Segment Reporting

12 Months Ended

Dec. 31, 2017

Webster’s operations are organized into three reportable segments that represent its primary businesses - Commercial Banking, HSA Bank, and Community Banking. 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 tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:



	Year ended December 31, 2017
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling	Consolidated Total
Net interest income (loss)	$	322,393	$	383,700	$	104,704	$(14,510)	$	796,287
Provision (benefit) for loan and lease losses	38,518		2,382		—		—	40,900
Net interest income (loss) after provision for loan and lease losses	283,875		381,318		104,704		(14,510)	755,387
Non-interest income	55,194		107,368		77,378		19,538	259,478
Non-interest expense	154,037		373,081		113,143		20,814	661,075
Income (loss) before income tax expense	185,032		115,605		68,939		(15,786)	353,790
Income tax expense (benefit)	51,438		32,137		19,165		(4,389)	98,351
Net income (loss)	$	133,594	$	83,468	$	49,774	$(11,397)	$	255,439



	Year ended December 31, 2016
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	287,596	$	367,137	$	81,451	$	(17,671	)	$	718,513
Provision (benefit) for loan and lease losses	37,455		18,895		—		—			56,350
Net interest income (loss) after provision for loan and lease losses	250,141		348,242		81,451		(17,671		)	662,163
Non-interest income	57,253		110,197		71,710		25,318			264,478
Non-interest expense	138,379		369,132		97,152		18,528			623,191
Income (loss) before income tax expense	169,015		89,307		56,009		(10,881		)	303,450
Income tax expense (benefit)	53,649		28,348		17,779		(3,453		)	96,323
Net income (loss)	$	115,366	$	60,959	$	38,230	$	(7,428	)	$	207,127



	Year ended December 31, 2015
(In thousands)	Commercial Banking		Community Banking		HSA Bank		Corporate and Reconciling			Consolidated Total
Net interest income (loss)	$	266,085	$	356,881	$	73,433	$	(31,774	)	$	664,625
Provision (benefit) for loan and lease losses	30,546		18,754		—		—			49,300
Net interest income (loss) after provision for loan and lease losses	235,539		338,127		73,433		(31,774		)	615,325
Non-interest income	46,967		108,647		62,475		19,688			237,777
Non-interest expense	129,499		335,834		81,449		8,559			555,341
Income (loss) before income tax expense	153,007		110,940		54,459		(20,645		)	297,761
Income tax expense (benefit)	47,804		34,605		17,016		(6,393		)	93,032
Net income (loss)	$	105,203	$	76,335	$	37,443	$	(14,252	)	$	204,729

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 December 31, 2017	$	9,350,028	$	8,909,671	$	76,308	$	8,151,638	$	26,487,645
At December 31, 2016	9,069,445		8,721,046		83,987		8,198,051		26,072,529