Company: WBS-PG
Filing Date: 2025-03-03
Form Type: 10-K
Source: 0000801337-25-000004
Chunk: 3

Company: WEBSTER FINANCIAL CORP
Filing Date: 2025-03-03
Form: 10-K
Item: Item 8
Chunk 3
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 rate expectation. The reasonable and supportable forecast period is two years after which the reversion period is one year. The model uses output reversion and reverts to mean historical portfolio loss rates on a straight-line basis in the third year of the forecast. A portion of the Commercial Allowance is comprised of qualitative 

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adjustments for risk characteristics that are not reflected or captured in the quantitative model but are likely to impact the measurement of expected credit losses.

We identified the assessment of the Commercial Allowance as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the Commercial Allowance methodology, including the methods and model used to estimate (1) the PD, LGD, and EAD, and their significant assumptions, including the single economic forecast scenario and macroeconomic variables and (2) qualitative adjustments and their significant assumptions not reflected in the PD and LGD model and EAD method. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD model and EAD method. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the Commercial Allowance estimate, including controls over the:

•evaluation of the Commercial Allowance methodology;

•continued use and appropriateness of changes made to certain PD and LGD model and EAD method;

•identification and determination of the significant assumptions used in the PD and LGD model and EAD method;

•procedures performed by the Company to validate the model is fit for use and appropriate to estimate the lifetime loss;

•performance monitoring of PD and LGD model and EAD method;

•evaluation of qualitative adjustments, including the significant assumptions; and

•analysis of the Collective Allowance results, trends, and ratios.

We evaluated the Company’s process to develop the Commercial Allowance estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

•evaluating the Company’s Commercial Allowance methodology for compliance with U.S. generally accepted accounting principles;

•evaluating judgments made by the Company relative to the assessment and