Loans and Leases

9 Months Ended

Sep. 30, 2014

Loans and Leases Receivable Disclosure [Abstract]

Loans and Leases

Loans and Leases

Recorded Investment in Loans and Leases. The following tables summarize the recorded investment in loans and leases by portfolio segment:

	At September 30, 2014
(In thousands)	Residential		Consumer		Commercial		Commercial Real Estate (1)		Equipment Financing		Total (2)
Recorded Investment:
Individually evaluated for impairment	$	144,355	$	51,503	$	41,329	$	100,560	$	1,759	$	339,506
Collectively evaluated for impairment	3,321,447		2,538,505		3,602,406		3,261,898		488,391		13,212,647
Recorded investment in loans and leases	3,465,802		2,590,008		3,643,735		3,362,458		490,150		13,552,153
Less: Accrued interest	10,448		8,108		11,744		8,351		—		38,651
Loans and leases	$	3,455,354	$	2,581,900	$	3,631,991	$	3,354,107	$	490,150	$	13,513,502

	At December 31, 2013
(In thousands)	Residential		Consumer		Commercial		Commercial Real Estate (1)		Equipment Financing		Total (2)
Recorded Investment:
Individually evaluated for impairment	$	142,871	$	52,179	$	52,199	$	105,046	$	210	$	352,505
Collectively evaluated for impairment	3,228,688		2,492,353		3,241,045		2,961,378		460,240		12,383,704
Recorded investment in loans and leases	3,371,559		2,544,532		3,293,244		3,066,424		460,450		12,736,209
Less: Accrued interest	10,134		7,844		10,393		8,062		—		36,433
Loans and leases	$	3,361,425	$	2,536,688	$	3,282,851	$	3,058,362	$	460,450	$	12,699,776

(1) Includes certain loans individually evaluated for impairment under the Company's loan policy that were deemed not to be impaired at both September 30, 2014 and December 31, 2013.

(2) Loans and leases include net deferred fees and unamortized premiums of $14.5 million and $13.3 million at September 30, 2014 and December 31, 2013, respectively.

At September 30, 2014, the Company had pledged $5.4 billion of eligible loan collateral to support available borrowing capacity at the Federal Home Loan Bank of Boston ("FHLB") and the Federal Reserve Bank of Boston.

Loans and Leases Portfolio Aging. The following tables summarize the aging of the recorded investment in loans and leases by portfolio class:

	At September 30, 2014
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		> 90 Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans and Leases
Residential: (1)	$	9,906	$	6,295	$	—	$	68,402	$	84,603	$	3,381,199	$	3,465,802
Consumer:
Home equity (1)	9,498		7,068		—		38,959		55,525		2,429,571		2,485,096
Other consumer	671		334		—		244		1,249		103,663		104,912
Commercial:
Commercial non-mortgage	8,402		450		795		12,454		22,101		2,972,897		2,994,998
Asset-based	—		—		—		—		—		648,737		648,737
Commercial real estate:
Commercial real estate	991		670		488		14,443		16,592		3,131,467		3,148,059
Commercial construction	—		—		—		3,919		3,919		210,480		214,399
Equipment financing	241		192		—		1,659		2,092		488,058		490,150
Total	$	29,709	$	15,009	$	1,283	$	140,080	$	186,081	$	13,366,072	$	13,552,153

(1) A total of $17.6 million residential and consumer loans was reclassified from non-accrual to accrual status as a result of updated regulatory guidance issued in the first quarter of 2014.

	At December 31, 2013
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		> 90 Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans and Leases
Residential:	$	11,721	$	6,839	$	—	$	81,520	$	100,080	$	3,271,479	$	3,371,559
Consumer:
Home equity	15,332		5,120		—		51,788		$	72,240	2,410,953		$	2,483,193
Other consumer	462		193		—		140		795		60,543		61,338
Commercial:
Commercial non-mortgage	3,208		984		4,305		10,946		19,443		2,712,870		2,732,313
Asset-based	—		—		—		—		—		560,931		560,931
Commercial real estate:
Commercial real estate	4,387		587		235		13,456		18,665		2,842,637		2,861,302
Commercial construction	—		—		—		4,237		4,237		200,886		205,123
Equipment financing	299		63		—		1,141		1,503		458,947		460,450
Total	$	35,409	$	13,786	$	4,540	$	163,228	$	216,963	$	12,519,246	$	12,736,209

Interest on non-accrual loans and leases that would have been recorded as additional interest income for the three and nine months ended September 30, 2014 and 2013, had the loans and leases been current in accordance with their original terms, totaled $3.0 million and $7.6 million and $3.5 million and $10.9 million, respectively.

Allowance for Loan and Lease Losses. The following tables summarize the ALLL by portfolio segment:

	At or for the three months ended September 30, 2014
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	19,054		$	33,867		$	51,632		$	34,144		$	5,539		$	10,632		$	154,868
Provision (benefit) charged to expense	2,006			5,357			2,051			68			344			(326		)	9,500
Losses charged off	(1,870		)	(6,329		)	(2,738		)	(139		)	(491		)	—			(11,567		)
Recoveries	261			1,947			1,017			120			336			—			3,681
Balance, end of period	$	19,451		$	34,842		$	51,962		$	34,193		$	5,728		$	10,306		$	156,482
Individually evaluated for impairment	$	11,501		4,165			$	1,717		3,818			$	29		$	—		$	21,230
Collectively evaluated for impairment	$	7,950		$	30,677		$	50,245		$	30,375		$	5,699		$	10,306		$	135,252

	At or for the three months ended September 30, 2013
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated		Total
Allowance for loan and lease losses:
Balance, beginning of period	$	26,876		$	49,659		$	43,847		$	28,457		$	3,603		$	11,000	$	163,442
Provision (benefit) charged to expense	1,075			(1,732		)	3,783			6,046			(672		)	—		8,500
Losses charged off	(3,800		)	(5,827		)	(3,245		)	(4,069		)	(10		)	—		(16,951		)
Recoveries	152			1,188			426			105			683			—		2,554
Balance, end of period	$	24,303		$	43,288		$	44,811		$	30,539		$	3,604		$	11,000	$	157,545
Individually evaluated for impairment	$	13,003		$	3,281		$	1,630		$	5,397		$	—		$	—	$	23,311
Collectively evaluated for impairment	$	11,300		$	40,007		$	43,181		$	25,142		$	3,604		$	11,000	$	134,234

	At or for the nine months ended September 30, 2014
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	20,580		$	39,551		$	47,706		$	29,883		$	3,912		$	10,941		$	152,573
Provision (benefit) charged to expense	2,711			7,530			10,716			6,633			795			(635		)	27,750
Losses charged off	(4,868		)	(16,501		)	(9,571		)	(2,991		)	(511		)	—			(34,442		)
Recoveries	1,028			4,262			3,111			668			1,532			—			10,601
Balance, end of period	$	19,451		$	34,842		$	51,962		$	34,193		$	5,728		$	10,306		$	156,482
Individually evaluated for impairment	$	11,501		$	4,165		$	1,717		$	3,818		$	29		$	—		$	21,230
Collectively evaluated for impairment	$	7,950		$	30,677		$	50,245		$	30,375		$	5,699		$	10,306		$	135,252

	At or for the nine months ended September 30, 2013
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	29,474		$	54,254		$	46,566		$	30,834		$	4,001		$	12,000		$	177,129
Provision (benefit) charged to expense	2,835			7,328			8,902			9,146			(2,711		)	(1,000		)	24,500
Losses charged off	(8,848		)	(23,565		)	(13,740		)	(10,339		)	(101		)	—			(56,593		)
Recoveries	842			5,271			3,083			898			2,415			—			12,509
Balance, end of period	$	24,303		$	43,288		$	44,811		$	30,539		$	3,604		$	11,000		$	157,545
Individually evaluated for impairment	$	13,003		$	3,281		$	1,630		$	5,397		$	—		$	—		$	23,311
Collectively evaluated for impairment	$	11,300		$	40,007		$	43,181		$	25,142		$	3,604		$	11,000		$	134,234

Impaired Loans and Leases. The following tables summarize impaired loans and leases by portfolio class:

	At September 30, 2014
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential:
1-4 family	$	159,486	$	144,355	$	24,272	$	120,083	$	11,501
Consumer:
Home equity	60,717		51,503		26,885		24,618		4,165
Commercial:
Commercial non-mortgage	50,359		41,329		17,754		23,575		1,717
Commercial real estate:
Commercial real estate	90,230		88,209		42,743		45,466		3,786
Commercial construction	9,438		8,230		7,517		713		32
Equipment financing	2,258		1,759		1,114		645		29
Totals:
Residential	159,486		144,355		24,272		120,083		11,501
Consumer	60,717		51,503		26,885		24,618		4,165
Commercial	50,359		41,329		17,754		23,575		1,717
Commercial real estate	99,668		96,439		50,260		46,179		3,818
Equipment financing	2,258		1,759		1,114		645		29
Total	$	372,488	$	335,385	$	120,285	$	215,100	$	21,230

	At December 31, 2013
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential:
1-4 family	$	158,361	$	142,871	$	23,988	$	118,883	$	10,534
Consumer:
Home equity	63,886		52,179		27,323		24,856		4,595
Commercial:
Commercial non-mortgage	59,279		52,199		23,138		29,061		1,878
Commercial real estate:
Commercial real estate	95,013		90,976		42,774		48,202		3,444
Commercial construction	11,725		10,625		10,625		—		—
Equipment financing	249		210		210		—		—
Totals:
Residential	158,361		142,871		23,988		118,883		10,534
Consumer	63,886		52,179		27,323		24,856		4,595
Commercial	59,279		52,199		23,138		29,061		1,878
Commercial real estate	106,738		101,601		53,399		48,202		3,444
Equipment financing	249		210		210		—		—
Total	$	388,513	$	349,060	$	128,058	$	221,002	$	20,451

The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases by portfolio class:

	September 30, 2014		Three months ended September 30, 2014				Nine months ended September 30, 2014				September 30, 2013		Three months ended September 30, 2013				Nine months ended September 30, 2013
(In thousands)	Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Accrued Interest Income		Cash Basis Interest Income
Residential:
1-4 family	$	143,613	$	1,144	$	305	$	3,482	$	912	$	145,240	$	1,015	$	520	$	3,098	$	1,476
Consumer:
Home equity	51,841		372		307		1,100		930		53,850		250		413		748		1,301
Commercial:
Commercial non-mortgage	46,764		617		—		1,787		—		65,808		794		—		2,187		—
Commercial real estate:
Commercial real estate	89,593		933		—		2,585		—		116,307		1,109		—		3,675		—
Commercial construction	9,428		75		—		216		—		16,323		161		—		482		—
Equipment financing	985		11		—		17		—		1,136		6		—		19		—
Totals:
Residential	143,613		1,144		305		3,482		912		145,240		1,015		520		3,098		1,476
Consumer	51,841		372		307		1,100		930		53,850		250		413		748		1,301
Commercial	46,764		617		—		1,787		—		65,808		794		—		2,187		—
Commercial real estate	99,021		1,008		—		2,801		—		132,630		1,270		—		4,157		—
Equipment financing	985		11		—		17		—		1,136		6		—		19		—
Total	$	342,224	$	3,152	$	612	$	9,187	$	1,842	$	398,664	$	3,335	$	933	$	10,209	$	2,777

Credit Risk Management. The Company has credit policies and procedures in place designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and reviews reports related to loan production, loan quality, concentrations, delinquencies, non-performing and potential problem loans.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards are designed to promote relationships rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay obligations as agreed. 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. The cash flows of borrowers, however, 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 principals.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those specific to real estate loans. These 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. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.

Construction loans on commercial properties have unique risk characteristics and are provided to experienced developers/sponsors with strong track records of successful completion and sound financial condition and are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be subject to change as the construction project proceeds. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections by third-party professionals and the Company's internal staff.

Policies and procedures are in place to manage consumer loan risk and are developed and modified, as needed. Policies and procedures, coupled with relatively small loan amounts, and predominately collateralized structures spread across many individual borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis. Underwriting factors for mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s debt to income level and are also influenced by regulatory requirements. Additionally, Webster Bank originates both qualified mortgage (QM) and non-QM loans as defined by the Consumer Financial Protection Bureau rules that went into effect on January 10, 2014, with appropriate policies, procedures, and underwriting guidelines that include ability-to-repay standards.

Credit Quality Indicators. To measure credit risk for the commercial, commercial real estate, and equipment financing portfolios, the Company employs a dual grade credit risk grading system for estimating the probability of borrower default and the loss given default. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile (“CCRP”). 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 CCRP has 10 grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 6 are considered pass ratings, and 7 through 10 are criticized as defined by the regulatory agencies. Risk ratings, assigned to differentiate risk within the portfolio, are reviewed on an ongoing basis and revised to reflect changes in the borrowers’ current financial positions and outlooks, risk profiles, and the related collateral and structural positions. 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. All criticized loans undergo frequent review and enhanced monitoring of the underlying borrower.

A “Special Mention” (7) credit has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the asset. “Substandard” (8) assets have a well defined weakness that jeopardizes the full repayment of the debt. An asset rated “Doubtful” (9) has all of the same weaknesses as a substandard credit with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, improbable. Assets classified as “Loss” (10) in accordance with regulatory guidelines are considered uncollectible and charged off.

The recorded investment in commercial and commercial real estate loans and equipment financing leases segregated by risk rating exposure is as follows:

	Commercial				Commercial Real Estate				Equipment Financing
(In thousands)	At September 30, 2014		At December 31, 2013		At September 30, 2014		At December 31, 2013		At September 30, 2014		At December 31, 2013
(1) - (6) Pass	$	3,474,698	$	3,091,154	$	3,191,834	$	2,947,116	$	468,407	$	437,033
(7) Special Mention	63,830		87,451		61,354		20,901		2,080		7,979
(8) Substandard	105,008		114,199		108,762		97,822		19,663		15,438
(9) Doubtful	199		440		508		585		—		—
(10) Loss	—		—		—		—		—		—
Total	$	3,643,735	$	3,293,244	$	3,362,458	$	3,066,424	$	490,150	$	460,450

For residential and consumer loans, the Company considers factors such as updated FICO scores, employment status, home prices, loan to value, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans as credit quality indicators. On an ongoing basis for portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for both home equity and residential first mortgage lending products. The estimate is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The Case-Shiller data indicates trends for Metropolitan Statistical Areas. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

Troubled Debt Restructurings. The following table summarizes information for TDRs:

(Dollars in thousands)	At September 30, 2014			At December 31, 2013
Recorded investment of TDRs:
Accrual status (1)	$	236,128		$	238,926
Non-accrual status (1)	87,003			102,972
Total recorded investment of TDRs	$	323,131		$	341,898
Accruing TDRs performing under modified terms more than one year	68.4		%	58.2		%
Specific reserves for TDRs included in the balance of allowance for loan and lease losses	$	20,745		$	20,360
Additional funds committed to borrowers in TDR status	495			1,262

(1) A total of $17.6 million in residential and consumer loans was reclassified from non-accrual to accrual status in the nine months ended September 30, 2014 as a result of updated regulatory guidance issued in the first quarter of 2014.

For the three and nine months ended September 30, 2014 and 2013, Webster charged off $2.1 million and $10.3 million and $3.2 million and $17.3 million, respectively, for the portion of TDRs deemed to be uncollectible.

TDRs may be modified by means of extended maturity, below market adjusted interest rates, a combination of rate and maturity, or other means, including covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.

The following table provides information on how loans and leases were modified as TDRs:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Type of concession	Number of Loans and Leases	Post- Modification Recorded Investment(1)		Number of Loans and Leases	Post- Modification Recorded Investment(1)		Number of Loans and Leases	Post- Modification Recorded Investment(1)		Number of Loans and Leases	Post- Modification Recorded Investment(1)
(Dollars in thousands)
Residential:
Extended Maturity	10	$	1,383	10	$	1,898	24	$	3,191	22	$	4,418
Adjusted Interest rates	1	103		1	654		3	448		6	1,888
Combination Rate and Maturity	2	275		8	1,142		16	3,522		38	7,213
Other	32	7,600		5	1,177		47	10,433		30	5,611
Consumer:
Extended Maturity	4	143		10	307		18	911		20	961
Adjusted Interest rates	—	—		—	—		1	51		4	154
Combination Rate and Maturity	1	110		3	164		6	412		13	1,381
Other	34	1,750		28	811		73	3,717		78	3,197
Commercial:
Extended Maturity	—	—		—	—		4	356		2	7,520
Adjusted Interest rates	—	—		—	—		1	25		—	—
Combination Rate and Maturity	5	342		12	353		18	974		19	982
Other	2	101		2	4,568		5	6,647		3	4,607
Commercial real estate:
Extended Maturity	—	—		—	—		—	—		3	227
Combination Rate and Maturity	—	—		2	340		—	—		4	12,015
Equipment Financing
Extended Maturity	1	492		—	—		1	492		—	—
TOTAL TDRs	92	$	12,299	81	$	11,414	217	$	31,179	242	$	50,174

(1) Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings was not significant.

The Company’s loan and lease portfolio at September 30, 2014 included loans with an A Note/B Note structure. The loans were restructured into A Note/B Note structures as a result of evaluating the cash flow of the borrowers to support repayment. Webster immediately charged off the balance of B Notes. The restructuring agreements specify a market interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring.

The following table provides information on loans and leases modified as TDRs within the previous 12 months and for which there was a payment default during the periods presented:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
(Dollars in thousands)	Number of Loans and Leases	Recorded Investment		Number of Loans and Leases	Recorded Investment		Number of Loans and Leases	Recorded Investment		Number of Loans and Leases	Recorded Investment
Residential:
1-4 family	3	$	196	8	$	1,116	3	$	196	12	$	1,814
Consumer:
Home equity	2	22		3	53		4	48		7	343
Commercial real estate:
Commercial real estate	—	—		1	500		—	—		1	500
Total	5	$	218	12	$	1,669	7	$	244	20	$	2,657

The recorded investment in commercial, commercial real estate, and equipment financing TDRs segregated by risk rating exposure is as follows:

(In thousands)	At September 30, 2014		At December 31, 2013
(1) - (6) Pass	$	37,861	$	55,973
(7) Special Mention	18,268		—
(8) Substandard	70,601		90,461
(9) Doubtful	346		414
(10) Loss	—		—
Total	$	127,076	$	146,848