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Segment Reporting

9 Months Ended

Sep. 30, 2017

Webster’s operations are organized into three reportable segments that represent its primary businesses - Commercial Banking, Community Banking and HSA Bank. 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. The Corporate Treasury unit 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. 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 executed by the Company’s Financial Planning and Analysis division and is overseen by 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. Provision expense for certain elements of risk that are not deemed specifically attributable to a reportable segment, such as the provision for the consumer liquidating portfolio, is shown as part of the Corporate and Reconciling category.

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. Income tax expense is allocated to each reportable segment based on the consolidated effective income tax rate for the period shown.

Segment Reporting Modifications

The 2016 segment results have been adjusted for comparability to the 2017 segment presentation for the following changes.

•

To further strengthen Webster's ability to deliver the totality of its products and services to the owners and executives of commercial clients and other high net worth individuals, an organizational change was made during the second quarter of 2017. Effective April 1, 2017, the head of Private Banking reports directly to the head of Commercial Banking. The current organizational structure reflects how executive management responsibilities are assigned and reviewed. As a result of this change, the Private Banking and Commercial Banking operating segments are aggregated into one reportable segment, Commercial Banking.

•

In late 2007 Webster discontinued its indirect residential construction lending and its indirect home equity lending outside of its primary New England market area referred to as National Wholesale Lending. Webster placed these two portfolios into a liquidating loan portfolio included within the Corporate and Reconciling category. The balance of the home equity liquidating loan portfolio was $65.0 million at December 31, 2016. As the remainder of this portfolio has been performing in the same manner as the continuing home equity portfolio, management has decided to combine the liquidating loan portfolio with the continuing home equity loan portfolio. The combined portfolio is included in the Community Banking reportable segment.

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



	Total Assets
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling		Consolidated Total
At September 30, 2017	$	9,428,676	$	8,881,322	$	76,090	$	7,964,094	$	26,350,182
At December 31, 2016	9,069,445		8,721,046		83,987		8,198,051		26,072,529

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 September 30, 2017
(In thousands)	Commercial Banking		Community Banking			HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	81,925	$	96,859		$	26,713	$	(4,593	)	$	200,904
Provision (benefit) for loan and lease losses	12,073		(1,923		)	—		—			10,150
Net interest income (expense) after provision for loan and lease losses	69,852		98,782			26,713		(4,593		)	190,754
Non-interest income	13,207		27,079			19,371		6,189			65,846
Non-interest expense	38,339		92,478			27,222		3,784			161,823
Income (loss) before income tax expense	44,720		33,383			18,862		(2,188		)	94,777
Income tax expense (benefit)	14,363		10,605			6,006		(693		)	30,281
Net income (loss)	$	30,357	$	22,778		$	12,856	$	(1,495	)	$	64,496



	Three months ended September 30, 2016
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	74,265	$	91,995	$	20,560	$	(6,623	)	$	180,197
Provision for loan and lease losses	7,876		6,374		—		—			14,250
Net interest income (expense) after provision for loan and lease losses	66,389		85,621		20,560		(6,623		)	165,947
Non-interest income	15,916		29,130		16,900		4,466			66,412
Non-interest expense	35,793		92,508		23,021		4,775			156,097
Income (loss) before income tax expense	46,512		22,243		14,439		(6,932		)	76,262
Income tax expense (benefit)	14,957		7,122		4,624		(2,258		)	24,445
Net income (loss)	$	31,555	$	15,121	$	9,815	$	(4,674	)	$	51,817



	Nine months ended September 30, 2017
(In thousands)	Commercial Banking		Community Banking			HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	239,118	$	286,351		$	76,339	$	(10,453	)	$	591,355
Provision for loan and lease losses	29,562		(1,662		)	—		—			27,900
Net interest income (expense) after provision for loan and lease losses	209,556		288,013			76,339		(10,453		)	563,455
Non-interest income	39,163		80,516			58,392		15,368			193,439
Non-interest expense	113,767		281,979			84,211		10,069			490,026
Income (loss) before income tax expense	134,952		86,550			50,520		(5,154		)	266,868
Income tax expense (benefit)	41,125		26,374			15,395		(1,572		)	81,322
Net income (loss)	$	93,827	$	60,176		$	35,125	$	(3,582	)	$	185,546



	Nine months ended September 30, 2016
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (expense)	$	211,422	$	274,186	$	60,484	$	(12,838	)	$	533,254
Provision for loan and lease losses	29,765		14,085		—		—			43,850
Net interest income (expense) after provision for loan and lease losses	181,657		260,101		60,484		(12,838		)	489,404
Non-interest income	41,819		83,248		54,969		13,825			193,861
Non-interest expense	103,336		276,045		71,966		9,973			461,320
Income (loss) before income tax expense	120,140		67,304		43,487		(8,986		)	221,945
Income tax expense (benefit)	39,233		21,979		14,201		(2,935		)	72,478
Net income (loss)	$	80,907	$	45,325	$	29,286	$	(6,051	)	$	149,467