Webster manages economic risks, such as interest rate, liquidity, and credit risks by managing the amount, sources, and duration of its debt funding in conjunction with the use of interest rate derivative financial instruments. Webster enters into interest rate derivatives to mitigate the exposure related to business activities that result in the future receipt or payment of, both known and uncertain, cash amounts that are impacted by interest rates. The primary objective for using interest rate derivatives is to add stability to interest expense by managing exposure to interest rate movements. To accomplish this objective, Webster uses interest rate swaps and interest rate caps or floors as part of its interest rate risk management strategy.

Interest rate swaps and interest rate caps and floors designated as cash flow hedges are designed to manage the risk associated with a forecasted event or an uncertain variable-rate cash flow. Forward-settle interest rate swaps protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on forecasted debt issuances. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for payment of an up-front premium, while interest rate floors designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for payment of an up-front premium.

Cash flow hedges are used to regulate the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. Derivative instruments designated as cash flow hedges are recorded on the consolidated balance sheet at fair value. Changes in fair value of the derivatives which are designated as cash flow hedges, and that qualify for hedge accounting, are recorded to AOCL and are reclassified into earnings in the subsequent periods that the hedged forecasted transaction affects earnings.

Fair value hedges are used for certain fixed-rate obligations which can be exposed to a change in fair value attributable to changes in benchmark interest rates. An interest rate swap which involves the receipt of fixed-rate amounts from a counterparty in exchange for Webster making variable-rate payments over the life of the agreement, without the exchange of the underlying notional amount, is typically utilized. For a qualifying derivative designated as a fair value hedge, the gain or loss on the derivative, as well as the gain or loss on the risk hedged, is recognized in interest expense in the consolidated income statement.

Additionally, in order to address certain other risk management matters, the Company also utilizes derivative instruments that do not qualify for hedge accounting. These derivative instruments, which are recorded on the consolidated balance sheet at fair value, with changes in fair value recognized each period as other non-interest income in the consolidated income statement, are described in the following paragraphs.

Interest rate derivative contracts are sold to commercial and other customers who wish to modify loan interest rate sensitivity. These contracts are offset with dealer counterparty transactions structured with matching terms, which results in minimal impact on earnings, except for fee income earned in such transactions. All contracts eligible for clearing are cleared through Chicago Mercantile Exchange (CME). In accordance with its amended rulebook, CME legally characterizes variation margin payments made to and received from CME as settlement of derivatives rather than as collateral against derivatives.

Risk participation agreements (RPAs) are entered into as financial guarantees of performance on interest rate swap derivatives. The purchased (asset) or sold (liability) guarantee allows the Company to participate-in (fee received) or participate-out (fee paid) the risk associated with certain derivative positions executed with the borrower by the lead bank in a loan syndication.

Other derivatives include foreign currency forward contracts related to lending arrangements and customer hedging activity, a VISA equity swap transaction, and mortgage banking derivatives such as mortgage-backed securities related to residential loan commitments and loans held for sale. Mortgage banking derivatives are utilized by Webster 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 interest rate lock commitments are generally extended to the borrowers. During the period from commitment date to closing date, Webster 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 causing a reduction in the anticipated gain on sale of the loans, or possibly resulting in a loss. In an effort to mitigate such risk, forward delivery sales commitments are established under which Webster agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. Mandatory forward commitments establish the price to be received upon the sale of the related mortgage loan, thereby mitigating certain interest rate risk. There is, however, still certain execution risk specifically related to Webster’s ability to close and deliver to its investors the mortgage loans it has committed to sell.



	At June 30, 2019								At December 31, 2018
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
(In thousands)	Notional Amounts		Fair Value		Notional Amounts		Fair Value		Notional Amounts		Fair Value		Notional Amounts		Fair Value
Designated as hedging instruments:
Positions subject to a master netting agreement ⁽¹⁾
Interest rate derivatives ⁽²⁾	$	825,000	$	4,515	$	—	$	—	$	325,000	$	3,050	$	—	$	—
Not designated as hedging instruments:
Positions subject to a master netting agreement ⁽¹⁾
Interest rate derivatives ⁽²⁾	1,398,175		1,578		2,905,312		9,617		2,767,518		6,570		1,276,109		2,012
Mortgage banking derivatives ⁽³⁾	42,284		374		46,073		399		13,599		226		17,000		293
Other	13,124		111		53,318		599		11,952		308		43,097		553
Positions not subject to a master netting agreement
Interest rate derivatives	3,084,348		135,374		1,218,947		3,250		1,668,012		35,635		2,367,876		36,017
RPAs	64,382		88		101,565		137		64,974		39		96,296		81
Other	6,550		393		709		43		8,506		450		1,208		54
Total not designated as hedging instruments	4,608,863		137,918		4,325,924		14,045		4,534,561		43,228		3,801,586		39,010
Gross derivative instruments, before netting	$	5,433,863	142,433		$	4,325,924	14,045		$	4,859,561	46,278		$	3,801,586	39,010
Less: Legally enforceable master netting agreements			2,367				2,367				2,495				2,495
Less: Cash collateral posted/received			1,505				5,304				4,936				—
Total derivative instruments, after netting ⁽⁴⁾			$	138,561			$	6,374			$	38,847			$	36,515



		Three months ended June 30,					Six months ended June 30,
(In thousands)	Recognized In	2019			2018		2019			2018
Fair value hedges:
Recognized on derivatives	Interest expense	$	14,184		$	—	$	15,812		$	—
Recognized on hedged items	Interest expense	(14,184		)	—		(15,812		)	—
Net recognized on fair value hedges		$	—		$	—	$	—		$	—
Cash flow hedges:
Interest rate derivatives	Interest expense	$	980		$	1,668	$	1,933		$	3,491
Interest rate derivatives	Interest income	12			—		12			—
Net recognized on cash flow hedges		$	992		$	1,668	$	1,945		$	3,491



		Three months ended June 30,						Six months ended June 30,
(In thousands)	Recognized In	2019			2018			2019			2018
Interest rate derivatives	Other non-interest income	$	4,071		$	1,958		$	5,122		$	5,749
Mortgage banking derivatives	Mortgage banking activities	157			(134		)	(251		)	(69		)
Other	Other non-interest income	(591		)	2,024			(76		)	1,434
Total not designated as hedging instruments		$	3,637		$	3,848		$	4,795		$	7,114

Amounts for the change in the fair value of derivatives qualifying for cash flow hedge accounting treatment are recorded to AOCL and reclassified to interest expense as interest payments are made on Webster's variable-rate debt. Over the next twelve months, an estimated $1.9 million will be reclassified from AOCL as a reduction to interest expense. Amounts for gains and losses related to hedge terminations are also recorded to AOCL and subsequently amortized into interest expense over the respective terms of the hedged debt instruments. Over the next twelve months, an estimated $3.2 million will be reclassified from AOCL as an increase to interest expense. At June 30, 2019, the remaining unamortized loss on the termination of cash flow hedges is $6.7 million and the maximum length of time over which forecasted transactions are hedged is 9.5 years.

Additional information about cash flow hedge activity impacting AOCL, and the related amounts reclassified to interest expense is provided in Note 10: Accumulated Other Comprehensive Loss, Net of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 14: Fair Value Measurements.

Non-cleared derivatives subject to a legally enforceable master netting agreement are reported on a net basis, net of cash collateral. Cash collateral received, in the amount of $1.5 million, is included in cash and due from banks and is considered restricted in nature. Net gain positions are recorded as assets and are included in accrued interest receivable and other assets, while, net loss positions are recorded as liabilities and are included in accrued expenses and other liabilities, in the consolidated balance sheet.



	At June 30, 2019								At December 31, 2018
(In thousands)	Gross Amount		Relationship Offset		Cash Collateral Offset		Net Amount		Gross Amount		Relationship Offset		Cash Collateral Offset		Net Amount
Derivative instrument gains:
Hedge accounting	$	4,515	$	970	$	1,505	$	2,040	$	3,050	$	88	$	567	$	2,395
Non-hedge accounting	2,063		1,397		—		666		6,878		2,407		4,369		102
Total assets	$	6,578	$	2,367	$	1,505	$	2,706	$	9,928	$	2,495	$	4,936	$	2,497

Derivative instrument losses:
Hedge accounting	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-hedge accounting	10,615		2,367		5,304		2,944		2,566		2,495		—		71
Total liabilities	$	10,615	$	2,367	$	5,304	$	2,944	$	2,566	$	2,495	$	—	$	71

Use of derivative contracts may expose Webster Bank to counterparty credit risk. The Company has International Swaps and Derivatives Association Master Agreements, including a Credit Support Annex, with all derivative counterparties. In accordance with counterparty credit agreements and derivative clearing rules, cash or securities are posted or received on a daily basis to offset counterparty derivative exposure. Remaining exposure is collateralized by securities received. In the event of default and if the collateral is not returned, the exposure would be offset by terminating the transaction.

The Company regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions being hedged. The net current credit exposure relating to interest rate derivatives with Webster Bank customers was $135.4 million at June 30, 2019. 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 $35.6 million at June 30, 2019.