WEBSTER FINANCIAL CORP - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________________

FORM 10-Q

_______________________________________________________________________________

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ending June 30, 2019

Commission File Number: 001-31486

_______________________________________________________________________________

WEBSTER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________



Delaware		06-1187536
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

145 Bank Street, Waterbury, Connecticut 06702

(Address and zip code of principal executive offices)

(203) 578-2202

(Registrant's telephone number, including area code)

______________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbols	Name of Exchange on which registered
Common Stock, $0.01 par value	WBS	New York Stock Exchange
Depository Shares, each representing 1/1000th interest in a share	WBS-F	New York Stock Exchange
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). ☐ Yes ☒ No

The number of shares of common stock, par value $.01 per share, outstanding as of July 31, 2019 was 92,160,144.

INDEX



		Page No.

Forward-Looking Statements		ii
Key to Acronyms and Terms		iii

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	66

Item 4.	Controls and Procedures	66

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	67

Item 4.	Mine Safety Disclosures	67

Item 5.	Other Information	67

Item 6.	Exhibits	68

EXHIBIT INDEX		68

SIGNATURES		69

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

FOWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates" and similar references to future periods; however, 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, and other financial items;


▪	statements of plans, objectives and expectations of Webster or its management or Board of Directors;


▪	statements of future economic performance; and


▪	statements of assumptions underlying such statements.

Forward-looking statements are based on Webster’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Webster’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Factors that could cause our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:


▪	our ability to successfully execute our business plan and 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;


▪	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;


▪	inflation, changes in interest rates, and monetary fluctuations;


▪	the timely development and acceptance of new products and services and the perceived value of those products and services by customers;


▪	changes in deposit flows, consumer spending, borrowings, and savings habits;


▪	our ability to implement new technologies and maintain secure and reliable technology systems;


▪	performance by our counterparties and vendors;


▪	the ability to increase market share and control expenses;


▪	changes in the competitive environment among banks, financial holding companies, and other financial services providers;


▪	changes in laws and regulations (including those concerning taxes, banking, securities, insurance, and healthcare) with which we and our subsidiaries must comply;


▪	the effect of changes in accounting policies and practices applicable to us; and


▪	legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.

All forward-looking statements in this Quarterly Report on Form 10-Q 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.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

KEY TO ACRONYMS AND TERMS



Agency CMBS	Agency commercial mortgage-backed securities
Agency CMO	Agency collateralized mortgage obligations
Agency MBS	Agency mortgage-backed securities
ALCO	Asset/Liability Committee
ALLL	Allowance for loan and lease losses
AOCL	Accumulated other comprehensive loss, net of tax
ASC	Accounting Standards Codification
ASU or the Update	Accounting Standards Update
Basel III	Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
CET1 capital	Common Equity Tier 1 Capital, defined by Basel III capital rules
CLO	Collateralized loan obligation securities
CMBS	Non-agency commercial mortgage-backed securities
CME	Chicago Mercantile Exchange
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
FRB	Federal Reserve Bank
FTP	Funds Transfer Pricing, a matched maturity funding concept
GAAP	U.S. Generally Accepted Accounting Principles
Holding Company	Webster Financial Corporation
HSA Bank	A division of Webster Bank, National Association
LEP	Loss emergence period
LGD	Loss given default
LPL	LPL Financial Holdings Inc.
NAV	Net asset value
NII	Net interest income
OCC	Office of the Comptroller of the Currency
OCI/OCL	Other comprehensive income (loss)
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PD	Probability of default
PPNR	Pretax, pre-provision net revenue
ROU asset	Right-of-use asset
RPA	Risk participation agreement
SEC	United States Securities and Exchange Commission
SERP	Supplemental defined benefit retirement plan
Tax Act	Tax Cuts and Jobs Act of 2017
TDR	Troubled debt restructuring, defined in ASC 310-40 "Receivables-Troubled Debt Restructurings by Creditors"
VIE	Variable interest entity, defined in ASC 810-10 "Consolidation-Overall"
Webster Bank	Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the Company	Webster Financial Corporation, collectively with its consolidated subsidiaries

iii

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30, 2019			December 31, 2018
(In thousands, except share data)	(Unaudited)
Assets:
Cash and due from banks (includes restricted cash)	$	190,828		$	260,422
Interest-bearing deposits	26,652			69,077
Investment securities available-for-sale, at fair value	2,978,657			2,898,730
Investment securities held-to-maturity (fair value of $4,674,510 and $4,209,121)	4,636,707			4,325,420
Federal Home Loan Bank and Federal Reserve Bank stock	118,371			149,286
Loans held for sale (valued under fair value option $19,249 and $7,908)	19,249			11,869
Loans and leases	19,269,883			18,465,489
Allowance for loan and lease losses	(211,671		)	(212,353		)
Loans and leases, net	19,058,212			18,253,136
Deferred tax assets, net	73,462			96,516
Premises and equipment, net	278,227			124,850
Goodwill	538,373			538,373
Other intangible assets, net	23,841			25,764
Cash surrender value of life insurance policies	546,963			543,616
Accrued interest receivable and other assets	452,501			313,256
Total assets	$	28,942,043		$	27,610,315
Liabilities and shareholders' equity:
Deposits:
Non-interest-bearing	$	4,174,806		$	4,162,446
Interest-bearing	18,423,972			17,696,399
Total deposits	22,598,778			21,858,845
Securities sold under agreements to repurchase and other borrowings	956,920			581,874
Federal Home Loan Bank advances	1,426,656			1,826,808
Long-term debt	538,379			226,021
Accrued expenses and other liabilities	356,093			230,252
Total liabilities	25,876,826			24,723,800
Shareholders’ equity:
Preferred stock, $.01 par value; Authorized - 3,000,000 shares:
Series F issued and outstanding (6,000 shares)	145,037			145,037
Common stock, $.01 par value; Authorized - 200,000,000 shares:
Issued (93,686,311 shares)	937			937
Paid-in capital	1,113,893			1,114,394
Retained earnings	1,955,933			1,828,303
Treasury stock, at cost (1,678,893 and 1,508,456 shares)	(84,393		)	(71,504		)
Accumulated other comprehensive loss, net of tax	(66,190		)	(130,652		)
Total shareholders' equity	3,065,217			2,886,515
Total liabilities and shareholders' equity	$	28,942,043		$	27,610,315

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



	Three months ended June 30,						Six months ended June 30,
(In thousands, except per share data)	2019			2018			2019			2018
Interest Income:
Interest and fees on loans and leases	$	235,949		$	207,820		$	464,713		$	401,040
Taxable interest and dividends on investments	50,634			47,427			102,510			94,715
Non-taxable interest on investment securities	5,529			5,096			10,931			10,367
Loans held for sale	145			148			293			290
Total interest income	292,257			260,491			578,447			506,412
Interest Expense:
Deposits	32,757			20,225			63,777			38,381
Securities sold under agreements to repurchase and other borrowings	3,904			3,998			6,656			7,638
Federal Home Loan Bank advances	7,772			8,471			15,557			15,752
Long-term debt	6,037			2,787			9,119			5,463
Total interest expense	50,470			35,481			95,109			67,234
Net interest income	241,787			225,010			483,338			439,178
Provision for loan and lease losses	11,900			10,500			20,500			21,500
Net interest income after provision for loan and lease losses	229,887			214,510			462,838			417,678
Non-interest Income:
Deposit service fees	43,118			40,859			86,142			81,310
Loan and lease related fees	6,558			6,333			14,377			13,329
Wealth and investment services	8,309			8,456			15,960			16,326
Mortgage banking activities	932			1,235			1,696			2,379
Increase in cash surrender value of life insurance policies	3,650			3,643			7,234			7,215
Other income	13,286			7,848			19,056			16,562
Total non-interest income	75,853			68,374			144,465			137,121
Non-interest Expense:
Compensation and benefits	98,527			93,052			196,312			187,817
Occupancy	14,019			15,842			28,715			30,987
Technology and equipment	25,767			24,604			51,464			48,466
Intangible assets amortization	962			962			1,924			1,924
Marketing	4,243			4,889			7,571			8,441
Professional and outside services	5,634			4,381			11,682			9,169
Deposit insurance	4,453			13,687			8,883			20,404
Other expense	27,035			23,042			49,775			44,866
Total non-interest expense	180,640			180,459			356,326			352,074
Income before income tax expense	125,100			102,425			250,977			202,725
Income tax expense	26,451			20,743			52,592			40,818
Net income	98,649			81,682			198,385			161,907
Preferred stock dividends and other	(2,456		)	(2,193		)	(4,902		)	(4,334		)
Earnings applicable to common shareholders	$	96,193		$	79,489		$	193,483		$	157,573

Earnings per common share:
Basic	$	1.05		$	0.87		$	2.11		$	1.71
Diluted	1.05			0.86			2.11			1.71

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three months ended June 30,					Six months ended June 30,
(In thousands)	2019		2018			2019		2018
Net income	$	98,649	$	81,682		$	198,385	$	161,907
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale	34,409		(9,246		)	61,968		(36,670		)
Derivative instruments	186		1,680			382		4,202
Defined benefit pension and other postretirement benefit plans	1,056		1,109			2,112		2,063
Other comprehensive income (loss), net of tax	35,651		(6,457		)	64,462		(30,405		)
Comprehensive income	$	134,300	$	75,225		$	262,847	$	131,502

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)



	At or for the three months ended June 30, 2019
(In thousands, except per share data)	Preferred Stock			Common Stock		Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at March 31, 2019	$	145,037		$	937	$	1,113,107		$	1,895,870		$	(86,855	)	$	(101,841	)	$	2,966,255
Net income	—			—		—			98,649			—			—			98,649
Other comprehensive income, net of tax	—			—		—			—			—			35,651			35,651
Common stock dividends/equivalents $0.40 per share	—			—		—			(36,892		)	—			—			(36,892		)
Series F preferred stock dividends $328.125 per share	—			—		—			(1,969		)	—			—			(1,969		)
Stock-based compensation	—			—		1,528			275			1,637			—			3,440
Exercise of stock options	—			—		(742		)	—			959			—			217
Common shares acquired from stock compensation plan activity	—			—		—			—			(134		)	—			(134		)
Common stock repurchase program	—			—		—			—			—			—			—
Balance at June 30, 2019	$	145,037		$	937	$	1,113,893		$	1,955,933		$	(84,393	)	$	(66,190	)	$	3,065,217

	At or for the three months ended June 30, 2018
(In thousands, except per share data)	Preferred Stock			Common Stock		Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at March 31, 2018	$	145,037		$	937	$	1,120,522		$	1,649,524		$	(84,399	)	$	(115,479	)	$	2,716,142
Net income	—			—		—			81,682			—			—			81,682
Other comprehensive loss, net of tax	—			—		—			—			—			(6,457		)	(6,457		)
Common stock dividends/equivalents $0.33 per share	—			—		56			(30,167		)	—			—			(30,111		)
Series F preferred stock dividends $328.125 per share	—			—		—			(1,969		)	—			—			(1,969		)
Dividends accrued Series F preferred stock	—			—		—			—			—			—			—
Stock-based compensation	—			—		—			697			1,847			—			2,544
Exercise of stock options	—			—		(5,164		)	—			6,984			—			1,820
Common shares acquired from stock compensation plan activity	—			—		—			—			(1,928		)	—			(1,928		)
Common stock repurchase program	—			—		—			—			—			—			—
Series F preferred stock issuance adjustment	—			—		—			—			—			—			—
Balance at June 30, 2018	$	145,037		$	937	$	1,115,414		$	1,699,767		$	(77,496	)	$	(121,936	)	$	2,761,723

	At or for the six months ended June 30, 2019
(In thousands, except per share data)	Preferred Stock			Common Stock		Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at December 31, 2018	$	145,037		$	937	$	1,114,394		$	1,828,303		$	(71,504	)	$	(130,652	)	$	2,886,515
Cumulative effect of changes in accounting principles	—			—		—			(515		)	—			—			(515		)
Net income	—			—		—			198,385			—			—			198,385
Other comprehensive income, net of tax	—			—		—			—			—			64,462			64,462
Common stock dividends/equivalents $0.73 per share	—			—		—			(67,481		)	—			—			(67,481		)
Series F preferred stock dividends $656.25 per share	—			—		—			(3,938		)	—			—			(3,938		)
Stock-based compensation	—			—		1,528			1,179			3,709			—			6,416
Exercise of stock options	—			—		(2,029		)	—			2,650			—			621
Common shares acquired from stock compensation plan activity	—			—		—			—			(6,245		)	—			(6,245		)
Common stock repurchase program	—			—		—			—			(13,003		)	—			(13,003		)
Balance at June 30, 2019	$	145,037		$	937	$	1,113,893		$	1,955,933		$	(84,393	)	$	(66,190	)	$	3,065,217

	At or for the six months ended June 30, 2018
(In thousands, except per share data)	Preferred Stock			Common Stock		Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at December 31, 2017	$	145,056		$	937	$	1,122,164		$	1,595,762		$	(70,430	)	$	(91,531	)	$	2,701,958
Cumulative effect of changes in accounting principles	—			—		—			(1,362		)	—			—			(1,362		)
Net income	—			—		—			161,907			—			—			161,907
Other comprehensive loss, net of tax	—			—		—			—			—			(30,405		)	(30,405		)
Common stock dividends/equivalents $0.59 per share	—			—		99			(54,278		)	—			—			(54,179		)
Series F preferred stock dividends $667.1875 per share	—			—		—			(3,938		)	—			—			(3,938		)
Dividends accrued Series F preferred stock	—			—		—			22			—			—			22
Stock-based compensation	—			—		(1,541		)	1,654			5,766			—			5,879
Exercise of stock options	—			—		(5,308		)	—			7,418			—			2,110
Common shares acquired from stock compensation plan activity	—			—		—			—			(8,092		)	—			(8,092		)
Common stock repurchase program	—			—		—			—			(12,158		)	—			(12,158		)
Series F preferred stock issuance adjustment	(19		)	—		—			—			—			—			(19		)
Balance at June 30, 2018	$	145,037		$	937	$	1,115,414		$	1,699,767		$	(77,496	)	$	(121,936	)	$	2,761,723

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Six months ended June 30,
(In thousands)	2019			2018
Operating Activities:
Net income	$	198,385		$	161,907
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	20,500			21,500
Deferred tax expense (benefit)	514			(4,247		)
Depreciation and amortization	18,884			19,187
Amortization of premium/discount on earning assets and funding, net	22,785			26,625
Stock-based compensation	6,416			5,879
Gain on sale, net of write-down, on foreclosed and repossessed assets	(635		)	(291		)
Loss on sale, net of write-down, on premises and equipment	482			253
Increase in cash surrender value of life insurance policies	(7,234		)	(7,215		)
Gain from life insurance policies	(3,412		)	(825		)
Mortgage banking activities	(1,696		)	(2,379		)
Proceeds from sale of loans held for sale	63,464			90,063
Origination of loans held for sale	(74,076		)	(86,694		)
Net increase in right-of-use lease assets	(888		)	—
Net (increase) decrease in derivative contract assets net of liabilities	(115,498		)	65,421
Net increase in accrued interest receivable and other assets	(28,485		)	(9,482		)
Net decrease in accrued expenses and other liabilities	(1,545		)	(23,176		)
Net cash provided by operating activities	97,961			256,526
Investing Activities:
Purchases of available for sale investment securities	(255,885		)	(455,042		)
Proceeds from maturities and principal payments of available for sale investment securities	251,957			256,179
Purchases of held-to-maturity investment securities	(567,118		)	(157,061		)
Proceeds from maturities and principal payments of held-to-maturity investment securities	242,511			271,195
Net proceeds from Federal Home Loan Bank stock	30,915			10,273
Alternative investments capital call, net	(3,316		)	(246		)
Net increase in loans	(847,143		)	(523,631		)
Proceeds from loans not originated for sale	20,012			34
Proceeds from life insurance policies	2,270			2,429
Proceeds from the sale of foreclosed and repossessed assets	8,191			3,801
Additions to premises and equipment	(12,698		)	(16,063		)
Net cash used for investing activities ⁽¹⁾	(1,130,304		)	(608,132		)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents



WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued

	Six months ended June 30,
(In thousands)	2019			2018
Financing Activities:
Net increase in deposits	738,802			351,004
Proceeds from Federal Home Loan Bank advances	3,700,000			4,000,000
Repayments of Federal Home Loan Bank advances	(4,100,152		)	(4,100,149		)
Net increase in securities sold under agreements to repurchase and other borrowings	375,046			219,299
Issuance of long-term debt	300,000			—
Debt issuance costs	(3,642		)	—
Dividends paid to common shareholders	(67,165		)	(53,974		)
Dividends paid to preferred shareholders	(3,938		)	(3,938		)
Exercise of stock options	621			2,110
Common stock repurchase program	(13,003		)	(12,158		)
Common shares purchased related to stock compensation plan activity	(6,245		)	(8,092		)
Net cash provided by financing activities	920,324			394,102
Net (decrease) increase in cash and due from banks and interest-bearing deposits ⁽¹⁾	(112,019		)	42,496
Cash and due from banks and interest-bearing deposits at beginning of period ⁽¹⁾	329,499			256,786
Cash and due from banks and interest-bearing deposits at end of period ⁽¹⁾	$	217,480		$	299,282

Supplemental disclosure of cash flow information:
Interest paid	$	87,129		$	64,009
Income taxes paid	69,759			47,781
Noncash investing and financing activities:
Transfer of loans and leases to foreclosed properties and repossessed assets	$	5,880		$	3,406
Transfer of loans from loans and leases to loans-held-for-sale	15,438			35
Right-of-use lease assets recorded	157,234			—
Lessee operating lease liabilities recorded	178,208			—

(1)

The Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 has been revised to present an aggregated total change in cash and due from banks and interest-bearing deposits. Previously, cash flows from interest-bearing deposits was presented in Net cash used for investing activities. As a result of this revision, cash flows from interest-bearing deposits have been excluded from Net cash used for investing activities.

See accompanying Notes to Condensed Consolidated Financial Statements.

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Note 1: Summary of Significant Accounting Policies

Nature of Operations

Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the Bank Holding Company Act, incorporated under the laws of Delaware in 1986 and headquartered in Waterbury, Connecticut. The Holding Company's principal asset is all of the outstanding capital stock of Webster Bank, National Association (Webster Bank).

Webster delivers financial services to individuals, families, and businesses primarily within its regional footprint from New York to Massachusetts. Webster provides business and consumer banking, mortgage lending, financial planning, trust, and investment services through banking offices, ATMs, mobile banking, and its internet website (www.websterbank.com or www.wbst.com). Webster also offers equipment financing, commercial real estate lending, and asset-based lending primarily across the Northeast. On a nationwide basis, through its HSA Bank division, Webster Bank offers and administers health savings accounts, flexible spending accounts, health reimbursement accounts, and commuter benefits.

Basis of Presentation

The accounting and reporting policies of the Company that materially affect its financial statements conform with GAAP. The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company's Consolidated Financial Statements, and related Notes, for the year ended December 31, 2018, included in our Form 10-K filed with the SEC.

Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on the Company's consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the full year or any future period.

Accounting Standards Adopted During 2019

Effective January 1, 2019, the following ASUs were adopted by the Company:

ASU No. 2018-16, Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.

The Update permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the London Interbank Offered Rate swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate.

The Company adopted the Update during the first quarter of 2019 on a prospective basis. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

ASU No. 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.

The purpose of the Update is to better align a company’s risk management and financial reporting for hedging activities with the economic objectives of those activities. The Update expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line in which the earnings effect of the hedged item is reported.

The Company adopted the Update during the first quarter of 2019 on a modified retrospective basis. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements. The Company has provided enhanced disclosures in Note 13: Derivative Financial Instruments as a result of adopting this Update.

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ASU No. 2016-02, Leases (Topic 842) and subsequent ASUs issued to amend this Topic.

The Updates introduce a lessee model that requires substantially all leases to be recorded as assets and liabilities on the balance sheet and requires expanded quantitative and qualitative disclosures regarding key information about leasing arrangements. The lessor model remains substantially the same with targeted improvements that do not materially impact the Company.

The Company adopted the Updates during the first quarter of 2019 using the new transition method option that allows the use of effective date, January 1, 2019, as the date of initial application of the new lease accounting standard and to recognize a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. The Company elected the transition relief package of practical expedients which forgoes the requirement to reassess the existence of leases in existing contracts, their lease classification and the accounting treatment of their initial direct costs. As a practical expedient, the Company has also made a policy election to not separate non-lease components from lease components for its real estate leases and instead account for each separate lease components and non-lease components associated with that lease component as a single lease component. The Company will separately account for the lease and non-lease components in its equipment leases. The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The discount rate used is either the rate implicit in the lease, or when a rate cannot be readily determined an incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments, in a similar economic environment.

As a result of adopting this Update, the Company recognized $157.2 million of right-of-use asset (ROU) and $178.2 million of lease liability, as of January 1, 2019. The Company also recorded a $0.5 million cumulative-effect adjustment directly to retained earnings as of January 1, 2019 for abandoned leased properties and the remaining deferred gains on sale-leaseback transactions which occurred prior to the date of adoption. See Note 9: Leasing for further information.

Accounting Standards Issued But Not Yet Adopted

The following list identifies ASUs applicable to the Company that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective:

ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

The Update amends guidance on credit losses, hedge accounting, and recognition and measurement of financial instruments. The changes provide clarifications and codification improvements in relation to recently issued accounting updates. The amendments to the guidance on credit losses are considered in the paragraphs below related to our adoption of ASU 2016-13, and will be adopted concurrently with those Updates. The clarifications and amendments to the guidance on hedge accounting and recognition and measurement of financial instruments will be effective for the Company on January 1, 2020. The Company does not expect these changes to have a material impact on its consolidated financial statements.

ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The Update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance also requires an entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement and to present in the same income statement line item as the fees associated with the hosting arrangement.

The Update is effective for the Company on January 1, 2020. Early adoption is permitted, although the Company does not intend to early adopt. The Company will apply the amendments in this update prospectively to all implementation costs incurred after the date of adoption. The Company does not expect this Update to have a material impact on its consolidated financial statements.

ASU No. 2018-14, Compensation-Retirement Benefits - Defined Benefit Plan - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.

The Update modifies the disclosure requirements for employers that sponsor defined benefit pension plans and other postretirement plans.

The updated guidance will be effective for the Company on January 1, 2021. The Company does not expect this Update to have a material impact on its consolidated financial statements.

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ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The Update modifies the disclosure requirements on fair value measurements. The updated guidance will no longer require entities to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, it will require public companies to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.

The Update is effective for the Company on January 1, 2020, and earlier adoption is permitted. The Company does not expect this Update to have a material impact on its consolidated financial statements.

ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.

The Update simplifies quantitative goodwill impairment testing by requiring entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit.

This changes current guidance by eliminating the second step of the goodwill impairment analysis which involves calculating the implied fair value of goodwill determined in the same manner as the amount of goodwill recognized in a business combination upon acquisition. Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The Update must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. The Company does not expect this new guidance to have a material impact on its consolidated financial statements.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments and subsequent ASUs issued to clarify this Topic.

Current GAAP requires an incurred loss methodology for recognizing credit losses. This approach requires recognition of credit losses when it is probable a loss has been incurred. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update will replace today's incurred loss approach with a new credit loss methodology known as the Current Expected Credit Loss (CECL) model which requires earlier recognition of credit losses using a lifetime credit loss measurement approach for financial assets carried at amortized cost. The CECL model requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.

The change from an incurred loss method to an expected loss method represents a fundamental shift from existing GAAP and may result in a material increase to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company has established a project lead and has empowered a steering committee comprised of members from different disciplines including Credit, Accounting, Finance, IT, and Treasury, as well as specific working groups to focus on key components of the development process. Through these working groups, the Company has begun to evaluate the effect that this Update, including the subsequent ASUs issued to clarify this Topic, will have on its financial statements and related disclosures. An implementation project plan has been created and is made up of targeted work streams focused on credit models, data management, treasury, and accounting. These work streams are collectively assessing required resources, use of existing and new models, and data availability. The new credit models will include additional assumptions used to calculate credit losses over the estimated life of the financial assets and will include the impact of forecasted macroeconomic conditions. The Company has contracted with system solution providers and is in the process of implementing the selected solutions. During 2019, the Company is focused on model validations as well as the development of processes and related controls. The Company will conduct a parallel run in the second half of 2019.

These Updates are effective for the Company on January 1, 2020. The adoption of these Updates is expected to increase the Company's allowance for loan and lease losses. The magnitude of the increase will depend on the composition, characteristics, and credit quality of our loan and securities portfolios as well as the economic conditions in effect at the adoption date.

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Note 2: Variable Interest Entities

The Company has an investment interest in the following entities that meet the definition of a variable interest entity (VIE).

Consolidated

Rabbi Trust. The Company established a Rabbi Trust to meet the obligations due under its Deferred Compensation Plan for Directors and Officers and to mitigate the expense volatility of the aforementioned plan. The funding of the Rabbi Trust and the discontinuation of the Deferred Compensation Plan for Directors and Officers occurred during 2012.

Invested assets in the Rabbi Trust primarily consist of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that significantly affect the VIE's economic performance and it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE.

The Company consolidates the invested assets of the trust along with the total deferred compensation obligations and includes them in accrued interest receivable and other assets, and accrued expenses and other liabilities, respectively, in the consolidated balance sheet. Earnings in the Rabbi Trust, including appreciation or depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation and benefits, in the consolidated income statement. See Note 14: Fair Value Measurements for additional information.

Non-Consolidated

Securitized Investments. The Company, through normal investment activities, makes passive investments in securities issued by VIEs for which Webster is not the manager. The investment securities consist of Agency CMO, Agency MBS, Agency CMBS, CMBS, and CLO. The Company has not provided financial or other support with respect to these investment securities other than its original investment. For these investment securities, the Company determined it is not the primary beneficiary due to the relative size of its investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss is limited to the amount of its investment in the VIEs. See Note 3: Investment Securities for additional information.

Tax Credit - Finance Investments. The Company makes non-marketable equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as Webster is not involved in its management. For these investments, the Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.

At June 30, 2019 and December 31, 2018, the aggregate carrying value of the Company's tax credit-finance investments was $37.8 million and $29.1 million, respectively, which represents the Company's maximum exposure to loss. At June 30, 2019 and December 31, 2018, unfunded commitments have been recognized, totaling $15.0 million and $10.4 million, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheet.

Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The trust is a VIE in which the Company is not the primary beneficiary. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt in the consolidated balance sheet, and the related interest expense is reported as interest expense on long-term debt in the consolidated income statement.

Other Non-Marketable Investments. The Company invests in various alternative investments in which it holds a variable interest. These investments are non-public entities which cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. For these investments, the Company has determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.

At June 30, 2019 and December 31, 2018, the aggregate carrying value of the Company's other investments in VIEs was $20.9 million and $17.6 million, respectively, and the total exposure of the Company's other investments in VIEs, including unfunded commitments, was $35.5 million and $31.0 million, respectively. Refer to Note 14: Fair Value Measurements for additional information.

The Company's equity interests in Tax Credit-Finance Investments, Webster Statutory Trust, and Other Non-Marketable Investments are included in accrued interest receivable and other assets in the consolidated balance sheet. For a description of the Company's accounting policy regarding the consolidation of VIEs, refer to Note 1 to the Consolidated Financial Statements included in its Form 10-K, for the year ended December 31, 2018.

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Note 3: Investment Securities

A summary of the amortized cost and fair value of investment securities is presented below:



	At June 30, 2019									At December 31, 2018
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available-for-sale:
U.S. Treasury Bills	$	9,997	$	1	$	—		$	9,998	$	7,549	$	1	$	—		$	7,550
Agency CMO	213,307		2,209		(1,264		)	214,252		238,968		412		(4,457		)	234,923
Agency MBS	1,612,028		19,109		(11,665		)	1,619,472		1,521,534		1,631		(42,076		)	1,481,089
Agency CMBS	594,548		175		(16,022		)	578,701		608,167		—		(41,930		)	566,237
CMBS	428,492		599		(23		)	429,068		447,897		645		(2,961		)	445,581
CLO	96,727		106		(444		)	96,389		114,641		94		(1,964		)	112,771
Corporate debt	35,551		—		(4,774		)	30,777		55,860		—		(5,281		)	50,579
Available-for-sale	$	2,990,650	$	22,199	$	(34,192	)	$	2,978,657	$	2,994,616	$	2,783	$	(98,669	)	$	2,898,730
Held-to-maturity:
Agency CMO	$	190,858	$	1,089	$	(1,406	)	$	190,541	$	208,113	$	287	$	(5,255	)	$	203,145
Agency MBS	2,736,676		33,098		(20,616		)	2,749,158		2,517,823		8,250		(79,701		)	2,446,372
Agency CMBS	768,076		3,988		(3,684		)	768,380		667,500		53		(22,572		)	644,981
Municipal bonds and notes	746,345		23,473		(651		)	769,167		715,041		2,907		(18,285		)	699,663
CMBS	194,752		2,549		(37		)	197,264		216,943		405		(2,388		)	214,960
Held-to-maturity	$	4,636,707	$	64,197	$	(26,394	)	$	4,674,510	$	4,325,420	$	11,902	$	(128,201	)	$	4,209,121

Other-Than-Temporary Impairment

The amount in the amortized cost columns in the table above includes other-than-temporary impairment (OTTI) related to certain CLO positions that were previously considered Covered Funds as defined by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Company has taken measures to bring its CLO positions into conformance with these requirements.

The following table presents activity for OTTI:



	Three months ended June 30,					Six months ended June 30,
(In thousands)	2019		2018			2019		2018
Beginning balance	$	822	$	1,364		$	822	$	1,364
Reduction for investment securities called	—		(261		)	—		(261		)
Ending balance	$	822	$	1,103		$	822	$	1,103

To the extent that changes occur in interest rates, credit movements, or other factors that impact fair value and expected recovery of amortized cost of its investment securities, the Company may, in future periods, be required to recognize OTTI in earnings.

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Fair Value and Unrealized Losses

The following tables provide information on fair value and unrealized losses for the individual investment securities with an unrealized loss, aggregated by classification and length of time that the individual investment securities have been in a continuous unrealized loss position:



	At June 30, 2019
	Less Than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Holdings	Fair Value		Unrealized Losses
Available-for-sale:
Agency CMO	$	6	$	—		$	83,924	$	(1,264	)	11	$	83,930	$	(1,264	)
Agency MBS	—		—			748,498		(11,665		)	123	748,498		(11,665		)
Agency CMBS	—		—			542,244		(16,022		)	34	542,244		(16,022		)
CMBS	45,740		(22		)	17,000		(1		)	10	62,740		(23		)
CLO	18,380		(320		)	24,875		(124		)	2	43,255		(444		)
Corporate debt	7,686		(862		)	23,091		(3,912		)	7	30,777		(4,774		)
Available-for-sale in an unrealized loss position	$	71,812	$	(1,204	)	$	1,439,632	$	(32,988	)	187	$	1,511,444	$	(34,192	)
Held-to-maturity:
Agency CMO	$	210	$	—		$	84,453	$	(1,406	)	11	$	84,663	$	(1,406	)
Agency MBS	—		—			1,268,211		(20,616		)	166	1,268,211		(20,616		)
Agency CMBS	—		—			536,755		(3,684		)	44	536,755		(3,684		)
Municipal bonds and notes	—		—			64,069		(651		)	25	64,069		(651		)
CMBS	3,350		(3		)	22,386		(34		)	5	25,736		(37		)
Held-to-maturity in an unrealized loss position	$	3,560	$	(3	)	$	1,975,874	$	(26,391	)	251	$	1,979,434	$	(26,394	)



	At December 31, 2018
	Less Than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Holdings	Fair Value		Unrealized Losses
Available-for-sale:
Agency CMO	$	15,524	$	(72	)	$	180,641	$	(4,385	)	36	$	196,165	$	(4,457	)
Agency MBS	321,678		(2,078		)	975,084		(39,998		)	184	1,296,762		(42,076		)
Agency CMBS	—		—			566,237		(41,930		)	37	566,237		(41,930		)
CMBS	343,457		(2,937		)	5,193		(24		)	39	348,650		(2,961		)
CLO	83,305		(1,695		)	14,873		(269		)	5	98,178		(1,964		)
Corporate debt	35,990		(1,820		)	14,589		(3,461		)	8	50,579		(5,281		)
Available-for-sale in an unrealized loss position	$	799,954	$	(8,602	)	$	1,756,617	$	(90,067	)	309	$	2,556,571	$	(98,669	)
Held-to-maturity:
Agency CMO	$	691	$	(1	)	$	182,396	$	(5,254	)	25	$	183,087	$	(5,255	)
Agency MBS	288,635		(1,916		)	1,892,951		(77,785		)	272	2,181,586		(79,701		)
Agency CMBS	—		—			635,284		(22,572		)	56	635,284		(22,572		)
Municipal bonds and notes	68,351		(882		)	414,776		(17,403		)	223	483,127		(18,285		)
CMBS	24,881		(270		)	132,464		(2,118		)	20	157,345		(2,388		)
Held-to-maturity in an unrealized loss position	$	382,558	$	(3,069	)	$	3,257,871	$	(125,132	)	596	$	3,640,429	$	(128,201	)

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Impairment Analysis

The following impairment analysis summarizes the basis for evaluating if investment securities within the Company’s available-for-sale and held-to-maturity portfolios are other-than-temporarily impaired as of June 30, 2019. Unless otherwise noted for an investment security type, management does not intend to sell these investment securities and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these investment securities before the recovery of their amortized cost. As such, based on the following impairment analysis, the Company does not consider any of these investment securities, in unrealized loss positions, to be other-than-temporarily impaired at June 30, 2019.

Available-for-Sale Securities

Agency CMO. There were unrealized losses of $1.3 million on the Company’s investment in Agency CMO securities issued by government agencies at June 30, 2019, compared to $4.5 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances decreased for this asset class since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

Agency MBS. There were unrealized losses of $11.7 million on the Company’s investment in Agency MBS securities issued by government agencies at June 30, 2019, compared to $42.1 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances increased for this asset class since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

Agency CMBS. There were unrealized losses of $16.0 million on the Company's investment in Agency Commercial Mortgage-Backed Securities (CMBS) issued by government agencies at June 30, 2019, compared to $41.9 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances decreased for this asset class since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

CMBS. There were unrealized losses of $23 thousand on the Company’s investment in CMBS at June 30, 2019, compared to $3.0 million at December 31, 2018. Unrealized losses decreased due to reduced market spreads while balances decreased for the portfolio of mainly floating rate CMBS at June 30, 2019 compared to December 31, 2018. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.

CLO. There were unrealized losses of $0.4 million on the Company’s investments in CLO at June 30, 2019 compared to $2.0 million unrealized losses at December 31, 2018. Unrealized losses decreased due to reduced market spreads while principal decreased from December 31, 2018. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. Contractual cash flows for the bonds continue to perform as expected.

Corporate debt. There were unrealized losses of $4.8 million on the Company's corporate debt portfolio at June 30, 2019, compared to $5.3 million at December 31, 2018. Unrealized losses decreased due to reduced market spreads while principal balances decreased since December 31, 2018. The Company performs periodic credit reviews of the issuer to assess the likelihood for ultimate recovery of amortized cost. Contractual cash flows for the bonds continue to perform as expected.

Held-to-Maturity Securities

Agency CMO. There were unrealized losses of $1.4 million on the Company’s investment in Agency CMO securities issued by government agencies at June 30, 2019, compared to $5.3 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances decreased since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

Agency MBS. There were unrealized losses of $20.6 million on the Company’s investment Agency MBS securities issued by government agencies at June 30, 2019, compared to $79.7 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances increased for this asset class since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

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Agency CMBS. There were unrealized losses of $3.7 million on the Company’s investment in Agency Commercial Mortgage-Backed Securities (CMBS) issued by government agencies at June 30, 2019, compared to $22.6 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances increased since December 31, 2018. These investments are issued by a government or government sponsored agency and therefore, are backed by certain government guarantees, either direct or implicit. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

Municipal bonds and notes. There were unrealized losses of $0.7 million on the Company’s investment in municipal bonds and notes at June 30, 2019, compared to $18.3 million at December 31, 2018. Unrealized losses decreased due to lower market rates while principal balances increased since December 31, 2018. The Company performs periodic credit reviews of the issuers and the securities are currently performing as expected.

CMBS. There were unrealized losses of $37 thousand on the Company’s investment in CMBS at June 30, 2019, compared to $2.4 million unrealized losses at December 31, 2018. Unrealized losses decreased due to lower market rates on mainly seasoned fixed rate conduit transactions while principal balances decreased since December 31, 2018. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. There has been no change in the credit quality, and the contractual cash flows are performing as expected.

Sales of Available-for Sale Investment Securities

There were no sales during the three and six months ended June 30, 2019 and 2018.

Contractual Maturities

The amortized cost and fair value of debt securities by contractual maturity are set forth below:



	At June 30, 2019
	Available-for-Sale				Held-to-Maturity
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	9,997	$	9,998	$	2,350	$	2,357
Due after one year through five years	17,000		17,032		6,812		6,959
Due after five through ten years	308,645		308,548		112,156		115,431
Due after ten years	2,655,008		2,643,079		4,515,389		4,549,763
Total debt securities	$	2,990,650	$	2,978,657	$	4,636,707	$	4,674,510

For the maturity schedule above, mortgage-backed securities and CLO, which are not due at a single maturity date, have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to prepay obligations with or without prepayment penalties.

At June 30, 2019, the Company had a carrying value of $1.2 billion in callable debt securities in its CMBS, CLO, and municipal bond portfolios. The Company considers prepayment risk in the evaluation of its interest rate risk profile. These maturities may change due to calls and prepayments.

Investment securities with a carrying value totaling $2.3 billion at June 30, 2019 and $2.2 billion December 31, 2018 were pledged to secure public funds, trust deposits, repurchase agreements, and for other purposes, as required or permitted by law.

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Note 4: Loans and Leases

The following table summarizes loans and leases:



(In thousands)	At June 30, 2019		At December 31, 2018
Residential	$	4,718,704	$	4,416,637
Consumer	2,301,291		2,396,704
Commercial	6,519,953		6,216,606
Commercial Real Estate	5,224,382		4,927,145
Equipment Financing	505,553		508,397
Loans and leases ^{(1) (2)}	$	19,269,883	$	18,465,489


(1)	Includes net deferred fees and net premiums/discounts of $8.2 million and $13.9 million at June 30, 2019 and December 31, 2018, respectively.


(2)	At June 30, 2019 the Company had pledged $6.8 billion of eligible loans as collateral to support borrowing capacity at the Federal Home Loan Bank (FHLB) of Boston and the Federal Reserve Bank (FRB) of Boston.

The equipment financing portfolio includes net investment in leases of $164.0 million at June 30, 2019. Total undiscounted cash flows to be received from the Company's net investment in leases are $178.5 million at June 30, 2019 and are primarily due within the next five years. The Company's lessor portfolio has recognized interest income of $1.5 million and $2.9 million for the three and six months ended June 30, 2019, respectively.

Loans and Leases Aging

The following tables summarize the aging of loans and leases:



	At June 30, 2019
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		90 or More Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans and Leases
Residential	$	6,922	$	3,955	$	—	$	48,228	$	59,105	$	4,659,599	$	4,718,704
Consumer:
Home equity	7,451		2,574		—		31,870		41,895		2,035,234		2,077,129
Other consumer	2,776		1,180		—		1,190		5,146		219,016		224,162
Commercial:
Commercial non-mortgage	1,300		688		410		52,452		54,850		5,387,985		5,442,835
Asset-based	—		—		—		184		184		1,076,934		1,077,118
Commercial real estate:
Commercial real estate	1,189		125		—		10,428		11,742		4,957,572		4,969,314
Commercial construction	1,355		—		—		—		1,355		253,713		255,068
Equipment financing	2,241		219		—		3,949		6,409		499,144		505,553
Total	$	23,234	$	8,741	$	410	$	148,301	$	180,686	$	19,089,197	$	19,269,883



	At December 31, 2018
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		90 or More Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans and Leases
Residential	$	8,513	$	4,301	$	—	$	49,188	$	62,002	$	4,354,635	$	4,416,637
Consumer:
Home equity	9,250		5,385		—		33,495		48,130		2,121,049		2,169,179
Other consumer	1,774		957		—		1,494		4,225		223,300		227,525
Commercial:
Commercial non-mortgage	1,011		702		104		55,810		57,627		5,189,808		5,247,435
Asset-based	—		—		—		224		224		968,947		969,171
Commercial real estate:
Commercial real estate	1,275		245		—		8,242		9,762		4,698,552		4,708,314
Commercial construction	—		—		—		—		—		218,831		218,831
Equipment financing	510		405		—		6,314		7,229		501,168		508,397
Total	$	22,333	$	11,995	$	104	$	154,767	$	189,199	$	18,276,290	$	18,465,489

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Interest on non-accrual loans and leases that would have been recorded as additional interest income had the loans and leases been current in accordance with the original terms totaled $3.4 million and $2.4 million for the three months ended June 30, 2019 and 2018, respectively, and $6.1 million and $4.3 million for the six months ended June 30, 2019 and 2018, respectively.

Allowance for Loan and Lease Losses

The following tables summarize the activity in, as well as the loan and lease balances that were evaluated for, the ALLL:



	At or for the three months ended June 30, 2019
	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Total
ALLL:
Balance, beginning of period	$	20,413		$	26,919		$	100,174		$	58,893		$	4,990		$	211,389
Provision (benefit) charged to expense	2,667			1,313			3,391			4,615			(86		)	11,900
Charge-offs	(2,154		)	(4,098		)	(5,218		)	(2,473		)	(439		)	(14,382		)
Recoveries	295			1,972			453			33			11			2,764
Balance, end of period	$	21,221		$	26,106		$	98,800		$	61,068		$	4,476		$	211,671



	At or for the three months ended June 30, 2018
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Total
ALLL:
Balance, beginning of period	$	18,777		$	34,239		$	95,573		$	51,436		$	5,324		$	205,349
Provision (benefit) charged to expense	659			813			4,490			4,428			110			10,500
Charge-offs	(754		)	(4,907		)	(5,632		)	(40		)	(65		)	(11,398		)
Recoveries	325			1,614			909			9			14			2,871
Balance, end of period	$	19,007		$	31,759		$	95,340		$	55,833		$	5,383		$	207,322



	At or for the six months ended June 30, 2019
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Total
ALLL:
Balance, beginning of period	$	19,599		$	28,681		$	98,793		$	60,151		$	5,129		$	212,353
Provision (benefit) charged to expense	3,554			1,036			11,618			4,324			(32		)	20,500
Charge-offs	(2,405		)	(8,071		)	(12,851		)	(3,446		)	(643		)	(27,416		)
Recoveries	473			4,460			1,240			39			22			6,234
Balance, end of period	$	21,221		$	26,106		$	98,800		$	61,068		$	4,476		$	211,671
Individually evaluated for impairment	$	3,969		$	1,292		$	8,696		$	656		$	168		$	14,781
Collectively evaluated for impairment	$	17,252		$	24,814		$	90,104		$	60,412		$	4,308		$	196,890

Loan and lease balances:
Individually evaluated for impairment	$	100,168		$	37,332		$	97,919		$	13,879		$	3,949		$	253,247
Collectively evaluated for impairment	4,618,536			2,263,959			6,422,034			5,210,503			501,604			19,016,636
Loans and leases	$	4,718,704		$	2,301,291		$	6,519,953		$	5,224,382		$	505,553		$	19,269,883



	At or for the six months ended June 30, 2018
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Total
ALLL:
Balance, beginning of period	$	19,058		$	36,190		$	89,533		$	49,407		$	5,806		$	199,994
Provision (benefit) charged to expense	909			2,493			11,910			6,532			(344		)	21,500
Charge-offs	(1,671		)	(9,981		)	(7,129		)	(117		)	(110		)	(19,008		)
Recoveries	711			3,057			1,026			11			31			4,836
Balance, end of period	$	19,007		$	31,759		$	95,340		$	55,833		$	5,383		$	207,322
Individually evaluated for impairment	$	4,330		$	1,498		$	6,007		$	2,061		$	18		$	13,914
Collectively evaluated for impairment	$	14,677		$	30,261		$	89,333		$	53,772		$	5,365		$	193,408

Loan and lease balances:
Individually evaluated for impairment	$	109,636		$	41,636		$	87,071		$	12,677		$	6,185		$	257,205
Collectively evaluated for impairment	4,345,944			2,444,059			5,894,485			4,567,523			516,780			17,768,791
Loans and leases	$	4,455,580		$	2,485,695		$	5,981,556		$	4,580,200		$	522,965		$	18,025,996

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Impaired Loans and Leases

The following tables summarize impaired loans and leases:



	At June 30, 2019
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential	$	109,366	$	100,168	$	64,494	$	35,674	$	3,969
Consumer - home equity	40,761		37,332		29,295		8,037		1,292
Commercial non-mortgage	127,092		97,735		61,199		36,536		8,691
Asset-based	510		184		—		184		5
Commercial real estate	19,734		13,879		6,920		6,959		656
Equipment financing	3,949		3,949		771		3,178		168
Total	$	301,412	$	253,247	$	162,679	$	90,568	$	14,781



	At December 31, 2018
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential	$	113,575	$	103,531	$	64,899	$	38,632	$	4,286
Consumer - home equity	44,654		39,144		30,576		8,568		1,383
Commercial non-mortgage	120,165		99,287		65,724		33,563		7,818
Asset-based	550		225		—		225		6
Commercial real estate	13,355		10,828		2,125		8,703		1,661
Equipment financing	6,368		6,315		2,946		3,369		196
Total	$	298,667	$	259,330	$	166,270	$	93,060	$	15,350

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



	Three months ended June 30,												Six months ended June 30,
	2019						2018						2019						2018
(In thousands)	Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income
Residential	$	101,245	$	912	$	282	$	110,787	$	948	$	265	$	101,850	$	1,820	$	546	$	111,965	$	1,929	$	518
Consumer - home equity	38,092		287		241		42,112		290		250		38,238		556		521		43,536		584		500
Commercial non-mortgage	106,753		844		—		80,475		871		—		98,511		1,764		—		78,896		1,410		—
Asset based	201		—		—		1,347		—		—		204		—		—		875		—		—
Commercial real estate	13,070		61		—		11,802		38		—		12,354		134		—		11,951		134		—
Equipment financing	4,451		—		—		6,320		35		—		5,132		—		—		4,755		71		—
Total	$	263,812	$	2,104	$	523	$	252,843	$	2,182	$	515	$	256,289	$	4,274	$	1,067	$	251,978	$	4,128	$	1,018

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Credit Quality Indicators. To measure credit risk for the commercial, commercial real estate, and equipment financing portfolios, the Company employs a dual grade credit risk grading system for estimating the probability of default (PD) and the loss given default (LGD). The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of default. Grades (1) - (6) are considered pass ratings, and (7) - (10) are considered criticized, as defined by the regulatory agencies. Risk ratings, assigned to differentiate risk within the portfolio, are reviewed on an ongoing basis and revised to reflect changes in a borrower's current financial position and outlook, risk profile, and the related collateral and structural position. Loan officers review updated financial information or other loan factors on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring.

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

The following table summarizes commercial, commercial real estate and equipment financing loans and leases segregated by risk rating exposure:



	Commercial				Commercial Real Estate				Equipment Financing
(In thousands)	At June 30, 2019		At December 31, 2018		At June 30, 2019		At December 31, 2018		At June 30, 2019		At December 31, 2018
(1) - (6) Pass	$	6,124,187	$	5,781,138	$	5,047,238	$	4,773,298	$	495,381	$	494,585
(7) Special Mention	168,290		206,351		95,528		75,338		2,560		1,303
(8) Substandard	220,758		222,405		81,616		78,509		7,612		12,509
(9) Doubtful	6,718		6,712		—		—		—		—
Total	$	6,519,953	$	6,216,606	$	5,224,382	$	4,927,145	$	505,553	$	508,397

For residential and consumer loans, the primary credit quality indicator that the Company considers is past due status. Other factors, such as, updated Fair Isaac Corporation (FICO) scores, employment status, collateral, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans, may also be evaluated as credit quality indicators. On an ongoing basis for portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for home equity and residential first mortgage lending products. The estimate is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The real estate price data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

Troubled Debt Restructurings

The following table summarizes information for troubled debt restructurings (TDRs):



(Dollars in thousands)	At June 30, 2019		At December 31, 2018
Accrual status	$	136,081	$	138,479
Non-accrual status	106,986		91,935
Total recorded investment of TDRs	$	243,067	$	230,414

Specific reserves for TDRs included in the balance of ALLL	$	14,368	$	11,930
Additional funds committed to borrowers in TDR status	6,160		3,893

For the portion of TDRs deemed to be uncollectible, Webster charged off $4.2 million and $4.5 million for the three months ended June 30, 2019 and 2018, respectively, and $5.6 million, and $5.2 million for the six months ended June 30, 2019 and 2018, respectively.

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The following table provides information on the type of concession for loans and leases modified as TDRs:



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾
(Dollars in thousands)	Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾		Number of Loans and Leases	Post- Modification Recorded Investment⁽¹⁾
Residential
Extended Maturity	3	$	421	—	$	—	4	$	940	—	$	—
Maturity/Rate Combined	8	1,397		3	276		13	1,848		3	276
Other ⁽²⁾	2	281		8	1,685		4	542		13	2,442
Consumer - home equity
Extended Maturity	2	225		—	—		4	370		2	193
Maturity/Rate Combined	2	110		1	335		2	110		3	448
Other ⁽²⁾	6	466		14	915		19	1,220		25	1,693
Commercial non - mortgage
Extended Maturity	4	69		—	—		6	193		3	85
Adjusted Interest Rate	1	100		—	—		1	100		—	—
Maturity/Rate Combined	2	46		2	51		3	71		2	51
Other ⁽²⁾	4	12,029		7	24,059		19	34,056		9	28,743
Commercial real estate
Extended Maturity	—	—		1	52		—	—		2	97
Adjusted Interest rates	—	—		1	245		—	—		1	245
Maturity/Rate Combined	—	—		1	5,111		—	—		1	5,111
Other ⁽²⁾	—	—		—	—		2	2,636		—	—
Total TDRs	34	$	15,144	38	$	32,729	77	$	42,086	64	$	39,384


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


(2)	Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.

There were no significant amounts of loans and leases modified as TDRs within the previous 12 months and for which there was a payment default for the three and six months ended June 30, 2019 and 2018.

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



(In thousands)	At June 30, 2019		At December 31, 2018
(1) - (6) Pass	$	19,295	$	13,165
(7) Special Mention	72		84
(8) Substandard	79,482		67,880
(9) Doubtful	6,718		6,610
Total	$	105,567	$	87,739

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Note 5: Transfers of Financial Assets

The Company sells financial assets in the normal course of business, primarily residential mortgage loans sold to government-sponsored enterprises through established programs and securitizations. Residential mortgage origination fees, adjustments for changes in fair value, any gain or loss from initial measurement on loans held for sale, and the gain or loss on loans sold are included as mortgage banking activities in the consolidated income statement.

The Company may be required to repurchase a loan in the event of certain breaches of the representations and warranties, or in the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases provides for estimated losses pertaining to the potential repurchase of loans associated with the Company’s mortgage banking activities. The reserve reflects loan repurchase requests received by the Company for which management evaluates the identity of the counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintages held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s expectation of losses from loan repurchase requests for which the Company has not yet been notified, as the performance of loans sold and the quality of the servicing provided by the acquirer also may impact potential future requests. The provision recorded at the time of the loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale, is recorded in other non-interest expense in the consolidated income statement.

The following table provides a summary of activity in the reserve for loan repurchases:



	Three months ended June 30,						Six months ended June 30,
(In thousands)	2019			2018			2019			2018
Beginning balance	$	676		$	664		$	674		$	872
Provision (benefit) charged to expense	1,813			13			1,820			(190		)
Repurchased loans and settlements charged off	(1,805		)	(3		)	(1,810		)	(8		)
Ending balance	$	684		$	674		$	684		$	674

The increase to the provision and corresponding charge-off during the three and six months ended June 30, 2019 was related to a discrete legal settlement in connection with previously sold loans.

The following table provides information for mortgage banking activities:



	Three months ended June 30,					Six months ended June 30,
(In thousands)	2019			2018		2019		2018
Residential mortgage loans held for sale:
Proceeds from sale	$	42,851		$	45,257	$	63,464	$	90,063
Loans sold with servicing rights retained	39,465			39,822		56,813		79,726

Net gain on sale	700			598		858		1,681
Ancillary fees	320			402		581		812
Fair value option adjustment	(88		)	235		257		(114		)

Additionally, certain loans not originated for sale were sold at approximately carrying value, consisting of residential loans for cash proceeds of $4.0 million and commercial loans for cash proceeds of $16.1 million resulting in a gain of approximately $615 thousand for the six months ended June 30, 2019, and commercial loans for cash proceeds of $34 thousand for the six months ended June 30, 2018.

The Company services residential mortgage loans totaling $2.4 billion at June 30, 2019 and $2.5 billion at December 31, 2018.

The following table presents the changes in carrying value for mortgage servicing assets:



	Three months ended June 30,						Six months ended June 30,
(In thousands)	2019			2018			2019			2018
Beginning balance	$	19,785		$	24,403		$	21,215		$	25,139
Additions	791			1,038			1,253			2,450
Amortization	(1,864		)	(2,100		)	(3,756		)	(4,248		)
Ending balance	$	18,712		$	23,341		$	18,712		$	23,341

Mortgage servicing assets are recorded at fair value upon transfer, and thereafter are carried at the lower of cost or fair value. Loan servicing fees, net of mortgage servicing rights amortization, were $0.4 million and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and $0.9 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively, and are included as a component of loan related fees in the consolidated income statement. See Note 14: Fair Value Measurements for additional fair value information on mortgage servicing assets and loans held for sale.

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Note 6: Goodwill and Other Intangible Assets

Goodwill and other intangible assets by reportable segment consisted of the following:



	At June 30, 2019							At December 31, 2018
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Goodwill:
Community Banking						$	516,560						$	516,560
HSA Bank						21,813							21,813
Total goodwill						$	538,373						$	538,373

Other intangible assets:
HSA Bank - Core deposits	$	22,000	$	(11,957	)	$	10,043	$	22,000	$	(10,842	)	$	11,158
HSA Bank - Customer relationships	21,000		(7,202		)	13,798		21,000		(6,394		)	14,606
Total other intangible assets	$	43,000	$	(19,159	)	$	23,841	$	43,000	$	(17,236	)	$	25,764

As of June 30, 2019, the remaining estimated aggregate future amortization expense for intangible assets is as follows:



(In thousands)
Remainder of 2019	$	1,923
2020	3,847
2021	3,847
2022	3,847
2023	3,847
Thereafter	6,530

Note 7: Deposits

A summary of deposits by type follows:



(In thousands)	At June 30, 2019		At December 31, 2018
Non-interest-bearing:
Demand	$	4,174,806	$	4,162,446
Interest-bearing:
Health savings accounts	6,212,372		5,740,601
Checking	2,636,109		2,518,472
Money market	2,073,006		2,100,084
Savings	4,169,492		4,140,696
Time deposits	3,332,993		3,196,546
Total interest-bearing	$	18,423,972	$	17,696,399
Total deposits	$	22,598,778	$	21,858,845

Time deposits and interest-bearing checking, included in above balances, obtained through brokers	$	700,315	$	869,003
Time deposits, included in above balance, that exceed the FDIC limit	701,839		555,949
Deposit overdrafts reclassified as loan balances	1,114		2,245

The scheduled maturities of time deposits are as follows:



(In thousands)	At June 30, 2019
Remainder of 2019	$	1,967,980
2020	961,586
2021	300,299
2022	65,878
2023	29,139
Thereafter	8,111
Total time deposits	$	3,332,993

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Note 8: Borrowings

Total borrowings of $2.9 billion at June 30, 2019 and $2.6 billion at December 31, 2018 are described in detail below.

The following table summarizes securities sold under agreements to repurchase and other borrowings:



	At June 30, 2019				At December 31, 2018
(In thousands)	Amount		Rate		Amount		Rate
Securities sold under agreements to repurchase ⁽¹⁾:
Original maturity of one year or less	$	216,620	0.46	%	$	236,874	0.35	%
Original maturity of greater than one year, non-callable	100,000		1.86		—		—
Total securities sold under agreements to repurchase	316,620		0.90		236,874		0.35
Fed funds purchased	640,300		2.43		345,000		2.52
Securities sold under agreements to repurchase and other borrowings	$	956,920	1.92		$	581,874	1.64


(1)	The Company has right of offset with respect to all repurchase agreement assets and liabilities. However, securities sold under agreements to repurchase represents the gross amount for these transactions, as only liabilities are outstanding for the periods presented.

Repurchase agreements are used as a source of borrowed funds and are collateralized by U.S. Government agency mortgage-backed securities. Repurchase agreement counterparties are limited to primary dealers in government securities and commercial or municipal customers through Webster’s Treasury Unit.

The following table provides information for FHLB advances:



	At June 30, 2019				At December 31, 2018
(Dollars in thousands)	Amount		Weighted- Average Contractual Coupon Rate		Amount		Weighted- Average Contractual Coupon Rate
Maturing within 1 year	$	1,078,026	2.37	%	$	1,403,026	2.55	%
After 1 but within 2 years	190,000		1.71		215,000		1.73
After 2 but within 3 years	150,000		3.52		200,000		3.16
After 3 but within 4 years	140		—		150		—
After 4 but within 5 years	236		2.95		242		2.95
After 5 years	8,254		2.65		8,390		2.65
FHLB advances and overall rate	$	1,426,656	2.40		$	1,826,808	2.52

Aggregate carrying value of assets pledged as collateral	$	6,379,552			$	6,689,761
Remaining borrowing capacity	2,633,480				2,568,664

Webster Bank is in compliance with FHLB collateral requirements for the periods presented. Eligible collateral, primarily certain residential and commercial real estate loans, has been pledged to secure FHLB advances.

The following table summarizes long-term debt:



(Dollars in thousands)		At June 30, 2019			At December 31, 2018
4.375%	Senior fixed-rate notes due February 15, 2024	$	150,000		$	150,000
4.100%	Senior fixed-rate notes due March 25, 2029 ⁽¹⁾	315,812			—
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 ⁽²⁾		77,320			77,320
Total notes and subordinated debt		543,132			227,320
Discount on senior fixed-rate notes		(1,521		)	(608		)
Debt issuance cost on senior fixed-rate notes		(3,232		)	(691		)
Long-term debt		$	538,379		$	226,021


(1)	In March 2019, the Company completed a $300.0 million senior fixed-rate notes issuance. The fixed interest rate has been designated in a fair value hedging relationship and swapped to a weighted-average variable rate of 4.01% at June 30, 2019. The $15.8 million basis adjustment included in the carrying value reflects the changes in the benchmark rate.


(2)	The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month London Interbank Offered Rate plus 2.95%, was 5.36% at June 30, 2019 and 5.74% at December 31, 2018.

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Note 9: Leasing

The Company, as lessee, primarily leases office space, banking centers, and certain other assets. These leases are generally classified as operating leases, however, an insignificant amount of the leases are classified as finance leases. The Company's operating leases generally have lease terms for periods of 5 to 20 years with various renewal options. The Company, by policy, does not include renewal options for leases as part of its ROU assets and lease liabilities unless they are deemed reasonably certain to exercise. The Company does not have any material sub-lease agreements.

During 2019, the Company began recognizing operating leases on its consolidated balance sheet by recording a lease liability representing the Company’s legal obligation to make lease payments, and a ROU asset representing its legal right to use the leased office space, banking centers and certain other assets.

The following table summarizes lessee information related to the Company’s operating ROU assets and lease liability:



	At June 30, 2019
(In thousands)	Operating Leases		Consolidated Balance Sheet Line Item Location
ROU lease assets	$	158,270	Premises and equipment, net
Lease liabilities	178,724		Accrued expenses and other liabilities

Operating lease expense is comprised of operating lease costs and variable lease costs, net of sublease income. The pattern and measurement of expense recognition of these costs was not significantly impacted by ASU 2016-02 and subsequent ASUs issued to amend Topic 842.

Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of a lease liability. Variable lease payments that are not dependent on an index or a rate, or changes in variable payments based on an index or rate after the commencement date, are excluded from the measurement of a lease liability and recognized in the period incurred. All variable lease payments are included within variable lease costs presented below.

The components of operating lease cost and other related information are as follows:



	Three months ended June 30, 2019			Six months ended June 30, 2019
(In thousands)
Lease Cost:
Operating lease costs	$	7,487		$	14,872
Variable lease costs	1,068			2,321
Sublease income	(155		)	(295		)
Total operating lease cost	$	8,400		$	16,898
Other Information:
Cash paid for amounts included in the measurement of lease liabilities	$	7,738		$	15,411
Right-of-use assets obtained in exchange for new operating lease liabilities	6,296			12,934

Weighted-average remaining lease term, in years - operating leases at June 30, 2019				8.2
Weighted-average discount rate - operating leases at June 30, 2019				3.44		%

The undiscounted scheduled maturities reconciled to total operating lease liabilities are as follows:



(In thousands)	At June 30, 2019
Remainder of 2019	$	13,436
2020	31,178
2021	29,578
2022	25,857
2023	22,812
Thereafter	86,089
Total operating lease liability payments	208,950
Less: Present value adjustment	30,226
Lease liabilities	$	178,724

See Note 4: Loans and Leases for information relating to leases included within the equipment financing portfolio in which the Company is lessor.

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Note 10: Accumulated Other Comprehensive Loss, Net of Tax

The following tables summarize the changes in accumulated other comprehensive loss, net of tax (AOCL) by component:



	Three months ended June 30, 2019												Six months ended June 30, 2019
(In thousands)	Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total			Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total
Beginning balance	$	(43,815	)	$	(9,117	)	$	(48,909	)	$	(101,841	)	$	(71,374	)	$	(9,313	)	$	(49,965	)	$	(130,652	)
OCI (OCL) before reclassifications	34,409			(870		)	—			33,539			61,968			(1,709		)	—			60,259
Amounts reclassified from AOCL	—			1,056			1,056			2,112			—			2,091			2,112			4,203
Net current-period OCI	34,409			186			1,056			35,651			61,968			382			2,112			64,462
Ending balance	$	(9,406	)	$	(8,931	)	$	(47,853	)	$	(66,190	)	$	(9,406	)	$	(8,931	)	$	(47,853	)	$	(66,190	)



	Three months ended June 30, 2018												Six months ended June 30, 2018
(In thousands)	Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total			Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total
Beginning balance	$	(55,371	)	$	(12,494	)	$	(47,614	)	$	(115,479	)	$	(27,947	)	$	(15,016	)	$	(48,568	)	$	(91,531	)
(OCL)/OCI before reclassifications	(9,246		)	294			—			(8,952		)	(36,670		)	1,423			—			(35,247		)
Amounts reclassified from AOCL	—			1,386			1,109			2,495			—			2,779			2,063			4,842
Net current-period (OCL)/OCI	(9,246		)	1,680			1,109			(6,457		)	(36,670		)	4,202			2,063			(30,405		)
Ending balance	$	(64,617	)	$	(10,814	)	$	(46,505	)	$	(121,936	)	$	(64,617	)	$	(10,814	)	$	(46,505	)	$	(121,936	)

The following tables provide information for the items reclassified from AOCL:



(In thousands)	Three months ended June 30,						Six months ended June 30,						Associated Line Item in the Condensed Consolidated Statements of Income
AOCL Components	2019			2018			2019			2018

Derivative instruments:
Cash flow hedges	$	(1,408	)	$	(1,861	)	$	(2,799	)	$	(3,732	)	Interest expense
Cash flow hedges	(12		)	—			(12		)	—			Interest income
Tax benefit	364			475			720			953			Income tax expense
Net of tax	$	(1,056	)	$	(1,386	)	$	(2,091	)	$	(2,779	)
Defined benefit pension and other postretirement benefit plans:
Amortization of net loss	$	(1,429	)	$	(1,493	)	$	(2,859	)	$	(2,778	)	⁽¹⁾
Tax benefit	373			384			747			715			Income tax expense
Net of tax	$	(1,056	)	$	(1,109	)	$	(2,112	)	$	(2,063	)

(1) These AOCL components are included in the computation of net periodic benefit cost, see Note 15: Retirement Benefit Plans for further details.

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Note 11: Regulatory Matters

Capital Requirements

Webster Financial Corporation is subject to regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency (OCC). Regulatory authorities can initiate certain mandatory actions if Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, which could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures require minimum amounts and ratios to ensure capital adequacy.

Basel III total risk-based capital is comprised of three categories: CET1 capital, additional Tier 1 capital, and Tier 2 capital. CET1 capital includes common shareholders' equity, less deductions for goodwill, other intangibles, and certain deferred tax adjustments. Common shareholders' equity, for purposes of CET1 capital, excludes AOCL components as permitted by the opt-out election taken by Webster upon adoption of Basel III. Tier 1 capital is comprised of CET1 capital plus perpetual preferred stock, while Tier 2 capital includes qualifying subordinated debt and qualifying allowance for credit losses, that together equal total capital.

The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank:



	At June 30, 2019
	Actual				Minimum Requirement				Well Capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Webster Financial Corporation
CET1 risk-based capital	$	2,401,959	11.41	%	$	947,715	4.5	%	$	1,368,922	6.5	%
Total risk-based capital	2,838,524		13.48		1,684,827		8.0		2,106,034		10.0
Tier 1 risk-based capital	2,546,996		12.09		1,263,620		6.0		1,684,827		8.0
Tier 1 leverage capital	2,546,996		9.09		1,120,243		4.0		1,400,303		5.0
Webster Bank
CET1 risk-based capital	$	2,574,538	12.23	%	$	947,077	4.5	%	$	1,368,000	6.5	%
Total risk-based capital	2,788,746		13.25		1,683,692		8.0		2,104,615		10.0
Tier 1 risk-based capital	2,574,538		12.23		1,262,769		6.0		1,683,692		8.0
Tier 1 leverage capital	2,574,538		9.20		1,119,896		4.0		1,399,871		5.0



	At December 31, 2018
	Actual				Minimum Requirement				Well Capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Webster Financial Corporation
CET1 risk-based capital	$	2,284,978	11.44	%	$	898,972	4.5	%	$	1,298,514	6.5	%
Total risk-based capital	2,722,194		13.63		1,598,172		8.0		1,997,715		10.0
Tier 1 risk-based capital	2,430,015		12.16		1,198,629		6.0		1,598,172		8.0
Tier 1 leverage capital	2,430,015		9.02		1,077,303		4.0		1,346,628		5.0
Webster Bank
CET1 risk-based capital	$	2,170,566	10.87	%	$	898,317	4.5	%	$	1,297,569	6.5	%
Total risk-based capital	2,385,425		11.95		1,597,008		8.0		1,996,260		10.0
Tier 1 risk-based capital	2,170,566		10.87		1,197,756		6.0		1,597,008		8.0
Tier 1 leverage capital	2,170,566		8.06		1,076,712		4.0		1,345,889		5.0

Dividend Restrictions

Webster Financial Corporation is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including payments of dividends to shareholders. Federal and state banking regulations limit the amount of dividends that may be paid by Webster Bank, without the express approval of the OCC, to its retained net profits, defined by the OCC as net income less dividends declared during the period, for the preceding two years plus retained net profits up to the date of any dividend declaration. In addition, the effect of any dividend declaration must not cause the regulatory capital of Webster Bank to fall below specified minimum levels and, the OCC has discretion to prohibit any otherwise permitted capital distribution on general safety and soundness grounds. Dividends paid by Webster Bank to Webster Financial Corporation totaled $110 million during the six months ended June 30, 2019 compared to $150 million during the six months ended June 30, 2018.

Cash Restrictions

Webster Bank is required by Federal Reserve System regulations to hold cash reserve balances on hand or with a Federal Reserve Bank. Pursuant to this requirement, it held $104.0 million at June 30, 2019 and $81.2 million at December 31, 2018. These restricted cash amounts are included in cash and due from banks, in the consolidated balance sheet.

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Note 12: Earnings Per Common Share

Reconciliation of the calculation of basic and diluted earnings per common share follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2019		2018		2019		2018
Earnings for basic and diluted earnings per common share:
Net income	$	98,649	$	81,682	$	198,385	$	161,907
Less: Preferred stock dividends	1,969		1,969		3,938		3,916
Net income available to common shareholders	96,680		79,713		194,447		157,991
Less: Earnings applicable to participating restricted stock	487		224		964		418
Earnings applicable to common shareholders	$	96,193	$	79,489	$	193,483	$	157,573

Shares:
Weighted-average common shares outstanding - basic	91,534		91,893		91,550		91,913
Effect of dilutive securities	321		280		348		323
Weighted-average common shares outstanding - diluted	91,855		92,173		91,898		92,236

Earnings per common share:
Basic	$	1.05	$	0.87	$	2.11	$	1.71
Diluted	1.05		0.86		2.11		1.71

Dilutive Securities

The Company maintains stock compensation plans under which restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights may be granted to employees and directors. The effect of dilutive securities for the periods presented is primarily the result of outstanding stock options, as well as non-participating restricted stock.

Potential common shares from non-participating restricted stock, of 87 thousand and 53 thousand for the three months ended June 30, 2019 and 2018, respectively, and 59 thousand and 61 thousand for the six months ended June 30, 2019 and 2018, respectively, are excluded from the effect of dilutive securities because under application of the treasury stock method they would have been anti-dilutive.

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Note 13: Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

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

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

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

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

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

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

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

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The following table presents the notional amounts and fair value of derivative positions:



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


(1)	The Company has elected to report derivative positions subject to a legally enforceable master netting agreement on a net basis, net of cash collateral. Refer to the Offsetting Derivatives section of this footnote for additional information.


(2)	Balances related to CME are presented as a single unit of account. Notional amounts of interest rate swaps cleared through CME include $0.9 billion and $1.9 billion for asset derivatives and $2.6 billion and $1.1 billion for liability derivatives at June 30, 2019 and December 31, 2018, respectively. The related fair values approximate zero.


(3)	Notional amounts include mandatory forward commitments of $45.0 million, while notional amounts do not include approved floating rate commitments of $12.3 million, at June 30, 2019.


(4)	Fair value of assets are included in accrued interest receivable and other assets, while, fair value of liabilities are included in accrued expenses and other liabilities, in the consolidated balance sheet.

The following table presents the change in fair value for derivatives designated as fair value hedges as well as the offsetting change in fair value on the hedged item, and the effect on the income statement for derivatives designated as cash flow hedges:



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

Additional information related to fair value hedges:



Consolidated Balance Sheet Line Item in Which Hedged Item is Located	Carrying Amount of Hedged Item				Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount
	At June 30,				At June 30,
(In thousands)	2019		2018		2019		2018
Long-term debt	$	315,812	$	—	$	15,812	$	—

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The following table presents the effect on the income statement for derivatives not designated as hedging instruments:



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

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

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

Offsetting Derivatives

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

The following table presents the transition from a gross basis to net basis, due to the application of counterparty netting agreements:



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

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

Derivative Exposure

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

The Company had approximately $119.5 million in net margin collateral posted with financial counterparties or the derivative clearing organization at June 30, 2019, which is primarily comprised of $40.4 million in initial margin posted at CME and $74.8 million in CME variation margin posted.

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

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Note 14: Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings or any part of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These factors are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair Value Hierarchy

The three levels within the fair value hierarchy are as follows:


•	Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2: Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit ratings,) or inputs that are derived principally or corroborated by market data, by correlation, or other means.


•	Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Available-for-Sale Investment Securities. When quoted prices are available in an active market, the Company classifies available-for-sale investment securities within Level 1 of the valuation hierarchy. U.S. Treasury Bills are classified within Level 1 of the fair value hierarchy.

When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, and corporate debt, are classified within Level 2 of the fair value hierarchy.

Derivative Instruments. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy.

All other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The resulting fair values are validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy. In determining if any fair value adjustment related to credit risk is required, Webster evaluates the credit risk of its counterparties by considering factors such as the likelihood of default by the counterparties, its net exposures, the remaining contractual life, as well as the amount of collateral securing the position. The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.

Webster reviews its counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to mitigate the exposure. When determining fair value, Webster applies the portfolio exception with respect to measuring counterparty credit risk for all of its derivative transactions subject to a master netting arrangement. The CME rulebook legally characterizes variation margin payments for over-the-counter derivatives as settlements rather than collateral, which impacts Webster's counterparty relationship with CME, resulting in the fair value of the instrument including cash collateral to be represented as a single unit of account.

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Mortgage Banking Derivatives. Forward sales of mortgage loans and mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are established, under which the Company agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified within Level 2 of the fair value hierarchy.

Originated Loans Held For Sale. Residential mortgage loans typically are classified as held for sale upon origination based on management's intent to sell such loans. The Company generally records residential mortgage loans held for sale under the fair value option of Accounting Standards Codification (ASC) Topic 825 "Financial Instruments." The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.

The following table presents the fair value, unpaid principal balance, and accrual status, of assets accounted for under the fair value option:



	At June 30, 2019						At December 31, 2018
(In thousands)	Fair Value		Unpaid Principal Balance		Difference		Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	$	19,249	$	19,017	$	232	$	7,908	$	8,227	$	(319	)

Electing to measure originated loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of the derivatives used as an economic hedge on these assets.

Investments Held in Rabbi Trust. Investments held in the Rabbi Trust primarily include mutual funds that invest in equity and fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. Webster has elected to measure the investments held in the Rabbi Trust at fair value. The cost basis of the investments held in the Rabbi Trust is $1.7 million at June 30, 2019.

Alternative Investments. Equity investments have a readily determinable fair value when quoted prices are available in an active market. The Company classifies alternative investments with a readily determinable fair value within Level 1 of the fair value hierarchy.

Equity investments that do not have a readily available fair value may qualify for net asset value (NAV) measurement based on specific requirements. The Company's alternative investments accounted for at NAV consist of investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the underlying equity is liquidated. Alternative investments recorded at NAV are not classified within the fair value hierarchy. At June 30, 2019, these alternative investments had a remaining unfunded commitment of $5.2 million.

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Summaries of the fair values of assets and liabilities measured at fair value on a recurring basis are as follows:



	At June 30, 2019
(In thousands)	Level 1		Level 2		Level 3		NAV		Total
Financial assets held at fair value:
U.S. Treasury Bills	$	9,998	$	—	$	—	$	—	$	9,998
Agency CMO	—		214,252		—		—		214,252
Agency MBS	—		1,619,472		—		—		1,619,472
Agency CMBS	—		578,701		—		—		578,701
CMBS	—		429,068		—		—		429,068
CLO	—		96,389		—		—		96,389
Corporate debt	—		30,777		—		—		30,777
Total available-for-sale investment securities	9,998		2,968,659		—		—		2,978,657
Gross derivative instruments, before netting ⁽¹⁾	504		141,929		—		—		142,433
Originated loans held for sale	—		19,249		—		—		19,249
Investments held in Rabbi Trust	4,649		—		—		—		4,649
Alternative investments	—		—		—		2,990		2,990
Total financial assets held at fair value	$	15,151	$	3,129,837	$	—	$	2,990	$	3,147,978
Financial liabilities held at fair value:
Gross derivative instruments, before netting ⁽¹⁾	$	620	$	13,425	$	—	$	—	$	14,045



	At December 31, 2018
(In thousands)	Level 1		Level 2		Level 3		NAV		Total
Financial assets held at fair value:
U.S. Treasury Bills	$	7,550	$	—	$	—	$	—	$	7,550
Agency CMO	—		234,923		—		—		234,923
Agency MBS	—		1,481,089		—		—		1,481,089
Agency CMBS	—		566,237		—		—		566,237
CMBS	—		445,581		—		—		445,581
CLO	—		112,771		—		—		112,771
Corporate debt	—		50,579		—		—		50,579
Total available-for-sale investment securities	7,550		2,891,180		—		—		2,898,730
Gross derivative instruments, before netting ⁽¹⁾	758		45,520		—		—		46,278
Originated loans held for sale	—		7,908		—		—		7,908
Investments held in Rabbi Trust	4,307		—		—		—		4,307
Alternative investments	—		—		—		2,563		2,563
Total financial assets held at fair value	$	12,615	$	2,944,608	$	—	$	2,563	$	2,959,786
Financial liabilities held at fair value:
Gross derivative instruments, before netting ⁽¹⁾	$	588	$	38,422	$	—	$	—	$	39,010


(1)	For information relating to the impact of netting derivative assets and derivative liabilities as well as the impact from offsetting cash collateral paid to the same derivative counterparties see Note 13: Derivative Financial Instruments.

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Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. At June 30, 2019, no significant assets classified within Level 3 were identified and measured under this basis. The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Alternative Investments. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These alternative investments are investments in non-public entities that generally cannot be redeemed since the investment is distributed as the underlying equity is liquidated. Accordingly, these alternative investments are classified within Level 2 of the fair value hierarchy. The carrying amount of these alternative investments was $6.8 million at June 30, 2019. No reduction for impairments, or adjustments due to observable price changes, was identified during the six months ended June 30, 2019.

Transferred Loans Held For Sale. Certain loans are transferred to loans held for sale once a decision has been made to sell such loans. These loans are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost. This activity primarily consists of commercial loans with observable inputs and is classified within Level 2. On the occasion that these loans should include adjustments for changes in loan characteristics using unobservable inputs, the loans would be classified within Level 3.

Collateral Dependent Impaired Loans and Leases. Impaired loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral using customized discounting criteria. As such, collateral dependent impaired loans and leases are classified within Level 3 of the fair value hierarchy.

Other Real Estate Owned and Repossessed Assets. The total book value of other real estate owned (OREO) and repossessed assets was $5.2 million at June 30, 2019. OREO and repossessed assets are accounted for at the lower of cost or fair value and are considered to be recognized at fair value when they are recorded at below cost. The fair value of OREO is based on independent appraisals or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results, and price opinions. Certain assets require assumptions about factors that are not observable in an active market in the determination of fair value; as such, OREO and repossessed assets are classified within Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments and Servicing Assets

The Company is required to disclose the estimated fair value of, financial instruments, both assets and liabilities, for which it is practicable to estimate fair value, as well as servicing assets. The following is a description of valuation methodologies used for those assets and liabilities.

Cash, Due from Banks, and Interest-bearing Deposits. The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value, given the short time frame to maturity and, as such, these assets do not present unanticipated credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.

Held-to-Maturity Investment Securities. When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, and municipal bonds and notes, are classified within Level 2 of the fair value hierarchy.

Loans and Leases, net. The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow method, using future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases. The associated cash flows are adjusted for credit and other potential losses. Fair value for impaired loans and leases is estimated using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.

Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.

Time Deposits. The fair value of a fixed-maturity certificate of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.

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Securities Sold Under Agreements to Repurchase and Other Borrowings. The fair value of securities sold under agreements to repurchase and other borrowings that mature within 90 days is the carrying value. Fair value for all other balances are estimated using discounted cash flow analysis based on current market rates adjusted for associated credit risks, as appropriate. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.

Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flow and are adjusted, as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.

Mortgage Servicing Assets. Mortgage servicing assets are accounted for at cost and subsequently measured under the amortization method. Mortgage servicing assets are subject to impairment testing and considered to be recognized at fair value when they are recorded at below cost. Amortization and impairment charges, if any, are included as a component of other non-interest income in the consolidated income statement. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors; as such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.

The estimated fair values of selected financial instruments and servicing assets are as follows:



	At June 30, 2019				At December 31, 2018
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Level 2
Held-to-maturity investment securities	$	4,636,707	$	4,674,510	$	4,325,420	$	4,209,121
Level 3
Loans and leases, net	19,058,212		19,184,264		18,253,136		18,155,798
Mortgage servicing assets	18,712		36,572		21,215		45,478
Liabilities:
Level 2
Deposit liabilities	$	19,265,785	$	19,265,785	$	18,662,299	$	18,662,299
Time deposits	3,332,993		3,334,113		3,196,546		3,175,948
Securities sold under agreements to repurchase and other borrowings	956,920		954,844		581,874		581,874
FHLB advances	1,426,656		1,429,684		1,826,808		1,826,381
Long-term debt ⁽¹⁾	538,379		553,287		226,021		229,306


(1)	Adjustments to the carrying amount of long-term debt for unamortized discount and debt issuance cost on senior fixed-rate notes are not included for determination of fair value, see Note 8: Borrowings.

Note 15: Retirement Benefit Plans

Defined benefit pension and other postretirement benefits

The following table summarizes the components of net periodic benefit cost:



	Three months ended June 30,
	2019								2018
(In thousands)	Pension Plan			SERP		Other Benefits			Pension Plan			SERP			Other Benefits
Interest cost on benefit obligations	$	1,977		$	16	$	21		$	1,935		$	(21	)	$	19
Expected return on plan assets	(2,815		)	—		—			(3,180		)	—			—
Recognized net loss	1,430			3		(4		)	1,160			333			—
Net periodic benefit cost	$	592		$	19	$	17		$	(85	)	$	312		$	19



	Six months ended June 30,
	2019								2018
(In thousands)	Pension Plan			SERP		Other Benefits			Pension Plan			SERP		Other Benefits
Interest cost on benefit obligations	$	3,955		$	32	$	42		$	3,720		$	166	$	39
Expected return on plan assets	(5,630		)	—		—			(6,360		)	—		—
Recognized net loss	2,860			7		(8		)	2,320			458		—
Net periodic benefit cost	$	1,185		$	39	$	34		$	(320	)	$	624	$	39

The components of net periodic benefit cost, other than the service cost component, are included as a component of other expense reflected in non-interest expense in the consolidated income statement.

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Note 16: Segment Reporting

Webster’s operations are organized into three reportable segments that represent its primary businesses - Commercial Banking, HSA Bank, and Community Banking. These three segments reflect how executive management responsibilities are assigned, the primary businesses, the products and services provided, the type of customer served, and how discrete financial information is currently evaluated. Certain corporate treasury activities of the Company, along with the amounts required to reconcile profitability metrics to amounts reported in accordance with GAAP, are included in the Corporate and Reconciling category.

Description of Segment Reporting Methodology

Webster’s reportable segment results are intended to reflect each segment as if it were a stand-alone business. Webster uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates and allocations regarding funds transfer pricing, provision for loan and lease losses, non-interest expense, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the reported results of any operating segment do not affect the consolidated financial position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each operating segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.

Webster allocates interest income and interest expense to each business, while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category, using a matched maturity funding concept called Funds Transfer Pricing (FTP). The allocation process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. This process is overseen by the Company's Asset/Liability Committee (ALCO).

Webster allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. During the three months ended June 30, 2019, Webster refined and improved the precision of this allocation approach. Prior period provision for loan and lease losses amounts were revised accordingly. Allowance for loan and lease losses are included within the Corporate and Reconciling category’s total assets.

Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment.

The following table presents total assets for Webster's reportable segments and the Corporate and Reconciling category:



(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
At June 30, 2019	$	11,061,635	$	82,232	$	9,059,657	$	8,738,519	$	28,942,043
At December 31, 2018	10,477,050		70,826		8,727,335		8,335,104		27,610,315

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The following tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:



	Three months ended June 30, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	92,171	$	42,626	$	102,699	$	4,291		$	241,787
Provision for loan and lease losses	7,741		—		4,159		—			11,900
Net interest income (expense) after provision for loan and lease losses	84,430		42,626		98,540		4,291			229,887
Non-interest income	14,645		24,979		27,675		8,554			75,853
Non-interest expense	46,196		34,253		96,166		4,025			180,640
Income before income tax expense	52,879		33,352		30,049		8,820			125,100
Income tax expense (benefit)	13,008		8,672		5,980		(1,209		)	26,451
Net income	$	39,871	$	24,680	$	24,069	$	10,029		$	98,649



	Three months ended June 30, 2018
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	88,459	$	35,265	$	101,902	$	(616	)	$	225,010
Provision (benefit) for loan and lease losses	8,630		—		1,870		—			10,500
Net interest income (expense) after provision for loan and lease losses	79,829		35,265		100,032		(616		)	214,510
Non-interest income	15,041		22,882		26,378		4,073			68,374
Non-interest expense	42,979		31,220		95,197		11,063			180,459
Income (loss) before income tax expense	51,891		26,927		31,213		(7,606		)	102,425
Income tax expense (benefit)	12,765		7,001		6,211		(5,234		)	20,743
Net income (loss)	$	39,126	$	19,926	$	25,002	$	(2,372	)	$	81,682



	Six months ended June 30, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	182,681	$	84,367	$	204,059	$	12,231		$	483,338
Provision for loan and lease losses	13,982		—		6,518		—			20,500
Net interest income (expense) after provision for loan and lease losses	168,699		84,367		197,541		12,231			462,838
Non-interest income	28,656		50,556		53,057		12,196			144,465
Non-interest expense	90,814		67,775		191,241		6,496			356,326
Income before income tax expense	106,541		67,148		59,357		17,931			250,977
Income tax expense (benefit)	26,209		17,459		11,812		(2,888		)	52,592
Net income	$	80,332	$	49,689	$	47,545	$	20,819		$	198,385



	Six months ended June 30, 2018
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	173,110	$	68,189	$	200,830	$	(2,951	)	$	439,178
Provision for loan and lease losses	15,477		—		6,023		—			21,500
Net interest income (expense) after provision for loan and lease losses	157,633		68,189		194,807		(2,951		)	417,678
Non-interest income	30,357		45,551		51,573		9,640			137,121
Non-interest expense	84,224		62,735		192,026		13,089			352,074
Income (loss) before income tax expense	103,766		51,005		54,354		(6,400		)	202,725
Income tax expense (benefit)	25,527		13,261		10,816		(8,786		)	40,818
Net income	$	78,239	$	37,744	$	43,538	$	2,386		$	161,907

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Note 17: Revenue from Contracts with Customers

The following tables present revenues within the scope of ASC 606, Revenue from Contracts with Customers and the net amount of other sources of non-interest income that is within the scope of other GAAP topics:



	Three months ended June 30, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Non-interest Income
Deposit service fees	$	3,085	$	23,704	$	16,289	$	40		$	43,118
Wealth and investment services	2,542		—		5,776		(9		)	8,309
Other	—		1,275		704		—			1,979
Revenue from contracts with customers	5,627		24,979		22,769		31			53,406
Other sources of non-interest income	9,018		—		4,906		8,523			22,447
Total non-interest income	$	14,645	$	24,979	$	27,675	$	8,554		$	75,853



	Three months ended June 30, 2018
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Non-interest Income
Deposit service fees	$	3,180	$	22,006	$	15,663	$	10		$	40,859
Wealth and investment services	2,587		—		5,878		(9		)	8,456
Other	—		876		640		—			1,516
Revenue from contracts with customers	5,767		22,882		22,181		1			50,831
Other sources of non-interest income	9,274		—		4,197		4,072			17,543
Total non-interest income	$	15,041	$	22,882	$	26,378	$	4,073		$	68,374



	Six months ended June 30, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Non-interest Income
Deposit service fees	$	6,121	$	48,232	$	31,654	$	135		$	86,142
Wealth and investment services	5,026		—		10,951		(17		)	15,960
Other	—		2,324		1,205		—			3,529
Revenue from contracts with customers	11,147		50,556		43,810		118			105,631
Other sources of non-interest income	17,509		—		9,247		12,078			38,834
Total non-interest income	$	28,656	$	50,556	$	53,057	$	12,196		$	144,465



	Six months ended June 30, 2018
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling			Consolidated Total
Non-interest Income
Deposit service fees	$	6,402	$	43,818	$	30,972	$	118		$	81,310
Wealth and investment services	5,126		—		11,217		(17		)	16,326
Other	—		1,733		1,133		—			2,866
Revenue from contracts with customers	11,528		45,551		43,322		101			100,502
Other sources of non-interest income	18,829		—		8,251		9,539			36,619
Total non-interest income	$	30,357	$	45,551	$	51,573	$	9,640		$	137,121

The major types of revenue streams that are within the scope of ASC 606 are described below:

Deposit service fees, predominately consist of fees earned from deposit accounts and interchange fees. Fees earned from deposit accounts relate to event-driven services and periodic account maintenance activities. Webster's obligations for event-driven services are satisfied at the time the service is delivered, while the obligations for maintenance services is satisfied monthly. Interchange fees are assessed as the performance obligation is satisfied, which is at the point in time the card transaction is authorized.

Wealth and investment services, consists of fees earned from investment and securities-related services, trust and other related services. Obligations for wealth and investment services are generally satisfied over time through a time-based measurement of progress, while certain obligations may be satisfied at points in time for activities that are transactional in nature.

These disaggregated amounts are reconciled to non-interest income as presented in Note 16: Segment Reporting. Revenue from contracts with customers did not generate significant contract assets and liabilities.

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Note 18: Commitments and Contingencies

Credit-Related Financial Instruments

The Company offers credit-related financial instruments in the normal course of business to meet certain financing needs of its customers, that involve off-balance sheet risk. These transactions may include an unused commitment to extend credit, standby letter of credit, or commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.

Commitments to Extend Credit. The Company makes commitments under various terms to lend funds to customers at a future point in time. These commitments include revolving credit arrangements, term loan commitments, and short-term borrowing agreements. Most of these loans have fixed expiration dates or other termination clauses where a fee may be required. Since commitments routinely expire without being funded, or after required availability of collateral occurs, the total commitment amount does not necessarily represent future liquidity requirements.

Standby Letter of Credit. A standby letter of credit commits the Company to make payments on behalf of customers if certain specified future events occur. The Company has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit, which is often part of a larger credit agreement under which security is provided. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of a standby letter of credit represents the maximum amount of potential future payments the Company could be required to make, and is the Company's maximum credit risk.

Commercial Letter of Credit. A commercial letter of credit is issued to facilitate either domestic or foreign trade arrangements for customers. As a general rule, drafts are committed to be drawn when the goods underlying the transaction are in transit. Similar to a standby letter of credit, a commercial letter of credit is often secured by an underlying security agreement including the assets or inventory to which they relate.

The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:



(In thousands)	At June 30 2019		At December 31, 2018
Commitments to extend credit	$	6,107,450	$	5,840,585
Standby letter of credit	189,890		189,040
Commercial letter of credit	22,837		21,181
Total credit-related financial instruments with off-balance sheet risk	$	6,320,177	$	6,050,806

These commitments subject the Company to potential exposure in excess of the amounts recorded in the financial statements, and therefore, management maintains a specific reserve for unfunded credit commitments. This reserve is reported as a component of accrued expenses and other liabilities in the consolidated balance sheet.

The following table provides a summary of activity in the reserve for unfunded credit commitments:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018
Beginning balance	$	2,511	$	2,294	$	2,506	$	2,362
Provision charged to expense	26		302		31		234
Ending balance	$	2,537	$	2,596	$	2,537	$	2,596

Note 19: Subsequent Events

The Company has evaluated events from the date of the Condensed Consolidated Financial Statements and accompanying Notes thereto, June 30, 2019, through the issuance of this Quarterly Report on Form 10-Q and determined that no significant events were identified requiring recognition or disclosure.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto, for the year ended December 31, 2018, included in the Company's Annual Report on Form 10-K, filed with the SEC on March 1, 2019, and in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this report. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results for the full year ending December 31, 2019, or any future period.

Results of Operations

Selected financial highlights are presented in the following table:



	At or for the three months ended June 30,						At or for the six months ended June 30,
(In thousands, except per share and ratio data)	2019			2018			2019			2018
Earnings:
Net interest income	$	241,787		$	225,010		$	483,338		$	439,178
Provision for loan and lease losses	11,900			10,500			20,500			21,500
Total non-interest income	75,853			68,374			144,465			137,121
Total non-interest expense	180,640			180,459			356,326			352,074
Net income	98,649			81,682			198,385			161,907
Earnings applicable to common shareholders	96,193			79,489			193,483			157,573
Share Data:
Weighted-average common shares outstanding - diluted	91,855			92,173			91,898			92,236
Diluted earnings per common share	$	1.05		$	0.86		$	2.11		$	1.71
Dividends and dividend equivalents declared per common share	0.40			0.33			0.73			0.59
Dividends declared per preferred share	328.13			328.13			656.25			667.19
Book value per common share	31.74			28.40			31.74			28.40
Tangible book value per common share ^(non-GAAP)	25.63			22.25			25.63			22.25
Selected Ratios:
Net interest margin	3.63		%	3.57		%	3.69		%	3.51		%
Return on average assets ^{(annualized basis)}	1.38			1.22			1.41			1.21
Return on average common shareholders' equity ^{(annualized basis)}	13.47			12.22			13.74			12.18
CET1 risk-based capital	11.41			10.99			11.41			10.99
Tangible common equity ratio ^(non-GAAP)	8.31			7.75			8.31			7.75
Return on average tangible common shareholders' equity ^{(annualized basis) (non-GAAP)}	16.88			15.76			17.28			15.74
Efficiency ratio ^(non-GAAP)	56.09			57.78			56.01			58.75

The non-GAAP financial measures identified in the preceding table provide investors with information useful in understanding the Company'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 that the 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. 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.

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The following tables reconcile the non-GAAP financial measures with financial measures defined by GAAP:



	At June 30,
(Dollars and shares in thousands, except per share data)	2019			2018
Tangible book value per common share (non-GAAP):
Shareholders' equity (GAAP)	$	3,065,217		$	2,761,723
Less: Preferred stock (GAAP)	145,037			145,037
Goodwill and other intangible assets (GAAP)	562,214			566,061
Tangible common shareholders' equity (non-GAAP)	$	2,357,966		$	2,050,625
Common shares outstanding	92,007			92,151
Tangible book value per common share (non-GAAP)	$	25.63		$	22.25

Tangible common equity ratio (non-GAAP):
Tangible common shareholders' equity (non-GAAP)	$	2,357,966		$	2,050,625
Total Assets (GAAP)	$	28,942,043		$	27,036,737
Less: Goodwill and other intangible assets (GAAP)	562,214			566,061
Tangible assets (non-GAAP)	$	28,379,829		$	26,470,676
Tangible common equity ratio (non-GAAP)	8.31		%	7.75		%



	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2019			2018			2019			2018
Return on average tangible common shareholders' equity (non-GAAP):
Net income (GAAP)	$	98,649		$	81,682		$	198,385		$	161,907
Less: Preferred stock dividends (GAAP)	1,969			1,969			3,938			3,916
Add: Intangible assets amortization, tax-effected (GAAP)	760			760			1,520			1,520
Income adjusted for preferred stock dividends and intangible assets amortization (non-GAAP)	$	97,440		$	80,473		$	195,967		$	159,511
Income adjusted for preferred stock dividends and intangible assets amortization, annualized (non-GAAP)	$	389,760		$	321,892		$	391,934		$	319,022
Average shareholders' equity (non-GAAP)	$	3,016,541		$	2,754,355		$	2,976,321		$	2,738,560
Less: Average preferred stock (non-GAAP)	145,037			145,037			145,037			145,099
Average goodwill and other intangible assets (non-GAAP)	562,679			566,522			563,160			567,032
Average tangible common shareholders' equity (non-GAAP)	$	2,308,825		$	2,042,796		$	2,268,124		$	2,026,429
Return on average tangible common shareholders' equity (non-GAAP)	16.88		%	15.76		%	17.28		%	15.74		%

Efficiency ratio (non-GAAP):
Non-interest expense (GAAP)	$	180,640		$	180,459		$	356,326		$	352,074
Less: Foreclosed property activity (GAAP)	(55		)	(106		)	(308		)	(21		)
Intangible assets amortization (GAAP)	962			962			1,924			1,924
Other expense (non-GAAP) ⁽¹⁾	—			8,599			7			8,599
Non-interest expense (non-GAAP)	$	179,733		$	171,004		$	354,703		$	341,572
Net interest income (GAAP)	$	241,787		$	225,010		$	483,338		$	439,178
Add: Tax-equivalent adjustment (non-GAAP)	2,435			2,217			4,773			4,447
Non-interest income (GAAP)	75,853			68,374			144,465			137,121
Other (non-GAAP) ⁽²⁾	354			359			696			654
Income (non-GAAP)	$	320,429		$	295,960		$	633,272		$	581,400
Efficiency ratio (non-GAAP)	56.09		%	57.78		%	56.01		%	58.75		%


(1)	Other expense includes facility optimization charges and, for the three and six months ended June 30, 2018, a $7.2 million charge relating to additional FDIC premiums.


(2)	Other income includes low income housing tax credits.

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Financial Performance Summary

Comparison to Prior Year Quarter

For the three months ended June 30, 2019, net income of $98.6 million increased $17.0 million, or 21%, from the three months ended June 30, 2018 due to improved performance across all businesses driven by increased net interest margin and stable credit quality. The effective income tax rate was 21.1% for the three months ended June 30, 2019 compared to 20.3% for the three months ended June 30, 2018. The increase in net interest margin, coupled with increased non-interest income and flat non-interest expense resulted in an efficiency ratio of 56.1%.

Earnings applicable to common shareholders of $96.2 million and diluted earnings per share of $1.05 for the three months ended June 30, 2019 compared to earnings applicable to common shareholders of $79.5 million and diluted earnings per share of $0.86 for the three months ended June 30, 2018.

Comparison to Prior Year to Date

For the six months ended June 30, 2019, net income of $198.4 million increased $36.5 million, or 23%, from the six months ended June 30, 2018 due to improved performance across all businesses driven by increased net interest margin and stable credit quality. The effective income tax rate was 21.0% for the six months ended June 30, 2019 compared to 20.1% for the six months ended June 30, 2018. The increase in net interest margin, coupled with increased non-interest income and a modest increase in non-interest expense resulted in an efficiency ratio of 56.0%.

Earnings applicable to common shareholders of $193.5 million and diluted earnings per share was $2.11 for the six months ended June 30, 2019 compared to earnings applicable to common shareholders of $157.6 million and diluted earnings per share of $1.71 for the six months ended June 30, 2018.

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The following tables summarize daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis:



	Three months ended June 30,
	2019							2018
(Dollars in thousands)	Average Balance		Interest			Yield/ Rate		Average Balance		Interest			Yield/ Rate

Assets
Interest-earning assets:
Loans and leases	$	19,030,278	$	236,620		4.94	%	$	17,886,685	$	208,490		4.63	%
Investment securities	7,472,731		56,501			3.01		7,142,572		52,277			2.90
FHLB and FRB stock	108,244		1,117			4.14		133,114		1,546			4.66
Interest-bearing deposits	50,131		309			2.44		66,339		247			1.47
Securities	7,631,106		57,927			3.02		7,342,025		54,070			2.92
Loans held for sale	23,210		145			2.49		15,211		148			3.90
Total interest-earning assets	26,684,594		$	294,692		4.39	%	25,243,921		$	262,708		4.13	%
Non-interest-earning assets	1,855,077							1,631,032
Total Assets	$	28,539,671						$	26,874,953

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	4,266,938	$	—		—	%	$	4,109,165	$	—		—	%
Health savings accounts	6,223,570		3,066			0.20		5,519,917		2,735			0.20
Interest-bearing checking, money market and savings	8,934,579		13,132			0.59		9,041,286		7,859			0.35
Time deposits	3,323,203		16,559			2.00		2,732,709		9,631			1.41
Total deposits	22,748,290		32,757			0.58		21,403,077		20,225			0.38

Securities sold under agreements to repurchase and other borrowings	788,194		3,904			1.96		869,238		3,998			1.82
FHLB advances	1,117,285		7,772			2.75		1,399,344		8,471			2.39
Long-term debt	527,713		6,037			4.62		225,863		2,787			4.94
Total borrowings	2,433,192		17,713			2.90		2,494,445		15,256			2.42
Total interest-bearing liabilities	25,181,482		$	50,470		0.80	%	23,897,522		$	35,481		0.59	%
Non-interest-bearing liabilities	341,648							223,076
Total liabilities	25,523,130							24,120,598

Preferred stock	145,037							145,037
Common shareholders' equity	2,871,504							2,609,318
Total shareholders' equity	3,016,541							2,754,355
Total Liabilities and Shareholders' Equity	$	28,539,671						$	26,874,953
Tax-equivalent net interest income			$	244,222						$	227,227
Less: Tax-equivalent adjustments			(2,435		)					(2,217		)
Net interest income			$	241,787						$	225,010
Net interest margin						3.63	%						3.57	%

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	Six months ended June 30,
	2019							2018
(Dollars in thousands)	Average Balance		Interest			Yield/ Rate		Average Balance		Interest			Yield/ Rate

Assets
Interest-earning assets:
Loans and leases	$	18,771,166	$	466,005		4.95	%	$	17,821,094	$	402,354		4.50	%
Investment securities	7,391,290		113,455			3.05		7,150,495		104,766			2.91
FHLB and FRB stock	110,617		2,829			5.16		133,177		3,001			4.54
Interest-bearing deposits	52,737		638			2.41		59,563		448			1.50
Securities	7,554,644		116,922			3.08		7,343,235		108,215			2.95
Loans held for sale	18,358		293			3.19		15,768		290			3.68
Total interest-earning assets	26,344,168		$	583,220		4.41	%	25,180,097		$	510,859		4.04	%
Non-interest-earning assets	1,825,418							1,636,345
Total Assets	$	28,169,586						$	26,816,442

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	4,229,611	$	—		—	%	$	4,136,115	$	—		—	%
Health savings accounts	6,182,047		6,015			0.20		5,473,715		5,359			0.20
Interest-bearing checking, money market and savings	8,946,484		25,925			0.58		9,191,181		15,572			0.34
Time deposits	3,284,176		31,837			1.95		2,596,683		17,450			1.35
Total deposits	22,642,318		63,777			0.57		21,397,694		38,381			0.36

Securities sold under agreements to repurchase and other borrowings	693,178		6,656			1.91		872,516		7,638			1.74
FHLB advances	1,118,155		15,557			2.77		1,355,830		15,752			2.31
Long-term debt	389,210		9,119			4.72		225,831		5,463			4.84
Total borrowings	2,200,543		31,332			2.84		2,454,177		28,853			2.34
Total interest-bearing liabilities	24,842,861		$	95,109		0.77	%	23,851,871		$	67,234		0.57	%
Non-interest-bearing liabilities	350,404							226,011
Total liabilities	25,193,265							24,077,882

Preferred stock	145,037							145,099
Common shareholders' equity	2,831,284							2,593,461
Total shareholders' equity	2,976,321							2,738,560
Total Liabilities and Shareholders' Equity	$	28,169,586						$	26,816,442
Tax-equivalent net interest income			$	488,111						$	443,625
Less: Tax-equivalent adjustments			(4,773		)					(4,447		)
Net interest income			$	483,338						$	439,178
Net interest margin						3.69	%						3.51	%

Net interest income and net interest margin are impacted by the level of interest rates, mix of assets earning and liabilities paying those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These conditions are influenced by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing strategies, as well as the extent of interest lost to non-performing assets.

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Net interest income is the difference between interest income on earning assets, such as loans and investments, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company's largest source of revenue, representing 77.0% of total revenue for the six months ended June 30, 2019.

Net interest margin is the ratio of tax-equivalent net interest income to average earning assets for the period.

Webster manages the risk of changes in interest rates on net interest income and net interest margin through ALCO and through related interest rate risk monitoring and management policies. ALCO meets at least monthly to make decisions on the investment securities and funding portfolios based on the economic outlook, its interest rate expectations, the portfolio risk position, and other factors.

Four main tools are used for managing interest rate risk:


•	the size, duration and credit risk of the investment portfolio;


•	the size and duration of the wholesale funding portfolio;


•	interest rate contracts; and


•	the pricing and structure of loans and deposits.

The federal funds rate target range was 1.25-1.50% at December 31, 2017 compared to 2.25-2.50% at both December 31, 2018 and June 30, 2019. See the "Asset/Liability Management and Market Risk" section for further discussion of Webster’s interest rate risk position.

Net Interest Income

Comparison to Prior Year Quarter

Net interest income totaled $241.8 million for the three months ended June 30, 2019 compared to $225.0 million for the three months ended June 30, 2018, an increase of $16.8 million.

Net interest margin increased 6 basis points to 3.63% for the three months ended June 30, 2019 from 3.57% for the three months ended June 30, 2018. On a fully tax-equivalent basis, net interest income increased $17.0 million when compared to the same period in 2018. The increase for the three months ended June 30, 2019 was primarily the result of strong loan growth and increased yields, partially offset by an increase in the cost of deposits other than health savings account deposits.

Comparison to Prior Year to Date

Net interest income totaled $483.3 million for the six months ended June 30, 2019 compared to $439.2 million for the six months ended June 30, 2018, an increase of $44.2 million.

Net interest margin increased 18 basis points to 3.69% for the six months ended June 30, 2019 from 3.51% for the six months ended June 30, 2018. On a fully tax-equivalent basis, net interest income increased $44.5 million when compared to the same period in 2018. The increase for the six months ended June 30, 2019 was primarily the result of strong loan growth and increased yields, partially offset by an increase in the cost of deposits other than health savings account deposits.

Changes in Net Interest Income

The following table presents the components of the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:



	Three months ended June 30,								Six months ended June 30,
	2019 vs. 2018 Increase (decrease) due to								2019 vs. 2018 Increase (decrease) due to
(In thousands)	Rate ⁽¹⁾			Volume		Total			Rate ⁽¹⁾		Volume			Total
Interest on interest-earning assets:
Loans and leases	$	14,154		$	13,976	$	28,130		$	40,512	$	23,140		$	63,652
Loans held for sale	(7		)	4		(3		)	24		(22		)	2
Securities ⁽²⁾	1,793			2,064		3,857			5,818		2,889			8,707
Total interest income	$	15,940		$	16,044	$	31,984		$	46,354	$	26,007		$	72,361
Interest on interest-bearing liabilities:
Deposits	$	10,747		$	1,785	$	12,532		$	21,448	$	3,948		$	25,396
Borrowings	920			1,537		2,457			2,996		(517		)	2,479
Total interest expense	$	11,667		$	3,322	$	14,989		$	24,444	$	3,431		$	27,875
Net change in net interest income	$	4,273		$	12,722	$	16,995		$	21,910	$	22,576		$	44,486


(1)	The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.


(2)	Securities include: Investment securities, FHLB and FRB stock, and Interest-bearing deposits.

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Average loans and leases for the six months ended June 30, 2019 increased $1.0 billion compared to the average for the six months ended June 30, 2018. The loan and lease portfolio comprised 71.3% of the average interest-earning assets at June 30, 2019 compared to 70.8% of the average interest-earning assets at June 30, 2018. The loan and lease portfolio yield increased 45 basis points to 4.95% for the six months ended June 30, 2019 compared to the loan and lease portfolio yield of 4.50% for the six months ended June 30, 2018. The increase in the yield on the average loan and lease portfolio is primarily due to the impact of variable-rate loans resetting higher and growth in commercial loans with higher yields.

Average securities for the six months ended June 30, 2019 increased $211.4 million compared to the average for the six months ended June 30, 2018. The securities portfolio comprised 28.7% of the average interest-earning assets at June 30, 2019 compared to 29.2% of the average interest-earning assets at June 30, 2018. The securities portfolio yield increased 13 basis points to 3.08% for the six months ended June 30, 2019 compared to the securities portfolio yield of 2.95% for the six months ended June 30, 2018. The increase in yield on the securities portfolio is primarily due to increased yield on variable-rate securities and higher yield from newly purchased longer duration fixed-rate securities.

Average total deposits for the six months ended June 30, 2019 increased $1.2 billion compared to the average for the six months ended June 30, 2018. The increase is due to growth in health savings accounts and time deposits which was slightly offset by lower balances from other interest-bearing deposits. The average cost of deposits increased 21 basis points to 0.57% for the six months ended June 30, 2019 from 0.36% for the six months ended June 30, 2018. The average cost of deposits increased due to selected deposit product rate increases and a change in mix from increased certificate of deposit accounts. Higher cost time deposits increased to 17.8% for the six months ended June 30, 2019 from 15.0% for the six months ended June 30, 2018, as a percentage of total interest-bearing deposits.

Average total borrowings for the six months ended June 30, 2019 decreased $253.6 million compared to the average for the six months ended June 30, 2018. Average securities sold under agreements to repurchase and other borrowings decreased $179.3 million, and average FHLB advances decreased $237.7 million. The Company completed an underwritten public offering of $300 million senior fixed-rate notes on March 25, 2019, which resulted in an increase of $163.4 million in average long-term debt. See "Sources of Funds and Liquidity" section for further discussion of the notes issued. The average cost of borrowings increased 50 basis points to 2.84% for the six months ended June 30, 2019 from 2.34% for the six months ended June 30, 2018. The increase in the average cost of borrowings was largely a result of changes in the federal funds rate and the senior fixed-rate notes.

Cash flow hedges, including outstanding hedges and terminated forward starting hedges, impacted the average cost of funding as follows:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018
Interest rate swaps on FHLB advances	$	834	$	1,513	$	1,633	$	3,143
Interest rate swaps on senior fixed-rate notes	77		77		153		153
Interest rate swaps on brokered/certificates of deposits	69		78		147		195
Net increase to interest expense on borrowings	$	980	$	1,668	$	1,933	$	3,491

Provision for Loan and Lease Losses

Comparison to Prior Year Quarter

The provision for loan and lease losses was $11.9 million for the three months ended June 30, 2019, which increased $1.4 million compared to the three months ended June 30, 2018. This level of provision for loan and lease losses is primarily due to loan growth, mix, and stable asset quality.

Comparison to Prior Year to Date

The provision for loan and lease losses was $20.5 million for the six months ended June 30, 2019, which decreased $1.0 million compared to the six months ended June 30, 2018. This level of provision for loan and lease losses is primarily due to loan growth, mix, and stable asset quality.

See the sections captioned "Loans and Leases" through "Allowance for Loan and Lease Losses Methodology" contained elsewhere in the report for further details.

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Non-Interest Income



	Three months ended June 30,									Six months ended June 30,
	Three months ended June 30,				Increase (decrease)					Six months ended June 30,				Increase (decrease)
(Dollars in thousands)	2019		2018		Amount			Percent		2019		2018		Amount			Percent
Deposit service fees	$	43,118	$	40,859	$	2,259		5.5	%	$	86,142	$	81,310	$	4,832		5.9	%
Loan and lease related fees	6,558		6,333		225			3.6		14,377		13,329		1,048			7.9
Wealth and investment services	8,309		8,456		(147		)	(1.7	)	15,960		16,326		(366		)	(2.2	)
Mortgage banking activities	932		1,235		(303		)	(24.5	)	1,696		2,379		(683		)	(28.7	)
Increase in cash surrender value of life insurance policies	3,650		3,643		7			0.2		7,234		7,215		19			0.3
Other income	13,286		7,848		5,438			69.3		19,056		16,562		2,494			15.1
Total non-interest income	$	75,853	$	68,374	$	7,479		10.9		$	144,465	$	137,121	$	7,344		5.4

Comparison to Prior Year Quarter

Total non-interest income for the three months ended June 30, 2019 was $75.9 million, an increase of $7.5 million, or 10.9%, compared to $68.4 million for the three months ended June 30, 2018. The increase was primarily attributable to higher deposit service fees and other income.

Deposit service fees totaled $43.1 million for the three months ended June 30, 2019, compared to $40.9 million for the three months ended June 30, 2018. The increase was a result of higher checking account service charges and check card interchange attributable to health savings account growth.

Other income totaled $13.3 million for the three months ended June 30, 2019, compared to $7.8 million for the three months ended June 30, 2018. The increase was primarily due to higher client interest rate hedging activities and related income as well as gains from bank owned life insurance portfolio.

Comparison to Prior Year to Date

Total non-interest income for the six months ended June 30, 2019 was $144.5 million, an increase of $7.3 million, or 5.4%, compared to $137.1 million for the six months ended June 30, 2018. The increase is primarily attributable to higher deposit service fees, loan and lease related fees, and other income.

Deposit service fees totaled $86.1 million for the six months ended June 30, 2019, compared to $81.3 million for the six months ended June 30, 2018. The increase was a result of higher checking account service charges and check card interchange attributable to health savings account growth.

Loan and lease related fees totaled $14.4 million for the six months ended June 30, 2019, compared to $13.3 million for the six months ended June 30, 2018. The increase was due to a mix of activity throughout most loan and lease related fee types.

Other income totaled $19.1 million for the six months ended June 30, 2019, compared to $16.6 million for the six months ended June 30, 2018. The increase was primarily due to gains from bank owned life insurance portfolio.

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Non-Interest Expense



	Three months ended June 30,									Six months ended June 30,
	Three months ended June 30,				Increase (decrease)					Six months ended June 30,				Increase (decrease)
(Dollars in thousands)	2019		2018		Amount			Percent		2019		2018		Amount			Percent
Compensation and benefits	$	98,527	$	93,052	$	5,475		5.9	%	$	196,312	$	187,817	$	8,495		4.5	%
Occupancy	14,019		15,842		(1,823		)	(11.5	)	28,715		30,987		(2,272		)	(7.3	)
Technology and equipment	25,767		24,604		1,163			4.7		51,464		48,466		2,998			6.2
Intangible assets amortization	962		962		—			—		1,924		1,924		—			—
Marketing	4,243		4,889		(646		)	(13.2	)	7,571		8,441		(870		)	(10.3	)
Professional and outside services	5,634		4,381		1,253			28.6		11,682		9,169		2,513			27.4
Deposit insurance	4,453		13,687		(9,234		)	(67.5	)	8,883		20,404		(11,521		)	(56.5	)
Other expense	27,035		23,042		3,993			17.3		49,775		44,866		4,909			10.9
Total non-interest expense	$	180,640	$	180,459	$	181		0.1		$	356,326	$	352,074	$	4,252		1.2

Comparison to Prior Year Quarter

Total non-interest expense for the three months ended June 30, 2019 was $180.6 million, an increase of $181 thousand, or 0.1%, compared to $180.5 million for the three months ended June 30, 2018. The increase is attributable to higher compensation and benefits, technology and equipment, professional and outside services, and other expense offset by lower occupancy and deposit insurance.

Compensation and benefits totaled $98.5 million for the three months ended June 30, 2019, compared to $93.1 million for the three months ended June 30, 2018. The increase was due to annual merit increases and other benefit costs.

Technology and equipment totaled $25.8 million for the three months ended June 30, 2019, compared to $24.6 million for the three months ended June 30, 2018. The increase was due to higher service contracts to support strategic infrastructure projects.

Professional and outside services totaled $5.6 million for the three months ended June 30, 2019, compared to $4.4 million for the three months ended June 30, 2018. The increase was primarily due to increased consulting fees for strategic projects.

Other expense totaled $27.0 million for the three months ended June 30, 2019, compared to $23.0 million for the three months ended June 30, 2018. The increase was most significantly due to legal settlements, sales costs, and pension expense.

Occupancy totaled $14.0 million for the three months ended June 30, 2019, compared to $15.8 million for the three months ended June 30, 2018. The decrease was due to branch optimization costs in 2018.

Deposit insurance totaled $4.5 million for the three months ended June 30, 2019, compared to $13.7 million for the three months ended June 30, 2018. The decrease is due to the FDIC temporary surcharge ending during the fourth quarter of 2018 and a $7.2 million charge in 2018 related to additional FDIC premiums.

Comparison to Prior Year to Date

Total non-interest expense for the six months ended June 30, 2019 was $356.3 million, an increase of $4.3 million, or 1.2%, compared to $352.1 million for the six months ended June 30, 2018. The increase is attributable to higher compensation and benefits, technology and equipment, professional and outside services, and other expense offset by lower occupancy and deposit insurance.

Compensation and benefits totaled $196.3 million for the six months ended June 30, 2019, compared to $187.8 million for the six months ended June 30, 2018. The increase was due to additional hires, annual merit increases, and other benefit costs.

Technology and equipment totaled $51.5 million for the six months ended June 30, 2019, compared to $48.5 million for the six months ended June 30, 2018. The increase was due to higher service contracts to support strategic infrastructure projects.

Professional and outside services totaled $11.7 million for the six months ended June 30, 2019, compared to $9.2 million for the six months ended June 30, 2018. The increase was primarily due to increased consulting fees for strategic projects.

Other expense totaled $49.8 million for the six months ended June 30, 2019, compared to $44.9 million for the six months ended June 30, 2018. The increase was most significantly due to legal settlements, sales costs, and pension expense.

Occupancy totaled $28.7 million for the six months ended June 30, 2019, compared to $31.0 million for the six months ended June 30, 2018. The decrease was due to branch optimization costs in 2018.

Deposit insurance totaled $8.9 million for the six months ended June 30, 2019, compared to $20.4 million for the six months ended June 30, 2018. The decrease is due to the FDIC temporary surcharge ending during the fourth quarter of 2018 and a $7.2 million charge in 2018 related to additional FDIC premiums.

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Income Taxes

Webster recognized income tax expense of $26.5 million and $52.6 million, reflecting effective tax rates of 21.1% and 21.0%, for the three and six months ended June 30, 2019, respectively, compared to $20.7 million and $40.8 million, reflecting effective tax rates of 20.3% and 20.1%, for the three and six months ended June 30, 2018, respectively.

The increases in both tax expense and the effective tax rates for both the three and six months ended June 30, 2019 as compared to the same periods in 2018 principally reflect the higher level of pretax income during the 2019 periods.

The Company recognized $2.0 million and $4.5 million of net tax benefits specific to the three and six months ended June 30, 2019, respectively, compared to $2.3 million and $4.8 million specific to the three and six months ended June 30th, 2018, respectively.

For additional information on Webster's income taxes, including its deferred tax assets, see Note 8 - Income Taxes in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Segment Reporting

Webster’s operations are organized into three reportable segments that represent its primary businesses - Commercial Banking, HSA Bank, and Community Banking. These three segments reflect how executive management responsibilities are assigned, the primary businesses, the products and services provided, the type of customer served, and how discrete financial information is currently evaluated. Certain corporate treasury activities of the Company, along with adjustments required to reconcile profitability metrics to amounts reported in accordance with GAAP, are included in the Corporate and Reconciling category.

Commercial Banking is comprised of Commercial Banking and Private Banking operating segments.

Commercial Banking provides commercial and industrial lending and leasing, commercial real estate lending, and treasury and payment solutions. Specifically, Webster Bank deploys lending through middle market, commercial real estate, equipment financing, asset-based lending and specialty lending units. These groups utilize a relationship approach model throughout its footprint when providing lending, deposit, and cash management services to middle market companies. In addition, Commercial Banking serves as a referral source to the other lines of business.

Private Banking provides asset management, financial planning services, trust services, loan products, and deposit products for high net worth clients, not-for-profit organizations, and business clients. 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 generates net interest income and other ancillary fees.

HSA Bank offers a comprehensive consumer directed healthcare solution that includes, health savings accounts, health reimbursement accounts, flexible spending accounts, and other financial solutions. Health savings accounts are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws. Health savings accounts are offered through employers for the benefit of their employees or directly to individual consumers and are distributed nationwide directly as well as through national and regional insurance carriers, benefit consultants and financial advisors.

HSA Bank deposits provide long duration low-cost funding that is used to minimize the Company’s use of wholesale funding in support of the Company’s loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income.

Community Banking is comprised of Personal Banking and Business Banking operating segments.

Through a distribution network, consisting of 157 banking centers and 308 ATMs, a customer care center, and a full range of web and mobile-based banking services, it serves consumer and business customers primarily throughout southern New England and into Westchester County, New York.

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, and a member of the Securities Investor Protection Corporation. 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.

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Description of Segment Reporting Methodology

Webster allocates interest income and interest expense to each business, while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category, using a matched maturity funding concept called FTP. The allocation process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. This process is overseen by the Company's ALCO.

The following tables present net income, selected balance sheet information, and assets under administration/management for Webster’s reportable segments and the Corporate and Reconciling category for the periods presented:



	Three months ended June 30,					Six months ended June 30,
(In thousands)	2019		2018			2019		2018
Net income:
Commercial Banking	$	39,871	$	39,126		$	80,332	$	78,239
HSA Bank	24,680		19,926			49,689		37,744
Community Banking	24,069		25,002			47,545		43,538
Corporate and Reconciling	10,029		(2,372		)	20,819		2,386
Consolidated Total	$	98,649	$	81,682		$	198,385	$	161,907



	At June 30, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
Total assets	$	11,061,635	$	82,232	$	9,059,657	$	8,738,519	$	28,942,043
Loans and leases	11,005,241		60		8,264,582		—		19,269,883
Goodwill	—		21,813		516,560		—		538,373
Deposits	3,869,880		6,212,372		12,479,727		36,799		22,598,778
Not included in above amounts:
Assets under administration/management	2,147,225		1,816,944		3,529,396		—		7,493,565

	At December 31, 2018
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
Total assets	$	10,477,050	$	70,826	$	8,727,335	$	8,335,104	$	27,610,315
Loans and leases	10,437,319		55		8,028,115		—		18,465,489
Goodwill	—		21,813		516,560		—		538,373
Deposits	4,030,554		5,740,601		11,856,652		231,038		21,858,845
Not included in above amounts:
Assets under administration/management	1,930,199		1,460,204		3,391,946		—		6,782,349

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Commercial Banking

Operating Results:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018
Net interest income	$	92,171	$	88,459	$	182,681	$	173,110
Provision for loan and lease losses	7,741		8,630		13,982		15,477
Net interest income after provision	84,430		79,829		168,699		157,633
Non-interest income	14,645		15,041		28,656		30,357
Non-interest expense	46,196		42,979		90,814		84,224
Income before income taxes	52,879		51,891		106,541		103,766
Income tax expense	13,008		12,765		26,209		25,527
Net income	$	39,871	$	39,126	$	80,332	$	78,239

Comparison to Prior Year Quarter

Net income increased $0.7 million for the three months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $3.7 million, primarily due to loan and deposit growth and higher deposit margins. The provision for loan and lease losses decreased $0.9 million. Non-interest income decreased $0.4 million primarily due to lower syndication fees in the current quarter. Non-interest expense increased $3.2 million, primarily due to strategic hires and investments in product enhancements and infrastructure.

Comparison to Prior Year to Date

Net income increased $2.1 million for the six months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $9.6 million, primarily due to loan and deposit growth and higher deposit margins. The provision for loan and lease losses decreased $1.5 million. Non-interest income decreased $1.7 million, primarily due to lower client interest rate hedging activity as compared to the same period in the prior year. Non-interest expense increased $6.6 million, primarily due to strategic hires and investments in product enhancements and infrastructure.

Selected Balance Sheet Information and Assets Under Administration/Management:



(In thousands)	At June 30, 2019		At December 31, 2018
Total assets	$	11,061,635	$	10,477,050
Loans and leases	11,005,241		10,437,319
Deposits	3,869,880		4,030,554
Not included in above amounts:
Assets under administration/management	2,147,225		1,930,199

Loans and leases increased $567.9 million at June 30, 2019 compared to December 31, 2018. Loan originations in the six months ended June 30, 2019 and 2018 were $1.8 billion and $2.0 billion, respectively.

Deposits decreased $160.7 million at June 30, 2019 compared to December 31, 2018, The decrease was primarily due to a few large deposit withdrawals.

Through Private Banking, Commercial Banking held approximately $491.0 million and $422.5 million in assets under administration at June 30, 2019 and December 31, 2018, respectively. In addition, Commercial Banking held $1.7 billion and $1.5 billion in assets under management at June 30, 2019 and December 31, 2018, respectively.

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HSA Bank

Operating Results:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018
Net interest income	$	42,626	$	35,265	$	84,367	$	68,189
Non-interest income	24,979		22,882		50,556		45,551
Non-interest expense	34,253		31,220		67,775		62,735
Income before income taxes	33,352		26,927		67,148		51,005
Income tax expense	8,672		7,001		17,459		13,261
Net income	$	24,680	$	19,926	$	49,689	$	37,744

Comparison to Prior Year Quarter

Net income increased $4.8 million for the three months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $7.4 million, primarily due to growth in deposits and improved deposit spreads. Non-interest income increased $2.1 million due to increased account growth. Non-interest expense increased $3.0 million primarily due to account growth and expanded distribution.

Comparison to Prior Year to Date

Net income increased $11.9 million for the six months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $16.2 million, primarily due to growth in deposits and improved deposit spreads. Non-interest income increased $5.0 million due to growth in accounts. Non-interest expense increased $5.0 million primarily due to account growth and expanded distribution.

Selected Balance Sheet Information and Assets Under Administration:



(In thousands)	At June 30, 2019		At December 31, 2018
Total assets	$	82,232	$	70,826
Deposits	6,212,372		5,740,601
Not included in above amounts:
Assets under administration	1,816,944		1,460,204

Deposits increased $471.8 million at June 30, 2019 compared to December 31, 2018, due to an increase in new accounts as well as organic growth in existing account balances.

Additionally, HSA Bank had $1.8 billion in assets under administration through linked brokerage accounts at June 30, 2019 compared to $1.5 billion at December 31, 2018. The $356.7 million increase in linked brokerage balances is driven primarily by investment account growth, continued net contributions by account holders and appreciation in market value of investments.

At June 30, 2019, there were $8.0 billion in total footings, comprised of $6.2 billion in deposit balances and $1.8 billion in assets under administration.

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Community Banking

Operating Results:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018
Net interest income	$	102,699	$	101,902	$	204,059	$	200,830
Provision (benefit) for loan and lease losses	4,159		1,870		6,518		6,023
Net interest income after provision	98,540		100,032		197,541		194,807
Non-interest income	27,675		26,378		53,057		51,573
Non-interest expense	96,166		95,197		191,241		192,026
Income before income taxes	30,049		31,213		59,357		54,354
Income tax expense	5,980		6,211		11,812		10,816
Net income	$	24,069	$	25,002	$	47,545	$	43,538

Comparison to Prior Year Quarter

Net income decreased $0.9 million for the three months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $0.8 million, primarily due to growth in loan and deposit balances which offset the impact of lower interest rate spreads on both loans and deposits. The provision for loan and lease losses increased by $2.3 million in large part due to loan growth. Non-interest income increased $1.3 million due to increased deposit and loan related fees, as well as income from loan interest rate hedging activities. These were partially offset by lower fees from mortgage banking activities compared to same period last year. Non-interest expense increased $1.0 million driven by increased employee related costs, investments in technology and compliance; partially offset by lower occupancy and marketing expenses.

Comparison to Prior Year to Date

Net income increased $4.0 million for the six months ended June 30, 2019 as compared to the same period in 2018. Net interest income increased $3.2 million, primarily due to growth in loan and deposit balances which offset the impact of lower interest rate spreads on loans. The provision for loan and lease losses increased $0.5 million. Non-interest income increased $1.5 million due to overall growth in loan and deposit related fees, coupled with gains from SBA loan and asset sales; which offset lower fees from mortgage banking and investment services activities. Non-interest expense decreased $0.8 million as lower occupancy and marketing expenses offset increases in employee related costs, and investments in technology and compliance.

Selected Balance Sheet Information and Assets Under Administration:



(In thousands)	At June 30, 2019		At December 31, 2018
Total assets	$	9,059,657	$	8,727,335
Loans	8,264,582		8,028,115
Deposits	12,479,727		11,856,652
Not included in above amounts:
Assets under administration	3,529,396		3,391,946

Loans increased $236.5 million at June 30, 2019 compared to December 31, 2018. The increase in loan balances is primarily driven by the $242.2 million purchase of residential loans during the first quarter of 2019, coupled with strong residential and business banking originations. This balance growth was partially offset by continued decreases in the home equity portfolios.

Loan originations in the six months ended June 30, 2019 and 2018 were $0.8 billion and $0.7 billion, respectively. The $140.7 million increase in originations was driven by a $116.7 million increase in residential mortgage originations.

Deposits increased $623.1 million at June 30, 2019 compared to December 31, 2018 due to growth in all deposit categories, particularly time and demand deposits influenced by higher market interest rates.

Additionally, at June 30, 2019 and December 31, 2018, Webster Bank's investment services division held $3.5 billion and $3.4 billion of assets under administration, respectively, in its strategic partnership with LPL.

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Financial Condition

Webster had total assets of $28.9 billion at June 30, 2019 and $27.6 billion at December 31, 2018 as:


•	loans and leases, $19.1 billion, net of ALLL of $211.7 million, at June 30, 2019 increased $0.8 billion compared to loans and leases of $18.3 billion, net of ALLL of $212.4 million, at December 31, 2018, while;


•	total deposits, $22.6 billion at June 30, 2019 increased $0.7 billion compared to total deposits of $21.9 billion at December 31, 2018, the result of a 4.1% increase in interest bearing deposits, primarily due to growth in health savings accounts and time deposits.

At June 30, 2019, total shareholders' equity of $3.1 billion increased $178.7 million compared to total shareholders' equity of $2.9 billion at December 31, 2018. Changes in shareholders' equity for the six months ended June 30, 2019 include:


•	an increase of $198.4 million in net income;


•	an increase of $6.4 million related to share-based award activity, partially offset by;


•	a reduction of $19.2 million for purchases of treasury stock at cost, and;


•	reductions of $67.5 million for common dividends and $3.9 million for preferred dividends paid.

The quarterly cash dividend to shareholders was increased to $0.40 per common share effective April 22, 2019. See the selected financial highlights under the "Results of Operations" section and Note 11: Regulatory Matters in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for information on regulatory capital levels and ratios.

Investment Securities

Webster Bank's investment securities are managed within regulatory guidelines and corporate policy, which include limitations on aspects such as concentrations in and type of investments as well as minimum risk ratings per type of security. The OCC may establish additional individual limits on a certain type of investment if the concentration in such investment presents a safety and soundness concern. In addition to Webster Bank, the Holding Company also may directly hold investment securities from time-to-time. At June 30, 2019, the Company had no holdings in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.

Webster maintains, through its Corporate Treasury function, investment securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest-rate risk. Investment securities are classified into two major categories, available-for-sale and held-to-maturity. Available-for-sale currently consists of U.S Treasury Bills, Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, and corporate debt. Held-to-maturity currently consists of Agency CMO, Agency MBS, Agency CMBS, municipal bonds and notes and CMBS.

The carrying value of investment securities totaled $7.6 billion at June 30, 2019 and $7.2 billion at December 31, 2018.

Available-for-sale investment securities increased by $79.9 million, primarily due to principal purchase activity for Agency MBS offset by principal paydowns throughout the portfolio. The tax-equivalent yield in the portfolio was 3.03% for the six months ended June 30, 2019 compared to 2.85% for the six months ended June 30, 2018.

Held-to-maturity investment securities increased by $311.3 million, primarily due to principal purchase activity for Agency MBS and, to a lesser extent, Agency CMBS and municipal bonds and notes more than offsetting principal paydowns throughout the portfolio. The tax-equivalent yield in the portfolio was 3.06% for the six months ended June 30, 2019 compared to 2.95% for the six months ended June 30, 2018.

The Company held $3.5 billion in investment securities that are in an unrealized loss position at June 30, 2019. Approximately $0.1 billion of this total has been in an unrealized loss position for less than twelve months, while the remainder, $3.4 billion, has been in an unrealized loss position for twelve months or longer.

The Company held $6.2 billion in investment securities that were in an unrealized loss position at December 31, 2018. Approximately $1.2 billion of this total had been in an unrealized loss position for less than twelve months, while the remainder, $5.0 billion, had been in an unrealized loss position for twelve months or longer.

The benchmark 10-year U.S. Treasury rate decreased to 2.00% at June 30, 2019 from 2.69% at December 31, 2018.

These investment securities were evaluated by management and were determined not to be other than temporarily impaired, at June 30, 2019 and December 31, 2018. The Company does not have an intent to sell these investment securities, and it is more likely than not that it will not have to sell these securities before the recovery of their cost basis. To the extent that credit movements and other related factors influence the fair value of its investments, the Company may be required to record impairment charges for OTTI in future periods. The total unrealized loss was $60.6 million at June 30, 2019.

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The following table summarizes the amortized cost and fair value of investment securities:



	At June 30, 2019									At December 31, 2018
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale:
U.S. Treasury Bills	$	9,997	$	1	$	—		$	9,998	$	7,549	$	1	$	—		$	7,550
Agency CMO	213,307		2,209		(1,264		)	214,252		238,968		412		(4,457		)	234,923
Agency MBS	1,612,028		19,109		(11,665		)	1,619,472		1,521,534		1,631		(42,076		)	1,481,089
Agency CMBS	594,548		175		(16,022		)	578,701		608,167		—		(41,930		)	566,237
CMBS	428,492		599		(23		)	429,068		447,897		645		(2,961		)	445,581
CLO	96,727		106		(444		)	96,389		114,641		94		(1,964		)	112,771
Corporate debt	35,551		—		(4,774		)	30,777		55,860		—		(5,281		)	50,579
Available-for-sale	$	2,990,650	$	22,199	$	(34,192	)	$	2,978,657	$	2,994,616	$	2,783	$	(98,669	)	$	2,898,730
Held-to-maturity:
Agency CMO	$	190,858	$	1,089	$	(1,406	)	$	190,541	$	208,113	$	287	$	(5,255	)	$	203,145
Agency MBS	2,736,676		33,098		(20,616		)	2,749,158		2,517,823		8,250		(79,701		)	2,446,372
Agency CMBS	768,076		3,988		(3,684		)	768,380		667,500		53		(22,572		)	644,981
Municipal bonds and notes	746,345		23,473		(651		)	769,167		715,041		2,907		(18,285		)	699,663
CMBS	194,752		2,549		(37		)	197,264		216,943		405		(2,388		)	214,960
Held-to-maturity	$	4,636,707	$	64,197	$	(26,394	)	$	4,674,510	$	4,325,420	$	11,902	$	(128,201	)	$	4,209,121

Webster Bank has the ability to use its investment securities, as well as interest-rate financial instruments within internal policy guidelines, to hedge and manage interest-rate risk as part of its asset/liability strategy. See Note 13: Derivative Financial Instruments in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.

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Loans and Leases

The following table provides the composition of loans and leases:



	At June 30, 2019				At December 31, 2018
(Dollars in thousands)	Amount			%	Amount			%
Residential	$	4,696,937		24.4	$	4,389,866		23.8
Consumer:
Home equity	2,061,539			10.7	2,153,911			11.7
Other consumer	223,873			1.2	227,257			1.2
Total consumer	2,285,412			11.9	2,381,168			12.9
Commercial:
Commercial non-mortgage	5,465,840			28.4	5,269,557			28.5
Asset-based	1,079,773			5.6	971,876			5.3
Total commercial	6,545,613			34.0	6,241,433			33.8
Commercial real estate:
Commercial real estate	4,987,355			25.9	4,715,949			25.5
Commercial construction	244,893			1.2	218,816			1.2
Total commercial real estate	5,232,248			27.1	4,934,765			26.7
Equipment financing	501,439			2.6	504,351			2.7
Unamortized premiums (discounts), net	10,205			—	14,809			0.1
Deferred fees, net	(1,971		)	—	(903		)	—
Total loans and leases	$	19,269,883		100.0	$	18,465,489		100.0

Total residential loans were $4.7 billion at June 30, 2019, a increase of $307.1 million from December 31, 2018. The net increase is a result of a $242.2 million purchase of residential loans, net of discount, during the first quarter of 2019.

Total consumer loans were $2.3 billion at June 30, 2019, a decrease of $95.8 million from December 31, 2018. The net decrease is primarily due to continued net principal paydowns within the home equity lines and auto loan portfolios exceeding originations.

Total commercial loans were $6.5 billion at June 30, 2019, an increase of $304.2 million from December 31, 2018. The net increase primarily related to originations of $1.2 billion, partially offset by payments and payoffs.

Total commercial real estate loans were $5.2 billion at June 30, 2019, an increase of $297.5 million from December 31, 2018. The increase is a result of originations of $668.4 million, partially offset by payments and payoffs.

Equipment financing loans and leases were $501.4 million at June 30, 2019, a decrease of $2.9 million from December 31, 2018. The net decrease was primarily related to amortization and higher prepayments, partially offset by originations of $96.8 million.

Asset Quality

Management maintains asset quality within established risk tolerance levels through its underwriting standards, servicing, and portfolio management of loans and leases. Loans and leases, particularly where a heightened risk of loss has been identified, are regularly monitored to mitigate further deterioration which could potentially impact key measures of asset quality in future periods. Past due loans and leases, non-performing assets, and credit loss levels are considered to be key measures of asset quality.

The following table provides key asset quality ratios:



	At June 30, 2019		At December 31, 2018
Non-performing loans and leases as a percentage of loans and leases	0.77	%	0.84	%
Non-performing assets as a percentage of loans and leases plus OREO	0.80		0.87
Non-performing assets as a percentage of total assets	0.53		0.59
ALLL as a percentage of non-performing loans and leases	142.97		137.22
ALLL as a percentage of loans and leases	1.10		1.15
Net charge-offs as a percentage of average loans and leases ⁽¹⁾	0.23		0.16
Ratio of ALLL to net charge-offs ⁽¹⁾	5.00x		7.16x


(1)	Calculated for the June 30, 2019 period based on the year-to-date net charge-offs, annualized.

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Potential Problem Loans and Leases

Potential problem loans and leases are defined by management as certain loans and leases that, for:


•	commercial, commercial real estate, and equipment financing are performing loans and leases classified as Substandard and have a well-defined weakness that could jeopardize the full repayment of the debt; and


•	residential and consumer are performing loans 60-89 days past due and accruing.

Potential problem loans and leases exclude past due 90 days or more and accruing, non-accrual, and TDR classifications.

Management monitors potential problem loans and leases due to a higher degree of risk associated them. The current expectation of probable losses is included in the ALLL, however management cannot predict whether these potential problem loans and leases ultimately will become non-performing or result in a loss. The Company had potential problem loans and leases of $225.9 million at June 30, 2019 compared to $226.9 million at December 31, 2018.

Past Due Loans and Leases

The following table provides information regarding loans and leases past due 30 days or more and accruing income:



	At June 30, 2019			At December 31, 2018
(Dollars in thousands)	Amount		% ⁽¹⁾	Amount		% ⁽¹⁾
Residential	$	10,844	0.23	$	12,789	0.29
Consumer:
Home equity	9,996		0.48	14,595		0.68
Other consumer	3,953		1.77	2,729		1.20
Commercial non-mortgage	1,978		0.04	1,700		0.03
Commercial real estate	1,310		0.03	1,514		0.03
Commercial construction	1,355		0.55	—		—
Equipment financing	2,460		0.49	915		0.18
Loans and leases past due 30-89 days	31,896		0.17	34,242		0.19
Commercial non-mortgage	410		0.01	104		—
Loans and leases past due 90 days and accruing	410		0.01	104		—
Total	32,306		0.17	34,346		0.19
Deferred costs and unamortized premiums (discounts), net	79			86
Total loans and leases past due 30 days or more and accruing income	$	32,385		$	34,432


(1)	Represents the principal balance of loans and leases past due 30 days or more and accruing income as a percentage of the outstanding principal balance within the comparable loan and lease category.

The balance of loans and leases past due 30 days or more and accruing income decreased $2.0 million at June 30, 2019 compared to December 31, 2018. The ratio of loans and leases past due 30 days or more and accruing income as a percentage of loans and leases decreased to 0.17% at June 30, 2019 as compared to 0.19% at December 31, 2018.

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Non-performing Assets

The following table provides information regarding non-performing assets:



	At June 30, 2019			At December 31, 2018
(Dollars in thousands)	Amount ⁽¹⁾		% ⁽²⁾	Amount ⁽¹⁾		% ⁽²⁾
Residential	$	48,104	1.02	$	49,069	1.12
Consumer:
Home equity	31,825		1.54	33,456		1.55
Other consumer	1,190		0.53	1,493		0.66
Total consumer	33,015		1.44	34,949		1.47
Commercial:
Commercial non-mortgage	52,391		0.96	55,951		1.06
Asset-based loans	184		0.02	224		0.02
Total commercial	52,575		0.80	56,175		0.90
Commercial real estate:
Commercial real estate	10,413		0.21	8,243		0.17
Commercial construction	—		—	—		—
Total commercial real estate	10,413		0.20	8,243		0.17
Equipment financing	3,949		0.79	6,314		1.25
Total non-accrual loans and leases	148,056		0.77	154,750		0.84
Deferred costs and unamortized premiums (discounts), net	245			17
Total recorded investment in non-accrual loans and leases ⁽³⁾	$	148,301		$	154,767

Total non-accrual loans and leases	$	148,056		$	154,750
Foreclosed and repossessed assets:
Residential and consumer	3,884			6,460
Equipment financing	1,307			407
Total foreclosed and repossessed assets	5,191			6,867
Total non-performing assets	$	153,247		$	161,617


(1)	Balances by class exclude the impact of net deferred costs and unamortized premiums.


(2)	Represents the principal balance of non-accrual loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category.


(3)	Includes non-accrual TDRs of $107.0 million at June 30, 2019 and $91.9 million at December 31, 2018.

Non-performing assets decreased $8.4 million at June 30, 2019 compared to December 31, 2018. The decrease in non-performing assets at June 30, 2019 is primarily due to the commercial non-mortgage and equipment financing portfolios. Overall non-performing assets as a percentage of total assets was 0.53% at June 30, 2019 as compared to 0.59% at December 31, 2018.

The following table provides detail of non-performing loan and lease activity:



	Six months ended June 30,
(In thousands)	2019			2018
Beginning balance	$	154,750		$	126,582
Additions	59,345			55,745
Paydowns/draws	(25,102		)	(23,185		)
Charge-offs	(19,920		)	(15,964		)
Other reductions	(21,017		)	(3,091		)
Ending balance	$	148,056		$	140,087

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Impaired Loans and Leases

Loans and leases are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated on a pooled basis for smaller-balance homogeneous residential, consumer loans and small business loans. Commercial, commercial real estate, and equipment financing loans and leases over a specific dollar amount and all TDR are evaluated individually for impairment.

At June 30, 2019, there were 1,415 impaired loans and leases with a recorded investment balance of $253.2 million, which included loans and leases of $90.6 million with an impairment allowance of $14.8 million. This compares to 1,501 impaired loans and leases with a recorded investment balance of $259.3 million, which included loans and leases of $93.1 million, with an impairment allowance of $15.4 million at December 31, 2018. For additional information, see Note 4: Loans and Leases in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.

Troubled Debt Restructurings

A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties; and (ii) the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Common modifications include material changes in covenants, pricing, and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus, impaired at the date of discharge and charged down to the fair value of collateral less cost to sell.

The Company’s policy is to place consumer loan TDRs, except those that were performing prior to TDR status, on non-accrual status for a minimum period of six months. Commercial TDRs are evaluated on a case-by-case basis for determination of accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. Initially, all TDRs are reported as impaired. Generally, a TDR is classified as an impaired loan and reported as a TDR for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months and through one fiscal year-end, and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring. In the limited circumstance that a loan is removed from TDR classification, it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified by the loan agreement.

The following tables provide information for TDRs:



	Six months ended June 30,
(In thousands)	2019			2018
Beginning balance	$	230,414		$	221,404
Additions	39,551			39,523
Paydowns/draws	(20,639		)	(24,039		)
Charge-offs	(5,616		)	(5,224		)
Transfers to OREO	(643		)	(1,690		)
Ending balance	$	243,067		$	229,974



(In thousands)	At June 30, 2019		At December 31, 2018
Accrual status	$	136,081	$	138,479
Non-accrual status	106,986		91,935
Total recorded investment of TDRs	$	243,067	$	230,414

Specific reserves for TDRs included in the balance of ALLL	$	14,368	$	11,930
Additional funds committed to borrowers in TDR status	6,160		3,893

Overall, TDR balances increased $12.7 million at June 30, 2019 compared to December 31, 2018, while the specific reserves for TDRs increased from year end, reflective of management’s current assessment of reserve requirements.

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Allowance for Loan and Lease Losses Methodology

The ALLL policy is considered a critical accounting policy. Executive management reviews and advises on the adequacy of the ALLL reserve, which is maintained at a level deemed sufficient by management to cover probable losses inherent within the loan and lease portfolios.

The quarterly process for estimating probable losses is based on predictive models, to measure the current risk profile of loan portfolio and combines other quantitative and qualitative factors together with the impairment reserve to determine the overall reserve requirement. Management's judgment and assumptions influence loss estimates and ALLL balances. Quantitative and qualitative factors that management considers include factors such as the nature and volume of portfolio growth, national and regional economic conditions and trends, other internal performance metrics, and how each of these factors is expected to impact near term loss trends. While actual future conditions and realized losses may vary significantly from assumptions, management believes the ALLL is adequate at June 30, 2019.

The Company’s methodology for assessing an appropriate level of the ALLL includes three key elements:

•

Impaired loans and leases are either analyzed on an individual or pooled basis and assessed for specific reserves measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan or lease, except that as a practical expedient, impairment may be measured based on a loan or lease's observable market price, or the fair value of the collateral, if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral. The Company considers the pertinent facts and circumstances for each impaired loan or lease when selecting the appropriate method to measure impairment and evaluates, on a quarterly basis, each selection to ensure its continued appropriateness.

•

Loans and leases that are not considered impaired and have similar risk characteristics, are segmented into homogeneous pools and modeled using quantitative methods. The Company's loss estimate for its commercial portfolios utilizes an expected loss methodology that is based on probability of default (PD) and LGD models. The PD and LGD models are based on borrower and facility risk ratings assigned to each loan and are updated throughout the year as a borrower's financial condition changes. PD and LGD models are derived using the Company's portfolio specific historic data and are refreshed annually. Residential and consumer portfolio loss estimates are based on roll rate models that utilize the Company's historic delinquency and default data. For each segmentation the loss estimates incorporate a loss emergence period (LEP) model which represents an amount of time between when a loss event first occurs to when it is charged-off. An LEP is determined for each loan type based on the Company's historical experience and is reassessed at least annually.


•	The Company also considers qualitative factors, consistent with interagency regulatory guidance, that are not explicitly factored in the quantitative models but that can have an incremental or regressive impact on losses incurred in the current loan and lease portfolio.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Underwriting standards are designed to focus on and support the promotion of relationships rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company examines current and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Management regularly monitors the cash flows of borrowers as results may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate personal guarantees of the principals.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those specific to real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.

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

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

At June 30, 2019 the ALLL was $211.7 million compared to $212.4 million at December 31, 2018. The decrease of $0.7 million in the reserve at June 30, 2019 compared to December 31, 2018 is primarily due to stable asset quality coupled with a reduction in the impairment reserve of $0.6 million. The ALLL reserve remains adequate to cover inherent losses in the loan and lease portfolios. ALLL as a percentage of loans and leases, also known as the reserve coverage, decreased to 1.10% at June 30, 2019 from 1.15% at December 31, 2018, reflecting an updated assessment of inherent losses and impaired reserves. ALLL as a percentage of non-performing loans and leases increased to 142.97% at June 30, 2019 from 137.22% at December 31, 2018.

The following table provides an allocation of the ALLL by portfolio segment:



	At June 30, 2019			At December 31, 2018
(Dollars in thousands)	Amount		% ⁽¹⁾	Amount		% ⁽¹⁾
Residential	$	21,221	0.45	$	19,599	0.44
Consumer	26,106		1.13	28,681		1.20
Commercial	98,800		1.52	98,793		1.59
Commercial real estate	61,068		1.17	60,151		1.22
Equipment financing	4,476		0.89	5,129		1.01
Total ALLL	$	211,671	1.10	$	212,353	1.15


(1)	Percentage represents allocated ALLL to total loans and leases within the comparable category. The allocation of a portion of the ALLL to one category of loans and leases does not preclude its availability to absorb losses in other categories.

The following table provides detail of activity in the ALLL:



	At or for the three months ended June 30,						At or for the six months ended June 30,
(In thousands)	2019			2018			2019			2018
Beginning balance	$	211,389		$	205,349		$	212,353		$	199,994
Provision	11,900			10,500			20,500			21,500
Charge-offs:
Residential	(2,154		)	(754		)	(2,405		)	(1,671		)
Consumer	(4,098		)	(4,907		)	(8,071		)	(9,981		)
Commercial	(5,218		)	(5,632		)	(12,851		)	(7,129		)
Commercial real estate	(2,473		)	(40		)	(3,446		)	(117		)
Equipment financing	(439		)	(65		)	(643		)	(110		)
Total charge-offs	(14,382		)	(11,398		)	(27,416		)	(19,008		)
Recoveries:
Residential	295			325			473			711
Consumer	1,972			1,614			4,460			3,057
Commercial	453			909			1,240			1,026
Commercial real estate	33			9			39			11
Equipment financing	11			14			22			31
Total recoveries	2,764			2,871			6,234			4,836
Net charge-offs	(11,618		)	(8,527		)	(21,182		)	(14,172		)
Ending balance	$	211,671		$	207,322		$	211,671		$	207,322

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The following table provides a summary of net charge-offs (recoveries) to average loans and leases by category:



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
(Dollars in thousands)	Amount		% ⁽¹⁾	Amount		% ⁽¹⁾	Amount		% ⁽¹⁾	Amount		% ⁽¹⁾
Residential	$	1,859	0.16	$	429	0.04	$	1,932	0.09	$	960	0.04
Consumer	2,126		0.37	3,293		0.53	3,611		0.31	6,924		0.55
Commercial	4,765		0.29	4,723		0.32	11,611		0.36	6,103		0.21
Commercial real estate	2,440		0.19	31		—	3,407		0.14	106		—
Equipment financing	428		0.34	51		0.04	621		0.25	79		0.03
Net charge-offs	$	11,618	0.24	$	8,527	0.19	$	21,182	0.23	$	14,172	0.16


(1)	Net charge-offs (recoveries) to average loans and leases, percentage calculated based on period-to-date activity, annualized.

Net charge-offs increased $7.0 million for the six months ended June 30, 2019 as compared to the same period in 2018. The increase is due primarily to a single credit in the commercial portfolio with a charge off of $6.0 million, partly offset by a decrease in consumer charge-offs. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated by loan reporting systems.

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Sources of Funds and Liquidity

Sources of Funds. The primary source of Webster Bank’s cash flow for use in lending and meeting its general operational needs is deposits. Operating activities, such as loan and mortgage-backed securities repayments, and other investment securities sale proceeds and maturities, also provide cash flow. While scheduled loan and securities repayments are a relatively stable source of funds, loan and securities prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain. Additional sources of funds are provided by FHLB advances or other borrowings.

Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based capital stock investment in the FHLB of Boston is required in order for Webster Bank to access advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLB. Webster Bank held $67.7 million of FHLB capital stock at June 30, 2019 compared to $98.6 million at December 31, 2018, for its membership and for outstanding advances and other extensions of credit. On May 2, 2019, the FHLB paid a cash dividend equal to an annual yield of 6.22%.

Additionally, Webster Bank is required to hold FRB of Boston stock equal to 6% of its capital and surplus of which 50% is paid. The remaining 50% is subject to call when deemed necessary by the Federal Reserve System. The FRB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FRB. At both June 30, 2019 and December 31, 2018, Webster Bank held $50.7 million of FRB capital stock. On June 28, 2019, the FRB paid a semi-annual cash dividend equal to an annual yield of 2.065%.

Deposits. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use, direct deposit, ACH payments, combined statements, mobile banking services, internet-based banking, bank by mail, as well as overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and investment needs for both consumer and business customers throughout its primary market area. Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with FDIC regulations. Webster Bank’s Retail Pricing Committee and its Commercial and Institutional Loan and Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.

Total deposits were $22.6 billion at June 30, 2019 compared to $21.9 billion at December 31, 2018. The increase is predominately related to an increase in health savings accounts of $471.8 million and time deposits of $136.4 million. See Note 7: Deposits in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information.

Borrowings. Borrowings primarily consist of FHLB advances which are utilized as a source of funding for liquidity and interest rate risk management purposes. At June 30, 2019 and December 31, 2018, FHLB advances totaled $1.4 billion and $1.8 billion, respectively. Webster Bank had additional borrowing capacity from the FHLB of approximately $2.6 billion at both June 30, 2019 and December 31, 2018. Webster Bank also had additional borrowing capacity at the FRB of approximately $0.6 billion at both June 30, 2019 and December 31, 2018.

Securities sold under agreements to repurchase, whereby securities are delivered to counterparties under an agreement to repurchase the securities at a fixed price in the future, to a lesser extent, are also utilized as a source of funding. Unpledged investment securities of $5.2 billion at June 30, 2019 could have been used for collateral on borrowings such as repurchase agreements or, alternatively, to increase borrowing capacity by approximately $4.8 billion at the FHLB or approximately $5.0 billion at the FRB. In addition, Webster Bank may utilize term and overnight Fed funds to meet short-term liquidity needs.

Long-term debt consists of senior fixed-rate notes maturing in 2024 and 2029, and junior subordinated notes maturing in 2033. The Company completed an underwritten public offering of $300 million senior fixed-rate notes on March 25, 2019, of which it invested the net proceeds of $296.4 million in Webster Bank, as permanent capital, to be used for working capital needs or other general purposes. The notes carry a 4.10% coupon rate and mature on March 25, 2029. At issuance, the fixed interest rate on a $150 million portion of the notes was swapped to a variable rate and designated in a fair value hedging relationship. During April 2019, the Company initiated a fair value hedging relationship for the remaining $150 million portion of the notes. As a result, the weighted-average interest rate was 4.01% at June 30, 2019.

Total borrowed funds were $2.9 billion at June 30, 2019 compared to $2.6 billion at December 31, 2018. Borrowings represented 10.1% and 9.5% of total assets at June 30, 2019 and December 31, 2018, respectively. The increase is due to loan and securities growth exceeding deposit growth. For additional information, see Note 8: Borrowings in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.

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Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive liquidity management at both the Holding Company and Webster Bank. Liquidity comes from a variety of cash flow sources such as operating activities, including principal and interest payments on loans and securities, or financing activities, including unpledged investment securities, which can be sold or utilized to secure funding, and new deposits. Webster is committed to maintaining a strong, increasing base of core deposits, consisting of demand, checking, savings, health savings, and money market accounts, to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in order to maintain stable, cost effective funding to promote overall balance sheet strength. Net cash provided by operating activities was $98.0 million for the six months ended June 30, 2019 as compared to $256.5 million for the six months ended June 30, 2018. The most significant impact was due to increased derivatives activity, and to a lesser extent a decrease in mortgage banking activity.

Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from Webster Bank. Webster Bank paid $110 million in dividends to the Holding Company during the six months ended June 30, 2019. To a lesser extent, public offerings, investment income, and net proceeds from investment sales may provide additional liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and junior subordinated debt, the payment of dividends to preferred and common shareholders, repurchases of its common stock, and purchases of investment securities. There are certain restrictions on the payment of dividends by Webster Bank to the Holding Company, which are described in the section captioned "Supervision and Regulation" in Item 1 of Webster’s 2018 Form 10-K. At June 30, 2019, $359.3 million of retained earnings are available for the payment of dividends by Webster Bank to the Holding Company.

The Company has a common stock repurchase program authorized by the Board of Directors, with $78.7 million of remaining repurchase authority at June 30, 2019. In addition, Webster periodically acquires common shares outside of the repurchase program related to stock compensation plan activity. The Company records the purchase of shares of common stock at cost based on the settlement date for these transactions. During the six months ended June 30, 2019, a total of 337,951 shares of common stock were repurchased for approximately $19.1 million, of which 227,199 shares were purchased under the common stock repurchase program at a cost of approximately $13.0 million, and 110,752 shares were purchased, at market prices, for a cost of approximately $6.1 million, relating to stock compensation plan activity.

Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits. The primary use of this funding is for loan portfolio growth. Including time deposits, Webster Bank had a loan to total deposit ratio of 85.3% and 84.5% at June 30, 2019 and December 31, 2018, respectively, as loan funding has outpaced deposit growth during 2019.

Webster Bank is required by OCC regulations to maintain liquidity sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on such factors as the overall asset/liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. Webster Bank exceeded all regulatory liquidity requirements as of June 30, 2019. The Company has a detailed liquidity contingency plan designed to respond to liquidity concerns in a prompt and comprehensive manner. The plan is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.

Applicable OCC regulations require Webster Bank, as a commercial bank, to satisfy certain minimum leverage and risk-based capital requirements. As an OCC regulated commercial institution, it is also subject to a minimum tangible capital requirement. As of June 30, 2019, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC requirements for a well-capitalized institution. See Note 11: Regulatory Matters in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a further discussion of regulatory requirements applicable to the Holding Company and Webster Bank.

The liquidity position of the Company is continuously monitored, and adjustments are made to a balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which, if implemented, would have a material adverse effect on the Company. Webster Bank's latest OCC CRA rating was Outstanding.

Off-Balance Sheet Arrangements

Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business, for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit, interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements or facilitate certain trade arrangements. These transactions give rise to, in varying degrees, elements of credit, interest rate, and liquidity risk. For the six months ended June 30, 2019, Webster did not engage in any off-balance sheet transactions that would have a material effect on its financial condition. For additional information, see Note 2: Variable Interest Entities and Note 18: Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.

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Asset/Liability Management and Market Risk

An effective asset/liability management process must balance the risks and rewards from both short and long-term interest rate risks in determining management strategy and action. To facilitate and manage this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO.

The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on net interest income (NII) over a twelve month period, starting June 30, 2019 and December 31, 2018 for each subsequent twelve month period as compared to NII assuming no change in interest rates:



NII	-200bp	-100bp	+100bp	+200bp
June 30, 2019	(10.1)%	(4.5)%	3.0%	5.5%
December 31, 2018	(10.9)%	(4.7)%	3.2%	5.9%

The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on pretax, pre-provision net revenue (PPNR) over a twelve month period, starting June 30, 2019 and December 31, 2018 for each subsequent twelve month period as compared to PPNR assuming no change in interest rates:



PPNR	-200bp	-100bp	+100bp	+200bp
June 30, 2019	(15.9)%	(6.9)%	4.5%	8.1%
December 31, 2018	(18.3)%	(7.9)%	5.0%	9.2%

Interest rates are assumed to change up or down in a parallel fashion, and NII and PPNR results in each scenario are compared to a flat rate scenario as a base. The flat rate scenario holds the end of period yield curve constant over a twelve month forecast horizon. The flat rate scenario as of both June 30, 2019 and December 31, 2018 assumed a Fed Funds rate of 2.50%. Asset sensitivity for both NII and PPNR was lower as of June 30, 2019 when compared to December 31, 2018 primarily due to the reduction of long-term market rates since December 31, 2018 and the resulting impact these changes had on forecast prepayment speeds. Further contributing to these changes were increases in fixed-rate investments and fixed-rate loan balances.

Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets and liabilities. Changes in the market value of these positions are recognized in earnings.

The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates might have on NII for the subsequent twelve month period starting June 30, 2019 and December 31, 2018:



	Short End of the Yield Curve				Long End of the Yield Curve
NII	-100bp	-50bp	+50bp	+100bp	-100bp	-50bp	+50bp	+100bp
June 30, 2019	(6.1)%	(2.9)%	1.2%	2.4%	(4.0)%	(2.0)%	1.8%	3.2%
December 31, 2018	(7.1)%	(3.3)%	1.7%	3.4%	(3.3)%	(1.6)%	1.3%	2.3%

The following table summarizes the estimated impact that immediate non-parallel changes in interest rates might have on PPNR for the subsequent twelve month period starting June 30, 2019 and December 31, 2018:



	Short End of the Yield Curve				Long End of the Yield Curve
PPNR	-100bp	-50bp	+50bp	+100bp	-100bp	-50bp	+50bp	+100bp
June 30, 2019	(9.7)%	(4.5)%	1.4%	2.9%	(6.3)%	(3.2)%	3.1%	5.5%
December 31, 2018	(11.6)%	(5.4)%	2.4%	4.8%	(5.6)%	(2.9)%	2.4%	4.2%

The non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged and vice versa. The short end of the yield curve is defined as terms of less than eighteen months, and the long end as terms of greater than eighteen months. The results above reflect the annualized impact of immediate rate changes.

Sensitivity to the short end of the yield curve for NII and PPNR decreased as of June 30, 2019 when compared to December 31, 2018 due primarily to the increase in balances of fixed-rate investments and loans. NII and PPNR were more sensitive to changes in the long end of the yield curve as of June 30, 2019 when compared to December 31, 2018 due to increased forecast prepayment speeds.

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The following table summarizes the estimated economic value of assets, liabilities, and off-balance sheet contracts at June 30, 2019 and December 31, 2018 and the projected change to economic values if interest rates instantaneously increase or decrease by 100 basis points:



(Dollars in thousands)	Book Value		Estimated Economic Value		Estimated Economic Value Change
					Estimated Economic Value Change
					-100 bp			+100 bp
June 30, 2019
Assets	$	28,942,043	$	28,466,576	$	549,814		$	(660,639	)
Liabilities	25,876,826		24,825,672		788,443			(671,904		)
Net	$	3,065,217	$	3,640,904	$	(238,629	)	$	11,265
Net change as % base net economic value					(6.6		)%	0.3		%

December 31, 2018
Assets	$	27,610,315	$	26,972,752	$	568,122		$	(677,864	)
Liabilities	24,723,800		23,119,466		719,658			(615,650		)
Net	$	2,886,515	$	3,853,286	$	(151,536	)	$	(62,214	)
Net change as % base net economic value					(3.9		)%	(1.6		)%

Changes in economic value can be best described using duration. Duration is a measure of the price sensitivity of financial instruments for small changes in interest rates. For fixed-rate instruments, it can also be thought of as the weighted-average expected time to receive future cash flows. For floating-rate instruments, it can be thought of as the weighted-average expected time until the next rate reset. The longer the duration, the greater the price sensitivity for given changes in interest rates. Floating-rate instruments may have durations as short as one day and, therefore, have very little price sensitivity due to changes in interest rates. Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in value of a liability is a benefit to Webster.

Duration gap is the difference between the duration of assets and the duration of liabilities. A duration gap near zero implies that the balance sheet is matched and would exhibit no change in estimated economic value for a small change in interest rates. Webster's duration gap was negative 0.9 years at June 30, 2019 and negative 0.7 years at December 31, 2018. A negative duration gap implies that liabilities are longer than assets and, therefore, they have more price sensitivity than assets and will reset their interest rates slower than assets. Consequently, Webster's net estimated economic value would generally be expected to increase when interest rates rise as the benefit of the decreased value of liabilities would more than offset the decreased value of assets. The opposite would generally be expected to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and decrease when interest rates fall over the longer term absent the effects of new business booked in the future. As of June 30, 2019, long-term rates have fallen 75 basis points when compared to December 31, 2018. This lower starting point shortens asset duration by increasing residential loan and MBS prepayment speeds.

These estimates assume that management does not take any action to mitigate any positive or negative effects from changing interest rates. The earnings and economic values estimates are subject to factors that could cause actual results to differ. Management believes that Webster's interest rate risk position at June 30, 2019 represents a reasonable level of risk given the current interest rate outlook. Management, as always, is prepared to act in the event that interest rates do change rapidly.

For a detailed description of the Company's asset/liability management process, refer to the section captioned "Asset/Liability Management and Market Risk" in Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations included in its Form 10-K for the year ended December 31, 2018.

Impact of Inflation and Changing Prices

The Condensed Consolidated Financial Statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a banking institution are monetary in nature. As a result, interest rates have a more significant impact on Webster's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.

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Application of Critical Accounting Policies and Accounting Estimates

The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in its 2018 Annual Report on Form 10-K. Modifications to significant accounting policies, if made during the year, are described in Note 1 to the Condensed Consolidated Financial Statements included in Item 1 of this report. The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

Management has identified the Company's most critical accounting policies as:


•	allowance for loan and lease losses; and


•	realizability of deferred tax assets.

These particular accounting policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. The accounting policies and estimates, including the nature of the estimates and types of assumptions used, are described throughout Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Webster's 2018 Form 10-K, and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.

Recently Issued Accounting Standards Updates

Refer to Note 1: Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a summary of recently issued ASUs and the expected impact on the Company's financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The required information is set forth above, in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, see the section captioned "Asset/Liability Management and Market Risk," which is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company has performed an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures for recording, processing, summarizing, and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in SEC rules and forms, were effective as of June 30, 2019.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2019, there were no changes made to the Company's internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Webster, or its subsidiaries, may be involved in certain routine legal proceedings and claims occurring, from time-to-time, in the ordinary course of business. These possible loss contingencies are evaluated based on information currently available, including advice of counsel and assessment of available insurance coverage. 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. This accrual is periodically reviewed and may be adjusted as circumstances change. Webster also estimates certain loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. Webster believes it has defenses to all the claims asserted against it in existing litigation matters and intends to defend itself in those matters.

Management believes that the ultimate outcome of these proceedings, individually and in the aggregate, is not presently nor in the future anticipated to be be material to Webster or its consolidated financial condition. However, legal proceedings are subject to inherent uncertainties, with which unfavorable rulings could occur and, as such, there is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts currently accrued by Webster or that the Company’s litigation accrual will not need to be adjusted in future periods. Such an outcome could be material to the Company’s operating results in a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s income for that period.

ITEM 1A. RISK FACTORS

During the six months ended June 30, 2019, there were no material changes to the risk factors previously disclosed in Webster's Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information with respect to any purchase of equity securities of Webster Financial Corporation's common stock made by or on behalf of Webster or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended June 30, 2019:



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 ⁽¹⁾
April	—	$	—	—	$	78,742,318
May	368	50.53		—	78,742,318
June	2,579	44.73		—	78,742,318
Total	2,947	45.46		—	78,742,318


(1)	On October 24, 2017, the Company's Board of Directors approved a common stock repurchase program which authorizes management to repurchase, in open market or privately negotiated transactions, subject to market conditions and other factors, up to a maximum of $100 million of common stock. The program will remain in effect until fully utilized or until modified, superseded, or terminated.

The total number of shares purchased during the three months ended June 30, 2019, 2,947 were shares acquired outside of the repurchase program related to stock compensation plan activity, at market prices.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

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ITEM 6. EXHIBITS

The following is the exhibit index.



Exhibit Number	Exhibit Description	Exhibit Included	Incorporated by Reference
Exhibit Number	Exhibit Description	Exhibit Included	Form	Exhibit	Filing Date
3	Certificate of Incorporation and Bylaws.
3.1	Fourth Amended and Restated Certificate of Incorporation		10-Q	3.1	8/9/2016
3.2	Certificate of Designations establishing the rights of the Company's 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock		8-K	3.1	6/11/2008
3.3	Certificate of Designations establishing the rights of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series B		8-K	3.1	11/24/2008
3.4	Certificate of Designations establishing the rights of the Company's Perpetual Participating Preferred Stock, Series C		8-K	3.1	7/31/2009
3.5	Certificate of Designations establishing the rights of the Company's Non-Voting Perpetual Participating Preferred Stock, Series D		8-K	3.2	7/31/2009
3.6	Certificate of Designations establishing the rights of the Company's 6.40% Series E Non-Cumulative Perpetual Preferred Stock		8-A12B	3.3	12/4/2012
3.7	Certificate of Designations establishing the rights of the Company's 5.25% Series F Non-Cumulative Perpetual Preferred Stock		8-A12B	3.3	12/12/2017
3.8	Bylaws, as amended effective June 9, 2014		8-K	3.1	6/12/2014
10	Material Contracts ⁽¹⁾
10.1	Employee Stock Purchase Plan (amended and restated effected as of April 1, 2019)		10-Q	10.1	5/7/2019
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer.	X
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer.	X
32.1	Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer.	X ⁽²⁾
32.2	Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer.	X ⁽²⁾
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embeded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X

(1) Material contracts are management contracts, or compensatory plans, or arrangements in which directors or executive officers are eligible to participate.

(2) Exhibit is furnished herewith and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		WEBSTER FINANCIAL CORPORATION
		Registrant

Date: August 5, 2019	By:	/s/ John R. Ciulla
		John R. Ciulla
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 5, 2019	By:	/s/ Glenn I. MacInnes
		Glenn I. MacInnes
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: August 5, 2019	By:	/s/ Albert J. Wang
		Albert J. Wang
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)