Business Segments

Webster’s operations are divided into three reportable business segments that represent its core businesses – Commercial Banking, Community Banking and Other. Community Banking includes operating segments, Personal Bank and Business Banking, and Other includes HSA Bank and Private Banking. These segments reflect how executive management responsibilities are assigned by the chief operating decision maker for each of the core businesses, the products and services provided and the type of customer served, and reflect how discrete financial information is currently evaluated. The Company’s Treasury unit and consumer liquidating portfolio are included in the Corporate and Reconciling category along with the amounts required to reconcile profitability metrics to GAAP reported amounts.

At December 31, 2012, Webster's operations were divided into four reportable segments that represented its core business - Commercial Banking, Retail Banking, Consumer Finance and Other. In the first quarter 2013, the Company combined the Retail and Consumer Finance segments and realigned the reporting of the management of its small business and consumer related businesses. Beginning in 2013, some business and mass-market consumer business units have been consolidated under the president and chief operating officer. This change results in a new reportable segment, "Community Banking", which comprises several similar operating segments. Community Banking includes the Personal Bank (Consumer Finance, Consumer Deposits, Webster Investment Services, the Customer Care Center, eBanking, our ATM network) and Business Banking. This strategic decision organizes our business units more effectively around the customer in an effort to deliver banking products and services when and where the customer desires and in a manner that respects customers' clear and growing preference to do their banking remotely. It also enables Webster to meet most of its customers' personal needs from a single business segment. The 2012 business segment results have been adjusted for comparability to the 2013 segment presentation.

Webster’s business 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, the 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 continually being 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 the full profitability and GAAP measures are reconciled in the Corporate and Reconciling category.

The Company uses a matched maturity funding concept called funds transfer pricing (“FTP”), to allocate interest income and interest expense to each business while also transferring the primary interest rate risk exposures to the Corporate and Reconciling category. 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.” From a governance perspective, this process is executed by the Company’s Financial Planning and Analysis division, and the process is overseen by the Company’s Asset/Liability Committee (ALCO).

Webster attributes 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. Provision expense, for certain elements of risk that are not deemed specifically attributable to a business segment, such as environmental factors, and provision for the consumer liquidating portfolio, are shown as other reconciling. For the three and six months ended June 30, 2013, 94.3% and 104.5%, respectively, of the provision expense is specifically attributable to business segments and reported accordingly.

Webster allocates a majority of non-interest expense to each business segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate business segment. Income tax expense is allocated to each business segment based on the effective income tax rate for the period shown.

The following tables present the results for Webster’s business segments and incorporate the allocation of the provision for loan and lease losses and income tax expense to each of Webster’s business segments for the periods presented:



	Three months ended June 30, 2013
(In thousands)	Commercial Banking		Community Banking		Other		Total Business Segments		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	53,418	$	86,421	$	9,987	$	149,826	$	(2,765	)	$	147,061
Provision for loan and lease losses	2,416		5,533		69		8,018		482			8,500
Net interest income (loss) after provision for loan and lease losses	51,002		80,888		9,918		141,808		(3,247		)	138,561
Non-interest income	6,887		31,706		8,351		46,944		5,307			52,251
Non-interest expense	24,151		83,142		12,388		119,681		3,923			123,604
Income (loss) from continuing operations before income taxes	33,738		29,452		5,881		69,071		(1,863		)	67,208
Income tax expense (benefit)	10,460		9,130		1,823		21,413		(578		)	20,835
Net income (loss)	$	23,278	$	20,322	$	4,058	$	47,658	$	(1,285	)	$	46,373



	Three months ended June 30, 2012^(a)
(In thousands)	Commercial Banking			Community Banking		Other			Total Business Segments		Corporate and Reconciling		Consolidated Total
Net interest income	$	45,574		$	85,907	$	8,379		$	139,860	$	4,518	$	144,378
(Benefit) provision for loan and lease losses	(4,529		)	8,069		(262		)	3,278		1,722		5,000
Net interest income after provision for loan and lease losses	50,103			77,838		8,641			136,582		2,796		139,378
Non-interest income	7,281			26,414		7,281			40,976		6,377		47,353
Non-interest expense	24,804			86,034		10,695			121,533		5,646		127,179
Income from continuing operations before income taxes	32,580			18,218		5,227			56,025		3,527		59,552
Income tax expense	10,003			5,621		1,602			17,226		1,086		18,312
Net income	$	22,577		$	12,597	$	3,625		$	38,799	$	2,441	$	41,240

(a) Reclassified to conform to the 2013 presentation.



	Six months ended June 30, 2013
(In thousands)	Commercial Banking		Community Banking		Other		Total Business Segments		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	104,578	$	171,088	$	19,275	$	294,941	$	(2,084	)	$	292,857
Provision (benefit) for loan and lease losses	4,417		12,246		50		16,713		(713		)	16,000
Net interest income (loss) after provision for loan and lease losses	100,161		158,842		19,225		278,228		(1,371		)	276,857
Non-interest income	11,719		62,267		16,496		90,482		10,047			100,529
Non-interest expense	49,421		169,011		25,199		243,631		5,508			249,139
Income from continuing operations before income taxes	62,459		52,098		10,522		125,079		3,168			128,247
Income tax expense	19,363		16,150		3,262		38,775		982			39,757
Net income	$	43,096	$	35,948	$	7,260	$	86,304	$	2,186		$	88,490



	Six months ended June 30, 2012^(a)
(In thousands)	Commercial Banking			Community Banking		Other			Total Business Segments		Corporate and Reconciling		Consolidated Total
Net interest income	$	89,483		$	169,615	$	16,298		$	275,396	$	12,350	$	287,746
(Benefit) provision for loan and lease losses	(5,439		)	11,138		(340		)	5,359		3,641		9,000
Net interest income after provision for loan and lease losses	94,922			158,477		16,638			270,037		8,709		278,746
Non-interest income	14,174			54,073		14,414			82,661		8,678		91,339
Non-interest expense	49,497			172,884		22,228			244,609		10,383		254,992
Income from continuing operations before income taxes	59,599			39,666		8,824			108,089		7,004		115,093
Income tax expense	18,080			12,033		2,677			32,790		2,125		34,915
Net income	$	41,519		$	27,633	$	6,147		$	75,299	$	4,879	$	80,178

(a) Reclassified to conform to the 2013 presentation.



	Total Assets
(In thousands)	Commercial Banking		Community Banking		Other		Total Business Segments		Corporate and Reconciling		Consolidated Total
At June 30, 2013	$	5,291,138	$	7,698,944	$	317,169	$	13,307,251	$	7,021,987	$	20,329,238
At December 31, 2012	$	5,113,898	$	7,708,159	$	282,414	$	13,104,471	$	7,042,294	$	20,146,765