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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________________________________
FORM 10-K
_______________________________________________________________________________
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
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)
Registrants telephone number, including area code: (203) 578-2202

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of exchange on which registered
Common Stock, $0.01 par valueWBSNew 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
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒  Yes    ☐  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   ☐  Yes  ☒  No
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 filerAccelerated filerNon-accelerated filerSmaller 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes     No
Aggregate market value of Webster Financial Corporation’s common stock held by non-affiliates was approximately $2.5 billion based on the June 30, 2020 closing price on the New York Stock Exchange, the last trading day of the registrant’s most recently completed second quarter.
Number of shares of common stock, par value $.01 per share, outstanding as of February 19, 2021 was 90,289,817.
Documents Incorporated by Reference
Part III: Definitive Proxy Statement (the “Proxy Statement”) for the Annual Meeting of Shareholders to be held on April 22, 2021.




Table of Contents

INDEX

  Page No.
Forward-Looking Statements
Key to Acronyms and Terms
Item 1.Business
Item 1A.Risk Factors
Item 1B.Unresolved Staff Comments
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Mine Safety Disclosures
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.Selected Financial Data
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8.Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B.Other Information
Item 10.Directors, Executive Officers and Corporate Governance
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions, and Director Independence
Item 14.Principal Accountant Fees and Services
Item 15.Exhibits and Financial Statement Schedules
Item 16.Form 10-K Summary

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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, such words are not the exclusive means of identifying such statements. References to the “Company,” “Webster,” “we,” “our,” or “us” mean Webster Financial Corporation and its consolidated subsidiaries.
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, 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 the forward-looking statements include, but are not limited to:
our ability to successfully execute our business plan and strategic initiatives, and manage our risks;
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 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;
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 these 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;
our ability to successfully achieve the anticipated cost reductions from branch consolidations and any higher than anticipated costs or delays in implementing the consolidation plan;
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;
the effect of changes in accounting policies and practices applicable to us, including changes in estimates of expected credit losses resulting from our models and assumptions in connection with recently adopted accounting guidance;
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.
All forward-looking statements in this Annual Report on Form 10-K speak only as of the date they are 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.
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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
KEY TO ACRONYMS AND TERMS
ACL
Allowance for credit losses
Agency CMBS
Agency commercial mortgage-backed securities
Agency CMO
Agency collateralized mortgage obligations
Agency MBS
Agency mortgage-backed securities
ALCO
Asset/Liability Committee
ALLLAllowance for loan and lease losses
AOCI/AOCL
Accumulated other comprehensive income (loss), net of tax
ARRC
Alternative Reference Rates Committee
ASC
Accounting Standards Codification
ASU or the UpdateAccounting 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
Capital Rules
Final rules establishing a new comprehensive capital framework for U.S. banking organizations
CARES ActThe Coronavirus Aid, Relief, and Economic Security Act
CECL
Current expected credit losses
CET1 capital
Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPB
Consumer Financial Protection Bureau
CFTC
Commodity Futures Trading Commission
CLO
Collateralized loan obligation securities
CMBS
Non-agency commercial mortgage-backed securities
CME
Chicago Mercantile Exchange
CRA
Community Reinvestment Act of 1977
CRMCCredit Risk Management Committee
CVACredit valuation adjustment
DIF
Federal Deposit Insurance Fund
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DTA
Deferred tax asset
EGRRCPA
Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
ERMC
Enterprise Risk Management Committee
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
FHFAFederal Housing Finance Agency
FHLB
Federal Home Loan Bank
FICO
Fair Isaac Corporation
FINRA
Financial Industry Regulatory Authority
FRA
Federal Reserve Act
FRB
Federal Reserve Bank
FTP
Funds Transfer Pricing, a matched maturity funding concept
GAAP
U.S. Generally Accepted Accounting Principles
GDPGross domestic product
Holding Company
Webster Financial Corporation
HSAHealth savings account
HSA Bank
HSA Bank, a division of Webster Bank, National Association
LEP
Loss emergence period
LGDLoss given default
LIBORLondon Interbank Offered Rate
LPLLPL Financial Holdings Inc.
NAVNet asset value
NIINet interest income
OCCOffice of the Comptroller of the Currency
OCI / OCLOther comprehensive income (loss)
OREOOther real estate owned
PDProbability of default
PPNRPre-tax, pre-provision net revenue
PPPSmall Business Administration Paycheck Protection Program
QMQualified mortgage
ROURight-of-use
SALTState and local tax
SECUnited States Securities and Exchange Commission
SERPSupplemental defined benefit retirement plan
SIPCSecurities Investor Protection Corporation
SOFRSecured overnight financing rate
Tax ActTax Cuts and Jobs Act of 2017
TDR
Troubled debt restructuring, defined in ASC 310-40 “Receivables-Troubled Debt Restructurings by Creditors
UTBUnrecognized tax benefit
VIE / VOE
Variable interest entity / voting 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

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PART 1
ITEM 1. BUSINESS
Company Overview
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) and 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, while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.
At December 31, 2020, Webster had assets of $32.6 billion, net loans and leases of $21.3 billion, deposits of $27.3 billion, and shareholders’ equity of $3.2 billion.
Webster Financial Corporation’s common stock is traded on the New York Stock Exchange under the symbol WBS. Webster’s internet address is www.websterbank.com and investor relations internet address is www.wbst.com. Webster makes available free of charge on these websites its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, definitive proxy statements, and amendments, if any, to those documents filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon as practicable after it electronically files such material with, or furnishes it to, the United States Securities and Exchange Commission (SEC). These documents are also available to the public on the Internet at the SEC’s website at www.sec.gov. Information on Webster’s website and its investor relations website is not incorporated by reference into this report.
Subsidiaries of Webster Financial Corporation
Webster Financial Corporation’s principal consolidated subsidiary is Webster Bank (the Bank). Its other directly consolidated subsidiaries are Webster Wealth Advisors, Inc. and Webster Licensing, LLC. The Holding Company also owns all of the outstanding common stock of Webster Statutory Trust which is an unconsolidated financial vehicle that has issued, and may in the future issue, trust preferred securities.
Webster Bank’s significant direct subsidiaries include the following: Webster Servicing, LLC, which services HSA Bank operations; Webster Mortgage Investment Corporation, a passive investment subsidiary whose primary function is to provide servicing on qualified passive investments, such as residential real estate and commercial mortgage real estate loans acquired from Webster Bank; Webster Business Credit Corporation, which offers asset-based lending services; and Webster Capital Finance, Inc., which offers equipment financing for end users of equipment.
Business Segments
Webster Bank delivers a wide range of banking, investment, and financial services through three reportable segments, as follows.
Commercial Banking provides lending, deposit, and treasury and payment solutions with a focus on building relationships with companies that have annual revenues greater than $25 million. Commercial Banking is comprised of the following:
Middle Market delivers a full array of financial services to a diversified group of companies, utilizing industry specialization and delivering competitive products and services, primarily in the Northeast.
Commercial Real Estate provides financing, primarily in the Northeast, for the acquisition, development, construction, or refinancing of commercial real estate for which the property is the primary security for the loan and income generated from the property is the primary repayment source.
Webster Business Credit Corporation is one of the top 25 asset-based lenders in the U.S. that builds relationships with growing middle market companies by financing core working capital and other financing needs primarily with revolving credit facilities with advance rates against accounts receivable and inventory. Webster Business Credit Corporation lends primarily in the eastern half of the U.S.
Webster Capital Finance offers small to mid-ticket financing for critical equipment, specializing in construction, transportation, environmental, and manufacturing equipment. Webster Capital Finance lends primarily in the eastern half of the U.S. and also in other select markets.
Treasury and Payment Solutions delivers a broad range of deposit, lending, treasury, and trade services, primarily in the Northeast, via a dedicated team of treasury professionals and local commercial bankers. Treasury and Payment Solutions is comprised of Government and Institutional Banking, Cash Management Sales, and Product Management to deliver holistic solutions to Webster’s increasingly sophisticated business and institutional clients.
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Private Banking provides local, full relationship banking that serves high net worth clients, not-for-profit organizations, and business clients with asset management, financial planning services, trust services, loan products, and deposit products. These client relationships generate fee revenue on assets under management or administration, while a majority of the relationships also include lending and/or deposit accounts which provide net interest income and other ancillary fees.
HSA Bank is a division of Webster Bank focused on providing health savings accounts, while also delivering health reimbursement arrangements and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states. It is a leading bank administrator of health savings accounts based on accounts and assets under administration. Health savings accounts are distributed nationwide directly to employers and individual consumers as well as through national and regional insurance carriers, benefit consultants, and financial advisors. At December 31, 2020, HSA Bank had approximately 3 million accounts with approximately $10 billion in health savings account deposits and linked investment balances.
Community Banking serves consumers and business banking customers primarily throughout southern New England and Westchester County, New York. Community Banking is comprised of personal and business banking, as well as a distribution network consisting of, 155 banking centers and 297 ATMs as of December 31, 2020, a customer care center, and a full range of web and mobile based banking services.
Personal Banking offers consumer deposit and fee-based services, residential mortgages, home equity lines/loans, unsecured consumer loans, and credit card products. In addition, investment and securities-related services, including brokerage and investment advice, are offered through a strategic partnership with LPL Financial Holdings Inc. (LPL), a broker dealer registered with the SEC, a registered investment advisor under federal and applicable state laws, a member of the Financial Industry Regulatory Authority (FINRA), and a member of the Securities Investor Protection Corporation (SIPC). Webster Bank has employees located throughout its banking center network who, through LPL, are registered representatives.
Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms with annual revenues of up to $25 million. This group builds broad customer relationships through business bankers and business certified banking center managers, supported by a team of customer care center bankers and industry and product specialists.
Human Capital Resources
Webster had 3,345 employees, comprised of 63% female and 37% male, at December 31, 2020, which is substantially unchanged from December 31, 2019. No employees are represented by a collective bargaining agreement.
Webster provides its employees with comprehensive benefits, some of which are provided on a contributory basis, including medical and dental plans, a 401(k) savings plan with a company match component, life insurance, and short-term and long-term disability coverage. Additional benefits offered include paid time off, family leave, and employee assistance programs. The Company's compensation package is designed to maintain market competitive total rewards programs for all employees in order to attract and retain superior talent. The average employee tenure is approximately 8.6 years at December 31, 2020.
The Company strives to have a powerful and diverse team of employees, knowing Webster is better together with a combined wisdom and intellect. With a commitment to equality, inclusion and workplace diversity, the focus is on understanding, accepting, and valuing the differences between people. To accomplish this, Webster has established a Diversity, Equity & Inclusion Council made up of 15 employee representatives throughout the organization and a dedicated Diversity Officer. The Diversity, Equity & Inclusion Council is Co-chaired by the Chief Executive Officer.
Webster seeks to have a board of directors with diverse experience in business and areas relevant to the Company. Webster has nine directors, five of whom are female and two of whom are African American.
The success of the Company is fundamentally connected to the well-being of its people and is a top priority to management. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the resiliency of management and staff, Webster was able to transition, over a short period of time, to 75% of employees effectively working from remote locations, while ensuring a safely-distanced working environment for associates performing customer facing activities, at branches, operations centers, and office locations. All employees are asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and have been provided compensation during such absences.
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Competition
Webster is subject to strong competition from banks, thrifts, credit unions, non-bank health savings account trustees, consumer finance companies, investment companies, insurance companies, and online lending and savings institutions. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems, and a wider array of commercial and consumer banking services than Webster. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-bank entities, greater technological developments in the industry, and continued bank regulatory reforms.
Webster faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and hours, mobile banking and other automated services. Competition for deposits comes from other commercial banks, thrifts, credit unions, non-bank health savings account trustees, mutual funds, and other investment alternatives. The primary factors in competing for consumer and commercial loans are interest rates, loan origination fees, ease and convenience of loan origination channels, the quality and range of lending services, personalized service, and ability to close within customers’ desired time frame. Competition for origination of loans comes primarily from commercial banks, non-bank lenders, savings institutions, mortgage banking firms, mortgage brokers, online lenders, and insurance companies. Other factors which affect competition include the general and local economic conditions, current interest rate levels, and volatility in the lending markets.
Supervision and Regulation
Webster and its bank and non-bank subsidiaries are subject to comprehensive regulation under federal and state laws. The regulatory framework applicable to bank holding companies and their subsidiary banks is intended to protect depositors, the Federal Deposit Insurance Fund (DIF), and the U.S. banking system as a whole. This system is not designed to protect equity investors in bank holding companies. Set forth below is a summary of the significant laws and regulations applicable to Webster and its bank and non-bank subsidiaries. The description that follows is qualified in its entirety by reference to the full text of the statutes, regulations, and policies that are described. Such statutes, regulations, and policies are subject to ongoing review by Congress, state legislatures, and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable to Webster and its bank and non-bank subsidiaries could have a material effect on the results of the Company.
Webster Financial Corporation is a separate and distinct legal entity from Webster Bank and its other subsidiaries. As a registered bank holding company and a financial holding company, it is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System and is regulated under the BHC Act. Webster is under the jurisdiction of the SEC and is subject to the disclosure and other regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Webster is subject to the rules for companies listed on the New York Stock Exchange. In addition, the Consumer Financial Protection Bureau (CFPB) supervises Webster for compliance with federal consumer financial protection laws. Webster is also subject to oversight by state attorneys general for compliance with state consumer protection laws. Webster’s non-bank subsidiaries are subject to federal and state laws and regulations, including regulations of the Federal Reserve System.
Webster Bank is organized as a national banking association under the National Bank Act. Webster Bank is subject to the supervision of, and to regular examination by, the Office of the Comptroller of the Currency (OCC) as its primary federal regulator, as well as by the Federal Deposit Insurance Corporation (FDIC) as its deposit insurer. Webster Bank’s deposits are insured by the FDIC up to the applicable deposit insurance limits in accordance with FDIC laws and regulations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) significantly changed the financial regulatory regime in the United States. Since the enactment of Dodd-Frank, U.S. banks and financial services firms have been subject to enhanced regulation and oversight. Several provisions of Dodd-Frank remain subject to further rulemaking, guidance, and interpretation by the federal banking agencies.
Enacted in 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) amended certain provisions of the Dodd-Frank Act. EGRRCPA provides limited regulatory relief to certain financial institutions, while preserving the existing framework under which U.S. financial institutions are regulated. In addition to amending the Dodd-Frank Act, EGRRCPA also includes certain additional banking-related provisions, consumer protection provisions and securities law-related provisions. While many of EGRRCPA's changes have been implemented through rules adopted by federal agencies, the Company expects to continue to evaluate the potential impact of EGRRCPA as it is further implemented.
CARES Act
The CARES Act was enacted in March 2020 to provide economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and remain, dependent upon the direct involvement of U.S. financial institutions like the Company and the Bank. These programs have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve System, and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank.
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Furthermore, as the COVID-19 pandemic evolves, federal banking agencies continue to issue additional guidance and regulations with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. The Company continues to assess the impact of the CARES Act, the potential impact of new COVID-19 legislation, and other statutes, regulations, and supervisory guidance related to the COVID-19 pandemic. The CARES Act also amended the Small Business Administration loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (PPP), to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In December 2020, Congress revived the PPP and allocated additional PPP funds for 2021. As a result, the Small Business Administration is anticipated to modify prior guidance and promulgate new regulations and guidance to conform with and implement the new provisions during the first quarter of 2021. As a participating PPP lender, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.
Bank Holding Company Regulation
Webster Financial Corporation is a bank holding company as defined under the BHC Act. The BHC Act generally limits the business of bank holding companies to banking, managing or controlling banks, and other activities that the Board of Governors of the Federal Reserve System has determined to be so closely related to banking as to be a proper incident thereto. Bank holding companies that have elected to become financial holding companies, such as Webster Financial Corporation, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Board of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Board of Governors of the Federal Reserve System). Activities that are financial in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments.
Mergers and Acquisitions
The BHC Act, Bank Merger Act, and other federal and state statutes regulate the direct and indirect acquisition of depository institutions. The BHC Act requires Federal Reserve System prior approval for a bank holding company to acquire, directly or indirectly, 5% or more of any class of voting securities of a commercial bank or its parent holding company, and for a company other than a bank holding company to acquire 25% or more of any class of voting securities of a bank or bank holding company.  In April 2020, the Federal Reserve System adopted a final rule codifying the presumptions used in determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHC Act, and providing greater transparency on the types of relationships that the Federal Reserve System generally views as supporting a determination of control. Under the Change in Bank Control Act, any person or company may not acquire, directly or indirectly, control of a bank without providing 60 days prior notice and receiving a non-objection from the appropriate federal banking agency. 
Under the Bank Merger Act, the prior approval of the appropriate federal banking agency is required for insured depository institutions to merge or enter into purchase and assumption transactions.  In reviewing applications seeking approval of merger or purchase and assumption transactions, the federal banking agencies will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined banks, the applicant’s performance record under the Community Reinvestment Act of 1977 (CRA), and the effectiveness of the merging banks in combating money laundering.
Enhanced Prudential Standards
Section 165 of Dodd-Frank imposes enhanced prudential standards on larger banking organizations. However, EGRRCPA makes bank holding companies with less than $100 billion in assets, such as Webster Financial Corporation, exempt from the enhanced prudential standards imposed under Section 165 including, but not limited to, the resolution planning and enhanced liquidity and risk management requirements therein. Further, on October 15, 2019, EGRRCPA was amended by raising the applicability threshold for company-run stress test requirements for bank holding companies from $10 billion or more in assets to $250 billion or more in assets. As a result, Webster Financial Corporation is relieved from the requirement to conduct company-run stress testing for itself and Webster Bank. However, while the federal banking agencies will not require company-run stress testing, the capital planning and risk management practices of the Company will continue to be reviewed through regular supervisory processes of the Federal Reserve System and the OCC. The Company will continue to perform certain stress tests internally and incorporate the economic models and information developed through its stress testing program into its risk management and business planning activities.
Furthermore, under a previously issued rule of the Federal Reserve System implementing enhanced prudential standards required by Dodd-Frank, bank holding companies with more than $10 billion in assets were subject to certain rules, including a requirement to establish a separate risk committee of independent directors to manage enterprise-wide risk. EGRRCPA subsequently increased the asset threshold for requiring a bank holding company to establish a separate risk committee of independent directors from $10 billion to $50 billion. Notwithstanding the changes implemented by EGRRCPA, the Company has retained its Risk Committee of the Board of Directors.
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Debit Card Interchange Fees
Dodd-Frank requires that any interchange transaction fee charged for a debit transaction be reasonable and proportional to the cost incurred by the issuer for the transaction and includes regulations that establish such fee standards, eliminate exclusivity arrangements between issuers and networks for debit card transactions, limit restrictions on merchant discounting for use of certain payment forms, and minimum-maximum amount thresholds as a condition for acceptance of credit cards. The Federal Reserve System, pursuant to Dodd-Frank, approved a final debit card interchange rule which caps an issuer’s base fee at 21 cents per transaction and allows for an additional amount equal to 5 basis points of the transaction's value. The Federal Reserve System separately issued a final rule that also allows a fraud-prevention adjustment of one-cent per transaction conditioned upon an issuer developing, implementing, and updating reasonably designed fraud-prevention policies and procedures. HSA Bank interchange revenue is not subject to this rule.
Identity Theft
The SEC and the Commodity Futures Trading Commission (CFTC) jointly issued final rules and guidelines implementing the provisions of Dodd-Frank which require certain regulated entities to establish programs to address risks of identity theft. The rules require financial institutions and creditors to develop and implement a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy these requirements. In addition, the rules establish special requirements for any credit and debit card issuers that are subject to the jurisdiction of the SEC or the CFTC to assess the validity of notifications of changes of address under certain circumstances. Webster implemented an ID Theft Prevention Program, approved by its Board of Directors, in compliance with these requirements.
Volcker Rule
Section 619 of Dodd-Frank, commonly known as the Volcker Rule, restricts the ability of banking entities, such as Webster and Webster Bank, from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certain covered funds, subject to certain limited exceptions. Under the Volcker Rule, the term covered funds is defined as any issuer that would be an investment company under the Investment Company Act but for the exemption in section 3(c)(1) or 3(c)(7) of that Act, which includes collateralized loan obligation securities (CLO) and collateralized debt obligation securities. There are also several exemptions from the definition of covered fund, including, among other things, loan securitization, joint ventures, certain types of foreign funds, entities issuing asset-backed commercial paper, and registered investment companies. The EGRRCPA and subsequent promulgation of inter-agency final rules have aimed to simplify and tailor requirements related to the Volcker Rule, including eliminating collection of certain metrics and reducing the compliance burdens associated with other metrics for banks with less than $20 billion in average trading assets and liabilities. In June 2020, the Federal Reserve System - along with the CFTC, FDIC, the OCC, and the SEC - issued a final rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, collectively known as covered funds. The final rule modifies three areas of the Volcker Rule by: (1) streamlining the covered funds portion of the rule; (2) addressing the extraterritorial treatment of certain foreign funds; and (3) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule became effective October 1, 2020. The Federal Reserve has granted Webster until July 21, 2022 to bring its holdings into compliance with the Volcker Rule.
Dividends
The primary source of liquidity at the Holding Company is dividends from Webster Bank. Prior approval from the OCC is required for a national bank to declare a dividend in any year that would exceed the sum of its net income for that year and its undistributed net income for the preceding two years, less any required transfers to surplus. Webster Bank paid the Holding Company $20.0 million in dividends during the year ended December 31, 2020 and had $361.0 million of undistributed net income available for payment of dividends at December 31, 2020.
In addition, Webster Financial Corporation and Webster Bank are subject to other regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. Federal regulatory agencies are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The federal banking agencies have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice, and that banking organizations should generally pay dividends only out of current operating earnings.
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Federal Reserve System
Federal Reserve System regulations require depository institutions to maintain cash reserves against their transaction accounts, primarily interest-bearing and regular checking accounts. The required cash reserves can be in the form of vault cash and, if vault cash does not fully satisfy the required cash reserves, in the form of a balance maintained with Federal Reserve Banks (FRBs). The regulations require that Webster maintain cash reserves against aggregate transaction accounts in excess of the exempt amount. The Board of Governors of the Federal Reserve System generally makes annual adjustments to the tiered cash reserve requirements, however, effective March 26, 2020 they reset the reserve requirement to zero to address liquidity concerns due to COVID-19. The reserve requirement remains subject to adjustment as conditions warrant.
As a national bank and member of the Federal Reserve System, Webster Bank is required to hold capital stock of the FRB of Boston. The required shares may be adjusted up or down based on changes to Webster Bank’s common stock and paid-in surplus. Webster Bank was in compliance with these requirements, with a total investment in FRB of Boston stock of $60.1 million at December 31, 2020. The FRBs pay, to member banks with total assets greater than $10 billion, a semi-annual dividend equal to the lesser of 6% or the yield on the 10-year Treasury note auctioned at the last auction prior to the dividend payment date.
Federal Home Loan Bank System
The Federal Home Loan Bank (FHLB) System provides a central credit facility for member institutions. Webster Bank is a member of the FHLB of Boston and is required to purchase and hold shares of capital stock in the FHLB for both membership and activity-based purposes. Capital stock requirements include an amount equal to 0.35% of the aggregate principal amount of the Bank’s unpaid residential mortgage loans and similar obligations at the beginning of each year, up to a maximum of $25 million, plus an amount that varies from 3.0% to 4.5% depending on the maturities of its FHLB advances, which totaled approximately $0.1 billion at December 31, 2020. Webster Bank was in compliance with these requirements, with a FHLB stock investment of $17.5 million at December 31, 2020.
Source of Strength Doctrine
Federal Reserve System policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Section 616 of Dodd-Frank codified the requirement that bank holding companies act as a source of financial strength. As a result, Webster Financial Corporation is expected to commit resources to support Webster Bank, including at times when Webster Financial Corporation may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. The U.S. bankruptcy code provides that, in the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. In addition, under the National Bank Act, if the capital stock of Webster Bank is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the Holding Company. If the assessment is not paid within three months, the OCC could order a sale of the Webster Bank stock held by Webster Financial Corporation to cover any deficiency.
Capital Adequacy
The Federal Reserve System, the OCC, and the FDIC adopted Capital Rules in accordance with BASEL III, which generally implement the capital framework for strengthening international capital standards. The Capital Rules define the components of regulatory capital, as well as address other issues affecting the numerator in the regulatory capital ratios of a banking institution. The Capital Rules also address asset risk weights and other matters affecting the denominator in the regulatory capital ratios of a banking institution.
The Capital Rules (i) include the capital measure Common Equity Tier 1 Capital, defined by Basel III capital rules (CET1 capital) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 capital and additional Tier 1 capital instruments meeting certain revised requirements; (iii) mandate that most deductions or adjustments to regulatory capital measures be made to CET1 capital and not to the other components of capital; and (iv) expand the scope of deductions from and adjustments to capital as compared to existing regulations.
Under the Capital Rules, for most banking organizations, including Webster, the most common form of additional Tier 1 capital is non-cumulative perpetual preferred stock, and the most common forms of Tier 2 capital are subordinated notes and the qualifying portion of the allowance for credit losses (ACL), all subject to specific requirements of the Capital Rules. Tier 1 capital to adjusted, as defined, average consolidated assets is known as the Tier 1 leverage ratio.
Pursuant to the Capital Rules, ratio thresholds are as follows:
 Adequately CapitalizedWell Capitalized
CET1 risk-based capital4.5%6.5%
Total risk-based capital8.010.0
Tier 1 risk-based capital6.08.0
Tier 1 leverage capital 4.05.0
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The Capital Rules, which became fully phased-in on January 1, 2019, in addition to the minimum risk-weighted asset ratios, also include a capital conservation buffer composed entirely of CET1 capital. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions must hold a capital conservation buffer above its minimum risk-based capital requirements in order to avoid limitations on distributions, such as dividends, equity, other capital instrument repurchases, and certain discretionary bonus payments to executive officers, based on the amount of any shortfall. The capital standards applicable to Webster and Webster Bank include an additional capital conservation buffer for which the lowest capital ratio excess over adequately capitalized must be at least 2.5%.
The Capital Rules provide for a number of deductions from and adjustments to CET1 capital. These include, for example, the requirement that mortgage servicing assets, certain deferred tax assets (DTAs), and significant investments in non-consolidated financial institutions be deducted from CET1 capital to the extent that any one such category exceeds 10% of CET1 capital or all such items in the aggregate exceed 15% of CET1 capital.
Under the Basel III Rule, certain off-balance sheet commitments and obligations are converted into risk-weighted assets that, together with on-balance sheet assets, are the base against which regulatory capital is measured. The risk-weighting categories are standardized for bank holding companies and banks based on a risk-sensitive analysis, depending on the nature of the exposure. Risk weights range from 0% for U.S. government securities to 1,250% for exposures such as certain tranches of complex securitizations or certain equity exposures.
In September 2017, the federal banking agencies proposed simplifying the Capital Rules. On July 9, 2019, the federal banking agencies adopted a final rule, replacing a substantially similar interim rule, to simplify several requirements of the regulatory capital rules for non-advanced approaches institutions, such as the Company. The final rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests.
Concurrent with enactment of the CARES Act, the federal banking agencies issued an interim final rule in late March 2020 that delayed the estimated impact on regulatory capital resulting from the adoption of the Current Expected Credit Losses (CECL) methodology. Subsequently, on August 26, 2020, the federal banking agencies issued a final rule that allows institutions that adopt the CECL accounting standard in 2020 to mitigate CECL’s estimated effects on regulatory capital. The CECL final rule is substantially similar to the interim final rule issued in March 2020 in connection with other CARES Act related regulatory relief. The final rule gives eligible institutions the option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period. The Company has elected this capital relief and delayed the regulatory capital impact of adopting CECL.
Prompt Corrective Action and Safety and Soundness
Pursuant to Section 38 of the Federal Deposit Insurance Act, federal banking agencies are required to take prompt corrective action should an insured depository institution fail to meet certain capital adequacy standards. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the under-capitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan.
Prompt corrective action ratios are as follows:
 WellAdequatelyUnderSignificantly
CapitalizedCapitalizedCapitalizedUnder-Capitalized
CET1 risk-based capital6.5 %4.5 %< 4.5%< 3.0%
Total risk-based capital10.0 8.0 < 8.0< 6.0
Tier 1 risk-based capital8.0 6.0 < 6.0< 4.0
Tier 1 leverage capital 5.0 4.0 < 4.0< 3.0
Based upon its capital levels, a bank that is classified as well capitalized, adequately capitalized, or under-capitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or practice warrants such treatment. An insured depository institution with a ratio of tangible equity to total assets that is less than 2% is considered critically under-capitalized.
Bank holding companies and insured depository institutions may also be subject to potential enforcement actions of varying levels of severity by the federal banking agencies for unsafe or unsound practices in conducting their business, or for violation of any law, rule, regulation, condition imposed in writing by the agency, or term of a written agreement with the agency. In more serious cases, enforcement actions may include the issuance of directives to increase capital; the issuance of formal and informal agreements; the imposition of civil monetary penalties; the issuance of a cease and desist order that can be judicially enforced; the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties; the termination of the insured depository institution’s deposit insurance; the appointment of a conservator or receiver for the insured depository institution; and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
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Transactions with Affiliates and Insiders
Under federal law, transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act (FRA) and Federal Reserve Regulation W. In a bank holding company context, at a minimum, the parent holding company of a bank, and any companies which are controlled by such parent holding company, are affiliates of the bank. Generally, sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms consistent with safe and sound banking practices.
Further, Section 22(h) of the FRA and its implementing Regulation O restricts loans to directors, executive officers, and principal stockholders or insiders. Under Section 22(h), loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the Board of Directors. Further, under Section 22(h) of the FRA, loans to directors, executive officers, and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the bank’s employees and does not give preference to the insider over the employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.
Consumer Protection and Consumer Financial Protection Bureau Supervision
Dodd-Frank centralized responsibility for consumer financial protection by creating the CFPB, an independent agency charged with responsibility for implementing, enforcing, and examining compliance with federal consumer financial protection laws. The Company is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices Act, various state law counterparts, and the Consumer Financial Protection Act of 2010, which is part of Dodd-Frank. Dodd-Frank does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect the Company’s business, financial condition or operations.
The ability-to-repay provision of the Truth in Lending Act requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under Dodd-Frank and the qualified mortgage provisions of the Truth in Lending Act, commonly known as the Qualified Mortgage (QM) Rule, loans meeting the definition of qualified mortgage are entitled to a presumption that the lender satisfied the ability-to-repay requirements. The presumption is a conclusive presumption/safe harbor for prime loans meeting QM requirements and a refutable presumption for higher-priced/subprime loans meeting QM requirements. The QM definition incorporates the statutory requirements, such as not allowing negative amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA, and VA underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits. The CFPB is expected to continue to issue and amend rules implementing the consumer financial protection laws, which may impact Webster Bank’s operations.
Financial Privacy and Data Security
Webster is subject to federal laws, including the Gramm-Leach-Bliley Act and certain state laws containing consumer privacy protection provisions. These provisions limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to affiliated and non-affiliated third parties and limit the reuse of certain consumer information received from non-affiliated financial institutions. These provisions require notice of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain nonpublic personal information to affiliates or non-affiliated third parties by means of opt-out or opt-in authorizations.
The Gramm-Leach-Bliley Act requires that financial institutions implement comprehensive written information security programs that include administrative, technical, and physical safeguards to protect consumer information. Federal banking agencies have also adopted guidelines for establishing information security standards and programs to protect such information. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third-parties in the provision of financial products and services. The federal bank regulatory agencies expect financial institutions to establish lines of defense and to ensure that their risk management processes address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack.
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Further, pursuant to interpretive guidance issued under the Gramm-Leach-Bliley Act and certain state laws, financial institutions are required to notify customers of security breaches that result in unauthorized access to their non-public personal information. In October 2016, the federal bank regulatory agencies issued proposed rules on enhanced cybersecurity risk-management and resilience standards that would apply to very large financial institutions and to services provided by third parties to these institutions. The comment period for these proposed rules has closed and a final rule has not been published. Although the proposed rules would apply only to bank holding companies and banks with $50 billion or more in total consolidated assets, these rules could influence the federal bank regulatory agencies’ expectations and supervisory requirements for information security standards and cybersecurity programs of financial institutions with less than $50 billion in total consolidated assets, such as the Company.
Depositor Preference
The Federal Deposit Insurance Act provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
Federal Deposit Insurance
The FDIC’s deposit insurance limit is $250,000 per depositor, per insured bank, for each account ownership category. Substantially all of the deposits of Webster Bank are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
The Bank’s quarterly assessment is calculated using the FDIC’s standardized risk-based assessment methodology, determined by the FDIC, which multiplies the Bank’s assessment base by its assessment rate. The assessment base is defined as the average consolidated total assets less the average tangible equity of the Bank. The assessment rate is based on measures of the institution’s capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk, commonly known as CAMELS ratings, which are certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the Bank’s failure. The FDIC also has the ability to make discretionary adjustments to the base assessment rate to reflect idiosyncratic quantitative and qualitative risk factors not captured in the FDIC’s standardized risk-based assessment methodology.
Under the Federal Deposit Insurance Act, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Webster’s management is not aware of any practice, condition, or violation that might lead to the termination of its deposit insurance.
Incentive Compensation
Dodd-Frank required the federal banking agencies and the SEC to establish joint regulations or guidelines for specified regulated entities with at least $1 billion in total consolidated assets, which includes the Holding Company and Webster Bank, prohibiting incentive-based payment arrangements that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. The federal banking agencies and the SEC proposed regulations which have not yet been finalized. If the regulations are adopted in the form initially proposed in 2016, they will restrict the manner in which executive compensation is presently structured.
Community Reinvestment Act and Fair Lending Laws
Webster Bank has a responsibility under the CRA, as implemented by OCC regulations to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The OCC examines Webster Bank’s record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Webster Bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the activities of Webster Financial Corporation. Webster Bank’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by the OCC, as well as other federal regulatory agencies, including the CFPB and the Department of Justice. Webster Bank’s latest OCC CRA rating was Outstanding.
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On December 17, 2019, the OCC and the FDIC issued a joint notice of proposed rulemaking to modernize the regulations implementing the CRA. The rulemaking was intended to (i) clarify which activities qualify for CRA credit, (ii) update where activities count for CRA credit, (iii) create a more transparent and objective method for measuring CRA performance, and (iv) provide for more transparent, consistent, and timely CRA-related data collection, record keeping, and reporting. On May 20, 2020, the OCC issued its final rule on CRA modernization in keeping with these purposes. However, at the same time, the FDIC announced its withdrawal from the joint rulemaking with the OCC, citing the impact of the COVID-19 pandemic as the reason for its withdrawal. As a consequence, the OCC’s final rule only applies to national banks such as Webster Bank. Webster Financial Corporation and Webster Bank do not anticipate any adverse impact to the Bank's CRA compliance as a result of the OCC's final rule, but continue to monitor developments and assess the impact, if any, of further changes to the CRA regulations proposed by the FDIC and Federal Reserve System.
USA PATRIOT Act
Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the Gramm-Leach-Bliley Act and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign “shell banks” and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act. Webster has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.
Office of Foreign Assets Control Regulation
The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control. The Office of Foreign Assets Control-administered sanctions targeting countries take many different forms. Generally, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences.
Future Legislative Initiatives
Federal and state legislatures may introduce legislation that will impact the financial services industry. In addition, federal banking agencies may introduce regulatory initiatives that are likely to impact the financial services industry, generally. Such initiatives may include proposals to expand or contract the powers of bank holding companies and/or depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, or, if enacted, the effect that it or any implementing regulations would have on the financial condition or results of operations of the Company. A change in statutes, regulations, or regulatory policies applicable to Webster or any of its subsidiaries could have a material effect on the business of the Company.
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Risk Management Framework
Webster maintains a comprehensive risk management program with a defined enterprise risk management framework that provides a structured approach for identifying, assessing, and managing risks across the Company, including strategic, credit, financial (market, liquidity, and capital), information, operational and compliance, legal, and reputation risks as discussed in the sections below.
The risk management framework enables the aggregation of risk across the enterprise and ensures the Company has the tools, programs, and processes in place to support informed decision making in order to anticipate risks and to maintain Webster's risk profile consistent with its risk appetite.
The risk management framework includes a risk appetite statement approved annually by the Board of Directors. The risk appetite statement is supported by board and business level scorecards with defined risk tolerances that establish the level of risk that the Company is willing to accept. The risk appetite statement is reviewed annually to ensure alignment of risk appetite with Webster's strategic and financial plan.
In support of Webster's strong risk culture, Webster promotes proactive risk management by all employees and clear ownership and accountability across three lines of defense to enable an effective and credible challenge. Employees in the lines of business serve as the first line of defense and have responsibility for identifying, managing and owning the risks in their businesses. The first line of defense also includes support functions that provide information technology, operations, servicing, processing, or other support. The second line of defense is comprised of various risk management, compliance, and control functions responsible for providing guidance, oversight, and challenge to the first line of defense. Internal Audit and Credit Risk Review, which report directly to the chairs of the Audit and Risk Committees of the Board, respectively, serve as the third line of defense and ensure thorough review and testing that appropriate risk management controls, processes, and systems are in place and functioning effectively.
The Risk Committee of the Board of Directors, comprised of independent directors, oversees Webster’s risk management activities and provides input and guidance to the Board of Directors and the executive team on risk related matters. The Chief Executive Officer has ultimate responsibility for ensuring the risk profile of the Company remains within the risk appetite and for ensuring execution of the risk management framework. The Chief Risk Officer is responsible for establishing and maintaining Webster's enterprise risk management framework and directly overseeing the credit risk, operational and compliance risk oversight programs. The Chief Financial Officer is responsible for overseeing market, liquidity, and capital risk management activities. The Chief Information Officer is responsible for overseeing information security and technology risk programs. The General Counsel is responsible for overseeing legal risk activities. Webster’s Enterprise Risk Management Committee (ERMC) was formed to support the design and execution of the risk management program and is chaired by the Chief Risk Officer and is comprised of Webster's executive officers and senior risk officers. The ERMC reports its findings to the Risk Committee of the Board.
Strategic Risk
Strategic Risk represents the risk of ineffective strategy selection and execution. Webster maintains a comprehensive and continuous strategic review process that informs the long-range plan. Webster's long-range plan is developed by the Operating Management Committee, consisting of Webster's executive officers, addresses strategic risks, and is aligned with our risk appetite, capital plan and liquidity requirements. The Board reviews the impact of strategic choices on the risk profile and opines on the long-range plan. Executive management executes the long-range plan within the established performance parameters and monitors execution of the plan and updates the Board on the progress throughout the year. Key strategic actions including mergers/acquisitions and partnerships with key strategic partners are reviewed and approved by the Board. At the business level, processes are in place to understand the strategic risk impact of new, expanded or modified products and services and to provide appropriate level of review and approval.
Credit Risk
Credit risk represents the risk of a consumer or commercial borrower, issuer, or counterparty failing to meet its contractual obligations under a loan, security, or derivative agreement. Webster manages and controls credit risk in its loan, investment, and derivative portfolios through established underwriting practices, adherence to standards, and utilization of portfolio and transaction monitoring tools and processes. Credit policies and underwriting guidelines provide limits on exposure and establish other standards as deemed necessary and prudent. Approval and reporting requirements are implemented to ensure proper risk identification, decision rationale, risk ratings, and disclosure of policy exceptions.
Credit risk management activities are overseen by the Chief Credit Officer who reports to the Chief Risk Officer. The Chief Credit Officer and team of credit executives are independent of the loan production and treasury functions. The credit risk function oversees the underwriting, approval, portfolio management, and troubled asset processes and establishes and ensures adherence to credit policies.
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The Credit Risk Management Committee (CRMC) meets regularly to review key credit risk topics, issues, portfolios and policies. The CRMC reviews Webster’s credit risk scorecard, which covers key risk indicators and limits established as part of the Company’s risk appetite framework. The CRMC is chaired by the Chief Credit Officer and includes executives and senior managers from the first and second lines of defense. Important findings regarding credit quality and trends within the loan and investment portfolios are regularly reported to the ERMC and Risk Committee of the Board of Directors.
Information Security and Technology Risks
The use of technology to store and process information and an increasing use of mobile devices and cloud technologies to conduct financial transactions exposes Webster to the risk of potential operational disruption or information security incidents. Sources of these risks include deliberate or accidental acts by employees, external parties, technology failure, third-party security practices, and environmental factors. Webster is committed to detecting, preventing, and responding to incidents that may impact the confidentiality, integrity, and availability of information assets, and has established a comprehensive information security and technology program under the direction of the Chief Information Security Officer. Webster's information technology risk function is responsible for the technology risk framework and associated policies, procedures, and processes. Oversight of both the information security and information technology risk programs is provided by the Information Risk Committee, which is chaired by the Director of Information Technology Risk. The Information Risk Committee regularly reports its findings to the ERMC and Risk Committee/Board of Directors.
Operational and Compliance Risks
Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. The Operational Risk function is responsible for establishing processes and tools to identify, manage, and aggregate operational risk across the organization; providing guidance and advice on operational risk matters; and educating the organization on operational risks. Compliance risk represents the risk of non-adherence to applicable laws and regulations, including fines, penalties and reputation damage. Specific programs and functions have been implemented to manage the risks associated with legal and regulatory requirements, suppliers and other third-parties, information security, business disruption, fraud, analytical and forecasting models, and new products and services.
Webster’s Operational Risk Management Committee, which consists of senior risk officers and senior managers responsible for operational and compliance risk management across the Company, periodically reviews the operational and compliance programs, as well as key operational risk trends, issues, and mitigation activities. The Director of Enterprise and Operational Risk Management chairs the Operational Risk Management Committee and is responsible for overseeing the development and implementation of Webster’s operational risk management framework. The Operational Risk Management Committee regularly reports its findings to the ERMC and Risk Committee/ Board of Directors.
Market, Liquidity, and Capital Risk
Market risk refers to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity, equity, and other market rates. The risk of loss is assessed from the perspective of adverse changes in fair values, cash flows, and future earnings. Webster's primarily market risk exposure is to changes in interest rates and it aims to maintain interest rate exposure within established limits. Liquidity risk refers to the ability to meet a demand for funds by converting assets into cash or cash equivalents and borrowing money at an acceptable cost. Webster aims to maintain sufficient liquidity to meet day to day and longer term cash flow requirements of its customers. Capital risk is the risk of having insufficient capital to pursue the bank's business objectives in a normal or stressed environment. Webster aims to maintain adequate capital to support its business objectives and risk appetite.
Market, Liquidity, and Capital risks are managed under the supervision of the Treasurer who reports to the Chief Financial Officer. As part of the risk management governance, Webster has an established Asset/Liability Committee (ALCO) that meets regularly to review key market, liquidity, and capital risk topics. ALCO reviews policies, key risk indicators and limits established as part of the Company's risk appetite framework. ALCO is chaired by the Treasurer and includes the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, and other key executives and senior managers. ALCO regularly reports its findings to the ERMC and Risk Committee/Board of Directors.
Legal and Reputational Risks
Legal risk represents financial or reputational exposure resulting from bank initiated or third-party initiated litigation and the risk that Webster's governance structure is inadequate to facilitate Board oversight of company activities to ensure alignment with regulatory guidelines and stakeholder expectations.
The General Counsel chairs the Litigation Risk Management Committee, which is comprised of executive officers and key senior managers, and oversees all aspects of legal risk including the review of material pending litigation, litigation-related standards and procedures, emerging trends in litigation, and developments in the law relating to Webster's conduct of business. The Litigation Risk Management Committee regularly reports its findings to the ERMC and the Risk Committee/Board of Directors.
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Reputational risk represents the risk of negative public and/or market perception of internal conduct or business practices. Reputational risk management is a collective effort of the entire organization that crosses departments and functions. All employees are guided by the corporate values to exercise sound judgment and common sense in making decisions taking into consideration the impact of such decisions on all stakeholders. They are incented to behave ethically and promptly escalate perceived issues. The Risk Committee provide an oversight of reputational risks arising from business activities.
Internal Audit
Internal Audit provides independent, objective assurance and advisory services by applying a risk-based approach to selectively
test and evaluate the design and operating effectiveness of applicable internal controls throughout the Company. This evaluation
function brings a systematic and disciplined approach to enhancing the effectiveness of the Company’s governance, risk
management, and internal control processes.
Results of Internal Audit reviews are reported to management and the Audit Committee of the Board of Directors. Corrective
measures are monitored to ensure risk issues are mitigated or resolved. The Chief Audit Executive reports functionally to the
Audit Committee and administratively to the Chief Executive Officer. The appointment or replacement of the Chief Audit
Executive is overseen by the Audit Committee.
Additional information on risks and uncertainties and additional factors that could affect the Company’s results of operations can be found in Item 1A and elsewhere within this Form 10-K for the year ended December 31, 2020, and in other reports Webster Financial Corporation files with the SEC.
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ITEM 1A. RISK FACTORS
Investment in our securities involves risks and uncertainties, some of which are inherent in the financial services industry and others of which are more specific to our business. The discussion below addresses the material risks and uncertainties, of which we are currently aware, that could adversely affect our business and impact results of operations or financial condition. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. If any of the events or circumstances described in the following risks factors actually occurs, our business, results of operations, or financial condition could be harmed as a result.
Risks Relating to the Economy, Financial Markets, and Interest Rates
The COVID-19 pandemic and resulting adverse economic conditions have adversely impacted our business and results and could have a more material impact on our business, financial condition, and results of operations.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets.
The COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. Impacts to our business have included decreases in customer traffic in our retail branch locations, the transition of a significant portion of our workforce to remote locations, increases in requests for forbearance and loan modifications, and additional health and safety precautions implemented at all physical locations. To the extent that commercial and social restrictions remain in place or increase, our delinquencies, foreclosures, and credit losses may materially increase and we could experience reductions in fee income as transaction volumes decline.
Unfavorable economic conditions may also make it more difficult for us to maintain loan origination volume. Furthermore, such conditions have and may continue to cause the value of collateral associated with our existing loans to decline. The persistence or worsening of current economic conditions could also adversely affect certain risks related to our accounting estimates.
While we have taken and are continuing to take actions to protect the safety and well-being of our employees, customers, and communities, no assurance can be given that the steps being taken will be adequate.
Among the factors outside our control that are likely to affect the impact that the COVID-19 pandemic will ultimately have on our business are:
the pandemic’s course and severity;
direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, consumer spending and real estate market values;
political, legal and regulatory actions and policies in response to the pandemic, including any effect of restrictions on commerce and banking, such as dividends, moratorium or other suspension of collection, foreclosure, or related obligation;
timing, magnitude and effects of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;
timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;
potential impact of changes in medical spending and unemployment on our health savings account (HSA) business and related deposits;
long-term effects of the economic downturn on the value of our assets and related accounting estimates;
potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;
potential longer-term shifts toward mobile banking, telecommuting and telecommerce; and
geographic variation in the severity and duration of the COVID-19 pandemic, including in states in which we operate physically such as Connecticut, New York, Massachusetts, Rhode Island and Wisconsin.
We continue to monitor the COVID-19 pandemic, vaccine availability and deployment, and related risks, although the rapid development and fluidity of these situations preclude any specific prediction as to its ultimate impact on us. If the pandemic continues to spread or otherwise result in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows could be materially adversely affected.
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Difficult conditions in the economy and the financial markets may have a materially adverse effect on our business, financial condition, and results of operations.
Our financial performance is highly dependent upon the business environment in the markets where we operate and in the United States as a whole. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, decreases in business activity, weakening of investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation, changes in interest rates, changes in laws, high unemployment, national and international political turmoil, the imposition of tariffs on trade, natural disasters or a combination of these or other factors.
Recently, the COVID-19 pandemic has caused cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.
In addition to the risk associated with the continuing effects of the COVID-19 pandemic, we may face the following risks in connection with developments in the current economic and market environment:
consumer and business confidence levels may decline and lead to less credit usage and increases in delinquencies and default rates;
our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future behaviors;
customer desire to do business with us may decline, whether as a result of a decreased demand for loans or other financial products and services or decreased deposits or other investments in accounts with us;
competition in our industry could intensify as a result of the continued consolidation of financial services companies and changes in financial services technologies; and
the effects of recent and proposed changes in laws.
The business environment and financial markets in the U.S. have experienced volatility in recent years and may continue to do so for the foreseeable future. There can be no assurance that economic conditions will not worsen. Difficult economic conditions could adversely affect our business, results of operations and financial condition.
Changes in local economic conditions could adversely affect our business.
A significant percentage of our loans are secured by real estate, primarily across the Northeast. Our success depends in part upon economic conditions in Southern New England and our other geographic markets. These areas have been and continue to be affected by the COVID-19 pandemic, including Connecticut, where we are headquartered, and New York, Massachusetts, Rhode Island, and Wisconsin, in which we have significant operations. Continued difficult economic conditions or further adverse changes in such local markets could reduce our growth in loans and deposits, increase problem loans and charge-offs, and otherwise negatively affect our performance and financial condition.
The soundness of other financial institutions could adversely affect our business.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our business, financial condition, or results of operations.
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Changes in interest rates and spreads may have a materially adverse effect on our business, financial condition, and results of operations.
Our consolidated earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect our earnings and financial condition. We cannot predict with certainty or control changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense. While we have ongoing policies and procedures designed to manage the risks associated with changes in market interest rates, changes in interest rates still may have an adverse effect on our profitability. For example, high interest rates could affect the amount of loans that we can originate because higher rates could cause customers to apply for fewer mortgages, cause depositors to shift funds from accounts that have a comparatively lower cost to accounts with a higher cost, or cause us to experience customer attrition due to competitor pricing. If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If we were not able to reduce our funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then our net interest margin would decline.
In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent in part as a result of the pandemic. A prolonged period of very low interest rates could have a material adverse impact on our interest income and the market value of our investments. Refer to Asset/Liability Management and Market Risk section in the Management’s Discussion and Analysis within this document for more information regarding the impact of the interest rate environment.
The uncertainty about the future of London Interbank Offered Rate (LIBOR) may adversely impact our business.
The United Kingdom Financial Conduct Authority, the authority that regulates LIBOR, has announced it intends to stop compelling contributing banks to submit to the Intercontinental Exchange (ICE) Benchmark Administrator the rates for the calculation of LIBOR after 2021, which may result in the use of LIBOR in financial contracts being phased out by the end of 2021. Certain US Dollar LIBOR rates will continue to be published until June 30, 2023 for existing LIBOR-indexed financial instruments, however no new LIBOR-indexed financial instruments can be originated after December 31, 2021. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York represents best alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR, and the Company is currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. It is not possible at this time to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. The market transition away from LIBOR to an alternative reference rate, such as SOFR, is complex and could have a range of adverse effects on our loan and lease and investment portfolios, asset-liability management, business, financial condition, and results of operations. Webster has interest rate swap agreements and other instruments that are indexed to LIBOR and is currently monitoring and evaluating this activity and the related risks. The transition may change our market risk profile, potentially requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our business and reputation and increase legal and operational costs.
Regulatory, Compliance, Legal, and Environmental Risks
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our financial results.
We, primarily through Webster Bank and certain non-bank subsidiaries, are subject to extensive federal and state regulation and supervision. Banking regulations are intended to protect depositors’ funds, the DIF, and the safety and soundness of the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or limit what we may charge for certain banking services, among other things. Additionally, recent changes to the legal and regulatory framework governing our operation, including the continued implementation of Dodd-Frank and EGRRCPA, have and will continue to affect the lending, investment, trading, and operating activities of financial institutions and their holding companies. Dodd-Frank imposed additional regulatory obligations and increased scrutiny from federal banking agencies. In general, we expect this focus to continue and compliance requirements can be costly to implement. Compliance personnel and resources may increase our costs of operations and adversely impact our earnings.
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Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations.
While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in Item 1 of this report for further information.
Changes in accounting standards and policies could materially impact how we report our results of operations and financial condition.
Our accounting policies and methods are fundamental to how we record and report our results of operations and financial condition. Accordingly, we exercise judgment in selecting and applying these accounting policies and methods so they comply with U.S. Generally Accepted Accounting Principles (GAAP). The Financial Accounting Standards Board (FASB), regulatory agencies, and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our financial statements. Additionally, those bodies may change prior interpretations or positions on how these standards should be applied. The impact of these changes can be difficult to predict and can materially impact how we report our results of operations and financial condition. We could be required to apply new or revised guidance retrospectively, which may result in the revision of prior period financial statements by material amounts. Such changes could also require the Company to incur additional personnel, technology, or other costs. For example, under CECL, the new accounting standard on credit losses which became effective for us on January 1, 2020, credit losses on loans and held-to-maturity securities and other financial assets carried at amortized cost are required to be recognized earlier than in the past. A discussion of accounting standards recently adopted, including CECL, and issued but not yet adopted can be found in Note 1 to the Consolidated Financial Statements.
Health care reforms could adversely affect our HSA Bank division, revenues, financial position, and results of operations.
The enactment of health care reforms affecting health savings accounts at the federal or state level may affect our HSA Bank division, which is a bank custodian of health savings accounts. We cannot predict if any such reforms will ultimately become law, or, if enacted, what their terms or the regulations promulgated pursuant to such laws will be. Any health care reforms enacted may be phased in over a number of years but, if enacted, could, with respect to the operations of HSA Bank, reduce revenues, increase costs, and require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition, our results of operations, financial position, and cash flows could be materially adversely affected by such changes.
The Holding Company may not pay dividends if we are not able to receive dividends from our subsidiary, Webster Bank.
The Holding Company is a separate and distinct legal entity from our banking and non-banking subsidiaries and depend on the payment of cash dividends from Webster Bank and our existing liquid assets as the principal sources of funds for paying cash dividends on our common stock. Unless we receive dividends from Webster Bank or choose to use our liquid assets, we may not be able to pay dividends. Webster Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements. See the sub-section captioned “Dividends” in Item 1 of this report for a discussion of regulatory and other restrictions on dividend declarations.
We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.
A large portion of our loan portfolio is secured by real estate. In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation, and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations, and prospects.
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Risks Relating to Business Environment and Operations
We operate in a highly competitive industry and market area. If we fail to compete effectively, our financial condition and results of operations may be materially adversely affected.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources than we do. Such competitors primarily include national, regional, and community banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, non-bank health savings account trustees, finance companies, brokerage firms, insurance companies, online lenders, factoring companies, and other financial intermediaries. Some of the financial services organizations with which the Company competes are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions, which may give them certain advantages over the Company in accessing funding and in providing various services. The financial services industry could become even more competitive as a result of legislative, regulatory, and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we do, as well as better pricing for those products and services.
Our ability to compete successfully depends on a number of factors, including, among other things:
the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;
our ability to successfully achieve the anticipated cost reductions and retain customer relationships from strategic initiatives and any higher than anticipated costs or delays in implementing the banking center consolidation plan;
the ability to expand market position;
the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service and products; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which in turn could have a material adverse effect on our financial condition and results of operations.
The loss of key partnerships could adversely affect our HSA Bank division.
Our HSA Bank division relies on partnerships with various health insurance carriers and other partners to maximize our distribution model. In particular, health plan partners who provide high deductible health plan options are a significant source of new and existing health savings account holders. If these health plan partners or other partners choose to align with our competitors or develop their own solutions, our results of operations, business, and prospects could be adversely affected.
We continually encounter technological change. The failure to adapt to these changes could negatively impact our business.
Financial services industries continually experience rapid technological change with frequent introductions of new technology-driven products and services. An effective use of technology can increase efficiency, enable financial institutions to better serve customers, and reduce costs. However, some new technologies needed to compete effectively result in incremental operating costs and capital investments. Our future success depends in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers within the same time frame as our large competitors. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
A failure or breach of our systems, or those of our third party vendors and other service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions, and customer, public, and regulatory expectations regarding operational and information security have increased over time. Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting, data processing systems, or other operating systems and facilities, including mobile banking and other recently developed technologies, may stop operating properly or become disabled or compromised as a result of a number of factors that may be wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages; natural disasters; pandemics; events arising from political or social matters, including terrorist acts; and cyber-attacks. Although we have business continuity plans and believe we have robust information security procedures and controls in place, disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of the
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networks, systems, or devices on which customers’ personal information is stored and that our customers use to access our products and services, could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, which could have a materially adverse effect on our results of operations and financial condition.
Third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems, capacity constraints, and cyber-attacks.
In recent years, information security risks for financial institutions have increased due in part to the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been several instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, client or customer information or the destruction or theft of corporate data. There have also been highly publicized cases where hackers have requested ransom-payments in exchange for not disclosing customer information. In addition, as a result of the COVID-19 pandemic and the related increase in remote working by our personnel and the personnel of other companies, the risk of cyber-attacks, breaches or similar events, whether through our systems or those of third parties on which we rely, has increased.
Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened, and as a result, the continued development and enhancement of our controls, processes, and practices designed to protect and facilitate the recovery of our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a high priority for us. As an additional layer of protection, we have purchased network and privacy liability risk insurance coverage which includes digital asset loss, business interruption loss, network security liability, privacy liability, network extortion, and data breach coverage, though there can be no assurance that such insurance will fully cover any actual losses. As cyber threats continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.
Disruptions in services provided by third-party vendors may result in a material adverse effect on our business.
We rely on third-party vendors to provide products and services necessary to maintain day-to-day operations. For example, we are dependent on our vendor-provided core banking processing systems to process a large number of increasingly complex transactions. Accordingly, we are exposed to the risk that these vendors might not perform in accordance with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure, financial condition, changes in support for existing products, services, and technology, changes in strategic focus, effects related to the COVID-19 pandemic, or for any other reason. Such failure to perform could be disruptive to our operations, which could have a materially adverse impact on our business, results of operations, and financial condition. While we require third-party outsourced service providers to have business continuity and disaster recovery plans that are aligned with our overall recovery plans, we cannot be assured that such plans will operate successfully or in a timely manner so as to prevent any such material adverse impact.
We face risks in connection with completed or potential acquisitions.
From time to time, we may evaluate expansion through the acquisition of banks or branches, or other financial businesses or assets. Such acquisitions involve various risks commonly associated with acquisitions, including, among other things:
the possible loss of key employees and customers;
potential business disruptions;
potential changes in banking or tax laws or regulations that may affect the business;
potential exposure to unknown or contingent liabilities; and
potential difficulties in integrating the target business into our own.
Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on the Company’s business, financial condition and results of operations.
Our business may be adversely affected by fraud.
As a financial institution, we are inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers, and other third parties targeting the Company or the Company’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.
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Risks Relating to Accounting Estimates
Our allowance for credit losses may be insufficient.
Our business is subject to periodic fluctuations based on national and local economic conditions. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition. For example, declines in housing activity including declines in building permits, and home prices, may make it more difficult for our borrowers to sell their homes or refinance their debt. Sales may also slow, which could strain the resources of real estate developers and builders. We may suffer higher credit losses as a result of these factors and the resulting impact on our borrowers. A declining economy could negatively affect employment levels and impact the ability of our borrowers to service their debt. Bank regulatory agencies also periodically review our allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for credit losses, we may need, depending on an analysis of the adequacy of the allowance for credit losses, additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income, and may have a material adverse effect on our financial condition, results of operations, and regulatory position.
We may not be able to fully realize the balance of our net DTA.
The value of our DTA is partially reduced by a valuation allowance. A valuation allowance is provided when it is more-likely-than-not that some portion of our DTA will not be realized. We regularly assess available positive and negative evidence to determine whether it is more-likely-than-not that our net DTA will not be realized. Realization of a DTA requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty. If we were to conclude that a significant portion of our remaining DTA is not more-likely-than-not to be realized, the required valuation allowance could adversely affect our financial position, results of operations and regulatory capital ratios.
If our goodwill were determined to be impaired it could have a negative impact on our profitability.
Webster evaluates goodwill for impairment on an annual basis, or more frequently if necessary. A significant decline in our expected future cash flows, a continuing period of market disruption, market capitalization to book value deterioration, or slower growth rates may require us to record charges in the future related to the impairment of our goodwill. If we were to conclude that a future write-down is necessary, we would record the appropriate charge, which may have a material adverse effect on our financial condition and results of operations.
General Risk Factors
Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures, failure to implement any necessary improvement of our controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
Our stock price can be volatile.
Stock price volatility may negatively impact the price at which our common stock may be sold, and may also negatively impact the timing of any sale. Our stock price can fluctuate widely in response to a variety of factors, among other things:
actual or anticipated variations in operating results;
changes in recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns, and other issues in the financial services and healthcare industries;
new technology used or services offered by competitors;
perceptions in the marketplace regarding us and/or our competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
additional investments from third parties;
issuance of additional shares of stock;
changes in government regulations or actions by government regulators; and
geo-political conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends, or currency fluctuations, could also cause our stock price to decrease regardless of our operating results.
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The ongoing COVID-19 pandemic has resulted in severe volatility in the financial markets, including our common stock, and meaningfully lower stock prices for many companies.
Changes in the federal, state or local tax laws may negatively impact our financial performance. 
We are subject to changes in tax law that could increase our effective tax rates. Such changes in tax laws, interpretation, guidance, or regulation that may be promulgated could negatively impact our business and our customers. The new administration has indicated it may propose an increase in the federal corporate tax rate. We are unable to predict whether this, or any other proposed change will ultimately be enacted.
We are subject to financial and reputational risks from potential liability arising from lawsuits.
The nature of our business ordinarily results in a certain amount of claims and legal action. Whether claims and related legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect how the market perceives us, the products and services we offer, as well as impact customer demand for those products and services. We assess our liabilities and contingencies in connection with outstanding legal proceedings as well as certain threatened claims utilizing the latest and most reliable information. For matters where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable we will incur a loss and the amount can be reasonably estimated, we establish an accrual for the loss. Once established, the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings or threatened claims, however, may turn out to be substantially higher than the amount accrued. These costs may adversely affect our business, results of operations, and prospects.
We may not be able to attract and retain skilled people.
Our success depends in large part on our ability to attract and retain key people. Competition for the best people in most activities in which we engage can be intense and we may not be able to hire people or retain them. The availability of key personnel can also be affected by external factors such as the COVID-19 pandemic or similar events. The unexpected loss of services of key personnel could have a material adverse impact on the business as we would lose their skills, knowledge of the market, and years of industry experience, and may have difficulty promptly finding qualified replacement personnel.
New lines of business or new products and services may subject us to additional risks. A failure to successfully manage these risks may have a material adverse effect on our business.
From time to time, we may implement new lines of business, offer new products and services within existing lines of business, or shift our asset mix. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, and/or shifting asset mix, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove attainable. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
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ITEM 2. PROPERTIES
The Company maintains its headquarters in Waterbury, Connecticut. This owned facility houses the Company’s primary executive and administrative functions, as well as the principal banking headquarters of Webster Bank. Additional administrative functions are in an owned facility in New Britain, Connecticut and in leased facilities in Stamford and Southington, Connecticut. The Company considers its properties suitable and adequate for present needs.
In addition to the properties noted above, the Company’s segments maintain the following leased or owned offices. Lease expiration dates vary, up to 66 years, with renewal options for 1 to 10 years. For additional information regarding leases and rental payments refer to Note 8: Leasing in the Notes to Consolidated Financial Statements contained elsewhere in this report.
Commercial Banking
The Commercial Banking segment maintains offices across a footprint that primarily ranges from Boston, Massachusetts to Washington, D.C. Significant properties are located in: Hartford, New Haven, Stamford, and Waterbury, Connecticut; Boston, Massachusetts; New York City and White Plains, New York; Conshohocken, Pennsylvania; and Providence, Rhode Island.
The Commercial Banking segment also includes: Webster Capital Finance with headquarters in Southington, Connecticut; Webster Business Credit Corporation with headquarters in New York, New York and offices in Atlanta, Georgia, Baltimore, Maryland, Boston, Massachusetts, Chicago, Illinois, Dallas, Texas, and New Milford, Connecticut; and Private Banking with headquarters in Stamford, Connecticut and offices in Hartford, New Haven, Waterbury, and Greenwich, Connecticut, Boston, Massachusetts, and Providence, Rhode Island.
HSA Bank
The HSA Bank segment is headquartered in Milwaukee, Wisconsin with an office in Sheboygan, Wisconsin.
Community Banking
The Community Banking segment maintains the following banking centers, as of December 31, 2020:
LocationLeasedOwnedTotal
Connecticut72 38 110 
Massachusetts19 10 29 
Rhode Island
New York— 
Total banking centers104 51 155 
On December 1, 2020, the Company announced a plan to consolidate 26 banking centers located in Connecticut, Massachusetts and Rhode Island. The Company plans to integrate these locations into other nearby banking centers within its network. These actions are a result of the Company’s increased focus on balancing physical locations and digital banking channels, driven by increased client usage of online and mobile banking. The Company expects to complete these actions by the end of the second quarter of 2021. The final number of banking centers consolidated may vary from the plan.
ITEM 3. 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. Management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not be material 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 could occur that could cause Webster to adjust its litigation accrual or could have, individually or in the aggregate, a material adverse effect on its business, financial condition, or operating results. Webster believes it has defenses to all claims asserted against it in existing litigation matters and intends to defend itself in those matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable

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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Webster Financial Corporation’s common shares trade on the New York Stock Exchange under the symbol WBS.
On February 19, 2021, there were 4,955 shareholders of record as determined by Broadridge Corporate Issuer Solutions, Inc., the Company’s transfer agent.
Refer to the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the sections captioned "Financial Condition" for dividend information.
Recent Sales of Unregistered Securities
No unregistered securities were sold by Webster Financial Corporation during the three year period ended December 31, 2020.
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of equity securities for 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 December 31, 2020:
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)
October1,285 $29.88 — $123,443,785 
November318 35.55 — 123,443,785 
December1,939 42.09 — 123,443,785 
Total3,542 37.07 — 123,443,785 
(1)The total number of shares purchased were acquired outside of the repurchase program at market prices and 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 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. Due to the economic environment resulting from the pandemic in 2020, the Company temporarily suspended repurchases under its common stock repurchase program, but will resume repurchases when market conditions warrant.
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Performance Graph
The performance graph compares Webster Financial Corporation’s cumulative shareholder return on its common stock over the last five fiscal years to the cumulative total return of the Standard & Poor’s 500 Index (S&P 500 Index) and the Keefe, Bruyette & Woods Regional Banking Index (KRX Index).
Cumulative shareholder return is measured by dividing total dividends, assuming dividend reinvestment, for the measurement period plus share price change for a period by the share price at the beginning of the measurement period. The cumulative shareholder return over a five-year period assumes a simultaneous initial investment of $100, on December 31, 2015, in Webster Financial Corporation common stock and in each of the indices above.

wbs-20201231_g1.jpg
Period Ending December 31,
201520162017201820192020
Webster Financial Corporation$100 $150 $158 $142 $158 $131 
S&P 500 Index$100 $112 $136 $130 $171 $203 
KRX Index$100 $139 $142 $117 $145 $132 

ITEM 6. SELECTED FINANCIAL DATA
The required information is set forth below, in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the section captioned "Results of Operations," which is incorporated herein by reference.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presentation should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes thereto of Webster Financial Corporation contained elsewhere in this report. For a comparison of the 2019 results to the 2018 results and other 2018 information not included herein, refer to the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the sections captioned "Financial Performance" through "Income Taxes" in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
COVID-19
COVID-19, or the Coronavirus, has continued to cause significant disruptions to the U.S. economy and disrupted banking and other financial activity in the areas in which the Company operates. The broad impact and preventive measures taken to contain or mitigate the outbreak have, and are likely to continue to have, significant negative effects on the U.S. and global economy, employment levels, employee productivity, and financial market conditions. The pandemic may cause increasingly negative effects on the ability of our borrowers to repay outstanding loans, the value of collateral securing loans, demand for loans and other financial services products, and consumer discretionary spending. As a result of these and other consequences, the outbreak has adversely affected our business, results of operations and financial condition. The extent to which COVID-19 will continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak, the actions taken to contain or mitigate its impact, and the pace and extent of economic recovery in the United States and, in particular, in the states in which we operate. COVID-19 vaccines have been developed with promising efficacy and the new administration is setting policies focused on increasing the quantity of vaccine made available and speed with which they are administered. The timing and extent to which these policies have a positive impact are uncertain at this time.
Webster has taken the following actions, through December 31, 2020, to support its employees, customers, and the communities we serve through the following initiatives:
Support for Employees: Webster transitioned to a remote work environment, where possible, with approximately 75% of employees currently working remotely, zero-interest loans were made available to assist employees and their families, expanded recognition programs were launched, and extra cleaning and safety protocols have been put in place for all properties where a slow and cautious return to the workplace is being implemented in compliance with state guidelines;
Support for Customers: Webster instituted a foreclosure moratorium for occupied Webster-owned residential mortgages, modified branch operations, increased deposit limits, waived penalties for early CD withdrawals, and waived or reduced certain fees. In addition, Webster continues to work with customers adversely impacted by COVID-19 through participation in the Small Business Administration Paycheck Protection Program (PPP) where it has funded nearly $1.5 billion in PPP loans to over 10,000 customers. Webster continues to engage with its customers and has provided accommodations through various loan modifications supporting over 2,500 customers; and
Support for Communities: Webster immediately provided nearly $2 million in donations to nonprofit and community organizations in our footprint including Feeding America, American Red Cross, and United Way (CT, RI, MA, NY, WI) to satisfy urgent basic needs brought on by the pandemic.
Information regarding the effects and potential effects of the ongoing Coronavirus pandemic on Webster's business, operating results, and financial condition is further described throughout this MD&A.
Strategic Initiatives
The Company has launched a strategic plan that is expected to drive revenue enhancements and cost saving opportunities across the organization. As these strategic initiatives are implemented, they are expected to drive incremental revenue, reduce costs, and enhance digital capabilities. Significant progress has been made in several areas including,
Banking center consolidation: In December, the consolidation of 26 banking centers was announced that will drive expense savings beginning in the third quarter of 2021;
Organization simplification: Organizational actions are underway and will begin delivering benefits in the second quarter of 2021; and
Process optimization and ancillary spend reduction: Increased discipline around third party spend and redesigning processes to be more efficient; anticipated savings will be delivered throughout 2021.
Costs incurred in 2020 related to these strategic initiatives include $17.9 million in severance, $14.5 million in facilities optimization, and $10.3 million in other project costs. In addition, $4.1 million in debt prepayment penalty and related hedge termination costs were incurred in the fourth quarter of 2020. Additional costs are expected to be incurred in 2021 as the Company continues to implement these actions and additional initiatives.
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Results of Operations
The Company's financial position and results of operations as of and for the year ended December 31, 2020 have been significantly impacted by the COVID-19 pandemic. The economic environment and uncertainty related to the pandemic contributed to the $137.8 million provision for credit losses recognized under the new CECL accounting standard adopted by the Company on January 1, 2020. While the Company has not experienced a significant increase in charge-offs due to the COVID-19 pandemic to-date, the continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the Company’s estimate of its allowance for credit losses and resulting provision for credit losses. The Company’s interest income may also be negatively impacted in future periods as the Company continues to work with its affected borrowers to help them manage their financial position, by deferring payments, interest, and fees. Additionally, net interest margin has been reduced generally as a result of the low rate environment. These uncertainties and the resulting economic environment will continue to affect earnings and growth projections which may result in deterioration of asset quality in the Company's loan and investment portfolios, or fair value of other assets.
Selected financial highlights are presented in the following table:
At or for the years ended December 31,
(Dollars in thousands, except per share data)20202019201820172016
Balance Sheets
Total assets$32,590,690 $30,389,344 $27,610,315 $26,487,645 $26,072,529 
Loans and leases, net21,281,784 19,827,890 18,253,136 17,323,864 16,832,268 
Investment securities8,894,665 8,219,751 7,224,150 7,125,429 7,151,749 
Deposits27,335,436 23,324,746 21,858,845 20,993,729 19,303,857 
Borrowings1,696,182 3,529,271 2,634,703 2,546,141 4,017,948 
Preferred stock145,037 145,037 145,037 145,056 122,710 
Total shareholders' equity3,234,625 3,207,770 2,886,515 2,701,958 2,527,012 
Statements Of Income
Interest income$1,002,049 $1,154,583 $1,055,167 $913,605 $821,913 
Interest expense110,656 199,456 148,486 117,318 103,400 
Net interest income891,393 955,127 906,681 796,287 718,513 
Provision for credit losses137,750 37,800 42,000 40,900 56,350 
Non-interest income285,277 285,315 282,568 259,478 264,478 
Non-interest expense758,946 715,950 705,616 661,075 623,191 
Income before income tax expense279,974 486,692 441,633 353,790 303,450 
Income tax expense59,353 103,969 81,215 98,351 96,323 
Net income$220,621 $382,723 $360,418 $255,439 $207,127 
Earnings applicable to common shareholders$211,474 $372,985 $351,703 $246,831 $198,423 
Per Share Data
Basic earnings per common share$2.35 $4.07 $3.83 $2.68 $2.17 
Diluted earnings per common share2.35 4.06 3.81 2.67 2.16 
Dividends and dividend equivalents declared per common share1.60 1.53 1.25 1.03 0.98 
Dividends declared per preferred stock share1,312.50 1,312.50 1,323.44 1,600.00 1,600.00 
Book value per common share34.25 33.28 29.72 27.76 26.17 
Tangible book value per common share (non-GAAP)
28.04 27.19 23.60 21.59 19.94 
Key Performance Ratios
Tangible common equity ratio (non-GAAP)
7.90 %8.39 %8.05 %7.67 %7.19 %
Return on average assets0.68 1.32 1.33 0.97 0.82 
Return on average common shareholders’ equity6.97 12.83 13.37 9.92 8.44 
Return on average tangible common shareholders' equity (non-GAAP)
8.66 16.01 17.17 13.00 11.36 
Net interest margin3.00 3.55 3.60 3.30 3.12 
Efficiency ratio (non-GAAP)
59.57 56.77 57.75 60.33 62.01 
Asset Quality Ratios
Non-performing loans and leases as a percentage of loans and leases0.78 %0.75 %0.84 %0.72 %0.79 %
Non-performing assets as a percentage of loans and leases plus OREO0.79 0.79 0.87 0.76 0.81 
Non-performing assets as a percentage of total assets0.52 0.52 0.59 0.50 0.53 
ACL on loans and leases as a percentage of non-performing loans and leases213.94 138.56 137.22 158.00 144.98 
ACL on loans and leases as a percentage of loans and leases1.66 1.04 1.15 1.14 1.14 
Net charge-offs as a percentage of average loans and leases0.21 0.21 0.16 0.20 0.23 
Ratio of ACL on loans and leases to net charge-offs7.97 x5.09 x7.16 x5.68 x5.25 x

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The non-GAAP financial measures identified in the preceding table provide investors with information useful in understanding Webster's financial performance, performance trends and financial position. These measures are used by management for internal planning and forecasting purposes, as well as by securities analysts, investors and other interested parties to compare peer company operating performance. Management believes 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. Tangible book value per common share represents shareholders’ equity less preferred stock and goodwill and intangible assets divided by common shares outstanding at the end of the period. Tangible common equity ratio represents shareholders’ equity less preferred stock and goodwill and intangible assets divided by total assets less goodwill and intangible assets. Return on average tangible common shareholders' equity measures 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 and average goodwill and intangible assets. The efficiency ratio, which measures the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies that present measures having the same or similar names.
The following tables reconcile non-GAAP financial measures with financial measures defined by GAAP:
At December 31,
(Dollars and shares in thousands, except per share data)20202019201820172016
Tangible book value per common share (non-GAAP):
Shareholders' equity (GAAP)$3,234,625 $3,207,770 $2,886,515 $2,701,958 $2,527,012 
Less: Preferred stock (GAAP)145,037 145,037 145,037 145,056 122,710 
 Goodwill and other intangible assets (GAAP)560,756 560,290 564,137 567,984 572,047 
Tangible common shareholders' equity (non-GAAP)$2,528,832 $2,502,443 $2,177,341 $1,988,918 $1,832,255 
Common shares outstanding90,199 92,027 92,247 92,101 91,868 
Tangible book value per common share (non-GAAP)$28.04 $27.19 $23.60 $21.59 $19.94 
Tangible common equity ratio (non-GAAP):
Tangible common shareholders' equity (non-GAAP)$2,528,832 $2,502,443 $2,177,341 $1,988,918 $1,832,255 
Total assets (GAAP)$32,590,690 $30,389,344 $27,610,315 $26,487,645 $26,072,529 
Less: Goodwill and other intangible assets (GAAP)560,756 560,290 564,137 567,984 572,047 
Tangible assets (non-GAAP)$32,029,934 $29,829,054 $27,046,178 $25,919,661 $25,500,482 
Tangible common equity ratio (non-GAAP)7.90 %8.39 %8.05 %7.67 %7.19 %
For the years ended December 31,
(Dollars in thousands)20202019201820172016
Return on average tangible common shareholders' equity (non-GAAP):
Net Income (GAAP)$220,621 $382,723 $360,418 $255,439 $207,127 
Less: Preferred stock dividends (GAAP)7,875 7,875 7,853 8,184 8,096 
Add: Intangible assets amortization, tax-affected (GAAP)3,286 3,039 3,039 2,640 3,674 
Income adjusted for preferred stock dividends and intangible assets amortization (non-GAAP)$216,032 $377,887 $355,604 $249,895 $202,705 
Average shareholders' equity (non-GAAP)$3,198,491 $3,067,719 $2,782,132 $2,617,275 $2,481,417 
Less: Average preferred stock (non-GAAP)145,037 145,037 145,068 124,978 122,710 
  Average goodwill and other intangible assets (non-GAAP)560,226 562,188 566,048 570,054 574,785 
 Average tangible common shareholders' equity (non-GAAP)$2,493,228 $2,360,494