (non-GAAP)$2,548,993 $2,488,702 
Return on average tangible common shareholders' equity (non-GAAP)16.79 %5.95 %
Efficiency ratio (non-GAAP):
Non-interest expense (GAAP)$187,982 $178,836 
Less: Foreclosed property activity (GAAP)91 (250)
Intangible assets amortization (GAAP)1,139 962 
Other expense (non-GAAP) (1)
9,441 — 
Non-interest expense (non-GAAP)$177,311 $178,124 
Net interest income (GAAP)$223,764 $230,801 
Add: Tax-equivalent adjustment (non-GAAP)2,495 2,473 
 Non-interest income (GAAP)76,757 73,378 
 Other income (non-GAAP) (2)
277 299 
Less: Gain on sale of investment securities, net (GAAP)— 8 
Income (non-GAAP)$303,293 $306,943 
Efficiency ratio (non-GAAP)58.46 %58.03 %
(1)Other expense (non-GAAP) includes strategic initiatives charges.
(2)Other income (non-GAAP) includes low income housing tax credits.
Financial Performance
Net income increased $69.9 million, or 182.9%, from $38.2 million for the three months ended March 31, 2020 to $108.1 million for the three months ended March 31, 2021, primarily due to a $101.8 million decrease in the provision for credit losses, which was driven by improvements to the forecasted economic outlook and favorable credit trends, as compared to that at the start of the COVID-19 pandemic.
Diluted earnings per share increased $0.78, or 200.0%, from $0.39 for the three months ended March 31, 2020 to $1.17 for the three months ended March 31, 2021.
The efficiency ratio (non-GAAP), which measures the costs expended to generate a dollar of revenue, increased 43 basis points from 58.03% for the three months ended March 31, 2020 to 58.46% for the three months ended March 31, 2021.
3

The following table presents daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis:
 Three months ended March 31,
 20212020
(Dollars in thousands)Average
Balance		InterestYield/ RateAverage
Balance		InterestYield/ Rate
Assets
Interest-earning assets:
Loans and leases$21,481,320 $191,288 3.57 %$20,324,799 $216,918 4.24 %
Investment Securities (1)
8,890,075 46,277 2.12 8,319,747 58,408 2.85 
FHLB and FRB stock77,632 237 1.24 126,364 1,251 3.98 
Interest-bearing deposits (2)
680,367 176 0.10 68,307 191 1.11 
Securities9,648,074 46,690 1.97 8,514,418 59,850 2.86 
Loans held for sale14,351 91 2.54 22,297 175 3.14 
Total interest-earning assets31,143,745 $238,069 3.08 %28,861,514 $276,943 3.84 %
Non-interest-earning assets1,982,315 1,930,996 
Total assets$33,126,060 $30,792,510 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits$6,436,858 $— — %$4,516,906 $— — %
Health savings accounts7,451,175 1,607 0.09 6,761,358 3,296 0.20 
Interest-bearing checking, money market, and savings11,995,473 1,720 0.06 9,716,974 12,403 0.51 
Time deposits2,371,026 3,112 0.53 3,067,557 12,144 1.59 
Total deposits28,254,532 6,439 0.09 24,062,795 27,843 0.47 
Securities sold under agreements to repurchase and other borrowings522,728 635 0.49 1,296,925 3,730 1.14 
FHLB advances135,787 513 1.51 1,325,899 6,869 2.05 
Long-term debt (1)
567,058 4,223 3.23 551,250 5,227 4.00 
Total borrowings1,225,573 5,371 1.82 3,174,074 15,826 2.00 
Total interest-bearing liabilities29,480,105 $11,810 0.16 %27,236,869 $43,669 0.64 %
Non-interest-bearing liabilities391,752 362,116 
Total liabilities29,871,857 27,598,985 
Preferred stock145,037 145,037 
Common shareholders' equity3,109,166 3,048,488 
Total shareholders' equity3,254,203 3,193,525 
Total liabilities and shareholders' equity$33,126,060 $30,792,510 
Tax-equivalent net interest income$226,259 $233,274 
Less: Tax-equivalent adjustments(2,495)(2,473)
Net interest income$223,764 $230,801 
Net interest margin2.92 %3.23 %
(1)For purposes of our yield/rate computation, unrealized gain (loss) balances on available-for-sale securities and senior fixed-rate notes hedges are excluded.
(2)Interest-bearing deposits is a component of cash and cash equivalents on the accompanying Condensed Consolidated Statements of Cash Flows.

4

Net interest income (NII) and net interest margin are impacted by the level of interest rates, mix of assets earning and liabilities bearing those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These factors are influenced by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing strategies, as well as the extent of interest lost to non-performing assets.
NII is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. NII is the Company's largest source of revenue, representing 74.5% of total revenue for the three months ended March 31, 2021.
Net interest margin is the ratio of tax-equivalent net interest income to average earning assets for the period.
Webster manages the risk of changes in interest rates on net interest income and net interest margin through its Asset/Liability Committee (ALCO) and through related interest rate risk monitoring and management policies. ALCO meets at least monthly to make decisions on the investment securities and funding portfolios based on the economic outlook, its interest rate expectations, the portfolio risk position, and other factors.
Four main tools are used for managing interest rate risk:
•the size, duration, and credit risk of the investment portfolio;
•the size and duration of the wholesale funding portfolio;
•interest rate contracts; and
•the pricing and structure of loans and deposits.
The federal funds rate target range was 0-0.25% at both March 31, 2021 and December 31, 2020, and 1.50-1.75% at December 31, 2019. The benchmark 10-year U.S. Treasury rate increased to 1.74% at March 31, 2021 from 0.93% at December 31, 2020, as compared to 1.92% at December 31, 2019. Refer to the "Asset/Liability Management and Market Risk" section for further discussion of Webster's interest rate risk position.
Net Interest Income
Net interest income decreased $7.0 million, or 3.05%, from $230.8 million for the three months ended March 31, 2020 to $223.8 million for the three months ended March 31, 2021. The quarter-over-quarter decrease in net interest income was also $7.0 million on a full tax-equivalent basis.
Net interest margin decreased 31 basis points from 3.23% for the three months ended March 31, 2020 to 2.92% for the three months ended March 31, 2021. The decrease was due to lower loan and securities yields, partially offset by both deposit and borrowings costs and Small Business Administration Paycheck Protection Program (PPP) loan activity.
Changes in Net Interest Income
The following table presents the components of the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:
Three months ended March 31,
2021 vs. 2020
Increase (decrease) due to
(In thousands)
Rate (1)
VolumeTotal
Change in interest on interest-earning assets:
Loans and leases$(40,473)$14,843 $(25,630)
Loans held for sale(23)(61)(84)
Securities (2)
(18,413)5,253 (13,160)
Total interest income$(58,909)$20,035 $(38,874)
Change in interest on interest-bearing liabilities:
Deposits$(21,709)$305 $(21,404)
Borrowings(1,887)(8,568)(10,455)
Total interest expense$(23,596)$(8,263)$(31,859)
Net change in net interest income$(35,313)$28,298 $(7,015)
(1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
(2)Securities include: investment securities, Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, and interest-bearing deposits.
5

Average loans and leases for the three months ended March 31, 2021 increased $1.2 billion as compared to the average balance for the three months ended March 31, 2020, primarily due to PPP loans. The loan and lease portfolio comprised 69.0% of the average interest-earning assets at March 31, 2021 as compared to 70.4% of the average interest-earning assets at March 31, 2020. The loan and lease portfolio yield decreased 67 basis points from 4.24% for the three months ended March 31, 2020 to 3.57% for the three months ended March 31, 2021. The decrease in yield is primarily due to lower market rates.
Average securities for the three months ended March 31, 2021 increased $1.1 billion as compared to the average balance for the three months ended March 31, 2020. The securities portfolio comprised 31.0% of the average interest-earning assets at March 31, 2021 as compared to 29.5% of the average interest-earning assets at March 31, 2020. The securities portfolio yield decreased 89 basis points from 2.86% for the three months ended March 31, 2020 to 1.97% for the three months ended March 31, 2021. The decrease in yield is primarily due to higher premium amortization and lower yield from newly purchased securities.
Average total deposits for the three months ended March 31, 2021 increased $4.2 billion as compared to the average balance for the three months ended March 31, 2020. The increase was driven by transactional deposit products resulting from stimulus payments and reduced customer spending. The average cost of deposits decreased 38 basis points from 0.47% for the three months ended March 31, 2020 to 0.09% for the three months ended March 31, 2021. The average cost of deposits decreased due to deposit product mix and reductions in the federal funds rate. Higher cost time deposits decreased as a percentage of total interest-bearing deposits from 15.7% for the three months ended March 31, 2020 to 10.9% for the three months ended March 31, 2021, primarily due to customer preference for more liquid deposit products.
Average total borrowings for the three months ended March 31, 2021 decreased $1.9 billion as compared to the average balance for the three months ended March 31, 2020. Specifically, average securities sold under agreements to repurchase and other borrowings decreased $774.2 million and average FHLB advances decreased $1.2 billion. The average cost of borrowings decreased 18 basis points from 2.00% for the three months ended March 31, 2020 to 1.82% for the three months ended March 31, 2021. The decrease is primarily a result of lower market rates and paying down higher rate FHLB advances enabled by the increase in deposits.
Provision for Credit Losses
The provision for credit losses decreased $101.8 million, reflecting a benefit of $25.8 million for the three months ended March 31, 2021 as compared to an expense of $76.0 million for the three months ended March 31, 2020. The decrease in the provision is attributed to improvements in the forecasted economic outlook and favorable credit trends, as compared to that at the start of the COVID-19 pandemic. Total net charge-offs were $5.3 million and $7.8 million for the three months ended March 31, 2021 and 2020, respectively.
The allowance for credit losses on loan and leases coverage ratio decreased 12 basis points from 1.66% at December 31, 2020 to 1.54% at March 31, 2021. Refer to the sections captioned "Loans and Leases" through "Troubled Debt Restructurings," contained elsewhere in the report for further details.
6

Non-Interest Income
Three months ended March 31,
 Increase (decrease)
(Dollars in thousands)20212020AmountPercent
Deposit service fees$40,469 $42,570 $(2,101)(4.9)%
Loan and lease related fees8,313 6,496 1,817 28.0 
Wealth and investment services9,403 8,739 664 7.6 
Mortgage banking activities2,642 2,893 (251)(8.7)
Increase in cash surrender value of life insurance policies3,533 3,580 (47)(1.3)
Gain on sale of investment securities, net— 8 (8)(100.0)
Other income12,397 9,092 3,305 36.4 
Total non-interest income$76,757 $73,378 $3,379 4.6 
Comparison to Prior Year Quarter
Total non-interest income was $76.8 million for the three months ended March 31, 2021, an increase of $3.4 million from the three months ended March 31, 2020.
Deposit service fees totaled $40.5 million for the three months ended March 31, 2021, as compared to $42.6 million for the three months ended March 31, 2020. The decrease was primarily due to lower overdraft and service related fees.
Loan and lease related fees totaled $8.3 million for the three months ended March 31, 2021, as compared to $6.5 million for the three months ended March 31, 2020. The increase was primarily due to higher syndication fees.
Other income totaled $12.4 million for the three months ended March 31, 2021, as compared to $9.1 million for the three months ended March 31, 2020. The increase was primarily due to fair value adjustments on derivatives.
Non-Interest Expense
Three months ended March 31,
 Increase (decrease)
(Dollars in thousands)20212020AmountPercent
Compensation and benefits$107,600 $101,887 $5,713 5.6 %
Occupancy15,650 14,485 1,165 8.0 
Technology and equipment28,516 27,837 679 2.4 
Intangible assets amortization1,139 962 177 18.4 
Marketing2,504 3,502 (998)(28.5)
Professional and outside services9,776 5,663 4,113 72.6 
Deposit insurance3,956 4,725 (769)(16.3)
Other expense18,841 19,775 (934)(4.7)
Total non-interest expense$187,982 $178,836 $9,146 5.1 
Comparison to Prior Year Quarter
Total non-interest expense was $188.0 million for the three months ended March 31, 2021, an increase of $9.1 million from the three months ended March 31, 2020. The increase was primarily attributable to the $9.4 million in strategic initiatives charges incurred during the three months ended March 31, 2021.
7

Income Taxes
Webster recognized income tax expense of $30.2 million for the three months ended March 31, 2021 and $11.1 million for the three months ended March 31, 2020, reflecting effective tax rates of 21.8% and 22.6%, respectively.
The increase in tax expense is due to a higher level of pre-tax income for the three months ended March 31, 2021 as compared to the same period in 2020. The decrease in the effective tax rate for the three months ended March 31, 2021 as compared to the same period in 2020 reflects the recognition of $1.6 million of net tax benefits specific to the three months ended March 31, 2021, which includes $1.5 million of excess tax benefits from stock-based compensation, as compared to $42 thousand of net tax expense specific to the three months ended March 31, 2020, which included tax deficiencies of $0.5 million from stock-based compensation. The decrease is partially offset by the effects of a higher level of pre-tax income estimated for 2021 as compared to 2020.
For additional information on Webster's income taxes, including its deferred tax assets (DTAs), refer to Note 10: Income Taxes in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Segment Reporting
Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Retail Banking. These segments reflect how executive management responsibilities are assigned, the type of customer served, how products and services are provided, and how discrete financial information is evaluated. Segments are evaluated using pre-tax, pre-provision net revenue (PPNR). Certain Treasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category. For additional information regarding the Company’s reportable segments and its segment reporting methodology refer to Note 17: Segment Reporting in the Notes to the Condensed Consolidated Financial Statements contained elsewhere in this report.
Effective January 1, 2021, management realigned certain of the Company's business banking and investment services operations to better serve its customers and deliver operational efficiencies. Also, the previously reported Community Banking segment was renamed as Retail Banking. Under this realignment, $1.9 billion of loans, $2.2 billion of deposits, and $3.9 billion of assets under administration (off-balance sheet) were reassigned from Retail Banking to Commercial Banking. Additionally, $131.0 million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. Prior period amounts have been recasted to reflect the realignment.
The following is a description of Webster’s three reportable segments and their primary services:
Commercial Banking serves businesses that have more than $2 million of revenue through its business banking, middle market, asset-based lending, equipment finance, commercial real estate lending, sponsor finance, and treasury services business units. Additionally, its Wealth group provides wealth management solutions to business owners, operators, and consumers within the Company's targeted markets and retail footprint.
HSA Bank offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement accounts, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws. HSAs are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors.
HSA Bank deposits provide long duration low-cost funding that is used to minimize the Company’s use of wholesale funding in support of its loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income.
Retail Banking serves consumer and small business banking customers by offering consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit card products through its consumer lending and small business banking business units.
Retail Banking operates a distribution network consisting of 148 banking centers and 280 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and into Westchester County, New York.
8

Commercial Banking
Operating Results:
Three months ended March 31,
(In thousands)20212020
Net interest income$142,038 $117,587 
Non-interest income25,177 22,416 
Non-interest expense64,836 65,221 
Pre-tax, pre-provision net revenue$102,379 $74,782 
Comparison to Prior Year Quarter
PPNR increased $27.6 million for the three months ended March 31, 2021 as compared to the same period in 2020. Net interest income increased $24.5 million, primarily driven by PPP loan fee accretion due to forgiveness and growth in loans and deposits. Non-interest income increased $2.8 million, driven by higher loan related fees and trust and investment service fees. Non-interest expense decreased $0.4 million.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)At March 31,
2021		At December 31,
2020
Loans and leases$14,412,921 $14,573,343 
Deposits8,416,526 8,190,997 
Assets under administration/management (off-balance sheet)
6,694,058 6,585,795 
Loans and leases decreased $160.4 million at March 31, 2021 as compared to December 31, 2020. Loan originations in the three months ended March 31, 2021 and 2020 were $1.0 billion and $0.8 billion, respectively. The loan decrease was primarily related to increased prepayment activity, which was partially offset by new originations. Included in the March 31, 2021 balance was $314.2 million of second round PPP loan originations, which were mostly held as deposits.
Deposits increased $225.5 million at March 31, 2021 as compared to December 31, 2020. The increase was primarily driven by PPP loan fundings and client liquidity needs as a result of COVID-19.
Commercial Banking held approximately $4.8 billion and $4.7 billion in assets under administration at March 31, 2021 and December 31, 2020, respectively, and $1.9 billion in assets under management, at both March 31, 2021 and December 31, 2020. The increase in assets under administration was due to both new business and market appreciation, partially offset by seasonal outflows for income tax payments.
9

HSA Bank
Operating Results:
Three months ended March 31,
(In thousands)20212020
Net interest income$42,109 $42,673 
Non-interest income27,005 26,383 
Non-interest expense36,250 37,078 
Pre-tax net revenue$32,864 $31,978 
Comparison to Prior Year Quarter
Pre-tax net revenue increased $0.9 million for the three months ended March 31, 2021 as compared to the same period in 2020. Net interest income decreased $0.6 million, due to a decline in deposit spreads partially offset by growth in deposits. Non-interest income increased $0.6 million, primarily due to increases in investment and notional account fees. Non-interest expense decreased $0.8 million, primarily due to reduced travel expenses.
Selected Balance Sheet and Off-Balance Sheet Information:
(In thousands)At March 31,
2021		At December 31,
2020
Deposits$7,455,181 $7,120,017 
Assets under administration, through linked brokerage accounts (off-balance sheet)
3,118,479 2,852,877 
Total footings$10,573,660 $9,972,894 
Deposits increased $335.2 million at March 31, 2021 as compared to December 31, 2020, due to new accounts, as well as organic growth in existing account balances.
HSA Bank deposits accounted for 26.2% and 26.0% of total deposits at March 31, 2021 and December 31, 2020, respectively.
Assets under administration, through linked brokerage accounts, increased $265.6 million at March 31, 2021 as compared to December 31, 2020, primarily due to an increase in the number of account holders, as well as market appreciation during the quarter.
10

Retail Banking
Operating Results:
Three months ended March 31,
(In thousands)20212020
Net interest income$88,813 $81,199 
Non-interest income16,071 18,443 
Non-interest expense76,124 80,290 
Pre-tax, pre-provision net revenue$28,760 $19,352 
Comparison to Prior Year Quarter
PPNR increased $9.4 million for the three months ended March 31, 2021 as compared to the same period in 2020. Net interest income increased $7.6 million, driven by PPP loan fee accretion and deposit growth, partially offset by lower consumer loan balances. Non-interest income decreased $2.4 million, resulting from lower deposit-related service charges and fee income from mortgage banking activities, partially offset by higher loan servicing fee income. Non-interest expense decreased $4.2 million, driven by lower employee-related, occupancy, and marketing expenses.
Selected Balance Sheet Information:
(In thousands)At March 31,
2021		At December 31,
2020
Loans$6,888,387 $7,067,818 
Deposits12,610,962 12,023,600 
Loans decreased $179.4 million at March 31, 2021 as compared to December 31, 2020. The decrease is due to lower residential mortgage, home equity, and other consumer loan balances, partially offset by higher small business loan balances.
Loan originations during the three months ended March 31, 2021 and 2020 were $849.6 million and $409.3 million, respectively. The $440.3 million increase resulted from $218.8 million of second round PPP loan originations coupled with increased residential mortgage and home equity originations in the low interest rate environment.
Deposits increased $587.4 million at March 31, 2021 as compared to December 31, 2020, primarily due to two government stimulus payments to consumers and PPP loan fundings, coupled with seasonally higher balances in business and consumer transaction accounts. This also drove balance increases in savings and money market products, partially offset by a decline in certificate of deposit balances.

11

Financial Condition
Total assets were $33.3 billion at March 31, 2021 as compared to $32.6 billion at December 31, 2020. The $0.7 billion increase was primarily driven a $1.1 billion increase in interest-bearing deposits, partially offset by decreases of $339.8 million in loans, $12.9 million in investment securities, and $117.0 million in accrued interest receivable and other assets.
Total liabilities were $30.0 billion at March 31, 2021 as compared to $29.4 billion at December 31, 2020. The $0.6 billion increase was primarily driven by a $1.1 billion increase in deposits, specifically increases of $0.5 billion, $0.3 billion, $0.3 billion in demand deposits, interest-bearing deposits, and HSA deposits, respectively, partially offset by a $0.5 billion decrease in securities sold under agreements to repurchase and other borrowings.
Total shareholders' equity was $3.3 billion at March 31, 2021 as compared to $3.2 billion at December 31, 2020. The $38.3 million increase reflects $108.1 million of net income recognized during the quarter plus $34.0 million of other comprehensive loss (OCL), less $36.2 million and $2.0 million in dividends paid to common and preferred shareholders, respectively.
Book value per common share was $34.60 at March 31, 2021, as compared to $34.25 at December 31, 2020. On April 21, 2021, the Board of Directors declared a quarterly cash dividend to shareholders of $0.40 per common share. The Company will continue to monitor its ability to pay dividends at this level. Due to the Company's announcement of its pending merger agreement with Sterling, Webster is restricted from paying quarterly cash dividends in excess of the current level until the transaction is closed.
As of March 31, 2021, both the Company and the Bank were considered well-capitalized, meeting all capital requirements under the Basel III Capital Rules. In accordance with regulatory capital rules, the Company elected the option to delay the impact of the adoption of CECL on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. Therefore, capital ratios and amounts as of March 31, 2021 exclude the impact of the increased allowance for credit losses on loans and leases, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of current expected credit losses (CECL). This resulted in a 28, 20, 28, and 19 basis point benefit to the Company's CET1 risk based capital, total risk based capital, tier 1 risk based capital, and tier 1 leverage capital, respectively, at March 31, 2021. The Company's capital ratios remain in excess of well capitalized even without the benefit of the CECL impact delay.
Refer to the selected financial highlights under the "Results of Operations" section and Note 12: Regulatory Matters in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for information on regulatory capital levels and ratios.
12

Investment Securities
Webster Bank's investment securities are managed within regulatory guidelines and corporate policy, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. The Office of the Comptroller of the Currency (OCC) may establish additional individual limits on a certain type of investment if the concentration in such investment presents a safety and soundness concern. In addition to Webster Bank, the Holding Company may also directly hold investment securities. At March 31, 2021, the Company had no holdings in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.
Through its Corporate Treasury function, Webster maintains investment securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest-rate risk. Investment securities are classified into two major categories: available-for-sale, which currently consists of agency collateralized mortgage obligations (Agency CMO); agency mortgage-backed securities (Agency MBS); agency commercial mortgage-backed securities (Agency CMBS); non-agency commercial mortgage-backed securities (CMBS); collateralized loan obligations (CLO); and corporate debt, and held-to-maturity, which currently consists of Agency CMO; Agency MBS; Agency CMBS; municipal bonds and notes; and CMBS. Investment securities had a carrying value and an average risk weighting for regulatory purposes of $8.9 billion and 13%, respectively, at both March 31, 2021 and December 31, 2020.
Available-for-sale investment securities decreased $12.8 million, primarily due to paydowns, particularly for Agency CMBS and Agency MBS, exceeding purchase activity. The tax-equivalent yield in the portfolio was 1.83% for the three months ended March 31, 2021 as compared to 2.77% for the three months ended March 31, 2020. Available-for-sale investment securities are evaluated for credit losses on a quarterly basis. Unrealized losses on these securities are attributable to factors other than credit loss, and therefore no ACL has been recorded. Further, the Company does not have the intent to sell these investment securities, and it is more likely than not that it will not be required to sell these securities before the recovery of their cost basis. Gross unrealized losses on available-for-sale investment securities were $20.2 million at March 31, 2021.
Held-to-maturity investment securities decreased $0.1 million, primarily due to paydowns in excess of purchase activity. The tax-equivalent yield in the portfolio was 2.29% for the three months ended March 31, 2021 as compared to 2.90% for the three months ended March 31, 2020. Held-to-maturity investment securities are evaluated for credit losses on a quarterly basis under CECL. The ACL on investment securities held-to-maturity was $0.3 million at March 31, 2021. Gross unrealized losses on held-to-maturity investment securities were $27.8 million at March 31, 2021.
The following table summarizes the amortized cost and fair value of investment securities:
 At March 31, 2021At December 31, 2020
(In thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Available-for-sale:
Agency CMO$132,613 $5,109 $(119)$137,603 $148,711 $6,000 $(98)$154,613 
Agency MBS1,408,543 55,423 (7,510)1,456,456 1,389,100 68,598 (289)1,457,409 
Agency CMBS975,433 9,819 (10,667)974,585 1,092,430 26,317 (1,514)1,117,233 
CMBS662,805 1,193 (985)663,013 512,759 1,082 (5,823)508,018 
CLO68,700 12 (69)68,643 76,693 — (310)76,383 
Corporate debt14,563 6 (889)13,680 14,557 — (1,437)13,120 
Available-for-sale$3,262,657 $71,562 $(20,239)$3,313,980 $3,234,250 $101,997 $(9,471)$3,326,776 
Held-to-maturity:
Agency CMO$74,319 $1,494 $(97)$75,716 $91,622 $1,785 $(241)$93,166 
Agency MBS2,365,314 104,626 (4,824)2,465,116 2,419,751 137,863 (84)2,557,530 
Agency CMBS2,182,794 28,832 (22,872)2,188,754 2,101,227 60,484 (2,213)2,159,498 
Municipal bonds and notes735,969 49,669 — 785,638 739,507 60,371 (3)799,875 
CMBS209,697 5,805 — 215,502 216,081 9,214 — 225,295 
Held-to-maturity$5,568,093 $190,426 $(27,793)$5,730,726 $5,568,188 $269,717 $(2,541)$5,835,364 
Webster Bank has the ability to use its investment portfolio, as well as interest-rate derivative financial instruments, within internal policy guidelines to hedge and manage interest-rate risk as part of its asset/liability strategy. Refer to Note 14: Derivative Financial Instruments in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.
13

Loans and Leases
The following table provides the composition of loans and leases:
 At March 31, 2021At December 31, 2020
(Dollars in thousands)Amount%Amount%
Commercial non-mortgage$6,918,626 32.4 $7,085,076 32.8 
Asset-based907,421 4.3 890,598 4.1 
Commercial real estate6,338,056 29.8 6,322,637 29.2 
Equipment financing611,440 2.9 602,224 2.8 
Residential4,668,945 21.9 4,782,016 22.1 
Home equity1,724,599 8.1 1,802,865 8.3 
Other consumer132,296 0.6 155,799 0.7 
Total loans and leases$21,301,383 100.0 $21,641,215 100.0 

Total commercial non-mortgage and asset-based loans were $7.8 billion at March 31, 2021, reflecting a decrease of $149.6 million from December 31, 2020. The net decrease is primarily the result of higher principal paydowns.
Commercial real estate loans were $6.3 billion at March 31, 2021, reflecting an increase of $15.4 million from December 31, 2020. The increase is a result of originations of $185.8 million, partially offset by loan payments.
Equipment financing was $611.4 million at March 31, 2021, reflecting an increase of $9.2 million from December 31, 2020. The increase is a result of originations of $65.4 million, partially offset by loan payments.
Residential loans were $4.7 billion at March 31, 2021, reflecting a decrease of $113.1 million from December 31, 2020. The net decrease is a result of higher prepayments partially offset by originations of $420.6 million.
Total home equity and other consumer loans were $1.9 billion at March 31, 2021, reflecting a decrease of $101.8 million from December 31, 2020. The decrease is primarily due to continued net principal paydowns within the home equity lines.
Credit Policies and Procedures
Webster Bank has credit policies and procedures in place designed to support lending activity within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. Webster has implemented incremental monitoring procedures in connection with COVID-19.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Assessment of management is a critical element of the underwriting process and overall credit decision. Once it is determined that the borrower’s management possesses sound ethics and a solid business acumen, current and projected cash flows are examined to determine the ability of the borrower to repay its agreed upon obligations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. However, the cash flows of borrowers may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate personal guarantees of the principal amounts.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. Management periodically utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.
Consumer loans are subject to policies and procedures developed to manage the risk characteristics of the portfolio. Policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized structures spread across many different borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis with policies and procedures modified, or developed, as needed. Underwriting factors for mortgage and home equity loans include the borrower’s Fair Isaac Corporation (FICO) score, the loan amount relative to property value, and the borrower’s debt to income level, and are also influenced by regulatory requirements. Additionally, Webster Bank originates both qualified mortgage and non-qualified mortgage loans as defined by applicable Consumer Financial Protection Bureau (CFPB) rules.
14

Loan Modifications
Webster works with customers to modify loan agreements when borrowers are experiencing financial difficulties. Webster will modify a loan in order to minimize the risk of loss and achieve the best possible outcome for both the borrower and the Company. Loan modifications can take various forms and include payment deferrals, rate reductions, covenant waivers, term extensions, or other action. Depending on the nature of modification, it may, or may not, be accounted for as a troubled debt restructuring (TDR).
COVID-19 Payment Modification Activities
The Company has accommodated over 2,500 customers impacted by COVID-19 through payment-related deferrals. As of March 31, 2021, loan balances associated with these modifications, in their deferral period, totaled approximately $253.5 million. This balance includes all loans associated with a customer relationship where at least one loan has been modified or is in process of modification. A significant portion of the loan balances associated with these modifications would not be considered a TDR based on the nature of the modification. Certain other modifications that would otherwise be considered a TDR are subject to TDR accounting relief through the CARES Act and Interagency Statement. Included in the $253.5 million are the $137.0 million of loan balances associated with the CARES Act and Interagency Statement, as discussed below. The Company continues to actively monitor customer relationships associated with these modified loans. The impact of these modifications is reflected in our allowance for credit losses on loans and leases.
The CARES Act and Interagency Statement
In response to the COVID-19 pandemic, financial institutions were provided relief from certain TDR accounting and disclosure requirements for qualifying loan modifications. Specifically, Section 4013 of the CARES Act, extended by the Consolidated Appropriations Act, 2021, provided temporary relief from certain GAAP requirements for modifications related to COVID-19. In addition, a group of banking regulatory agencies issued a revised Interagency Statement that offers practical expedients for evaluating whether COVID-19 loan modifications are TDRs.
As of March 31, 2021, loan balances associated with loan modifications designated in connection with these relief provisions in their deferral period totaled approximately $137.0 million. These modifications represent payment deferrals, generally three to six months in length. The $64.4 million decrease from $201.4 million at December 31, 2020 is primarily the result of borrowers exiting their payment deferral period. The Company will continue to evaluate the effectiveness of the loan modification program as the deferral periods end. For additional information on the accounting for loan modifications under Section 4013 of the CARES Act and the Interagency Statement, refer to Note 1 to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.
Troubled Debt Restructurings
A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Common modifications include material changes in covenants, pricing, and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus, are impaired at the date of discharge and charged down to the fair value of collateral less costs to sell.
The Company’s policy is to place consumer loan TDRs on non-accrual status for a minimum period of six months, except for those that were performing prior to TDR status. Commercial TDRs are evaluated on a case-by-case basis for determination of accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. Generally, a TDR is classified and reported as a TDR for the remaining life of the loan. TDR classification may be removed if the loan was restructured under market conditions and the borrower demonstrates compliance with the modified terms for a minimum period of six months. In the limited circumstance that a loan is removed from TDR classification, it is the Company’s policy to continue to base its measure of credit loss on the contractual terms specified by the loan agreement.
15

The following tables provide information for loans classified as TDRs:
Three months ended March 31,
(In thousands)20212020
Beginning balance$235,427 $237,438 
Additions2,644 30,964 
Paydowns, net of draws(13,896)(7,773)
Charge-offs(1,922)(1,206)
Transfers to OREO(151)(1,296)
Ending balance$222,102 $258,127 

(In thousands)At March 31,
2021		At December 31,
2020
Accrual status $138,379 $140,089 
Non-accrual status 83,723 95,338 
Total TDRs $222,102 $235,427 
Specific reserves for TDRs included in the balance of ACL on loans and leases$14,293 $12,728 
Additional funds committed to borrowers in TDR status 14,606 12,895 
TDR balances decreased $13.3 million at March 31, 2021 as compared to December 31, 2020. Specific reserves for TDRs increased from year end reflective of management’s current assessment of reserve requirements. Qualifying loan modifications in connection with Section 4013 of the CARES Act or Interagency Statement are excluded from TDR identification.
Past Due Loans and Leases
The following table provides information on loans and leases that are accruing income and are past due 30 days or more:
At March 31, 2021At December 31, 2020
(Dollars in thousands)
Amount (1)
% (2)
Amount (1)
% (2)
Commercial non-mortgage$1,580 0.02 $1,503 0.02 
Asset-based lending— — 1,175 0.13 
Commercial real estate699 0.01 3,003 0.05 
Equipment financing5,815 0.96 7,415 1.24 
Residential 5,241 0.11 10,623 0.22 
Home equity5,871 0.34 7,246 0.41 
Other consumer1,165 0.88 1,474 0.95 
Loans and leases past due 30-89 days20,371 0.10 32,439 0.15 
Commercial non-mortgage loans and leases past due 90 days and accruing50 — 445 0.01 
Total20,421 0.10 32,884 0.15 
Net deferred fees (costs) and net premiums (discounts)61 98 
Total loans and leases past due 30 days or more and accruing income$20,482 $32,982 
(1)Past due loans and leases exclude non-accrual loans and leases.
(2)Represents the principal balance of loans and leases that are accruing income and are past due 30 days as a percentage of the outstanding principal balance within the comparable loan and lease category.
Loans and leases that are accruing income and are past due 30 days or more decreased $12.5 million at March 31, 2021 as compared to December 31, 2020. The ratio of loans and leases that are accruing income and are past due 30 days or more as a percentage of total loans and leases decreased to 0.10% at March 31, 2021 as compared to 0.15% at December 31, 2020.
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Non-performing Assets
The following table provides information on non-performing assets:
 At March 31, 2021At December 31, 2020
(Dollars in thousands)Amount
% (1)
Amount
% (1)
Commercial non-mortgage$54,023 0.77 $64,200 0.90 
Asset-based2,430 0.27 2,622 0.29 
Commercial real estate13,743 0.22 21,222 0.34 
Equipment financing6,080 1.00 7,299 1.22 
Residential42,708 0.92 41,033 0.86 
Home equity30,842 1.80 30,980 1.73 
Other consumer595 0.45 649 0.42 
Total non-accrual loans and leases150,421 0.71 168,005 0.78 
Net deferred fees (costs) and net premiums (discounts)(60)(45)
Amortized cost of non-accrual loans and leases (2)
$150,361 $167,960 
Total non-accrual loans and leases$150,421 $168,005 
Foreclosed and repossessed assets:
Commercial non-mortgage
102 175 
Residential and consumer2,285 2,134 
Total foreclosed and repossessed assets2,387 2,309 
Total non-performing assets$152,808 $170,314 
(1)Represents the principal balance of non-accrual loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category.
(2)Includes non-accrual TDRs of $83.7 million and $95.3 million at March 31, 2021 and December 31, 2020, respectively.
Non-performing assets decreased $17.5 million at March 31, 2021 as compared to December 31, 2020. Non-performing assets as a percentage of total assets decreased to 0.46% at March 31, 2021 as compared to 0.52% at December 31, 2020.
The following table provides details of non-performing loan and lease activity:
Three months ended March 31,
(In thousands)20212020
Beginning balance$168,005 $150,906 
Additions16,368 33,314 
Paydowns, net of draws(26,893)(10,210)
Charge-offs(6,908)(8,950)
Other(151)(2,767)
Ending balance$150,421 $162,293 

17

Asset Quality
The Company manages its asset quality leveraging established risk tolerance levels through its underwriting standards, servicing, and portfolio management of loans and leases. Loans and leases, particularly where a heightened risk of loss has been identified, are regularly monitored to mitigate further deterioration that could potentially impact key measures of asset quality in future periods. Management considers past due loans and leases, non-performing assets, and credit loss levels to be key measures of asset quality.
The following table provides key asset quality ratios:
At March 31,
2021		At December 31, 2020
Non-performing loans and leases as a percentage of loans and leases 0.71 %0.78 %
Non-performing assets as a percentage of loans and leases plus other real estate owned (OREO)0.72 0.79 
Non-performing assets as a percentage of total assets 0.46 0.52 
ACL on loans and leases as a percentage of non-performing loans and leases218.29 213.94 
ACL on loans and leases as a percentage of loans and leases1.54 1.66 
Net charge-offs as a percentage of average loans and leases (1)
0.10 0.21 
Ratio of ACL on loans and leases to net charge-offs (1)
15.43x7.97x
(1)Calculated for the March 31, 2021 period based on annualized year-to-date net charge-offs.
These ratio calculations include the impact of PPP loans totaling $1.3 billion for which there was no allowance for credit losses recorded at both March 31, 2021 and December 31, 2020.
Potential Problem Loans and Leases
Potential problem loans and leases are defined by management as certain loans and leases that, for:
•the commercial portfolio, are performing loans and leases classified as Substandard and have a well-defined weakness that could jeopardize the full repayment of the debt; and
•the consumer portfolio, are performing loans that are accruing income and are 60-89 days past due.
Potential problem loans and leases exclude loans and leases that are accruing income and are past due 90 days or more, non-accrual loans and leases, and TDRs. Certain loans with modifications related to COVID-19 are not reflected as potential problem loans and have not reported as TDRs due to relief provisions of the CARES Act and Interagency Statement, as discussed elsewhere in section. As uncertainties related to the pandemic still exist, there is a risk that some of these modified loans may become potential problem loans at a later date.
Management monitors potential problem loans and leases due to a higher degree of risk associated with those loans and leases. The current expectation of lifetime losses is included in the ACL on loans and leases, however management cannot predict whether these potential problem loans and leases ultimately will become non-performing or result in a loss. The Company had potential problem loans and leases of $334.4 million at March 31, 2021 as compared to $335.1 million at December 31, 2020.
Allowance for Credit Losses on Loans and Leases
Methodology
The Company's policy for ACL on loans and leases is considered a critical accounting policy. The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases for the credit losses expected to occur over the life of the asset. Executive management reviews and advises on the adequacy of the reserve, which is maintained at a level management deems sufficient to cover expected losses within each of the loan and lease portfolios.
The ACL on loans and leases is determined using the CECL model, which requires recognition of expected lifetime credit losses at the purchase or origination of an asset. Expected losses are determined through a pooled, collective assessment of loans and leases with similar risk characteristics. If the risk characteristics of a loan or lease change and no longer match that of the collective assessment pool, it is removed and individually assessed for credit impairment. Management applies significant judgments and assumptions that influence the loss estimate and ACL on loan and lease balances.
Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on the commercial and consumer portfolios and expected losses are determined using a Probability of Default/Loss Given Default/Exposure at Default (PD/LGD/EAD) framework. Expected credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the current exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. The Company’s PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, and credit risk ratings. The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. Macroeconomic variables are selected based on
18

the correlation of the variables to credit losses for each class of financing receivable. Data from the baseline forecast scenario is used as the input to the model loss calculation. After the reasonable and supportable forecast period, the Company reverts to historical loss rates for the remaining life of the loans and leases on a straight-line basis over a one-year reversion period. The calculation of exposure at default follows an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans of similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses and principal paydown (PPD). PPD is the combination of contractual repayment and prepayment. A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics, which are not reflected or captured in the quantitative models but are likely to impact the measurement of estimated credit losses.
Individually Assessed Loans and Leases. When loans and leases no longer match the risk characteristics of the collective assessment pool, they are removed from the collectively assessed population and individually assessed for credit losses. Generally, all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans when the borrower is experiencing financial difficulty, are individually assessed. Individual assessment calculations are either based on the fair value of the collateral less estimated costs to sell, the present value of the expected cash flows from operation of the collateral, discounted cash flows, or other individual assessment approach, as appropriate.
A fair value shortfall relative to the amortized cost balance is reflected as an impairment reserve within the ACL on loans and leases. Subsequent to an appraisal or other fair value estimate, should reliable information come to management's attention that the value has declined further, additional impairment may be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases. Any individually assessed loan for which no specific valuation allowance was necessary is the result of either sufficient cash flow or sufficient collateral coverage relative to the amortized cost. If the credit quality subsequently improves, the allowance is reversed up to a maximum of the previously recorded credit loss.
The ACL on loans and leases represents the total of estimated losses calculated through collective and individual assessments. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. While actual future conditions and losses realized may vary significantly from present judgments and assumptions, management believes the ACL on loans and leases is adequate as of March 31, 2021. For additional information on the Company's ACL methodology, refer to Note 1 to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.
Allowance for Credit Losses on Loans and Leases Balances and Ratios
The ACL on loans and leases decreased $31.0 million, or 8.6%, from $359.4 million at December 31, 2020 to $328.4 million at March 31, 2021. The decrease in the allowance is attributed to improvements in the forecasted economic outlook and favorable credit trends, as compared to that at the start of the COVID-19 pandemic. The ACL on loans and leases as a percentage of total loans and leases, also known as the reserve coverage ratio, decreased from 1.66% at December 31, 2020 to 1.54% at March 31, 2021. The ACL on loans and leases as a percentage of non-performing loans and leases increased from 213.94% at December 31, 2020 to 218.29% at March 31, 2021.
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The following table provides information on the portfolio allocation of the ACL on loans and leases:
At March 31, 2021At December 31, 2020
(Dollars in thousands)Amount
% (1)
Amount
% (1)
Commercial portfolio$283,906 1.92 $312,244 2.10 
Consumer portfolio44,445 0.68 47,187 0.70 
Total ACL on loans and leases$328,351 1.54 $359,431 1.66 
(1)Percentage represents the allocated ACL on loans and leases to total loans and leases within the comparable category. The allocation of a portion of the allowance to one category of loans and leases does not preclude its availability to absorb losses in other categories.
The following table provides details of the activity in the ACL on loans and leases:
At or for the three months ended March 31,
(In thousands)20212020
Beginning balance$359,431 $209,096 
Adoption of ASU No. 2016-13 (CECL)— 57,568 
(Benefit) provision(25,759)76,085 
Charge-offs:
Commercial non-mortgage(1,079)(5,439)
Commercial real estate(5,157)(30)
Equipment financing(85)(105)
Residential(380)(1,511)
Home equity(694)(861)
Other consumer(1,900)(2,215)
Total charge-offs(9,295)(10,161)
Recoveries:
Commercial non-mortgage209 509 
Asset-based1,424 3 
Commercial real estate3 3 
Equipment financing— 49 
Residential1,158 235 
Home equity724 1,038 
Other consumer456 506 
Total recoveries3,974 2,343 
Net charge-offs(5,321)(7,818)
Ending balance$328,351 $334,931 

The following table provides a summary of net charge-offs to average loans and leases by portfolio:
Three months ended March 31,
20212020
(Dollars in thousands)Amount
% (1)
Amount
% (1)
Commercial portfolio$4,685 0.13$5,010 0.15
Consumer portfolio636 0.042,808 0.16
Net charge-offs$5,321 0.10$7,818 0.15
(1)Percentage of net charge-offs to average loans and leases was calculated based on annualized period-to-date activity.

20

Sources of Funds and Liquidity
Sources of Funds. The primary source of Webster Bank’s cash flows for use in lending and meeting its general operational needs is deposits. Operating activities, such as loan and mortgage-backed securities repayments, and other investment securities sale proceeds and maturities, also provide cash flows. While scheduled loan and investment securities repayments are a relatively stable source of funds, loan and investment securities prepayments and deposit inflows are influenced by prevailing interest rates, and local economic conditions and are inherently uncertain. Additional sources of funds are provided by FHLB advances or other borrowings.
Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based capital stock investment in the FHLB of Boston is required in order for Webster Bank to access advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLB. Webster Bank held FHLB Boston capital stock of $17.5 million at both March 31, 2021 and December 31, 2020 for its FHLB membership and for outstanding advances and other extensions of credit. The most recent FHLB quarterly cash dividend was paid on March 2, 2021 in an amount equal to an annual yield of 1.59%.
Additionally, Webster Bank is required to hold FRB of Boston stock equal to 6% of its capital and surplus of which 50% is paid. The remaining 50% is subject to call when deemed necessary by the Federal Reserve System. The FRB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FRB. Webster Bank held $60.2 million and $60.1 million of FRB capital stock at March 31, 2021 and December 31, 2020, respectively. The most recent FRB semi-annual cash dividend was paid on December 31, 2020 in an amount equal to an annual yield of 0.95%.
Deposits. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use, direct deposit, ACH payments, mobile banking services, internet-based banking, bank by mail, as well as overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and investment needs for both consumer and business customers throughout its primary market area. HSA Bank, a division of Webster Bank, specifically provides deposit products for HSAs, health reimbursement accounts, flexible spending accounts, and commuter benefits. Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with Federal Deposit Insurance Corporation (FDIC) regulations. Webster Bank’s Retail Pricing Committee and its Commercial and Institutional Loan and Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.
Total deposits were $28.5 billion at March 31, 2021 as compared to $27.3 billion at December 31, 2020. The increase is primarily related to an increase in transactional accounts of $1.1 billion due to customer PPP loan funding pending utilization, other stimulus effects, and lower customer spending. Refer to Note 9: Deposits in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information.
Borrowings. FHLB advances are utilized as a source of funding for liquidity and interest rate risk management purposes. FHLB advances totaled $0.1 billion at both March 31, 2021 and December 31, 2020. Webster Bank had additional borrowing capacity of approximately $4.5 billion and $4.7 billion from the FHLB at March 31, 2021 and December 31, 2020, respectively, and $1.3 billion from the FRB at both March 31, 2021 and December 31, 2020.
Securities sold under agreements to repurchase, whereby securities are delivered to counterparties under an agreement to repurchase such securities at a fixed price in the future, are also utilized as a source of funding. Unpledged investment securities of $4.7 billion at March 31, 2021 could have been used for collateral on borrowings such as repurchase agreements, or to increase borrowing capacity by approximately $4.3 billion or $4.5 billion at the FHLB or FRB, respectively. Additionally, Webster Bank may utilize term and overnight Fed funds to meet short-term liquidity needs.
Long-term debt, which consists of senior fixed-rate notes maturing in 2024 and 2029, and junior subordinated notes maturing in 2033, totaled $0.6 billion at both March 31, 2021 and December 31, 2020.
Total borrowed funds were $1.2 billion at March 31, 2021 as compared to $1.7 billion at December 31, 2020, and represented 3.6% and 5.2% of total assets at March 31, 2021 and December 31, 2020, respectively. The decrease is due to deposit growth exceeding loan and securities growth. For additional information, refer to Note 10: Borrowings in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.
21

Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive liquidity management at both the Holding Company and Webster Bank. Liquidity comes from a variety of cash flow sources, such as operating activities, including principal and interest payments on loans and securities, or financing activities, including unpledged investment securities that can be sold or utilized to secure funding, and new deposits. Webster is committed to maintaining a strong, increasing base of core deposits, consisting of demand, checking, savings, health savings, and money market accounts, to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in order to maintain stable, cost effective funding to promote overall balance sheet strength.
Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from Webster Bank. During the three months ended March 31, 2021, Webster Bank paid $60.0 million in dividends to the Holding Company. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and junior subordinated debt, the payment of dividends to preferred and common shareholders, repurchases of its common stock, and purchases of investment securities. There are certain restrictions on the payment of dividends by Webster Bank to the Holding Company, which are described in the section captioned "Supervision and Regulation" in Item 1 of Webster’s 2020 Form 10-K. At March 31, 2021, there was $324.8 million of retained earnings are available for the payment of dividends by Webster Bank to the Holding Company.
The Company has a common stock repurchase program authorized by the Board of Directors with $123.4 million of remaining repurchase authority at March 31, 2021. Due to the Company's announcement of its pending merger agreement with Sterling, Webster may not purchase any shares under this program until the transaction is closed. Additionally, the Company periodically acquires common shares outside of the repurchase program related to stock compensation plan activity. During the three months ended March 31, 2021, a total of 70,048 shares of common stock were repurchased at a market value of approximately $3.9 million.
Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits, which are used to support loan portfolio growth. Including time deposits, Webster Bank had a loan to total deposit ratio of 74.8% and 79.2% at March 31, 2021 and December 31, 2020, respectively.
Webster Bank is required by OCC regulations to maintain liquidity sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on factors such as the overall asset/liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. Webster Bank exceeded all regulatory liquidity requirements as of March 31, 2021. The Company has a detailed liquidity contingency plan designed to respond to liquidity concerns in a prompt and comprehensive manner. The plan is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.
As an OCC regulated commercial institution, Webster Bank is also required to satisfy certain minimum leverage and risk-based capital requirements, as well as minimum tangible capital requirements. As of March 31, 2021, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC requirements for a well-capitalized institution. Refer to Note 12: Regulatory Matters in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a further discussion of regulatory requirements applicable to the Holding Company and Webster Bank.
The liquidity position of the Company is continuously monitored and adjustments are made to balance between sources and uses of funds, as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.
Off-Balance Sheet Arrangements
Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit, interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements or facilitate certain trade arrangements. These transactions give rise to elements of credit, interest rate, and liquidity risk. For additional information, refer to Note 2: Variable Interest Entities and Note 19: Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.
22

Asset/Liability Management and Market Risk
An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest rate risks in determining management's strategy and action. To facilitate and manage this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO. The impact has not been calculated for scenarios that would require negative interest rates.
The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on NII over a twelve month period, starting at March 31, 2021 and December 31, 2020 for each subsequent twelve month period as compared to NII, assuming no change in interest rates:
NII-200bp-100bp+100bp+200bp
March 31, 2021n/an/a1.8%4.9%
December 31, 2020n/an/a1.7%4.7%

The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on PPNR over a twelve month period, starting at March 31, 2021 and December 31, 2020 for each subsequent twelve month period as compared to PPNR, assuming no change in interest rates:
PPNR-200bp-100bp+100bp+200bp
March 31, 2021n/an/a2.3%7.1%
December 31, 2020n/an/a2.4%7.1%
Interest rates are assumed to change up or down in a parallel fashion, and the NII and PPNR results in each scenario are compared to a flat rate based scenario. The flat rate scenario holds the end of period yield curve constant over a twelve month forecasted horizon. Such scenario as of both March 31, 2021 and December 31, 2020 assumed a Fed Funds rate of 0.25%. Asset sensitivity for both NII and PPNR was relatively the same as of March 31, 2021 and December 31, 2020. Loans at floors have increased to approximately $3.6 billion as of March 31, 2021, lowering overall asset sensitivity, but is being offset by increased cash levels at the FRB due to elevated deposits. When interest rates start to rise, not all of these loans will immediately lift off of their floors. Due to the lower rate environment as of both March 31, 2021 and December 31, 2020, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were previously modeled when market rates were higher.
Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets and liabilities. Changes in the market value of these positions are recognized in earnings.
The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates might have on NII for the subsequent twelve month period starting at March 31, 2021 and December 31, 2020:
Short End of the Yield CurveLong End of the Yield Curve
NII-100bp-50bp+50bp+100bp-100bp-50bp+50bp+100bp
March 31, 2021n/an/a0.4%2.1%(3.8)%(2.1)%0.7%2.0%
December 31, 2020n/an/a0.2%1.5%n/a(2.2)%1.0%2.5%
The following table summarizes the estimated impact that immediate non-parallel changes in interest rates might have on PPNR for the subsequent twelve month period starting at March 31, 2021 and December 31, 2020:
Short End of the Yield CurveLong End of the Yield Curve
PPNR-100bp-50bp+50bp+100bp-100bp-50bp+50bp+100bp
March 31, 2021n/an/a0.1%2.6%(6.4)%(3.7)%1.0%3.2%
December 31, 2020n/an/a(0.3)%1.7%n/a(4.0)%1.8%4.4%
These non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa. The short end of the yield curve is defined as terms of less than eighteen months, whereas the long end of the yield curve is defined as terms of greater than eighteen months. The results above reflect the annualized impact of immediate rate changes.
Sensitivity to the short end of the yield curve for both NII and PPNR increased as of March 31, 2021 as compared to December 31, 2020 due to excess cash at the FRB. As rates rise, this cash can be deployed into higher yielding assets. NII and PPNR were less sensitive to changes in the long end of the yield curve as of March 31, 2021 as compared to December 31, 2020, due to slower forecast prepayment speeds resulting from increases in the long end of the yield curve, which shortens asset duration for MBS and residential mortgages. Due to the lower rate environment as of March 31, 2021, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were modeled as of December 31, 2020.
23

The following table summarizes the estimated economic value of assets, liabilities, and off-balance sheet contracts at March 31, 2021 and December 31, 2020, and the projected change to economic values if interest rates were to instantaneously increase or decrease by 100 basis points:
(Dollars in thousands)Book
Value		Estimated
Economic
Value		Estimated Economic Value Change
-100 bp+100 bp
March 31, 2021
Assets$33,259,037 $33,082,172 n/a$(686,952)
Liabilities29,986,109 29,206,897 n/a(994,781)
Net$3,272,928 $3,875,275 n/a$307,829 
Net change as % base net economic valuen/a7.9 %
December 31, 2020
Assets$32,590,690 $32,546,388 n/a$(625,173)
Liabilities29,356,065 29,357,878 n/a(1,058,460)
Net$3,234,625 $3,188,510 n/a$433,287 
Net change as % base net economic valuen/a13.6 %
Changes in economic value can best be described using duration, which is a measure of the price sensitivity of financial instruments for small changes in interest rates. For fixed-rate instruments, it can also be thought of as the weighted-average expected time to receive future cash flows, whereas for floating-rate instruments, it can be thought of as the weighted-average expected time until the next rate reset. The longer the duration, the greater the price sensitivity for given changes in interest rates. Floating-rate instruments may have durations as short as one day, and therefore, may have very little price sensitivity due to changes in interest rates. Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in the value of a liability is a benefit to the Company.
Duration gap is the difference between the duration of assets and the duration of liabilities. A duration gap near zero implies that the balance sheet is matched, and thus would exhibit no change in estimated economic value for a small change in interest rates. Webster's duration gap was negative 1.7 years and negative 1.9 years at March 31, 2021 and December 31, 2020, respectively. A negative duration gap implies that liabilities are longer than assets, and therefore, have more price sensitivity than assets and will reset their interest rates at a slower pace. Consequently, Webster's net estimated economic value would generally be expected to increase when interest rates rise as the benefit of the decreased value of liabilities would more than offset the decreased value of assets. The opposite would generally be expected to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and, in turn, decrease when interest rates fall over the longer term absent the effects of new business booked in the future. As of March 31, 2021, long-term rates have risen by 86 basis points as compared to December 31, 2020. This higher starting point lengthens asset duration by decreasing residential loan and MBS prepayment speeds.
These estimates assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates. Both the earnings and economic values estimates are subject to factors that could cause actual results to differ. Management believes that Webster's interest rate risk position at March 31, 2021 represents a reasonable level of risk given the current interest rate outlook. Management is prepared to take additional action in the event that interest rates do change rapidly.
For a detailed description of the Company's asset/liability management process, refer to the section captioned "Asset/Liability Management and Market Risk" in Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations, included in its Form 10-K for the year ended December 31, 2020.
Impact of Inflation and Changing Prices
The Condensed Consolidated Financial Statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results principally in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a banking institution are monetary in nature. As a result, interest rates have a more significant impact on Webster's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.

24

Application of Critical Accounting Policies and Accounting Estimates
The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in its 2020 Annual Report on Form 10-K. Modifications to significant accounting policies, if made during the year, are described in Note 1 to the Condensed Consolidated Financial Statements included in Item 1 of this report. The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.
Management has identified that the Company's most critical accounting policy is the allowance for credit losses on loans and leases not only because of its importance to the Company’s financial condition and operating results, but also the fact that it requires management’s subjective and complex judgment surrounding the need to make estimates about the effects of matters that are inherently uncertain.
Accounting policies and estimates, including the nature of the estimates and types of assumptions used, are described throughout Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Webster's 2020 Form 10-K, and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.
Recently Issued Accounting Standards Updates (ASUs)
Refer to Note 1: Summary of Significant Accounting Policies in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a summary of recently issued ASUs and the expected impact on the Company's financial statements.

25

ITEM 1. FINANCIAL STATEMENTS
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2021		December 31,
2020
(In thousands, except share data)(Unaudited)
Assets:
Cash and due from banks$160,703 $193,501 
Interest-bearing deposits1,210,958 69,603 
Investment securities available-for-sale, at fair value3,313,980 3,326,776 
Investment securities held-to-maturity (fair value of $5,730,726 and $5,835,364)
5,568,093 5,568,188 
Allowance for credit losses on investment securities held-to-maturity(308)(299)
Investment securities held-to-maturity, net5,567,785 5,567,889 
Federal Home Loan Bank and Federal Reserve Bank stock77,674 77,594 
Loans held for sale (valued under fair value option $17,260 and $14,000)
17,262 14,012 
Loans and leases21,301,383 21,641,215 
Allowance for credit losses on loans and leases(328,351)(359,431)
Loans and leases, net20,973,032 21,281,784 
Deferred tax assets, net80,235 81,286 
Premises and equipment, net220,982 226,743 
Goodwill538,373 538,373 
Other intangible assets, net21,244 22,383 
Cash surrender value of life insurance policies567,298 564,195 
Accrued interest receivable and other assets509,511 626,551 
Total assets$33,259,037 $32,590,690 
Liabilities and shareholders' equity:
Deposits:
Non-interest-bearing$6,680,114 $6,155,592 
Interest-bearing21,801,720 21,179,844 
Total deposits28,481,834 27,335,436 
Securities sold under agreements to repurchase and other borrowings498,378 995,355 
Federal Home Loan Bank advances138,554 133,164 
Long-term debt566,480 567,663 
Operating lease liabilities156,910 158,280 
Accrued expenses and other liabilities143,953 166,167 
Total liabilities29,986,109 29,356,065 
Shareholders’ equity:
Preferred stock, $0.01 par value; Authorized - 3,000,000 shares:
Series F issued and outstanding (6,000 shares)
145,037 145,037 
Common stock, $0.01 par value; Authorized - 200,000,0000 shares:
Issued (93,686,311 shares)
937 937 
Paid-in capital1,105,137 1,109,532 
Retained earnings2,147,436 2,077,522 
Treasury stock, at cost (3,276,534 and 3,487,389 shares)
(133,893)(140,659)
Accumulated other comprehensive income, net of tax8,274 42,256 
Total shareholders' equity3,272,928 3,234,625 
Total liabilities and shareholders' equity$33,259,037 $32,590,690 
See accompanying Notes to Condensed Consolidated Financial Statements.
26

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended March 31,
(In thousands, except per share data)20212020
Interest Income:
Interest and fees on loans and leases$190,536 $216,187 
Taxable interest and dividends on investments39,614 52,622 
Non-taxable interest on investment securities5,333 5,486 
Loans held for sale91 175 
Total interest income235,574 274,470 
Interest Expense:
Deposits6,439 27,843 
Securities sold under agreements to repurchase and other borrowings635 3,730 
Federal Home Loan Bank advances513 6,869 
Long-term debt4,223 5,227 
Total interest expense11,810 43,669 
Net interest income223,764 230,801 
Provision for credit losses(25,750)76,000 
Net interest income after provision for credit losses249,514 154,801 
Non-interest Income:
Deposit service fees40,469 42,570 
Loan and lease related fees8,313 6,496 
Wealth and investment services9,403 8,739 
Mortgage banking activities2,642 2,893 
Increase in cash surrender value of life insurance policies3,533 3,580 
Gain on sale of investment securities, net— 8 
Other income12,397 9,092 
Total non-interest income76,757 73,378 
Non-interest Expense:
Compensation and benefits107,600 101,887 
Occupancy15,650 14,485 
Technology and equipment28,516 27,837 
Intangible assets amortization1,139 962 
Marketing2,504 3,502 
Professional and outside services9,776 5,663 
Deposit insurance3,956 4,725 
Other expense18,841 19,775 
Total non-interest expense187,982 178,836 
Income before income tax expense138,289 49,343 
Income tax expense30,211 11,144 
Net income108,078 38,199 
Preferred stock dividends and other(2,548)(2,178)
Earnings applicable to common shareholders$105,530 $36,021 
Earnings per common share:
Basic$1.18 $0.40 
Diluted1.17 0.39 
See accompanying Notes to Condensed Consolidated Financial Statements.

27

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 Three months ended March 31,
(In thousands)20212020
Net income$108,078 $38,199 
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale(30,353)(15,689)
Derivative instruments(4,372)26,232 
Defined benefit pension and other postretirement benefit plans743 729 
Other comprehensive (loss) income, net of tax(33,982)11,272 
Comprehensive income$74,096 $49,471 
See accompanying Notes to Condensed Consolidated Financial Statements.

28

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
At or for the three months ended March 31, 2021
(In thousands, except per share data)Preferred
Stock		Common
Stock		Paid-In
Capital		Retained
Earnings		Treasury
Stock, at cost		Accumulated
Other
Comprehensive
Income, Net of Tax		Total
Shareholders'
Equity
Balance at December 31, 2020$145,037 $937 $1,109,532 $2,077,522 $(140,659)$42,256 $3,234,625 
Net income— — — 108,078 — — 108,078 
Other comprehensive (loss), net of tax— — — — — (33,982)(33,982)
Common stock dividends/equivalents $0.40 per share
— — — (36,195)— — (36,195)
Series F preferred stock dividends $328.125 per share
— — — (1,969)— — (1,969)
Stock-based compensation— — 649 — 2,316 — 2,965 
Exercise of stock options— — (5,044)— 8,358 — 3,314 
Common shares acquired from stock compensation plan activity— — — — (3,908)— (3,908)
Balance at March 31, 2021$145,037 $937 $1,105,137 $2,147,436 $(133,893)$8,274 $3,272,928 
At or for the three months ended March 31, 2020
(In thousands, except per share data)Preferred
Stock		Common
Stock		Paid-In
Capital		Retained
Earnings		Treasury
Stock, at cost		Accumulated Other Comprehensive (Loss), Net of TaxTotal
Shareholders'
Equity
Balance at December 31, 2019$145,037 $937 $1,113,250 $2,061,352 $(76,734)$(36,072)$3,207,770 
Cumulative effect of changes in accounting principles— — — (51,213)— — (51,213)
Net income— — — 38,199 — — 38,199 
Other comprehensive income, net of tax— — — — — 11,272 11,272 
Common stock dividends/equivalents $0.40 per share
— — — (36,828)— — (36,828)
Series F preferred stock dividends $328.125 per share
— — — (1,969)— — (1,969)
Stock-based compensation— — (11,821)— 14,430 — 2,609 
Exercise of stock options— — (105)— 223 — 118 
Common shares acquired from stock compensation plan activity— — — — (3,160)— (3,160)
Common stock repurchase program— — — — (76,556)— (76,556)
Balance at March 31, 2020$145,037 $937 $1,101,324 $2,009,541 $(141,797)$(24,800)$3,090,242 
See accompanying Notes to Condensed Consolidated Financial Statements.
29

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Three months ended March 31,
(In thousands)20212020
Operating Activities:
Net income$108,078 $38,199 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses(25,750)76,000 
Deferred tax expense (benefit)13,192 (6,518)
Depreciation and amortization10,351 9,063 
Amortization of premiums/discounts, net35,583 10,345 
Stock-based compensation2,965 2,609 
Loss (gain) on sale, net of write-down, on foreclosed and repossessed assets29 (363)
Loss on sale/write-down on premises and equipment197 100 
Gain on the sale of investment securities, net— (8)
Increase in cash surrender value of life insurance policies(3,533)(3,580)
Gain from life insurance policies(410)(6)
Mortgage banking activities(2,642)(2,893)
Proceeds from sale of loans held for sale79,308 75,594 
Originations of loans held for sale(81,361)(59,562)
Net change in right-of-use lease assets58 (2,660)
Net decrease (increase) in derivative contract assets net of liabilities128,550 (189,718)
Net decrease in accrued interest receivable and other assets4,083 5,447 
Net decrease in accrued expenses and other liabilities(39,873)(13,637)
Net cash provided by (used for) operating activities228,825 (61,588)
Investing Activities:
Purchases of available-for-sale investment securities(291,386)(122,353)
Proceeds from available-for-sale investment securities maturities/principal repayments255,362 124,848 
Proceeds from sales of available-for-sale investment securities— 8,963 
Purchases of held-to-maturity investment securities(356,624)(371,935)
Proceeds from held-to-maturity investment securities maturities/principal repayments343,825 172,032 
Net (increase) decrease in Federal Home Loan Bank/Federal Reserve Bank stock(80)7,719 
Alternative investments capital call, net(3,526)(2,192)
Net decrease (increase) in loans302,554 (863,351)
Proceeds from loans not originated for sale16,787 390 
Proceeds from life insurance policies1,100 750 
Proceeds from the sale of foreclosed and repossessed assets44 2,636 
Proceeds from the sale of premises and equipment250 — 
Additions to premises and equipment(3,680)(3,548)
Net cash provided by (used for) investing activities264,626 (1,046,041)
See accompanying Notes to Condensed Consolidated Financial Statements.
30

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
 Three months ended March 31,
(In thousands)20212020
Financing Activities:
Net increase in deposits1,145,364 1,188,728 
Proceeds from Federal Home Loan Bank advances80,470 2,950,000 
Repayments of Federal Home Loan Bank advances(75,080)(3,125,077)
Net (decrease) increase in securities sold under agreements to repurchase and other borrowings(496,977)222,318 
Dividends paid to common shareholders(36,108)(36,728)
Dividends paid to preferred shareholders(1,969)(1,969)
Exercise of stock options3,314 118 
Common stock repurchase program— (76,556)
Common shares purchased related to stock compensation plan activity(3,908)(3,160)
Net cash provided by financing activities615,106 1,117,674 
Net increase in cash and cash equivalents1,108,557 10,045 
Cash and cash equivalents at beginning of period263,104 257,895 
Cash and cash equivalents at end of period$1,371,661 $267,940 
Supplemental disclosure of cash flow information:
Interest paid$16,638 $50,327 
Income taxes paid3,355 4,928 
Noncash investing and financing activities:
Transfer of loans and leases to foreclosed properties and repossessed assets$151 $2,627 
Transfer of loans from loans and leases to loans-held-for-sale16,587 214 

See accompanying Notes to Condensed Consolidated Financial Statements.
31

Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation is a bank holding company and financial holding company under the BHC Act, incorporated under the laws of Delaware in 1986, and headquartered in Waterbury, Connecticut. Webster Bank is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, including its HSA Bank division, deliver a wide range of banking, investment, and financial services to individuals, families, and businesses.
Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout southern New England and Westchester County, New York. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions primarily in the eastern U.S. HSA Bank is a leading provider of HSAs, while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company's Consolidated Financial Statements, and related Notes thereto, for the year ended December 31, 2020, included in our Form 10-K filed with the SEC. In the opinion of management, all necessary adjustments are reflected to present fairly the financial position and results of operations as of the dates and for the periods shown. There have been no changes to the Company's significant accounting policies from those described within that Form 10-K, except as described within the Recently Adopted Accounting Standards Updates section of this note.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on the Company's consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Standards Updates
ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.
The Accounting Standards Update (the Update) provides simplification to the accounting for income taxes related to a variety of topics and makes minor codification improvements. Changes include a requirement that the effects of an enacted change in tax law be reflected in the computation of the annual effective tax rate in the first interim period that includes the enactment date of the new legislation and clarification on presentation of non-income based taxes.
The Company adopted the Update on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
ASU No. 2021-01, Reference Rate Reform (Topic 848) - Scope.
The Update clarifies that certain optional expedients and exceptions provided for in ASU No. 2020-04 for applying GAAP to contract modifications and hedging relationships apply to derivatives that are affected by the discounting transition. The amendments are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Update was effective upon issuance for application on either a retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 22, 2020, or on a prospective basis beginning on January 7, 2021.
The Company adopted the Update on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
The Company has adopted all applicable Accounting Standards Updates issued by the Financial Accounting Standards Board (FASB) as of March 31, 2021.

32

Note 2: Variable Interest Entities
The Company has an investment interest in the following entities that meet the definition of a variable interest entity (VIE).
Consolidated
Rabbi Trust. The Company established a Rabbi Trust to meet the obligations due under its Deferred Compensation Plan for Directors and Officers and to mitigate the expense volatility of the aforementioned plan. The funding of the Rabbi Trust and the discontinuation of the Deferred Compensation Plan for Directors and Officers occurred during 2012.
Investments held in the Rabbi Trust primarily consist of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that most significantly affect the VIE's economic performance and it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE.
The Company consolidates the invested assets of the trust along with the total deferred compensation obligations and includes them in accrued interest receivable and other assets, and accrued expenses and other liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. Earnings in the Rabbi Trust, including appreciation or depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation and benefits, on the accompanying Condensed Consolidated Statement of Income. Refer to Note 15: Fair Value Measurements for additional information.
Non-Consolidated
Tax Credit - Finance Investments. The Company makes non-marketable equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances, the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as the Company is not the primary beneficiary. The Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs and the Company does not have the obligation to absorb expected losses or the right to receive residual returns. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.
At March 31, 2021 and December 31, 2020, the aggregate carrying value of the Company's tax credit-finance investments was $36.0 million and $37.2 million, respectively, which represents the Company's maximum exposure to loss. At March 31, 2021 and December 31, 2020, unfunded commitments have been recognized, totaling $9.0 million and $10.2 million, respectively, and are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets.
Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The trust is a VIE in which the Company is not the primary beneficiary. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt on the accompanying Condensed Consolidated Balance Sheets, and the related interest expense is reported as interest expense on long-term debt on the accompanying Condensed Consolidated Statements of Income. Refer to Note 10: Borrowings for additional information.
Other Non-Marketable Investments. The Company invests in various alternative investments in which it holds a variable interest. These investments are non-public entities which cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. For these investments, the Company has determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.
At March 31, 2021 and December 31, 2020, the aggregate carrying value of the Company's other non-marketable investments in VIEs was $40.2 million and $34.3 million, respectively, and the maximum exposure to loss of the Company's other non-marketable investments in VIEs, including unfunded commitments, was $75.3 million and $72.7 million, respectively. Refer to Note 15: Fair Value Measurements for additional information.
The Company's equity interests in Other Non-Marketable Investments, as well as Tax Credit-Finance Investments and Webster Statutory Trust, are included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets. For a description of the Company's accounting policy regarding the consolidation of VIEs, refer to Note 1 to the Consolidated Financial Statements included in its Form 10-K for the year ended December 31, 2020.

33

Note 3: Business Developments
Pending Merger
On April 19, 2021, Webster and Sterling announced that their boards of directors approved by unanimous vote a definitive agreement under which the two companies will combine in an all-stock transaction for total consideration of approximately $5.1 billion. Under the terms of the agreement, Sterling will merge into Webster, and Sterling's shareholders will receive a fixed exchange ratio of 0.463 of a Webster common share for each share of Sterling common stock owned. In addition, at the effective time of the merger, each outstanding share of Sterling's Series A non-cumulative perpetual preferred stock will be converted into the right to receive a newly created series of Webster preferred stock having substantially the same terms. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of each company.
Strategic Initiatives
During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings measures across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions.
The following table presents the changes in reserves associated with the Company's strategic initiatives for the three months ended March 31, 2021:
(In thousands)SeveranceROU AssetOtherTotal
Beginning balance$17,675 $— $2,120 $19,795 
Charged to earnings2,060 179 7,202 9,441 
Charged against assets— (179)(1,634)(1,813)
Cash payments(1,365)— (3,143)(4,508)
Ending balance$18,370 $— $4,545 $22,915 
The reserves associated with strategic initiatives are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets. Severance costs are recorded as compensation and benefits, Right-of-Use (ROU) lease asset charges are recorded as occupancy expense, and Other is recorded as either occupancy, technology and equipment, professional and outside services, or other non-interest expense on the accompanying Condensed Consolidated Statements of Income. Strategic initiative costs are presented in the Corporate and Reconciling category for segment reporting purposes.
34

Note 4: Investment Securities
Held-to-Maturity Securities
A summary of the amortized cost, fair value, and allowance for credit losses on investment securities held-to-maturity is presented below:
At March 31, 2021
(In thousands)
Amortized
Cost (1)
Unrealized
Gains		Unrealized
Losses		Fair ValueAllowanceNet Carrying Value
Agency CMO$74,319 $1,494 $(97)$75,716 $— $74,319 
Agency MBS2,365,314 104,626 (4,824)2,465,116 — 2,365,314 
Agency CMBS2,182,794 28,832 (22,872)2,188,754 — 2,182,794 
Municipal bonds and notes735,969 49,669 — 785,638 308 735,661 
CMBS209,697 5,805 — 215,502 — 209,697 
Held-to-maturity securities$5,568,093 $190,426 $(27,793)$5,730,726 $308 $5,567,785 

At December 31, 2020
(In thousands)
Amortized
Cost (1)
Unrealized
Gains		Unrealized
Losses		Fair ValueAllowanceNet Carrying Value
Agency CMO$91,622 $1,785 $(241)$93,166 $— $91,622 
Agency MBS2,419,751 137,863 (84)2,557,530 — 2,419,751 
Agency CMBS2,101,227 60,484 (2,213)2,159,498 — 2,101,227 
Municipal bonds and notes739,507 60,371 (3)799,875 299 739,208 
CMBS216,081 9,214 — 225,295 — 216,081 
Held-to-maturity securities$5,568,188 $269,717 $(2,541)$5,835,364 $299 $5,567,889 

(1)Amortized cost excludes accrued interest receivable of $17.3 million and $22.1 million at March 31, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.
Agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federally-related entity and are either explicitly or implicitly guaranteed, and therefore, assumed to be zero loss. Securities with unrealized losses and no allowance are considered to be of high credit quality, and therefore, zero credit loss as of March 31, 2021. The current unrealized loss position of certain agency securities and non-agency CMBS with no credit loss allowance can be attributed to the changing interest rate environment. An allowance for credit losses on investment securities held-to-maturity is recorded for certain Municipal bonds and notes to account for expected lifetime credit losses.
The following table summarizes the activity in the allowance for credit losses on investment securities held-to-maturity:
Three months ended March 31,
(In thousands)20212020
Balance beginning of period$299$—
Adoption of ASU No. 2016-13 (CECL)—397
Provision (benefit) for credit losses9(85)
Balance end of period$308$312
Credit Quality Information
The Company monitors the credit quality of held-to-maturity debt securities through credit ratings provided by Standard & Poor's Rating Services (S&P), Moody's Investor Services (Moody's), Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about the credit quality of a security. Investment grade securities are rated BBB- or higher by S&P, or Baa3 or higher by Moody's, and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. Securities shown below that are not rated are collateralized with U.S. Treasury obligations, and credit quality indicators are updated at each quarter end.
The following table summarizes credit ratings for the amortized cost of held-to-maturity debt securities according to their lowest public credit rating as of March 31, 2021:
35

Investment Grade
(In thousands)AaaAa1Aa2Aa3A1A2A3Baa2Not Rated
Agency CMOs$— $74,319 $— $— $— $— $— $— $— 
Agency MBS— 2,365,315 — — — — — — — 
Agency CMBS— 2,182,794 — — — — — — — 
Municipal bonds and notes208,995 125,355 240,215 114,328 33,225 8,471 2,066 190 3,123 
CMBS209,697 — — — — — — — — 
Total held-to-maturity$418,692 $4,747,783 $240,215 $114,328 $33,225 $8,471 $2,066 $190 $3,123 
As of March 31, 2021, there were no held-to-maturity investment securities in non-accrual status.
Contractual Maturities
The amortized cost and fair value of held-to-maturity debt securities presented by contractual maturity are set forth below:
At March 31, 2021
(In thousands)Amortized
Cost		Fair
Value
Due in one year or less$380 $382 
Due after one year through five years4,160 4,384 
Due after five years through ten years288,056 297,857 
Due after ten years5,275,497 5,428,103 
Total held-to-maturity debt securities$5,568,093 $5,730,726 
For the maturity schedule above, investment securities that are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to repay obligations with or without prepayment penalties.
36

Available-for-Sale Securities
A summary of the amortized cost and fair value of available-for-sale securities is presented below:
 At March 31, 2021
(In thousands)
Amortized
Cost(1)
Unrealized
Gains		Unrealized
Losses
Fair Value(2)
Agency CMO$132,613 $5,109 $(119)$137,603 
Agency MBS1,408,543 55,423 (7,510)1,456,456 
Agency CMBS975,433 9,819 (10,667)974,585 
CMBS662,805 1,193 (985)663,013 
CLO68,700 12 (69)68,643 
Corporate debt14,563 6 (889)13,680 
Available-for-sale securities$3,262,657 $71,562 $(20,239)$3,313,980 
At December 31, 2020
(In thousands)
Amortized
Cost(1)
Unrealized
Gains		Unrealized
Losses
Fair Value(2)
Agency CMO$148,711 $6,000 $(98)$154,613
Agency MBS1,389,100 68,598 (289)1,457,409
Agency CMBS1,092,430 26,317 (1,514)1,117,233
CMBS512,759 1,082 (5,823)508,018
CLO76,693 — (310)76,383
Corporate debt14,557 — (1,437)13,120
Available-for-sale securities$3,234,250 $101,997 $(9,471)$3,326,776 
(1)Amortized cost excludes accrued interest receivable of $7.1 million and $7.5 million at March 31, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.
(2)Fair value represents net carrying value as there is no allowance for credit losses recorded on investment securities available-for-sale, as the securities are high credit quality, investment grade.
Fair Value and Unrealized Losses
The following table provides information on fair value and unrealized losses for the individual available-for-sale securities with an unrealized loss, for which an allowance for credit losses on investment securities available-for-sale has not been recorded, aggregated by classification and length of time that the individual investment securities have been in a continuous unrealized loss position:
 At March 31, 2021
 Less Than Twelve MonthsTwelve Months or LongerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of
Holdings		Fair
Value		Unrealized
Losses
Agency CMO$11,083 $(69)$4,336 $(50)4$15,419 $(119)
Agency MBS205,383 (7,362)8,853 (148)44214,236 (7,510)
Agency CMBS466,547 (10,667)— — 13466,547 (10,667)
CMBS224,636 (547)185,198 (438)33409,834 (985)
CLO24,997 (3)24,934 (66)249,931 (69)
Corporate debt— — 9,405 (889)29,405 (889)
Available-for-sale in unrealized loss position$932,646 $(18,648)$232,726 $(1,591)98$1,165,372 $(20,239)

 At December 31, 2020
 Less Than Twelve MonthsTwelve Months or LongerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of
Holdings		Fair
Value		Unrealized
Losses
Agency CMO$13,137 $(49)$5,944 $(49)5$19,081 $(98)
Agency MBS33,742 (219)4,561 (70)3038,303 (289)
Agency CMBS376,330 (1,514)— — 8376,330 (1,514)
CMBS409,591 (5,486)23,167 (337)38432,758 (5,823)
CLO57,728 (265)18,655 (45)476,383 (310)
Corporate debt4,100 (166)9,020 (1,271)313,120 (1,437)
Available-for-sale in unrealized loss position$894,628 $(7,699)$61,347 $(1,772)88$955,975 $(9,471)
37

Unrealized losses on available-for-sale debt securities presented in the previous table have not been recognized in the accompanying Condensed Consolidated Statements of Income because the securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is primarily attributable to higher market rates in selected asset classes. Fair value is expected to recover as the securities approach maturity. As of March 31, 2021, there were no available-for-sale investment securities in non-accrual status.
Contractual Maturities
The amortized cost and fair value of available-for-sale debt securities presented by contractual maturity are set forth below:
At March 31, 2021
(In thousands)Amortized
Cost		Fair
Value
Due in one year or less$— $— 
Due after one year through five years1,307 1,348 
Due after five through ten years226,061 226,260 
Due after ten years3,035,289 3,086,372 
Total available-for-sale debt securities$3,262,657 $3,313,980 
For the maturity schedule above, investment securities that are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to repay obligations with or without prepayment penalties.
Sales of Available-for Sale Investment Securities
There were no sales of available-for-sale securities during the three months ended March 31, 2021. For the three months ended March 31, 2020, proceeds from sales of available-for-sale securities were $9.0 million, which resulted in realized gains of $8 thousand.
Other Information
At March 31, 2021, the Company had a carrying value of $1.4 billion in callable debt securities in its CMBS, CLO, and municipal bond portfolios. The Company considers this prepayment risk in the evaluation of its interest rate risk profile.
Held-to-maturity and available-for-sale investment securities with carrying values of $2.7 billion and $1.3 billion at March 31, 2021, respectively, and $2.6 billion and $1.3 billion at December 31, 2020, respectively, were pledged to secure public funds, trust deposits, repurchase agreements, and for other purposes, as required or permitted by law.
38

Note 5: Loans and Leases
The following table summarizes loans and leases:
(In thousands)At March 31,
2021		At December 31, 2020
Commercial non-mortgage$6,918,626 $7,085,076 
Asset-based907,421 890,598 
Commercial real estate6,338,056 6,322,637 
Equipment financing611,440 602,224 
Commercial portfolio14,775,543 14,900,535 
Residential4,668,945 4,782,016 
Home equity1,724,599 1,802,865 
Other consumer132,296 155,799 
Consumer portfolio6,525,840 6,740,680 
Loans and leases (1) (2) (3)
$21,301,383 $21,641,215 
(1)Loan balances include net deferred (fees)/costs and net (premiums)/discounts of $(20.1) million and $(10.5) million at March 31, 2021 and December 31, 2020, respectively.
(2)At March 31, 2021, the Company had pledged $7.6 billion of eligible loans as collateral to support borrowing capacity at the FHLB of Boston and the FRB of Boston.
(3)Loan balances exclude accrued interest receivable of $58.5 million and $57.8 million at March 31, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.
Equipment financing includes net investment in leases of $223.9 million. Total undiscounted cash flows, primarily due within the next five years, amounting to $243.3 million, at March 31, 2021. This lessor activity resulted in interest income of $1.9 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively.
Loans and Leases Aging
The following table summarizes the aging of loans and leases:
 At March 31, 2021
(In thousands)30-59 Days
Past Due and
Accruing		60-89 Days
Past Due and
Accruing		90 or More Days Past Due
and Accruing		Non-accrualTotal Past Due and Non-accrualCurrentTotal Loans
and Leases
Commercial non-mortgage$1,460 $135 $50 $53,871 $55,516 $6,863,110 $6,918,626 
Asset-based— — — 2,402 2,402 905,019 907,421 
Commercial real estate508 197 — 13,752 14,457 6,323,599 6,338,056 
Equipment financing5,778 37 — 6,080 11,895 599,545 611,440 
Commercial portfolio7,746 369 50 76,105 84,270 14,691,273 14,775,543 
Residential4,079 1,186 — 42,768 48,033 4,620,912 4,668,945 
Home equity4,514 1,371 — 30,892 36,777 1,687,822 1,724,599 
Other consumer510 657 — 596 1,763 130,533 132,296 
Consumer portfolio9,103 3,214 — 74,256 86,573 6,439,267 6,525,840 
Total$16,849 $3,583 $50 $150,361 $170,843 $21,130,540 $21,301,383 

 At December 31, 2020
(In thousands)30-59 Days
Past Due and
Accruing		60-89 Days
Past Due and
Accruing		90 or More Days Past Due
and Accruing		Non-accrualTotal Past Due and Non-accrualCurrentTotal Loans
and Leases
Commercial non-mortgage$612 $903 $445 $64,073 $66,033 $7,019,043 $7,085,076 
Asset-based1,174 — — 2,594 3,768 886,830 890,598 
Commercial real estate2,400 619 — 21,231 24,250 6,298,387 6,322,637 
Equipment financing5,107 2,308 — 7,299 14,714 587,510 602,224 
Commercial portfolio9,293 3,830 445 95,197 108,765 14,791,770 14,900,535 
Residential4,334 6,330 — 41,081 51,745 4,730,271 4,782,016 
Home equity5,500 1,771 — 31,030 38,301 1,764,564 1,802,865 
Other consumer878 601 — 652 2,131 153,668 155,799 
Consumer portfolio10,712 8,702 — 72,763 92,177 6,648,503 6,740,680 
Total$20,005 $12,532 $445 $167,960 $200,942 $21,440,273 $21,641,215 
39

The following table provides additional detail related to loans and leases on non-accrual status:
At March 31, 2021At December 31, 2020
(In thousands)Non-accrualNon-accrual With No AllowanceNon-accrualNon-accrual With No Allowance
Commercial non-mortgage$53,871 $10,635 $64,073 $16,985 
Asset-based2,402 2,402 2,594 — 
Commercial real estate13,752 554 21,231 15,529 
Equipment financing6,080 2,758 7,299 2,983 
Commercial portfolio76,105 16,349 95,197 35,497 
Residential42,768 31,274 41,081 29,843 
Home equity30,892 23,370 31,030 24,091 
Other consumer596 38 652 2 
Consumer portfolio74,256 54,682 72,763 53,936 
Total $150,361 $71,031 $167,960 $89,433 
Interest on non-accrual residential and home equity loans, which would have been recorded as additional interest income had the loans been current in accordance with the original terms, totaled $4.0 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively.
Refer to Note 1 to the Consolidated Financial Statements included in the Company's Form 10-K for the year ended December 31, 2020, for details of non-accrual policies.
Allowance for Credit Losses on Loans and Leases
The following table summarizes the activity in, as well as the loan and lease balances that were evaluated for, ACL on loans and leases:

 At or for the three months ended March 31, 2021At or for the three months ended March 31, 2020
(In thousands)Commercial PortfolioConsumer PortfolioTotalCommercial PortfolioConsumer PortfolioTotal
ACL on loans and leases:
Balance, beginning of period$312,244 $47,187 $359,431 $161,669 $47,427 $209,096 
Adoption of ASU No. 2016-13 (CECL)
— — — 34,024 23,544 57,568 
(Benefit) provision(23,653)(2,106)(25,759)71,243 4,842 76,085 
Charge-offs(6,321)(2,974)(9,295)(5,574)(4,587)(10,161)
Recoveries1,636 2,338 3,974 564 1,779 2,343 
Balance, end of period$283,906 $44,445 $328,351 $261,926 $73,005 $334,931 
Individually evaluated for impairment14,809 4,913 19,722 8,235 4,777 13,012 
Collectively evaluated for impairment$269,097 $39,532 $308,629 $253,691 $68,228 $321,919 
Loan and lease balances:
Individually evaluated for impairment$149,145 $140,066 $289,211 $177,012 $155,105 $332,117 
Collectively evaluated for impairment14,626,398 6,385,774 21,012,172 13,511,409 7,047,998 20,559,407 
Loans and leases$14,775,543 $6,525,840 $21,301,383 $13,688,421 $7,203,103 $20,891,524 
40

Credit Quality Indicators. To measure credit risk for the commercial portfolio, the Company employs a dual grade credit risk grading system for estimating the PD and LGD. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of loss. Grades (1) to (6) are considered pass ratings, and grades (7) to (10) are considered criticized, as defined by the regulatory agencies. Risk ratings assigned in order to differentiate risk within the portfolio are reviewed on an ongoing basis and revised to reflect changes in a borrowers’ current financial position and outlook, risk profile, and the related collateral and structural position. Loan officers review updated financial information on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring. A (7) - "Special Mention" rating has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the credit. An (8) - "Substandard" rating has a well-defined weakness that jeopardizes the full repayment of the debt. A (9) - "Doubtful" rating has all of the same weaknesses as a substandard credit with the added characteristic that the weakness makes collection or liquidation in full improbably, given current facts, conditions, and values. Credits when classified as (10) - "Loss", in accordance with regulatory guidelines, are considered uncollectible and charged off.
The following tables summarize commercial, commercial real estate, and equipment financing loans and leases segregated by origination year and risk rating exposure under the Composite Credit Risk Profile grades as of March 31, 2021 and December 31, 2020:
At March 31, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial non-mortgage
Pass$832,940 $2,168,628 $957,425 $794,005 $443,935 $416,891 $846,850 $6,460,674 
Special mention— 7,430 33,416 63,403 128 19,991 31,380 155,748 
Substandard— 71,611 50,013 82,673 27,423 36,782 33,702 302,204 
Commercial non-mortgage832,940 2,247,669 1,040,854 940,081 471,486 473,664 911,932 6,918,626 
Asset-based
Pass— 25,881 15,711 22,572 10,890 26,675 762,386 864,115 
Special mention— — — 750 — — 40,154 40,904 
Substandard— — 2,402 — — — — 2,402 
Asset-based— 25,881 18,113 23,322 10,890 26,675 802,540 907,421 
Commercial real estate
Pass172,136 921,002 1,473,799 1,227,983 519,241 1,655,611 25,038 5,994,810 
Special mention— 27 19,569 40,601 37,690 107,235 — 205,122 
Substandard— 813 789 21,884 60,794 53,844 — 138,124 
Commercial real estate172,136 921,842 1,494,157 1,290,468 617,725 1,816,690 25,038 6,338,056 
Equipment financing
Pass66,283 232,733 127,083 59,846 22,961 54,613 — 563,519 
Special mention— 3,435 11,316 5,185 868 1,376 — 22,180 
Substandard921 10,292 4,484 6,148 1,480 2,416 — 25,741 
Equipment financing67,204 246,460 142,883 71,179 25,309 58,405 — 611,440 
Commercial portfolio$1,072,280 $3,441,852 $2,696,007 $2,325,050 $1,125,410 $2,375,434 $1,739,510 $14,775,543 



41

At December 31, 2020
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial non-mortgage
Pass$2,771,373 $1,052,080 $907,110 $481,321 $231,280 $218,001 $936,592 $6,597,757 
Special mention32,535 33,969 62,034 435 8,357 13,757 38,496 189,583 
Substandard54,716 51,798 66,324 36,159 15,535 23,957 49,084 297,573 
Doubtful— — — 163 — — — 163 
Commercial non-mortgage2,858,624 1,137,847 1,035,468 518,078 255,172 255,715 1,024,172 7,085,076 
Asset-based
Pass26,344 15,960 23,123 11,333 10,963 16,484 741,336 845,543 
Special mention— — 775 — — — 41,687 42,462 
Substandard— 2,504 — — — — 89 2,593 
Asset-based26,344 18,464 23,898 11,333 10,963 16,484 783,112 890,598 
Commercial real estate
Pass965,582 1,461,201 1,242,322 527,931 554,630 1,165,331 28,113 5,945,110 
Special mention27 10,385 70,704 37,539 35,617 69,832 — 224,104 
Substandard817 1,132 21,923 73,621 2,962 52,968 — 153,423 
Commercial real estate966,426 1,472,718 1,334,949 639,091 593,209 1,288,131 28,113 6,322,637 
Equipment financing
Pass249,370 135,263 68,092 26,433 43,469 22,879 — 545,506 
Special mention7,934 11,043 6,981 1,220 1,577 788 — 29,543 
Substandard7,483 6,169 5,749 2,460 4,743 571 — 27,175 
Equipment financing264,787 152,475 80,822 30,113 49,789 24,238 — 602,224 
Commercial portfolio$4,116,181 $2,781,504 $2,475,137 $1,198,615 $909,133 $1,584,568 $1,835,397 $14,900,535 

To measure credit risk for the consumer portfolio, the most relevant credit characteristic is the FICO score, which is a widely used credit scoring system that ranges from 300 to 850. A lower FICO score is indicative of higher credit risk. FICO scores are updated at least quarterly.
The following tables summarize residential and consumer loans segregated by origination year and risk rating exposure under FICO score groupings as of March 31, 2021 and December 31, 2020:
42

At March 31, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Residential
800+$78,004 $453,272 $226,982 $51,458 $155,714 $962,687 $— $1,928,117 
740-799205,938 558,551 221,807 54,091 113,276 591,184 — 1,744,847 
670-73977,109 170,166 102,503 33,129 68,460 303,718 — 755,085 
580-6695,117 16,295 16,945 5,500 11,770 96,122 — 151,749 
579 and below— — 31,835 1,363 1,966 53,983 — 89,147 
Residential366,168 1,198,284 600,072 145,541 351,186 2,007,694 — 4,668,945 
Home equity
800+8,442 32,410 14,380 21,538 14,293 73,450 521,206 685,719 
740-7999,444 31,016 12,578 16,077 9,282 48,763 418,897 546,057 
670-7393,885 12,664 8,083 11,652 8,804 47,326 255,186 347,600 
580-669— 1,299 1,622 2,123 2,360 18,061 78,951 104,416 
579 and below22 326 737 967 802 7,671 30,282 40,807 
Home equity21,793 77,715 37,400 52,357 35,541 195,271 1,304,522 1,724,599 
Other consumer
800+51 703 1,458 649 250 213 7,717 11,041 
740-799327 2,645 5,498 2,328 775 505 7,955 20,033 
670-7391,948 13,017 26,345 9,072 1,761 444 3,681 56,268 
580-66956 9,495 16,063 6,258 963 232 1,419 34,486 
579 and below53 2,269 4,430 1,804 428 232 1,252 10,468 
Other consumer2,435 28,129 53,794 20,111 4,177 1,626 22,024 132,296 
Consumer portfolio390,396 1,304,128 691,266 218,009 390,904 2,204,591 1,326,546 6,525,840 
Commercial portfolio1,072,280 3,441,852 2,696,007 2,325,050 1,125,410 2,375,434 1,739,510 14,775,543 
Loans and leases$1,462,676 $4,745,980 $3,387,273 $2,543,059 $1,516,314 $4,580,025 $3,066,056 $21,301,383 

43

At December 31, 2020
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Residential
800+$360,336 $283,755 $61,048 $178,849 $268,044 $805,537 $— $1,957,569 
740-799654,973 288,173 58,249 133,416 176,286 492,720 — 1,803,817 
670-739199,329 118,620 39,125 75,375 76,666 248,268 — 757,383 
580-66917,151 19,389 8,884 11,843 12,225 96,333 — 165,825 
579 and below— 36,498 673 3,278 3,179 53,794 — 97,422 
Residential1,231,789 746,435 167,979 402,761 536,400 1,696,652 — 4,782,016 
Home equity
800+30,604 16,567 25,205 14,439 17,192 59,956 542,600 706,563 
740-79934,797 13,565 19,715 11,073 12,839 43,802 434,271 570,062 
670-73913,753 8,855 10,761 10,206 7,318 44,025 275,691 370,609 
580-6691,708 2,172 2,660 2,234 2,316 16,680 86,126 113,896 
579 and below129 919 880 1,070 1,073 7,163 30,501 41,735 
Home equity80,991 42,078 59,221 39,022 40,738 171,626 1,369,189 1,802,865 
Other consumer
800+2,827 5,725 2,610 658 115 190 7,171 19,296 
740-79912,317 21,036 8,925 1,493 457 263 5,119 49,610 
670-73914,761 31,952 11,843 2,284 665 228 8,403 70,136 
580-6692,344 5,419 2,360 793 194 124 1,570 12,804 
579 and below608 982 500 183 37 215 1,428 3,953 
Other consumer32,857 65,114 26,238 5,411 1,468 1,020 23,691 155,799 
Consumer portfolio1,345,637 853,627 253,438 447,194 578,606 1,869,298 1,392,880 6,740,680 
Commercial portfolio4,116,181 2,781,504 2,475,137 1,198,615 909,133 1,584,568 1,835,397 14,900,535 
Loans and leases$5,461,818 $3,635,131 $2,728,575 $1,645,809 $1,487,739 $3,453,866 $3,228,277 $21,641,215 
Individually Assessed Loans and Leases
The following table summarizes individually assessed loans and leases:
 At March 31, 2021
(In thousands)Unpaid
Principal
Balance		Amortized CostAmortized Cost No AllowanceAmortized Cost With AllowanceRelated
Allowance
Commercial non-mortgage$149,125 $114,352 $55,091 $59,261 $11,345 
Asset-based2,499 2,402 2,402 — — 
Commercial real estate30,005 26,311 10,466 15,845 2,548 
Equipment financing6,566 6,080 2,758 3,322 916 
Residential98,331 92,517 56,710 35,807 2,940 
Home equity53,155 46,953 33,299 13,654 1,764 
Other consumer604 596 38 558 209 
Total$340,285 $289,211 $160,764 $128,447 $19,722 

 At December 31, 2020
(In thousands)Unpaid
Principal
Balance		Amortized CostAmortized Cost No AllowanceAmortized Cost With AllowanceRelated
Allowance
Commercial non-mortgage$172,069 $119,884 $55,742 $64,142 $9,665 
Asset-based2,989 2,594 — 2,594 50 
Commercial real estate37,177 33,879 25,931 7,948 1,610 
Equipment financing7,770 7,298 2,983 4,315 362 
Residential108,077 98,164 58,915 39,249 3,357 
Home equity109,156 46,950 34,335 12,615 988 
Other consumer2,381 653 2 651 105 
Total$439,619 $309,422 $177,908 $131,514 $16,137 

44

The following table summarizes average amortized cost and interest income recognized for individually assessed loans and leases:
Three months ended March 31,
20212020
(In thousands)Average
Amortized Cost		Accrued
Interest
Income		Cash Basis Interest Income Average
Amortized Cost		Accrued
Interest
Income		Cash Basis Interest Income
Commercial non-mortgage$117,118 $859 $— $122,835 $1,053 $— 
Asset-based2,498 — — 138 — — 
Commercial real estate30,095 182 — 23,903 146 — 
Equipment financing6,689 — — 7,192 — — 
Residential95,339 639 273 97,778 830 630 
Home equity46,951 222 214 41,902 391 830 
Other consumer625 — — 512 17 — 
Total$299,315 $1,902 $487 $294,260 $2,437 $1,460 
Collateral Dependent Loans and Leases. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is substantially expected through the operation or sale of collateral. A collateral dependent loan is individually assessed based on the fair value of the collateral, less costs to sell, as of the reporting date. Commercial non-mortgage, asset based, and equipment financing loans are collateralized by equipment, inventory, receivables, or other non-real estate assets. Commercial real estate, residential, and home equity loans are collateralized by real estate. Collateral value on collateral dependent loans and leases was $147.7 million at March 31, 2021 and $150.3 million at December 31, 2020.
The following table summarizes whether, or not, individually assessed loans and leases are collateral dependent:
At March 31, 2021At December 31, 2020
(In thousands)Collateral DependentNot Considered Collateral DependentTotalCollateral DependentNot Considered Collateral DependentTotal
Commercial non-mortgage$20,717 $93,635 $114,352 $11,074 $108,810 $119,884 
Asset-based2,402 — 2,402 2,504 90 2,594 
Commercial real estate21,671 4,640 26,311 28,482 5,397 33,879 
Equipment financing— 6,080 6,080 — 7,298 7,298 
Residential36,096 56,421 92,517 33,980 64,184 98,164 
Home equity26,759 20,194 46,953 26,796 20,154 46,950 
Other consumer— 596 596 — 653 653 
Total amortized cost of CDA$107,645 $181,566 $289,211 $102,836 $206,586 $309,422 
Troubled Debt Restructurings
The following table summarizes information for TDRs:
(In thousands)At March 31,
2021		At December 31, 2020
Accrual status$138,379 $140,089 
Non-accrual status83,723 95,338 
Total TDRs$222,102 $235,427 
Specific reserves for TDRs included in the balance of ACL on loans and leases$14,293 $12,728 
Additional funds committed to borrowers in TDR status14,606 12,895 
45

The portion of TDRs deemed to be uncollectible, $1.9 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively, were charged off.
The following table provides information on the type of concession for loans modified as TDRs:
Three months ended March 31,
20212020
Number of
Loans
Post-
Modification
Recorded
Investment (1)
Number of
Loans
Post-
Modification
Recorded
Investment (1)
(Dollars in thousands)
Commercial portfolio
Extended Maturity7$690 2$104 
Maturity/Rate Combined137 6552 
Other (2)
2113 1027,137 
Consumer portfolio
Extended Maturity2127 1264 
Maturity/Rate Combined51,011 4456 
Other (2)
9666 141,726 
Total TDRs26$2,644 37$30,239 
(1)Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings was not significant.
(2)Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
There were no significant amounts of loans modified as TDRs within the previous 12 months and for which there was a payment default for the three months ended March 31, 2021 and 2020.
TDRs in commercial non-mortgage, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:

(In thousands)At March 31, 2021At December 31, 2020
Pass$12,724 $12,462 
Special Mention— — 
Substandard98,175 105,070 
Doubtful— 163 
Total$110,899 $117,695 

46

Note 6: Transfers of Financial Assets
The Company sells financial assets in the normal course of business, primarily residential mortgage loans sold to government-sponsored enterprises through established programs and securitizations. Residential mortgage origination fees, adjustments for changes in fair value, and gains or losses on loans sold are included as mortgage banking activities on the accompanying Condensed Consolidated Statements of Income.
The Company may be required to repurchase a loan in the event of certain breaches of the representations and warranties, or in the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases provides for estimated losses pertaining to the potential repurchase of loans associated with the Company’s mortgage banking activities. The reserve reflects loan repurchase requests received by the Company for which management evaluates the identity of the counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintages held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s expectation of losses from loan repurchase requests for which the Company has not yet been notified. The provision recorded at the time of the loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale, is recorded in other non-interest expense in the accompanying Condensed Consolidated Statements of Income.
The following table provides a summary of activity in the reserve for loan repurchases:
 Three months ended March 31,
(In thousands)20212020
Beginning balance$747 $508 
Provision charged to expense23 22 
(Charge-offs/settlements) recoveries, net— 103 
Ending balance$770 $633 
The following table provides information for mortgage banking activities:
 Three months ended March 31,
(In thousands)20212020
Residential mortgage loans held for sale:
Proceeds from sale$79,308 $75,594 
Loans sold with servicing rights retained75,691 72,091 
Net gain on sale2,109 2,519 
Ancillary fees541 401 
Fair value option adjustment(8)(27)
Additionally, loans not originated for sale were sold approximately at carrying value for cash proceeds of $16.8 million, resulting in a gain of approximately $191 thousand, for certain commercial loans for the three months ended March 31, 2021, and $0.4 million for certain commercial loans for the three months ended March 31, 2020.
The Company services residential mortgage loans for other entities totaling $2.2 billion at March 31, 2021 and $2.3 billion at December 31, 2020.
The following table presents the changes in carrying value for mortgage servicing assets:
Three months ended March 31,
(In thousands)20212020
Beginning balance$13,422 $17,484 
Additions586 1,189 
Amortization(1,490)(1,707)
Adjustment to valuation allowance(191)(575)
Ending balance$12,327 $16,391 
Loan servicing fees, net of mortgage servicing rights amortization, were $0.4 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively, and are included as a component of loan related fees on the accompanying Condensed Consolidated Statements of Income.
Refer to Note 15: Fair Value Measurements for additional information on loans held for sale and mortgage servicing assets.
47

Note 7: Leasing
The Company enters into operating leases, as lessee, primarily for office space, banking centers, and certain other operational assets. The Company's operating leases generally have lease terms for periods of 5 to 20 years with various renewal options. The Company does not have any material sub-lease agreements.
The following table summarizes lessee information related to the Company’s operating ROU lease assets and lease liabilities:
At March 31, 2021
(In thousands)Operating LeasesCondensed Consolidated Balance Sheet Line Item Location
ROU lease assets $127,423 Premises and equipment, net
Lease liabilities156,910 Operating lease liabilities
The components of operating lease cost and other related information are as follows:
At or for the three months ended March 31,
(In thousands)20212020
Lease Cost:
Operating lease costs$6,557 $7,424 
Variable lease costs1,300 1,427 
Sublease income(131)(145)
Total operating lease cost$7,726 $8,706 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities$7,833 $7,758 
ROU lease assets obtained in exchange for new operating lease liabilities5,398 8,666 
The undiscounted scheduled maturities reconciled to total operating lease liabilities are as follows:
(In thousands)At March 31, 2021
Remainder of 2021$20,323 
202227,762 
202325,259 
202422,250 
202520,267 
Thereafter64,364 
Total operating lease liability payments180,225 
Less: Present value adjustment23,315 
Lease liabilities$156,910 
Weighted-average remaining lease term, in years7.95
Weighted-average discount rate3.14%
Refer to Note 5: Loans and Leases for information relating to leases included within the equipment financing portfolio in which the Company is the lessor.
48

Note 8: Goodwill and Other Intangible Assets
There has been no change during the three months ended March 31, 2021 in the carrying amount for goodwill. For goodwill by reportable segment, refer to Note 17: Segment Reporting.
Other intangible assets by reportable segment consisted of the following:
 At March 31, 2021At December 31, 2020
(In thousands)Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount
HSA Bank - Core deposits$26,625 $16,352 $10,273 $26,625 $15,618 $11,007 
HSA Bank - Customer relationships21,000 10,029 10,971 21,000 9,624 11,376 
Total other intangible assets$47,625 $26,381 $21,244 $47,625 $25,242 $22,383 
At March 31, 2021, the remaining estimated aggregate future amortization expense for other intangible assets is as follows:
(In thousands) 
Remainder of 2021$3,374 
20224,411 
20234,315 
20242,084 
20252,084 
Thereafter4,976 

Note 9: Deposits
A summary of deposits by type is as follows:
(In thousands)At March 31,
2021		At December 31,
2020
Non-interest-bearing:
Demand$6,680,114 $6,155,592 
Interest-bearing:
Health savings accounts7,455,181 7,120,017 
Checking3,792,309 3,652,763 
Money market3,015,565 2,940,215 
Savings5,304,532 4,979,031 
Time deposits2,234,133 2,487,818 
Total interest-bearing$21,801,720 $21,179,844 
Total deposits$28,481,834 $27,335,436 
Time deposits and interest-bearing checking obtained through brokers (included in above balances)$754,159 $720,440 
Time deposits that exceed the FDIC limit (included in above balance)389,513 504,543 
Deposit overdrafts reclassified as loan balances973 2,007 
The scheduled maturities of time deposits are as follows:
(In thousands)At March 31,
2021
Remainder of 2021$1,725,839 
2022335,674 
202382,122 
202432,259 
202551,347 
Thereafter6,892 
Total time deposits$2,234,133 

49

Note 10: Borrowings
Total borrowings of $1.2 billion at March 31, 2021 and $1.7 billion at December 31, 2020 are described in detail below.
The following table summarizes securities sold under agreements to repurchase and other borrowings:
At March 31,
2021		At December 31,
2020
(Dollars in thousands)Total OutstandingRateTotal OutstandingRate
Securities sold under agreements to repurchase (1):
Original maturity of one year or less$298,378 0.11 %$269,330 0.13 %
Original maturity of greater than one year, non-callable200,000 1.53 200,000 0.84 
Total securities sold under agreements to repurchase498,378 0.68 469,330 0.43 
Fed funds purchased— — 526,025 0.08 
Securities sold under agreements to repurchase and other borrowings$498,378 0.68 $995,355 0.25 
(1)The Company has right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase are presented as gross transactions, as only liabilities are outstanding for the periods presented.
Repurchase agreements are used as a source of borrowed funds and are collateralized by agency mortgage-backed securities. Repurchase agreement counterparties are limited to primary dealers in government securities and commercial/municipal customers through the Corporate Treasury function.
The following table provides information for FHLB advances:
At March 31, 2021At December 31, 2020
(Dollars in thousands)Total OutstandingWeighted-
Average Contractual Coupon Rate		Total OutstandingWeighted-
Average Contractual Coupon Rate
Maturing within 1 year$25,000 0.35 %$25,000 0.38 %
After 1 but within 2 years105 — 110 — 
After 2 but within 3 years212 2.95 215 2.95 
After 3 but within 4 years100,000 1.50 50,000 1.59 
After 4 but within 5 years— — 50,000 1.42 
After 5 years13,237 2.56 7,839 2.66 
FHLB advances$138,554 1.40 $133,164 1.36 
Aggregate carrying value of assets pledged as collateral$7,239,063 $7,387,054 
Remaining borrowing capacity 4,451,005 4,689,642 
Webster Bank is in compliance with FHLB collateral requirements for the periods presented. Eligible collateral, primarily certain residential and commercial real estate loans, has been pledged to secure FHLB advances.
The following table summarizes long-term debt:
(Dollars in thousands)At March 31,
2021		At December 31,
2020
4.375%Senior fixed-rate notes due February 15, 2024$150,000 $150,000 
4.100%
Senior fixed-rate notes due March 25, 2029 (1)
342,826 344,164 
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2)
77,320 77,320 
Total notes and subordinated debt570,146 571,484 
Discount on senior fixed-rate notes(1,138)(1,193)
Debt issuance cost on senior fixed-rate notes(2,528)(2,628)
Long-term debt$566,480 $567,663 
(1)The Company de-designated its fair value hedging relationship on these notes. A basis adjustment is included in the carrying value, which is being amortized over the remaining life of the notes.
(2)The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%, was 3.13% at March 31, 2021 and 3.18% at December 31, 2020.
50

Note 11: Accumulated Other Comprehensive Income, Net of Tax
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net of tax:

Three months ended March 31, 2021
(In thousands)Securities Available For SaleDerivative InstrumentsDefined Benefit Pension and Other Postretirement Benefit PlansTotal
Beginning balance$67,424 $19,918 $(45,086)$42,256 
  Other comprehensive (loss) before reclassifications(30,353)(5,170)— (35,523)
  Amounts reclassified from accumulated other comprehensive income (loss)— 798 743 1,541 
Net current-period other comprehensive (loss) income, net of tax(30,353)(4,372)743 (33,982)
Ending balance$37,071 $15,546 $(44,343)$8,274 

Three months ended March 31, 2020
(In thousands)Securities Available For SaleDerivative InstrumentsDefined Benefit Pension and Other Postretirement Benefit PlansTotal
Beginning balance$17,251 $(9,184)$(44,139)$(36,072)
  Other comprehensive (loss) income before reclassifications(15,683)24,779 — 9,096 
  Amounts reclassified from accumulated other comprehensive income (loss)(6)1,453 729 2,176 
Net current-period other comprehensive (loss) income, net of tax(15,689)26,232 729 11,272 
Ending balance$1,562 $17,048 $(43,410)$(24,800)

The following table further details the amounts reclassified from accumulated other comprehensive income (loss):
(In thousands)Three months ended March 31,Associated Line Item on the Condensed Consolidated Statements of Income
AOCI (AOCL) Component20212020
Securities available-for-sale:
Unrealized gains on investment securities$— $8 Gain on sale of investment securities, net
Tax expense— (2)Income tax expense
Net of tax$— $6 
Derivative instruments:
Hedge terminations$(1,005)$(1,173)Interest expense
Premium amortization(76)(794)Interest income
Tax benefit283 514 Income tax expense
Net of tax$(798)$(1,453)
Defined benefit pension and other postretirement benefit plans:
Amortization of net loss$(1,008)$(990)Other non-interest expense
Tax benefit265 261 Income tax expense
Net of tax$(743)$(729)

51

Note 12: Regulatory Matters
Capital Requirements
Webster Financial Corporation is subject to regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subject to regulatory capital requirements administered by the OCC. Regulatory authorities can initiate certain mandatory actions if either Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, which could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures require minimum amounts and ratios to ensure capital adequacy.
Total risk-based capital is comprised of three categories as defined by Basel III capital rules: CET1 capital, Tier 1 capital, and Tier 2 capital. CET1 capital includes common shareholders' equity, less deductions for goodwill, other intangibles, and certain deferred tax adjustments. For purposes of CET1 capital, common shareholders' equity excludes AOCI (AOCL) components as permitted by the opt-out election taken by Webster upon adoption of Basel III. Tier 1 capital is comprised of CET1 capital plus perpetual preferred stock, while Tier 2 capital includes qualifying subordinated debt and qualifying allowance for credit losses, that together equal total capital.
The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank:
At March 31, 2021
 
Actual (1)
Minimum RequirementWell Capitalized
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
Webster Financial Corporation
CET1 risk-based capital$2,609,103 11.89 %$987,539 4.5 %$1,426,445 6.5 %
Total risk-based capital3,090,093 14.08 1,755,625 8.0 2,194,531 10.0 
Tier 1 risk-based capital2,754,140 12.55 1,316,718 6.0 1,755,625 8.0 
Tier 1 leverage capital 2,754,140 8.45 1,303,595 4.0 1,629,494 5.0 
Webster Bank
CET1 risk-based capital$2,842,608 12.96 %$987,127 4.5 %$1,425,850 6.5 %
Total risk-based capital3,101,241 14.14 1,754,892 8.0 2,193,616 10.0 
Tier 1 risk-based capital2,842,608 12.96 1,316,169 6.0 1,754,892 8.0 
Tier 1 leverage capital 2,842,608 8.73 1,302,964 4.0 1,628,705 5.0 

At December 31, 2020
 ActualMinimum RequirementWell Capitalized
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
Webster Financial Corporation
CET1 risk-based capital$2,543,131 11.35 %$1,008,512 4.5 %$1,456,739 6.5 %
Total risk-based capital3,045,652 13.59 1,792,910 8.0 2,241,137 10.0 
Tier 1 risk-based capital2,688,168 11.99 1,344,682 6.0 1,792,910 8.0 
Tier 1 leverage capital 2,688,168 8.32 1,291,980 4.0 1,614,975 5.0 
Webster Bank
CET1 risk-based capital$2,791,474 12.46 %$1,008,027 4.5 %$1,456,039 6.5 %
Total risk-based capital3,071,505 13.71 1,792,048 8.0 2,240,060 10.0 
Tier 1 risk-based capital2,791,474 12.46 1,344,036 6.0 1,792,048 8.0 
Tier 1 leverage capital 2,791,474 8.65 1,291,415 4.0 1,614,268 5.0 
(1)In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of the adoption of CECL on its regulatory capital over a two-year deferral period and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios and amounts exclude the impact of the increased allowance for credit losses on loans, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL, adjusted for an approximation of the after-tax provision for credit losses attributable to CECL relative to the incurred loss methodology during the deferral period.
Dividend Restrictions. Webster Financial Corporation is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including payments of dividends to shareholders. Dividends paid by the Bank are subject to various federal and state regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels, or would exceed the net income for that year combined with the undistributed net income for the preceding two years. Webster Bank paid $60.0 million in dividends to Webster Financial Corporation during the three months ended March 31, 2021, whereas no dividends were paid during the three months ended March 31, 2020.
Cash Restrictions. Webster Bank is required by Federal Reserve System regulations to hold cash reserve balances on hand or with a Federal Reserve Bank. To address liquidity concerns due to COVID-19, the Federal Reserve reset the requirement to zero. The reserve requirement ratio remains subject to adjustment as conditions warrant.
52

Note 13: Earnings Per Common Share
A reconciliation of the calculation of basic and diluted earnings per common share is as follows:
 Three months ended March 31,
(In thousands, except per share data)20212020
Earnings for basic and diluted earnings per common share:
Net income$108,078 $38,199 
Less: Preferred stock dividends1,969 1,969 
Net income available to common shareholders106,109 36,230 
Less: Earnings applicable to participating securities (1)
579 209 
Earnings applicable to common shareholders$105,530 $36,021 
Shares:
Weighted-average common shares outstanding - basic89,809 90,936 
Effect of dilutive securities299 270 
Weighted-average common shares outstanding - diluted90,108 91,206 
Earnings per common share (1):
Basic$1.18 $0.40 
Diluted 1.17 0.39 
(1)Earnings per common share amounts under the two-class method for unvested time-based restricted stock with non-forfeitable dividends and dividend rights are computed the same as the presentation above.
Dilutive Securities
Webster maintains stock compensation plans under which restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights may be granted to employees and directors. The effect of dilutive securities for the periods presented is attributed to outstanding stock options and non-participating, performance-based restricted stock.
There were no anti-dilutive stock options nor non-participating, performance-based restricted shares excluded from the effect of dilutive securities for the three months ended March 31, 2021, whereas there were 35 thousand anti-dilutive non-participating, performance-based restricted shares excluded for the for the three months ended March 31, 2020.
53

Note 14: Derivative Financial Instruments
Derivative Positions and Offsetting
Derivatives Designated in Hedge Relationships. Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, while certain receive fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into variable-rate debt. Certain purchased options are designated as cash flow hedges. Purchased options allow the Company to limit the potential adverse impact of variable interest rates by establishing a cap or floor rate in exchange for an upfront premium. The purchased options designated as cash flow hedges represent interest rate caps where payment is received from the counterparty if interest rates rise above the cap rate, and interest rate floors where payment is received from the counterparty when interest rates fall below the floor rate.
Derivatives Not Designated in Hedge Relationships. The Company also enters into other derivative transactions to manage economic risks, but does not designate the instruments in hedge relationships. Further, the Company enters into derivative contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions structured with matching terms to ensure minimal impact on earnings.
The following table presents the notional amounts and fair values of derivative positions:
At March 31, 2021At December 31, 2020
Asset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
(In thousands)Notional
Amounts		Fair
Value		Notional
Amounts		Fair
Value		Notional
Amounts		Fair
Value		Notional
Amounts		Fair
Value
Designated as hedging instruments:
Interest rate derivatives (1)
$1,000,000 $32,581 $25,000 $59 $1,000,000 $39,641 $25,000 $103 
Not designated as hedging instruments:
Interest rate derivatives (1)
4,502,668 187,593 4,306,916 22,762 4,533,441 292,096 4,356,339 11,874 
Mortgage banking derivatives (2)
43,494 485 3,303 12 40,771 855 — — 
Other (3)
100,907 296 381,546 192 108,987 264 360,497 377 
Total not designated as hedging instruments4,647,069 188,374 4,691,765 22,966 4,683,199 293,215 4,716,836 12,251 
Gross derivative instruments, before netting$5,647,069 220,955 $4,716,765 23,025 $5,683,199 332,856 $4,741,836 12,354 
Less: Master netting agreements3,082 3,082 7,522 7,522 
Cash collateral39,973 2,701 33,043 4,485 
Total derivative instruments, after netting$177,900 $17,242 $292,291 $347 
(1)Balances related to Chicago Mercantile Exchange (CME), excluding accrued interest, are presented as a single unit of account. In accordance with its rule book, CME legally characterizes variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of interest rate swaps cleared through CME include $0.3 billion and $0.1 billion for asset derivatives and $3.0 billion and $3.2 billion for liability derivatives at March 31, 2021 and December 31, 2020, respectively. The related fair values approximate zero.
(2)Notional amounts related to residential loans exclude approved floating rate commitments of $1.1 million at March 31, 2021.
(3)Other derivatives include foreign currency forward contracts related to lending arrangements and customer hedging activity, a Visa equity swap transaction, and risk participation agreements. Notional amounts of risk participation agreements include $82.7 million and $80.5 million for asset derivatives and $368.4 million and $338.9 million for liability derivatives at March 31, 2021 and December 31, 2020, respectively, that have insignificant related fair values.
The following table presents fair value positions transitioned from gross to net upon applying contractual counterparty netting agreements:
At March 31, 2021
(In thousands)Gross
Amount		Offset AmountNet Amount on Balance SheetAmounts Not OffsetNet Amounts
Asset derivatives$43,092 $43,055 $37 $266 $303 
Liability derivatives5,783 5,783 — 727 727 
At December 31, 2020
(In thousands)Gross
Amount		Offset AmountNet Amount on Balance SheetAmounts Not OffsetNet Amounts
Asset derivatives$40,565 $40,565 $— $785 $785 
Liability derivatives12,007 12,007 — 1,247 1,247 
54

Derivative Activity
The following table presents the income statement effect of derivatives designated as cash flow hedges:
Recognized InThree months ended March 31,
(In thousands)Net Interest Income20212020
Interest rate derivativesLong-term debt$121 $1,121 
Interest rate derivativesInterest and fees on loans and leases(2,582)740 
Net recognized on cash flow hedges$(2,461)$1,861 

The following table presents information related to a fair value hedging adjustment:
Condensed Consolidated Balance Sheet Line Item in Which Hedged Item is LocatedCarrying Amount of Previously Hedged ItemCumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount
(In thousands)At March 31,
2021		At December 31,
2020		At March 31,
2021		At December 31,
2020
Long-term debt$342,826 $344,164 $42,826 $44,164 

The following table presents the effect on the income statement for derivatives not designated as hedging instruments:
Recognized InThree months ended March 31,
(In thousands)Non-interest Income20212020
Interest rate derivativesOther income$4,644 $5,926 
Mortgage banking derivativesMortgage banking activities(382)(993)
OtherOther income472 1,911 
Total not designated as hedging instruments$4,734 $6,844 
Purchased options designated as cash flow hedges exclude time-value premiums from the assessment of hedge effectiveness. Time-value premiums are amortized on a straight-line basis. At March 31, 2021, the remaining unamortized balance of time-value premiums was $9.4 million.
Over the next twelve months, an estimated $10.3 million decrease to interest expense will be reclassified from AOCI (AOCL) relating to cash flow hedges, and an estimated $0.3 million increase to interest expense will be reclassified from AOCI (AOCL) relating to hedge terminations. At March 31, 2021, the remaining unamortized loss on terminated cash flow hedges is $0.9 million. The maximum length of time over which forecasted transactions are hedged is 3.3 years.
Additional information about cash flow hedge activity impacting AOCI (AOCL) and the related amounts reclassified to interest expense is provided in Note 11: Accumulated Other Comprehensive Income, Net of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 15: Fair Value Measurements.
Derivative Exposure
At March 31, 2021, the Company had $75.9 million in initial margin collateral posted at CME. In addition, $40.7 million of cash collateral received is included in cash and due from banks on the accompanying Condensed Consolidated Balance Sheets.
Webster regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions. Current net credit exposure relating to interest rate derivatives with Webster Bank customers was $182.3 million at March 31, 2021. In addition, the Company monitors potential future exposure, representing its best estimate of exposure to remaining contractual maturity. The potential future exposure relating to interest rate derivatives with Webster Bank customers totaled $39.6 million at March 31, 2021. The Company incorporates a credit valuation adjustment (CVA) and debit valuation adjustment (DVA) to reflect nonperformance risk in the fair value measurement of its derivatives. Various factors impact changes in the CVA and DVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
55

Note 15: Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings or any part of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These factors are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair Value Hierarchy
The three levels within the fair value hierarchy are as follows:
•Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2: Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, rate volatility, prepayment speeds, credit ratings,) or inputs that are derived principally or corroborated by market data, correlation, or other means.
•Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Available-for-Sale Investment Securities. When quoted prices are available in an active market, the Company classifies available-for-sale investment securities within Level 1 of the fair value hierarchy. U.S. Treasury Bills are classified within Level 1 of the fair value hierarchy.
When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, and corporate debt, are classified within Level 2 of the fair value hierarchy.
Derivative Instruments. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy.
All other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The resulting fair value is validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy.
Mortgage Banking Derivatives. Forward sales of mortgage loans and mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are established, under which the Company agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified within Level 2 of the fair value hierarchy.
56

Originated Loans Held For Sale. Residential mortgage loans typically are classified as held for sale upon origination based on management's intent to sell such loans. The Company generally records residential mortgage loans held for sale under the fair value option of Accounting Standards Codification (ASC) Topic 825 "Financial Instruments." Electing to measure originated loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of the derivatives used as an economic hedge on these assets. The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.
The following table compares the fair value to unpaid principal balance of assets accounted for under the fair value option:
At March 31, 2021At December 31, 2020
(In thousands)Fair ValueUnpaid Principal BalanceDifferenceFair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$17,260 $17,024 $236 $14,000 $13,511 $489 
Investments Held in Rabbi Trust. Investments held in the Rabbi Trust primarily include open-ended mutual funds that invest in equity and fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. The Company has elected to measure the investments held in the Rabbi Trust at fair value. The cost basis of the investments held in the Rabbi Trust is $1.6 million at March 31, 2021.
Alternative Investments. Equity investments have a readily determinable fair value when quoted prices are available in an active market. Accordingly, such alternative investments are classified within Level 1 of the fair value hierarchy.
Equity investments that do not have a readily available fair value may qualify for net asset value (NAV) practical expedient measurement, based on specific requirements. The Company's alternative investments accounted for at NAV consist of investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the underlying equity is liquidated. Alternative investments recorded at NAV are not classified within the fair value hierarchy. At March 31, 2021, these alternative investments had a remaining unfunded commitment of $18.7 million.

57

A summary of the financial assets and liabilities measured at fair value on a recurring basis is as follows:
 At March 31, 2021
(In thousands)Level 1Level 2Level 3Total
Financial assets held at fair value:
Agency CMO$— $137,603 $— $137,603 
Agency MBS— 1,456,456 — 1,456,456 
Agency CMBS— 974,585 — 974,585 
CMBS— 663,013 — 663,013 
CLO— 68,643 — 68,643 
Corporate debt— 13,680 — 13,680 
Total available-for-sale investment securities— 3,313,980 — 3,313,980 
Gross derivative instruments, before netting (1)
266 220,689 — 220,955 
Originated loans held for sale— 17,260 — 17,260 
Investments held in Rabbi Trust4,845 — — 4,845 
Alternative investments (2)
— — — 15,896 
Total financial assets held at fair value$5,111 $3,551,929 $— $3,572,936 
Financial liabilities held at fair value:
Gross derivative instruments, before netting (1)
$98 $22,927 $— $23,025 

 At December 31, 2020
(In thousands)Level 1Level 2Level 3Total
Financial assets held at fair value:
Agency CMO$— $154,613 $— $154,613 
Agency MBS— 1,457,409 — 1,457,409 
Agency CMBS— 1,117,233 — 1,117,233 
CMBS— 508,018 — 508,018 
CLO— 76,383 — 76,383 
Corporate debt— 13,120 — 13,120 
Total available-for-sale investment securities— 3,326,776 — 3,326,776 
Gross derivative instruments, before netting (1)
205 332,651 — 332,856 
Originated loans held for sale— 14,000 — 14,000 
Investments held in Rabbi Trust4,811 — — 4,811 
Alternative investments (2)
— — — 11,112 
Total financial assets held at fair value$5,016 $3,673,427 $— $3,689,555 
Financial liabilities held at fair value:
Gross derivative instruments, before netting (1)
$218 $12,136 $— $12,354 
(1)For information relating to the impact of netting derivative assets and derivative liabilities, as well as the impact from offsetting cash collateral paid to the same derivative counterparties, refer to Note 14: Derivative Financial Instruments.
(2)Alternative investments are recorded at NAV. Assets measured at NAV are not classified within the fair value hierarchy.

58

Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. At March 31, 2021, no significant assets classified within Level 3 were identified and measured under this basis. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Alternative Investments. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These alternative investments are investments in non-public entities that generally cannot be redeemed since the investment is distributed as the underlying equity is liquidated. Accordingly, these alternative investments are classified within Level 2 of the fair value hierarchy. The carrying amount of these alternative investments was $17.9 million at March 31, 2021. No reductions for impairments or adjustments due to observable price changes were identified during the three months ended March 31, 2021.
Collateral Dependent Loans and Leases. Loans and leases for which the payment is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral, less estimated cost to sell, using customized discounting criteria. Accordingly, such collateral dependent loans and leases are classified within Level 3 of the fair value hierarchy.
Other Real Estate Owned (OREO) and Repossessed Assets. The total book value of OREO and repossessed assets was $2.4 million at March 31, 2021. OREO and repossessed assets are accounted for at the lower of cost or fair value and are considered to be recognized at fair value when recorded below cost. The fair value of OREO is based on independent appraisals or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results, and price opinions. Certain assets require assumptions about factors that are not observable in an active market in the determination of fair value; as such, OREO and repossessed assets are classified within Level 3 of the fair value hierarchy.
In addition, the amortized cost of consumer loans secured by residential real estate property that are in process of foreclosure amounted to $19.3 million at March 31, 2021.
Fair Value of Financial Instruments and Servicing Assets
The Company is required to disclose the estimated fair value of financial instruments for which it is practicable to estimate fair value, as well as for servicing assets. The following is a description of the valuation methodologies used for those assets and liabilities.
Cash, Due from Banks, and Interest-bearing Deposits. The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value given the short time frame to maturity, and as such, these assets do not present unanticipated credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.
Held-to-Maturity Investment Securities. When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results, and has an established process to challenge their valuations or methodologies that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, and municipal bonds and notes, are classified within Level 2 of the fair value hierarchy.
Loans and Leases, net. The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow method based on future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases. The associated cash flows are adjusted for credit and other potential losses. Fair value for collateral dependent loans and leases is estimated using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.
59

Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.
Time Deposits. The fair value of a fixed-maturity certificate of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.
Securities Sold Under Agreements to Repurchase and Other Borrowings. The fair value of securities sold under agreements to repurchase and other borrowings that mature within 90 days is equal to the carrying value. Fair value for all other balances are estimated using a discounted cash flow analysis based on current market rates adjusted for associated credit risks, as appropriate. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flows and are adjusted, as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.
Mortgage Servicing Assets. Mortgage servicing assets are initially recorded at fair value and subsequently measured under the amortization method. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors. As such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing assets are reviewed quarterly and held at the lower of the carrying amount or fair value. Fair value adjustments, if any, are included as a component of loan related fees in the accompanying Condensed Consolidated Statements of Income. The Company recorded a $191 thousand and a $575 thousand charge to the valuation allowance for the three months ended March 31, 2021 and 2020, respectively. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.
The carrying amounts, estimated fair values, and classifications within the fair value hierarchy of selected financial instruments and servicing assets are summarized as follows:
 At March 31, 2021At December 31, 2020
(In thousands)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Assets:
Level 2
Held-to-maturity investment securities, net$5,567,785 $5,730,726 $5,567,889 $5,835,364 
Level 3
Loans and leases, net20,973,032 21,085,680 21,281,784 21,413,397 
Mortgage servicing assets12,327 16,102 13,422 14,362 
Liabilities:
Level 2
Deposit liabilities$26,247,701 $26,247,701 $24,847,618 $24,847,618 
Time deposits2,234,133 2,237,004 2,487,818 2,494,601 
Securities sold under agreements to repurchase and other borrowings498,378 505,387 995,355 1,000,189 
FHLB advances138,554 142,467 133,164 139,035 
Long-term debt (1)
566,480 522,850 567,663 538,407 
(1)Adjustments to the carrying amount of long-term debt for basis adjustment and unamortized discount and debt issuance cost on senior fixed-rate notes are not included in the determination of fair value. Refer to Note 10: Borrowings for additional information.
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Note 16: Retirement Benefit Plans
Defined Benefit Pension and Other Postretirement Benefits
The following table summarizes the components of net periodic benefit (income) cost:
Three months ended March 31,
20212020
(In thousands)Pension PlanSERPOtherPension PlanSERPOther Benefits
Interest cost on benefit obligations$1,166 $7 $4 $1,675 $11 $13 
Expected return on plan assets(3,595)— — (3,380)— — 
Recognized net loss (gain)1,019 8 (20)992 6 (9)
Net periodic benefit (income) cost$(1,410)$15 $(16)$(713)$17 $4 

The components of net periodic benefit (income) cost are included within other non-interest expense on the accompanying Condensed Consolidated Statements of Income. The weighted-average expected long-term rate of return on plan assets for the three months ended March 31, 2021 was 5.50%, as determined at the beginning of the fiscal year.
Note 17: Segment Reporting
Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Retail Banking. These segments reflect how executive management responsibilities are assigned, the type of customer served, how products and services are provided, and how discrete financial information is evaluated. Certain Treasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category.
Effective January 1, 2021, management realigned certain of the Company's business banking and investment services operations to better serve its customers and deliver operational efficiencies. Also, the previously reported Community Banking segment was renamed as Retail Banking. Under this realignment, $131.0 million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. There was no goodwill impairment as a result of the reorganization. Prior period amounts have been recasted to reflect the realignment.
Description of Segment Reporting Methodology
Webster uses an internal profitability reporting system to generate information by reportable segment, which is based on a series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the results of any reportable segment do not affect the consolidated financial position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each reportable segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.
Webster allocates interest income and interest expense to each business, through an internal matched maturity Funds Transfer Pricing (FTP) process. The goal of the FTP allocation is to encourage loan and deposit growth consistent with the Company’s overall profitability objectives. The FTP process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. The allocation considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. The FTP process transfers the corporate interest rate risk exposure to the treasury function included within the Corporate and Reconciling category where such exposures are centrally managed.
Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Business development costs are generally included in the Corporate and Reconciling category.
The results of funds transfer pricing and allocations for non-interest expense, as well as non-interest income produces pre-tax, pre-provision net revenue, under which basis the segments are reviewed by executive management.
Webster also allocates the provision for credit losses to each reportable segment based on management's estimate of the inherent loss content in each of the specific loan and lease portfolios. Allowance for credit losses on loans and leases is included in total assets within the Corporate and Reconciling category.
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The following table presents balance sheet information, including all appropriate allocations, for Webster's reportable segments and the Corporate and Reconciling category:
At March 31, 2021
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Goodwill$131,000 $21,813 $385,560 $— $538,373 
Total assets$14,602,793 $83,707 $7,514,326 $11,058,211 $33,259,037 
At December 31, 2020
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Goodwill$131,000 $21,813 $385,560 $— $538,373 
Total assets$14,732,792 $80,352 $7,726,287 $10,051,259 $32,590,690 
The following tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:
 Three months ended March 31, 2021
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Net interest income$142,038 $42,109 $88,813 $(49,196)$223,764 
Non-interest income25,177 27,005 16,071 8,504 76,757 
Non-interest expense64,836 36,250 76,124 10,772 187,982 
Pre-tax, pre-provision net revenue102,379 32,864 28,760 (51,464)112,539 
Provision for credit losses(19,373)— (6,386)9 (25,750)
Income before income tax expense121,752 32,864 35,146 (51,473)138,289 
Income tax expense30,803 8,775 7,732 (17,099)30,211 
Net income$90,949 $24,089 $27,414 $(34,374)$108,078 

 Three months ended March 31, 2020
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Net interest income$117,587 $42,673 $81,199 $(10,658)$230,801 
Non-interest income22,416 26,383 18,443 6,136 73,378 
Non-interest expense65,221 37,078 80,290 (3,753)178,836 
Pre-tax, pre-provision net revenue74,782 31,978 19,352 (769)125,343 
Provision for credit losses69,018 — 7,067 (85)76,000 
Income before income tax expense5,764 31,978 12,285 (684)49,343 
Income tax expense1,406 8,538 2,678 (1,478)11,144 
Net income$4,358 $23,440 $9,607 $794 $38,199 



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Note 18: Revenue from Contracts with Customers
The following table presents revenues within the scope of ASC Topic 606, Revenue from Contracts with Customers, along with the net amount of other sources of non-interest income that are within the scope of other GAAP topics, by reportable segment:
Three months ended March 31, 2021
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Non-interest Income:
Deposit service fees$4,101 $25,018 $11,303 $47 $40,469 
Wealth and investment services9,412 — — (9)9,403 
Other302 1,987 246 — 2,535 
Revenue from contracts with customers13,815 27,005 11,549 38 52,407 
Other sources of non-interest income11,362 — 4,522 8,466 24,350 
Total non-interest income$25,177 $27,005 $16,071 $8,504 $76,757 

Three months ended March 31, 2020
(In thousands)Commercial BankingHSA BankRetail BankingCorporate and ReconcilingConsolidated Total
Non-interest Income:
Deposit service fees$3,911 $24,842 $13,740 $77 $42,570 
Wealth and investment services8,746 — — (7)8,739 
Other256 1,541 61 — 1,858 
Revenue from contracts with customers12,913 26,383 13,801 70 53,167 
Other sources of non-interest income9,503 — 4,642 6,066 20,211 
Total non-interest income$22,416 $26,383 $18,443 $6,136 $73,378 


The major sources of revenue from contracts with customers are described below:
Deposit service fees predominately consist of fees earned from deposit accounts and interchange fees. Fees earned from deposit accounts relate to event-driven services and periodic account maintenance activities. Webster's obligations for event-driven services are satisfied at the time the service is delivered, while the obligations for maintenance services are satisfied monthly. Interchange fees are assessed as the performance obligation is satisfied, which is the point in time that the card transaction is authorized.
Wealth and investment services consists of fees earned from investment and securities-related services, trust, and other related services. Obligations for wealth and investment services are generally satisfied over time through a time-based measurement of progress, but certain obligations may be satisfied at points in time for activities that are transactional in nature.
These disaggregated amounts are reconciled to non-interest income as presented within Note 17: Segment Reporting. Contracts with customers did not generate significant contract assets and liabilities.
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Note 19: Commitments and Contingencies
Credit-Related Financial Instruments
The Company offers credit-related financial instruments in the normal course of business to meet certain financing needs of its customers, that involve off-balance sheet risk. These transactions may include an unused commitment to extend credit, standby letter of credit, or a commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.
Commitments to Extend Credit. The Company makes commitments under various terms to lend funds to customers at a future point in time. These commitments include revolving credit arrangements, term loan commitments, and short-term borrowing agreements. Most of these loans have fixed expiration dates or other termination clauses where a fee may be required. Since commitments routinely expire without being funded, or after required availability of collateral occurs, the total commitment amount does not necessarily represent future liquidity requirements.
Standby Letters of Credit. A standby letter of credit commits the Company to make payments on behalf of customers if certain specified future events occur. The Company has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit, which is often part of a larger credit agreement under which security is provided. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of a standby letter of credit represents the maximum amount of potential future payments the Company could be required to make, and is the Company's maximum credit risk.
Commercial Letters of Credit. A commercial letter of credit is issued to facilitate either domestic or foreign trade arrangements for customers. As a general rule, drafts are committed to be drawn when the goods underlying the transaction are in transit. Similar to a standby letter of credit, a commercial letter of credit is often secured by an underlying security agreement including the assets or inventory to which they relate.
The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:
(In thousands)At March 31,
2021		At December 31, 2020
Commitments to extend credit$6,483,939 $6,517,840 
Standby letters of credit213,282 207,201 
Commercial letters of credit48,111 30,522 
Total credit-related financial instruments with off-balance sheet risk$6,745,332 $6,755,563 
These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and therefore, management maintains an allowance for credit losses on unfunded loan commitments to provide for expected losses in connection with funding the unused portion of legal commitments to lend when those commitments are not unconditionally cancellable by Webster. Loss calculation factors are consistent with the ACL methodology for funded loans using PD and LGD applied to the underlying borrower risk and facility grades, a draw down factor applied to utilization rates, and relevant forecast information. This allowance is reported as a component of accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets.
The following table provides a summary of activity in the allowance for credit losses on unfunded loan commitments:
Three months ended March 31,
(In thousands)20212020
Beginning balance$12,755 $2,367 
Adoption of ASU No. 2016-13 (CECL)— 9,139 
Provision (benefit)45 (1,422)
Ending balance$12,800 $10,084 

Note 20: Subsequent Events
The Company has evaluated subsequent events from the date of the Condensed Consolidated Financial Statements and accompanying Notes thereto, March 31, 2021, through the date of issuance, and determined that, except for the pending merger discussed in Note 3: Business Developments, no other significant events were identified requiring recognition or disclosure.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required information is set forth above in Item 1. Financial Statements, refer to Note 14: Derivative Financial Instruments, and in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, refer to the section captioned "Asset/Liability Management and Market Risk", which are incorporated herein for reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company has performed an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures for recording, processing, summarizing, and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms, were effective as of March 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes made to the Company's internal control over financial reporting during the quarter ended March 31, 2021, that materially affected, or would be reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Webster Financial Corporation, or its subsidiaries, are subject to certain legal proceedings and claims in the ordinary course of business. The Company intends to defend itself in all claims asserted against it, and management currently believes that the ultimate outcome of these proceedings will not be material, either individually or in the aggregate, to Webster or its consolidated financial position. Webster establishes an accrual for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings may occur that could cause Webster to adjust its litigation accrual or could have a material adverse effect, either individually or in the aggregate, on its business, financial condition, or operating results.
ITEM 1A. RISK FACTORS
As a result of Webster entering into a merger agreement with Sterling, certain risk factors have been identified:
Webster may not be able to complete the merger with Sterling, as the completion is contingent upon the satisfaction of a number of conditions, some of which are beyond both Webster's and Sterling's control.
Adoption of the merger agreement is subject to customary closing conditions, including the receipt of regulatory approvals and the requisite approvals of both Webster's shareholders and Sterling's shareholders. Conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, or Webster or Sterling may unilaterally elect to terminate the merger agreement. If the merger agreement is terminated under certain circumstances, Webster may be required to pay a $185.0 million termination fee to Sterling.
Webster and Sterling may also be subject to lawsuits challenging the merger, and adverse rulings in these lawsuits may delay or prevent the merger from being completed or require Webster or Sterling to incur significant costs to defend or settle these lawsuits. Any delay in completing the merger could cause Webster not to realize, or be delayed in realizing, some or all of the benefits that the Company expects to achieve if the merger is successfully completed within the anticipated time frame.
While the merger is pending, Webster will be subject to business uncertainties and contractual restrictions that could adversely affect its business and operations.
Uncertainty about the effect of the merger on employees, customers, and other persons with whom Webster or Sterling have a business relationship may have an adverse effect on Webster's business, operations and stock price. Existing customers of Webster and Sterling could decide to no longer do business with Webster, Sterling, or the combined company, reducing the anticipated benefits of the merger. Webster and Sterling are also subject to certain restrictions on the conduct of their respective businesses while the merger is pending. As a result, certain other projects may be delayed or abandoned and business decisions could be deferred. Employee retention at Sterling and Webster may be challenging before completion of the merger, as certain employees may experience uncertainty about their future roles with the combined company. These retention challenges would require Webster to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Webster, Sterling or the combined company, the benefits of the merger could be materially diminished.
Webster may fail to realize the anticipated benefits of the merger, or those benefits may take longer to realize than expected. Further, following the completion of the merger, Webster may also encounter significant difficulties in integrating with Sterling and its results could suffer if the Company does not effectively manage its operations.
Webster and Sterling have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on Webster’s ability to successfully integrate Sterling’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of the combined company's businesses. Inconsistencies in standards, internal controls, procedures, and policies could adversely affect the combined company. The diversion of management's attention and any delays or difficulties encountered in connection with the merger and the integration of Sterling’s operations could have an adverse effect on the business, financial condition, and operating results of the combined company. If Webster experiences difficulties in the integration process, including those listed above, Webster may fail to realize the anticipated benefits of the merger in a timely manner or at all.
Upon the merger's completion, the size of Webster’s business will increase significantly. Webster’s future success depends, in part, upon the ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There
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is no guarantee that Webster will be successful or that Webster will realize the expected operating efficiencies, cost savings, and other benefits currently anticipated from the merger’s completion.
Webster is expected to incur substantial expenses related to the merger and integration with Sterling.
Both Webster and Sterling will incur substantial transaction costs and other expenses in connection with the merger, as there are various processes, policies, procedures, operations, technologies, and systems that must be integrated. Many of the expenses that will be incurred are inherently difficult to estimate accurately and could exceed the anticipated savings that Webster expects to achieve. While Webster has planned for an estimated level of expenses to be incurred, there are many factors beyond the Company’s control that could affect the total amount or the timing of charges to earnings.
The other risk factors that could affect the Company's financial condition or operating results remain unchanged from those previously disclosed in Webster's Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of equity securities of Webster Financial Corporation's common stock made by or on behalf of Webster or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended March 31, 2021:
Period
Total
Number of
Shares
Purchased (1)
Average Price
Paid
Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum
Dollar Amount Available for Repurchase
Under the Plans
or Programs (2)
January1,161 $48.54 — $123,443,785 
February54,672 55.63 — 123,443,785 
March14,215 57.03 — 123,443,785 
Total70,048 55.79 — 123,443,785 
(1)The total number of shares purchased were acquired outside of the Company's common stock repurchase program at market prices and were related to stock compensation plan activity.
(2)Webster maintains a common stock repurchase program which authorizes management to purchase shares of its common stock in either open market or privately negotiated transactions, subject to market conditions and other factors. On October 29, 2019, the Company announced that its Board of Directors approved a modification to this program, originally approved on October 24, 2017, increasing the maximum dollar amount available for repurchase to $200 million. This program will remain in effect until fully utilized or until modified, superseded, or terminated. However, due to the Company's announcement of its pending merger agreement with Sterling on April 19, 2021, Webster may not purchase any shares under this program until the transaction is closed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
67

ITEM 6. EXHIBITS
A list of exhibits to this Form 10-Q is set forth below.

Exhibit Number
Exhibit Description
Exhibit Included
Incorporated by Reference
Form
Exhibit
Filing Date
28-K2.14/23/2021
3
Certificate of Incorporation and Bylaws.
3.1
10-Q
3.1
8/9/2016
3.2
8-K
3.1
6/11/2008
3.3
8-K
3.1
11/24/2008
3.4
8-K
3.1
7/31/2009
3.5
8-K
3.2
7/31/2009
3.6
8-A12B
3.3
12/4/2012
3.78-A12B3.312/12/2017
3.8
8-K
3.1
3/17/2020
4X
10 (1)
DEF 14AA
3/19/2021
31.1X
31.2X
32.1
X (2)
32.2
X (2)
101
The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements Of Income, (iv) Condensed Consolidated Statements Of Comprehensive Income, (v) Condensed Consolidated Statements Of Shareholders' Equity, (vi) Condensed Consolidated Statements Of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail.
X
104Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)X
(1) Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
(2) Exhibit is furnished herewith and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WEBSTER FINANCIAL CORPORATION
Registrant
Date: May 6, 2021By:/s/ John R. Ciulla
John R. Ciulla
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: May 6, 2021By:/s/ Glenn I. MacInnes
Glenn I. MacInnes
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 6, 2021By:/s/ Albert J. Wang
Albert J. Wang
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

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