Segment Reporting

3 Months Ended

Mar. 31, 2020

Webster’s operations are organized into three reportable segments that represent its primary businesses - Commercial Banking, HSA Bank, and Community Banking. These segments reflect how executive management responsibilities are assigned, the type of customer served, how products and services are provided, and how discrete financial information is currently evaluated. Certain Corporate Treasury activities, 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 uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses, 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 any mismatch associated with the matched maturity funding concept called Funds Transfer Pricing (FTP) is absorbed in corporate treasury activities. 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 a 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. Beginning in 2020, Webster refined the FTP calculation to reflect the allocation of capital credit to net interest income to better align segment results with key measurements used to review segment performance. Prior period net interest income and income tax expense were revised to reflect this change.

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.

The results of funds transfer pricing and allocations for non-interest expense, as well as non-interest income produces pre-tax, pre-provision net revenue, under which basis the segments are reviewed by executive management.

Webster allocates the provision for credit losses to each segment based on management's estimate of the inherent loss content in each of the specific loan and lease portfolios. During the three months ended June 30, 2019, Webster refined and improved the precision of this allocation approach. Prior period provision for credit losses amounts, and resulting impacts from income tax expense were revised accordingly. Allowance for credit losses on loans and leases is included in total assets within the Corporate and Reconciling category.

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


(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
At March 31, 2020	$	12,332,819	$	80,130	$	9,441,305	$	9,800,620	$	31,654,874
At December 31, 2019	11,541,803		80,176		9,348,727		9,418,638		30,389,344

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 March 31, 2020
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
Net interest income	$	99,316	$	42,673	$	99,470	$	(10,658)	$	230,801
Non-interest income	13,239		26,383		27,620		6,136		73,378
Non-interest expense	46,544		37,078		98,967		(3,753)		178,836
Pre-tax, pre-provision net revenue	66,011		31,978		28,123		(769)		125,343
Provision for credit losses	63,524		—		12,561		(85)		76,000
Income before income tax expense	2,487		31,978		15,562		(684)		49,343
Income tax expense	609		8,538		3,081		(1,084)		11,144
Net income	$	1,878	$	23,440	$	12,481	$	400	$	38,199


	Three months ended March 31, 2019
(In thousands)	Commercial Banking		HSA Bank		Community Banking		Corporate and Reconciling		Consolidated Total
Net interest income	$	98,342	$	43,098	$	106,290	$	(6,179)	$	241,551
Non-interest income	14,011		25,577		25,382		3,642		68,612
Non-interest expense	44,618		33,522		95,075		2,471		175,686
Pre-tax, pre-provision net revenue	67,735		35,153		36,597		(5,008)		134,477
Provision for credit losses	6,241		—		2,359		—		8,600
Income before income tax expense	61,494		35,153		34,238		(5,008)		125,877
Income tax expense	15,251		9,316		7,258		(5,684)		26,141
Net income	$	46,243	$	25,837	$	26,980	$	676	$	99,736