Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 4, 2017)
  • 10-Q (May 5, 2017)
  • 10-Q (Nov 7, 2016)
  • 10-Q (Aug 9, 2016)
  • 10-Q (May 9, 2016)
  • 10-Q (Nov 5, 2015)

 
8-K

 
Other

Webster Financial 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-3.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
Document


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________________________________
FORM 10-Q
_______________________________________________________________________________
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
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)
______________________________________________________________________________

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.    þ  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    þ  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
o
 
Non-accelerated filer
o
 
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    o  Yes    þ  No
The number of shares of common stock, par value $.01 per share, outstanding as of July 29, 2016 was 91,674,484.

 



INDEX




i


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
KEY TO ACRONYMS
Agency CMBS
Agency commercial mortgage-backed securities
Agency CMO
Agency collateralized mortgage obligations
Agency MBS
Agency mortgage-backed securities
ALCO
Webster Financial Corporation's Asset/Liability Management Committee
ALLL
Allowance for loan and lease losses
AOCL
Accumulated other comprehensive loss, net of tax
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Basel III
Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
CCRP
Composite Credit Risk Profile
CDI
Core deposit intangible assets
CET1 capital
Common Equity Tier 1 Capital as defined by Basel III capital rules
CLO
Collateralized loan obligations
CMBS
Non-agency commercial mortgage-backed securities
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
FASB
Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

FHLB
Financial Industry Regulatory Authority

FICO
Fair Isaac Corporation
FINRA
Financial Industry Regulatory Authority
FRB
Board of Governors that oversee the Federal Reserve System and establishes monetary policy
FTP
Funds Transfer Pricing, a matched maturity funding concept used by Webster Financial Corporation
GAAP
U.S. Generally Accepted Accounting Principles
Holding Company
Webster Financial Corporation
ISDA
International Swap Derivative Association
LBP
Look back period
LEP
Loss emergence period
LIBOR
London Interbank Offered Rate
LPL
LPL Financial Holdings Inc.
NII
Net interest income
OCC
Office of the Comptroller of the Currency
OCI/(L)
Other comprehensive income (loss)
OREO
Other real estate owned
OTTI
Other-than-temporary impairment
PPNR
Pre-tax, pre-provision earnings
RPA
Risk participation agreements
SEC
United States Securities and Exchange Commission
Series E Preferred Stock
Webster Financial Corporation's 6.40% Non-Cumulative Perpetual Preferred Stock, par value $0.01, Series E, $25,000 liquidation preference
SIPC
Securities Investor Protection Corporation
TDR
Troubled debt restructurings, as defined in ASC 310-40
VIE
Variable interest entities, as defined in ASC 810-10
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
WIS
Webster Investment Services, Inc., a wholly-owned subsidiary of Webster Bank


ii


PART I. – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2016
 
December 31,
2015
(In thousands, except share data)
(Unaudited)
 
 
Assets:
 
 
 
Cash and due from banks
$
224,964

 
$
199,693

Interest-bearing deposits
38,091

 
155,907

Securities available-for-sale
2,921,950

 
2,984,631

Securities held-to-maturity (fair value of $4,027,754 and $3,961,534)
3,920,974

 
3,923,052

Federal Home Loan Bank and Federal Reserve Bank stock
185,104

 
188,347

Loans held for sale (valued under fair value option $53,163 and $0)
53,353

 
37,091

Loans and leases
16,272,029

 
15,671,735

Allowance for loan and lease losses
(180,428
)
 
(174,990
)
Loans and leases, net
16,091,601

 
15,496,745

Deferred tax asset, net
79,886

 
101,578

Premises and equipment, net
134,482

 
129,426

Goodwill
538,373

 
538,373

Other intangible assets, net
36,249

 
39,326

Cash surrender value of life insurance policies
510,410

 
503,093

Accrued interest receivable and other assets
385,029

 
343,856

Total assets
$
25,120,466

 
$
24,641,118

Liabilities and shareholders' equity:
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
3,958,484

 
$
3,713,063

Interest-bearing
14,869,984

 
14,239,715

Total deposits
18,828,468

 
17,952,778

Securities sold under agreements to repurchase and other borrowings
899,691

 
1,151,400

Federal Home Loan Bank advances
2,463,057

 
2,664,139

Long-term debt
225,387

 
225,260

Accrued expenses and other liabilities
226,897

 
233,581

Total liabilities
22,643,500

 
22,227,158

Shareholders’ equity:
 
 
 
Preferred stock, $.01 par value; Authorized - 3,000,000 shares:
 
 
 
Series E issued and outstanding (5,060 shares)
122,710

 
122,710

Common stock, $.01 par value; Authorized - 200,000,000 shares:
 
 
 
Issued (93,651,601 shares)
937

 
937

Paid-in capital
1,125,446

 
1,124,325

Retained earnings
1,365,549

 
1,315,948

Treasury stock, at cost (2,173,044 and 2,090,409 shares)
(80,165
)
 
(71,854
)
Accumulated other comprehensive loss, net of tax
(57,511
)
 
(78,106
)
Total shareholders' equity
2,476,966

 
2,413,960

Total liabilities and shareholders' equity
$
25,120,466

 
$
24,641,118

See accompanying Notes to Condensed Consolidated Financial Statements.

1


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)
2016
 
2015
 
2016
 
2015
Interest Income:
 
 
 
 
 
 
 
Interest and fees on loans and leases
$
152,171

 
$
135,694

 
$
301,979

 
$
266,417

Taxable interest and dividends on securities
45,311

 
46,857

 
93,350

 
94,509

Non-taxable interest on securities
4,656

 
3,987

 
8,871

 
8,014

Loans held for sale
293

 
432

 
566

 
942

Total interest income
202,431

 
186,970

 
404,766

 
369,882

Interest Expense:
 
 
 
 
 
 
 
Deposits
12,374

 
11,533

 
24,673

 
23,075

Securities sold under agreements to repurchase and other borrowings
3,379

 
4,186

 
7,552

 
8,573

Federal Home Loan Bank advances
7,291

 
5,329

 
14,538

 
10,150

Long-term debt
2,482

 
2,411

 
4,946

 
4,809

Total interest expense
25,526

 
23,459

 
51,709

 
46,607

Net interest income
176,905

 
163,511

 
353,057

 
323,275

Provision for loan and lease losses
14,000

 
12,750

 
29,600

 
22,500

Net interest income after provision for loan and lease losses
162,905

 
150,761

 
323,457

 
300,775

Non-interest Income:
 
 
 
 
 
 
 
Deposit service fees
34,894

 
33,933

 
69,819

 
66,218

Loan and lease related fees
7,074

 
5,729

 
12,749

 
11,408

Wealth and investment services
7,204

 
8,784

 
14,399

 
16,673

Mortgage banking activities
2,945

 
2,517

 
5,574

 
4,078

Increase in cash surrender value of life insurance policies
3,664

 
3,197

 
7,317

 
6,349

Gain on sale of investment securities, net
94

 
486

 
414

 
529

Impairment loss on securities recognized in earnings

 

 
(149
)
 

Other income
9,200

 
4,599

 
17,326

 
11,551

Total non-interest income
65,075

 
59,245

 
127,449

 
116,806

Non-interest Expense:
 
 
 
 
 
 
 
Compensation and benefits
80,231

 
74,043

 
160,540

 
144,907

Occupancy
14,842

 
11,680

 
29,095

 
25,276

Technology and equipment
19,376

 
20,315

 
39,314

 
39,560

Intangible assets amortization
1,523

 
1,843

 
3,077

 
3,131

Marketing
4,669

 
4,245

 
9,593

 
8,421

Professional and outside services
3,754

 
2,875

 
6,565

 
5,328

Deposit insurance
6,633

 
5,492

 
13,419

 
11,733

Other expense
21,750

 
17,044

 
43,620

 
33,268

Total non-interest expense
152,778

 
137,537

 
305,223

 
271,624

Income before income tax expense
75,202

 
72,469

 
145,683

 
145,957

Income tax expense
24,599

 
20,426

 
48,033

 
44,410

Net income
50,603

 
52,043

 
97,650

 
101,547

Preferred stock dividends and other
(2,205
)
 
(2,224
)
 
(4,368
)
 
(5,014
)
Earnings applicable to common shareholders
$
48,398

 
$
49,819

 
$
93,282

 
$
96,533

Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.53

 
$
0.55

 
$
1.02

 
$
1.07

Diluted
0.53

 
0.55

 
1.02

 
1.06

See accompanying Notes to Condensed Consolidated Financial Statements.


2


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net income
$
50,603

 
$
52,043

 
$
97,650

 
$
101,547

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Total available-for-sale and transferred securities
11,265

 
(13,927
)
 
18,770

 
(6,960
)
Total derivative instruments
526

 
2,331

 
(426
)
 
561

Total defined benefit pension and other postretirement benefit plans
1,095

 
991

 
2,251

 
1,965

Other comprehensive income (loss), net of tax
12,886

 
(10,605
)
 
20,595

 
(4,434
)
Comprehensive income
$
63,489

 
$
41,438

 
$
118,245

 
$
97,113

See accompanying Notes to Condensed Consolidated Financial Statements.


3


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
 
(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, 2015
$
122,710

$
937

$
1,124,325

$
1,315,948

$
(71,854
)
$
(78,106
)
$
2,413,960

Net income



97,650



97,650

Other comprehensive income, net of tax





20,595

20,595

Dividends and dividend equivalents declared on common stock $0.48 per share


70

(44,124
)


(44,054
)
Dividends on Series E preferred stock $800.00 per share



(4,048
)


(4,048
)
Stock-based compensation, net of tax impact


2,265

123

5,254


7,642

Exercise of stock options


(1,051
)

2,824


1,773

Common shares acquired related to stock compensation plan activity




(5,183
)

(5,183
)
Common stock repurchase program




(11,206
)

(11,206
)
Common stock warrants repurchased


(163
)



(163
)
Balance at June 30, 2016
$
122,710

$
937

$
1,125,446

$
1,365,549

$
(80,165
)
$
(57,511
)
$
2,476,966

 
 
 
 
 
 
 
 
(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, 2014
$
151,649

$
936

$
1,127,534

$
1,202,251

$
(103,294
)
$
(56,261
)
$
2,322,815

Net income



101,547



101,547

Other comprehensive loss, net of tax





(4,434
)
(4,434
)
Dividends and dividend equivalents declared on common stock $0.43 per share


56

(39,051
)


(38,995
)
Dividends on Series A preferred stock $21.25 per share



(615
)


(615
)
Dividends on Series E preferred stock $800.00 per share



(4,048
)


(4,048
)
Preferred stock conversion
(28,939
)

(3,429
)

32,368



Stock-based compensation, net of tax impact


2,384

(672
)
5,257


6,969

Exercise of stock options


(2,047
)

4,524


2,477

Common shares acquired related to stock compensation plan activity




(4,074
)

(4,074
)
Common stock repurchase program




(2,625
)

(2,625
)
Balance at June 30, 2015
$
122,710

$
936

$
1,124,498

$
1,259,412

$
(67,844
)
$
(60,695
)
$
2,379,017

See accompanying Notes to Condensed Consolidated Financial Statements.

4


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six months ended June 30,
(In thousands)
2016
 
2015
Operating Activities:
 
 
 
Net income
$
97,650

 
$
101,547

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan and lease losses
29,600

 
22,500

Deferred tax expense (benefit)
10,632

 
(1,255
)
Depreciation and amortization
17,930

 
16,872

Amortization of earning assets and funding, premium/discount, net
27,449

 
27,323

Stock-based compensation
5,614

 
5,276

Gain on sale, net of write-down, on foreclosed and repossessed assets
(791
)
 
(2
)
Gain on sale, net of write-down, on premises and equipment
(20
)
 
(315
)
Impairment loss on securities recognized in earnings
149

 

Gain on the sale of investment securities, net
(414
)
 
(529
)
Increase in cash surrender value of life insurance policies
(7,317
)
 
(6,349
)
Mortgage banking activities
(5,574
)
 
(4,078
)
Proceeds from sale of loans held for sale
170,572

 
208,499

Origination of loans held for sale
(182,329
)
 
(234,252
)
Net increase in accrued interest receivable and other assets
(42,473
)
 
(16,878
)
Net decrease in accrued expenses and other liabilities
(23,624
)
 
(17,549
)
Net cash provided by operating activities
97,054

 
100,810

Investing Activities:
 
 
 
Net decrease (increase) in interest-bearing deposits
117,816

 
(9,388
)
Purchases of available for sale securities
(428,991
)
 
(449,616
)
Proceeds from maturities and principal payments of available for sale securities
271,331

 
347,637

Proceeds from sales of available for sale securities
259,004

 
63,143

Purchases of held-to-maturity securities
(311,420
)
 
(570,091
)
Proceeds from maturities and principal payments of held-to-maturity securities
298,796

 
364,292

Net proceeds of Federal Home Loan Bank stock
3,243

 
13,000

Net increase in loans
(640,922
)
 
(896,287
)
Proceeds from sale of loans not originated for sale
11,743

 
32,915

Proceeds from life insurance policies

 
3,912

Proceeds from the sale of foreclosed and repossessed assets
4,671

 
6,341

Proceeds from the sale of premises and equipment
750

 
650

Purchases of premises and equipment
(20,639
)
 
(15,849
)
Acquisition of business, net cash acquired

 
1,396,414

Net cash (used for) provided by investing activities
(434,618
)
 
287,073

See accompanying Notes to Condensed Consolidated Financial Statements.

5


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
 
Six months ended June 30,
(In thousands)
2016
 
2015
Financing Activities:
 
 
 
Net increase in deposits
875,997

 
195,685

Proceeds from Federal Home Loan Bank advances
10,125,000

 
6,175,000

Repayments of Federal Home Loan Bank advances
(10,326,076
)
 
(6,525,139
)
Net decrease in securities sold under agreements to repurchase and other borrowings
(251,709
)
 
(236,252
)
Dividends paid to common shareholders
(43,791
)
 
(38,830
)
Dividends paid to preferred shareholders
(4,048
)
 
(4,663
)
Exercise of stock options
1,773

 
2,477

Excess tax benefits from stock-based compensation
2,241

 
1,927

Common shares acquired related to stock compensation plan activity
(5,183
)
 
(4,074
)
Common stock repurchase program
(11,206
)
 
(2,625
)
Common stock warrants repurchased
(163
)
 

Net cash provided by (used for) financing activities
362,835

 
(436,494
)
Net increase (decrease) in cash and due from banks
25,271

 
(48,611
)
Cash and due from banks at beginning of period
199,693

 
213,914

Cash and due from banks at end of period
$
224,964

 
$
165,303

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
51,527

 
$
47,219

Income taxes paid
43,093

 
58,146

Noncash investing and financing activities:
 
 
 
Transfer of loans from portfolio to loans-held-for-sale
$
11,892

 
$

Transfer of loans and leases to foreclosed properties and repossessed assets
3,285

 
4,792

Deposits assumed in business acquisition

 
1,446,899

Preferred stock conversion

 
28,939

See accompanying Notes to Condensed Consolidated Financial Statements.

6


Note 1: Summary of Significant Accounting Policies
Nature of Operations
Webster Financial Corporation is a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended, incorporated under the laws of Delaware in 1986 and headquartered in Waterbury, Connecticut. At June 30, 2016, Webster Financial Corporation's principal asset is all of the outstanding capital stock of Webster Bank.
Webster, through Webster Bank and various non-banking financial services subsidiaries, delivers financial services to individuals, families, and businesses primarily from New York to Massachusetts. Webster provides business and consumer banking, mortgage lending, financial planning, trust, and investment services through banking offices, ATMs, telephone banking, 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 notes thereto, for the year ended December 31, 2015, included in the Company's Annual Report on Form 10-K filed with the SEC on February 29, 2016.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as income and expense during the 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.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on total assets, total liabilities, net cash provided by operating activities, net cash used for investing activities, and net cash provided by financing activities.
Correction of Immaterial Errors Related to Prior Periods
During the current period, the Company identified immaterial errors, impacting the quarter ended March 31, 2015 through the quarter ended March 31, 2016, relating to the reporting of certain fee accruals and certain expenses within the Company's HSA Bank segment. The Company determined that such fee and expense accruals were not accurately reported. As a result, deposit service fees were overstated and technology and equipment expense was understated. The Company reviewed the impact of the errors on prior periods in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality and ASC 250, Accounting Changes and Error Corrections, and determined that the errors, individually and in the aggregate, were immaterial to all prior periods impacted. While the errors were immaterial, the Company has elected to correct the previously reported amounts as shown below. The errors had no effect on individual customer's accounts.

7


The effects of correcting the immaterial errors in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income are summarized in the following tables:
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31,
2016
December 31,
2015
September 30,
2015 (1)
June 30,
2015 (1)
March 31,
2015 (1)
As Reported
 
 
 
 
 
Accrued interest receivable and other assets

$
415,552

$
345,625

$
341,132

$
302,603

$
319,922

Accrued expenses and other liabilities

274,416

233,739

187,632

172,193

257,556

Retained earnings
1,342,930

1,317,559

1,288,261

1,260,090

1,230,816

 
 
 
 
 
 
As Revised
 
 
 
 
 
Accrued interest receivable and other assets

$
412,134

$
343,856

$
340,033

$
301,666

$
319,593

Accrued expenses and other liabilities

274,179

233,581

187,377

171,934

257,444

Retained earnings
1,339,749

1,315,948

1,287,417

1,259,412

1,230,599

(1) As reported balances have been updated to reflect the correction of an immaterial error, relating to accounting for cash collateral associated with derivative instruments, and the adoption of ASU No. 2015-03, Interest-Imputation of Interest, as previously reported in the Company's March 31, 2016 Form 10-Q quarterly report, filed with the SEC on May 9, 2016. The impact of this previously reported error to the net cash provided by operating activities within the Condensed Consolidated Statements of Cash Flows was a $7.3 million increase for the six months ended June 30, 2015.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three months ended
 
Full Year
 
Three months ended
(In thousands)
March 31,
2016
 
December 31, 2015
 
December 31, 2015 (2)
September 30,
2015
June 30,
2015
March 31,
2015
Consolidated:
 
 
 
 
 
 
 
 
As Reported
 
 
 
 
 
 
 
 
Deposit service fees
$
36,382

 
$
136,578

 
$
34,231

$
35,229

$
34,493

$
32,625

Other income
8,319

 
23,573

 
6,474

5,513

4,645

6,941

Technology and equipment
19,235

 
80,026

 
19,218

21,336

20,224

19,248

Income tax expense
24,217

 
93,976

 
24,146

25,075

20,663

24,092

Net income
48,617

 
206,340

 
52,579

51,536

52,503

49,722

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
$
0.51

 
$
2.17

 
$
0.55

$
0.54

$
0.55

$
0.52

Diluted
0.51

 
2.15

 
0.55

0.54

0.55

0.52

 
 
 
 
 
 
 
 
 
As Revised
 
 
 
 
 
 
 
 
Deposit service fees
$
34,925

 
$
135,058

 
$
33,676

$
35,164

$
33,933

$
32,285

Other income
8,126

 
23,327

 
6,361

5,415

4,599

6,952

Technology and equipment
19,938

 
80,813

 
19,834

21,419

20,315

19,245

Income tax expense
23,434

 
93,032

 
23,627

24,995

20,426

23,984

Net income
47,047

 
204,730

 
51,813

51,370

52,043

49,504

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
$
0.49

 
$
2.15

 
$
0.54

$
0.54

$
0.55

$
0.52

Diluted
0.49

 
2.13

 
0.54

0.53

0.55

0.51

 
 
 
 
 
 
 
 
 
HSA Segment:
 
 
 
 
 
 
 
 
As Reported
 
 
 
 
 
 
 
 
Net income
$
11,995

 
$
39,173

 
$
11,146

$
9,564

$
9,936

$
8,527

 
 
 
 
 
 
 
 
 
As Revised
 
 
 
 
 
 
 
 
Net income
$
10,424

 
$
37,446

 
$
10,284

$
9,404

$
9,448

$
8,310

(2) For the purpose of comparison, amounts for the three months ended December 31, 2015 have been included in the above table although the balances were not previously included in the Consolidated Statements of Income, contained within the Company's 2015 Form 10-K, filed with the SEC on February 29, 2016.

8


Significant Accounting Policy Updates
Loans Held For Sale. Prior to and for the period ended December 31, 2015, residential mortgage loans that were classified as held for sale were accounted for at the lower of cost or fair value method of accounting and were valued on an individual asset basis. Effective January 1, 2016, on a loan by loan election, residential mortgage loans that are classified as held for sale are accounted for under either the fair value option method of accounting or the lower of cost or fair value method of accounting with the election being made at the time the asset is first recognized. The Company has elected the fair value option to mitigate accounting mismatches between held for sale derivative commitments and loan valuations. Loans not originated for sale but subsequently transferred to held for sale continue to be valued at the lower of cost or fair value method of accounting and are valued on an individual asset basis.
Financial Accounting Standards Board Standards Adopted during 2016
Effective January 1, 2016, the following new accounting guidance was adopted by the Company:
ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis;
ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs;
ASU No. 2015-07, Fair Value Measurement (Topic 820) - Disclosures for investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent) (a consensus of the FASB Emerging Issues Task Force); and
ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement - Period Adjustments.
As a result of ASU No. 2015-02, the Company did not identify any additional investments requiring consolidation, however, additional disclosures of VIEs are included in Note 3: Variable Interest Entities.
The adoption of these accounting standards did not have a material impact on the Company's financial statements.
Financial Accounting Standards Board Standards Issued but not yet Adopted
The following table identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:
ASU
Description
Effective Date and Financial Statement Impact
ASU No. 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the “probable” threshold.
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 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and 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 material changes to the Company's accounting for credit losses on financial instruments. The Company is evaluating the effect that this ASU will have on its financial statements and related disclosures. The ASU will be effective for the Company as of January 1, 2020.
ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share Based Payment Accounting.
The Update impacts the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the amendments in this Update eliminates the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment.
The Company intends to adopt the Update for the first quarter of 2017 and is in the process of assessing the impact on its financial statements.
ASU No. 2016-06, Derivatives and Hedging (Topic 815) - Contingent Put and Call Options in Debt Instruments.
The Update clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The Update requires the assessment of embedded call (put) options solely in accordance with the four-step decision sequence.
The Company intends to adopt the Update for the first quarter of 2017. Adoption is not anticipated to have a material impact on the Company's financial statements.

9


ASU
Description
Effective Date and Financial Statement Impact
ASU No. 2016-02, Leases (Topic 842).
The Update introduces a lessee model that brings most leases on the balance sheet. The Update also aligns certain of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., evaluating how collectability should be considered and determining when profit can be recognized).
Furthermore, the Update addresses other concerns including the elimination of the required use of bright-line tests for determining lease classification. Lessors are required to provide additional transparency into the exposure to the changes in value of their residual assets and how they manage that exposure.
The Company intends to adopt the Update for the first quarter of 2019 and is in the process of assessing the impact on its financial statements.
ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities.

Equity investments not accounted for under the equity method or those that do not result in consolidation of the investee are to be measured at fair value with changes in the fair value recognized through net income. Entities are to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when an election to measure the liability at fair value in accordance with the fair value option for financial instruments has been made. Also, the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated.
The Company intends to adopt the Update for the first quarter of 2018 and is in the process of assessing the impact on its financial statements.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606)

 
A single comprehensive model has been established for an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, and will supersede nearly all existing revenue recognition guidance, and clarify and converge revenue recognition principles under GAAP and International Financial Reporting Standards. The five steps to recognizing revenue: (i) identify the contracts with the customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the separate performance obligations; and (v) recognize revenue when each performance obligation is satisfied. The most significant potential impact to banking entities relates to less prescriptive derecognition requirements on the sale of owned real estate properties. An entity may elect either a full retrospective or a modified retrospective application. ASU No. 2015-14 - Revenue from Contracts with Customers (Topic 606), defers the effective date to annual and interim periods beginning after December 15, 2017.
The Company intends to adopt the Update for the first quarter of 2018. Adoption is not anticipated to have a material impact on the Company's financial statements.


10


Note 2: Investment Securities
A summary of the amortized cost and fair value of investment securities is presented below:
 
At June 30, 2016
 
At December 31, 2015
(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
$
984

$

$

$
984

 
$
924

$

$

$
924

Agency CMO
471,442

9,889

(746
)
480,585

 
546,168

5,532

(2,946
)
548,754

Agency MBS
1,020,733

10,815

(3,192
)
1,028,356

 
1,075,941

6,459

(17,291
)
1,065,109

Agency CMBS
317,146

4,238

(40
)
321,344

 
215,670

639

(959
)
215,350

CMBS
487,778

6,168

(2,539
)
491,407

 
574,686

7,485

(2,905
)
579,266

CLO
464,350

1,116

(3,346
)
462,120

 
431,837

592

(3,270
)
429,159

Single issuer trust preferred securities
42,264


(5,491
)
36,773

 
42,168


(4,998
)
37,170

Corporate debt securities
97,780

2,601


100,381

 
104,031

2,290


106,321

Equities - financial services




 
3,499


(921
)
2,578

Securities available-for-sale
$
2,902,477

$
34,827

$
(15,354
)
$
2,921,950

 
$
2,994,924

$
22,997

$
(33,290
)
$
2,984,631

Held-to-maturity:




 
 
 
 
 
Agency CMO
$
356,143

$
6,758

$
(99
)
$
362,802

 
$
407,494

$
3,717

$
(2,058
)
$
409,153

Agency MBS
1,990,269

49,094

(1,900
)
2,037,463

 
2,030,176

38,813

(19,908
)
2,049,081

Agency CMBS
658,551

18,939


677,490

 
686,086

4,253

(325
)
690,014

Municipal bonds and notes
548,955

20,865

(21
)
569,799

 
435,905

12,019

(417
)
447,507

CMBS
364,644

13,133

(9
)
377,768

 
360,018

5,046

(2,704
)
362,360

Private Label MBS
2,412

20


2,432

 
3,373

46


3,419

Securities held-to-maturity
$
3,920,974

$
108,809

$
(2,029
)
$
4,027,754

 
$
3,923,052

$
63,894

$
(25,412
)
$
3,961,534

Other-Than-Temporary Impairment
The balance of OTTI, included in the amortized cost columns above, is related to certain CLO positions that were previously considered Covered Funds as defined by Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. The Company has taken certain legal actions intended to bring CLOs into conformance with the Volcker rule as of June 30, 2016.
To the extent that changes occur in interest rates, credit movements, and other factors that impact fair value and expected recovery of amortized cost of its investment securities, the Company may be required to record a charge for OTTI in future periods.
The following table presents the changes in OTTI:
 
Three months ended June 30,
 
Six months ended June 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Beginning balance
$
3,437

 
$
3,597

 
$
3,288

 
$
3,696

Reduction for securities sold or called

 
(419
)
 

 
(518
)
Additions for OTTI not previously recognized

 

 
149

 

Ending balance
$
3,437

 
$
3,178

 
$
3,437

 
$
3,178








11


Fair Value and Unrealized Losses
The following tables provide information on fair value and unrealized losses for the individual securities with an unrealized loss, aggregated by investment security type and length of time that the individual securities have been in a continuous unrealized loss position:
 
At June 30, 2016
 
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
$
6,303

$
(6
)
 
$
77,025

$
(740
)
 
5
$
83,328

$
(746
)
Agency MBS
38,822

(61
)
 
298,687

(3,131
)
 
47
337,509

(3,192
)
Agency CMBS
24,813

(40
)
 


 
2
24,813

(40
)
CMBS
61,580

(1,159
)
 
100,915

(1,380
)
 
22
162,495

(2,539
)
CLO
115,216

(944
)
 
120,084

(2,402
)
 
14
235,300

(3,346
)
Single issuer trust preferred securities
4,177

(52
)
 
32,596

(5,439
)
 
8
36,773

(5,491
)
Equities - financial services


 


 


Total available-for-sale in an unrealized loss position
$
250,911

$
(2,262
)
 
$
629,307

$
(13,092
)
 
98
$
880,218

$
(15,354
)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
Agency CMO
$

$

 
$
20,179

$
(99
)
 
2
$
20,179

$
(99
)
Agency MBS
2,503

(4
)
 
377,495

(1,896
)
 
30
379,998

(1,900
)
Agency CMBS


 


 


Municipal bonds and notes


 
3,359

(21
)
 
11
3,359

(21
)
CMBS
1,589

(1
)
 
8,044

(8
)
 
2
9,633

(9
)
Total held-to-maturity in an unrealized loss position
$
4,092

$
(5
)
 
$
409,077

$
(2,024
)
 
45
$
413,169

$
(2,029
)
 
At December 31, 2015
 
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
$
195,369

$
(2,195
)
 
$
26,039

$
(751
)
 
14
$
221,408

$
(2,946
)
Agency MBS
481,839

(6,386
)
 
351,911

(10,905
)
 
84
833,750

(17,291
)
Agency CMBS
124,241

(959
)
 


 
7
124,241

(959
)
CMBS
276,330

(2,879
)
 
19,382

(26
)
 
29
295,712

(2,905
)
CLO
211,515

(2,709
)
 
15,708

(561
)
 
13
227,223

(3,270
)
Single issuer trust preferred securities
4,087

(128
)
 
33,083

(4,870
)