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 the operating segments of Webster's 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 of 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 had been consolidated into 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, the ATM network) and Business Banking. This strategic decision organizes the 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 nine months ended September 30, 2013, 125.0% and 111.6%, 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 September 30, 2013
(In thousands)	Commercial Banking		Community Banking		Other		Total Business Segments		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	56,430	$	87,949	$	10,733	$	155,112	$	(5,125	)	$	149,987
Provision (benefit) for loan and lease losses	7,032		3,570		22		10,624		(2,124		)	8,500
Net interest income (loss) after provision for loan and lease losses	49,398		84,379		10,711		144,488		(3,001		)	141,487
Non-interest income	8,818		25,387		8,083		42,288		3,969			46,257
Non-interest expense	24,647		82,748		11,913		119,308		2,973			122,281
Income before income tax expense	33,569		27,018		6,881		67,468		(2,005		)	65,463
Income tax expense (benefit)	9,347		7,504		1,941		18,792		(634		)	18,158
Net income (loss)	$	24,222	$	19,514	$	4,940	$	48,676	$	(1,371	)	$	47,305



	Three months ended September 30, 2012^(a)
(In thousands)	Commercial Banking			Community Banking		Other			Total Business Segments		Corporate and Reconciling		Consolidated Total
Net interest income	$	48,127		$	86,263	$	8,526		$	142,916	$	1,974	$	144,890
(Benefit) provision for loan and lease losses	(5,540		)	9,709		(328		)	3,841		1,159		5,000
Net interest income after provision for loan and lease losses	53,667			76,554		8,854			139,075		815		139,890
Non-interest income	7,191			30,312		7,139			44,642		3,837		48,479
Non-interest expense	24,823			84,408		10,965			120,196		3,691		123,887
Income before income tax expense	36,035			22,458		5,028			63,521		961		64,482
Income tax expense	10,893			6,788		1,520			19,201		288		19,489
Net income	$	25,142		$	15,670	$	3,508		$	44,320	$	673	$	44,993

(a) Reclassified to conform to the 2013 presentation.



	Nine months ended September 30, 2013
(In thousands)	Commercial Banking		Community Banking		Other		Total Business Segments		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	161,008	$	259,037	$	30,008	$	450,053	$	(7,209	)	$	442,844
Provision (benefit) for loan and lease losses	11,449		15,816		72		27,337		(2,837		)	24,500
Net interest income (loss) after provision for loan and lease losses	149,559		243,221		29,936		422,716		(4,372		)	418,344
Non-interest income	20,537		87,654		24,579		132,770		14,016			146,786
Non-interest expense	74,068		251,759		37,112		362,939		8,481			371,420
Income before income tax expense	96,028		79,116		17,403		192,547		1,163			193,710
Income tax expense	28,710		23,654		5,203		57,567		348			57,915
Net income	$	67,318	$	55,462	$	12,200	$	134,980	$	815		$	135,795



	Nine months ended September 30, 2012^(a)
(In thousands)	Commercial Banking			Community Banking		Other			Total Business Segments		Corporate and Reconciling		Consolidated Total
Net interest income	$	137,610		$	255,878	$	24,824		$	418,312	$	14,324	$	432,636
(Benefit) provision for loan and lease losses	(10,979		)	20,847		(668		)	9,200		4,800		14,000
Net interest income after provision for loan and lease losses	148,589			235,031		25,492			409,112		9,524		418,636
Non-interest income	21,365			84,385		21,553			127,303		12,515		139,818
Non-interest expense	74,320			257,292		33,193			364,805		14,074		378,879
Income before income tax expense	95,634			62,124		13,852			171,610		7,965		179,575
Income tax expense	28,973			18,821		4,197			51,991		2,413		54,404
Net income	$	66,661		$	43,303	$	9,655		$	119,619	$	5,552	$	125,171

(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 September 30, 2013	$	5,517,704	$	7,703,557	$	326,049	$	13,547,310	$	7,062,244	$	20,609,554
At December 31, 2012	$	5,113,898	$	7,708,159	$	282,414	$	13,104,471	$	7,042,294	$	20,146,765